Thursday’s Options Alerts

• November 20, 2002
• Chris Tyler

It’s really quite funny,
with all the supposed advances that mankind has made, the markets still, and
always will, operate from the primal base of greed and fear. Monday
and Tuesday’s trading were supposedly marked by concerned investors over
valuations, and hence the temporary pressure on prices. The media was quite
clear about valuation being the culprit, and I’m sure they’ll be just as clear
with tomorrow’s headlines emphasizing bargain hunting by the same folks. Personally, I’d
love to know how “the investors” responsible for all of this drama are
able to do it, day in and day out. According to my sources in the media they buy
on heavier volume on the way up, drop prices through their original entry levels
on lighter volume as they take profits, find time for bargain hunting, and then
talk candidly for the media outlets after the closing bell. All I can say is
“WOW”. The inner workings of Wall Street, I’d love to understand it
better one day, but in the meantime all I can do is pay attention to price and
volume, and let them be my guide in the markets.  

A healthy gain for all of the ETF’s today,
with the semiconductors leading the charge. This particular HOLDR, the
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was up over 6%. No valuation concerns today, as many of the individual Generals
that have led the troops from the October lows were quick to test levels seen as
precipitous during the past two sessions. Just yesterday,eBAY was up on the
auction block with nary a bid to be found. Today, the auction must have taken
place at Sotheby’s as it was quickly bid back to striking distance of its
recently established high.

Volume was once again heavier, on a session that
favored the upside momentum. Even with today’s gains the markets are still
within their respective trading ranges. Yes, we are close to breaking free, and
yes the same people who were bargain hunting today will tell you we need to
correct before we can go higher, and that furthermore there’s too much
complacency as measured by the volatility indices. You know where I stand on
this issue, and if you don’t you can always read some of my recent
archives. 

The VIX
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are leading the procession as the former is below its August price levels,
and the latter is testing as of the close of trading. Besides turning off CNBC,
sometimes it helps also to gain historical perspective by looking at the weekly
charts. I trust if you do this, you’ll find your trading improves immediately.
With that said, and without sounding too much like “Raging Bull”, once
again, for those who have been reading…the next significant move is appearing
to point northward. Look at the charts in multiple time frames, look at what
volatility is capable of doing on a historical basis, and look at what
volatility and equity prices did last Fall in the midst of a Bear Market. Not
too bad of a run for those prepared to let the charts guide their decisions.
Will this happen again? Honestly, I don’t know, but there are a couple of things
that are for certain. The first certainty is death and taxes. Secondly, but
something that we can prepare for; the market will always find a way to get the
majority of players out there. The market, like history, loves to repeat itself.
Be prepared, look at the charts, listen to what the majority are saying, versus
what the charts are saying, and then honor your entries and your stops. 

One last note, which was emphasized yesterday. The
use of In the $$$ and Slightly In the $$$ options, regardless of whether you’re
wearing horns or claws is something that should be considered when establishing
positions. The volatility levels are becoming cheap enough in many individual
products that the risk-to-reward characteristics favor their use instead of
stock. Regardless of which side takes the next round, a smartly placed
“bet” on an options favorite will certainly keep you off the floor,
should your champion decide to take it on the chin. Good luck in your
trading. 

 

Points of Significance:

Volatility Index	Close	Net Change	Signals/Direction	% Above/Below 10 Day Moving Average	Significance
VIX	28.66	Down -2.70	    CVR 3,6 Sell	13.44% Below	At An Extreme
VXN	44.82	DOWN -.70	    CVR3, 6 Sell	12.93% Below	At An 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,
reflecting increased speculation of a potential price move.

Name	Symbol	Net % Change	Volume	Avg. Volume
PeopleSoftÂ	PSFT	       +6%	12859	2125
Hotels.com	ROOM	      +2%	3004	1050
Boston Scientific	BSX	       +2%	9379	1407

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
Serena Software	SRNA	95.5	83.1	91.9	65.6
STMicroelectronics N.V.	STM	69.2	61.1	75	42.2
IDEC Pharmaceuticals	IDPH	74.8	66.1	86.9	47.1

Spike Down

Name	Symbol	IV	Previous IV	High IV	Low IV
Cognizant Tech. Sol.	CTSH	51.6	58.9	74.8	45.9
Gilead Sciences	GILD	43.3	49.1	87.8	49.1

Dell Computer

DELL

33.3

37.4

66.1

38.3

Please use stops on every trade!