Today’s Action Important, Technically
Futures are slightly better at the moment as the April PPI numbers were
a non-event. Headline PPI came in at -0.2%, less than the expected +0.5%, but
the Core PPI (ex food, energy) was right on the nose at +0.1%. Today’s action
will be important from a technical standpoint. We have had our significant spike
bottom Wednesday, a retracement yesterday, and if this market is any good for
the near term, it should start to attract buyers today. Should the market take a
significant hit today, Wednesday’s action might all be for naught.
The Mideast tinderbox is a further wild card, as Israeli troops mass at the Gaza
border. June crude futures are up $.24 at the moment, and the dollar is lower vs.
the major currencies. In Europe, the FTSE was unchanged at 5198, while the DAX
was down 0.7% to 4935. In Asia, the Nikkei was down 0.9% at 11,531, and the Hang
Seng dropped 0.5% to 11,646.
In corporate news, WorldCom
PowerRating) had its debt rating reduced and has
suffered several downgrades (thanks for help, boys, it’s trading below $2.00).
PowerRating) is the subject of a Business Week article saying that the
company may have exploited accounting rules to conceal production problems in
1997. This could be proxy buy-write material again if the stock takes a
hit. IBM is reportedly set lay off another 8000 employees.
Volatility popped back yesterday, with the VIX gaining 1.07 to 24.36 and taking
out yesterday’s high (hmm…). The VXN gained 2.27 to 48.08, and the QQV picked
up 1.67 to 41.62.
Trade Updates (5/09/02)
We were active yesterday. Per Wednesday’s midday Alert, we
"calendarized" some of our June put positions by selling May puts
PowerRating) — We sold the May 100 puts at $1.00 against our long June
100 puts, effectively putting us into the May/June 100 put calendar spread (long
the June 100 puts, short the May 100 puts) at $1.75.
PowerRating) — We sold the May 40 puts at $1.00 against our long June 40
puts, effectively putting us into the May/June 40 put calendar spread (long the
June 40 puts, short the May 100 puts) at $1.75.
We also added several new recommendations today (below).
New Actions (New Recommendations)
PowerRating) — Traders long the WMT June 55 puts may sell them (to
close) and buy the TGT June 40 puts (to open). Do this swap for a $1.50 credit
(for example, buy the TGT June 40 puts at $1.00, sell the WMT June 55 puts at
$2.50). To get this done, WMT will have to sell off a bit, or TGT rally a bit.
This trade lets us realize a $2.50 profit on the WMT puts and gives us the TGT
puts for free.
Working Orders (Old Recommendations)
PowerRating) — Holders of the DYN January 15 call/June 20 call proxy
buy-write (long the January 15 calls, short the June 20 calls at $3.20),
buy the June 20 calls (to close) and sell the September 17.5 calls (to open) for
$1.25 credit (to you).
Recap of open trades:
AOL — Long the October 20 buy-write at $16.30
HAL — Long the July 17.5 buy-write at $14.50
Call Spread Positions
- 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
- 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