Expiration Day -- We May Be In For A Beating

Futures are sharply lower along with the currency this morning as we have had another failure of the market to hold a "bottom." This market is truly ugly, continually disappointing even the most negative traders (like me). Case in point: Johnson & Johnson (JNJ | Quote | Chart | News | PowerRating). We exited our short JNJ position a while ago after booking some nice profits, and when it looked like the stock was going to bounce and give us a nice reentry on the short side -- whaam! The New York Times reports that JNJ is under criminal investigation, and the stock is trading about $7.00 lower this morning! Damn that's frustrating, and it's been happening a lot lately. The reentry is just not happening, and we are losing our downside bullets.

Now I have to admit, I am a "trade-a-holic," and I trade everything that can be traded. I have a few currency positions, and it feels as though the currencies are on the verge of an explosion to the upside (dollar exploding lower). This could contribute to further selling in the market. If you think domestic investors are getting hurt in this market, just think about the foreign investor -- they are suffering doubly as the asset price and the currency in which it is denominated are both getting annihilated. Currently, the DJI futures are 130 lower, the S&P futures are 11.50 points lower, and the Nasdaq 100 futures are 16.00 points lower. The Russell 2000 futures are showing unchanged. The Russell had an especially poor day yesterday, and appears to be on the verge of a meltdown. We might buy some more puts/put spreads in the IWM.

July Positions

We have some July positions expiring today that we will need to deal with:

(SMH | Quote | Chart | News | PowerRating) -- Long the August/July 32.5 put calendar. The idea here was for the July 32.5 puts to expire worthless, leaving us long the August 32.5 puts at a good price. If by halfway through the day tomorrow it looks as if there is no chance of the SMH climbing above 32.5, we will liquidate the spread.

Buy-writes -- We purchased protective July puts against our buy-writes a while ago, and if the puts finish in the money, we will exercise them and be rid of these Godforsaken buy-writes. They have been the worst trades of the year. Right now (AMR | Quote | Chart | News | PowerRating) and (SEBL | Quote | Chart | News | PowerRating) buy-writes look as though they will be gone tomorrow. I will keep you posted.

Volatility

Volatility was fairly steady yesterday with the VIX picking up .16 to 39.95, the VXN gaining .38 to 63.61, and the QQV losing .90 to 54.66. Look for a test of the highs today.

Government intervention in both the equity and currency markets is a distinct possibility today, and the fact that it is expiration day for July options will make it that much easier if they decode to do it. Be forewarned!

Trade Updates (7/18/02)

No trades yesterday. The IWM spread recommendation (below) is getting close.

New Actions (New Recommendations)

(AHC | Quote | Chart | News | PowerRating) -- Buy the January 65/75 put spread for $3.00 (25%).

(BAC | Quote | Chart | News | PowerRating) -- Buy the January 55/65 put spread for $3.00 (25%).

Working Orders (Old Recommendations)

(IWM | Quote | Chart | News | PowerRating) -- Sell the remaining November 80/90 put spreads at $7.00.

(MMM | Quote | Chart | News | PowerRating) -- Sell half of the October 110/120 put spreads at $5.50, hold the balance.

(CHIR | Quote | Chart | News | PowerRating) -- Sell all CHIR July 50 calls at $1.00 to close. (These puppies are dead meat unless there is an act of God by  Friday.)

(TGT | Quote | Chart | News | PowerRating) -- Sell the remaining January 35 puts at $6.00 -- the naked January 35 puts not the spread!!!

Rolls/Adjustments

(SEBL | Quote | Chart | News | PowerRating) -- For those long the SEBL August 27.5 buy-write: Buy the SEBL August 27.5 calls (to close) and sell the November 20 calls (to open) for $2.00 credit. (Far away right now.)

Recap of open trades:

Long-term

Reverse Collars

None.

Buy-writes

(AMR | Quote | Chart | News | PowerRating) -- Long the August 25 buy-write at $22.00 (50%). Protected with long July 15 puts at $.70.

(AOL | Quote | Chart | News | PowerRating) -- Long the July 22.5 buy-write at $19.40 (50%). Protected with long July 10 puts at $.30.

(AOL | Quote | Chart | News | PowerRating) -- Long the October 20 buy-write at $16.30 (25%). Protected with long July 10 puts at $.30.

(HAL | Quote | Chart | News | PowerRating) -- Long the October 17.5 buy-write at $13.25 (100%).

(SEBL | Quote | Chart | News | PowerRating) -- Long the August 27.5 buy-write at $23.00 (50%). Protected with long July 10 puts at $.35.

Proxy buy-writes

(DYN | Quote | Chart | News | PowerRating) -- Long the January 15 calls at $3.20 -- left over from proxy buy-write (50%).

Complex Strategies

None.

Directional Positions

(AMGN | Quote | Chart | News | PowerRating) -- Long the January 30/40 put spread at $3.00 (25%). Sold half at $5.00 on 7/10/02.

(TGT | Quote | Chart | News | PowerRating) -- Long the January '03 35 puts at $2.58 (37.5%). Half of the position "morphed" into a bear spreads on 7/16/02 (below).

TGT (2) -- Long the January 30/35 put spread at $.58 (37.5%). This due to adjustment on 7/16/02.

Short-term

Call Positions

(CHIR | Quote | Chart | News | PowerRating) -- Long the July 50 calls at $3.30 (50%) -- DOA.

Call Spread Positions

(QQQ | Quote | Chart | News | PowerRating) -- Long the August 26/28 1:2 call ratio spread for even money (25%).

QQQ -- Long the August 26/28/30 "Christmas tree" at $.35 (25%).

Put Positions

None.

Spread Positions

(IWM | Quote | Chart | News | PowerRating) -- Long the November 80/90 put spread at $3.00 (25%). Sold half at $5.00 on 7/10/02.

(MMM | Quote | Chart | News | PowerRating) -- Long the October 110/120 put spread at $2.80 (100%).

(SMH | Quote | Chart | News | PowerRating) -- Long the July/August 32.5 put spread at $.70 (25%). Sold half at $1.50, 7/16/02.

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: http://www.theocc.com/publications/risks/riskchap1.jsp