Market Report: The Weak Could Get Weaker
We’re only halfway through the trading week, but it’s already safe to say that we’re seeing tremendous intra-day volatility.
Yesterday, for example, the Dow was up 130 points in the morning -- only to close the day with a 146-point loss. That’s a 276-point swing in one trading session! And don’t forget, this wild swing came on the heels of last week’s 500-point loss on the Dow.
When you witness such extreme price swings like this, the best trading tactic is to be extremely nimble. That means taking quick profits, playing smaller contract sizes, and withstanding some additional drawdowns in your open positions.
But more importantly, it also supports the idea of carrying an equal number of both calls and puts -- which enables you to lock in quick profits on either side of the market’s temporary move.
So what are some of the top put-buying candidates right now?
The one stock that I’ve been using to make big put gains is Bear Stearns Companies (BSC:NYSE). As you can see from the chart, BSC has moved aggressively below both its 50-day and 200-day moving averages -- which now puts the stock in no-man’s land. To be honest, the next logical support point could come at $100 or even $85. It’s anyone’s guess.
Another put-buying candidate comes in the form of The Blackstone Group (BX:NYSE). Ever since the private equity company went public on June 22 for $36.58 per share, the stock has been punishing shareholders -- and things could get worse before they get better.
As you read this, investment banks have committed over $200 billion to fund deals that are due to close by year’s end -- and given the market’s recent credit troubles -- it’s not likely that we’ll see any more blockbuster deals anytime soon.
So, if the LBO boom is now officially over, BX could easily trade under $20 in the near-term. With BX currently trading for $24 per share, that’s a 17% down-move from current levels.
So if you see the market rallying on an intra-day basis, it would be a smart idea to establish September put positions on BSC and BX. I think you’ll be rewarded if you do.
Bryan
