Opening Better, Can It Hold?

Nothing bad
happened over the weekend,
overseas markets are higher, therefore, we
are going to open better. Currently the DJI futures on the CBOT are 128 higher,
the S&P futures are 14.30 higher, and the Nasdaq 100 futures are 20.00 points
better. The dollar is stronger against most major foreign currencies and bonds
are about a half of a point lower.

In Europe, the FTSE is 108.20 points or 2.69% higher. The DAX is 146.43 or 4.09%
better. In Asia, the Nikkei closed up 75.64 or .79%, while the Hang Seng gained
202,87 or 2.08%. We need to watch for a couple of things today: Follow through
buying, and any sign of life in the semiconductor sector. I don’t believe this
market can get very far without the semi’s, and if they don’t make some sort of
move off the bottom, this rally could be short lived.

This is clearly a contra-trend rally, and we are hitting the month-end markup
period, so we need to be careful as the recently punished bulls may want some
short-term blood from the bears. I am still negative on the financials and
looking to acquire bearish positions there. We are also monitoring the tape
closely during this rally to identify the laggards, because these will be the
stocks /sectors we will want to attack when the rally ends.

Volatility

Volatility got crushed Friday. I was long Diamond (DIA) calls, and lost
money! That it what a volatility meltdown is like! The VIX dropped 4.21 to
40.44, its weekly lows. The VXN dropped only .46 to 69.02, and the QQV lost 2.45
to 58.53. The VXN and QQV are still hanging up because of the weakness of the
Nasdaq.

A reversal in volatility like we witnessed last week in the VIX is one of the
best indicators that we may have seen a temporary low. Option traders with
serious firepower (highly capitalized) should focus on strategies that involve
shorting options, looking to pick up on an August volatility meltdown.

Trade Updates (Friday 7/26/02)

AMGN – We bought the AMGN January 30 /40 put spread at $3.00 (25%). We will buy
more at the $2.00 level (another 25%).

New Actions (New Recommendations)

IWM- Traders who bought the IWM August 70 puts at $2.00 (25%) should
liquidate the trade.

Working Orders (Old Recommendations)

BAC – buy the January 50 /60 put spread at $3.00 (25%).

MMM- Buy the October 110 /120 put spread at $3.00 (25%).

Rolls/Adjustments:

None


Recap of open trades:

Long-term

Reverse
Collars
:

Buy-writes:

AOL – long the July 22.5 buy-write at $19.40 (50%). July has expired,
looking to roll into January ’03.

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

HAL -long the January 15  buy-write at $12.05 (100%).

Proxy buy-writes:

DYN – long the January 15 calls at $3.20 – left over from proxy buy-write
(50%). Left for dead.

Complex Strategies:

None

Directional Positions:

AMGN – long the January 30 /40 put spread at $3.00 (25%).

Short-term

Call Positions:

None

Call Spread Positions:

QQQ – Long the August 26 / 28 1:2 call ratio spread for even money (25%).

QQQ – Long the August 26 / 28 / 30 “Christmas tree” at $.35 (25%).

Put Positions:

IWM – Long the August 70 puts at $2.00 (25%).

Spread Positions:

MMM – Long the October 110 / 120 put spread at $2.80 (100%). Sold half at
$5.20 on 7/22/02.

Stops

None.