Minyanville-Hamzei Analytics Chat: Dr. J and Phil Erlanger
Too bad about those Raiders Toddo!!
Editors Note: The following is the transcript from a chat held on Thursday, September 8th with Jon "Dr. J" Najarian of www.insideoptions and Phil Erlanger of www.erlangerresearch.com on the www.hamzeianalytics.com chat room.
Greg Collins: Thank you Fari and good afternoon to all of you. Thanks for joining us for the second in a series of chats that really started in Ojai at our second annual summer conference.
Greg Collins: Today we have the distinct pleasure of welcoming our good friend Jon Najarian to share some of his thoughts. Jon as you know is a co-founder and partner in www.NajarianCapital.com, principal of www.PTISecurities.com and founder of www.insideoptions.com, an online publisher of stock, options and futures commentary.
Greg Collins: Jon - why don't you begin with a brief overview of your work and what you're seeing currently in the marketplace?
Jon "Doctor J" Najarian: Hello Fari and thanks Greg and all you Super Platinum's!
Fari Hamzei: great
Jon "Doctor J" Najarian: Boy, some crazy action again today, especially in Rambus (RMBS). RMBS exploded in volume and volatility today, as the stock moved up 20% to $12.33
Fari Hamzei: Jon -- RMBS is on the Streamer now. Huge number of IVBOs on the RMBS chart.
Jon "Doctor J" Najarian: As you take a look at the chart, I'll describe some of the action that we thought was noteworthy
Fari Hamzei: the Streamer is the second link
Jon "Doctor J" Najarian: Early in the morning, about 10 am CT we noted the building volume, in particular, volume on the offer, meaning traders and institutional money was anxious, buying on the offer. As Fari and many others of you that I count as friends know, I care about velocity and velocity on the offer, or on the bid
Mark Fenton: Hey Dr J, shouldn't NKTR scream tomorrow with drug approval today? Vols have been crazy
Jon "Doctor J" Najarian: When I see that, brought to my attention by either our overnight eye in the sky, known as Distant Thunder. Or our live version of second by second volume that we call Heat Seeker
Luigi Fabio: (we're talking velocity on the offer for the common, I assume?)
Jon "Doctor J" Najarian: With less than 900 calls traded in RMBS yesterday, we saw growing action in the September 12.50 calls. Those calls opened for $.05 and hit $.80, where we began taking profits. Because the action was in the September options with just 6 trading sessions left to be in-the-money, or worthless, the action caught our attention. The fact that the action built throughout the session was positive, especially as it came without any news. October and November action could also be spec buying and it could also be market maker hedging against the Sept 12.50 calls. Right now I show RMBS down $.18 in the post market, but still holding $12.15
Jon "Doctor J" Najarian: I'll switch over to Sirius (SIRI), which also had some interesting activity today
Jim Bridges: Jon, I took a flier on the Office Depot (ODP) trade and was sold partial as well. Helped me to meet you face to face and understand exactly how you view "smart money" on the awesome Derivatives Panel at Minyanville.com's MIM2 event. Very impressed with your service, but I then use data and define my own risk and time horizon (read: elongated the ODP calls out to Feb - more comfy for me) rather than just doing what someone tells me to do. Thanks again. JB
Sam Collier: ODP?
Jon "Doctor J" Najarian: Thanks JB. We still hold some ODP as well.
Jon "Doctor J" Najarian: Back to SIRI. In SIRI, a stock that I still think will be over $11 at year end, we saw early buying action in the October 8 calls.
Fari Hamzei: Jon is talking about SIRI
Jon "Doctor J" Najarian: Of the 3,746 of that strike that traded, we showed 3,265 bought on the offer, 336 sold on the bid and 145 in between the bid and the offer. The imbalance of buying on the offer to the open interest of 1,201 was 244%. The outright buying of the Oct 8 calls represented 78% in favor of the bulls and for my money any reading over 65% is noteworthy
Jim Bridges: ODP = Office Depot.
Jon "Doctor J" Najarian: Because the October 7 calls were also quite cheap, we bought those and still hold them overnight
Jon "Doctor J" Najarian: I encourage any of you that haven't already done so to check out the free site www.optionsclearing.com. You can look up volume of calls and puts for any date
Geoff Garbacz: Any thoughts on Sun Micro (SUNW) as calls were heavy yesterday, they presented at Citigroup conference and stock looks ready to break above $4
Greg Collins: Let me just quickly chime in to also introduce Phil Erlanger, CMT. Phil ironically is President of Phil Erlanger Research Co., Inc. (www.erlangerresearch.com). Following his experience as Advest's Chief Technical Analyst in the 1980s, and his 5-year tenure as Senior Technical Analyst for Fidelity Management & Research Co., Inc., he formed his own company in 1994 with the goal of providing high quality, unique information and technical analysis research. His company also includes software development (www.erlangerquote.com and www.erlangerchartroom.com). Mr. Erlanger is a two-time past president of the Market Technicians Association. In 1997, Mr. Erlanger won the MTA Best of the Best Award for Computer Assisted Analysis. Welcome Phil.
Jon "Doctor J" Najarian: You can also see daily, weekly, monthly, YTD info on that site
Jon "Doctor J" Najarian: I want to welcome Phil as well
Jim Bridges: Phil - FNM put/call still ugly? Or getting less bearish as latest downtrend shows signs of temporary exhaustion?
Jon "Doctor J" Najarian: My point about the Options Clearing Corp site is that you can do some great checking to see what is unusual activity
Phil Erlanger: Thanks for the welcome. Nice site, Fari!
Blake Allen: quick question Jon, do you usually trade these options like rmbs just for short time frames or do you hold until there is some news?
Jon "Doctor J" Najarian: I would remind you to pay attention to the OCC warning that they show both buys and sells, so that a volume reading of 1,400 is really 700 contracts. In other words, cut the numbers in half to get the real picture, but even with that issue, I like this as a reference point for normal versus unusual activity. Unfortunately, they don't break it down by strike, but we do at www.insideoptions.com
Jon "Doctor J" Najarian: Mr. Allen's Question: It depends on whether they are buying near term expiring options, which they were in RMBS, or whether they are buying mid-term options, such as MCD 10 days ago. If they are accumulating the expiring options, they think they know something that will develop in that timeframe, but if they are buying mid-term, then that tells me I need to be more patient.
Jon "Doctor J" Najarian: In any case, if you get a 100% or 200% move, which is very possible in $.10 options, then I take at least 50% off the table
Blake Allen: great thanks!
Mark Fenton: Doctor J did you take a position in NKTR, drug just approved.
Jon "Doctor J" Najarian: One other quick example of short-term - on Aug 31 we noted the buying, in VERY big numbers of Micron 12.50 calls.
Edward King: Mr. Erlanger...do you have any opinion on the direction of the market?
Fari Hamzei: on the Streamer now
Jon "Doctor J" Najarian: Since these were September options, we jumped on and waited for the move, but knew that MU had to move fast, otherwise the calls would evaporate, as they too were out-the-money, so you really have to be nimble when you play calls with just a couple weeks to go!
Bahar Oezcevik: Dr J, how much time do you spend preparing & getting ready before you start trading every morning? 2-3 hours?
Jon "Doctor J" Najarian: I start trading at 4:45 CT every business day. When we start our daily radio show on CBS, which I'm proud to say has just expanded to an hour, I trade throughout the show
kem60: Dr. J, in order for SIRI to see 11 by December, it would have to be assumed, would it not, that the Nasdaq high for the year has not been seen yet. Agree?
Fari Hamzei: Congrats Jon
Phil Erlanger: Market has problems. Long-term seasonality peaked last month. Septembers are usually weak. The market needs to see more fear in the face of Katrina, high oil prices, etc. Short interest is moderate on a normalized basis, which is a help. Basically we are cautious into mid October, when we will be more inclined to emphasize long positions.
Jon "Doctor J" Najarian: So to answer your question, I prep about 3 1/2 hours ahead of the open, but I don't think you need to do that to be successful. Like Phil, I am cautious, but I like the action in the market given what's been thrown at it
Bahar Oezcevik: Dr J, do you prepare for the next day after the closing? If yes, for how many hours? I am very interested on the certain disciplines each professional trader has - that's why I am asking.
William Blanchard: DJ - what do you mean "start trading" ... as the options markets are closed at that point, right?
Jon "Doctor J" Najarian: We closed AUG at 10,481 in the DJIA and with today's 37 point sell off we're still up 114 points on the month!
Jim Bridges: not a trading comment, pure macro observation. With the heavy buying of MU and RMBS calls and SNDK (read: tech storage) if I recall correctly, seems consolidation/mergers are picking up again. could be from LBO shops or strategic buyers using still strong corporate bond market, or maybe China using some of its dollar reserves to buy real US assets (ala Unocal). It is hard to envision much market downside with these structural forces still at work IMO.
Jon "Doctor J" Najarian: Bahar - I do pay attention to the after hours trade, but rely more on the news, such as INTC
Phil Erlanger: Agreed. Now is a time for stock selection rather than broad brush positions. For instance we have been long AMGN and short AVP, as we noted in our contributions to the Minyanville crowd.
Jon "Doctor J" Najarian: mid-quarter update. Unfortunately, we have a blurry picture, as INTC is down $.32 to $25.76 and TXN is getting all the love, trading up $.32 to $34.07.
Jon "Doctor J" Najarian: William Blanchard: Correct the options markets open at 9:30 am ET. I trade the equities until the options reopen then focus on the options.
Jon "Doctor J" Najarian: Fari, let me throw out another stock to watch
Fari Hamzei: I am ready sire
Fari Hamzei: go ahead sire
Jon "Doctor J" Najarian: Consol Energy (CNX)
Rodney Lankford: Dr.J, do you have any comments on the energy sector based on your proprietary systems? Thanks, Rodney.
Fari Hamzei: (the Streamer link, for those of you who joined us late is the second link on Super Platinum just below Brad Sullivan's morning commentary link)
Jon "Doctor J" Najarian: Buying in the Oct 70 calls was interesting as 96% of the trades were on the offer and if this was just a play for the Lehman conference today, they would have picked the Sept options (see above), so something may be brewing in CNX
Fari Hamzei: it should
Jon "Doctor J" Najarian: Energy Conversion Devices (ENER) is a standout and still shows fast money 3 or more days per week
Fari Hamzei: Jon, I like the chart on ENER and not a whole lot of volume
Jon "Doctor J" Najarian: The stock is crazy, moving up HUGE and whenever I've taken profits, I kick myself. I guess if I'd have kept the entire position rather than selling 50% here and 50% of the remaining there, maybe I could afford the jets Fari flys!
Fari Hamzei: fair enough
Jon "Doctor J" Najarian: One sector that is stupid hot this week and this sounds crazy, is casino gaming. Today I had Station (STN), Penn National (PENN) and Boyd (BYD) all popping up on the Heat Seeker.
Fari Hamzei: STN is on the Streamer now
Jon "Doctor J" Najarian: They are not institutional buyers, so I have tempered my enthusiasm, but the buying has been there all week.
Fari Hamzei: PENN is on
SJJ JHA: Dr, J how you can tell they are not institutional buyers? thanks.
Fari Hamzei: BYD is on
Jon "Doctor J" Najarian: Another energy related play, Tidewater (TDW) was active on the seeker last Wednesday and the October 45 calls have moved up from then, trading up to $2.30 today, but the volume has died down.
Jon "Doctor J" Najarian: SJJ JHA: Depending how busy the markets are we ramp up, or in slow markets down our volume threshold for block trading of options
SJJ JHA: thanks
Jim Bridges: casino gamers must have found out I was in Vegas this week
Fari Hamzei: TDW on the Streamer
Jon "Doctor J" Najarian: When it's slow, I look for blocks of 200 contracts or more. When it's fast, I may slide that up to 400 - 500 contracts. In other words, I filter out the retail paper which is usually in the 10 - 30 contract range, but can run as high as 100 - 200.
Blake Allen: Was the buying in RMBS what you consider institutional?
Jon "Doctor J" Najarian: Blake - absolutely. Although that doesn't mean they will be right about a takeover
James Ellis: Did you buy that one - RMBS? I saw the post on the blog but it was up $2
Jon "Doctor J" Najarian: James: Yes, we jumped all over RMBS, but have sold out over 50% of the position
Matt Hamilton: What's your view of the Sept SGP calls?
Bill Wong: Jim Bridges: I was in Vegas yesterday and saw Donald Trump. He broke ground for his new tower. The casinos were very busy (week day).
James Ellis: very fast trading
Greg Collins: Question for Phil - is your work showing folks betting against Utilities here given that they rolled over today and are up YTD 25%? What is some of your other seasonality / sector based work showing currently?
James Ellis: I wasn't early enough so I let it pass
Fari Hamzei: SGP is on the Streamer now
Fari Hamzei: Matt I am checking its $wPCR closing data
James Ellis: I did SGP that seemed better risk reward
Jon "Doctor J" Najarian: Also, without trying to sound too mercenary, we put this out on Insideoptions.com in the morning (11:07 am on our blog), but folks pay us a lot for that site, so we have to delay most of what we put out on Minyanville
Jim Bridges: BW - still in Vegas. People gamble all day long. Very addictive - good biz just like smokes Altria (MO) where people can't quit.
James Ellis: I got it on the blog, I am a member
Fari Hamzei: Jon -- Matt asked about SGP earlier today
Fari Hamzei: SGP $wPCR is 0.36 -- moderately bullish
Jon "Doctor J" Najarian: Matt: SGP looked good and we're on this one.
Jon "Doctor J" Najarian: SGP did put in a new all time high today and those Sept 22.50 calls traded up to $.40. With it right at the 22.50 strike, we're obviously hoping for a pop soon!
Jim Bridges: Bernie Schaeffer has done a nice job of nailing the Utes move, highlighted the extreme short interest in the Utility SPDR early in the year. It still doesn't seem to be subsiding, but I will let Phil speak to that. If bond yields are, in fact, still in a downtrend (10 yr under long-term downtrend line) as I believe Tony Dwyer would suggest, Utes still look ok to me (not advice). and with repeal of PUHCA, tons of consolidation coming where there will likely be only 5-10 major utilities in the next 5-10 years. that is one reason Warren Buffett's Berkshire Mid-American unit bought PacifiCorp, along with Buffett's general love of things that throw off income
Jon "Doctor J" Najarian: I am wrong, SGP hit a multi-year high, not an all-time high
Fari Hamzei: folks let's all thank Dr. J for his time with us
Phil Erlanger: Seasonality for Utes don't get strong until late October. Our rankings on Utes are middle of the pack (10th out of 18 sectors.) That ranking is based on average squeeze potential.
Fari Hamzei: thank you Jon
Jon "Doctor J" Najarian: Ladies and gents, it's been my great pleasure. I hope I gave you some insights and something to think about
Craig Carr: thank-you
Fari Hamzei: and Phil Erlanger for stopping by
Jon "Doctor J" Najarian: Thank you for your great questions and good luck trading!
Jim Bridges: thanks Jon. best, JB
Phil Erlanger: Best Utilities are water supply, non-U.S. utes, Elec Utes:East.
James Ellis: thanks keep the good stuff coming
Fari Hamzei: but Phil we will get you here for a regular session shortly
Jon "Doctor J" Najarian: Fari, my thanks to the pasha for all his great assistance and of course, those great Cohibas!
Phil Erlanger: Worst utes: other telephone communications, electric utes: South
Fari Hamzei: you are quite welcome sire
Tammy Cleary: thank you
Fari Hamzei: thanks for coming
Phil Erlanger: Gotta go see the Pats beat the Raiders. Thanks for the look see.
Fari Hamzei: GN Phil
Fari Hamzei: Thank you all - you are welcome to hang around the website. Your pass is good for another 3 hours but I must take a break -- been here since 6 am!
Greg Collins: good night all - thanks for your time. We'll see you back here or on the buzz and banter soon.
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