Monday’s Option Alerts

  • March 28, 2003
  • Chris Tyler

Friday marked another day of
inertia by Wall Street. We left off
Wednesday night with an inside day, a session of markedly lower volatility. In
today’s trade investors were treated to more of the same, on much lighter
volume. Nothing as of yet has been resolved overseas, and some might speculate
that some traders are quietly taking some of their enthusiastic bets from last
week off the table. A quick, decisive victory is already taking a might bit too
long for some investors, especially in light of the price run up in equity
prices that we witnessed the prior week. 

Technically we sit near a multitude of support
levels. Moving averages such as the 13 and 50-Day EMAs, and Fibonacci levels
from the March lows, as well as the pivot low from March 17th. Volume has
decreased on the pullback, not too shabby, but we do have a couple of albatross’
hanging around the markets neck. Namely too much bullishness happening much too
quickly on a bet that is already being discounted. To say the least, this keeps
me on my toes. I respect the price action, but considering every time we in the
past two years that we’re supposedly just experiencing a small percentage
retracement on lighter volume,……well you know the ending to that one.

On that note I hope those of you who
“spread” have considered at a minimum, a delta neutral strategy. I
emphasized one, involving ETFs, such as the DIAs vs At The Money options in my
last column. Yesterday’s move down to key supports, and subsequent reversal
worked like a charm for those willing to trade this style, called gamma trading
by the floor traders. Otherwise, if this isn’t your cup of tea, I hope that one
flavor that we will continue to agree upon, is that when you do consider a
trade, remember the saying, “staying spread, is staying alive”. 

The VIX and VXN continue to raise the flag, so to
speak. With recent trade testing the lower boundaries on the daily charts, and
CVR Sell Signals in both indices registering, don’t throw caution to the wind.
As I stated, my own preference is to respect price and volume first, and
volatility second. What this means is that the markets are showing mixed signs
at the moment. These signals are the basis for the fore mentioned strategy, and
what I personally consider to be a smart way to trade around the scared money in
a world filled with conflict and uncertainty.

Points of Significance:

Volatility
Index		 Close Net
Change		 Signals/Direction %
Above/Below 10 Day Moving Average		 Significance
VIX 32.22 Up
+.07		       
CVR II, VI SELL		 5.79%
Below 		Not
At Extreme
VXN 43.09 Down
-.78		        
CVR VI SELL		 6.2%
Below 		Not
At Extreme

 

Abnormal Options Volume — This list
includes both percentage movers that are normally associated with an increase in
options activity, as well as stocks that have unusually high activity and / or
technical situations,
reflecting increased speculation of a potential price move.

Name Symbol Net
% Change		 Volume Avg.
Volume
Newmont
Mining 
NEM		        +8% 19271 8756
Laboratory Holdings
LH		        +3% 1939 802

 

Stocks With Spikes in Implied
Volatility — Stocks with Increases and Decreases in implied
volatility compared to previous day. Candidates are then screened qualitatively.
These lists represent those issues that carry a blend of liquidity and/or
technical setups that might deserve further notice. 

Spike Up

Name Symbol IV Previous
IV		 High
IV		 Low
IV
Altria
MO		 43.6 35.9 51 19.4
NETFLIX
NFLX		 79.8 73 96.5 62.2
F5
Networks		 FFIV 69 63.8 127 67.5

Spike Down

Name Symbol IV Previous
IV		 High
IV		 Low
IV
China
Telecom
CHL		 31.5 36.9 45.7 35

 

Please use stops on every trade!