Low Volume Pump Up

It seemed like yesterday was the last day of the month as the wild and wacky
divergences between the Dow and the Nasdaq gave way to an orgy of buying in the
afternoon. The DJI ripped through both its 200 day moving average (10048.3) and
the 61.8% retracement of the May to September ’01 sell off (10091.4).

The S&Ps finished just below the important 1114 level, point of the
December low and the late January breakdown.

The COMP blew back up through the 50% retracement level of the September to
January rally, 1742.9, and 1746.5 which marks the 38.2% retracement of the May
to September ’01 sell off.

The QQQs rallied to bounce off of the 35.22 area, which marks the 50%
retracement of the September to December rally (they bounced off of their 61.8%
retracement level (33.3) Friday.

Is the DJI outperformance of the Nasdaq about to unwind? Should we be
preparing to unload DJI stocks and begin cherry picking in tech? Maybe.

The pump of the day prize goes to the semiconductor stocks as the SOX index
climbed 5.8% on the day. The chips, which were on the brink of a technical
breakdown Friday, were rescued by fierce buying today. Hmmm…

Volatility

Volatility got pole axed and now we are near too cheap levels again. Once
again I am amazed by the volatility of volatility.

• The VIX finished 1.61 lower at 23.28, taking out last week’s lows.
• The VXN finished a whopping 4.50 lower in celebration of the Nasdaq finally
  getting a bid. The VXN is now sniffing monthly lows again.
• The QQV also was pummeled, down 2.53 on the day to 38.95.

Updates:

QQQ– We bought the QQQ April 35 puts at $2.05 as the QQQ’s hit the 34.97
level, we were bidding for more as the QQQ hit 35.22, but we were too greedy on
our price.

SMH – We attempted to liquidate another 25% of our SMH March 42.5 puts at
$1.75, but the exchanges ducked our offers (as usual) and we are left with the
75% position. Tomorrow we will either liquidate 25%, or roll the whole lot
forward.

Current Recommendations:

Continue to attack from the short side in the QQQ’s by making put purchases
on strength. Shift to April options to avoid excessive time decay. Early leans:

• 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 |
Quote |
Chart |
News |
PowerRating) — Investors long the proxy buy-writes (long the January ’03 calls
/ short the May 45 calls at $4.75; long the January ’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.

Schlumberger
(
SLB |
Quote |
Chart |
News |
PowerRating) — Investors long the SLB May 55 /60 call spread at $1.50
may purchaser the May 60 / 65 call spread at $1.30 to roll into the May 55 /65
calls spread at a cost of $2.80.

Recap of open trades:

Long-term

Reverse Collars

DIS- 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 – 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.