A Little Better; European Rate Cuts On The Way

This week will probably provide several examples
of why knowing when not to trade can be the trader’s greatest weapon.
The intermediate trend is up, the markets will be slow, and volatility is
declining rapidly. Other than waiting in ambush for previously conceived
positions, profit taking or some light daytrading, there is probably no reason
to get involved. I would encourage everyone to spend a lot of time watching and
very little time trading this week.

Currently, futures are slightly higher with the DJI futures up
9.0 points, S&P futures up 1.50 points, and Nasdaq 100 futures up 6.00 points.
The big news is in the FX markets. German inflation slowed in November (+ 1.1%
versus an expected 1.3%), opening the door for an ECB rate cut December 5th, and
the dollar is rising in anticipation. I would think that the equity markets
should be able to maintain their “bid” until then.

On the economic front this morning we have October existing home sales due, expected at 5.4M. There are a boatload of numbers out Tuesday and Wednesday
including Q3 preliminary GDP, October new home sales, and November consumer
confidence on Tuesday, and October personal income, personal consumption,
Initial jobless claims, September durable goods, November final Michigan
sentiment, November Chicago PMI, and the Beige Book Wednesday- phew! Also, the
futures exchanges (ex-stock indices) close early on Wednesday AND Friday. When
the bond and FX futures shut down, it slows us down considerably.


Volatility was generally lower on Friday, with the VIX losing 64 to
26.73, the VXN rose 1.79 to 46.49, and the QQV dropped just .05 to 38.54. There
was some bidding for volatility in the semiconductor sector Friday supporting
the VXN and QQV.

Update: (11/22/02)

BGEN — We bought the January 40/45 put spread at $1.45 in lieu of selling the January 40/45 call spread at $3.50. This puts us into the box at a net
cost of $2.70. Current box value = ~$4.95, so we lock up a $2.25 profit, the
same as if we had sold the call spread at $3.50. I realize many subscribers were
unable to sell the call spread at $3.50, and are uncomfortable using the put
spread, so we will keep the recommendation open.

HAL — The January 15 buy-write moved away.

New Recommendations

CIEN — Sell the January 7.5 calls at $.40 to open against the January
2.5/5 reverse collar.

DIA — Cancel the January condor recommendation.

SMH – Buy the December 30 calls at $1.00, $.90, and $.80, in 1/3 increments (1/3
of what your total position would be for a trade).

Working Orders (Old Recommendations)

BGEN — Sell half of the January 40/45 call spreads at $3.50 (or buy the January
40/45 put spread at $1.45).

HAL — Sell the Halliburton January 15 buy-write at $14.50 to close.

WAG — Sell  the remaining January 30/35 put spreads at $4.00 to close.

QQQ — Subscribers short the January 23/26 call spread at $1.50 (25%), leave an
order in the market to purchase the spread at $1.50 to close the trade.

Recap of open trades


Reverse Collars

CIEN – Long the January 2.5/5 reverse collar at
$.40 (25%).


HAL -long the January 15 buy-write at $12.05 (100%).

Proxy buy-writes

DYN — Long the January 15 calls at $3.20 — left over from proxy buy-write
(50%). Left for dead.

Complex Strategies





Call Positions


Call Spread Positions

BGEN — Long the January 40/45 call spread at $1.25 (50%). Bought
the put spread against half at $1.45 on 11/22/02.

DIA — Long the December 80/84/86/90 call condor at $1.20 (25%).

QQQ — Short the January 23/26 call spread at $1.50 (25%).

Put Positions


Put Spread Positions

BAC — Long the January 60/70 put spread at $2.90 (25%).

KSS — Long the January 50/60 put spread at $2.475 (50%).

WAG — Long the January 30/35 put spread at $1.00 (25%).


KSS — Two consecutive closes over

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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
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  • Supporting documentation for claims,
    comparisons, recommendations, statistics or other technical data will be
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  • 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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