Wednesday, February 22, 2006

Closing Bell

The NDX-100 closed below the 1682 level that I really wanted taken out. Well, that's actually a good thing because now we get to look for strength confirming my bullish view. For example, a strong gap up at tomorrow's open and a failure to fade it would be an excellent indication of strength that I will find actionable.

Housing closed at the highs but we did scale into RYL call credit spreads and also went long PHM puts. We will continue to build bearish positions in this sector. Also, I am looking to put on a long gamma trade in KBH using a combo of long April 70 puts and long stock.

Oil is acting well on the downside. While I am a longer term bear my gut tells me that the sector may base here for a while. Again, selling calls into rallies and nipping on puts into breaks is our strategy. Also, any heavy breakdown should be met with long calls for a trade. Our rationale here is that while the sector may well head significantly lower, it isn't ready to make a big move just yet. It's not just about the price, it's also about the time, folks.

Insurance sector is beginning to peak our interest. The premium here really doesn't pay to take on short gamma risk, but buying vol is not a bad idea. We are looking to position ourselves with either outright long calls or at least long gamma in MET, PRU, MBI and potentially HIG.

Last but not least, Gold is on our radar. As mentioned earlier, we want it to do nothing and so far our wishes have been granted. We have not initiated any position here yet but we are looking at the big names (NEM, ABX, etc) to sell premium.

To sum it all up, opportunities are taking on shape and we are ready to pounce.
And pounce we will.

Stay tuned!

Cheers,
/Dmitry

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