SCMR And NTAP Spreads Look Attractive
I
suppose I should say the markets are in a holding pattern ahead of the Fed
action, which will occur just 15 minutes after this is posted. However, that
seems so trite, and based on what I’m seeing on the web and hearing in the
pits, so overused. How about if I say traders here on the floor are waiting
to see if Tony Soprano, or any other wise guys, think they’ve got a pipeline
into the Fed and thus, try to profit from some ill-gotten inside information.
I’m kidding of course, but we are waiting to see if any significant buyers
or sellers decide to step up to the plate ahead of the 2:15
p.m. ET announcement. Thus far we haven’t seen any such action, so like the
rest of you, we’re biding our time trying to guess how many times our
friends on CNBC mention the size of Alan Greenspan’s briefcase!
As always, its not so much what the
Federal Open Markets Committee (FOMC) does, as what it says and how it says
why they moved and what the bias will be going forward. I doubt they will have
anything important to say regarding the dreaded "I" word, but any statements
regarding inflation will mean all bets are off and would put the bears back in
the driver’s seat. Since I don’t anticipate any such nonsense, I imagine
the bulls should be pleased with the Fed’s move.
We have two stocks and related spreads traders might be looking at, either ahead
of the Fed move, or after. The first is Sycamore
Networks
(
SCMR |
Quote |
Chart |
News |
PowerRating). The 52-week range for SCMR is $6 5/8 —
$172.5 and given their much-anticipated earnings report due after the close,
some will like establishing some bullish positions. If
they bought one SCMR September 10 call for $2.10 and sold one SCMR September 17
1/2 call for $1.00, they’d have paid $1.75 for a spread with the potential of
being worth $7.50.
The second stock to take a gander at is Network
Appliances
(
NTAP |
Quote |
Chart |
News |
PowerRating). Their 52-week range is $11.44
– $152.75. If they bought one June 22 1/2 call for $4.00 and sold one NTAP
June 30 call for $1.25, they’d have paid $2.75 for a spread that is
intrinsically worth 1 1/4 (with NTAP trading for $23 3/4) and the potential of
being worth $7.50 if NTAP Is above $30 on June expiration.
Both represent very attractive risk-versus-reward situations and allow us to
define our exposure on entry,
thereby reducing headaches and second guessing.
Gary
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