The Option Investor Newsletter Monday 12-18-2000 Copyright 2000, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/121800_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 12-18-2000 High Low Volume Advance/Decline DJIA 10645.40 +210.40 10679.90 10433.30 1.16 bln 1882/1083 NASDAQ 2624.52 - 28.75 2726.20 2597.47 2.07 bln 1604/2438 S&P 100 694.35 + 4.87 701.16 691.15 totals 3486/3521 S&P 500 1322.74 + 10.59 1332.32 1316.32 49.8%/50.2% RUS 2000 463.25 + 5.22 464.58 458.03 DJ TRANS 2739.42 + 40.74 2753.01 2701.67 VIX 31.45 + 0.25 31.83 29.30 Put/Call Ratio 0.55 ****************************************************************** All Eyes On Greenspan The markets will turn their focus on the FOMC meeting tomorrow in hopes of a rate cut from Greenspan and his elves. At this point, whether the Fed cuts rates is a tossup. About a week ago, the Washington Post reported that the Fed is unlikely to cut rates this time around. Instead, the Fed is expected to maintain a neutral bias ahead of cutting rates later in January. However, an article in the Wall Street Journal this morning suggested that the Fed may pursue a more aggressive stance at its meeting tomorrow and actually cut rates. That article helped to spur a broad and significant rally across several sectors today, which added credence to the Journal's claims. Moreover, the Fed Funds Futures are now discounting about a 50% probability of an ease tomorrow. Those same futures have already discounted a full two rate cuts by at least this spring. The bottom-line is a cut in interest rates is coming, but the question remains as to how soon the Fed will move, which brings us back to tomorrow's meeting. Traders should pay heed to the ramifications of an interest rate cut tomorrow. If the Fed does cut rates, we'll likely see an extended rally in the most interest rate sensitive groups such as financials, utilities, and consumer product makers, among others. On the other hand, if the Fed merely shifts its bias to neutral and doesn't cut rates, we could see a pullback in the aforementioned groups as the usual "sell the news" crowd surfaces. The impact of a rate cut on the likes of financial and consumer product makers is rather obvious, but the impact on the tech names is a little more clouded. As we witnessed today, after the Wall Street Journal's suggestion of a rate cut, the interest rate sensitive groups rallied, but the Nasdaq rolled over. The poor action in the tech sector today is a direct reflection of the deteriorating fundamentals in that group. Continued earnings warnings, bearish news and analyst downgrades are weighing on the Nasdaq. And If the Fed does actually cut rates tomorrow, the impact on the tech sector is harder to game. Any rally off the news of a rate cut tomorrow could be met with heavy selling as we've witnessed time and again in the Nasdaq over the last several months. Until the last of the tech generals warn, and all the bad news is discounted in the Nasdaq, the path of least resistance may remain to the downside. That's the problem we face with the Nasdaq tomorrow if the Fed actually does cut rates. The tech sector is still coping with poor fundamentals, but will an interest rate cut be enough to shift sentiment in the near-term? If there's one positive event we can write about in the Nasdaq, it's the fact the tech-heavy index bounced off support at the 2600 level for the second consecutive day. It was somewhat reassuring to see the buyers step in at 2600 and carry the Nasdaq higher. At least we know some institutions are willing to let the Nasdaq fall only so far before stepping up and taking some stock in. We'll be watching the action in the Nasdaq around the 2600 level very closely tomorrow to see if it continues to hold. If 2600 does fail, the next likely level of support will be found at 2567, which was the low on December 4th. The weakness in the Nasdaq today can be attributed to the further signs of the worsening fundamentals we mentioned above. Terayon (TERN), a maker of broadband network systems, warned this morning that it wouldn't meet its estimates for the fourth-quarter. The company blamed its shortfall on an unexpected slowdown in sales and on canceled orders from cash-short customers. Although Terayon is not considered a big player in the networking space, its warning caused a widespread sell-off among others in its sector including Avanex (AVNX), Sycamore (SCMR), Ciena (CIEN), Extreme (EXTR), and the mighty Cisco (CSCO). Shares of Cisco were hit especially hard with a 10% loss. The stock fell over $5 and was responsible for much of the losses in the Nasdaq Composite (COMPX). The sell-off in Cisco today reinforces just how hard it is in the tech sector right now. Not too long ago, Cisco reported earnings that beat estimates (as usual) and actually raised guidance for 2001 - its shares now sit at a new 52-week low after today's session. Time Warner (TWX) joined the ranks of company's to preannounce an earnings shortfall. The media giant said it would fall short of earnings this quarter due to weakness in advertising, softness in music sales and losing money of its recent box office bomb, "Little Nicky." Time Warner's merger partner, America Online (AOL), reaffirmed guidance for its fourth quarter. Despite the reassurance from AOL, shares of the two merger partners both fell by about 13%. Despite the two above-mentioned warnings in the tech and media sectors, the prospects of a rate cut tomorrow powered the Dow Jones Industrial Average (INDU) higher. Every financial component in the INDU enjoyed gains, which included: JP Morgan (JPM), American Express (AXP) and Citigroup (C). Among many others, the three aforementioned financial names will be ones to watch ahead of the Fed meeting tomorrow. The highly-visible diamond formation from which the INDU broke to the downside last week has now turned into resistance for the interest rate sensitive index. In fact, the INDU rolled over right near its previous support line this afternoon as profit takers locked in their recent gains. The key levels to watch tomorrow in the INDU will be today's intraday high at 10,679 followed by the 10,700 level, with the latter a psychologically and technically significant level. If the INDU can break back above its previous support line, it has a good shot at retesting its near-term highs around the 11,000 level, especially if the Fed cuts rates. Also worth noting this evening is the Electoral College's vote to certify George W. Bush as the next president of the United States. Some traders had speculated that foreign investors would wait until Bush was officially certified before moving capital back into the domestic markets. The news tonight might help to give equities a lift tomorrow if the foreign investors haven't already moved back into the U.S. markets. As we've been writing, the markets will trade around the FOMC meeting tomorrow, which is expected around 2:15 EST. Whether the Fed actually lowers rates is at best a guess right now. Although the Wall Street Journal's article this morning lends to that course of action, it's still up in the air. It's impossible to say with certainty what the Fed will do. The market has discounted a shift to a neutral bias, but not a cut in rates. And with that uncertainty comes greater risk for options traders who choose to take positions ahead of the announcement. The more prudent and less-risky approach would be to wait for the official announcement from the Fed before betting on either direction in the markets. As we've detailed, the direct and almost immediate beneficiaries of a rate cut are likely to be financials, consumer products makers, and utilities, among others. If the Fed does actually cut rates, those groups of stocks will likely enjoy a sustained rally that can be taken advantage of after the announcement. On the other hand, if the Fed just shifts its bias, we're likely to see a sell on the news event, in which case the aforementioned sectors pullback. In either case, it's very crucial in the current market environment to trade with the prevailing trend. Let the market dictate! As for the tech sector, there's still a lot of uncertainty in that group of stocks in the form of earnings worries and continued bearish sentiment. A cut in rates, at this point in time, may not be enough to kick the Nasdaq into rally mode. Then again, sentiment can shift rather quickly, so it's key to be on your toes and very nimble in the Nasdaq. With continued weakness in the leaders of the Nasdaq such as Cisco, Sun Microsystems and Microsoft, it will be hard for that index to sustain a substantial rally. But that doesn't mean the upside moves cannot be traded. What it does entail, however, is discipline! Consider entry points carefully, calculate risks and gauge exit points. For those who continue to operate in the Nasdaq, it's best to do so without any emotion. By planning ahead - before the trade - a lot of emotion can be removed. Whatever transpires tomorrow, it's sure to be exciting and provide plenty of opportunities to profit. Let the market be your guide and good luck! Eric Utley Assistant Editor ******************** 2001 Renewal Offer!!! Our best offer ever!! ******************** Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. The package this year contains: 1.) Two of our 2001 Option Expiration Calendar Mousepads (one for home and one for your office) 2.) The expanded 2001 Stock Traders Almanac 3.) A one month subscription to www.IndexSkybox.com 4.) A three month subscription to www.SplitTrader.com 5.) And of course the annual subscription to OptionInvestor.com This package has a retail value of almost $519 which includes $169 of free merchandise in addition to the annual subscription to the Option Investor Newsletter. The total price for this offer is still only $349 which is the regular annual subscription price for the newsletter. The additional $169 of merchandise and subscriptions are free as an added value! Click here for more info: http://secure.sungrp.com/01renewal.asp The terms of the offer are simple. Just renew your OptionInvestor subscription for the annual rate of $349 ($29.08 mo) by Dec-31st and you will get all the free stuff. The supply of mouse pads and almanacs is limited so renew now to avoid any delay. You know the newsletter is the best source for option plays, timely market commentary and educational articles. Don't wait until the supplies are gone! Renew now! http://secure.sungrp.com/01renewal.asp ************************Advertisement************************* Try Investor's Business Daily today! Click here for 10 FREE issues. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1128 ************************************************************** ************* NEW CALL PLAY ************* QCOM - Qualcomm Inc. $85.44 +5.88 (+5.88 this week) Qualcomm Incorporated is a leader in developing, delivering, and enabling innovative digital wireless communications products and services based on the Company's digital technologies. As the pioneer of Code Division Multiple Access (CDMA), the technology of choice for next-generation wireless communications, Qualcomm continues to lead the industry in the development of voice, data, and wireless Internet products and solutions. Qualcomm is also transforming industries through its various satellite businesses and technology partnerships. There's nothing like a little innovation, and some positive comments from analysts to get a stock going. Despite a lackluster day for the NASDAQ, shares of QCOM got a boost from news that it had developed a new technology, which will cut the number of parts necessary to build their CDMA products. Less parts needed means lower costs to build a product leading to wider profit margins and a higher bottom line. This was bad news for supplier Sawtek, but good news for QCOM. What's more, First Union Securities issued a report outlining its Strong Buy rating and $90 price target on QCOM today. Expectations of new licenses from Korea, QCOM's improving position as the next generation standard for wireless communications in W-CDMA and possible interest from CSCO in CDMA technology are just some of the reasons for the bullish outlook. With that, QCOM closed the day up 7.38 percent and in doing so, is back above the 200-dma at $84.46. With expectations of more good news ahead, support appears to be strong at the 50-dma, now at $79.75. We are placing our stop right below this point, at $79. An aggressive entry could be had on bounces off the 50 and 200-dma. A bounce of $85 and $80 could also serve as possible targets. For a more conservative entry, look for QCOM to break through resistance from the 5-dma at $87, backed by strong buying volume, before taking a position. Ideally, an entry should be made only with a NASDAQ moving in the right direction accompanied by buying volume. BUY CALL JAN-80 AAF-AP OI= 7619 at $12.00 SL=9.00 BUY CALL JAN-85*AAF-AQ OI= 8173 at $ 9.38 SL=6.50 BUY CALL JAN-90 AAF-AR OI=10471 at $ 7.13 SL=5.00 BUY CALL FEB-85 AAF-BQ OI= 0 at $12.25 SL=9.00 Wait for OI!! BUY CALL FEB-90 AAF-BR OI= 0 at $10.38 SL=7.50 Wait for OI!! SELL PUT JAN-75 AAF-MO OI= 5311 at $ 4.00 SL=6.00 (See risk of selling put in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=QCOM **************************** NEW LOW VOLATILITY CALL PLAY **************************** G - Gillette Company $34.81 +1.00 (+1.00 this week) The Gillette Company is a globally focused consumer products company that seeks competitive advantage in quality, value-added personal care and personal use products. They compete in three large, worldwide businesses: personal-grooming products, consumer portable power products and oral care products. They are committed to a plan of sustained sales and profit growth that recognizes and balances both short and long-term objectives. Their mission is to achieve or enhance clear leadership, worldwide, in the existing or new core consumer product categories in which they choose to compete. One of Warren Buffett's favorite companies, shares of Gillette have held up well this year despite the shaving that many stocks have had. In times of uncertainty, traders and investors alike prefer to move to those areas which are perceived to be safe havens. Today, the company announced a major restructuring, in an effort to increase its cash flow position and accelerate its earnings growth. As part of the plan, the company closed down a number of plants and cut 8 percent of its workforce. According to comments from the acting CEO, the restructuring program should, "accelerate earnings gains, thus maximizing shareholder value." With that, traders bid the stock up almost 3 percent today on 180% of ADV, despite lowered estimates from Credit Suisse First Boston going forward. Support just above $33 should hold up well, with the 10, 50 and 200-dmas reinforcing that level. But just in case, we have placed our stop price at $32. A bounce off these levels could provide for an aggressive entry but for those looking to enter on strength, look a break through its today's high of $35.13 with conviction. From there it could be a quick trip to its next resistance at $37. Confirm direction with that of the Dow when making a play. BUY CALL JAN-25 G-AE OI= 2017 at $10.00 SL=7.00 BUY CALL JAN-30 G-AF OI= 3821 at $ 5.38 SL=3.50 BUY CALL JAN-35*G-AG OI=10277 at $ 1.75 SL=1.00 BUY CALL FEB-30 G-BF OI= 0 at $ 5.75 SL=4.00 Wait for OI! BUY CALL FEB-35 G-BG OI= 0 at $ 2.38 SL=1.25 Wait for OI! http://www.premierinvestor.com/oi/profile.asp?ticker=G ************ NEW PUT PLAY ************ AMCC - Applied Micro Circuits $65.50 -2.00 (-2.00 this week) Fulfilling the need for speed, AMCC is a global provider of high-performance, high-bandwidth integrated circuits used to control the high-speed flow of transmissions through fiber-optic telephone networks. Communications products, used in LANs and WANs, account for 55% of the company's sales. The company's chips are also used in automated test equipment, high-speed computing, HDTV, and military applications. The company which is growing through acquisitions, has a top-flite client list, including Nortel, Raytheon, Alcatel, Cisco, 3Com and Lucent. There has been no safe haven for Technology investors lately, with one sacred cow after another falling from grace. Fears that a slowdown in corporate IT spending will affect even the strongest players has had an unpleasant effect on shares of AMCC, and it is on the verge of another technical breakdown. The company has continued to surprise the street over the past few quarters, and revenue growth is currently (as of the October quarter) growing at better than 150% year-over-year. But in a negative economic climate, investors are less willing to assign such high valuations (AMCC's PE ratio is still above 280) to even the most stellar growth stocks. Networking stocks led off the month of December with what looked to be a powerful rally, and AMCC managed a 63% recovery off its $46 low. The move through the 200-dma ($69) proved to be a head-fake, and the weakness over the past week has pushed our new play back below this critical level. Over the past week, AMCC has been threatening to break back under the $65 support level, and if it does, this looks like an ideal point to initiate new positions. Resistance at $70-72, combined with the 200-dma should cap any short-term rallies unless there is a broad recovery in Networking stocks. We have placed our stop at $73, and a failed rally near this level could provide an attractive entry for more aggressive players. Weakness in CSCO, which hit a new yearly low today, has been a powerful negative effect on the entire Networking sector, and further losses in the share price of this technology bellwether will make it hard for any of the players in this sector to move higher. Keep in mind that AMCC has the ability to post double-digit daily moves, making this a higher risk play. Keep an eye on the Networking Index (NWX.X) and make sure it is still showing signs of weakness before playing. AMCC is affected by moves in the Semiconductors as well, so weakness on the Semiconductor Index (SOX.X) could also pressure our play to the downside. If both the SOX.X and NWX.X are headed south with AMCC falling through support, that will be a strong confirming indicator for players to initiate new positions. Fighting the trend in this market can be disastrous, so trade in the direction of the market and the above-mentioned indices. BUY PUT JAN-70 AZV-MO OI=670 at $12.00 SL=9.00 BUY PUT JAN-65*AZV-MN OI=780 at $ 9.13 SL=6.25 BUY PUT JAN-60 AZV-MM OI=517 at $ 6.75 SL=4.75 http://www.premierinvestor.com/oi/profile.asp?ticker=AMCC ***************** STOP-LOSS UPDATES ***************** LH - call play Adjust from $149 up to $158 EMC - put play Adjust from $72 down to $69 ARBA - put play Adjust from $73 down to $66 ************* DROPPED CALLS ************* BRCM $105.44 -17.69 (-17.69) Resistance at the 5 and 10-dmas (now converged near $125) proved to be too formidable for the stock, as weakness in communication chips companies, including peers such as CNXT and TQNT was too much for BRCM to overcome. Falling over 14 percent on over 150% of ADV to close near its lows of the day, the stock did manage to say above the key psychological support level of $100. However, the volume accompanying today's move down, the break below its recent up-trend line and the close below our stop price of $129 puts this play on the drop list. Look for a bounce from oversold conditions tomorrow as a possible opportunity to exit. RBAK $71.31 -11.69 (-11.69) A failed rally above 5-dma resistance (now at $82.56), along with overall weakness in DSL-related issues such as CMTN and GSPN conspired to lead RBAK lower, despite the announcement of a new customer in Hargray Communications. For the day, RBAK fell over 14 percent on 128% of ADV and in doing so, closed below our stop price of $74. The strong selling right at the close was not a good sign either. While there is support for the stock at the $69-70 area, the selling volume suggests that it could test strong support at $60. Instead of waiting for that to happen, we are taking our money off the table to put towards plays with upside potential. A $57.00 +0.13 (+0.13) The high visible resistance level at $60 is proving to be a formidable hurdle for our play on A. The stock's inability to trade above that level has us a bit concerned that a rollover may transpire in the near future. Instead of waiting around to see our hard-earned profits dissipate, we're locking in gains that may have been earned since picking up A around $51. Traders may elect to jump ship early tomorrow if A experiences any weakness in order to lock in profits. Otherwise, if the stock advances, consider fading into any rally up to the $58 resistance level. MEDX $46.88 -1.81 (-1.81) We're growing concerned with MEDX's continued failed attempts to close above the $50 level. The stock attempted to get above that level this morning only to fail once again. What's more disconcerting is the fact MEDX traded down below our stop at $45 while the broader Biotech sector enjoyed a solid day. And although MEDX didn't settle below our protective stop, we're electing to drop the play tonight in light of its poor relative performance. If MEDX falls below the $45 level early tomorrow, consider exiting existing positions. On the other hand, if the stock advances, look for exit points near resistance at $47.50 or slightly higher near $48. SCMR $50.13 -5.06 (-5.06) The unforeseen earnings warning from competitor Terayon (TERN) sent our recently-added SCMR play into a tailspin this morning. Although SCMR actually gapped higher this morning, along with the rest of the NASDAQ, the sellers came in with full force near the $58 level and subsequently drove SCMR near our protective stop at $49. Although SCMR didn't close below that level, we're dropping coverage on the play tonight in order to prevent any further damage. Look to exit any existing positions on a relief rally ahead of the FOMC meeting tomorrow. AOL $42.24 -6.72 (-6.72) Despite reaffirming its guidance, AOL fell victim to its merger partner's earnings warning this morning. Time Warner said it would fall short of its current quarter estimates due to several factors. The news results in both stock shedding more than 13% and closing near their day lows. We had our stop set at $45 for AOL, and hopefully that alone allowed for traders to exit existing positions and lock in any profits that may have been earned since we initiated coverage. If the stop didn't get you out, use any bounce tomorrow as an opportunity to exit positions. ************ DROPPED PUTS ************ KMB $66.00 +1.50 (+1.50) In spite of its weak technical position, we're dropping coverage on KMB tonight. The stock rallied today on the prospects of an interest rate cut tomorrow. Volume was a little tepid as KMB failed to close above its 10-dma near $66.25. Those two facts may portend a rollover in tomorrow's session before the FOMC announcement. If the sellers do return, look to exit existing positions on any weakness. Conversely, if KMB continues to advance look to exit positions on any move above $66.50 - our stop. ************** TRADERS CORNER ************** Virtual Trading: A Free Education (Well, Almost) By Austin Passamonte A rash of recent email questions prompted me to write this article instead of the intended topic covering ITM/OTM contracts. We will visit that one real soon, but I feel this one takes priority first. We've all heard how record levels of cash have recently been piling on the sidelines. Not all is from market pros. A share of that belongs to brand-new traders trying to break into our profession. We welcome any & all with wide-open arms and feel compelled to help them get started on the right foot. People are accepting of the fact that they need a four-year college education before beginning most any professional career. Doctors, attorneys and other high-level professions require much more study beyond this. Such education comes at a high cost in tuition dollars. Most college students readily assume massive debt before ever expecting to earn their first career penny years down the road. Not so when it comes to trading. The overwhelming misconception has always been that if one has money to "play" with, they are ready to elbow-in beside the big boys. A profession complex as trading is dismissed as nothing more than a game. This approach will almost always result in great financial pain if not outright devastation over time. Yes I know how many stock players and call-option buyers recently got filthy rich while knowing little or nothing about trading. I'm aware of the week long, day-trading "crash courses" guaranteed to teach all the secrets to winning the greatest game. Most of those ignorance-to-riches stories we heard prior to March 2000 have turned once again to rags or worse as rich but still ignorant traders eagerly bought every dip this year on a long escalator down. Accounts have suffered six, seven and eight-figure losses from people I'm familiar with who only knew how to play in a straight-up bullish market. They were sheep in the pasture, gleefully sheared by a bear market that reclaimed much, most, all and then some of recent financial winnings. Who lies squarely to blame? Traders that refused to become students of their profession need only look in the nearest mirror for that answer. A career trading any financial market can either be the highest paying effort you'll ever enjoy or the lowest paying work you'll ever suffer through. Which of those you experience is totally up to you. An education in trading options will only cost whatever amount you are willing to spend. I'm going to outline an approach here that's cheaper than monthly meal (beer) money at any college. Or you can simply open an account with $X thousand dollars and the markets will happily teach you the same things in exchange for your account balance. I'm going to take a wild guess here: Is it possible that any new trader feels he/she is different, that they can just stick some money in an account and learn to trade on the run while profits steadily accrue? What are the chances anyone has ever thought such a thing? Legions of us are here to testify that this feat is almost impossible over time, any more than a year of medical school prepares one for a long-term surgical career. Type-A personalities with visions of get-rich-now dancing in their heads already clicked away from this article to scour the naked puts section for hot plays. They refuse to believe a painful truth but rest assured it will be learned one way or the other. If not here, it will be evident within their accounts before long. I began trading options after more than a decade of following commodities and stocks. They taught me enough to know that I had plenty to learn in this new venture. I began trading options with pencil & paper, and strongly suggest you do the same. The very best way to learn mechanics of options trading is by setting yourself up in a virtual world and holding yourself honest and accountable to "actual" results. You will need a chart service and quote feed. That part is easy: you can use the live chart applets found within OIN and IS to do so. They also provide specific option-contract prices as well. All quotes beyond the major indexes are delayed but that's fine for paper trading. No extra cost for tools than monthly subscription to one/both websites. Then you need a couple of notebook tablets, pencils and a simple calculator. That's it; trading college is now open in the luxury of your own home. I configure one notebook to look like this on each page. You might modify & duplicate to print out yourself: Date: 12/18/00 Account Balance: $10,000 New Trade Market: QQQ Call/Put: two Jan 64 Calls Symbol: QUE-AL Entry Price: 4.00 Stop loss: 2.00 Exit Price: 8.00 Result: sold @ 8.00 on sell-limit order Comments: "I expected the index to rally based on charts signals, news reports and pre-FOMC expectations of a rate reduction" Date: 12/18/00 Current balance: $11,600 New Trade Market: OEX Call/Put: one Jan 710 Call Symbol: OEZ-AB Entry Price: 19.00 Stop loss: 14.50 Exit Price: 25.50 Result: Open Comments: "I saw a double-bottom form on the daily charts as my favorite technical signals indicate we should move higher soon." This is how I began to virtual trade. I would analyze the markets to the best of my limited ability, decide what to buy and "open" the play. Stops and sell targets were chosen and the "purchase" deducted from my virtual starting balance to adjust buying power. The "comments" section was especially valuable. It records market outlook and thoughts prior to luxury of hindsight. I listed all reasons I could possibly think of to justify each trade. It should surprise no one that many of the losers were entered simply on a whim with no clear technical or fundamental evidence to support my decision. Written record is paramount to keeping ourselves honest. It's a natural human desire to forget about or erase bad trades in order to make ourselves feel good. This is especially true in the beginning when we lack experience and confidence bred from long history of actual wins & losses. Burying bad trades and tweaking written decisions to reflect a better result in the virtual world is akin to shaving scores on the golf course. While I will never admit to doing either (high- grade shredder in my office), it does nothing but harm when live on the golf course or in the markets where actual results depend on our ability to perform. If you're like me, you will delve into this and discover a number of vital facts. The first may be how easy it is to lose money in the process. A second could be that sure-thing trading approaches touted in books and videos have plenty of "catches" in the real world. Another might be that the trading approach you thought would suit you best actually doesn't. These can either be learned at the cost of paper, pencil & spare time of massive chunks of your trading account instead. Which tuition price sounds better to you? Even now I would not consider trading any new markets or approach without following it in virtual form until comfortable. Why would I? Experience and expertise in one area does not carry over 100% to any others that I've ever seen. Nuances are vast and all come at a price. I will never be above "paper-trading" new ideas. Ego will not get in the way of my wallet when it comes to trading. Baseball players and golfers practice their swing. Musicians practice their notes. Bungee jumpers practice... well, they just get drunk and have at it. Option trading is not bungee jumping. Please practice before you leap! You have every prudent veterans permission to do so, and the markets will patiently wait. We promise. Best trading wishes! Contact Support *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.sungrp.com/tracking.asp?campaignid=1162 ************************************************************ ********************** PLAY OF THE DAY - CALL ********************** LH - Laboratory Corp. of America $163.75 +6.69 (+6.69 this week) Laboratory Corporation of America Holdings (LabCorp) is the #2 clinical laboratory service in the world, behind Quest Diagnostics. LH performs 2000 types of tests for more than 100,000 clients, including health care providers, pharmaceutical firms, physicians, government agencies and employers. With 25 major laboratories and some 1200 service sites nationwide, the company emphasizes specialty and niche testing such as allergy tests, HIV tests, blood analyses, and substance abuse screenings. Most Recent Write-Up Relative strength is the name of the game in this market. While the major indices cratered again on Friday, LH managed to eke out a gain on the day. Granted, it was only $0.06, but a gain is a gain. As the #2 clinical laboratory service in the world, LH has ridden the wave of enthusiasm for Medical stocks for a nearly 300% gain since the April lows. The new growth industry seems to be anything tied to the Health Care industry, and LH is winning big time, providing the tests necessary for everything from blood tests to HIV testing. Driving the increase in the stock's value has been good old earnings. The company has handily beat estimates the last 2 quarters, and with the current demand for medical testing and services, this looks like a trend that will continue. The up-trend that has been in place since the April lows has continued to provide a predictable trading range, and looks like it will continue to do so into the end of the year. The sharp drop in the broader markets on Friday dragged our play down to test our $149 stop, from which it sharply rebounded, gaining back all of its intraday losses, plus a little bit extra by the close. This was an ideal entry point for aggressive traders, as the same pattern could be seen in the share prices of competitors DGX and PPDI. Additional intraday dips that are met with strong buying look attractive for new entries in the week ahead. Watch LH's primary competitors, DGX and PPDI, for confirmation of strength in the Medical Testing sector. More timid players will want to wait for LH to trade through the $160 resistance level before taking a position, and then ride the stock up to the top of the channel, near $168. Comments LH's relative strength came through again Monday as the stock traced yet another all-time high. That strength has carried LH through tumultuous markets this year and may continue to do so into the end of the year. The markets will likely be volatile ahead of the FOMC meeting tomorrow and we're looking to take advantage of LH's steady trend ahead of that meeting. Given LH's rally Monday, a pullback is likely early Tuesday, in which case traders may look for bounces off support near $160 or lower near the $155 level. We've raised our stop to $158, so make sure LH rebounds if it does fall as low as support at $155. Additionally, entries may be found on a move above $165 or today's high at $166.75. BUY CALL JAN-155 LH-AK OI=877 at $18.13 SL=13.00 BUY CALL JAN-160*LH-AL OI= 34 at $15.13 SL=11.00 BUY CALL FEB-155 LH-BK OI= 50 at $23.88 SL=18.00 BUY CALL FEB-160 LH-BL OI= 1 at $21.25 SL=16.00 http://www.premierinvestor.com/oi/profile.asp?ticker=LH ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=1141 ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. 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