Expiration Day

The futures look a touch lower
this morning. PPI came in at +.1% as expected. Core PPI came in a bit
weaker than expected, -.1% vs. +.1% expected. Industrial Production came in at
-.1% vs. -.2% expected, and Capacity Utilization was 74.2%, as expected.

University of Michigan Consumer Sentiment numbers will be
out about 9:45 a.m. EST. The consensus expectation is 95.0 vs. the previous
month’s 93.0 reading.

There are plenty of individual stories to talk about this
morning:

Nvidia
(
NVDA |
Quote |
Chart |
News |
PowerRating) came out with much better than expected
earnings ( $.43 vs. $.34 consensus), BUT also announced that they are the
subject of an SEC "inquiry." The stock traded over $7.00 lower on the
news last night, but has reclaimed more than half of the loss and is currently
about $3.00 lower.

Halliburton
(
HAL |
Quote |
Chart |
News |
PowerRating) announced that a U.S. Bankruptcy
Court has issued a temporary restraining order staying more than 200,000 pending
asbestos claims against its subsidiary Dresser Industries Inc. The stock is
currently up about $3.00.

We desperately want to buy-write Halliburton. More on that
later…

It is expiration day, and even though the February cycle
is not a big one, there will still be a fair amount of bobbing and weaving going
on. Don’t expect the market to go too far in either direction because there is
too much cheap "insurance" available. (Wait until next week after it
expires.)

Volatility

The VIX turned up and was higher on the day yesterday, but
the VXN and QQV continued their recent sell-offs. The VXN closed near its lows,
but the QQV closed well off the lows.

Overall, implied volatility is still low, and investors
should consider using options to protect themselves.

Out-of-the-money "teenie" puts can be used for
catastrophic insurance; at-the-money puts offer more comprehensive insurance.
Consider substituting long calls for long stock positions where appropriate.

As always, these comments are generalized comments, and
there are always specific situations that may differ.

Updates

(
TYC |
Quote |
Chart |
News |
PowerRating) — Adventurous souls may want to consider
legging into the TYC July 27.5/32.5/37.5 "Christmas Tree" we commented
on yesterday. I will comment further on this later today.

(
QQQ |
Quote |
Chart |
News |
PowerRating) — Unfortunately, the QQQ did not get to our
$38.00 level "lean" for us to make further put purchases yesterday.
We’ll be back at it today. We will take profits on our current holdings at the
$36.00 level in the QQQs.

Current Recommendations

Make scale purchases of March QQQ puts on strength (we are
buying the 37s). Next level: $38.00.

We are looking to put on a buy-write in Halliburton (HAL).
More on this later.

Tyco "Christmas Tree" see below Alert! Reprint.

Salibaco Intraday Trade Alert!

02/14/02 — Alert!

Tyco (TYC) — Advanced Traders Only!

Tyco is down and its implied volatility is up a bit. If
Tyco continues lower or implied volatility continues higher, we are looking at
implementing a complex strategy known as a call ratio spread. We will try to
implement this spread for zero premium, so if Tyco collapses, we will not be
on the hook. However, the flipside of this type of position is that if Tyco
explodes to the upside, say above $40.00 quickly, you could get hurt in that
direction because you will be short more calls than you are long.

Because of these risks, we are going to approach this
trade very conservatively, which means we will make the trade based on our
price and structure, or not at all. The spread we are looking at is a
variation of the call ratio spread known as a "Christmas Tree" in
trader lingo ("Ladder") for our European friends.

We want to buy the July 27.5 calls and sell 1 unit of
the July 32.5 calls and 1 unit of the July 37.5 calls for zero money. If you
look at the current prices, this spread is at least $1.00 away. We will need
the stock to trade lower or volatility to trade higher — or both — in order
to get this spread done.

If we do get this spread done, in terms of risk
management, the breakeven point will be $42.50 on the upside, so if the stock
were to explode, your emergency risk management would be to buy the July 42.5
calls and turn the entire spread into a long call condor.

Rolls/Adjustments

See
(
BA |
Quote |
Chart |
News |
PowerRating) Alert! From midday 2/13/02

Recap of open trades

Long-term

Reverse Collars

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

Buy-writes

Dow stocks on the next sell-off.

Proxy buy-writes

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

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

Complex Strategies

None.

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.

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

(
QCOM |
Quote |
Chart |
News |
PowerRating) — Long the April 40/50 call spread at $2.75
(50%).

(
TLAB |
Quote |
Chart |
News |
PowerRating) — Long the March 17.5/22.5 call spread at
$.80 credit average (50%). Settled at $.15. Note: This spread is a result
of a reverse collar roll.

Put Positions

(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the March 42.5 puts at $1.91 (100%).

(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the March 37 puts at $1.60 (25%).

Put Spread Positions

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

STOPS

None.

*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