Bernie's Downside Bets

03/28/2003 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

“We reiterate our bearish posture on Honeywell (HON NYSE), as the shares have been acting vulnerable in recent trading. Last week, Merrill Lynch downgraded the stock from buy to neutral; nevertheless the stock rose as the market rallied 236 the same day. We remain bearish.  On the options front, the stock’s Schaeffer’s put/call open interest ratio ranks in the second percentile. Looking at the open interest configuration in the April option series, calls dominate the 20, 22.50, an 25 strike prices. This is an encouraging sign for our bearish position.  Traders should target a decline to 20.20 on this stock.


”We are also bearish on Tyco (TYC NYSE).  The stock has been steadily trending lower under the weight of its 1-day and 20-day moving averages, which experienced a bearish crossover in January. The stock collapsed in mid-March after the company lowered its 2003 earnings; this announcement followed a previous reduction in estimates. The stock has tacked on 15% in recent trading, which has carried the shares back to their 10 and 20-day moving averages. We believe the shares may get knocked lower due to the high degree of bullish speculation. The heaviest open interest strike prices for TYC are the 15, 17.50, and 20 strikes. These three options average between 40,000 and 50,000 contracts each. Traders should target a move to 10.21 with a stop loss on any trade above 14.”


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