Option Expiration

  • February 16, 2001
  • Kevin Haggerty

The Nasdaq 100
(
NDX |
Quote |
Chart |
News |
PowerRating) opened
up 2.3%, then ran to 2423 (the intraday high) by 1:00 p.m., went sideways until
2:30 p.m., then fell off to close at 2371. There were no real good pullback
entries in the NDX or many of the other stocks that gapped on the open. It
was an opening you wished you had participated in with a carry-over position,
but as a pure daytrader you know that is bad business unless you have an option
strategy. 



(
EMLX |
Quote |
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News |
PowerRating) anyone? Or any
of the other overnight disasters we see all too often.



(
CIEN |
Quote |
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News |
PowerRating) had a good
report in the good news/bad news fiber optics, and the stock opened up 11.5% at
85 5/8, ran to 94 and closed at 89. Today, we have
(
NT |
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Chart |
News |
PowerRating) with lowered 2001
forecasts, so we’ll see what the hype gives us for a crowd-psychology trade.
Today is also option expiration plus a
long weekend with the exchange closed on Monday.


Many of the techs that
gapped didn’t pull back, and most had lows higher than the previous day’s high.
That’s the thrust you like to see, provided you get an increase in volume and
expansion of range. The breakaway
moves, especially in the Semis,
are extended. 


For example,
(
NVDA |
Quote |
Chart |
News |
PowerRating), a
specialized Semi that has gone from a 42 low to a 57 3/8 high in two days,
closed Wednesday at 47.68. It opened yesterday at 54.25 with a low of 53 7/8 vs.
the previous day’s high of 49. The range
narrowed to 3.5 points vs. the prior day’s 7 points, and the volume increased to
4.6 million vs. 2.9 million on Wednesday. It
was also the most volume this year. 


With this narrowing of
range and significant increase in volume after a substantial two-day advance,
I would have no interest in any
continuation trade, and would only look to play a good pullback if it was at
least 50%. After a two-day windfall from nowhere, caution is advised, and it
might even be better to start your weekend early. Take only the clearly defined
pattern setups and stay away from any emotional momentum trades.


The S&P 500
(
SPX |
Quote |
Chart |
News |
PowerRating)
starts out with a closing range of 1337-1324 and the NDX is 2376-2357. That is
always the first starting point you can use, either as a ceiling or a floor.
After all was said and done yesterday, only 12 NDX 100 stocks closed in the top
25% of the range, so you see the red light.

(March
Futures)

Fair Value

Buy

Sell

4.80

 6.10 

 3.50 

Pattern
Setups

Intraday pullback setups in
the Semis only. 

Brokers:
(
MER |
Quote |
Chart |
News |
PowerRating),
(
GS |
Quote |
Chart |
News |
PowerRating),
(
BSC |
Quote |
Chart |
News |
PowerRating) and
(
LEH |
Quote |
Chart |
News |
PowerRating) all had top-of-the-range closes and good
patterns.

Other
stocks that you might look at are
(
MMM |
Quote |
Chart |
News |
PowerRating),
(
AZA |
Quote |
Chart |
News |
PowerRating),
(
IR |
Quote |
Chart |
News |
PowerRating) and
(
TYC |
Quote |
Chart |
News |
PowerRating).

Some
bottom-fishing moves that might continue because of their levels are
(
SUNW |
Quote |
Chart |
News |
PowerRating)
and
(
CSCO |
Quote |
Chart |
News |
PowerRating). 

On
the short side, because of option expiration, I would stay with the QQQs, SPDRs
and DIAs and maybe some of the extended stocks from yesterday breaking below
their closing range.

Have a good trading
day and a good holiday weekend.