Retail Sales Pull The Rug Out

  • March 13, 2002
  • Tony Saliba

Retail sales came in at
a much worse than expected +0.3% (vs. +0.9% expected), ex-autos came
in at +0.2% (vs. +0.5% expected). This news kind of shoots a hole in the
“Almighty US Consumer” theory.

There has been a ton of buying in the retail sector this year as it has been one
of the “anointed” sectors. As we have been noting lately, the
retailers have been looking awfully toppy, and depending on how they act today,
might be candidates for some short positions.

Watch the
(
$RLX.X |
Quote |
Chart |
News |
PowerRating) and the
(
$SOX.X |
Quote |
Chart |
News |
PowerRating)
today.

Volatility

Volatility was all over the map yesterday, higher across the board in the
morning, and then selling off into the afternoon. The VIX got punched down to
new lows on the close, settling at 21.31, the lowest close since July of ’01.
The VXN spiked up on the open, but sold off all day to close at 43.01, and the
QQV did likewise, settling at 36.40.

You have probably noticed by now that the VIX has a higher correlation with Dow
stocks, and of course, the VXN and QQV are associated with Nasdaq indices.
Therefore, when the major market indices move in opposite directions, their
associated volatility indices do as well.

Trade Updates (3/12/02)

(
MLNM |
Quote |
Chart |
News |
PowerRating) — We bought another 25% of the MLNM May 25 calls this morning at
$2.40.

We were very close on both the Chiron bull spread, and the Exxon Mobil calls
(below).

Current Recommendations/Working Orders

AutoZone
(
AZO |
Quote |
Chart |
News |
PowerRating) — Sell the last 25% of the March 55/65 put spread at $4.00.

Chiron
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Buy the July 47.5/55 call spread at $2.50 (50%).

Exxon Mobil
(
XOM |
Quote |
Chart |
News |
PowerRating) — Sell the July 40 calls at $5.00 to close the position.

Qualcomm
(
QCOM |
Quote |
Chart |
News |
PowerRating) — Sell the April 40/50 call spread at $5.00 (50%).

Rolls/Adjustments

Disney
(
DIS |
Quote |
Chart |
News |
PowerRating) — Investors long the April 22.5/25 reverse collar
(long the April 25 calls, short the April 22.5 puts) at a $1.15 credit (75%) may
want to consider the following roll:  Buy the Disney April 22.5 put/April
27.5 collar (buy the April 22.5 puts, sell the April 27.5 calls) for zero. This
will “roll” you into the DIS April 25/27.5 bull call spread at a $1.15
credit.

AutoZone (AZO) — Roll 50% of the original position into April by buying the
April 60 puts (to open) and selling the March 65 puts (to close) for even money
($0.00). Hold the remaining 25% position in the March 55/65 put spread.

Recap of open trades

Long-term

Reverse Collars


(
DIS |
Quote |
Chart |
News |
PowerRating) — April 25/22.5 reverse collar (long
the April 25 calls, short the April 22.5 puts) at a $1.15 credit (75%).

Buy-writes


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

Proxy buy-writes

None.

Complex Strategies


(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the March 60 straddle at $3.30
(100%). We have finished selling stock against the position and are now
“one to one” short stock vs. calls.

Short-term

Call Positions


(
APC |
Quote |
Chart |
News |
PowerRating) — Long the May 60 calls at $1.75 (50%).

(
CPN |
Quote |
Chart |
News |
PowerRating) — Long the April 12.5 calls at $1.20 (50%).

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

(
XOM |
Quote |
Chart |
News |
PowerRating) — Long the July 40 calls at $3.00 (25%).

Call Spread Positions


(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the March 30/40 1:2 call ratio spread @ $1.50.

(
QCOM |
Quote |
Chart |
News |
PowerRating) — Long the April 40/50 call spread at $2.50 (100%).

(
TLAB |
Quote |
Chart |
News |
PowerRating) — Long the March 17.5/22.5 call spread at $.80 credit average (50%).

Note: This spread is a result of a reverse collar roll.

Put Positions

None.

Put Spread Positions


(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55/65 put spread @ 2.125 (25%). Sold 25% on 3/5/02
at

$3.00.

Long the April 60/March 55 put spread at $2.125 (50%), (result of
“roll”).

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

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