Earnings Warnings Buckle Knees, As Market Struggles Off The Canvas
The
market is reacting to a one-two punch combination this morning: Yesterday’s
silence by Chairman Al on an imminent round of interest-rate cuts was the jab
and the slash in earnings estimates by three high-profile firms (Nortel
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Palm
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out the major indexes and for intents and purposes pretty much every stock on my
board. In any event, our current entrants have more than a fightin’
chance…actual contenders, here.
With Softie
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only off less than a buck, the April 55/65 call spread we were looking at is
within striking distance. The two butters we held out to be more than reasonable
risk/reward are either in the money or heading that way. Many of you have asked
about legging into the butters… buying a leg (or legs) and selling the middle
upon the move… that’s fine! Some have put these on for free or a credit. Let
‘em ride… don’t fret with them.
Legging in with
vertical spreads works, too. With a month to go, there are lots of things you
can do with these strategies, we’re going to let some time come out of them.
If you’ve gone
for the butters we have spoken about in this column ( and/or Condors for those
with whom I have been corresponding by e-mail), you have a wider range to work
with, and the reward can be a lot larger. Of course, unless you have legged in
advantageously, the cost can be higher, too. I’ve said we have been looking
for lower prices and then sideways movement at best for the next few months.
Finding and initiating these condors is where you should spend your energies.
While the early
morning stock market is on its knees, the options market seems to be out cold.Â
Order flow has its arms up, hiding from sight, a phenomenon that is
keeping today’s pop in volatility in check. Just
how “non-existent’ is “non-existent�Overall, call
sellers are the most prominent group, with put sellers following in a distant
second. A glance at our search engines reveals some unusual activity in the
following names.
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PALM |
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heavier-than-usual activity, with call buyers racing in to take advantage of the
dip in price after the earnings announcement.
(
WM |
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the scene today.
Due
to a technical malfunction our pre-open data is unavailable this morning.
First
hour order volume was quite low. Overall,
call sellers and buyers were almost even, with sellers slightly edging out
buyers 1:1.Â
In first hour activity,
(
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while put sellers trounce buyers 5:1.
(
CIEN |
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sellers 5:1.
(
NT |
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up leading sellers 3:1. LU
call buyers showed up leading sellers 7:1.
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call sellers crushed buyers 3:1.
A
look at our open butterflies reveals that they are on the comeback: Recall that
we got in
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CIEN |
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April 40/45/50 put butterfly, at around 3/4.
As I have made
clear before, Butters are excellent strategies for lower volatility or sideways
moving markets. They are a very safe way
to sell premium.
Please
continue to write me tonys@tradingmarkets.com