Interdum stultus opportuna loquitur...

Monday, October 11, 2004

Columbus Day... Bor-inggggg...

Note - from June 24th 2009, this blog has migrated from Blogger to a self-hosted version. Click here to go straight there.

So the Coalition won... big deal. I'm looking forward to the other half-Senate election, when Natasha Spot-Destroyer gets the boot.

But I digress. (Already?)

There is a saying in the markets - "Get in on Columbus Day, Get out in May and Stay Away". History shows that the interval between October and the end of April provides every last skerrick of the real returns earned in the post-war period. Holding only from May to October, you would have gone backwards in real terms... holding only from October to May you would be up an astonishing amount.

That said, this market is at a top; it is at the top of a bear market bounce at two levels (very short term, and short-to-intermediate term) in a bear market which is less than half over.

Also, this year the "Buy on Rosh Hashanah, Sell on Yom Kippur" didn't work, so if the Gentile aphorism works when the Hebrew one doesn't, then the whole market is anti-Semitic.

Option Update

The QQQVJ (QQQ October 36 Put) that I've been tracking traded at $60 briefly last night (about mid-session), but offloading half of the notional position at that price would have been almost impossible.

For the purposes of my demonstrations, I always assume that buying occurs at the offer, and selling occurs at the bid... as I've said, that's a foolhardy way to trade options, but it's the most transparent way to track positions (loads of folks will assume they bought at the bid and sold at the offer... it makes returns look spectacular, but it's actually hard to achieve).

Anyhow... the thing closed at $45 - still holding a 50% gain, but well down off the 100% gain as of Friday's close.

The other thing that last night shows, is why a smart optioneer will offload half of a position in order to lock in some gains (and drive the entry price of the second half to zero): the best speculative opportunities are in "one level down" options - those with a strike that is one level out of the money at the time the option is purchased (so if QQQ is trading at 36.50 and you want a call, you buy a 37... if you want a put you buy a 36). The flipside to this, is that this type of option has no intrinsic value; the purchase price is composed entirely of volatility premium plus time value.

Time value decays.

Anyhow... offloading half of a position when the gain on the parcel hits 100%, does two things. It ensures that the overall loss is limited to zero, plus it gives an effective entry price of zero on the remaining position. Some folks will hold both halves if they consider something a "solid" proposition, however in my view that embodies an assumption of certitude that has no place in the market.

Also, unlike stocks, you ought never to buy options on breakouts; trading options in the direction of the move can work OK, but you'll always overpay becasue your bids will be in with all the patsies. Contrarianism is the only way to go in the options market unless you have VERY deep pockets (in which case you don't buy front-month out-of-the-money options).

Federal Reserve Open Market Operations

The Fed did nothing at all today... now that is how monetary policy ought to be run.

Economic Statistics

No Economic stats were released either - it was the Columbus Day holiday. Major US Indices

In the first five minutes after the day session opened, the Dow squirted upwards 28 points... and for the rest of the session it went nowhere. That's to be expected - all the big money was taking the day off.

The DJIA gained 26.77 points (0.27%), closing out the day at 10081.97 points; the broader S&P500 gained 2.25 points (0.2%), finishing the session at 1124.39. Over at Times Square, the Nasdaq Composite gained 8.79 points (0.46%), to close at 1928.76, while the larger-cap stocks fared better with the Nasdaq100 adding 6.77 points (0.47%), to end at 1437.73 points.

NYSE Volume was light, with 0.94 billion shares crossing the tape, as was Nasdaq Volume, with 1.17 billion shares crossing the tape.

Nasdaq Composite1928.768.790.46%
NYSE Composite6643.176.750.1%
Wilshire 500011058.700%
NYSE Volume0.94bn--
Nasdaq Volume1.17bn--
US 30-yr yld4.91%0%0.08%

Market Breadth & Internals

On the NYSE advancing Issues outpaced decliners by 1728 to 1507 for a single-day A/D reading of 221; Nasdaq gainers outpaced losers by 1800 to 1220

On the NYSE declining volume outpaced volume in advancing issues by 477.15 to 452.45 million shares; Nasdaq advancing volume outpaced volume in decliners by 366.06 to 260.64 million shares.

58 NYSE-listed stocks rose to new 52-week highs, and 18 posted fresh 52-week lows, while on the Nasdaq there were 63 stocks that hit new 52-week highs, and 44 which fell to fresh 52-week lows

Advancing Volume (m)452.45366.06
Declining Volume (m)477.15260.64
New Highs5863
New Lows1844

Market Sentiment

Although it was a holiday session, there was a big fall-off in put buying - the principal contributor to a fall in the put-call ratio. All things considered it's best not to read too much into the numbers generated by such a low volume (in stocks) languid day.

Equity Call Volume1.59m-0.6m-27.29%
Equity Put Volume1.32m-0.71m-35.1%
CBOE Volatility Index14.71-0.34-2.26%
CBOE Nasdaq Volatility Index20.05-0.64-3.09%
Equity Put-Call Ratio0.83-0.10-10.74%
SPX-VIX Ratio76.441.87632.52%


The bond market was closed for the holiday (as far as I can make out, the changes in yields listed below are the result of the seasoning process for the data rather than the restul of any trade information).

UST 2Y (yld)2.5990.031.13%
UST 5Y (yld)3.4020.0120.35%
UST 10Y (yld)4.1300.02%
UST 30Y (yld)4.9050.0010.02%
The Banks Index gained 0.34 points (0.34%), finishing the session at 99.5; within the index,
  • the Derivative King - JPMorganChase lost $0.25 (0.63%) to close at $39.40; and
  • Citigroup gained $0.30 (0.67%) to close at $44.86

The Broker-dealer Index gained 0.73 points (0.58%), finishing the session at 126.44; the ticket clippers lined up as follows -

  • Merrill Lynch lost $0.13 (0.25%) to close at $50.99
  • Morgan Stanley Dean Witter gained $0.50 (1.04%) to close at $48.80
  • Goldman Sachs lost $0.10 (0.11%) to close at $94.14
  • Lehman Brothers lost $0.20 (0.25%) to close at $80.79

The Philadelphia SOX (Semiconductor) index gained 2.01 points (0.52%), finishing the session at 391.53

  • Triquint gained $0.03 (0.76%) to close at $3.96
  • Micron Technology lost $0.13 (1.08%) to close at $11.88
  • Intel gained $0.06 (0.29%) to close at $20.61
  • Altera gained $0.18 (0.92%) to close at $19.83
  • JDS Uniphase gained $0.02 (0.62%) to close at $3.26

Gold & Silver

Gold weakened by $0.6 (0.14%) to $421.90.

The Gold Bugs Index losing 1.98 points (0.83%), finishing the session at 235.46 points.

Silver fell by $0.03 (0.41%) to close at $7.23 per ounce. The Gold and Silver Index (XAU) lost 0.75 points (0.72%), finishing the session at 103.51 points.

PHLX Gold and Silver Index103.51-0.75-0.72%
AMEX Gold BUGS Index235.46-1.98-0.83%


Oil was firmer, rising by $0.19 per barrel, closing at $53.58 per barrel.

The Oil and Gas Index (XOI) lost 4.31 points (0.6%), finishing the session at 714.87 points, while the Oil service stocks (OSX) Index lost 3.24 points (2.62%), closing at 120.42 points.

Reuters CRB288.30.70.24%
Crude Oil Light Sweet53.580.190.36%
AMEX Oil Index714.87-4.31-0.6%
Oil Service Index120.42-3.24-2.62%


As with most markets, there was no real action in the ForEx market last night. The US Dollar firmed slightly - the BoJ continues to try and hold the Yen down... plus ca change.

US Dollar Index87.650.10.11%
Australian Dollar0.7330-0.22%
Swiss Franc1.2510.00030.02%

European Markets

France's benchmark CAC-40 Index lost 10.23 points (0.27%), finishing the session at 3727.64 points; the German DAX-30 Index gained 2.28 points (0.06%), closing at 4017.82 points; and in the UK, the FTSE-100 Index lost 13.4 points (0.29%), ending the day at 4685.5 points.