Futures Flip On Durable Orders

Futures were slightly better about an hour ago, but have now
flip-flopped lower on a very rancid durable orders number. September Durable
Orders came in down 5.9% vs. expectations of a 1.9% drop. This is the biggest
decline in ten months and has flipped the futures from modest gains to modest
losses. Currently, DJI futures are down 25.0, S&Ps are lower by 1.50, and Nasdaq
futures are down 2.00. In Europe, the FTSE 100 is 59.70 points, or 1.45%, lower,
the DAX is down 43.22 points, or 1.40%, and the CAC 40 is down 35.75 points, or
1.16%. In Asia, the Nikkei rallied, gaining 111.99 points, or 1.30%, while the
Hang Seng fell 64.95 points, or 0.66%. Interest rate futures are higher, the
dollar is slightly lower against most major foreign currencies, crude futures
are slightly higher, and gold futures are showing a $3.10 gain, a nice reversal
from yesterday morning.

We have another batch of economic news arriving later today that has the
potential to move the markets. At 08:45 CDT University of Michigan
October Consumer Sentiment is due to be released with consensus expectations for
81.0. At 09:00 CDT Existing Home Sales are due with expectations of 5.35M units
and New Home Sales are expected at 990K. The Michigan number is the biggie,
especially on the back of yesterday’s semi-reversal.

Today’s action will be important in light of yesterday’s action. There was a lot
of furious short-covering in the morning as the even the dog stocks were baying
at the moon. Once the shorts left the stocks dropped like a rock, and although
various excuses were floated out there, the fact of the matter is that it has
been the shorts chasing stocks higher the last few days. Now we didn’t get "key
reversal" action (higher high reverses to take out previous day’s low on a
closing basis), but we came close in the DJI and S&P. If we move solidly lower
today, selling could accelerate. The 50-day moving averages are just below the
market (8248 and 876.00 in the DJI and S&P respectively). These levels held two
days ago, and they will be tested today again. 


Yesterday, the VIX reversed to close higher on
the day, gaining .52 to 39.90. The VXN jumped 2.21 to 54.58, and the QQV gained
2.67 to 47.00.


Update: (10/24/02)

Nothing yesterday, although we did execute the MER spread, many did
not, so we list it as still working.

New Recommendations


Working Orders (Old Recommendations)

MER — Buy the November/January 35 put calendar spread (buy the January
35 puts, sell the November 35 puts) at $1.10 (25%). Somewhere near $39.00 should
get you done.

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


Reverse Collars

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


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


Directional Positions



Call Positions

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 $3.00 (25%).

Spread Positions




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  • 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
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  • Supporting documentation for claims,
    comparisons, recommendations, statistics or other technical data will be
    furnished upon request. One or more of the contributors to these
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  • 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
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