In last hour's update on OptionInvetor.com and IndexSkybox.com we thought that some bearish traders were getting more aggressive on their covering, but what has unfolded in the past hour has bears getting off their bar stools and hot-footing it to the door. You get the feeling they'll be back, but the doorway got a little smaller in the past hour and technology stocks are on the move.
NASDAQ-100 Trust (QQQ) - 60-minute interval
When the QQQ was trading $29.61 we thought the QQQ was a decent looking bullish play with the thought that bears were getting more aggressive with their short covering. We were seeing some upside alerts in shares of PeopleSoft (NASDAQ:PSFT), the NYSE Composite (NYA.X) and several other stocks. Traders that have access to 5-minute interval charts may not believe what they see their. In just the past hour, the QQQ has jumped from $30 to $31.15 (up 3.8%). The above chart doesn't reflect the $31.20 high, but things are moving fast. Our near-term bullish target from retracement would be the $33.50 level, but at this point, many bulls will be happy with something close to $33. The past hour's action gives hint they might just get it in the next day or two.
WebEx Straddle/Strangle update from September 28th.
For those trying to learn about "straddles" and "strangles" here's an update from last Friday's (09/28/01) potential straddle trade as it stood at around 12:15 EST today. As you can see, you don't necessarily have to "bet" in a particular direction, but if you think a stock is about to make a major move (up or down) you can still use the options market to make some money.
WebEx Communications - last four months
I've gotten e-mails from subscribers that took the WebEx Communications trade. Some played the straddle, some the strangle, some bullish the calls above $19 and some played the "inside day." Wow! Four trades out of one piece of commentary. So far the bulls have the upper hand. For those holding just the calls, I'd be snugging up a stop just under 80.9% retracement of $23.31. Perhaps there are some other stocks where their charts resemble the technicals of WebEx that have similar technicals that give hint to "BIG disagreement" on where things are headed.
For those trying to better understand how things are panning out and getting trying to get a feel for how this "straddle" or "strangle" is doing, here's how these options were trading at around 12:15 EST today when I took a screen shot.
WebEx straddle/strangle as profiled September 28th.
The "profit/loss" and P/L% is based off of bid and not last trade. Basis was taken from offer and does not include any commission. As you can see, the "strangle" would have the better performance right now, but there was more risk in that trade as the strangle was a bet that the stock would move outside the $20- $17.50 range. The straddle was more "conservative" as the bet was placed directly on the $17.50 level.
A trader that simply closed out the calls at this point would have finished with a gain. The trader might not want to close out the put side as there is little left at this point. The bulk of the gain was/is found in the call side. Instead, a trader closing out the call side and taking their gain might look for a pullback in the stock, then try and sell the put for a little more, but that's up to the trader.
Following this trade may be a good refresher for some and a new strategy for others. If you find a stock that looks like it's about to make a major move in one direction or another, but just unsure of the direction based on the market environment, then maybe the straddle or strangle strategy will come in handy. You don't necessarily have to know direction, but the stock has to move.