Looking Up

• February 27, 2002
• Tony Saliba

Futures
look better on the back of better-than-expected January durable goods
orders (+2.6% vs. a consensus 1.9%). New home sales at 10:00 a.m. EST (931k
expected) will give further guidance as to economic strength.

The big enchilada, however, will be the Greenspan testimony in front of the
House Financial Services Committee. We are looking for some serious cheerleading
to take place, but look for the politicos to try to bring up Enron at every
opportunity.

Imclone
(
IMCL |
Quote |
Chart |
News |
PowerRating) had a burst of good news on reports that the FDA might not
require it  to conduct new large-scale trials on Erbitux. IMCL is up about
$7.00 pre-market. Imclone started the biotech wipeout in late December, let’s
see if it can also end it! We noted that biotech stocks were relatively strong
yesterday and that it might be cherry-picking time in that sector (guess we
should have been cherry-picking
Imclone!).

Natural gas and oil stocks look interesting on a dip. Last night’s API
report might give us one today.

Volatility:

Volatility, like the rest of the market, bounced around and finished
close to unchanged.

The VIX
finished .29 higher on the day at 23.57.

The VXN finished .70 higher at 44.77

The QQV got trashed again, finishing at 37.72, down 1.23. The QQV is only about
3 points above multi-year lows.

Updates:

BA- Investors looking to “roll” the January 35 / May 45
proxy buy-write into the Janaury 40 / May 45 proxy buy-write by selling the
January 35 /40 call spread at $3.50 should have been filled today.

QQQ — We bought the QQQ April 35 puts at
$2.05 yesterday and again at $1.90 this morning. Unfortunately the QQQ’s never
tested yesterday’s lows, which was our profit taking level. We are going home
with a 25% position at an average price of $1.975. This was the first
day in quite a while where we did not get instant gratification on our put buys.
Are the winds of change blowing? We are willing to hang around and find out

SLB — We were unable to buy the May 60 /65
call spread at $1.30 today. The API report out tonight was bearish, so make sure
you reenter the spread tomorrow.

SMH — Per the Intraday Alert!, we rolled
out of the SMH March 42.5 puts into the April 40 puts at a cost of $.20. The SMH
tanked immediately after I sent the alert out, so some of you may have gotten
better levels.

Current
Recommendations:

We still scale-up buyers of April puts in the QQQ, but we are going
into “rope-a-dope” mode for tomorrow with month end markup and
Greenspan on the same day. Below are some technical levels, to be used as loose
guidelines, especially for the next couple of days.

• 35.22 – 50% retracement level of
  the September to December rally.
• 35.64 – Gap from February 15.
• 36.15- 20 day moving average.
• 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.

See the Disney
(
DIS |
Quote |
Chart |
News |
PowerRating)
“roll” suggestion below.

Rolls/Adjustments:

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

1) Simply sell out half of the position

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

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

Disney (DIS) – Investors long the April 22.5/ 25 reverse collar (long the April
25 calls, short the April 22.5 puts) at a $1.15 credit (75%) may want to
consider the following roll:  Buy the Disney April 22.5 put/ April 27.5
collar (buy the April 22.5 puts, sell the April 27.5 calls) for zero. This will
“roll” you into the DIS April 25 / 27.5 bull call spread at a $1.15
credit.

Schlumberger (SLB) – Investors long the SLB May 55 / 60 call spread at $1.50 may
purchase the May 60 / 65 call spread at $1.30 to roll into the May 55 / 65 call
spread at a cost of $2.80.

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 a $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 – liquidated 50% at $9.00 on 2/15/02. Rolled
remaining 50% on 2/21/02 by selling the January 35/ 40 call spread at $3.50.

This means that 50% of this original position (long BA January 35 calls /
short the May 45 calls at $4.75) was closed at a $4.25 profit, and the
remaining 50% has now been rolled into long the BA January 40 call / May 45
call spread at an effective price of $1.25 ($4.75-$3.50=$1.25). We will now
aggregate this rolled position with our open January 40 call / May 45 call
spreads below.

BA –  long the January 40 / May 45 call spread (long the January 40
calls, short the May 45 calls) at an effective price of $2.25 (150%).

Complex Strategies:


(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the March 60
straddle at $3.30 (100%).

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 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%).

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 (75%), sold 25% at $3.20 on 2/21/02.

(
QQQ |
Quote |
Chart |
News |
PowerRating) — Flat — looking to scale up buy (see above).

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.