Testing the LTCM Lows — What’s the Plan?
The DJI traded 7467.5 on October 5, 1998.
Based on the current DJI
futures quote, this is a level that we are going to see on the opening.
Backstopping this level is 7400.3, the Russian default lows. I
am stepping out here, but I will eliminate all remaining bearish positions with
the exception of the IWM August 70 puts purchased yesterday as these levels are
penetrated. Not that I’m a master of timing, if anything I’m way too early
on everything I do, but I just "feel" like I need to get out of some
of these bearish positions (we don’t have too many left anyway), and will do so
as the above mentioned levels in the DJI are hit. If they are not hit, I will
exit if the market closes higher on the day.
If the market breaks down to 5000 from here, it will do so without me on board,
but I’ll probably be too busy making deer jerky and stockpiling ammunition to
care (just kidding). The dollar is sharply lower this morning, although still
well above its recent lows. In Europe, the FTSE was down 3% at 3742, and the DAX
was 4.1% lower at 3370. In Asia, the Nikkei was 2.6% lower at 9948 (sub-10,000
again) and the Hang Seng lost 3.3% to 9972.
My recommendation for today: Unless you are a daytrader, stay out! Truly
long-term traders may want to start cherry picking in energy, gold, and believe
it or not, telecom! I am once again purchasing September T-bond futures puts —
go out and refinance your mortgage quickly!
Volatility
Sheesh! The VIX is now on the verge of taking out its
September 2001 highs! The VIX punched through 50 yesterday, hitting an intraday
high of 52.48 before settling at 50.48. The VXN bounced 3.81 to 66.39, but is
still beneath its recent highs. The QQV rose .84 to 58.27 and is still below its
recent highs. I would not be surprised to see the VIX punch through 60.00 on the
opening today, taking out the September 21, 2001 highs. Once again, volatility
is now in the "completely out of control" zone, and outright purchases
of either calls or puts is discouraged. Use bull and bear spreads or calendar
spreads to build bullish or bearish positions.
Light Trading
As you have no doubt noticed, we have been keeping it light on the alerts. I
feel that we are in a transition zone, and I like to keep it light until the
picture becomes clear. It doesn’t mean we aren’t looking, we are, but we need
more information.
Trade Updates (7/23/02)
(
IWM |
Quote |
Chart |
News |
PowerRating) — Some subscribers were able to purchase the IWM August 70
puts at $2.00 or less per the intraday Alert. We were unable, and we are
canceling the recommendation, but will monitor the trade for the sake of those
who were nimble and got the trade done.
Nothing else done yesterday.
New Actions (New Recommendations)
(
IWM |
Quote |
Chart |
News |
PowerRating) — Those long the August 70 puts at $2.00, sell half of the
position at $4.00, leaving you long the balance for free.
(
MMM |
Quote |
Chart |
News |
PowerRating) — Sell the remaining October 110/120 put spreads (to close) on tests
of DJI 7467.5 and 7400.3 — would suggest 50% at each level.
(
QQQ |
Quote |
Chart |
News |
PowerRating) — We will likely modify our "Christmas tree" and 1:2 call
ratio spread positions today, possibly adding more or "rolling" the
spreads lower.
Working Orders (Old Recommendations)
(
BAC |
Quote |
Chart |
News |
PowerRating) — Buy the January 50/60 put spread at $3.00 (25%).
(
TGT |
Quote |
Chart |
News |
PowerRating) — Sell the remaining January 30/35 put spreads at $3.00 to close the
position. This is close.
Rolls/Adjustments
None.
Recap of open trades:
Long-term
Reverse Collars
None.
Buy-writes
(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the July 22.5 buy-write at $19.40 (50%).
(
AOL |
Quote |
Chart |
News |
PowerRating) — Long the October 20 buy-write at
$16.30 (25%).
(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the October 17.5 buy-write at $13.25 (100%).
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
(
TGT |
Quote |
Chart |
News |
PowerRating) (2) — Long the January 30/35 put spread at $.58 (37.5%). This due
to adjustment on 7/16/02.
Short-term
Call Positions
None.
Call Spread Positions
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the August 26/28 1:2 call ratio spread for even money
(25%).
(
QQQ |
Quote |
Chart |
News |
PowerRating) — Long the August 26/28/30 "Christmas tree" at $.35 (25%).
Put Positions
(
IWM |
Quote |
Chart |
News |
PowerRating) — Long the August 70 puts at $2.00 (25%).
Spread Positions
(
MMM |
Quote |
Chart |
News |
PowerRating) — Long the October 110/120 put spread at $2.80 (100%). Sold half
at $5.20 on 7/22/02.
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