Wednesday’s Options Alerts

  • April 15, 2003
  • Chris Tyler

Life really is like a box of
chocolates.
Friday, with the indices reversing to close poorly,
the appropriate trade was to lean short…hopefully, we’re all “Gump-like”
and willing to quite simply trade prices and let bygones be bygones, because in
Monday’s trade, that was the best decision to make. Monday’s lethargic start
higher, out of an opening reversal (which was coincidentally alerted to in our
TM LiveAlerts), although unexciting, provided the best opportunity to “take
in” any position shorts. 

With a trade labeled as potentially damaging,
such as the gamma trade in our example, taking in stock off the Opening
Reversal wasn’t what the position “wanted”, but ego aside, it was
the right way to execute, as far as money management. The Diamond 85 level calls
were what I refer to as “rip ups” in my gamma
trading article. The stock bought in around 82.60 off of Kevin Haggerty’s
strategy, to clean up the stock portion was essentially a push as the net short
delta position had been averaged at 84.15. Net, net, approximately breakeven,
with still some slight premium risk, as the calls that were originally purchased
for 1.65 versus stock, at much higher levels, were trading for .10 to .15. This
is what ultimately made the last scalp decision an easy one. The willingness to
“let it ride” short over the weekend was a calculated decision, that
once voided (the opening of trade Monday) needed to be reassessed, according to
what the market was doing in the now, and how the position could best
participate. If you don’t understand all of this, do take the time to read my
article mentioned above, as it goes thru a very similar example…all we need
now is a push through the 85’s to make these “rip ups” worth
something. Of course, with the benefit of hindsight, an outright call position
on “the same line” at yesterday’s market prices, could have given us
the exact same position…”but what doesn’t kill us, only makes us
stronger”, and besides, I always like to “stay spread to stay
ahead”.

The volatility levels as measured by the VIX
continue to play “stupid human tricks”. The price action is stretching
the bands as it tests Year-To-Date lows, and gives off multiple CVR signals.
This will present opportunities, but always remember to respect price and volume
first. Tomorrow might just present the next gamma trade opportunity!!

Points of Significance:

Volatility
Index		 Close Net
Change		 Signals/Direction %
Above/Below 10 Day Moving Average		 Significance
VIX 26.04 Down
-.43		      
CVR 3,6 SELL		 12.73%
Below 		 At Extreme
VXN 36.51 Down
-3.00		        
CVR 3,6 SELL		 10.16%
Below
At Extreme

 

Abnormal Options Volume — This list
includes both percentage movers that are normally associated with an increase in
options activity, as well as stocks that have unusually high activity and / or
technical situations,
reflecting increased speculation of a potential price move.

Name Symbol Net
% Change		 Volume Avg.
Volume
Emulex 
ELX		        +4% 7667 3335
CheckFree
CKFR		        +5% 1068 484
SanDisk
SNDK		        +2% 7641 2983

 

Stocks With Spikes in Implied
Volatility — Stocks with Increases and Decreases in implied
volatility compared to previous day. Candidates are then screened qualitatively.
These lists represent those issues that carry a blend of liquidity and/or
technical setups that might deserve further notice. 

Spike Up

Name Symbol IV Previous
IV		 High
IV		 Low
IV
Jacobs
Engineering
JEC		 32.7 29.2 43.7 29.6

Spike Down

Name Symbol IV Previous
IV		 High
IV		 Low
IV
IBM
IBM		 28.9 34.7 58.1 28.9
Rambus
RMBS		 70.4 83.5 119 75

Please use stops on every trade!