Dow Upgrades Pump Futures

U.S. stocks are rallying overseas as Citigroup
(
C |
Quote |
Chart |
News |
PowerRating)
and Merck
(
MRK |
Quote |
Chart |
News |
PowerRating)
, two DJI components, have picked up upgrades this morning. Also, statements by
(
DELL |
Quote |
Chart |
News |
PowerRating)

regarding a pickup in sales and
(
GE |
Quote |
Chart |
News |
PowerRating)
forecasting faster revenue growth have lit a
fire under the futures markets. Currently, the DJI futures are 99.0 better, S&P
futures are 9.90 higher, and the Nasdaq 100 futures are 22.50 higher. In Europe,
the FTSE 100 is 68.40 points, or 1.69%, higher, the DAX is up 125.14 points, or
4.03%, and the CAC 40 is up 94.62 points, or 3.10%. In Asia, the Nikkei squeaked
out a 31.22 point, or .36%, gain, and the Hang Seng rose 131.20 points, or 1.35%.
Interest rate futures are higher, presumably on the back of a Washington Post
story saying that interest rates will be cut again before the year’s end. Crude
futures are unchanged, gold futures are about $1.90 higher, and the dollar is
higher against most major foreign currencies.

There is little to stand in the way of a move higher at the moment, so it is
best to play matador and stand aside while we wait for opportunities. The selloff in oil and oil service stocks may provide us with some good long entry
possibilities, particularly in the oil service area. For right now, the charts
in that area look bad, and we will have to wait for further concessions in
price, or improvement in the charts, whichever come first.

Why are we not buying if we think there is a strong chance that the market will
rally the next couple of weeks? Because this is a bear market! A
cockroach-climbing-the-wall market, and while it looks impressive climbing the
wall at a nice steady pace, it falls all at once (see Cigna Friday), and we
don’t want to be caught when the music stops.

Volatility 

Volatility is really starting to collapse. Friday
the VIX fell 3.63 to 36.27, its lowest level since early September, the VXN
dropped 4.19 to 50.39, and the QQV dove 4.32 to 42.63. Expect more downside
pressure as market makers drop their bids in response to inventory buildup. We
are holding long (option) positions in
(
BGEM |
Quote |
Chart |
News |
PowerRating)
,
(
CCU |
Quote |
Chart |
News |
PowerRating)
and
(
WAG |
Quote |
Chart |
News |
PowerRating)
, and we will look to
flip them into either calendar spreads or vertical spreads at some point in
order to lower exposure to volatility.

 

Update: (10/25/02)

BGEN — Bought the January 40 calls at $2.00 (marked at $2.10), 25%.

WAG — Bought another 25% of the January 35 puts at $2.00, raising us to a 50%
position at an average cost of $2.50.

MER — Unable to execute the MER January/November 35 put calendar spread at
$1.10 — cancel it, we will play the 37.5 strike next week.

New Recommendations

BGEN — For those who bought the January 40 calls, sell the January 45
calls at $1.00 to slip into the January 40/45 call spread for $1.10.

Working Orders (Old Recommendations)

QQQ — Those who sold the January 23/26 call spread at $1.50, bid $1.80
for the January 20/23 call spread (somewhere near $23.00 should get you done).

Recap of open trades

Long-term

Reverse Collars

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

Buy-writes

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

None.

Directional Positions

None.

Short-term

Call Positions

BGEN — Long the January 40 calls at $2.10 (25%).

CCU — Long the January 40 calls at $2.00 (25%). Sold half at $4.00 on
10/21/02
.

Call Spread Positions

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

Put Positions

WAG — Long the January 35 puts at $2.50 (50%).

Spread Positions

None.

Stops

None.


Click here for a
FREE 1-week trial to Tony Saliba’s Daily Alerts


Learn About The Latest Courses Offered By
SalibaOptions.com…


Click Here Now!

  • 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