Slight Bounce

In Europe, the FTSE 100 is now 1.40 points, or .03%, higher, the DAX is 21.93
points, or .65%, higher, and the CAC40 is 6.79 points, or .22%, higher. In Asia,
the Nikkei hit new 19-year lows, dropping 141.95 points, or 1.54%, to 9075.09.
The Hang Seng squeaked out a 29.65 point, or .30%, gain.

This is a pretty weak bounce given yesterday’s carnage, and I’m sure any higher
opening will be met with selling. The one question we have to keep in the back
of our minds is: How active will the government get in the financial markets
with the election looming? I would not be surprised to see “the easing
card” trotted out almost immediately if we have any more weak economic
numbers this week. Today we have July construction spending due to be released
at 09:00 CDT. A 0.4% decline is the consensus expectation. Anything worse than
that will start the easing talk immediately, which could prompt a bounce. The
same holds true for the rest of the economic reports this week.

The threat of easing is really the last card the Fed has to play here. If they
actually do ease, they will have shot their wad, so the best they can do is to
jawbone about it, but not do it. However, given the weakness in Europe, an
easing there cannot be ruled out.

Volatility

Volatility exploded yesterday with the VIX gaining 8.06 points to
43.86! The VXN rose 3.81 to 58.79, and the QQV gained 5.08 to 51.46. The move by
the VIX today was nothing short of stunning.

Update (9/03/02)

We sold our CLT September 30 puts at $.75 against the December 30 puts
that were left from our August/December 30 put calendar spread. We are now long
the September/December 30 put calendar spread at an average of $.975 (50%), and
long the September/January 30 put calendar spread at $1.20 (50%).

New Actions (New Recommendations)

Kohl’s (KSS): On an approach to the 70.00 area, buy the January 60 /70
put spread for $3.00 or less (25%).

Sears (S): On an approach to the 47.00 area, buy the January 35 /45 put spread
for $3.00 or less (25%).

Walgreen’s (WAG): On a rally into the 35 -37 area, buy the January 25 puts
outright, beginning at the $2.50 level or less (25%).

Working Orders (Old Recommendations)

(
C |
Quote |
Chart |
News |
PowerRating) — Old Citigroup options (CLTs) — sell the September 30 puts at $.75
against the long December 30 puts that we were left with as a result of August
expiration. This should be close this morning. Filled!

(
QQQ |
Quote |
Chart |
News |
PowerRating) — Buy the September 23/26 1:2 (buy one September 24 call,
sell two September 27 calls) for $.50 (50%).

DJX — Buy the September 86/90 1:2 (buy one September 88 call, sell two
September 92 calls) for $.50 (50%).

Working Rolls/Adjustments

None.

Buy-writes

(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the January 15 buy-write at $12.05 (100%).

Proxy buy-writes

(
DYN |
Quote |
Chart |
News |
PowerRating) — Long the January 15 calls at $3.20 — left over from proxy
buy-write (50%). Left for dead.

Complex Strategies

None.

Call Spread Positions

None.

Put Positions

None.

Spread Positions

(
C |
Quote |
Chart |
News |
PowerRating) — Long the December/September 30 put calendar spread at $.975 (50%).

C — Long the January/September 30 put calendar spread at $1.20 (50%).