Monday’s Options Alerts

• June 14, 2002
• TradingMarkets Editors

The major averages tanked in the early
morning, as earnings warnings from Sprint and Adobe Systems, a
suicide attack on the US Consulate in Pakistan, and a lower-than-expected consumer sentiment
number weighed heavily on the market. At one point, the Dow
(
$INDU |
Quote |
Chart |
News |
PowerRating) was
off over 240 points and sitting on its November lows. The Nasdaq was off more
than 50 points and just 60 points shy of last September’s lows. However, the
markets staged another dramatic recovery with buying pressure or short covering
pressure accelerating during the final half hour of trading.

In the end, the Nasdaq finished in the green, while the Dow and S&P finished with very modest
losses. Sprint
(
FON |
Quote |
Chart |
News |
PowerRating) warned that its full year revenues would decline more
than expected due to slow wireless subscriber growth. This weighed heavily on
the telecom sector
(
$XTCI.X |
Quote |
Chart |
News |
PowerRating) as it dropped 3.33%. Adobe Systems
(
ADBE |
Quote |
Chart |
News |
PowerRating)
got hammered after they cut their third quarter revenue target. News of a
suicide bombing attack on the U.S. consulate in Karachi, Pakistan, rekindled
fears of terrorist attacks. Lastly, the University of Michigan’s consumer
sentiment survey fell to 90.8 from May’s reading of 96.9, much lower than the
96.3 reading. For more information on today’s action, please refer to
the market
recap.

Fear and panic were in the market today
as the VIX ran up to levels not seen since last November. The VIX
(
$VIX.X |
Quote |
Chart |
News |
PowerRating) opened in the lower third of its range and closed near the lows of
the day. This shift
in intraday sentiment shows a big decrease in fear. Today’s action triggered a CVR
I buy and a CVR III sell. Despite the conflicting signals, we could see more
follow through. The VXN
(
$VXN.X |
Quote |
Chart |
News |
PowerRating) opened near the midpoint of its
range and closed just under its open. This shift in intraday sentiment also shows a
decrease in fear. The VXN triggered a CVR one buy..

Points of Significance:

Adobe Systems
(
ADBE |
Quote |
Chart |
News |
PowerRating) dropped over
13% on four times its average volume. The shares were punished today after the
company lowered their third quarter and full year revenue forecast. Although
Adobe had strong sales of its popular Photoshop software, it did not spark
demand for its other products. Shares of Adobe are sitting on a five-month low.
Its implied volatility is getting on the high side.

Radio Shack
(
RSH |
Quote |
Chart |
News |
PowerRating)
dropped 9% on triple its average volume. The shares came under pressure today
after Sprint
(
FON |
Quote |
Chart |
News |
PowerRating) warned about declining wireless subscriber growth. It is
estimated that 27% of Radio Shack’s sales are from wireless products. Shares of
the consumer electronics company fell out of its upward sloping channel today.
There is heavy activity in the October 30 puts.

Amgen
(
AMGN |
Quote |
Chart |
News |
PowerRating) gained 6% on double
its average volume. The shares were boosted today after J.P. Morgan reiterated
their “buy” rating on the stock due to stronger-than-expected sales of
its cancer drug, Neulasta. Amgen could be setting up for another short
trade.

Abnormal Options Volume With Price Movement
—
Abnormal options volume (calls and puts) with stock price movement

Stocks With Biggest Spikes in Implied
Volatility — Stocks with biggest increases or decreases in implied
volatility compared to previous day

Spike Up

Spike Down

Please use stops on every trade!