Option Investor
Market Updates

Ready to rumble

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Stocks are looking prime for a stampede this morning and you can almost hear the rumbling of hooves on Wall Street. Equity futures are looking strong this morning with S&P futures higher by 17 points, NASDAQ futures are up 42 and Dow futures are being pushed higher 105 points. Fair value for the S&P 500 is $7.07. Buy programs are set at $9.07 and sell programs are set at $5.47.

Bonds see selling

The bond market continues to come unraveled and this is where the stampede for stocks will most likely occur. Today, YIELD for the major benchmark treasuries (5-year (FVX.X), 10-year (TNX.X) and 30-year (TYX.X)) are rising. The 10-year YIELD now threatens the YIELD high set back on January 25, 2001. On January 25th, the ten-year reached a YIELD high of 5.382% before buyers stepped in. Traders will want to watch that level near term, as it was a key point in the past where we eventually saw a reversal in YIELD and then stocks ended up suffering decline.

Covered call writers

Stock options expire after Friday's close and traders that did some covered call writing on technology stocks late last week should monitor positions closely here. Most likely, those that are most concerned are those traders that wrote covered calls on stocks that were well below levels that the stock(s) was originally purchased. For those traders, I would seriously think about letting the stock run its course until Friday, then at that time make a rational decision as to you continuing to hold that position. If you feel that the stock will continue higher, then you can buy the call back before the close of trading on Friday; take a loss there (if the stock is in the money). This loss may be much less than actually selling the underlying stock. Weird things can happen before option expiration and at this point I'd let the cards play out. I'll talk in depth on this subject and strategy throughout the day.

Jeff Bailey
Senior Market Technician

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