Strap In
Yesterday’s higher opening was like getting the ball 6 inches above the
rim, all you had to do was slam it home. Today’s lower opening may be the same,
given the market’s tendency to revert lately. There is one important difference,
however. We are in a bear market, so fading a lower opening is much less likely
to succeed than fading a higher opening.
Currently, DJI futures are 69.0 lower, S&P futures are 7.50 lower, and
Nasdaq 100 futures are 6.50 lower. Interest rate futures are higher, the dollar
is lower, and both crude oil and gold futures are higher. In Europe, the FTSE
100 is 103.20 points, or 2.56%, lower, the DAX is 110.41 points, or 3.36%, lower
(ouch!), and the CAC 40 is 67.90 points, or 2.18%, lower. In Asia, the Nikkei lost
71.88 points, or .75%, while the Hang Seng dropped 233.18 points, or 2.40%.
On the economic front, headline CPI came in up 0.3% vs. expectations of a 0.2%
gain, and core CPI (ex food and energy) came in up 0.3% vs. expectations of up 0.2%. Little impact on the markets there. July trade balance came in better than
expected, with a deficit of $34.6B vs. expectations of a $37.0B deficit. Very
little impact there as well.
What is having a big impact on the markets is news out of JP Morgan
(
JPM |
Quote |
Chart |
News |
PowerRating) that
Q3 earnings will come in much worse than expected due to higher loan losses and
a decline in trading revenue. The stock is down about $2.00 in pre-market
trading, and given the amount of derivatives that JP carries on its books, I
have to wonder if a “mini-Long Term Capital Crisis” might be starting
to form. If JP is forced to start unwinding some of the trillions of dollars of
derivative positions it carries on its books, volatility in EVERY market could
explode! (Buy yourself some gold futures calls, folks!)
Volatility
Volatility took a jump yesterday, but given the magnitude of the sell off, it
was not too bad. The VIX rose 1.42 to 41.96, the VXN gained 2.66 to 60.39, the
QQV rose 1.60 to 51.02. We’re getting back up there, folks.
Update (09/17/02)
(
CCU |
Quote |
Chart |
News |
PowerRating) — The good news is that we liquidated our 10% long position in the
October 35 calls at $3.10 shortly after the opening. The bad news is that we
still have a 25% long position in the January 40 calls!
(
MMM |
Quote |
Chart |
News |
PowerRating) — We sold 25% of our October 110/120 put spreads at $4.00. We are offering
another 25% at $5.00.
New Actions (New Recommendations)
None.
Working Orders (Old Recommendations)
(
BP |
Quote |
Chart |
News |
PowerRating) — Buy the October/January 40 put calendar spread (buy the January 40 put,
sell the October 40 put) at $1.15 (25%). Moved away.
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Sell half of the September 23/26 1:2 ratio call spread at $1.50, the
remainder at $2.00. Fat chance! Try to liquidate for breakeven if the QQQ should
squirt above $23.00 by Friday.
(
MMM |
Quote |
Chart |
News |
PowerRating) — Sell 25% of the October 110/120 call spread at $4.00. Filled!
We are now offering an additional 25% at $5.00.
Recap of open trades
Long-term
Reverse Collars
(
CIEN |
Quote |
Chart |
News |
PowerRating) — Long the January 2.5/5 reverse collar at
$.40 (25%).
Buy-writes
(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the January 15 buy-write at $12.05 (100%).
Proxy buy-writes
(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the January 15 calls at $3.20 — left over from proxy buy-write
(50%). Left for dead.
Complex Strategies
None.
Directional Positions
(
AMGN |
Quote |
Chart |
News |
PowerRating) — Long the January 30/40 put spread
at $2.50 (50%).
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the January 50/60 put spread at an
average price of $2.50 (75%).
(
IBM |
Quote |
Chart |
News |
PowerRating) — Long the January 50/60 put spread at $2.00 (50%).
(
KSS |
Quote |
Chart |
News |
PowerRating) — Long the January 60/70 put spread at $3.00 (25%).
(
S |
Quote |
Chart |
News |
PowerRating) — Long the January 35/45 put spread at $3.00 (25%).
(
WAG |
Quote |
Chart |
News |
PowerRating) — Long the January 35 puts at $2.40 (25%).
Short-term
Call Positions
(
CCU |
Quote |
Chart |
News |
PowerRating) — Long the October 35 calls at $2.50 (10%). Sold at $3.10,
9/17/02.
CCU (2) — Long the January 40 calls at $2.50 (25%).
Call Spread Positions
DJX — Long the September 86/90 1:2 ratio call spread at $.50 (50%).
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the September 23/26 1:2 ratio call spread at $.50 (50%).
Put Positions
None.
Spread Positions
(
AHC |
Quote |
Chart |
News |
PowerRating) — Long the October 65/70 put spread at $1.50 (25%).
(
C |
Quote |
Chart |
News |
PowerRating) — Long the December/September 30Â put calendar spread at $.975
(50%). Sold
half at $2.20 on 9/16/02.
C — Long the January/September 30 put calendar spread at $1.20 (50%). Sold
half at $2.45 on 9/16/02.
(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at an average price of
$2.65 (100%).
Sold 25% at $4.00 on 9/17/02.
Stops
None.
|
|
- Options trading involves substantial risk and
is not suitable for all Investors. - Also note that spread strategies involve
multiple commissions and are not risk-free. Most spreads must be done in a
margin account.
- Because of the importance of tax
considerations to all options transactions, the investor considering options
should consult with a tax advisor as to how taxes may affect the outcome of
contemplated options transactions.
- Supporting documentation for claims,
comparisons, recommendations, statistics or other technical data will be
furnished upon request. One or more of the contributors to these
commentaries may have a position in one or more of the securities mentioned.
- It is important to note that the options
strategies discussed herein are not suitable to all investors. Options are
complex investment tools and involve substantial risk. Moreover spreading
strategies do not eliminate risk and involve multiple commissions.
- Note: All individuals must have read the ODD
carefully before trading options. To obtain the document, click on the OCC
link: https://www.theocc.com/publications/risks/riskchap1.jsp