That Sucking Sound
Welcome to winter solstice.
Now the days start getting longer, whoopee!
Futures are a bit better across the board this morning. Q3
GDP came in at -1.3% vs.
consensus -1.1%, and the Deflator came in at 2.3% vs. consensus
2.1%. Both numbers are mildly bearish, but because they are such
laggards, will likely be ignored. The University of Michigan Revised
Sentiment numbers and Personal Income/Spending
(9:00 CST) is likely to have a
greater impact.
Today is a futures/options witching day. On options
expiration day, stocks tend to
be “sucked” to the nearest strike price with the greatest
open interest. Now December is not a really
big month in terms of options
open interest, but it is something to keep an eye on given the thinness
of the market.
Looking at the
(
QQQ |
Quote |
Chart |
News |
PowerRating)s, there is an open interest of
280,296 contracts at 40.00, far
greater than any adjacent strike. Look for the QQQs to get “sucked”
up to 40.00.
Technically Speaking:
*The COMP closed below its 200-day moving average, the
last of the major indices to give it up. The
50-day moving average is 1851.9.
*The QQQs closed below the 50% retracement of the May to
September sell-off (39.42). The 50-day moving
average comes in at 38.00. There is a
38.2% retracement of the Sept. 21 to Dec. 6 rally
at 37.11.
*The
(
$SOX.X |
Quote |
Chart |
News |
PowerRating) index closed a smidgen below its
50-day moving average (507.72).
The 38.2% retracement of the Sept. 27 to Dec.
6 rally is 496.21.
*In the S&P Cash, 1130.34 is a 50% retracement of the
May to September sell-off, and
1119.50 is the 50-day moving average.
Updates:
Our December Positions:
Tomorrow is December options expiration, and we need to
recap our open positions in the
December options:
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the Dec. 60 puts and short 2 Dec. 55
puts for a $.30 debit.
Currently, BAC closed at 63.10, so it appears as though the entire
spread will expire worthless, and we will lose
$.30. There is no bid for the
Dec. 60 puts, so we hold and hope to get lucky tomorrow.
(
DELL |
Quote |
Chart |
News |
PowerRating) — Long the Dec. 20/25/30 call or put
butterfly at $1.75. Currently, DELL is closed at $ 27.58. That gives the
butterfly a value of $2.42 today
at expiration. A butterfly reaches its point of maximum profit
if the stock expires at the short strike. In this case, that would
be the 25.00 strike. This means that holders of this butterfly are
SHORT DELL (until it reaches 25.00).
Therefore, if you are bearish on DELL, you might want to
hold this spread. if you are
bullish, you might want to get out. If you have no opinion,
you may want to scale out of the position. Possible
Escape Hatch: If DELL rallies to 30.00, the spread will expire worthless.
If you are worried about this scenario and need to make a quick
move, you could look to buy the Dec. 27.5 calls (settled at ~ $.40)
to protect yourself.
Current Recommendations:
NONE
Rolls/Adjustments:
NONE
Recap of open trades:
Long-term
Airline calendar spreads
(
AMR |
Quote |
Chart |
News |
PowerRating) Jan./Oct. 25 call calendar @ .75 — Oct.’s went
out worthless, holding the Jan.
25 calls.
(
UAL |
Quote |
Chart |
News |
PowerRating) Jan./Oct. 25 call calendar @ .70 — Oct.’s went
out worthless, holding Jan. 25 calls, looking like rip-ups.
Butterflies
(
DELL |
Quote |
Chart |
News |
PowerRating) — Long the DELL Dec. 20/25/30 call butterfly
at 1.75. See above.
Reverse Collars
(
AWE |
Quote |
Chart |
News |
PowerRating) Jan. 12/15 reverse collar (long the Jan. 15
calls, short the Jan. 12.5 puts)
@ .05 average. Stop below.
(
TLAB |
Quote |
Chart |
News |
PowerRating) March 17.5/15 reverse collar (long the March
17.5 calls, short the March 15
puts) @ 1.50 credit average.
Buy-writes
*
(
AMZN |
Quote |
Chart |
News |
PowerRating) Jan. ’03 10 buy-write @ 5.15 (2 units) —
hold.
*
(
JDSU |
Quote |
Chart |
News |
PowerRating) Jan. 12.5 buy-write @ 9.60 — hold.
Proxy buy-writes
(
BA |
Quote |
Chart |
News |
PowerRating) Jan. ’03 35/Jan. ’02 40 call calendar @ 5.00 —
hold.
BA Jan. ’03 40/Nov. ‘ 01 40 call calendar @ 3.00 — hold.
Complex Strategies
(
JDSU |
Quote |
Chart |
News |
PowerRating) — Long 1 unit of the Jan. 10 calls and short
2 units of the Jan. 7.5 puts @
$1.00 credit.
(
GENZ |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 60 straddle at $6.50, (50%)
— hold.
Short-term
Call Positions
(
WCOM |
Quote |
Chart |
News |
PowerRating) Jan. 12.5 calls @ 2.40 — hold. Stop below.
Put Positions
(
TGT |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 35 puts @ 1.15 (100%) — hold.
(
WMT |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 55 puts @ 2.35 (50%) — hold.
Put Spread Positions
(
BAC |
Quote |
Chart |
News |
PowerRating) — Long the Dec. 55/60 1:2 ratio put spread at
.30 — hold.
(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the March 55/65 put spread @ 2.125
(100%) — hold.
(
BBY |
Quote |
Chart |
News |
PowerRating) — Long the Jan. 60/70 put spread @ 3.00 (50%)
— hold.
STOPS
(
AWE |
Quote |
Chart |
News |
PowerRating): Stop @ 12.25 close only.
(
WCOM |
Quote |
Chart |
News |
PowerRating): Stop @ 13.95 close only.
(
TLAB |
Quote |
Chart |
News |
PowerRating): Stop @ 11.95 close only.
|
If you would like to receive Tony and his trading |
*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
Â