A Safer Way to Play for a Bounce in SEBL
I’m
back from doing a pair of investment seminars in L.A. and Salt Lake City this past
weekend. Despite the bearish tenor of the markets, there were 100 folks in LA
and just over 200 in SLC. A special hello to all of you for keeping me on my
toes and being so hospitable.
In those conferences and on my weekly squawk box shout with the good
folks at UBS PaineWebber, the overwhelmingly most popular question has been
“how do I profit from the downside without going broke?†It’s understandable
that investors would be so focused on bear market strategies, as they are
what’s been keeping the bread on the table at our firm for the past 12
months.
I think it’s healthy that investors also recognize that playing from the short
side is an art in-and-of-itself. Simply put, short selling is one of the fastest
ways to go broke on Wall Street, as the inevitable bear market rallies are
sharper and more painful than that of their bull market cousins. Therefore, why
not play the short side, but do so in a controlled, risk-averse manor? Listed
options certainly make that goal attainable, especially when coupled with a
spread strategy.
Given that the action of the past two sessions has had a decidedly more
optimistic tone, we are doing some bottom picking in selected issues. For
example, traders may sell the Siebel Systems
(
SEBL |
Quote |
Chart |
News |
PowerRating)
April 30 — 25 put spread for $2 1/4. Prices as of 11:55 CST were: Selling the
APR 30 puts for 5 1/8 and paying 2 7/8 for the APR 25 puts. Since they would be selling the $5 spread for $2
1/4, the total risk is the difference between that
$2 1/4 and the maximum the spread could be worth at expiration, which is $5. With
SEBL trading right at $30, that spread has no intrinsic value. If SEBL is $30 or
higher on April expiration, they’ll keep the entire $2 1/4, less commissions.
One last note: This morning, Target
(
TGT |
Quote |
Chart |
News |
PowerRating)
surged $2.10 after reporting fiscal
fourth-quarter earnings of $552 million compared with earnings of $522 million.
That was two cents better than expectations, but if you pull up the chart, you
might decide, as we are, that the time is right to take profits.
Bullish Option Action:
Volume
Volume
Call Vol
Put Vol
62,238
7,425
140,967
13,608
10,650
2,360
70,212
16,823
41,953
7,882
93,850
15,647
13,251
56,788
17,368
43,799
8,450
93,215
25,897
Bearish
Option Action:
Volume
Volume
Call Vol
Put Vol
421
4,363
1,639
21,303
4,090
11,106
9,445
52,550
15,648
11,610
59,181
175,045
(1010WallStreet.com
has licensed the use of Hamzei Analytics LLC proprietary options analytics)