Up, Up (But Probably Not Away)

Although the political pundits are all
“surprised” by the success of the GOP, market observers should not be. The
market has been telling us for over a week that the GOP was going to do well in
these elections. Time after time the market ate up bad news and moved higher,
overlooking the short-term bad news and focusing on the long-term good news.
Further tax cuts, a lowering of the capital gains tax, a lowering of the tax
rate on dividends, and the removal of some government red-tape are some of the
things the market is focusing on for the future, giving us this morning’s higher
opening. However, the good news should now be fully discounted (with a little
icing on the cake this afternoon) and we should be looking to take profits on
longs (and lay out a few shorts) on the rally today.

At 13:15 CST the FOMC rate announcement will be made with a 25bp cut considered
a ‘layup’ and a 50 bp cut a possibility. I think the Fed recognizes the value of
dangling a carrot in front of the market, so look for a 25bp cut today, with
hints of another 25 bp in cuts laid out there to keep Wall Street’s mouth
watering. Currently, DJI futures are 57.0 better, the S&P futures are 5.50
higher, and the Nasdaq 100 futures are 6.50 better – this is quite a bit lower
than an hour or so ago. In Europe, the FTSE 100 is down 21.50 points or .52%,
the DAX is lower by 19.58 points or .58%, and the CAC40 is down 2.62 or .08%. In
Asia, the Nikkei gained 15.73 points or .18%, and the Hang Seng rose 118.62
points or 1.23%. Interest rate futures are sharply lower, the dollar is higher
(sell it), crude futures are unchanged, and gold futures are down about $1.00.

We will be looking to get some bearish positions going in the bank / broker
dealer area sometime in the next few days. Also, if there is not a significant
sell off in the market by Friday we will cover the short QQQ call spread.


Volatility was fairly well bid yesterday, given the election and the
rate cut. The VIX lost .19 to settle at 34.28, the VXN gained 1.98 to 51.20,
and the QQV rose .84 to 45.08. Expect volatility to get ripped today and on into
the weekend unless the market completely unravels after the rate cut.

Update: (11/06/02)


New Recommendations

CCU — Sell the January 45 calls on a one-for-one basis against our
remaining long January 40 calls.

CIEN — Buy the January 2.5 puts at $.05 to close.

Working Orders (Old Recommendations)

QQQ — Those who sold the January 23/26 call spread at $1.50, bid $1.80
for the January 20/23 call spread (somewhere near $23.00 should get you done).

Recap of open trades


Reverse Collars

CIEN — Long the January 2.5/5 reverse collar at
$.40 (25%).


HAL — Long the January 15 buy-write at $12.05 (100%).

Proxy buy-writes

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

Complex Strategies


Directional Positions



Call Positions

CCU — Long the January 40 calls at $2.00 (25%).

Call Spread Positions

BGEN — Long the January 40/45 call spread at $1.00 (25%).

DIA — Long the November 80/84/85/89 call condor at $1.50 (25%).

DIA — Long the December 80/84/86/90 call condor at $1.20 (25%).

QQQ — Short the January 23/26 call spread at $1.50 (25%).

Put Positions


Spread Positions

KSS — Long the January 50/60 put spread at $3.00 (25%).

WAG — Long the January 30/35 put spread at $1.00 (50%).



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