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Strategies & Market Trends : Stock Attack II - A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Lee Lichterman III who wrote (32218)	3/14/2002 2:34:31 AM
From: Chris	Read Replies (2) \| Respond to of 52237

qqq daily (i checked yahoo finance and my metastock) shows qqq low of 36.00 but on my intraday qcharts and yhoo finance intraday, qqq low did not get there. FYI to all

To: Lee Lichterman III who wrote (32218)	3/14/2002 8:08:47 AM
From: Terry Whitman	Read Replies (2) \| Respond to of 52237

Just take a look at that volume yesterday. That's a capitulation spike if I ever saw one- 240 million shares. When the RSI hits 20, I'll be standing in line to buy some shares. askresearch.com Check out the rising tops on the volume as the price has floundered. This one sticks way out. I think it'll be alot like SBC. It hit a marginal new low, shook out the weak holders, and now it's in the black. As for their business forecast- I doubt that they can predict the future any better than you or I. It's always the worst and doesn't look to get any better at the bottom. By definition. Now it could still be too early- It definitely was when I bought some on friday, but what are the odds that there will be an even higher volume sell off? That would be a 400 million share day.. I'm not gonna mortgage the house or anything, but hey, the time to buy is when everyone calls you a fool for even looking at it. <g> Regards, TW

To: Lee Lichterman III who wrote (32218)	3/15/2002 2:04:33 AM
From: dawgfan2000	Read Replies (1) \| Respond to of 52237

MO: I saw you had been reviewing some charts on this, thought you might find this interesting, an old wall st. trick -g- schaeffersresearch.com Philip Morris (MO): Dividend Capture Strategy By Bill Bruns (bbruns@sir-inc.com) 3/14/2002 9:33 AM ET Yesterday, the value of the Dow Jones Industrial Average (INDU – 10,501.8) was lowered by 5.40 points on the open because two of its components, Philip Morris (MO – 52.34) and Coca-Cola (KO – 47.95), went "ex-dividend." Essentially, this means that the value of the respective equities decreased by the amount of their dividend on the open, as each firm's share price was adjusted for the quarterly cash dividend payout to its shareholders. (For those interested in the actual numbers, KO pays a quarterly dividend of $0.20 and MO pays a quarterly dividend of $0.58.) The reason I bring this up today is that it highlights an options strategy that some institutions utilize from time to time in an effort to "capture" the dividend. We noticed this strategy being used on Tuesday for MO. Before we delve any further into the specifics of the transaction, let's take a quick refresher on who exactly is eligible to receive a dividend. In order to receive a dividend, an individual or institution must be listed as a shareholder of record. To be listed as a shareholder of record, one must purchase the equity (at the very latest) on the day before it trades ex-dividend. In our example, if the particular institution wished to be a MO shareholder of record, then it needed to purchase the stock on Tuesday at the very latest. Now that we've got the basics out of the way, how does this strategy work? A dividend capture is essentially a short-term strategy designed to make a very modest return by taking advantage of a corporation's dividend payments while, at the same time, hedging any downside risk for entering into the trade. While there are several different ways to construct a dividend capture strategy, I'll explain one type that could have been implemented Tuesday with MO. Here's how it works: If an institution believes it can profit from capturing a firm's dividend, it purchases the equity the day before the ex-dividend date. As a result, the firm becomes a shareholder of record and is, therefore, eligible to receive the dividend payment. In order to hedge its risk against an undesirable move in the equity, the firm simultaneously sells front-month, in-the-money call options against its new stock holdings. Any loss from a decline in the stock will be offset by a corresponding increase in value of the sold call option (as it would now cost less to buy the option to close than what the firm initially received when they sold it to open.) Conversely, any gain in the stock due to a rally will be offset by a loss in the short call option. (Because this transaction is only undertaken during expiration week, the movement of both the stock and the option should be nearly identical as the delta of the in-the-money option approaches one.) Barring any unusual circumstances, the short call options will end the week "in-the-money," requiring the firm to hand over all of its recently purchased shares of the stock to satisfy the exercise notice and close the transaction. The end result is that the institution is able to receive the quarterly dividend payout while simultaneously hedging its risk against any adverse move in the underlying equity. Sounds like an easy way to make money, right? Unfortunately it's not so simple. First of all, institutions have a limited universe of stocks with which they can attempt this strategy. Some of the necessary factors that must be considered include (but are not limited to) the following: Is the equity liquid? Does it pay a solid dividend? And does it trade ex-dividend during options expiration week? However, one benefit of this type of strategy is that (when the stars do align) the firm in question will be entering into a position that is almost perfectly hedged and one in which the total proceeds for entering into the trade will be known ahead of time. In our MO example, this comes to $0.58 per share less any costs. Costs associated with the initiation of this type of transaction would include (but are not limited to) the following: 1. The commissions paid for entering and exiting the stock position. 2. The discount to intrinsic value for selling the corresponding in-the-money call option as a hedge. 3. The interest lost on the capital required to purchase the stock until the trade is closed. If all of the above costs combine to make the transactions potentially profitable, then the firm in question can enter into the trade. An astute reader might ask how one knows if this is occurring? The tell-tale signal, so to speak, comes from the options market. In the MO options pit on Tuesday, total volume at the March 42.50, 45, 47.50 and 50 call strikes numbered an astounding 60,575 contracts, 50,368 contracts, 148,430 contracts and 64,779 contracts, respectively, versus relatively small amounts of open interest. I hope this helps shed a little light on Tuesday's unusually heavy call options volume on MO.