Lower Opening, Greenspan, Beige Book Ahead
Futures are lower as are European shares at the moment. Currently, DJI
futures are 65.0 lower, S&P futures are 7.00 lower, and Nasdaq 100 futures
are down 12.50. European stocks are slumping, led by insurance and banking
issues. Munich Re is down almost 5% on a Deutsche downgrade, and Credit Suisse
is down 6.8%. Currently, the FTSE 100 index is 62.90 points, or 1.53%, lower, the
DAX is down 105.60 points, or 3.35%, and the CAC 40 is lower by 93.83 points,
or 3.01%. In Asia, the Nikkei gained 25.13 points, or .29%, and the Hang Seng
jumped 255.71 points, or 2.68%. Interest rate futures are higher (yields lower),
the dollar is mostly unchanged against the European currencies, but higher
against the yen, crude futures are slightly better and gold futures are
unchanged.
In corporate news, Eli Lilly (LLY) cut earnings forecasts for Q4 and the year.
LLY is trading down about 4.5% overseas. KLA-Tencor (KLAC) shares are sliding
after the company reported in-line EPS, but lowered guidance, and in the telecom
sector Morgan Stanley downgrades the regional bells after their recent large
gains (wait about three days and buy ’em).
On the economic front, we have the Fed’s Beige Book set to be released at 13:00
CDT, and Herr Bubblemeister, Greenspan, speaks at 11:30 CDT.
If this market is really entering a rally phase, this dip should be bought.
We’ll see. Sectors that might be good to buy on a dip: Biotech, Oil Service,
Telecom. Sectors to sell on a bounce: Banking, Retail, Semis.
Also, watch for a continuation of the tail wagging the dog in the treasury
vs. equities reallocation trades. Keep the 2-, 5-, 10- and 30-year futures on your
screen. Sudden downdrafts in the treasuries have been followed by spikes higher
in equities.
Volatility
Yesterday the VIX gained only .44 to 39.34, even
with a weak market. The VXN rose 1.27 to 53.61, and the QQV rose only .59 to
45.95. This was a weak performance by volatility in response to a down market
and makes me think we will be testing the upside again soon. Also, we are entering
a seasonal window where volatility tends to decline (post-earnings,
pre-holiday).
Update: (10/22/02)
None.
New Recommendations
MER — Buy the November/January 35 put calendar spread (buy the
January 35 puts, sell the November 35 puts) at $1.10 (25%). Somewhere near
$39.00 should get you done.
Working Orders (Old Recommendations)
QQQ — Those who sold the January 23/26 call spread at $1.50, bid $1.80
for the January 20/23 call spread (somewhere near $23.00 should get you done).
Recap of open trades
Long-term
Reverse Collars
CIEN — Long the January 2.5/5 reverse collar at
$.40 (25%).
Buy-writes
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
None.
Short-term
Call Positions
CCU — Long the January 40 calls at $2.00 (25%). Sold half at $4.00
on 10/21/02.
Call Spread Positions
QQQ — Short the January 23/26 call spread at $1.50 (25%).
Put Positions
WAG — Long the January 35 puts at $3.00 (25%).
Spread Positions
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
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- 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.
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