Big Slide Underway Overseas, Headed Our Way
Despite decent retail sales and PPI numbers, Honeywell
(
HON |
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PowerRating) and
Lucent
(
LU |
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PowerRating) warnings have sent the market sharply lower, and stocks are being
absolutely pounded overseas. Right now, the DJI futures are 93.0 points lower,
S&P futures are 9.60 points lower, and Nasdaq 100 futures are 7.50 lower.
Europe is also sharply lower with the FTSE 100 down 100.50 points, or 2.46%, the
DAX losing 93.77 points, or 2.74%, the CAC 40 is down 79.98 points, or 2.47%.
In Asia, the Nikkei closed down 173.30 points, or
1.84%, and appears to be set to challenge the 9000 level. The Hang Seng got
creamed, losing 245.36 points, or 2.48%. However, interest rate futures are only
slightly higher after their smoking gains from yesterday, the dollar is lower
against the major currencies, oil is a tad higher after yesterday’s beating, and
gold is basically unchanged.
On the economic front, retail sales came in at + 0.8% vs. expectations ofÂ
+0.4%, but only +0.4% ex-auto, right in line with expectations. PPI came in
softer than expected with the headline number showing unchanged vs. expectations
of a gain of 0.2%, and the core number (ex food and energy) showing a drop of 0.1%
vs. expectations of a 0.1% gain. Deflation mongers take note. Probably the most
important number of the day will be released at 08:50 CDT: September preliminary
Michigan sentiment numbers, expected to show a reading of 88.
We are quite close to some levels that, if violated, would cause a complete
technical breakdown (ending the higher lows pattern in force since late July)
and probably set up a test of the July lows. The levels are:
- DJI -8217
- S&P -870.50
- COMP -1251
- NDX -882.85 (roughly 22.07 in the QQQ)
- Russell 2000 379.09 (this one looks quite
vulnerable).
If these levels get taken out today it could
set the stage for a Friday ransacking.
Volatility
Volatility had quite a jam session yesterday. The VIX gained 3.50 to 40.72, the
VXN rose 2.44 to 56.44, and the QQV gained 2.13 to 48.03. Expect more of the
same today and probably in front of every weekend until this war on Iraq starts
(it will probably last about 15 minutes).
Strategy
If the above mentioned technical levels get taken out on a closing basis,
we should liquidate the ratio call spreads in both the September DJX and QQQ
options for whatever we can get. If at that point we can’t get anything for
them, then obviously we should just hold them for a “get lucky” trade
next week.
If retail stocks should pop on today’s numbers, we should add to our short
positions there. I’ll keep you posted. Also, the action in the oil stocks
yesterday should tell you that we want to be short these things going into this
war. Any pops on news out of either Iraq or Israel should be viewed as selling
opportunities there.
Update: (09/12/02)
(
CCU |
Quote |
Chart |
News |
PowerRating) — We bought a really small amount of the October 35 calls at
$2.50 (10%) while the stock was around $35.10 or so, watched the stock crater to
$33.00 on what appeared to be a large print, and then watched it rally back to
$35.00. I saw the October 35s get offered down to about $1.70, but try as I
might, I could not buy any more. Really puzzling action, and I never did see any
news. If anyone knows what went on in there, please let me know!
New Actions (New Recommendations)
None.
Working Orders (Old Recommendations)
(
BP |
Quote |
Chart |
News |
PowerRating) — Buy the October/January 40 put calendar spread (buy the January 40
put, sell the October 40 put) at $1.15 (25%).
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Sell half of the September 23/26 1:2 ratio call spread at $1.50,
the remainder at $2.00.
(
MMM |
Quote |
Chart |
News |
PowerRating) — Sell 25% of the October 110/120 call spread at $4.00 and 25% at
$5.00 (away now).
Recap of open trades
Long-term
Reverse Collars
(
CIEN |
Quote |
Chart |
News |
PowerRating) — Long the January 2.5/5 reverse
collar at $.40 (25%).
Buy-writes
(
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
(
AMGN |
Quote |
Chart |
News |
PowerRating) — Long the January 30/40 put spread at $2.50 (50%).
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the January 50/60 put spread at
an average price of $2.50 (75%).
(
IBM |
Quote |
Chart |
News |
PowerRating) — Long the January 50/60 put spread at $2.00 (50%).
(
KSS |
Quote |
Chart |
News |
PowerRating) — Long the January 60/70 put spread at $3.00 (25%).
(
S |
Quote |
Chart |
News |
PowerRating) — Long the January 35/45 put spread at $3.00 (25%).
(
WAG |
Quote |
Chart |
News |
PowerRating) — Long the January 35 puts at $2.40 (25%).
Short-term
Call Positions
None.
Call Spread Positions
DJX — Long the September 86 / 90 1:2 ratioed call spread at $.50 (50%).
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the September 23 / 26 1:2 ratioed call spread at $.50 (50%).
Put Positions
None.
Spread Positions
(
AHC |
Quote |
Chart |
News |
PowerRating) — Long the October 65/70 put spread at $1.50 (25%).
(
C |
Quote |
Chart |
News |
PowerRating) — Long the December/September 30 put calendar spread at $.975 (50%).
C — Long the January/September 30 put calendar spread at $1.20 (50%).
(
CCU |
Quote |
Chart |
News |
PowerRating) — Long the October 35 calls at $2.50 (10%).
(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at an average price of $2.65
(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.
- 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