Monday’s Options Alerts

• March 28, 2002
• TradingMarkets Editors

Stocks were boosted on this pre-holiday trading day
thanks to positive economic data.
The Chicago Purchasing Manager’s Index jumped to 55.7% in March
compared to a reading of 53.1% in February. This was the first back to back
increase since the summer of 2000. The final reading for the University of
Michigan Consumer sentiment reading came in at 95.7, exceeding the estimate of
95. And finally, fourth quarter GDP increased 1.7%, this was the strongest sign
of growth in over a year. For more information on today’s action, please refer to
the market
recap.

The VIX 
(
$VIX.X |
Quote |
Chart |
News |
PowerRating)
opened near the midpoint and closed in the top third of its range.
This shift in
intraday sentiment suggest that fear is increasing. The VIX are again at its
summer of 2000 lows. Today’s action gave us four CVR sell signals.  The VXN
(
$VXN.X |
Quote |
Chart |
News |
PowerRating) opened near its high and closed near its lows of the day. This shift in intraday sentiment
suggest that fear is dropping. The VXN triggered yet another CVR
VI sell signal. With four CVR sell signals in place, there is a strong
downward bias over the next few trading days. This low volatility condition also
represents a good time to buy cheap put options. 

Points of Significance:

Watson Pharmaceuticals
(
WPI |
Quote |
Chart |
News |
PowerRating)
dropped almost 12% on over 10 times its average volume. Watson took a double
dose of bad news today as the FDA rejected two of its drug treatments. 
First, the FDA rejected Oxytrol, a skin patch for overactive bladders. Second,
the FDA also rejected Watson’s and Mylan Lab’s joint venture depression citing
that the needed additional information about the treatments effectiveness. There
is heavy activity in the May 30 puts.

Direct Focus
(
DFXI |
Quote |
Chart |
News |
PowerRating) gained over
7% on over triple its average volume. The stock broke out of a quasi cup and
handle pattern and are at a new 52 week high. There is heavy activity in the May
40 calls.

Implied volatility for the Consumer
Staples SPRDs are at a new six month low. This represents an opportunity to pick
up cheap options or a good backspread play.

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!