Overall Market Volatility: The major market indices turned negative again this past week. The Dow ($INDU) fell 165.91 points, or 1.35 percent, to 12,110.41. The S&P 500 ($SPX) lost 15.90 points, or 1.13 percent, to 1,386.95. The Nasdaq ($COMPQ) gave up 14.89 points, or 0.62 percent, to 2,372.66. For the most part, this week's losses offset the prior week's gains.
The fear indices rose during the week, but not as much as they fell in the prior week.. The CBOE Market Volatility Index ($VIX) gained 19.16 percent on the week to close at 16.79. However, the Nasdaq Volatility Index ($VXN) added just 3.48 percent to 19.60. These indices remain above support at 10 and 14 respectively.
There were a couple main focuses this past week, including problems with economic growth, continued inflation pressures and the problems seen in the sub-prime lending sector. Though inflation remains high, the Fed sees slowing economic growth taking pricing pressures lower as 2007 progresses. The fear is that economic growth too much, pushing the economy into a recession. The fact that the housing sector is likely to suffer even more now with problems with sub-prime loans only heightens these fears.
HIGH VOLATILITY RANKING 3-16-07
Sovereign Bancorp Inc
Beazer Homes USA
Satyam Computer Service
High Volatility: SOV shares rose sharply on Friday after the company took steps to allow it to be taken over. SOV needs shareholders to approval it to allow Banco Santander Central Hispano the right to hold more than 20 percent of the voting shares. This would allow SOV to seek potential purchasers. The meeting is on May 3 and this has raised IV on the stock's options. Though approval could send stocks sharply higher, it seems the news might be priced into the shares and we can still take advantage of high IV by entering an April butterfly. SOV shares have traded between $23 and $27 for nearly six months.
LOW VOLATILITY RANKING 3-16-07
Baker Hughes Inc
Federated Department Stores
Ann Taylor Stores
Pioneer Natural Resources
Goodrich Petrol Corp
Diamond Offshore Drilling
Low Volatility: FD shares have been consolidating for more than a month now, which has pushed IV on the stock's options lower. This is providing traders with the opportunity make profits using various option strategies. Looking at a chart of the retailers stock, it seems more likely that shares will rise to about $50 in the next few months from its closing price Friday at $44.36. Traders could buy calls to benefit from this move, but if you are unsure of the direction and would like to profit on a move in either direction, a strangle might be a good choice. This was we can make a solid profit on a strong move up or down. However, we need to remember that a strangle is a base hit strategy, where we are looking for gains of about 50 percent.
Senior Staff Writer & Options Strategist
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