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Begin Part 2 of 2
SUBSCRIBER QUESTIONS/COMMENTS
Q: You have provided a very credible scenario for price action in the event of
war. How would you see the market in terms of volatility and its consequent
impact on options?
A: Excellent question. We discuss volatility in the context of the VIX and VXN. These are measures of market anxiety, but they are based on the theoretical volatility of a near term, at the money SP100 option and Nasdaq 100 option respectively. Volatility is a component of option pricing. What impacts it? News drives volatility up immediately. We used to play split announcements a few years back before everyone had beepers; we had a broker call on the news and we would buy options and make a tidy sum when the stock jumped up. When everyone started to do it, the mere news was enough to drive the volatility component of the option higher. The stock could stay flat but the option value would scream higher; you could actually see the stock then move up but the option value fall as the 'news effect' wore off and the volatility component faded. Thus the news of the war will immediately jump option prices as that kind of uncertainty injects volatility into the market. After the event (and with war it could take a few days), volatility will fall, at least from a news factor.
Another factor impacting volatility is simply the movement up and down of stocks. The wider the range of movement, the higher the implied volatility because the option pricing has to take into account the potential range of stock price movement in addition to the actual movement. The more up and down motion there is (or the more movement in one direction unabated - - the old what goes up must come down idea) the higher the volatility as well. So, a big move pumps up volatility as well.
Option volatility is also impacted by trading activity. When the volume was drying up in late 2001 and early 2002, option volatility dried up as well. It moved up on the heavy selling and buying in July through October, but it has backed off again with lowe rvolume and the lazy action the past 3 to 4 months.
Thus the initial news will drive option volatility components higher, and the news could keep volatility higher for several sessions. After that it will be the volume of shares changing hands and the up and down action that will impact the volatility component.
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THE PLAYS:
We are still primarily looking at some upside positions to set up for a war rally given that the market appears aching to move up on the start of hostilities for at least a near term rally. We also are looking at a stock or two for a quick downside move over the next couple of sessions.
Good moves: BLTI; NFLX; SBUX
New Plays:
Upside:
Play Date: 02/27/2003
MEDI (Medimmune--$29.66; +1.38; optionable): Biotechnology
http://biz.yahoo.com/p/m/medi.html
STATUS: Ascending triangle. Working off the 50 day MVA (29.50) that is acting as the bottom of the triangle the past 1.5 months, MEDI has shown great accumulation since August, coming in at 7 up weeks on rising volume to 1 down week on rising volume. Excellent money flow moving up ahead of the stock with realtive strength ready to breakout. Volume shot higher Thursday as MEDI jumped up off the bottom of the pattern. We are looking for a move over 30 to clear some resistance and give MEDI some room to run.
Volume: 5.453M Avg Volume: 4.081M
BUY POINT: $30.25 Volume=6M Target=$34.84 Stop=$28.13
POSITION: MEQ FF - June $30c (53 delta) and/or Stock
http://www.investmenthouse.com/ct/medi.html
Play Date: 02/27/2003
SLAB (Silicon Labs--$26.17; +0.37; optionable): Semiconductor
http://biz.yahoo.com/p/s/slab.html
STATUS: Cup w/handle. Working through a 3-month base, SLAB is pulling back in an orderly, below average volume handle that is testing the 10 day MVA on the low (25.75). Thursday it showed a tight doji on the 10 day, and that can be a precursor to a move higher. Good accumulation in the base at 3 up weeks on rising volume to 0 down weeks on rising volume. SLAB has broken over resistance, but is right at the down trendline that started in December 2001. A strong breakout over that level is a trend reversal and a good entry point.
Volume: 695.814K Avg Volume: 1.145M
BUY POINT: $26.94 Volume=1.7M Target=$31.28 Stop=$25.05
POSITION: QFJ GE - July $25c (62 delta) &/or Stock
http://www.investmenthouse.com/ct/slab.html
CONTINUING PLAYS:
Upside: Many good looking upside plays. APOL, BCGI, CGNX, IRM
Play Date: 02/24/2003
ADI (Analog Devices--$28.34; +1.08; optionable): Semiconductor
http://biz.yahoo.com/p/a/adi.html
STATUS: Testing the 200 day MVA. After breaking over the 200 day MVA (26.98), it has moved laterally over that level, waiting for the move higher after breaking that resistance. Thursday ADI jumped higher on rising, above average volume. Money flow is excellent and relative strength is already breaking out.
Volume: 3.458M Avg Volume: 3.04M
BUY POINT: $28.45 Volume=3.5M Target=$32.75 Stop=$26.46
POSITION: ADI FE - June 25c (72 delta) and/or Stock
http://www.investmenthouse.com/ct/adi.html
Play Date: 02/26/2003
SBL (Symbol Technologies--$10.23; +0.08; optionable): Computer peripherals
http://biz.yahoo.com/p/s/sbl.html
STATUS: Testing the breakout. Still testing the breakout from the 3-month double bottom, tapping at the 10 day MVA on the low (10.05) and bouncing up to show a tight doji. Volume edged higher and remained above average as it held support and bounced up. Accumulation in the base is solid at 3 up weeks on rising volume to 1 down week on rising volume.
Volume: 2.157M Avg Volume: 1.311M
BUY POINT: $10.45 Volume=2M Target=$12.25 Stop=$9.72
POSITION: SBL GB - July $10c (59 delta, low OI) and/or Stock
http://www.investmenthouse.com/ct/sbl.html
WATCHLIST/ CONTINUING:
Stock Date Play Close +/- Pivot Tgt Vol TgtV Stop
$SOX 02/24 Put 289.58 +8.14 285.95 251 0 0 292
Current. Rallied right back up, recovering Wednesday's loss. Still below the 50 day MVA and still below the down trendline.
ADI 02/24 Test BO 28.34 +1.08 28.45 32.75 3.5M 3.5M 26.46
Buy Not Hit.
AFFX 02/08 Cup hdl 25.87 +0.54 26.55 30.55 969K 1.5M 24.69
Buy Not Issued.
AIG 02/20 Put 50.46 +1 49.48 46 5.9M 6M 51.25
Buy Not Issued.
AMGN 01/22 A Wedge 54.06 +0.81 53.12 62 10M 20M 50.25
Current.
APOL 02/18 A Wedge 45.47 +1.39 46.25 52.88 1.6M 22M 43.35
Buy Not Hit.
APSG 12/28 Cup hdl 13.05 -0.05 13.25 15.55 72K 85K 12.04
Current.
ASKJ 12/26 Cup hdl 6.6 +0.39 2.89 8 1.4M 305K 6.08
Current.
BBY 02/26 A Wedge 28.7 +0.79 28.38 32.97 3.4M 5M 26.85
Current.
BCGI 02/22 Cup 12.97 -0.16 13.63 16.35 221K 215K 12.68
Buy Not Hit.
BEN 02/18 Put 32.61 +0.59 32.74 30 550K 600K 33.75
Exited.
BLTI 02/10 Test BO 7.99 +0.89 7.2 9.15 1.5M 300K 6.55
Current.
BMC 02/19 Cup hdl 18.98 -0.77 19.29 23.15 3.6M 2.5M 18.15
Current.
BSC 02/15 Put 61.69 +1.29 60.45 56.45 1M 1.1M 62.04
Exited.
CCMP 02/19 Put 41.64 +0.77 41.45 37.12 488K 1.2M 44.22
Current.
CCU 02/24 Put 35.52 +0.33 34.44 30.25 2.9M 4.8M 36.33
Buy Not Issued.
CGNX 02/04 DB hdl 22.56 +0.56 23.09 26.88 749K 525K 21.47
Buy Not Issued.
CKFR 01/28 Cup hdl 20.47 +0.45 20.85 25 761K 2M 18.94
Buy Not Hit.
CRAY 02/25 BO 8.38 +0.21 8.32 9.97 1.1M 1.1M 7.74
Buy Not Issued.
CSC 02/25 Put 31.23 +0.71 31.38 27.15 987K 1.8M 32.65
Buy Not Hit.
CTXS 02/08 Put 11.82 +0.18 11.55 9.05 2.7M 450K 12.75
Exited.
CVD 12/21 Cup hdl 22.95 +0.14 24.75 29.74 282K 581K 24.25
Current.
CVD 11/05 Test BO 22.95 +0.14 23.65 28 282K 581K 24.88
Current.
DCX 02/03 Put 30.07 +0.73 31.15 26.55 978K 950K 31.35
Current.
ESRX 02/18 Put 51.92 +0.33 49.35 36 672K 1.2M 51.55
Current.
EV 02/15 Put 26 +0.77 26.9 23.35 382K 225K 27.45
Current.
EXC 02/13 Put 49.69 +0.28 49.65 45.55 988K 1.5M 50.85
Buy Not Issued.
FAST 02/01 Put 32.67 +0.68 32.29 29.15 562K 800K 32.94
Exited.
FDS 02/19 Put 25 -0.05 25.45 22.12 87K 300K 26.45
Current.
GRMN 11/06 Cup hdl 33.03 -0.36 22.34 34 446K 198K 30.65
Current.
IDCC 02/25 Test 50 14.1 +0.61 14.62 17.94 483K 850K 13.58
Buy Not Hit.
IRM 02/24 DB hdl 33.67 +0.35 33.55 38.55 453K 389K 31.75
Buy Not Issued.
JDEC 02/22 Put 11.68 +0.46 11.6 9 1.3M 1.5M 12.18
Buy Not Issued.
JEF 02/15 Put 36.1 +0.31 38 34.08 240K 210K 38.48
Current.
JPM 02/11 Put 22.66 +0.32 21.68 18 8.8M 12M 22.85
Current.
LGTO 02/22 A Wedge 5.67 -0.48 6.42 8.25 3.1M 2M 5.88
Buy Not Hit.
MANH 02/22 Put 20.68 -0.08 21.03 18 423K 700K 22.35
Buy Not Issued.
MDCO 01/10 Cup hdl 18.52 -0.12 17.35 20.85 439K 800K 16.28
Current.
MEDI 02/27 A Wedge 29.66 +1.38 30.25 34.84 5.5M 6M 28.13
New.
MER 02/26 Put 33.89 +0.53 33.08 30 5.5M 8M 34.65
Buy Not Hit.
MI 02/11 Put 26.33 +0.44 25.87 23.35 286K 350K 26.85
Buy Not Issued.
MSN 12/04 Cup hdl 6.19 -0.12 4.85 7.65 268K 150K 5.94
Current.
MSN 11/23 Cup hdl 6.19 -0.12 4.15 7.65 268K 150K 5.94
Current.
MWD 02/24 Put 36.52 +1.1 35.2 31.94 4.7M 4.8M 37.02
Current.
NATI 02/15 Test 50 33.54 +0.33 34.05 39 167K 425K 31.67
Current.
NFLX 01/25 Test BO 16.5 +1.95 14.3 17.96 1.7M 503K 13.35
Current.
NSCN 12/22 Pennant 19.11 -0.76 17.24 21.24 2.2M 1.8M 18.75
Current.
NSM 01/25 Put 16.68 +0.56 13.96 11.95 3.2M 2.8M 14.25
Current.
OSTK 02/22 Test BO 12.95 -0.72 17.15 20.45 733K 275K 16.65
Current.
PLCM 02/22 Put 9.74 -0.1 9.85 8.44 410K 1.5M 10.52
Current.
PNRA 02/12 Put 27.4 +0.74 27.48 24 761K 1.2M 29
Buy Not Issued.
POT 02/10 Put 60.92 +0.96 59.35 55 758K 175K 60.05
POWI 02/22 Cup hdl 20.59 -0.06 23.05 27.74 1.1M 750K 21.28
Buy Not Issued.
PRX 02/08 BO 36.15 +1.85 34.65 40.45 900K 435K 32.65
Buy Not Issued.
QCOM 12/04 Test 18 34.22 +0.75 40.85 50 14M 18M 37
Current.
QCOM 11/07 Test BO 34.22 +0.75 34.78 42 14M 18M 37
Current.
QLGC 11/07 Test BO 33.8 +0.73 41.4 50 7M 25M 39.88
SBL 02/26 Test BO 10.23 +0.08 10.45 12.25 2.2M 2M 9.72
Buy Not Issued.
SLAB 02/27 Cup hdl 26.17 +0.37 26.94 31.28 696K 1.7M 25.05
New.
STK 02/19 Cup hdl 23.05 +0.41 24.65 28.45 443K 1M 23.05
Buy Not Hit.
VRTY 02/18 Cup hdl 16.74 +0.29 16.6 19.94 468K 500K 15.12
Current.
WB 01/29 Put 35.27 +0.41 35.28 32.05 2.5M 3.5M 36.05
Current.
YHOO 12/11 Test 50 20.08 +0.37 17.32 22.75 7.5M 20M 17.74
Current.
Good Investing!
Jon L. Johnson and your Technical Traders Report Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP. or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners in Online Investment Services, LP. or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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