Here It Is! The Capitulation Phase — What’s The Plan?

Game Plan

We have some short-dated option positions (July) that we should
probably take some partial profits on. First and foremost, we are long the DJX
July 90/96 put spread from $2.00 (25%). Last night it settled at $3.50. It
should open substantially higher this morning, and I think you should take
profits on half immediately. If the DJI closes below 9000, there really is no
support until 8000, so hold the balance. If the DJI closes higher on the day
today, liquidate the remaining DJX put spreads!

We are long the BAC August 70 puts from $2.60 (100%). Last night they settled at
about $3.10. Sell half of the position out at $5.00, hold the balance.

We are long the Merrill
(
MER |
Quote |
Chart |
News |
PowerRating) July 37.5 puts at $1.40 (25%). Last night they
settled at about $1.25. Sell half at $2.50 or better. If the markets close
higher on the day, we will want to liquidate all July bear positions!

If the market goes completely manic in terms of price and volatility, we might
also liquidate some longer-term put positions as well.

Get your orders in early (before the open) for all of these positions!

The dollar is getting crucified. I took a peek at some of my short-term
European bond funds (mentioned here two months ago) that I jumped into in April
and they are up over 11% — not too shabby! This dollar weakness is really out
of control and has stopped the Japanese recovery in its tracks. That is why the
BoJ is furiously intervening to buy dollars. This morning the BoJ bought dollars
at Y120.16 and Y120.55. There are reportedly huge sell stops below Y120.

On The Side…

The next not-a-stock trade I will give you is this: For those sitting
on some cash and with futures accounts open, start buying some long-dated puts
on U.S. Treasury Bond futures (traded on the Chicago Board of Trade). When the
stock market finally collapses to wherever it is going, bonds will also
collapse.

The Plunge Protection Team…

Volatility

Just when you think it’s dead…Volatility roared back from the morning lows
with the VIX gaining 1.60 to 31.47, the VXN gaining 1.23 to 59.88, and the QQV
gaining .99 to 52.12.Volatility is cranked and it should explode today, another
reason to be ready to take partial profits on puts.

For those who are bullish, or thinking about getting bullish, volatility is
marked up so high that on any rally, collapsing volatility might offset any
profit to be had buying calls. Vertical spreads, or for those who can manage it
margin-wise, ratio spreads (IV #57) would be the preferred option vehicle for an
intermediate rally play.

Trade Updates (6/25/02)

None.

New Actions (New Recommendations)

(
BAC |
Quote |
Chart |
News |
PowerRating) — Sell half of the August 70 puts at $5.00.

DJX — Sell half of the July 90/96 put spreads on the opening. If the DJI closes
higher on the day, sell the remaining spreads.

(
MER |
Quote |
Chart |
News |
PowerRating) — Sell half of the July 37.5 puts at $2.50.

Working Orders (Old Recommendations)

(
CHIR |
Quote |
Chart |
News |
PowerRating) — Sell all CHIR July 50 calls at $1.00 to close.

Rolls/Adjustments

(
DYN |
Quote |
Chart |
News |
PowerRating) — Holders of the DYN January 15 call/June 20 call proxy
buy-write (long the January 15 calls, short the June 20 calls at $3.20),
buy the June 15 calls (to open) and sell the September 17.5 calls (to open)
for $1.00 credit (to you).

(
SEBL |
Quote |
Chart |
News |
PowerRating) — For those long the SEBL August 27.5 buy-write: Buy the SEBL
August 27.5 calls (to close) and sell the November 20 calls (to open) for $2.00
credit.

Buy-writes

Proxy buy-writes

(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the January 15/June 20 proxy buy-write at $3.20 (50%).

Complex Strategies

(
AMGN |
Quote |
Chart |
News |
PowerRating) — Long the January 30/40 put spread at $3.00 (25%).

(
JNJ |
Quote |
Chart |
News |
PowerRating) — Long the January 50 puts at $1.70 credit (37.5%).

CHIR – Long the July 50 calls at $3.30 (50%).

Call Spread Positions

None.

Put Positions

(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August 70 puts at $2.60 (100%).

(
MER |
Quote |
Chart |
News |
PowerRating) — Long the July 37.5 puts at $1.40 (25%).

Spread Positions

DJX — Long the July 90/96 put spread at $2.00 (25%).

(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at $2.80 (100%).

(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the July/August 32.5 put spread at $.70 (25%).