Lurking Put Buyers

The market looks set to open
lower this morning,
sliding on poor earnings reports/warnings after
the close yesterday. Qualcomm
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reported in line, but revenue fell
short of expectations and the company warned for Q2. PeopleSoft
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reported in line as well, but with a gloomy view, and JDS Uniphase
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missed and put out a gloomy outlook, and all are trading substantially lower.

The software sector has been very strong lately, and it
will be interesting to see if the PSFT news prompts some profit-taking in this
sector today.

Although the markets were higher yesterday, it was
anything but impressive with most indices closing near their lows. Currently,
DJI futures are -20.00, S&Ps are -1.5, and Nasdaq 100 futures are -11.50
from yesterday’s close.

Regarding biotech, we have been lurking put buyers in
biotech, but every time we begin to draw a bead on it, like yesterday, they fall
out of bed so quickly that we miss the trade. Wednesday, the BTK had a nice
rally up to its 200-day moving average and opened there yesterday morning. Just
as we were starting to size up some
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puts, boom! Genzyme
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pulls the rug out. This is a good argument for “scaling,” and we will
now look to be scale purchasers of puts on strength in this sector.

Your Input Needed!!

Since we are heading into the accounting witch-hunt
season, we are interested in reader nominations for “Company
Most Likely To Have Accounting Fraud”
award, and on the flip
side, the “Most Squeaky Clean”
award. We will compile the list and look at options strategies that might be
applied to these “special” companies.

Volatility

Implied volatility got annihilated yesterday, and that
means:

TODAY LOOKS LIKE AN EXCELLENT PUT
BUYING DAY!

I was praying for a higher opening to buy puts, but I’m
not going to get it. Second chance might be Existing Home Sales at 9:00 AM CST.
If the market rallies at all today, we are scale buyers of puts.

Updates


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Straddle — The Feb. 70 straddle is still
trading around $7.50, $.50 below our purchase price, but the gamma scalping
opportunities have been incredible. Today’s daily SD levels are 65.26 – 69.58.

P.S.
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is getting wasted pre-market, so the
whole sector should be weak today.

Current Recommendations


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(Autozone) — We are working to sell 25% of our
March 55/65 put spread (long from $2.125, 100%) at $4.25.

If the market gaps higher today (unlikely), buy some puts.
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puts will do nicely (or the stock or index of your choice). Obviously,
the market is going to open lower. Be a scale buyer of QQQ puts on rallies.


(
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— Blow out the stock left over from the Jan.
12.5 buy-write and take the loss. Never buy JDSU again until the guy loses the
beret.

Rolls/Adjustments

None.

Recap of open trades

Long term

Reverse Collars


(
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— March 17.5/15 reverse collar (long the
March 17.5 calls, short the March 15 puts) at $1.50 credit average (50%).


(
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— April 25/15 reverse collar (long the April 25
calls, short the April 15 puts) at $.05 credit (100%).

Buy-writes


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Jan. ’03 10 buy-write @ 5.15 (100%) —
currently trading at $7.60.

JDSU Jan. ’02 12.5 buy-write @ 9.60 — options expired
worthless; now long the stock at $9.60. Getting stopped out this morning.

Proxy buy-writes


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Jan. ’03 35/May 45 call calendar @ $4.75.

BA Jan. ’03 40/May 45 call calendar @ $2.75.

Complex Strategies


(
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— Long the GILD Feb. 70 straddle at $8.00
(50%).

Short term

Call Positions

None.

Call Spread Positions


(
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— Long the March 30/40 1:2 call ratio spread @
$1.50.

TLAB — 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 |
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— Long the March 55/65 put spread @ 2.125
(100%).

STOPS

TLAB: Stop @ 11.95 close only.

JDSU: Stop @ 7.60 close only.

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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