That's some stanky breadth!
Many is a word
That only leaves you guessing
Guessing 'bout a thing
You really ought to know
The opening flurry is red in a hurry and the hungry bears are looking to feast. After Friday's breach of the S&P 50-day moving average, today's first order of business was the triple bottom at S&P 975. Now that they've digested that level, S&P 962 (previous intraday low) and S&P 950 are the next areas of support. Through there, Minyans, and the charts work to the low 900's.
The financials are once again setting the tone as they slip and drip. The BKX is now "off" 5% since Thursday and that's sucking the zest from the rest of the nest. Boo's been a vocal bear in this group and thus far (this year), it's provided him with an equity enema. Still, I agree with the young cub that the worst is yet to come and potholes abound in our once proud financial system. That's not a call for today, per se, but before the grizzly's done, I wouldn't be shocked to see the BKX organically split 2 for 1.
Keeping with the educational efforts, I wanted to give an update of the real-time pairs trade we set up Thursday. I was looking for gamma in the group and settled on the Bear Stearns (BSC:NYSE) August 65 calls ($3) and the Goldman Sachs August 90 puts ($3.30). While bearish, I wanted to play a move either way and liked the relative risk/reward profile of this scary pair. I played small (a 250 lot) and, as a function of discipline, I peeled off 50 this morning for a $7.70. I'm currently toying with the idea of rolling my remaining Goldman puts down to the 85's, which would take some cake off the plate and leave room if the cookie crumbles. So you know...and if you care.
While I think we've got a ways to go before we find a low, I'm being very careful to define my risk profile. Despite the 20% pop in the VIX, I still wanna play "long vol" (gamma) and use trailing stops on my intraday exposure. That way, if Snapper decides to take a ride, I'm protected if Boo's neglected. I don't think it happens (I'm seeing real sellers) but we must always have a game plan for every scenario. If we start to lift, watch S&P 975-980 as the first zone of resistance (past supply).
As always, I hope this finds you well.
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 firstname.lastname@example.org.
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