Wednesday’s Option Alerts

  • April 8, 2003
  • Chris Tyler

Monday brought in the markets
favorite ‘ace in the hole’, as the ‘war card’ was played once again for a nice
upside pop in the ETFs. For market
players, this trick seems to be losing its effectiveness though, as major
resistance held the averages in check, triggering aggressive selling in the
final 90 minutes of trade. Needless to say, it’s still difficult to teach an old
dog new tricks, as Tuesday had similar headlines propping up the market in the
early going. The difference today was that it was quickly evident that investors
were not willing to sit long, being long or short, for that matter. The ETFs
finished the day in a very tight trading range, with anemic volume to match, as
all three market proxies finished the session down slightly. 

No signals are triggering with the CVRs this
evening, but with range lows being broken ( VIX ), and upside resistance in
place ( ETFs ), the bet is on once more…the delta neutral synthetic straddle.
Let’s see how it all plays out in the Dow Jones ETF
(
DIA |
Quote |
Chart |
News |
PowerRating). Yesterday, with
the index at 85.05, the 85 level calls could be had for 1.65. With closing
prices so far this is a scratch trade. Part of the hedge could be taken off at
these levels to shore up the position, but in light of the intraday technical
action, the stretching of the VIX down to the 2 Bollinger Band on the daily, as
well as the markets reaction to the latest “is he or isn’t he” news,
we’ll continue to lean it short with our original ratio of 2 contracts for every
100 shares.

Points of Significance:

Volatility
Index		 Close Net
Change		 Signals/Direction %
Above/Below 10 Day Moving Average		 Significance
VIX 29.59 Down
2.14		       
NONE		 7.4%
Below 		Not
At Extreme
VXN 40.92 Down
.52		        
NONE		 3.7%
Below 		Not
At Extreme

 

Abnormal Options Volume — This list
includes both percentage movers that are normally associated with an increase in
options activity, as well as stocks that have unusually high activity and / or
technical situations,
reflecting increased speculation of a potential price move.

Name Symbol Net
% Change		 Volume Avg.
Volume
Analog
Devices 
ADI		        -8% 3390 600
SanDisk
SNDK		        -1% 10182 2664
Nasdaq Biotech Index
IBB		        +1% 5072 751

 

Stocks With Spikes in Implied
Volatility — Stocks with Increases and Decreases in implied
volatility compared to previous day. Candidates are then screened qualitatively.
These lists represent those issues that carry a blend of liquidity and/or
technical setups that might deserve further notice. 

Spike Up

Name Symbol IV Previous
IV		 High
IV		 Low
IV
Qualcomm
QCOM		 55.8 51.4 82 46.5
j2
Global		 JCOM 84.5 69 88 65.5

Spike Down

Name Symbol IV Previous
IV		 High
IV		 Low
IV
Altria
MO		 71.5 84.2 69.6 20.1

Please use stops on every trade!