Sharply Unchanged
We closed
last week with a sharp fragmentation between Dow stocks and Nasdaq
stocks. Expect this type of activity to continue over the near term.
This morning we have January Existing
Home Sales at 10:00 a.m. EST. We are approaching month end, and we can expect
the funds that have spent the last few weeks dumping tech and buying
“value” to not only continue to do so, but to try to make their
positions look “pretty” on Thursday. Expect cyclical, industrial, oil
service, and especially retail stocks to get the big prop.
We will continue to “go with the
flow” (Dow strong, Nasdaq weak) until we sniff a sea change.
Volatility
Volatility slid late Friday on the rally and
although was generally higher
on the weak, is still close to its lows on a long-term basis. This makes us
skeptical of the sustainability of any rallies.
Again, we are looking for some sort of climactic sell off accompanied by
screaming volatility to indicate that the coast is clear. I continue to
believe that it will happen sometime in March, dovetailing with the end of
the Japanese fiscal year and our first quarter. However, it could happen ANY
TIME!
Updates
QQQ —
looking to buy puts on strength – first stop 34.97 again.
SMH — Sold
25% of the SMH March 42.50 puts at $3.20 on 2/21/02, we were
waiting to see if it closes below the 40.60 level, and it closed right on
top of it! We decided to hold our 75% position in
the SMH March 42.5 puts.
We will liquidate another 25% on a close above
$40.60, or continue to hold
on a close below $40.60. Watch Alerts!
Current Recommendations:
Continue to attack from the short side in the
(
QQQ |
Quote |
Chart |
News |
PowerRating)‘s
by making put purchases
on strength. Shift to April options to avoid excessive time decay.Â
Early
leans:
- 34 .95- 34.97 – February 21 high – February
8 low. - 35.22 – 50% retracement level of the
September to December rally. - 35.64 – Gap from February 15.
- 36.00 – Market Profile generated level.
- 36.54 – 38.2% retracement level of the May
to September sell off. - 37.11 – 38.2% retracement level of the
September to December rally.
See the Disney
(
DIS |
Quote |
Chart |
News |
PowerRating) “roll”
suggestion below.
Rolls / Adjustments:
Boeing (BA)- Investors long the proxy
buy-writes (long the January ’03 calls/ short the May 45 calls at $4.75; long
theJanuary ’03 40 calls/ short the
May 45 calls at $2.75), consider taking partial profits here. We recommend
three different methods:
* Simply sell out half of the position
* If you have the January’03 35 call / May 45
call, sell the January ’03 35/40 call spread at $3.50. This reduces your
investment to $1.25, but
leaves you in the game.
* If you have the January’03 40 call / May 45
call, sell the January ’03 40/ 45 call spread at $2.75. This reduces your
investment to $0.00, but leaves
you in the game.
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 $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.
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 $1.15 credit (75%).
Buy-writes
(
HAL |
Quote |
Chart |
News |
PowerRating) — long the July 20 buy-write at
$15.00 (50%).
Proxy buy-writes
(
BA |
Quote |
Chart |
News |
PowerRating) January ’03 35 / May 45 call calendar –
liquidated 50% at $9.00 on
2/15/02. Rolled remaining 50% on 2/21/02 by selling the January 35 /40 call
spread at $3.50.
This means that 50% of this original position
(long the BA January 35 calls
/ short the May 45 calls at $4.75) was closed at a $4.25 profit, and the
remaining 50% has now been rolled into long the BA January 40 call / May 45
call spread at an effective price of $1.25 ($4.75 – $3.50 =$1.25). We will
now aggregate this rolled position with our open January 40 call /May 45
call spreads below.
(
BA |
Quote |
Chart |
News |
PowerRating) — long the January 40/ May 45 call
spread (long the January 40 calls,
short the May 45 calls) at an effective price of
$2.25 (150%).
Complex Strategies
(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the March 60 straddle at
$3.30 (100%).
Short-term
Call Positions
None
Call Spread Positions
(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the March 30/ 40 1:2 call
ratio spread @ $1.50.
(
SLB |
Quote |
Chart |
News |
PowerRating) — Long the May 55 / 60 call spread
at $1.50 (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
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the March 42.5 puts at $1.91
(75%), sold 25% at $3.20 on 2/21/02.
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Flat- looking to scale up buy (see
above).
Put Spread Positions
(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55 / 65 put spread
@ 2.125 (100%).
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
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