Monthly Cash Machine Newsletter, Sunday, 06/05/2005 11:25:04 AM ET
Portfolio Activity - SINA, COP
HAVING TROUBLE PRINTING?
A Necessary Consolidation? U.S. equities ended the week on a bearish note as investors wrestled with rising oil prices and discouraging economic data. The market was plagued by the Labor Department's non-farm payroll data, which showed the slowest job growth in nearly two years, as well as the ISM's manufacturing report, which was below consensus expectations.The result was widespread profit-taking with the NASDAQ composite enduring the brunt of the selling pressure as it slid 26 points to 2,071.The Dow Jones industrial average was also lower, falling 92 points to 10,460 while the broad S&P 500 index ended down 8 points at 1,196.
Among the day's few bullish issues was Sina Corporation (NASDAQ:SINA), which jumped nearly 7% as speculation of a potential merger caused a flurry of new interest in the Chinese Internet issue.Momentum traders said there was little fundamental basis for the move but the heavy (3X daily) volume suggests there may be "good" news in the company's future.Regardless of the reason, our bearish position was under pressure early in the session and the suggested stop-loss order for the sold options (JUN-$30 calls) was triggered a few minutes after The cost to close the short portion of the spread was roughly $1.05 per contract, however the long options (JUN-$35 calls) are currently worth $0.20 thus the overall debit is approximately $0.45 per contract, or $225.Although the stock may continue to move higher in the coming week, there is little time value remaining in the June options so we recommend conservative traders sell the remaining calls while they have favorable premium.
There was also some upside activity in the oil segment as crude futures edged higher amid anticipation of stronger-than-expected global demand. At the close, the price for a barrel of light crude was up $1.40 to $55.03 and analysts say concerns about insufficient supplies of distillate fuels may push the cost of the commodity higher in the coming week.Surprisingly, the bullish bias had little effect on our neutral-outlook position in Conocophillips (NYSE:COP).The issue finished the day only a few cents higher than it began, near $55.01.Since the maximum profit potential in our calendar spread exists at the sold strike price ($55), the best possible outcome is for the stock to trade in a small range until the June options expiration.If the spread is profitable at that point, we can evaluate the technical character of the underlying issue and decide whether to close the long (AUG-$55) calls or sell another month of time value to further reduce the cost basis of the position.