What Makes Sense Vs. Dollars and Cents
The market, thrown into
turmoil by the uncertain results of last Tuesday’s election,
doesn’t see
relief coming any time soon. The market votes, as it always has with dollars
and cents, and since the election, it has voted with its collective feet,
heading for the exits faster than a Florida election official.
The catalyst for the spike today was the Florida secretary of state, which
refused to extend tomorrow’s 5 p.m. deadline for recounting U.S. presidential
election votes. Then the war of words escalated, as Warren Christopher,
Democrat pit bull for Al Gore, called the decision “arbitrary and
unreasonable” and said it would be appealed in court. Whether Bush’s 288
vote lead holds isn’t the issue. The issue is the complete lack of
credibility of the entire process. Since election day, the Nasdaq Composite
Index has lost over 16%, while the Dow Jones Industrial Average has fallen a
little over 6%.
While investors try to make sense of what has become a national joke, the
volatility index (VIX) continues to surge. As of 11:41 am CST, the VIX stands
at 34.07, +1.51. Back in April when the market put in its top and subsequent
slide, the VIX briefly hit 41%, but today’s reading is certainly high enough
to raise some eyebrows.
One strategy traders are using to take advantage of the spike in volatility for the Nasdaq
is a simple covered write in the QQQ. Traders looking for a bounce buy the QQQ at the year low of 69 and sell the December 69 call for 5 7/8. They’ll
have to be comfortable buying the index, but they will get nearly
10% downside protection from the call sale. This isn’t exactly a swing-for-the-fences play, but buying a battered tech index during COMDEX, with 10%
protection and a reasonable chance of capturing some, or the entire premium,
may be one of the most attractive plays available.
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