Monday’s Options Alerts

• January 3, 2003
• Chris Tyler

The ETFs all closed higher on
the session in tight volatility trade that consolidated Thursday’s strong
percentage gains. The roof caved in over
at Home Depot
(
HD |
Quote |
Chart |
News |
PowerRating) as the company sent out an earnings warning that
“hammered” the stock and related issues in the retail sector.
Considering this news, the fact that we are going into the weekend (which has
been a crowd favorite for selling equities), and that oil and gold prices rose
in Friday’s trade, the market’s resilience today was impressive. Volume was
light as expected, as many investors include the entire week after New Years in
their vacation plans (must be nice). 

Since our last report, the respective trendline
and Fibonacci price supports that sustained the rally from the October lows have
held. Probing at these levels did fractionally penetrate our awareness zones,
but that’s why we trade the pattern, and not just the number. The ETFs are now
well off these levels, but the real signal as to the next strong move, meaning
through the recent lows or early December highs should be imminent. Apparently
the rally off our recent lows did have some institutional enthusiasm behind it,
according to Kevin Haggerty’s column on Friday. My vote is to stay prepared and
watch the tape closely. Resistance is right above the ETFs closing prices, so a
move away from this area, with the Generals back in town, should provide some
solid opportunities from either side of the market. 

 The 
(
$VIX |
Quote |
Chart |
News |
PowerRating) and the
(
$VXN |
Quote |
Chart |
News |
PowerRating) both finished down on the session with the VIX
establishing two sell signals. The CVR 3
and 6 are the first triggers in some time and on the price charts both indices
are testing range lows, collaborating with the fore mentioned signals. With this
in mind, if volume decides to hold hands with price and gives intraday signs of
topping action around the current resistance zone in the ETFs, the decision will
be an easy one. As always price and volume dictate trade, so be prepared for
anything to happen by keeping ready with an open mind and keen eye. Have a good
weekend.

 

Points of Significance:

Volatility Index	Close	Net Change	Signals/Direction	% Above/Below 10 Day Moving Average	Significance
VIX	27.98	Down -.54	         CVR III, VI	10.2% Below	At Extreme
VXN	45.71	Down -1.34	         NONE	2.18% 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
Electronic ArtsÂ	ERTS	       +4%	32747	7212
Advanced Auto Parts	AAP	       -2%	5114	687
Affiliated Computer Service	ACS	       +2%	6467	770
3M	MMM	       0%	23055	6905

 

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
Appelera	ABI	68.5	62.3	79	50.8
Philip Morris	MO	34.2	30	51	19.5
Affiliated Computer Services	ACS	46.3	42	70	31.3

 

Spike Down

Name	Symbol	IV	Previous IV	High IV	Low IV
Barr Laboratories	BRL	33.8	37.2	57	30.1
Pecs Solutions	PECS	62.9	70.9	85	61
Davita	DVA	32	36.5	63.7	29

 

Please use stops on every trade!