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Cough Syrup


The NDX fills its gap at 1046 (there now).


Good morning and welcome back to the daily checkup. The Minx has thrown a LOT at the trading community during the past few years. We've seen the tech bubble burst, accounting irregularities, electoral confusion, vicious volatility, corporate malfeasance, terror on our shores, corrupt analysts and now, war. I suppose after all we've been through, we shouldn't be surprised by anything. Wouldn't you know it, just as we got accustomed to juggling all the balls in the air -- the air itself became infected!

Are you kidding me?

The Severe Acute Respiratory Syndrome (SARS) has been picked up by news stations and discussed in social circles but, despite its potential economic, financial and human ramifications, it's been a relative non-event (thus far) for the financial markets. Put another way, the "best case scenario" is being assigned when discounting the odds of containment/cure and while that's clearly the option we all hope for, we must factor in the potential that it won't be.

The Center for Disease Control (CDC) reports that SARS has (thus far) infected 1804 people in 17 countries (62 dead) and is increasing exponentially. At its current rate, some experts have begun to draw comparisons to other historical pandemics such as the Spanish Flu (1918), the Asian Flu (1957) and the Hong Kong Flu (1968). While all of these previous outbreaks were eventually contained, a large (and in some cases staggering) human and economic toll was first absorbed by society.

The economic impact has been relatively pronounced in the far east (where it began) as airlines and hotel chains have reported a huge drop in the level of business. If this virus "fades away" and is much ado about nothing, that's a win/win on multiple levels. But what if it doesn't?

As a risk manager, my job is to assign probabilities to potential outcomes. If there's, say, a 10% chance that this spreads -- even a 5% chance -- we must ask ourselves if that potential negative is currently priced into the equity market.

I may be a nervous Nellie but I'm certainly no chicken little. My only point is that there are monster catalysts out there (both ways) and our job is to identify an appropriate risk profile. That endeavor will be different for each Minyan but, for my part, I feel there's a relative disconnect between perception and reality. As such, I'll be looking to set up more gamma via the addition of "underneath" puts out a few months. The market surely has rally risk to it and if/when I get that itch, I can always rent some exposure for the day. However, and I'll be clear on this, my "fear" is to the downside ,and that bias will reflect my stylistic approach.

With that said, the world is a happy place thus far this morning as conventional wisdom bears down on Baghdad. The stateside futures and the dollar are up nicely while crude, gold and treasuries are once again spilling. It's clear that the macro flavor is "telling" us the tape wants to rally and it very well might. I see and respect the constructive elements in play. As it stands, however, I'm looking at higher prices as an opportunity to scale into cheaper puts.

This latest move lower is either a healthy "back and fill" before the resumption of the rally or a topping process that will ultimately lead to new lows. While my sense is that it's the latter, the trading trick is to limit the risk (if wrong) relative to the reward (if right). I think that, with volatility at these (cheap) levels, I have the ability to identify strategies that do that. Set up gamma in the "tape" names while playing "situations" when they arise.

As always, this is one trader's (humble) opinion and I would never want to project my style unto you. Minyanville is a forum for thought, however, and regardless of what the next 10% brings, I'll share my disciplined decisions that are consistent with my view. It may be right or it may be wrong -- but it will always be honest.

Good luck today.

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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