The Volatility Trader
105 W. Monument Street
Baltimore, MD 21201
Friday, November 17, 2006
Email – #221
Dear Volatility Trader Member,
This morning, a very dismal housing construction report surfaced, showing that builders slashed their building activity to the lowest level since 2000.
Seeing numbers like this makes you wonder exactly how the market manages to hit all-time highs. But rather than sitting back scratching our heads, we’ve thankfully implemented a “buy strangle,” thus factoring in significant volatility in the short-term, but the market continuing upwards next year.
As a quick educational piece, another way to implement this strategy is instead of simply buying a December put and March call option… we could have sold a December call option, and then bought January and March calls. This is called a short butterfly.
Portfolio Update
S&P 500 Tracking Stock SPYDRs (AMEX: SPY)
Symbol Entry Date Price
December 2006 $138 puts SFB-XH 11/16/06 $0.75
March 2007 $146 calls SFB-CP 11/16/06 $1.45
At last glance, the puts were trading at $0.65 cents, the calls were $1.40. This position is going to take some time to begin working… hang in there.
Fuelcell (Nasdaq: FCEL) Symbol Entry Date Price Purchased
December 2006 $5 calls FQG-LA 11/7/2006 $1.75
Fuelcell Energy was down slightly in today’s session, and our position is flat. If the stock falls back into the recent descending range, we will close the position, but for now I’m very optimistic about the recent trading activity in the stock.
Equity Office Prop. (NYSE: EOP) Symbol Entry Date Price Purchased
December 2006 $40 puts EOP-XH 11/2/2006 $0.35
EOP is grossly overbought, and the stock looked like it was putting in “dark cloud cover” today on the candlestick chart. Hang tough… and I will keep you posted if anything changes.
St. Paul Travelers Co (NYSE: STA) Symbol Entry Date Entry Price
December 2006 $50 puts STA-XJ 11/10/2006 $0.30
STA was up slightly in today’s session… and our position is flat. It won’t take much to bump this stock down a little, and given the very cheap price of the options, they should gain value very quickly once the stock does start to fall.
I’ll be sending out an update, and new trade recommendation just after the bell on Monday… so stay tuned! Until then, have a great weekend.
Exit is everything,
Mark Whistler
