Keep Semis On Your Radar

February 20, 2002
Tony Saliba

The dollar is slightly higher against the European
currencies and unchanged against the yen. The bonds are a tad lower.

Overseas, stocks were lower with London’s FTSE 100 down
1.1% to 5032, and Germany’s DAX down 0.6% at 4738. Japan’s Nikkei 225 closed
down 0.1% to 9834, and the Hang Seng down 0.8% to 10,749.

We are probably due for a bounce in here. The biotechs may
be firm on the back of
(
IDPH |
Quote |
Chart |
News |
PowerRating) receiving FDA approval for its Zevalin
Therapeutic Regimen. Back off shorting this area — for now.

Volatility

The VIX gapped higher yesterday and never looked back,
closing exactly on its high at 26.37, up 2.28 on the day. The 200-day moving
average comes in at 27.11, while the February highs come in at 28.66. Just for a
frame of reference, the high last March was about 42.00, and the high on Sept.
21, 2001, was about 57.00.

The VXN also gapped higher, closing at 47.23, up 2.24. The
200-day moving average of the VXN comes in at 54.85! Again, for a frame of
reference, the VXN made a high last April at 83.56, and again on Sept. 17, 2001,
at 99.35.

The QQV was up 1.55 at 39.29, still incredibly cheap by
historical standards. The 200-day moving average comes in at 46.88, the high
last April was 74.89, and the high on Sept. 21, 2001, was 77.45 — just so you
know.

Updates

(
HAL |
Quote |
Chart |
News |
PowerRating) — Bought the July 20 buy-write yesterday for
$14.90 on yesterday’s sharply lower opening.

(
QQQ |
Quote |
Chart |
News |
PowerRating) — Took profits on our QQQ puts as we approached
the old low of 34.97. We will now make scale purchases on rallies against the
following levels: 34.97, 35.22, 35.64, 36.00, 36.54 and 37.11.

(
TYC |
Quote |
Chart |
News |
PowerRating) — Still waiting.

Current Recommendations

This market is in baaad shape, and may stay that way until
a) we get a climactic sell-off with screaming volatilities; or b) we get a bank
going under; or c) we hit the end of March on Japanese-inspired lows.

We remain scale-up put buyers on rallies, hopefully we
will see one today. Some levels that may act as resistance that we can
"lean" against to make such purchases:

34.97 — Feb. 8 low.

35.22 — 50% retracement level of the September to
December rally.

35.64 — Gap from Friday.

36.00 — Market Profile generated level.

36.54 — 38.2% retracement level of the May to September
sell-off.

37.11 — 38.2% retracement level of the September to
December rally.

I am NOT saying that you should purchase puts at all of
those levels. Those are just some ideas for areas where there might be some
resistance, and you might want to consider purchasing puts, depending on how
aggressive you want to be. I will be dipping in at the first level to see how it
"feels," and then scaling up from there.

Tyco "Christmas Tree" — on hold for the time
being.

Filled! — Buy the Halliburton
(
HAL |
Quote |
Chart |
News |
PowerRating) July 20 buy-write
for $15.00 (50%).

Rolls/Adjustments

Boeing
(
BA |
Quote |
Chart |
News |
PowerRating) — Investors long the proxy buy-writes
(long the Jan. ’03 calls/short the May 45 calls at $4.75; long the Jan. ’03 40
calls/short the May 45 calls at $2.75), consider taking partial profits here. We
recommend three different methods:

Simply sell out half of the position.

If you have the Jan. ’03 35 call/May 45 call, sell the
Jan. ’03 35/40 call spread at $3.50. This reduces your investment to $1.25,
but leaves you in the game.

If you have the Jan. ’03 40 call/May 45 call, sell the
Jan. ’03 40/45 call spread at $2.75. This reduces your investment to $0.00,
but leaves you in the game.

Recap of open trades

Long-term

Reverse Collars

(
DIS |
Quote |
Chart |
News |
PowerRating) — April 25/22.5 reverse collar (long the April
25 calls, short the April 22.5 puts) at $1.15 credit (75%).

Buy-writes

(
HAL |
Quote |
Chart |
News |
PowerRating) — long the July 20 buy-write at $15.00 (50%).

Proxy buy-writes

(
BA |
Quote |
Chart |
News |
PowerRating) Jan. ’03 35/May 45 call calendar @ $4.75 (50%) —
liquidated 50% at $9.00 on 2/15/02.

BA Jan. ’03 40/May 45 call calendar @ $2.75 (100%).

Complex Strategies

(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the March 60 straddle at $3.60 (50%).

Short-term

Call Positions

None.

Call Spread Positions

(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the March 30/40 1:2 call ratio spread @
$1.50.

(
SLB |
Quote |
Chart |
News |
PowerRating) — Long the May 55/60 call spread at $1.50
(50%).

(
QCOM |
Quote |
Chart |
News |
PowerRating) — Long the April 40/50 call spread at $2.50
(100%).

(
TLAB |
Quote |
Chart |
News |
PowerRating) — Long the March 17.5/22.5 call spread at
$.80 credit average (50%). Settled at $.15. Note: This spread is a result
of a reverse collar roll.

Put Positions

(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the March 42.5 puts at $1.91 (100%).

(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the March 36 puts at $1.60 (25%) — Sold
at $2.00 today. Looking to reload on rallies.

Put Spread Positions

(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55/65 put spread @ 2.125
(100%).

STOPS

None.

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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 contemplated options
transactions.

*Supporting documentation for claims, comparisons,
recommendations, statistics or other technical data will be furnished upon
request. One or more of the contributors to these commentaries may have a
position in one or more of the securities mentioned.

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 link: https://www.theocc.com/publications/risks/riskchap1.jsp

Keep Semis On Your Radar

BUY THE FEAR, SELL THE GREED

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