The Domino Effect

  • April 22, 2002
  • Tony Saliba

Futures are looking lower in pre-market activity.
Negative news from WorldCom
(
WCOM |
Quote |
Chart |
News |
PowerRating) after the close Friday and Ericsson
(
ERICY |
Quote |
Chart |
News |
PowerRating) today have pulled the rug out once again. The domino effect of
these Telecom warnings will weigh on the rest of the food chain: networkers,
fiber optics, etc., will be weaker.

Traders long the QQQ May 35 puts, remember to take partial profits on
the opening, save the rest for a test of the $33.33 area.

One thing we can say about the market is that the
bad news just keeps on coming. It makes me wonder if there won’t be a little
capitulation just around the corner. Keep an eye on the
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) index
today. It has been weaker than usual lately, and a lot of people are holding
that stuff…

Volatility

On Friday, the VIX finished down .94 at 20.30, the VXN up .01 at 39.35, and the
QQV dropped .97 to 32.22. There are two opposing forces acting upon volatility
at the moment: market weakness and terrorism threats supporting volatility, and
the lack of follow-through and the passing of earnings season containing
volatility. Just like the underlying market, this has led to an annoying
standoff. 

Trade Updates (4/19/02)

Nothing done today.

Working Orders (Old Recommendations)


(
AOL |
Quote |
Chart |
News |
PowerRating) — Buy the July 22.5 buy-write at $19.50 (50%).

(
WMT |
Quote |
Chart |
News |
PowerRating) — Buy an additional 25% of the WMT June 60 puts at $1.50 if
WMT challenges its recent gap.

New Actions (New Recommendations)


(
APC |
Quote |
Chart |
News |
PowerRating) — Buy the May 55/60 1:2 ratio call spread as a
“roll” of our APC May 60 call position. Pay $.65.

(Note: What you are doing is selling
your long May 60 calls to close, buying half as many May 55 calls to open, and
paying $.65 for the privilege). This spread is not currently close.

(
MSFT |
Quote |
Chart |
News |
PowerRating) — Buy the May/July 55 put calendar (buy the July puts, sell
the May puts) at $1.25 (25%). 

(
QQQ |
Quote |
Chart |
News |
PowerRating) — Take partial profits on the QQQ May 35 puts on a test of $34.00,
take remaining profits on a test of $33.33.

(
WMT |
Quote |
Chart |
News |
PowerRating) — Sell half of the June 60 puts at $5.00.

Rolls/Adjustments

Chiron
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Investors long the July 50 calls at $3.30 (50%)
may sell the July 60 calls against their positions at $1.00. This will roll us
into the July 50/60 call spread at $2.30.

On The Horizon…

More buy-writes ahead!

Recap of open trades

Long-term

Reverse Collars

None.

Buy-writes


(
AMR |
Quote |
Chart |
News |
PowerRating) — Long the August 25 buy-write at $22.00 (50%).


(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the July 20 buy-write at $15.00
(50%).

HAL — Long the July 17.5 buy-write at $14.50
(50%).


(
SEBL |
Quote |
Chart |
News |
PowerRating) — Long the August 27.5 buy-write at
$23.00 (50%).

Proxy buy-writes

None.

Complex Strategies

None.

Directional Positions


(
JNJ |
Quote |
Chart |
News |
PowerRating) — Long the January 60 puts at $3.30
(50%).

Short-term

Call Positions


(
APC |
Quote |
Chart |
News |
PowerRating) — Long the May 60 calls at $1.50 (100%).


(
CHIR |
Quote |
Chart |
News |
PowerRating) — Long the July 50 calls at $3.30
(50%).


(
CPN |
Quote |
Chart |
News |
PowerRating) — Long the May 15 calls at $.40 (50%).


(
MLNM |
Quote |
Chart |
News |
PowerRating) — Long the May 25 calls at $2.40
(50%).

Call Spread Positions

None.

Put Positions


(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August 65 puts at $3.00 (25%) — part of a spread
“leg” to be completed later.


(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the May 35 puts at $1.425
(50%).


(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the May 40 puts at $1.05 (60%).
Holding.


(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the June 60 puts at $2.50
(75%).

Spread Positions


(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August/May 65 put calendar at $1.50 (50%).

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
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