It looks like a flat and quiet opening for stocks. Later in the week, we'll get a host of economic data, and we'll start getting previews and warnings for the upcoming earnings season. But today feels like a good day to hit the books and get some research, writing and offscreen work done and leave the trading to a minimum.
This weekend, the Barron's options column suggests that opportunity lies in the oil patch. Despite the fact we're entering a historically volatile season and the geopolitical tensions have, if anything, increased the possibility of a price-moving event, the column noted that implied volatility for options in individual names like Devon (DVN - commentary - Cramer's Take) and ETFs like Energy Select Sector SPDR (XLE - commentary - Cramer's Take) are near their lowest levels in 18 months.
Unlike most stocks, in which it's typical to see IV decline as prices rise, commodities and the stocks leveraged to them often work in reverse. In stocks, the fear is of a decline in price, but for commodities, the greater fear is of an increase in price. Therefore, an increase in the price of oil should also bring an increase in IV for commodity-based stocks. Bottom line, this could be a good time to buy options in the oil patch and hope that prices keep pushing back toward $70 per barrel.
This morning's big news that KKR is planning to buy First Data (FDC - commentary - Cramer's Take) for about $29 billion, or $34 per share, might not come as a shock to readers. After all, the options market provided a fat clue last Wednesday, when I reported strong call buying and told you to "add that name to your watch list so you can say I told you so when it gets bought out for a 25% premium." The premium is actually about 26% to Friday's close, but you can still say I told you so.
P.S. Will you be there when Cramer makes his next move?
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Steven Smith Blog Quarter-End With a Whimper 3/30/2007 5:06 PM EDT Everyone must be busy preparing scary statistics about the major indices.
Steven Smith Blog Ready to Slip Into ICE 3/30/2007 2:56 PM EDT Here's why the bull side makes sense.
Steven Smith Blog Dendreon on the Move 3/30/2007 11:04 AM EDT Implied volatility in the name has collapsed.
Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He appreciates your feedback; click here to send him an email.To read more of Steve Smith's options ideas take a free trial to TheStreet.com Options Alerts.
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