Amer. Intl.Group - AIG - cls: 3.85 chg: +1.16 stop: n/a
Friday proved to be another big day for financials stocks. Hope for Paulson's RTC-style of rescue plan for the markets and news that the SEC had temporarily banned short-selling for almost 800 financial stocks set fire to the sector. AIG is on the list of stocks that can't be shorted. I'm not 100% sure of the details but it sounds like if you're already short you don't have to cover but new short positions are not allowed at this time. Shares of AIG reacted with a 43% gain. The stock traded to an intraday high of $4.45. It looks like we could get called out of our play at $5.00 a lot sooner than expected. This is a covered call play and we do expect to be called out when AIG crosses the $5.00 mark at which point we'll close the play on the newsletter. If you're looking for new positions I would be tempted to consider another covered call on a dip (maybe $3.50-3.00 zone) in AIG and maybe this time sell the $7.50 January 2009 call.
FYI: There has been some talk that AIG is already trying to find a way to pay back the U.S. government's $85 billion loan before the government takes an 80% stake in the company.
Picked on September 17 at $ 2.29 *opened at $2.29 on 9/17
SPDR S&P Oil - XOP - cls: 52.02 chg: +4.13 stop: 46.75 *new*
Target achieved. Crude oil soared again posting its second $6.00 gain in the last three days. This time the energy stocks really took off. The XOP soared 8.6% and hit an intraday high near $53.00. The $53.22 high today appears to be a bad tick. Our first target was the $49.95 mark. Our second target is $53.50. We are raising our stop loss to $46.75 but more conservative traders will want to STRONGLY consider a complete exit right here! We are not suggesting new positions at this time but would keep an eye out for a dip back toward the $48.00 region.
Picked on September 16 at $ 46.70 /1st target hit 9/19/08
Volatility Index - VIX - cls: 32.07 chg: -1.03 stop: n/a
Friday marked the close on a historic week on Wall Street. It was a week that may have changed the rules for us on this VIX play. The SEC's new temporary ban on short selling eliminated the exception for market makers. If a market maker can't short stocks to hedge his risk then the spreads and premiums they charge to us on the options will go up. If the premiums on options are now artificially inflated for the next couple of weeks this is going to impact how the Volatility index moves. The ban is set to expire on October 2nd but the SEC could extend it. If you bought the November puts your probably fine. It's the October puts that we're concerned about. There was some talk on Friday about the SEC potentially reinstating the market makers ability to short stocks so they can adequately hedge themselves while creating a market for the rest of the world.
After 1000-point rebound in the DJIA there is a big potential for some "sell the news" type of move next week and if the selling is sharp it could push the VIX higher again. Readers could use another failed rally pattern as another entry point to buy puts on the VIX. We're setting our first target at 25.50. Our second target is 21.00.
Picked on September 16 at = 30.30