Options Expiration And Heavy Earnings This Week
Futures are pointing to a slightly higher opening
this morning, but we have a full plate of action, any of which could spin the
markets around. Positive comments in Barron’s regarding AOL should give
that stock a bump (AOL is an excellent buy-write candidate — more on that
later), JP Morgan
(
JPM |
Quote |
Chart |
News |
PowerRating) and BEA Systems
(
BEAS |
Quote |
Chart |
News |
PowerRating) pick up upgrades, while
(
BAC |
Quote |
Chart |
News |
PowerRating) beats and
(
C |
Quote |
Chart |
News |
PowerRating) misses.
Oil
Oil is a jump ball again today as Hugo “Boomerang” Chavez is back in
the saddle in Venezuela. There certainly was a lot of puking in that sector
Friday, and it will be interesting to see what kind of bounce this news will
generate. Right now oil futures are up about $.50.
Don’t forget about the Middle East. Even though Powell met with Arafat and
things appear to have gone well, Arafat has no control over the Palestinians at
this point and any additional suicide bombings could reignite the area.
Once again, we have a slightly higher opening, so focus on volatility. If it
goes bid while the market is higher, look for a sell-off later in the day. If it
gets smacked right out of the box, the rally may be sustainable. We are
definitely oversold down here, but the market is still in an overall funk, and
any one of the above mentioned wild cards could trip the market at any given
time.
Buy-write time II
AOL started showing up on our buy-write indicators late Friday (calls
were probably being bid ahead of the Barron’s article), but too late for
us to do anything about it. AOL is going to open higher, but we still like it as
a buy-write candidate. We also like Siebel Systems
(
SEBL |
Quote |
Chart |
News |
PowerRating) as a buy-write.
I’ll come back with further details later.
Volatility
The VIX made a new high for the move Friday, penetrated its 50-day
moving average, and then reversed to close lower. On the day, the VIX was down
.24 at 22.09. The VXN punched out a new high for the move, trading up to 44.27
before reversing to close .86 lower at 42.81. The QQV got SPANKED on the day,
closing down a whopping 2.93 at 35.58. We are overdue for a bounce in here, and
the behavior of volatility (opening higher, closing lower) while we are still
within spitting distance of the lows indicates we may have one coming soon.
Trade Updates (4/12/02)
(
AMR |
Quote |
Chart |
News |
PowerRating) — We bought the AMR August 25 buy-write for $22.00 (50%).
(
BAC |
Quote |
Chart |
News |
PowerRating) — We bought the BAC August 65/May 65 put calendar spread at $1.50
(50%).
(
ORCL |
Quote |
Chart |
News |
PowerRating) — We sold our 60% position in the ORCL June 12.5 calls at $.60,
taking a $.60 loss.
Nothing else done Friday.
Working Orders (Old Recommendations)
(
BAC |
Quote |
Chart |
News |
PowerRating) — Buy the August/May 65 put calendar spread (buy the August 65 puts
and sell the May 65 puts) for $1.50 or better (50%).
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Buy a 25% position in the QQQ May 35 puts against the 34.50 -34.80
area in the QQQ.
(
SMH |
Quote |
Chart |
News |
PowerRating) — Buy another 20% of the SMH May 40 puts against the $45.00 area in
the SMH.
(
WMT |
Quote |
Chart |
News |
PowerRating)Â — Buy an additional 25% of the WMT June 60 puts on at $1.50 as
WMT challenges its recent gap.
New Actions (New Recommendations)
(
APC |
Quote |
Chart |
News |
PowerRating) — Buy the May 55/60 1:2 ratio call spread as a
“roll” of our APC May 60 call position. Pay $.65.
(Note:Â What you are doing is selling
your long May 60 calls to close, buying half as many May 55 calls to open, and
paying $.65 for the privilege.)Â
Rolls/Adjustments
Chiron
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Investors long the July 50 calls at $3.30 (50%)
may sell the July 60 calls against their positions at $1.00. This will roll us
into the July 50/60 call spread at $2.30.
On The Horizon…
We will be buying QQQ puts and SMH puts on bounces into resistance, and
executing buy-writes in selected stocks.
Recap of open trades
Long-term
Reverse Collars
None.
Buy-writes
(
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%).
Proxy buy-writes
None.
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%).
(
DIS |
Quote |
Chart |
News |
PowerRating) — Long the April 25 calls at $.85
credit (result of “roll”).
(
MLNM |
Quote |
Chart |
News |
PowerRating) — Long the May 25 calls at $2.40
(50%).
(
ORCL |
Quote |
Chart |
News |
PowerRating) — Long the June 12.5 calls at $1.20
(60%). Closed at $.60 on 4/12/02.
Call Spread Positions
None.
Put Positions
(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the April 60 puts at an
effective cost of $2.125 (50%).
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August 65 puts at $3.00
(25%) — part of a spread “leg” to be completed later.
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the May 40 puts at $1.35 (20%).
Scale up buyers of more.
(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the June 60 puts at $2.50
(75%).
Spread Positions
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August/May 65 put calendar at $1.50 (50%).
Stops
None.
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- 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