Holiday Bargain Hunting
It is clear that the market, (including Old Economy, New Economy and the New
New Economy segments) is suffering from the whip-saw of news from the political
world, (and it seems clear that the market is screaming for a Bush victory). It
also is clear that there is concern about earnings that reaches past the ballot
struggle that will eliminate that as a variable. What is also clear, it
seems to me, is that as we resolve the former, the latter cannot support the high
levels of volatility (implied) we see in options market. Additionally, once an
Administration is installed, the activity from Washington will most likely be
muted, which is a positive for the market. (Read: no extreme changes to the
status quo.)
Thus, many good names that have taken a beating in these past few weeks will
be ripe for that year-end rally (and beyond?) that we spoke of earlier in
the month. These possibilities would suggest to us to roll down the vertical
spreads that you may have implemented a few weeks ago, or initiate new ones now.
Buying vertical spreads (in-the-money calls and selling fatter at-the-money
calls) are interesting right now, as are some buy-writes.
Pre-open
order volume was expectedly light on this half day today.
Overall, call buyers and sellers are even at 1:1. Put buyers and sellers
follow suit, even at 1:1.
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QCOM |
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CSCO |
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MSFT |
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SUNW |
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ORCL |
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PowerRating) comprised the top five order volume
leaders.
MSFT call sellers outnumber buyers at a lop-sided 9:1. In QCOM, call
sellers lead buyers 3:2. ORCL call buyers outnumber sellers 2:1.
AOL call buyers are out in force, almost completely dominating sellers.
After
the first hour of trading, overall call sellers lead buyers 2:1, while put
buyers and sellers are even at 1:1. Top five volume leaders have shifted,
with AOL assuming the lead, and
(
INTC |
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(
JNPR |
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PowerRating) rounding out the rest.
CSCO call sellers lead buyers 6:1, and put buyers lead sellers 5:2. MSFT call
sellers continue to lead buyers, but at a much more equitable rate of 2:1.
Also, MSFT put buyers lead sellers 4:1.
The cheap options that were purchased two weeks ago can be scaled out here.
Puts, sold and replaced with more out-of-money strikes, and calls (which may
have very little of value left) replace with fewer, closer to the money strikes.
If all scenarios “pan out” (resolution this weekend with a Bush victory and thus
a strong rally), this strategy is safest and most leveraged. If only one or less
“pan out,” resolution, but Gore victory, or no resolution, your downside is
still protected to a greater degree than other strategies. At this moment, it
looks like the Bush Scenario is expected.