Fallout from Google's threat to walk away from China caused us severe pain this morning. The news caused the stock to tumble this morning pre-market, slicing right through our put spread.

In the company's statement, Google claimed that it had discovered massive cyber attacks against itself that had originated from China. Evidently, these attacks were serious enough to cause the company to threaten leaving all operations in China and also removing its censoring of Chinese search sites. According to the company, these attacks took place in December. With such a time lag between then and the company's announcement, we wonder if the recent weakness in the stock previously was caused by word of this release leaking out.

While we cringed at the thought of exiting a spread on such a gap lower and on news like this, we knew it was the prudent thing to do. Normally, news like this is short-lived, at least initially. However, with China involved and so many variables, it's just too hard to say how things will unfold. With such uneasiness surrounding the situation, we felt it was best to stick with our trading plan and let our stops get triggered. However, for some auto traders, the brokers weren't able to get the orders filled because of the morning volatility. For those auto traders, they are still in the current spread with the same contingency order set for the rest of the January cycle. It's just a shame that everyone was not still in the spread.

Today's wicked drop in Google was one of those things that happens only once in a great while. Usually we have such large cushions built up that a 15 to 20 point drop wouldn't crush our spread like it did today. Fortunately, events like this are fairly few and far between. But this doesn't remove the pain from taking such a beating on the exit fills today. The worst thing that could happen was for a stock to open between our two strike prices and that's exactly what happened this morning. This caused us to get hit with such a bid fill on the debit (to close out the position), only to watch the stock finish the day back well above both of our strike prices. We'll talk about this again when we take a look at the fills.

Miraculously, the news from Google didn't keep the Market down today. Instead, healthcare and financial names helped lead the indices higher. Traders were closely monitoring testimony from the financial CEOs who were testifying on Capitol Hill in front of a federal commission investigating the financial crisis. While it made for some good television, there wasn't anything new coming out of the hearings other than the CEOs taking heat for their part of the meltdown. As usual, it was a lot of theatre for the public but extremely far from any type of solution except more regulations.

Crude traded lower today after the U.S. Energy Information Administration announced a jump in supplies last week. The government data reversed a five-week trend of falling inventories and instead showed a jump of 3.7 million barrels last week. This was much higher than expected and caused oil to finish the session down $1.14 a barrel at $79.65 a barrel on the New York Mercantile Exchange. At the same time, gasoline inventory levels rose 3.8 million barrels last week. This was also substantially higher than expectations and should cause a drop at the pump in the near future.

Today's Economic Reports

The Dow Jones Industrial Average was able to finish the day up 53 points at 10,680. Despite dropping back below the 10,600 point level during yesterday's session, it has been able to close above this support line every day this week. We'd expect this trend to continue as long as we don't get bombarded with bad earnings reports.    

The S&P 500 also cruised to a nice gain after overcoming the weakness early in the day. It finished on Wednesday up 9.93 points at 1,146. It has been able to hold above the new support level at 1,130 points on the daily chart and is once again pushing towards a new 52-week high. Let's see if it takes out the high from Monday during the next two trading days.   

The troubles with Google in China seemed to be a distant memory for the Nasdaq Composite this afternoon. The tech-laden index overcame its early morning troubles and found itself up 25 points by the time the closing bell rang. This rally wiped away all of yesterday's losses after reversing at its 20-day moving average (light blue line) on the chart. Let's see if it continues to rise from today's closing price of 2,307 points.

After yesterday's huge rise in the VIX (CBOE VOLATILITY INDEX), it looked like it was going to be more of the same this morning. However, that didn't hold true. The rally in the Market caused the "fear" index to dive this afternoon. The VIX finished the day off 0.34 of a point at 17.90.

How much pain could China cause us? Way too much! We got the dreaded close-out with the stock sitting between our strike prices and our fills. While we believe we can make our way out of the hole in a month or two, it's definitely not the way we wanted to start 2010.....that's for sure. For those auto traders still in the position or any other traders that did not exit the trade today, there's still a chance you might be able to make it to the finish line in this one.

Looking back at the daily chart, perhaps there was some insider trading or something leaking somewhere (about this announcement) that caused the stock to take a dive late last week and early this week. The reason it didn't spook us is that we've lived through moves like that time and time again without something like this taking place. But who would have thought something like China was on the horizon. Obviously, somebody must have known something ahead of time. But that doesn't really help us now.

Last night, we still had a ten point cushion that wasn't concerning us too much with the stock sitting above its 50-day moving average. But news like this morning is just impossible to plan for. When the story showed up on the front page of The Wall Street Journal this morning, we knew it was going to be a bad day. While we could talk about this one for another ten pages or so, let's go ahead take a look at the other spreads we have still working for us; as well as take a look at the Google spread for those members still in them. In the weekend newsletter, we should have all the final tallies from all the brokers.  

PCLN 200-190 BULL PUT SPREAD (15 Contracts entered on 12/29/09)

PCLN CLOSED AT $214.30 Today (14.30 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $202.50

Priceline took a nose-dive this morning just like the rest of the tech names. But after the initial plummet, it was able to bounce back nicely the rest of the trading day. It finished the session with a small gain of $0.32 with its closing price of $214.30. The stock was able to make it back above its 50-day moving average (red line) and should be able to make it to the finish line with our strikes intact. Of course, that's unless it decides to not do any business in China tomorrow morning......then all bets are off.  

RUT 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

RUT CLOSED AT $643.56 Today (63.56 points away from our put spread)

Profit potential of $40.00 per contract

Contingent Stop Order set at $585.00

Our RUT spread turned out solid again this month. The index tested a support level this morning but then reversed and headed higher. It finished the day up $8.06 at $643.56. This gives us plenty of breathing room in this position with time running out. Another month and another profitable RUT put spread.

OEX 490-480 BULL PUT SPREAD (15 Contracts entered on 12/31/09)

OEX CLOSED AT $527.93 Today (37.93 points away from our put spread)

Profit potential of $35.00 per contract

Contingent Stop Order set at $492.50

The OEX also traded in a wide range today, but we like the ending result. The index rose 3.64 points and increased the cushion in our put spread. With time running out in this one, it looks like it's going to be another uneventful expiration for this position.   

GOOG 580-570 BULL PUT SPREAD (15 Contracts entered on 12/31/09 & closed on 01/13/10)

GOOG CLOSED AT $587.09 Today (7.09 points away from our put spread)

Original credit of $35.00 per contract

Contingent Stop Order set at $482.50

Google gave us a big old case of heartburn this morning when we saw the futures tank. While we knew it was going to be ugly based on how the stock traded after hours yesterday, we thought it had made a little recovery when it stopped trading last night. That was all for none this morning with the stock taking a bath right from the beginning. For those traders still in the position, let's keep the stop set at the same place but see if that 7 points of breathing room can get us to the finish line. For the rest of us, let's lick our wounds and then start getting that money back next month.   

As always, Trade Happy and Trade Smart