Lower and Slower — Good Basketball Viewing Day
Futures are gyrating around fair value
this morning, with the opening looking a tad lower. February PPI came
in as expected at +0.2%, while the core rate came in unchanged vs. expectations
of a 0.1% rise. There was nothing earth shattering in those numbers, but just
before the opening, we will have February industrial production (+0.1% expected)
and capacity utilization (74% expected), which could be market-movers.
Sure to be a market mover is the University of Michigan preliminary March
Consumer Sentiment numbers, with a reading of 92 expected. In light of the
decline in February retail sales reported Wednesday, this number will be closely
scrutinized for any sign of weakening consumer psychology. Will the recent jump
in stock prices be enough to offset higher energy prices and interest
rates? We shall see.
March Expiration
Today is the expiration of March options. It doesn’t look like a
particularly lively one is on tap at this point, but you never know. As always,
unusually large open interest in option strikes near the current underlying
price can exert an influence over the share price, usually pulling it toward the
strike. Trade accordingly.
Volatility
The VIX closed up
(barely) at 22.02, the VXN was hammered, down .93 at 42.33, and the QQV closed
down .97 at 36.28. Volatility remains low and in a very narrow range. I will be
writing about the cheapness of volatility this weekend and exploring what I feel
some of the reasons for this continuing cheapness are.
March Positions
AutoZone
(
AZO |
Quote |
Chart |
News |
PowerRating) — AutoZone did not trade below 65, and our March 65
puts have a bid that is so low that it is not worth selling. Hold on and hope
for a “lotto” move today.
Dynegy
(
DYN |
Quote |
Chart |
News |
PowerRating) —
Still on the bubble with Dynegy, it opened above $30.00 today and drifted lower
all day. We go into expiration holding the March 30 calls, which went out at .15
to .25. We’ll hold into the morning and see what gives. Longer term, Dynegy
looks good, but that might not help us today.
Wal-Mart
(
WMT |
Quote |
Chart |
News |
PowerRating) — We are one-to-one short stock vs. March 60 straddles here,
and we need a break below $60.00 today, and this looks like a long shot.
Trade Updates
(3/14/02)
We missed the Chiron
(
CHIR |
Quote |
Chart |
News |
PowerRating) bull spread again by a whisker.
(This is driving me nuts.) Reenter it today.
We bought the Halliburton
(
HAL |
Quote |
Chart |
News |
PowerRating) July 17.5 buy-write at $14.50 (actually got
lucky and bought it at $14.30, but we recommended paying $14.50, so we establish
the position there). This completes our allocation to this trade.
Current Recommendations/Working Orders
AutoZone (AZO) — Sell the last 25% of the March 55/65 put spread at $4.00 (need
a miracle).
Chiron (CHIR) — Buy the July 47.5/55 call spread at $2.50 (50%).
Exxon Mobil
(
XOM |
Quote |
Chart |
News |
PowerRating) — Sell the July 40 calls at $5.00 to close the position.
Qualcomm
(
QCOM |
Quote |
Chart |
News |
PowerRating) — Sell the April 40/50 call spread at $5.00 (50%).
(
SMH |
Quote |
Chart |
News |
PowerRating) — Begin making scale purchases of the SMH April 45 puts into $48.00
overhead resistance. Start at $2.10 or better.
Rolls/Adjustments
Disney
(
DIS |
Quote |
Chart |
News |
PowerRating) — 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.
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%).
HAL — Long the July 17.5 buy-write at $14.50
(50%).
Proxy buy-writes
None.
Complex Strategies
(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the March 60 straddle at $3.30
(100%). We have finished selling stock against the position and are now one-to-one
short stock vs. calls.
Short-term
Call Positions
(
APC |
Quote |
Chart |
News |
PowerRating) — Long the May 60 calls at $1.75 (50%).
(
CPN |
Quote |
Chart |
News |
PowerRating) — Long the April 12.5 calls at $1.20 (50%).
(
MLNM |
Quote |
Chart |
News |
PowerRating) — Long the May 25 calls at $2.40 (50%).
(
XOM |
Quote |
Chart |
News |
PowerRating) — Long the July 40 calls at $3.00 (25%).
Call Spread Positions
(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the March 30/40 1:2 call ratio spread @ $1.50.
(
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
None.
Put Spread Positions
(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55/65 put spread @ 2.125 (25%). Sold 25% on 3/5/02
at
$3.00.
Long the April 60/March 55 put spread at $2.125 (50%), (result of
“roll”).
Stops
None.
|
Click
|
- 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