Could The Worm Be Turning?

The futures have pulled a
reversal this morning as a Cisco
(
CSCO |
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characterizing CSCO’s Q2 financial results in a positive light was
"prematurely and inadvertently distributed to a large number of Cisco
employees." Sure, whatever.

Currently Nasdaq futures are up 24 points, S&Ps are up
about 3 points, and Dow futures up about 27 points. In an interesting
development, gold futures have exploded through $300 this morning.

When I first came into this business, the price of gold
was higher than the Dow. Could the worm be turning? Could gold stocks recapture
the fancy and imagination of the public the way they did in the late ’70s early
’80s? The new speculative vehicle for the crazed daytrader set? We will have to
see, but they’ve been there before…

Getting back to CSCO, they have earnings tonight and with
the memo "accidentally" released last night, the stock and the market
are likely to remain firm into the close.

As volatility levels begin to climb, holders of stock
positions can again begin to write options against those positions if volatility
gets pumped up due to earnings reports or "other" factors.

Volatility

The VIX finished slightly lower on the day yesterday after
poking through its 200-day moving average (27.34). The VXN and QQV were slightly
higher and are miles away from their 200-day moving averages (56.14 and 47.97,
respectively).

Once again, give or take a short-covering rally or
multiple "upgrades," we won’t be prepared to plant our feet and buy
this market until volatility is absolutely screaming.

Chips

Although the market in general has taken a severe beating
the last few days, the chip sector, thanks to several upgrades, has managed to
hold its own. Because of this, implied volatilities are still reasonable in this
sector. Anyone bearish on this sector or thinking it is time for a little
"catch up" might be interested in the
(
SMH |
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puts, which are fairly cheap at the moment. We have been making scale-down
purchases of the March 42.5 puts for less than $2.00.

Updates

We are monitoring the "accounting fraud" sector
for possible initiation of proxy buy-writes. Cephalon
(
CEPH |
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possibility. We might even take a shot at Tyco
(
TYC |
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We were filled on our
(
SLB |
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$1.50 yesterday (50%).

Yesterday we purchased an additional 25% of the
(
DIS |
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April 22.5/25 reverse collar (buying the April 25 calls, selling the April 22.5
puts) at $1.35 credit. This raises us to a 75% position at an average price of
$1.15 credit. We will be looking to add the final 25% on weakness.

We had no luck buying the
(
QCOM |
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spread at $3.00 yesterday and will re-enter the spread today.

We were stopped out of both
(
TLAB |
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PowerRating) and
(
AMD |
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PowerRating) on
the close yesterday. I will elaborate on the exit prices in my next update.

Current Recommendations

Buy the SLB May 55/60 call spread (buy the 55 calls, sell
the 60 calls) for $1.50 (50%).

Traders may make scale purchases of puts in the QQQs on
strength, taking partial profits on sell-offs. First resistance here is 37.33.

Traders may purchase the SMH March 42.5 puts on a
scale-down basis for $2.00 or less.

Buy the QCOM April 40/50 call spread at $3.00 (25%).

Rolls/Adjustments

None.

Recap of open trades

Long-term

Reverse Collars

DIS — April 25/22.5 reverse collar (long the April 25
calls, short the April 22.5 puts) at $1.15 credit (75%).

TLAB — March 17.5/15 reverse collar (long the March 17.5
calls, short the March 15 puts) at $1.50 credit average (50%). Stopped out
today.

AMD — April 25/15 reverse collar (long the April 25
calls, short the April 15 puts) at $.05 credit (100%). Stopped out today.

Buy-writes

None — Volatility too low! Again this is a general
recommendation. Specific opportunities always exist.

Proxy buy-writes

(
BA |
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PowerRating) Jan. ’03 35/May 45 call calendar @ $4.75 (100%).

BA Jan. ’03 40/May 45 call calendar @ $2.75 (100%).

Complex Strategies

(
GILD |
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PowerRating) — Long the GILD Feb. 70 straddle at $8.00
(50%).

Short-term

Call Positions

None.

Call Spread Positions

(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the March 30/40 1:2 call ratio spread @
$1.50. Settled at $.55.

(
SLB |
Quote |
Chart |
News |
PowerRating) — Long the May 55/60 call spread at $1.50
(50%).

(
TLAB |
Quote |
Chart |
News |
PowerRating) — Long the March 17.5/22.5 call spread at
$.80 credit average (50%). Settled at $.30. Note: This spread is a result
of a reverse collar roll.

Put Positions

(
QQQ |
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PowerRating) — Long the March 39 puts at $2.90 (25%).

(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the March 42.5 puts at $2.00 (25%).

Put Spread Positions

(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55/65 put spread @ 2.125
(100%).

STOPS

None.