Falling Bank Shares, Falling Markets
Concerns about bad loan write-offs and the Brazilian election have bank
shares reeling around the globe, leading to a lower opening ahead. Credit Suisse
dropped another 6% on the back of last week’s 28% decline and is being reviewed
by Standard and Poor’s for a possible downgrade in credit rating, and Commercebank
hit a 20-year low. US bank shares are also trading sharply lower with Bank of
America, Citigroup, and JP Morgan Chase under pressure (read: derivatives).
Currently, DJI futures are 30.0 lower, S&P futures are 4.00 lower, and
Nasdaq 100 futures are 4.50 lower.
In Europe, the FTSE 100 is 43.50 points, or 1.14%,
lower, the DAX is 36.53 points, or 1.35%, lower, and the CAC 40 is down 28.79
points, or 1.04%. In Asia, the Nikkei got walloped for a 339.55 point, or
3.76% loss (levels last seen in the early ’80s), and the Hang Seng fell 119.97
points, or 1.33%.
Interest rate futures are sharply higher, the dollar is mixed, crude oil is
stronger on the back of the attack on the French oil tanker off the coast of
Yemen, and gold futures are unchanged.
Game Plan
Frankly, I’m shocked that we are not massively lower. I was expecting a
semi-wipeout today, and the only reason we are not seeing one is probably
because of rate cut speculation. Therefore, we will maintain our short positions
and roll our stops lower. Because of the renewed weakness in the banking sector
— not just here, but globally, a rate cut is a layup, probably any day now.
Unfortunately, this will only result in a flurry of short-covering and another
selling opportunity (see Japan). The dead wood needs to be cleared away before the
forest can grow, and unfortunately, lower interest rates only serve to keep
"zombie" companies on life support, sucking the blood out of the
"good" companies (see Japan). Meanwhile, while we wait for the selling
climax, we will maintain shorts and add more on rallies.
Volatility
On Friday, the VIX rose 1.32 to 46.28, the VXN moved above 60.00 once
again, gaining 2.07 to 60.28, and the QQV gained .45 to 50.18. High, but I am
not a seller.
P.S.
New stop-loss levels under "Stops" below.
Update: (10/04/02)
CCU — We bought another 25% of the January 40 calls at $1.50. This
raises us to a 50% position at an average cost of $2.00.
IBM — We sold half of our January 50/60 put spreads at $4.00. Hold the balance.
KSS — We sold the remaining KSS January 60/70 put spreads at $7.00. (Actually,
we bought the January 60/70 call spread at $2.90, which is the same as selling
the put spread at $7.05. $9.95 -2.90 = $7.05) We will mark it out at $7.00, and
the position is now closed.
S — We sold half the January 35/45 put spreads at $6.00. Hold the balance.
New Recommendations
BP — Cancel the BP recommendation.
S — Sell the remaining January 35/45 put spreads at $7.00.
Working Orders (Old Recommendations)
BAC — Sell half of the January 50/60 put spread at $5.00 (or buy the
January 50/60 call spread at $4.95 — an equivalent trade).
IBM — Sell half of the January 50 /60 put spread at $4.00.
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
BAC — Long the January 50/60 put spread
at an average price of $2.50 (75%).
IBM — Long the January 50/60 put spread at $2.00 (25%). Sold half at
$4.00 on 10 /04/02.
KSS — Long the January 60/70 put spread at $3.00 (12.5%). Sold
at $7.00 on 10 /04/02, position closed.
S — Long the January 35/45 put spread at $3.00 (12.5%). Sold
half at $6.00 on 10 / 04 /02.
Short-term
Call Positions
CCU — Long the January 40 calls at $2.00 (50%).
Call Spread Positions
None.
Put Positions
None.
Spread Positions
MMM — Long the October 90/100/110 put butterfly at $1.45 (25%).
Stops
BAC — $67.00, close only.
IBM — $65.00, close only.
S — $41.00 close only.
MMM butterfly — no stop.
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