Thursday, February 09, 2006

Recap, Recap!

Another volatile day. As I mentioned earlier Oil rallied in the morning and then sold off throughout the day. We got shorter after the initial rally and flipped stock against our long gamma. At this point, we're flat in OIH (no position) and long gamma in APC with zero delta at 99 level. We are expecting continued volaility in that stock and the overall sector. Interestingly enough, some of Oil stocks are trying to stay in a range (GSF, RFC, WFT) while some others are selling off (APC, AHC, MRO). This tells me that while Oil is clearly topping, it may not be prudent to get overly negative on it.

In fact, we started selling OTM spreads on some Oil stocks for Feb (there is still moderate-risk 6% premium available) and are considering even deeper March spreads.

Other parts of the market universe were relatively stable and the only notable trades we made was getting out of our long BZH/GOOG positions as we expected. Actually, GOOG has been a great trader and we flipped it back and forth several times in the last two days. Not really our style but when a stock makes strong uni-directional moves it creates highly probable situations and there is no reason not to take advantage of them.

To reiterate a point made in my earlier post, I do feel that NDX tends to fall in unison with Oil but for no apparent reason. Granted, NDX is basically at the year's lows but Nasdaq Composite and Dow Jones aren't. Feels like an inter-market divergence with the overall market stuck in a range. If so, I'll repeat that I think NDX dips are buyable. As I am typing this I realize that this is a bit of an "off the cuff" analysis and it is not something we normally game with serious commitment. However, over the years I've become cautiously optimistic about empiricism and my current observation is at least worth considering for the near term.



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