Slightly Lower Open, But Watch the Dollar!

  • July 15, 2002
  • Tony Saliba

Stocks are expected to open slightly lower this
morning on follow-through selling from Friday and lower overseas markets. SSB
downgraded Peoplesoft
(
PSFT |
Quote |
Chart |
News |
PowerRating), Siebel
(
SEBL |
Quote |
Chart |
News |
PowerRating) and Veritas
(
VRTS |
Quote |
Chart |
News |
PowerRating).
The big news on the corporate front is the Pfizer
(
PFE |
Quote |
Chart |
News |
PowerRating) acquisition of 
Pharmacia
(
PHA |
Quote |
Chart |
News |
PowerRating) for $60B in stock. There has been little reaction so far
apart from arbs shorting PFE and buying PHA.

The real news, as far as I am concerned, is the continued decimation of our
currency. Today the euro has gone to parity with the dollar, and the yen is also
sharply higher against the dollar. This year the dollar has lost 15% of its
value against the euro alone, and when the losses in the market are added to
this figure, the total losses suffered by foreign investors this year is
staggering. This could lead to additional foreign selling of U.S. assets.

Volatility

Implied volatility was lower Friday, but not much. The VIX lost .31 to 38.33
after once again crossing above 40.00. The VXN lost 2.98 to 66.00 and the QQV
dropped 2.95 to 56.56. The Nasdaq-related indices sold off much more because of
the relative strength of the Nasdaq vs. the DJI and the S&P.

Implied volatility is now back to September 2001 levels, and the outright
purchasing of options for either bullish or bearish positions should be
avoided! If you want to play the upside here, I would suggest ratio call spreads
(buy 1, sell 2, etc.) for little or no cost.

Trade Updates (7/12/02)

None today.

New Actions (New Recommendations)


(
SMH |
Quote |
Chart |
News |
PowerRating) — Sell half of the July/August 32.5 put calendar spreads at
$1.50. We will need a move up to approximately $31.00 to get this done.

Working Orders (Old Recommendations)

(
CHIR |
Quote |
Chart |
News |
PowerRating) — Sell all CHIR July 50 calls at $1.00 to close. (These puppies are
dead meat unless there is an act of God by next Friday.)

Rolls/Adjustments


(
SEBL |
Quote |
Chart |
News |
PowerRating) — For those long the SEBL August 27.5 buy-write: Buy the
SEBL August 27.5 calls (to close) and sell the November 20 calls (to open) for
$2.00 credit. (Far away right now.)

Recap of open trades:

Long-term

Reverse Collars

None.

Buy-writes


(
AMR |
Quote |
Chart |
News |
PowerRating) — Long the August 25 buy-write at $22.00 (50%). Protected with
long July 15 puts at $.70.


(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the July 22.5 buy-write at
$19.40 (50%). Protected with long July 10 puts at $.30.


(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the October 20 buy-write at
$16.30 (25%). Protected with long July 10 puts at $.30.


(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the October 17.5 buy-write at
$13.25 (100%).


(
SEBL |
Quote |
Chart |
News |
PowerRating) — Long the August 27.5 buy-write at
$23.00 (50%). Protected with long July 10 puts at $.35.

Proxy buy-writes


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

Complex Strategies

None. 

Directional Positions


(
AMGN |
Quote |
Chart |
News |
PowerRating) — Long the January 30/40 put
spread at $3.00 (25%). Sold half at $5.00 on 7/10/02.

(
TGT |
Quote |
Chart |
News |
PowerRating) — Long the January ’03 35 puts at $2.58 (75%).

Short-term

Call Positions


(
CHIR |
Quote |
Chart |
News |
PowerRating) — Long the July 50 calls at $3.30 (50%).

Call Spread Positions

None.

Put Positions


(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the August 70 puts at $2.60 (50%). Sold 10% at $5.00,
6/26/02, sold 40% at $4.00 on 7/11/02.

Spread Positions


(
IWM |
Quote |
Chart |
News |
PowerRating) — Long the November 80 /90 put spread at $3.00 (25%). Sold half
at $5.00 on 7/10/02.

(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at $2.80 (100%).

(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the July/August 32.5 put spread at $.70 (25%).

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
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  • Supporting documentation for claims,
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    furnished upon request. One or more of the contributors to these
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  • 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
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