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Monday Morning Quarterback


This is MY Mile High Salute!


U-G-L-Y, You Ain't Got No Alibi…

It was a tough coupla days in Matador City after the bovine were bruised like a bunch of Bronco's. After hanging in the game for the better part of the battle-and holding support in the face of high profile misses from Intel and Yahoo-the once proud bulls bowed to a rowdy Red Dye crowd when Citigroup and General Electric fumbled the ball. Those turnovers flipped the lines of scrimmage (S&P 1275 and NDX 1705) from support to resistance and chased fans from their seats as we readied for the weekend.

While mechanical influences typically precede actual option expirations, Friday's premium funeral likely exacerbated the volatility. It was, by some measures, the largest expiry ever and reactive traders raced to re-hedge as we slid down the slippery slope. Professor Succo, who has the most astute derivative mind I know, opined early and often on the risks of negative gamma. Sure 'nuff, as we dipped through downside strikes and hedging hands were forced, Boo chased the mainstay averages back towards the '06 flat line.

Of particular note were the financials, which broke the banks as the bovine ranks scurried for cover. We've been talking about the piggies for a few weeks (after the "non-confirmation" under BKX 106) and the burnt bacon finally sizzled psychology. We can point to the flattening yield curve, we can discuss the seismic (leadership) shift (towards energy) or we can muse on the manifestation of structural smoke. At the end of the day, it really doesn't matter. As go the financials, so go the averages and the weight of this hay was too much for an already beleaguered camel.

That Was Then, This is Now…

With technical breaks (S&P 1275, NDX 1705, Citi $48, GE $35, YHOO 36ish) behind us and a whole lotta earnings ahead, the obvious question on the lips of the critters is 'what now?' My sense is that we could see a bit of Snappage to alleviate some of the expiration exacerbation as we ready ourselves for a fresh five. From there, and as we digest the rest of the fundamentals, we'll likely stride day to day through rotation station as sector specifics sharpen their focus.

Bigger picture, I'm still of the ('just because it hasn't happened yet doesn't mean it won't happen') mindset that one of two things will ultimately unfold. Either our fabulous Fed will flush further liquidity into the system-keeping asset classes afloat while diluting the dollar-or monetary policy will tighten and the pfft! will be felt from Gold to Google. A quick sniff of the morning cliff (up futes, lower dollar) seems to support that thought.

I continue to feel that volatility will continue to expand once the post-expiration hangover has subsided. Heading into the year, I offered that my risk profile resembled a "Big V" and the trading side of my book was overloaded with premium sporting all kinds of gamma. I peeled off a slew of that exposure into Friday's close (reducing both risk and decay) but I'll look to rebuild that profile (with out month options) as pitches come down the pipe.

Bits of Buzz and Cup O' Pizzas

With the launch of the new 'Ville, there will be continued tweaks and twists as we take this puppy to the next level. For purposes of my content, I plan on expanding the scope of my columns a bit so folks outside our industry can get up to speed. I'll still muse on the Minx, of course, but the Buzz will drill into the details as we find our way through the frisky fray.

If any Minyans would like to share the critter mission with their friends, families, networks, firms, colleagues, colleges or companions, we'll flip the switch for a gratis trial on your behalf. It's our way of saying thanks for being a Minyan and supporting your community as we continue to build upon our dream of fiscal literacy and financial utility.

Good luck today.


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