Asia Tanking, Will Wolverines Deliver Spanking?
World stock markets are selling off even as our futures recover
and the dollar rallies. A Goldman upgrade of the semiconductor equipment sector
has put a bit of a bid into the futures pre-market. Currently, DJI
futures are on their highs, up 30 points after having been 45 points lower early
this morning. The S&P futures are up 3.80 points, and the Nasdaq 100 futures
are up 16.00 points.
The poor action in the Nasdaq and the SOX index yesterday has me very leery
of this bounce. I intend to sit it out until the University of Michigan
consumer sentiment numbers arrive at 08:50 CDT. The expected level is 87.7. Once
again, I think the recent slide in the stock markets may cause this number to
significantly undershoot expectations. Today it is day +2 from the big
reversal day, a Friday, and the market needs to hold today, otherwise the bear
market is back on!
In Europe, the FTSE is down 1.18% at 3919.30, the CAC 40 is down 1.29% at
3109.19, and the DAX is down .77% at 3493.49. In Asia, the Nikkei lost 3.41% to
9591.03, and the Hang Seng lost 1.13% to 9773.12.
Two Pre-Opening Recommendations
(
AMGN |
Quote |
Chart |
News |
PowerRating) — Buy the January 30/40 put spread (buy the January 40
puts, sell the January 30 puts) at $3.00 (25%).
(
DJX |
Quote |
Chart |
News |
PowerRating) — Another possible throw away — buy the DJX August 85/90 1:2 ratio
call spread (buy one August 85 call, sell two August 90 calls) for a $.50 debit,
(you pay) 50%. This will either work well, or you will lose a little.
Volatility
Once again, a tale of two markets. The Vix was lower yesterday,
dropping .64 to 44.65, but with the wipeout in the chip stocks, both the VXN and
QQV jumped sharply. The VXN gained 3.89 to 69.48, now approaching its highs, and
the QQV jumped 5.83 to 60.98, putting in new highs for the move!
The divergence between the DJI and the Nasdaq (both in price and volatility
action) makes me quite skeptical of this rally.
Trade Updates (7/25/02)
Nothing yesterday.
New Actions (New Recommendations)
(
AMGN |
Quote |
Chart |
News |
PowerRating) — Buy the January 30/40 put spread (buy the January 40
puts, sell the January 30 puts) at $3.00 (25%).
(
MMM |
Quote |
Chart |
News |
PowerRating) — We are now working to buy more of the October 110/120 put spread
(buy the October 120 puts, sell the October 110 puts) for $3.00 (25%) — Congratulations
to those of you who “legged it” yesterday.
We are using a lot of bear spreads (buying the
higher strike put, selling a lower strike put) in here because of the very steep
skew in implied volatilities. In times of fear, out-of-the-money puts trade at a
substantial premium to the at- or in-the-money puts, and bear spreading takes
advantage of this.
Working Orders (Old Recommendations)
(
BAC |
Quote |
Chart |
News |
PowerRating) — Buy the January 50/60 put spread at $3.00 (25%).
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Traders with the August 26/28 1:2 ratio call spread, or the August
26/28/30 “Christmas tree,” keep a $.05 bid in the market to close the
short August 28 call position.
Rolls/Adjustments
None.
Recap of open trades:
Long-term
Reverse
Collars
None.
Buy-writes
(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the July 22.5 buy-write at $19.40 (50%).
(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the October 20 buy-write at
$16.30 (25%).
(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the January 15 buy-write at $12.05 (100%).
Proxy buy-writes
(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the January 15 calls at $3.20 — left over from proxy
buy-write (50%). Left for dead.
Complex Strategies
None.
Directional Positions
None.
Short-term
Call Positions
None.
Call Spread Positions
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the August 26/28 1:2 call ratio spread for even money
(25%).
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the August 26/28/30 “Christmas tree” at $.35 (25%).
Put Positions
(
IWM |
Quote |
Chart |
News |
PowerRating) — Long the August 70 puts at $2.00 (25%).
Spread Positions
(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at $2.80 (100%). Sold half
at $5.20 on 7/22/02.
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
carefully before trading options. To obtain the document, click on the OCC
link: https://www.theocc.com/publications/risks/riskchap1.jsp