Monday’s Option Alerts

  • April 11, 2003
  • Chris Tyler

When we last left off, the
ETFs were attempting to show support for the first levels off technical support.
A very short lived attempt at higher prices
in the early going was followed by some very attractive RST and 1,2,3 reversal
action at lower prices, confirmed by even stronger price “awareness
zones”. The end result was a “hammer” finish for longs, going
into Friday’s trade. Friday’s early trade was kind enough to help longs out by
producing a price gap follow thru on the open. The gap came on the heels of some
“lagging economic report”, which was promptly discounted by traders,
establishing a quick trend lower, followed by lethargic consolidating for the
balance of the session. Volume has continued to dwindle the past three days of
trade, with closing prices resulting in losses between one third to one full
percentage point.

The technical supports from Thursday’s lows have
not been taken out as of yet, but those last three little words sum it up best
for yours truly. The VIX is now stretched down to the 2 Bollinger Band on the
daily chart after reversing back to the downside in today’s session. This also
happens to be the 1.62 price extension from the March 3rd low to the March 12
high. CVR sell signals are also confirming further downside potential in the
index proxies.  

Remember the position that I was talking about?
Well, to date it hasn’t been the “best date” that one could be on. The net result has been some scalp opportunities, with no skin lost in the
process, off of the key forementioned technical levels. With today’s action
triggering Trap Door “shorts” against a backdrop of resistance in the
form of the 200-Day SMA, the intraday 1 Volatility Band, as well as 50%
Fibonacci cycle from the week’s high to low, the net result has been a scratch
thus far. That could change very rapidly with the next move. Going from a delta
neutral lean to one in which a scalp “short” was made against the
short setup this morning has the position going out short deltas. This could
have been “shored up” by the close, and although this strategy now
could potentially backfire somewhat, if the market were to trade drastically
higher, we’ll continue to let price action, confirmed by our reading of the VIX,
be the positions guide. Time will tell if this is a Forrest Gump move or not,
but until then “life is like a box of chocolates…”.

Points of Significance:

Volatility
Index		 Close Net
Change		 Signals/Direction %
Above/Below 10 Day Moving Average		 Significance
VIX 28.27 Down
-.69		      
CVR 1,6 SELL		 9.18%
Below 		Not
At Extreme
VXN 39.62 Down
-.71		        
CVR 6 SELL		 4.6%
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
Guidant 
GDT		        -4% 19843 1756
Smith International
SII		        +1% 4346 649
Cognos
COGN		        +1% 4155 460

 

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
Wal
Mart
WMT		 28.9 25.7 48 26.2

Spike Down

Name Symbol IV Previous
IV		 High
IV		 Low
IV
Diamonds
DIA		 22.2 24.3 39 18.5
Symantec
SYMC		 49.8 55.5 81.8 42.4
QLogic QLGC 53 57.3 109.5 53

Please use stops on every trade!