Neutralized By News

Decent technical reversals in the market
yesterday and Greenspan happy talk had the markets firm on the close. However,
this has been somewhat neutralized by bad news from overseas, and the market
will open slightly better to unchanged. Another suicide bombing in Israel has
left at least 16 dead and more than 40 wounded, and Israel has responded by
rolling tanks into Jenin. The rhetoric has also cranked back up in the
India/Pakistan feud with Musharraf making hostile statements last night.

In Europe, the FTSE was lower after a two-day English holiday, dropping 1.7% to
5001, while the DAX was up 0.7% to 4659. In Asia, the Nikkei was unchanged,
while the Hang Seng rose 0.8% to 11,402. The dollar is slightly higher at the
moment, and crude oil is lower.

Bounce?

Technical action yesterday, both in terms of price and volatility, suggests we
may be in the neighborhood of a bounce. Remember first and foremost that this is
a bear market, and these bounces, should they occur, tend to be
rather fleeting. As always, we look to buy puts into rallies. Let’s see if a) we
get one, and b) if it has any staying power. We need to find some financial
stocks to short.

Volatility

Volatility exploded higher yesterday before subsiding with the
afternoon rally. The VIX screamed up to 27.93 before reversing to close at
26.94, up 1.24 on the day. The VIX is now above its 200-day moving average for
the first time since late April — right before a nice rally. The VXN rallied up
to an intraday high of 50.12, just below its 200-day moving average, before
settling back at 49.66, up 2.01 on the day. The QQV spiked up to 44.31 before
settling at 43.35, up .87 on the day. The QQV also closed above its 200-day
moving average (43.04). Volatility spiking up the way it has is one of the
pre-conditions we need for a bounce.

Trade Updates (6/04/02)


(
SMH |
Quote |
Chart |
News |
PowerRating)
— We sold the balance of our June 40 puts at $3.50.

(
TGT |
Quote |
Chart |
News |
PowerRating)
— We sold a few of our June 40 puts at $1.70 (roughly 20%).

New Actions (New Recommendations)


(
DJX |
Quote |
Chart |
News |
PowerRating)
— On a test of the 9529-9580 area, sell the June 96 puts
against our long June 100 puts.

(
GM |
Quote |
Chart |
News |
PowerRating)
(1) — On a test of the $64.00 – $65.00 area, buy another 20% of the
January 60 puts.

GM (2) — Sell half of the GM January 60 puts at $6.60.

Working Orders (Old Recommendations)


(
CHIR |
Quote |
Chart |
News |
PowerRating)
— Sell all CHIR July 50 calls at $1.00 to close.

(
SMH |
Quote |
Chart |
News |
PowerRating)
— On a test of $40.00 in the SMH, buy a 25% allocation of the July 40
puts at $3.00 or better. These will replace the June 40 puts we sold at $3.00 on
5/30.

(
TGT |
Quote |
Chart |
News |
PowerRating)
— Sell half of the June 40 puts at $1.70 — Partial 6/4/02,
working the balance.

Rolls/Adjustments


(
DYN |
Quote |
Chart |
News |
PowerRating)
— Holders of the DYN January 15 call/June 20 call proxy
buy-write (long the January 15 calls, short the June 20 calls at $3.20),
buy the June 15 calls (to open) and sell the September 17.5 calls (to open)
for $1.00 credit (to you).

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%).

AOL — Long the October 20 buy-write at $16.30
(25%).


(
HAL |
Quote |
Chart |
News |
PowerRating)
— Long the July 17.5 buy-write at
$14.25 (100%).


(
SEBL |
Quote |
Chart |
News |
PowerRating)
— Long the August 27.5 buy-write at
$23.00 (50%).

Proxy buy-writes

DYN — Long the January 15/June 20 proxy buy-write at $3.20 (50%).

Complex Strategies

None.

Directional Positions


(
GM |
Quote |
Chart |
News |
PowerRating)
— Long the January 60 puts at $3.30 (20%).


(
JNJ |
Quote |
Chart |
News |
PowerRating)
— Long the January 60 puts at $3.30
(75%).

Short-term

Call Positions


(
CHIR |
Quote |
Chart |
News |
PowerRating)
— Long the July 50 calls at $3.30 (50%).

Call Spread Positions

None.

Put Positions


(
BAC |
Quote |
Chart |
News |
PowerRating)
— Long the August 65 puts at $1.50 (50%).


(
DJX |
Quote |
Chart |
News |
PowerRating)
— Long the June 100 puts at $1.85
(25%). Sold half at $3.70 on 6/03/02.


(
MER |
Quote |
Chart |
News |
PowerRating)
— Long the July 40 puts at $1.50
(25%). Sold half at $3.00 on 6/03/02.


(
SMH |
Quote |
Chart |
News |
PowerRating)
— Long the June 40 puts at $1.75
(25%). Sold 25% (half of 50%) at $3.00 on 5/30/02, the balance at $3.50 on
6/04/02.


(
TGT |
Quote |
Chart |
News |
PowerRating)
— Long the June 40 puts at $.85 (75%).
Sold 20% at $1.70 on 6/04/02.

Spread Positions


(
MER |
Quote |
Chart |
News |
PowerRating)
— Long the June/July 40 put calendar at $.50 (50%).


(
MMM |
Quote |
Chart |
News |
PowerRating)
— Long the October 110/120 put spread
at $2.80 (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