Expiration Day — We May Be In For A Beating
Futures are sharply lower along with the currency this morning as we
have had another failure of the market to hold a "bottom." This market
is truly ugly, continually disappointing even the most negative traders (like
me). Case in point: Johnson & Johnson
(
JNJ |
Quote |
Chart |
News |
PowerRating). We exited our short
JNJ position a while ago after booking some nice profits, and when it looked
like the stock was going to bounce and give us a nice reentry on the short side
— whaam! The New York Times reports that JNJ is under criminal
investigation, and the stock is trading about $7.00 lower this morning! Damn
that’s frustrating, and it’s been happening a lot lately. The reentry is just
not happening, and we are losing our downside bullets.
Now I have to admit, I am a "trade-a-holic," and I trade everything
that can be traded. I have a few currency positions, and it feels as though the
currencies are on the verge of an explosion to the upside (dollar exploding
lower). This could contribute to further selling in the market. If you think
domestic investors are getting hurt in this market, just think about the foreign
investor — they are suffering doubly as the asset price and the currency in
which it is denominated are both getting annihilated. Currently, the DJI futures
are 130 lower, the S&P futures are 11.50 points lower, and the Nasdaq 100
futures are 16.00 points lower. The Russell 2000 futures are showing unchanged.
The Russell had an especially poor day yesterday, and appears to be on the verge
of a meltdown. We might buy some more puts/put spreads in the IWM.
July Positions
We have some July positions expiring today that we will need to deal
with:
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the August/July 32.5 put calendar. The idea here was for the
July 32.5 puts to expire worthless, leaving us long the August 32.5 puts at a
good price. If by halfway through the day tomorrow it looks as if there is no
chance of the SMH climbing above 32.5, we will liquidate the spread.
Buy-writes — We purchased protective July puts against our buy-writes a while
ago, and if the puts finish in the money, we will exercise them and be rid of
these Godforsaken buy-writes. They have been the worst trades of the year. Right
now
(
AMR |
Quote |
Chart |
News |
PowerRating) and
(
SEBL |
Quote |
Chart |
News |
PowerRating) buy-writes look as though they will be gone
tomorrow. I will keep you posted.
Volatility
Volatility was fairly steady yesterday with the VIX picking up .16 to 39.95, the
VXN gaining .38 to 63.61, and the QQV losing .90 to 54.66. Look for a
test of the highs today.
Government intervention in both the equity and currency markets is a distinct
possibility today, and the fact that it is expiration day for July options will
make it that much easier if they decode to do it. Be forewarned!
Trade Updates (7/18/02)
No trades yesterday. The IWM spread recommendation (below) is getting
close.
New Actions (New Recommendations)
(
AHC |
Quote |
Chart |
News |
PowerRating) — Buy the January 65/75 put spread for $3.00 (25%).
(
BAC |
Quote |
Chart |
News |
PowerRating) — Buy the January 55/65 put spread for $3.00 (25%).
Working Orders (Old Recommendations)
(
IWM |
Quote |
Chart |
News |
PowerRating) — Sell the remaining November 80/90 put spreads at $7.00.
(
MMM |
Quote |
Chart |
News |
PowerRating) — Sell half of the October 110/120 put spreads at $5.50, hold the
balance.
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Sell all CHIR July 50 calls at $1.00 to close. (These puppies are
dead meat unless there is an act of God by Friday.)
(
TGT |
Quote |
Chart |
News |
PowerRating) — Sell the remaining January 35 puts at $6.00 — the naked
January 35 puts not the spread!!!
Rolls/Adjustments
(
SEBL |
Quote |
Chart |
News |
PowerRating) — For those long the SEBL August 27.5 buy-write: Buy the
SEBL August 27.5 calls (to close) and sell the November 20 calls (to open) for
$2.00 credit. (Far away right now.)
Recap of open trades:
Long-term
Reverse Collars
None.
Buy-writes
(
AMR |
Quote |
Chart |
News |
PowerRating) — Long the August 25 buy-write at $22.00 (50%). Protected with
long July 15 puts at $.70.
(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the July 22.5 buy-write at
$19.40 (50%). Protected with long July 10 puts at $.30.
(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the October 20 buy-write at
$16.30 (25%). Protected with long July 10 puts at $.30.
(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the October 17.5 buy-write at
$13.25 (100%).
(
SEBL |
Quote |
Chart |
News |
PowerRating) — Long the August 27.5 buy-write at
$23.00 (50%). Protected with long July 10 puts at $.35.
Proxy buy-writes
(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the January 15 calls at $3.20 — left over from proxy
buy-write (50%).
Complex Strategies
None.
Directional Positions
(
AMGN |
Quote |
Chart |
News |
PowerRating) — Long the January 30/40 put spread at $3.00 (25%). Sold half
at $5.00 on 7/10/02.
(
TGT |
Quote |
Chart |
News |
PowerRating) — Long the January ’03 35 puts at $2.58 (37.5%). Half of the position
"morphed" into a bear spreads on 7/16/02 (below).
TGT (2) — Long the January 30/35 put spread at
$.58 (37.5%). This due to adjustment on 7/16/02.
Short-term
Call Positions
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Long the July 50 calls at $3.30 (50%) — DOA.
Call Spread Positions
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the August 26/28 1:2 call ratio spread for even money
(25%).
QQQ — Long the August 26/28/30 "Christmas tree" at $.35 (25%).
Put Positions
None.
Spread Positions
(
IWM |
Quote |
Chart |
News |
PowerRating) — Long the November 80/90 put spread at $3.00 (25%). Sold half at
$5.00 on 7/10/02.
(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at $2.80 (100%).
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the July/August 32.5 put spread at $.70 (25%). Sold half at
$1.50, 7/16/02.
Stops
None.
|
Click
|
- 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