Month End, Tread Lightly
Month End, Tread Lightly (But Be a Scale
Buyer of Puts)
Futures are slightly higher this morning.
Personal Income and Personal Consumption came in right on the nose, both up 0.4%.
Crude oil is lower on reports that the Israelis and Palestinians are working on
a plan to end the siege at Ramallah.
After Friday’s wipeout, I wouldn’t be surprised
to see any higher opening met with selling, but where the market goes from there
I don’t know. The default direction is lower, but we are at month end, when I
hate trading the most because of the blatant manipulation that takes place as
mutual funds engage in "window dressing."
Now that the market is cracking down on shoddy and misleading accounting and
conflicts of interest among analysts, how long before they crack down on
this monthly misuse of investors’ funds? I’m not holding my breath. Anyway
— be prepared for a little propping. Retailers, cyclicals, and of course,
semiconductors are the anointed sectors. Also keep an eye on the newly
discovered oil service and gold sectors for some manipulation.
Volatility
On Friday the volatility indices sprung to life. The VIX, VXN and QQV,
had not really popped early last week, even though the market has been
under pressure. That changed Friday as the VIX gained 1.59 to close at 24.64,
the VXN picked up 2.06 to 42.24, and the QQV gained 2.90 to 37.11. This is
extraordinary on a Friday after a big economic report.
General Outlook
The market is still oversold here, but it is picking up momentum
to the downside and is extremely vulnerable. Month-end is coming, and I would
not be shocked by a rally, but it feels like we are heading for a fall. Although
the Nasdaq has taken the brunt of the sell-off, the DJI is starting to look
extremely vulnerable also. With the dollar declining and gold on the run, it is
looking to me like people are discovering that there are other places you can
put money besides stocks. That could cause the Dow to tumble because the main
attraction of the Dow has been that "it ain’t the Nasdaq."
If the Dow pops on "window dressing" Monday or Tuesday, we will be
buying June puts, and we will be scale buyers of puts on rallies for the near
future. I will be sending out suggested put-buying levels after the open.
Trade Updates (4/26/02)
(
APC |
Quote |
Chart |
News |
PowerRating) — We bought the May 55/60 1:2 ratio call spread at $.65.
(
DYN |
Quote |
Chart |
News |
PowerRating) — We bought the January 15/June 20 call spread at $3.20 (50%).
(
WMT |
Quote |
Chart |
News |
PowerRating) — We sold half of our June 60 puts at $4.60. Holding the balance.
Working Orders (Old Recommendations)
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Sell all of the July 50 calls at $1.00 to close position.
(
DJX |
Quote |
Chart |
News |
PowerRating) — Sell half of the May 100 puts at $3.00.
(
MLNM |
Quote |
Chart |
News |
PowerRating) — Sell all of the May 25 calls at $.50 to close position.
(
MSFT |
Quote |
Chart |
News |
PowerRating) — Buy the May/July 50 put calendar (buy the July puts, sell
the May puts) at $1.00 (25%).
(
DJX |
Quote |
Chart |
News |
PowerRating) — Sell half of the May 100 puts at $3.00.
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Buy the June 33 puts (25%) against the $33.30 area in the QQQ, buy
25% more at the $33.80 level.
(
SMH |
Quote |
Chart |
News |
PowerRating) — Sell half of the May 40 puts at $1.80.
New Actions (New Recommendations)
None.
Rolls/Adjustments
None.
On The Horizon…
Broker-Dealer shorts on a bounce.
Recap of open trades
Long-term
Reverse Collars
None.
Buy-writes
(
AMR |
Quote |
Chart |
News |
PowerRating) — Long the August 25 buy-write at $22.00 (50%).
(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the July 22.5 buy-write at
$19.40 (50%).
(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the July 20 buy-write at $15.00
(50%).
HAL — Long the July 17.5 buy-write at $14.50
(50%).
(
SEBL |
Quote |
Chart |
News |
PowerRating) — Long the August 27.5 buy-write at
$23.00 (50%).
Proxy buy-writes
(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the January 15/June 20 proxy
buy-write at $3.20 (50%).
Complex Strategies
None.
Directional Positions
(
JNJ |
Quote |
Chart |
News |
PowerRating) — Long the January 60 puts at $3.30
(50%).
Short-term
Call Positions
(
APC |
Quote |
Chart |
News |
PowerRating) — Long the May 60 calls at $1.50(100%).
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Long the July 50 calls at $3.30
(50%).
(
CPN |
Quote |
Chart |
News |
PowerRating) — Long the May 15 calls at $.40 (50%).
(
MLNM |
Quote |
Chart |
News |
PowerRating) — Long the May 25 calls at $2.40
(50%).
Call Spread Positions
None.
Put Positions
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August 65 puts at $3.00 (25%) — part of a spread
"leg" to be completed later.
(
DJX |
Quote |
Chart |
News |
PowerRating) — Long the May 100 puts at $1.50
(50%).
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the May 40 puts at $.90 (100%).
Holding.
WMT|WMT] — Long the June 60 puts at $2.50 (75%).
Sold half at $4.60 on 4/26/02, holding balance.
Spread Positions
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August/May 65 put calendar at $1.50 (50%).
Stops
None.
- Options trading involves substantial risk and
is not suitable for all Investors. - Also note that spread strategies involve
multiple commissions and are not risk-free. Most spreads must be done in a
margin account.
- Because of the importance of tax
considerations to all options transactions, the investor considering options
should consult with a tax advisor as to how taxes may affect the outcome of
contemplated options transactions.
- Supporting documentation for claims,
comparisons, recommendations, statistics or other technical data will be
furnished upon request. One or more of the contributors to these
commentaries may have a position in one or more of the securities mentioned.
- It is important to note that the options
strategies discussed herein are not suitable to all investors. Options are
complex investment tools and involve substantial risk. Moreover spreading
strategies do not eliminate risk and involve multiple commissions.
- Note: All individuals must have read the ODD
carefully before trading options. To obtain the document, click on the OCC
link: https://www.theocc.com/publications/risks/riskchap1.jsp