Lower Open Ahead
Futures are indicating a lower open
this morning with the DJI futures down 65.0, the S&P futures down 8.0
points, and the Nasdaq 100 futures 12.00 lower. The dollar is slipping into
negative territory vs. the major currencies while fixed income is higher. Gold
fixed $1.90 higher in London at $314.55. An unexpected drop in housing starts
(-2.7% to 1.649 million vs. an expected 1.7 million) is one of the culprits
behind this morning’s weakness. Also, CPI came in at 0.1% (0.2% core), pretty
much as expected, but a shocking rise in medical costs (+ 0.7%) is adding to
concerns of a consumer squeeze.
In Europe, the FTSE 100 is currently 18.00 points, or 0.08%, lower, the DAX is
67.58 points, or 1.84%, lower, and the CAC 40 is 67.60 points, or 2.00%, lower.
In Asia, the Nikkei was basically unchanged with a 7.44 point loss, and the Hang
Seng gained 45.33 points, or 0.44%.
Mea Culpa…
First things first, I have to apologize for having a brain-lock on the DJX
options because I trade both those and the DIAmond options. I am quite aware
that the DJX options expire on Thursday and are settled on Friday’s open, but
spaced on that fact yesterday. Therefore, anyone who has any remnants of the DJX
August 86/90 1:2 ratio call spread, there is nothing left to do. It will settle
at the official opening of the DJX this morning. Unfortunately, that looks to be
about $.60 lower right now.
The DIAmond options (which have physical delivery) are gaining in both volume
and open interest, but are still not up to the levels of the DJX, so when we
have a DJI strategy, we will still use the DJX options, but I’m sure by the end
of the year the DIAmond options will pass up the DJX options because of the
funky exercise.
Expiration
Today is option expiration day, and even though
August is not a major expiration, the fact that it is late summer and liquidity
is poor means that it could still have a large impact. Be alert for the
“magnetic strike” effect in stocks that have a large August options
open interest.
Volatility
Volatility continued to tumble yesterday. The VIX dropped 3.29 to 33.07
(Was it really up near 50 just nine days ago?), and that puts it below its 50-day
moving average and headed for the 30 level. Too far too fast? Maybe, but this
usually happens every August. The VXN fell 2.04 to 51.24 and is well below its
July levels and in fact is just above its 200-day moving average of 49.98 — now
that’s what I call mean reversion in a hurry! The QQV dropped 1.34 to 43.84,
hitting its 200-day moving average (42.90) before bouncing.
Trade Updates (8/15/02)
DJX — We sold half of our August 86/90 1:2 ratio call spread at $2.00,
held the balance because the DJI closed in the upper 25% of its range. The
balance gets taken out on today’s opening.
Nothing else yesterday.
New Actions (New Recommendations)
None.
Working Orders (Old
Recommendations)
(
MMM |
Quote |
Chart |
News |
PowerRating) — (Back on for today) Buy another 25% of the MMM
October 110/120 put spread at $2.00.
Working Rolls/Adjustments
None.
Recap of open tradesÂ
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.Â
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%).
Short-termÂ
Call Positions
None.
Call Spread Positions
DJX — Long the August 86/90 call ratio spread 1:2 for $.50 (50%). Sold half
at $2.00, 8/15/02.
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the August 26/28 1:2 call ratio spread for even money (25%).
QQQ — Long the August 26/28/30 “Christmas tree” at $.35 (25%).
Put Positions
None.
Spread Positions
(
C |
Quote |
Chart |
News |
PowerRating) — Long the December/August 30 put calendar spread at $1.70 (25%).
C — Long the December/September put calendar spread at $1.00 (25%).
C – Long the January/September put calendar spread at $1.20(50%).
(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at an average price of $2.87
(75%).
Stops
None.
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- 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