Stocks remain rather mixed today and we're not really seeing any type of sector making a move. Oil Service (OSX.X) stocks lead today's gains, up 3%, but are off their best levels of the session. Oil Service stocks have been a little volatile as of late. We will need to do some relative strength scans and try to pick out some names that are beginning to show some relative strength improvement vs. the S&P 500 as well as relative strength vs. the OSX.X. These will most likely be the leaders should a bull phase present itself.
Internets as characterized by the CBOE Internet Index (INX.X) continue to show some strength at $121.82, but still feel we need to see some type of move above the $123-$125 levels for things to heat up further.
Disk Drives (DDX.X) have started to act well again today. Group has been consolidating between $90-$94 for past 5-sessions and this is very tight range for such a volatile group. Trigger for bullishness may be found just above $94 that could wake up some bulls in technology.
Gold/Silver Index (XAU.X) up 1.11% after dropping more than 3% yesterday. Today's strength comes despite weaker than expected PPI number, which indicated that inflation is not present currently. Weak PPI data would have hinted at potential stagflation, but broader market stocks not responding as such.
Introducing the "forget me" trade
What do you think is going to happen to the airline industry? Up or down? Will there be a devastating number of bankruptcies due to the terrorist attacks, or has the group reached their bottom and a potential economic boom having the group and ridiculously cheap valuations? Will a cut in oil production by OPEC have fuel price rising and that becoming the axe that increases costs when travel is down, that drives the stocks into submission? Lots of questions with a plethora of potential answers. All of them creates uncertainty.
What time is it? I think it's time for a strangle in shares of Continental Airlines (NYSE:CAL) and possibly others. I'm calling this my "forget me" trade, as I like a longer-term strangle, where I only invest what I'm willing to lose, but should something break in the next 6-months, traders could be sitting on a pile of cash.
Continental Airlines Chart -
Immediately following the terrorist attacks, shares of Continental Airlines (NYSE:CAL) fell sharply from $39.64 to $19 and have since started to consolidate as the MARKET processes all of the information related to the terrorist attack and potential impact going forward. Air travel has recovered somewhat since the terrorist attacks, but questions still to be answered regarding what companies will survive.
I've outlined what a strangle trade would look like based on June 2002 option expiration. That's about 7 months from now and I would think we'd have some type of "answer" to many questions above. I've simply place a retracement bracket from $0.00 (bankruptcy) to $34.96 (economic boom) to set the scenario for potential price action based on how things might unfold. The 50% retracement level at $17.50 becomes the "pivot" point of uncertainty.
I've also outline a potential straddle trade, whereby the investor/trader would buy both the June 2002 $17.50 call/put combination. Symbols there are call (CALFW) and put (CALRW). Each are offered near $4.80.
The strangle costs "less" than the straddle, but has a greater probability of some type of money still in one of the options near expiration. Again... I would only consider this type of trade with the initial thought that it is considered a high risk/high potential return type of trade, that plays on longer- term uncertainty.