GDP Comes In Low, Can They Work Their Month-End Mojos?

  • July 31, 2002
  • Tony Saliba


Advanced GDP came in way below expectations
this morning. Q2 advance GDP came in at 1.1%, well below consensus expectations
of 2.3%. The deflator was a bit below expectations, coming in at 1.2% vs.
expectations of 1.3%.Another important economic number will be released at 09:00
CDT. Chicago PMI is expected to come in at 56.5 vs. last month’s 58.2. This
number will be a market mover, so be on your toes. 

In Europe, the FTSE was trading 40.00 points or .96 % higher, the DAX was 73.53
points or 1.90% lower, and the CAC was 43.20 points or 1.28 % higher.
In Asia, the Nikkei closed down 125.78 points or 1.26%, while the Hang Seng rose
112.11 points or 1.10%.

While I think we are possibly in a corrective phase, the bear is still the boss.
Sectors that I am looking at as future shorts: banks, broker-dealers, computers,
homebuilders, retailers, and Microsoft in particular. I am trying to approach
shorting some of these stocks slowly and incrementally so we don’t get chewed up
too badly (like in March) if we are early. I would like to lightly scale in to
these positions over the next six weeks, should the market cooperate.

Oh yeah, on the corrupt, disgusting, and should-also-be-in-jail front, today is
month-end markup day, so keep your short-term positions on a short leash.

Volatility

Yesterday volatility was mixed. The VIX was up on the back of Dow weakness,
gaining 1.43 to 35.15 (although that could rightfully be considered a “dead cat”
bounce after yesterday’s wipeout). The VXN and QQV both continued lower on the
back of Nasdaq strength with the VIX dropping 1.11 to 56.46 and the QQV dropping
1.64 to 48.46.

Overall I feel that volatility has further to go on the downside, but
yesterday’s trashing may have been a bit overdone.

Trade Updates (Tuesday 7/30/02)

C – We bought the December / August 30 put calendar spread (bought the December,
sold the August) at $1.70 (25%).

C- We bought the December / September 30 put calendar spread (bought the
December, sold the September) at $1.00 (25%).

AMGN – We bought the January 30 /40 put spread at $2.00 (25%). This raises our
position to a 50% allocation at an average cost of $2.50.

New Actions (New Recommendations)

None

Orders (Old Recommendations)

MMM- Buy another 25% of the MMM October 110 / 120 put spread at
$2.00.

Working
Rolls/Adjustments:

IWM- Traders stuck long the August 70 puts at $2.00 (25%), there is
virtually no bid for these options. Rather than puking them out for almost
nothing, buy half as many of the August 75 puts at $.50,
and leave a resting order to sell the 70’s at $.25.

Recap of
open trades:

Long-term

Reverse
Collars:

Buy-writes:

AOL – long the July 22.5 buy-write at $19.40 (50%). July has expired,
looking to roll into January ’03.

AOL -long the October 20 buy-write at $16.30 (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:

None

Directional Positions:

AMGN – long the January 30 /40 put spread at $2.50 (50%).

BAC – Long the January 50 / 60put
spread at an average price of $2.75 (50%).

Short-term

Call Positions:

None

Call Spread Positions:

QQQ – 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:

IWM – Long the August 70 puts at $2.00 (25%).

Spread Positions:

MMM – Long the October 110 / 120 put spread at an average price of $2.87
(75%).

Stops

AOL – Two consecutive
closes below $10.00 or one close below $9.64.