Of Political Concessions, Economic Confessions and Investing Lessons
After 36 days of unprecedented political maneuvering and legal
wrangling, the most contentious and constitutionally important political election in the
history of the nation came to an end yesterday. Cold economic realities blunted this
potentially bullish news, however, as an earnings warning from computer giant Compaq caused
a tumble in the techs. Negative comments on the chip sector by key analysts contributed to
an early morning sell-off, while options players eyed the horizon for any other ominous
reports. Consequently, practitioners braced for an unanticipated pop in
volatilities and
cautiously awaited the release of the PPI numbers today, which may set the tone for the
market’s sentiment in the immediate future.
Can we profit from the lessons buried in the actions of the past month?
What have we learned from the past 36 days in which the market (and our attentions)
have been gripped by an election process that has been like a centipede, refusing to stop
wriggling, court-ruling slash after court-ruling slash? I, for one, have learned that
voting (like much else I see in my life) is akin to options. You have votes that are
in-the-money and votes that are out-of-the-money. Some are way out-of-the-money…votes of those that would have voted one way or the other if they took time out of their
day to get to the poll. Then there are those fully punched-out chads of the in-the-money
voter. And the at-the-money votes that just may or may not have made it in-the-money,
depending on whether the voter followed directions.
With options trading, your position doesn’t have to end in-the-money, for you to
make money. And you don’t have to be 100% correct to be profitable in your options
strategy. But you do have to have a set of “directions” to follow, and be
disciplined enough to follow them religiously to profit.
One direction that many have found to be profitable is the
“buy-write.” Investors have seen buy-writes work for them over the years.
Bullish years as they have been, buy-writes are strategies that are little more than the
equivalent of shorting puts. But for investors that are bullish enough to own stock, the
correct call to sell (a covered call when you own the underlying) can make the difference
between a good year and a great year.
Our daily numbers (below in color) can give you direction as to when is a better time
to enter your covered call or roll your covered call. Combined with implied volatility
values, you strengthen your tool kit for building the right strategies.
Pre-open order volume was extremely light
today. In the overall market, call sellers and buyers are even at 1:1, and put buyers are
on a par with sellers at 1:1. The top five pre-bell order volume leaders today are
as follows: JNPR, MSFT, ORCL, AOL and CSCO. MSFT call sellers led buyers 2:1. JNPR put
buyers are out in force, dominating sellers 8:1. ORCL call buyers are out, leading sellers
2:1.
First-hour order volume
remained light. In the overall market, call sellers and buyers are even at 1:1, and put
buyers are on a par with sellers at 1:1. The top five first-hour order volume
leaders today are as follows: ORCL, CSCO, INTC, JNPR and ADBE. MSFT,
AOL and MSFT call sellers led buyers 2:1. JNPR put buyers are out in force,
dominating sellers 8:1. ORCL call buyers are out, leading sellers 2:1. ADBE call buyers came to the fore, leading sellers
3:1, while put buyers and sellers were even at 1:1. SEBL call buyers swamped sellers
5:1 with heavy put selling. JPM showed abnormally high put activity, with sellers
leading buyers 3:1. MSFT call sellers outpaced buyers 3:1.
We have not had the sustained move in general to mine
for put verticals; perhaps a turnaround today will start the trend. Some names have been
strong, and we will screen for opportunities in these issues today and tomorrow.