The Volatility Trader
105 W. Monument Street
Baltimore, MD 21201
Monday, September 18, 2006
Email – #185
Diamonds (NYSE: DIA) put position explanation:
Earlier this afternoon, we bought the October $116 puts on the Diamonds (DAW-VL)… here’s why. In my earlier alert today, I mentioned that the 10-year yield had broken above descending resistance of the near term declining trend. And, while this event is good long-term (the yield curve is no longer inverted), a short-term run in the 10-year will promote a broader market pullback.
What’s more, the Market Volatility Index (VIX), the measurement of fear, has begun to climb. From present levels, I expect the VIX to rally into the 14 area, where we will begin thinking about taking profits from the Diamonds puts.
Utility Index and TXU Corp (NYSE: TXU) update:
If you take a look at the Philly Utility Index (UTY), there was a substantial breakdown just a few weeks ago, when the index fell below ascending support of the near-term uptrend. This is VERY bearish, and given that oil, natural gas and other commodities are getting beat up across the board, the index could easily find itself under extreme pressure.
This trade looks very good and should begin to show results within the next day or two!
Exit is everything,
Mark Whistler
P.S. Please be prepared for an alert tomorrow giving guidance to Chaparral Steel (Nasdaq: CHAP), in regard to the company’s earnings. While the stock showed remarkable strength today, it has not been able to hold onto gains into the afternoon… not exactly the most bullish picture.
Current Portfolio:
Stock or Option: Diamonds Oct 2006 $116 puts (DAW-VL)
Current Price: NEW
Comments: Buy puts. Sell if Dow Jones closes above 11,700.
Stock or Option: Chapparal Steel (Nasdaq: CHAP)
Current Price: $38.71
Comments: Sell SHORT and place buy stop at $39.25
Stock or Option: Chapparal Oct 2006 $27.50 puts (ZHQ-VY)
Current Price: $0.10
Comments: Buy puts and use a 50% trailing stop.
Stock or Option: Chapparal Jan 2006 $27.50 puts (ZHQ-MY)
Current Price: $0.70
Comments: Buy puts and use a 35% trailing stop.
Stock or Option: eTrade (NYSE:ET)
Current Price: $24.40
Comments: Buy. Sell stop is at $21.75
Stock or Option: eTrade Oct 2006 $25 calls (ET-JE)
Current Price: $0.65
Comments: Buy calls. Sell stop is at if ET closes below $21.75.
Stock or Option: TXU Corp (NYSE:TXU)
Current Price: $61.25
Comments: Sell SHORT. Buy stop is above $67.50
Stock or Option: TXU Corp Jan 2007 $55 puts (TXF-MK)
Current Price: $1.31
Comments: Buy puts. Sell puts if TXU closes above $67.50.
