What Is Volatility Doing?
Stocks opened lower this
morning as all major futures contracts are in the red. On the Board
of Trade, Dow futures are currently 27 points lower, S&P futures are down
about 7 points and Nasdaq futures are 11.50 lower. Tensions in the Middle East
have spooked the market in general, and May crude oil futures have penetrated
the $27.00/barrel level this morning.
In addition to the Middle East news, Merrill has downgraded several members of
the “anointed” retail sector this morning, including Wal-Mart. The
chart of this sector (and several stocks in it) looks VERY toppy and as
BCAresearch (www.BCAresearch.com)
points out, there is a very strong inverse relationship between the performance
of retail stocks and the price of oil and its products. We shorted this area in
December and got our faces ripped off, but we are putting the hawkeye on these
stocks again.
Overseas, the Nikkei was more or less unchanged and the Hang Seng was up 4% to
close above 11,000. Those lucky Europeans are closed for the Easter Monday
holiday. It will probably be on the slow side here as well as people continue to
stagger home from their Spring Break/Passover/Easter holidays.
Volatility
Volatility is on multi-month, and in some cases multi-year, lows. Although
volatility seems to be seeking a new lower pre-bubble trading range, these
levels are still incredibly low given what is happening on planet Earth. It was
not too long ago when the activity that we have seen in Israel over the weekend
would have sent the futures limit-down! Be advised.
Trade Updates (3/28/02)
We were unable to enter the Bank of America
(
BAC |
Quote |
Chart |
News |
PowerRating) May/August 65 Put
Spread (Sell the May put and Buy the August put for a $1.50 debit). We
will reenter this spread today.
We will be exploring short positions in the retailers and additional long put
position trading in some of the major indices. Stay tuned!
Rolls/Adjustments:
Chiron
(
CHIR |
Quote |
Chart |
News |
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.
Disney
(
DIS |
Quote |
Chart |
News |
PowerRating) — The Disney Roll we have been recommending has moved
away as the stock has declined. Investors long the April 22.5/25 reverse collar
at a $1.15 credit (75%) may hold if they are willing to take delivery of the
stock at $21.35 (22.50 short put strike – 1.15 credit). If not, look to
liquidate the position on the next bounce.
Recap of open trades
Long-term
Reverse Collars
DIS — April 25/22.5 reverse collar (long the
April 25 calls, short the April 22.5 puts) at a $1.15 credit (75%).
Buy-writes
(
HAL |
Quote |
Chart |
News |
PowerRating) — Long the July 20 buy-write at $15.00
(50%).
HAL — Long the July 17.5 buy-write at $14.50
(50%).
Proxy buy-writes
None.
Complex Strategies
None.
Short-term
Call Positions
(
APC |
Quote |
Chart |
News |
PowerRating) — Long the May 60 calls at $1.75
(50%).
(
CHIR |
Quote |
Chart |
News |
PowerRating) — Long the July 50 calls at $3.30
(50%).
(
CPN |
Quote |
Chart |
News |
PowerRating) — Long the May 15 calls at $.40 (50%).
(
MLNM |
Quote |
Chart |
News |
PowerRating) — Long the May 25 calls at $2.40
(50%).
Call Spread Positions
None.
Put Positions
(
AZO |
Quote |
Chart |
News |
PowerRating) — Long the April 60 puts at an
effective cost of $2.125 (50%).
(
SMH |
Quote |
Chart |
News |
PowerRating) — Long the April 45 puts at an average
price of $1.76 (30%).
Spread Positions
None.
Stops
None.
- 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