The Volatility Trader
105 W. Monument Street
Baltimore, MD 21201
Friday, September 22, 2006
Email – 190
Trade actions to take :
Take all profits in the below trades!
Stock or Option: Diamonds Oct 2006 $116 puts (DAW-VL)
Current Price: $1.85
Stock or Option: Chaparral Steel (Nasdaq: CHAP)
Current Price: $35.40
Stock or Option: Chaparral Oct 2006 $27.50 puts (ZHQ-VY)
Current Price: $0.10
Stock or Option: Chaparral Jan 2007 $27.50 puts (ZHQ-MY)
Current Price: $1.05
We have seen a considerable dump in Treasury yields over the past few days, meaning that investors are fleeing securities for bonds. The declining yield indicates Wall Street is selling more speculative investments (like gold and oil) to buy bonds. But here’s where it gets interesting. There’s an old market valuation technique where one divides 100 by the 10-year yield to get a ‘max out’ PE for the S&P 500. Using current numbers, this puts the S&P 500 ‘max out’ PE at 21.73.
And right now, the S&P 500 PE is around 17, indicating that despite the huge run up, the index can travel higher. The index has pulled back in the current channel, and while it could easily cool some more, the risk of another breakout is too high. For the time being we will move into less ‘index risk’ stocks.
New trade on the way Monday morning!
Exit is everything,
Mark Whistler
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Current Portfolio:
Stock or Option: Diamonds Oct 2006 $116 puts (DAW-VL)
Current Price: SELL
Comments: Take profits.
Stock or Option: Chaparral Steel (Nasdaq: CHAP)
Current Price: BUY TO COVER
Comments: Take Profits.
Stock or Option: Chaparral Oct 2006 $27.50 puts (ZHQ-VY)
Current Price: SELL
Comments: Take profits.
Stock or Option: Chaparral Jan 2007 $27.50 puts (ZHQ-MY)
Current Price: SELL
Comments: Take profits.
Stock or Option: TXU Corp (NYSE:TXU)
Current Price: $60.18
Comments: Sell SHORT. Buy stop is above $67.50
Stock or Option: TXU Corp Jan 2007 $55 puts (TXF-MK)
Current Price: $1.85
Comments: Buy puts. Sell puts if TXU closes above $67.50.
