By Todd Harrison Apr 17, 2003 8:30 am
The indices are an "a.m expiration" while individual stock options are "p.m expiration"
Good morning and welcome to the home stretch. With yesterday's wild ride fresh in the critters mind, the Menagerie arrived at work today ready with two goals. First and foremost, they wanted to focus their attention on today's expiry and wrap up the week with some jingle in their jeans. Next, and perhaps more importantly, they were looking forward to a much needed and well deserved three day respite away from the flicking ticks and corporate shticks. As the fabulous fivesome gathered in my office for some matzos and schmear, the conversation went a little something like this:
Boo: (chewing on a slab of salmon) Hmm... futures up and the dollar is (marginally) lower. Where have I seen this movie before?
Hoofy: Relax Francis, you're looking too hard for a reason to be negative. Corporate earnings, on the aggregate, have been surprisingly firm. Last week, traders were debating whether they'd be bad or horrid -- nobody was talking about good earnings.
Snapper: The bull has a point, Boo. If we're to continually assimilate our four trading metrics -- fundamentals, technicals, psychology and structural -- you have to allow that the fundies ticked up this week... if only against expectations. Remember, perception is reality, mon frere.
Sammy: (slithering up to a blueberry muffin) Sssssup Ssssnapper. I agree that, juxtaposed against the collective psssssychology, earnings were probably better but it's not like business is gangbusters. Visibility is still muted, valuations remain rich and, honestly, you can make a case either way. Yes, we must factor it into our process but we cannot blindly defer to them. That would be a mistake.
Daisy: This is what I don't understand. You guys spend too much time trying to prove you're right -- especially you Boo -- when you should be attempting to let the market work for you. When you're lucid and unemotional, you're more likely to "see" things evolve in the market. For instance, we saw the NDX over S&P outperformance trade setting up on Tuesday and, even if we sat out Intel (INTC:Nasdaq) and Microsoft (MSFT:Nasdaq) earnings, there was plenty of time to set it up yesterday morning. That doesn't necessarily mean a pure pairs trade (dollar neutral) but, for active traders, it should have meant looking to the N's for long exposure and the S's for shorts.
Boo: Well, I've got a strategy of my own kids. I'm looking at volatilities that are way compacted. Even if we are heading to a new (lower) premium range, they're due to snap and snap hard. I'll continue to scan for cheap paper (gamma) as I'm fairly sure we'll get paid by hook or by crook. As the field position still points to N's over S's, my inclination is to play in the old school--particularly the financials and, to a lesser degree, the retailers.
Hoofy: I don't disagree on vol, Boo, but you've gotta remember that it works both ways. If you've got a little bull in ya (turns to Daisy and winks), there's a lotta cheap upside calls out there that offer better risk/reward than lugging the underlying stock. The point that needs to be made, I think, is that the vehicle used is sometimes as important as the exposure itself.
Sammy: Smart, Hoofs. Although, through objective eyes, I've gotta tell you that the widespread complacency coupled with the high reading of bulls has been a recipe for spillage in the past. Perhaps this time IS different but...isn't it always? The markets wouldn't be at these levels if so many people didn't believe (that we've turned) and, by definition, that makes the tape quite vulnerable.
Daisy: Time will tell, fellas, time will tell. Just do me a favor and don't spend every waking minute trying to figure it out. This is holiday time and your attention should be on your family, not the Minx. We've got seven and a half hours of focus and then three days of smiles. Let's end this week on a fantastic note!
With that, the critters jumped off the couch and filed out of the office door. It was expiration Thursday in Minyanville and they knew they'd have their paws and claws full. For my part, I turned my attention back to a Fokker who was furiously trying to find a diner that served matzos brie. I ask for one simple thing, kid...don't let me down.
Good luck today.
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