Wait And See
Not much happening this morning.
Futures are slightly lower, and we are going to have to wait and see how
the market reacts to the Micron
PowerRating) earnings from last night. Although they
"beat the number," revenues were a bit on the light side, and
depending on which spin doctor you are listening to, it could go either way.
No economic numbers today, and a lot of people are blasting off early for spring
break, and of course next week is Passover/Easter week, and a four-day trading
week. Expect volume to start dropping off and volatility to continue to slide.
The markets will be choppy, keep it light and nimble.
Volatility got massacred yesterday. After being up during the morning’s sell-off
it came slamming down hard with the afternoon rally. We are breaking into new
territory in the VXN and QQV. The VIX is now set to probe the lows of August of
2000. The VIX settled at 19.98, down .75 on the day, the VXN dropped 1.18 to
close at 36.97, and the QQV dropped to 31.87, down .81 on the day. The QQV is
now approximately HALF of what it was during the September/October panic.
I REPEAT: Although volatility may be undergoing a structural
change, we still consider volatility this low to be a red flag and a cause
for concern! If you are exposed to the market and are concerned, puts could not
be any cheaper, make use of them!
Trade Updates (3/21/02)
PowerRating) — We successfully executed the "roll" we have been
recommending in Calpine for the last few days. We bought the May 15 calls (to
open) and sold the April 12.5 calls (to close) and collected an $.80 credit.
This rolls our April 12.5 call position "up and out" and takes $.80
off the table. We are now long the May 15 calls at an effective price of $.40!
PowerRating) — We sold the remaining 75% of our April 40/50 call spread
position at $3.00 yesterday. We booked a disappointing $.50 profit on the
remaining 75% vs. a $2.00 profit on the first 25%, but that’s the way it goes.
We were reconsidering our positions in
PowerRating), but the BTK
PowerRating) had an outside reversal UP day, so we will hold!
Current Recommendations/Working Orders
SMH and QQQ put scalping may once again be suspended, depending on the market’s
behavior today. Watch Alerts!
SMH — Traders may begin making scale-up put purchases against the
following short-term resistance levels:
- 46.45 — Market-profile generated level.
- 47.25 — Market-profile generated level.
- 48.00 — Near-term high.
We now have a 60% position in the SMH April 45
puts (see below), and we will be adding against the above resistance levels and
taking profits against support. This is for ACTIVE traders only!
QQQ — Traders may begin making scale-up put purchases against the following
short-term resistance levels:
- 36.54 — Market-profile generated level AND
38.2% retracement, May to September 2001 sell-off.
- 37.11 — 38.2% retracement, September to
- 37.38 — 50-day moving average.
- 38.55 — 200-day moving average.
Again, this is also a program for ACTIVE traders
only! If you are not sitting in front of a screen, you may not want to get
involved. Also remember that we will take partial profits on these positions as
we approach support levels.
PowerRating) — Investors long the July 50 calls at $3.30 (50%)
may sell the July 60 calls against their positions at $1.00. This will roll us
into the July 50/60 call spread at $2.30.
PowerRating) — Investors long the April 22.5/25 reverse collar
(long the April 25 calls, short the April 22.5 puts) at a $1.15 credit (75%) may
want to consider the following roll: Buy the Disney April 22.5 put/April 27.5
collar (buy the April 22.5 puts, sell the April 27.5 calls) for zero. This will
"roll" you into the DIS April 25/27.5 bull call spread at a $1.15
Recap of open trades:
HAL — long the July 17.5 buy-write at $14.50
Call Spread Positions
Put 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