First, A Little Housekeeping…
Back
on March 20 (FED 101), we spoke of taking a cheap shot which would
be buying the Nasdaq 100 shares JUNE 40 calls for $7 and selling the JUNE 50s
for $2.50. We paid a net of just $4.50 for a bull-call spread with an intrinsic
value of $3.22, as the Nasdaq 100
(
QQQ |
Quote |
Chart |
News |
PowerRating) was trading $43.22. Well, we all
know that the QQQ slammed down $33.59, erasing all that intrinsic value and
cutting the value of that spread significantly. That said, here’s the beauty
of defining your risk before you enter the trade; you were able to ride out the
volatility of the market and now stand to take profits. That’s right, profits!
The poor souls that bought the underlying QQQ either got stopped out or held on
so tight a certain part of their anatomy turned blue, but the option spread
buyer weathered the storm.
Given the recent Nasdaq run, the QQQ is now back to $48.10 and according to my
friend and fellow www.tradingmarkets.com
columnist Gordan Yordanoff; we should run into a wall around $50 – $51.
Therefore, I would take some money off the table at these levels. As the 40 —
50 spread is trading for $6.20, my feeling is take profits and wait to get back
in at better prices. After all, the spread shrank to $2 ½ just over a week ago,
so let’s just say thank you and move on. Remember, there are worse things than
making 37% in one month!
As to today’s market activity, our computers are tracking pretty active put
accumulation in McData Corporation
(
MCDT |
Quote |
Chart |
News |
PowerRating). They reported earnings last
night and lowered estimates going forward. WitSoundView, CS First Boston and
others have had negative things to say about the server and storage-service
company.
However, the heavy $ weighted put ratio is not as bearish as otherwise might
seem, as market makers are simply buying and selling deep in-the-money puts to
obtain short stock interest.
| Symbol
|
Call
Volume
|
Put
Volume
|
$W
Call Vol
|
$W
Put Vol
|
| MCDT
|
3,826
|
3,839
|
6,402
|
123,581
|
Two oil service stocks, Transocean Sedco Rorex Inc.
(
RIG |
Quote |
Chart |
News |
PowerRating)
& Halliburton Co.
(
HAL |
Quote |
Chart |
News |
PowerRating) are showing bullish $ weighted money flows. In
RIG, it looks like someone pretty big rolled 5000 in-the-money April 40 calls to
May 40 calls. I find this a bit odd, as the premium level is barely a half-point.
However, we see the exact same going on in HAL. Apparently, someone wants to
keep their buy-write in place, but isn’t comfortable writing at-the-money
calls and instead seeks the safety of deep in-the-money options. Not exactly a
bullish outlook in either of those trades.
| Symbol color:black”>
|
Call
Volume PutVolume $WCall Vol $W Put Vol | RIG color:black”>
|
8,19018863,718
877 | HAL color:black”>
|
11,7811,35580,891
1,366 | GMST color:black”>
|
10,29977965,294
1,546(1010WallStreet.com |