-- Posted Friday, 14 July 2006 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Friday, July 14, 2006
For investors who’d rather be smart than lucky
Stay down, you dumb sonofabitch! That’s what we felt like yelling every time the market tried to rally yesterday. With a regional firestorm threatening to erupt in the Middle East, a sane investor might have wondered why anyone would have bought stocks at all. Still, someone evidently did as shares staggered, wheezed, stumbled and tumbled their way lower, never mounting much of a rally. Perhaps the oft-brashly imperturbable Mr. Market deserves a little credit for not rebounding back to unchanged by day’s end? That would have been not merely crazy but unseemly, given the deadly riptides roiling the geopolitical world.
The oil markets surely knew how to behave, and August crude oil futures reached an all-time high of $76.85 intraday. They were climbing still higher in early-evening trading, topping $78 and presumably bound for at least $82.03, a hidden-pivot target that could be reached within the next few days. Some traders were predicting $100 a barrel, which if true would probably push the price of gasoline to at least $4. We’ll be monitoring the $82.03 resistance closely, another at $83.59, and a third at $85.39. Each of these hidden pivots is capable of arresting the surge, but if and when the last is swept aside, the century mark would become an odds-on bet in my book.
***
Peek Inside Rick’s Picks
We had a fairly interesting day at Rick’s Picks yesterday. Lurkers who imbibe my free commentary at various Web sites may not know what goes on at the site in real time. Below is a peek at what you’ve been missing, a stale but still piquant sampling of items posted intraday via the Bulletin Launcher. The free option calculator noted in one of these items is yours to keep merely by following the link. Check it out!
BZH Beazer Homes (41.41)
07/12/2006 20:23:21 EST 6203
We don't want to risk putting ourselves in the path of a falling piano, but since the 41.08 hidden pivot given here yesterday remain valid, I'll suggest giving it another try, albeit very cautiously. You can bottom-fish by way of a 41.10 bid for 200 shares, stop 41.03; or, alternatively, with a 1.60 bid for two July 40 calls (BZHGH), contingent on the stock trading 41.08 or higher. Stop yourself out of the calls if they trade down to 1.50.
Update 9:40 a.m. ET: The little cinder block opened on a gap below 41.03, so nothing was done on the trade and it was canceled. If the order was handled by a broker, it's possible you would have bought and been stopped out simultaneously, with little or no net consequences. Now, there is one last pivot left, at 40.73, to separate Beazer from an abyss whose hidden pivot bottom is...32.97!
$ $BKX Bank Sector Index (106.65)
07/12/2006 20:48:01 EST 6208
Let's step ahead of the crowd and bid 0.35 for sixteen September 95 puts (BKXUS), good through Friday. The goal is to spread off the risk by shorting other puts later on weakness, effectively legging into a calendar or vertical spread.
Update 12:38 p.m. ET: The puts are currently bid 0.35 (our bid, probably), offered 0.60, a spread so absurdly wide as to criminalize the market-making enterprise. But what do we care, so long as any September 95 puts that are dumped at-the-market come to us? The rules dictate that we will be first in line to buy them -- one of the few ways in which the retail customer has an edge over the floor trader.
$ AMD Advanced Micro Devices (22.88)
07/12/2006 20:54:58 EST 6209
AMD is a good proxy for oversold techs, so keep an eye on Tuesday's low, 22.02, since a close below it would portend yet more weeks of winter for the sector. An important hidden-pivot support at 22.23 has already been breached, so our bias is negative for the intermediate term.
Update 12:04 p.m. ET: AMD held up pretty well this morning, registering modest losses when most other stocks were getting creamed. That leaves me mildly bullish on the stock, since it's likely to show high relative strength when the broad averages turn around. Ordinarily I would try to leg aggressively into an out-of-the-money calendar spread -- say, the October 25 - July-or-August 25 call spread. However, call prices are waaay too rich for my taste, with October 25s trading around 1.70, implying a volatility of 50. That's reasonable relative to the actual, recent volatility (55) of the underlying stock, but it may be asking too much of the calls to bet that they will finish in-the-money.
We'll take a cautious shot anyway, bidding 1.60 for two October 25 calls, contingent on the stock trading 23.00 or higher. If you need a broker who can handle this type of order, give Mark Angioletti a call at Benjamin & Jerold: 312 554-0202.
Update 1:31 p.m. ET: A contingency on the order prevented our buying AMD October 25 calls earlier for 1.60, but I've just entered a 1.35 bid for four of them and would recommend that you do the same. Make it contingent on the stock trading 22.20 or higher. These calls are not easy to buy, so it behooves us to bid for them whenever AMD is getting pounded. They will give us great ammo to short other calls later, when the stock rebounds.
Incidentally, I effect my own contingency on this order by keeping my finger on the cancel/replace button of my TradeStation platform, which allows me to execute trades electronically without a broker in direct-access fashion. If the stock drops below 22.20 and I haven't been filled, I'll lower my bid to 1.30 and suggest that you do the same. I might also mention that the last sale on these puppies was at 1.37, two cents above our bid. Since public customers must buy and sell in 5-cent increments, the trade at 1.37 implies that they were traded as part of a spread order.
07/13/2006 14:50:35 5
California Housing Crash (*) From Jas Jain, our man-on-the-scene in Northern California, here's an update on the housing collapse from its potential epicenter, Santa Clara County:
Housing Alert: Based on records of recent sales in Santa Clara County, the median price is collapsing. By “collapsing” I mean a 5-10% drop in just five weeks. I hope to provide statistics over the weekend. Could it be that the availability of Fraud Money, via employee option scams, has gone down significantly over the past two months?
Published data on recent sales will not be available until the August report is released in mid- to late September. I am alerting you to the bad news eight to ten weeks ahead of time.
Meanwhile, although Santa Cruz County's real estate market has been weak, it has seen a slight bounce based on June data just out. However, the market is dead -- i.e., there are very few sales, with a listings-to-pending ratio of 7.96 (as of few minutes ago). ps: In Los Altos, as of yesterday, there were 72 listings and only five pending sales. That is about two years' worth of supply.
***
07/13/2006 11:18:22 3
Free Option Calculator (EDU) Here is yet another option calculator for your use. It is offered at the CBOE site, a treasure trove of options data, trading tips and useful freebies. This calculator has "greeks," including vega, rho, and gamma. They are useful mainly to professional traders who amass large inventories of options of different strikes and expiration dates. Personally, I use only the delta value and the implied volatility -- all the retail customer really needs. Here's that link:
CBOE Option Calculator
And here's a link to, among many other useful things, free end-of-day implied volatilities:
Implied Option Volatilities
07/13/2006 09:59:07 1
+ Diamonds Trust (DIA) (109.30) Offer short against the August 114 put we hold for 2.55 a July 111 put (DIASG - not the August 111 puts as erroneously given here just seconds ago) for 2.20. If successful, this would give us a nearly riskless position with some downside potential and four calls that would be held effectively for nothing.
Update 1:57 p.m. ET: The July 111 puts were an easy short for 2.20, having traded as high today (so far) as 2.50. We are therefore long a vertical put spread that has about $350 of potential and no more than $30 of risk over the next week. At worst, this will more than offset the $240 we paid for August 114 calls, which we will still hold and which will have cost us, effectively, nothing.
Basically, the goal of all this maneuvering was to capture the fat (i.e., time premium) in soon-to expire July 111 puts that were pumped up this morning by mild panic.
***
Sydney Seminar
The Hidden Pivot Seminar in Sydney, Australia is a “go,” with only a firm date remaining to be set. As of now, it looks like it will be held in either this fall or in early February, so
please let me know via-email if you’re interested in attending. 
