The Option Investor Newsletter Wednesday 09-19-2001 Copyright 2001, 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/3658_1.asp Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 9-19-2001 High Low Volume Advance/Decline DJIA 8759.13 -144.27 8945.47 8480.21 1.67 bln 1228/1926 NASDAQ 1527.80 - 27.28 1568.22 1451.31 1.83 bln 1440/2300 S&P 100 518.85 - 7.95 529.92 500.87 Totals 2668/4226 S&P 500 1016.10 - 16.64 1038.91 984.62 RUS 2000 503.20 - 8.46 413.44 391.38 DJ TRANS 2165.86 - 51.21 2247.68 2104.63 VIX 43.22 + 0.72 47.62 40.80 VXN 76.93 + 2.19 78.28 72.84 TRIN 0.88 Put/Call 0.67 ******************************************************************* Rejuvenating Rebound, But Will It Last? Although the broader market averages finished in the red Wednesday, they managed to climb well off their session lows. The rebound into the close was a refreshing change from the tedium that had become the steady grind lower. But, it remains to be seen if Wednesday's late-day buying interest carriers over into Thursday's session. Wednesday's early weakness stemmed from the realization of the economic impact of last week's terrible events. Although market participants knew going into this week that business was adversely impacted, the severity of such was the unknown. But the increasing number of lost jobs and earnings warnings Wednesday morning revealed just how economically devastating last week's attacks actually were. The airline industry is revealing just how much financial damage was realized last week, and how difficult it's going to be to move forward. Boeing (NYSE:BA), who's seen its shares drop some 25 percent following the attacks, reported Wednesday that it would cut up to 30,000 jobs from its commercial airline division. The company will reportedly start issuing pink slips in the next few weeks, with the majority of layoffs to begin in about two months, lasting through the end of 2002. A Boeing spokesman said the layoffs would occur across every level of employment, geographic location, and airplane models. But to reiterate, the layoffs will be concentrated in Boeing's commercial airline division, which currently employs about 94,000. On top of Boeing's cuts, United Airlines (NYSE:UAL) said it plans to cut about 20,000 jobs. To put the number in perspective, the airline employs about 100,000 people in all! To make matters worse, American Airlines (NYSE:AMR) announced Wednesday evening that it would be forced to cut at least 20,000 employees. Counting the job cuts announced earlier this week by Continental (NYSE:CAL) and US Airways (NYSE:U), Wednesday's announced job cuts brought the total number to about 100,000. That's 100,000 lost jobs at major airline-related companies!!! These lost jobs only add to the pain of what the United States lost last week, and their trickle down impact on the economy will be felt for some time to come. Hopefully, Congress will soon pass a relief package for the airline industry. The negative news, however, wasn't confined to the airline industry Wednesday. Adobe (NASDAQ:ADBE) reported third-quarter numbers that fell short of expectations and guided lower for fourth-quarter expectations. The company's results were not related to last week's attacks. Instead, Adobe cited weakness in Asian markets. Shares of Adobe lost $4 Wednesday. Eastman Kodak (NYSE:EK), a Dow Jones Industrial Average component, lowered its third-quarter earnings expectations Wednesday morning. The company did cite the adverse effects of last week's events. In addition, the company hinted towards announcing job cuts in the near future. Shares of Kodak shed $2.22. But not all news was bad. McDonald's (NYSE:MCD), another Dow component, reported that its third-quarter results would come in ahead of expectations. The company said that it would earn about 2 cents more than Wall Street had expected, before accounting for currency translation. The continued slide in the dollar versus the yen and euro might actually raise McDonald's earnings further for the current quarter. But the declining dollar is a double-edged sword. While its a positive for those multinationals that export a great deal of business overseas, it also implies a flight of foreign capital out of the U.S. markets. In fact, some of Wednesday's earlier selling of equities could've been from foreign accounts. It was only when the dollar stabilized Wednesday afternoon that the major market averages were able to rebound from their lows. This dollar dynamic is worth monitoring insofar as short-term traders are concerned. While a gradual decline in the dollar wouldn't necessarily be a bad thing, panicked selling of dollars would cause further weakness in stocks. The chart of the U.S. Dollar Index below, which was retrieved through QCharts using the symbol DX01Z, depicts its weakness in past sessions. What the bulls don't want to see is accelerating weakness in this index. The mention of the price action of the U.S. dollar may be foreign to some readers. However, realize that is a most important pillar of the economy. And bonds are, too! The yield curve steepened Wednesday, which would normally imply an economic rebound and the inflation that usually accompanies growth. But, in light of the current climate, the steepening of the yield curve is artificial by some measures. It would appear that bond market participants are selling longer dated treasuries (30-Year) in favor for the relative safety of shorted dated treasuries. This flight to quality has been a thorn in the side of the Fed's interest-rate-cutting actions this year because the short-end of the yield curve continues dropping below the rate of Fed Funds. The flight to short-term treasuries has also weighed heavily on stocks, and will continue to do so as long as market participants shun the risk that is currently associated with equities. There's a reason for my detailing the dollar and bonds as it concerns Option Investor readers. It is my belief that Wednesday's late day rally was no more than short covering induced, and I'll try to reinforce that notion below. We're sure to witness additional short covering rallies between now and whenever the bear market is finally over. They will be tradable just as Wednesday's was. But the critical step in attempting to trade from the bullish side is timing. By monitoring the price action of the dollar and bond market, traders will be better prepared to attempt gaming the long side. There's no real catalyst, over the short-term, for the "real buyers" in the market to be buying. And I define "real buyers" as the institutional types, such as mutual funds, hedge funds, and pensions. There are, however, an overwhelming number of sellers in the market, such as shorts, insurance firms raising cash, foreign accounts exiting U.S. markets, margin calls from brokers, and mutual funds meeting redemptions. That leaves shorts covering their bearish bets as the only en masse buyers in the market. But the shorts won't cover until after the selling has subsided and their scared into doing so. (It's my opinion that that's what happened Wednesday.) This is complicated, I know, but I'm trying to give my readers some value. Try to keep it in the simplest terms of supply and demand. If foreign accounts are selling, as measured by a weak dollar, there's less of a chance for a rally in stocks. And a continued exodus to the short-end of the yield curve leaves less demand for stocks, too. But if the dollar is stable and bonds are, too, the shorts will be on alert and more likely to cover. I think it was nothing more than short covering Wednesday that carried the broader market averages higher. By any measure, the Nasdaq, Dow, and S&P were greatly oversold. Oversold doesn't necessitate a rally, but it can put bullish traders on alert to possible upside. It's detecting the shift in supply and demand (Read: Timing) that is the tricky part, and that's where the dollar and bond market come in. The reason I think Wednesday's rally was only short covering was because of its velocity. The 2-minute chart of the Nasdaq-100 (NDX.X) below reveals a sharp, short rally in the final hour-and-half of trading. And let it be known that "real buyers" DO NOT buy stocks this way! They don't chase 'em higher! They sit on the bid, absorb supply, and slowly, steadily carry markets higher. If Wednesday's reversal was no more than short covering-related buying, then the lift was somewhat artificial. That's not to say a short covering rally can't last for a few days. In fact, we may see some follow-through going into Thursday's session, and possibly Friday morning. But I don't think that many traders will want to hold bullish positions over the weekend, fearing military action in Afghanistan. Having said that, I think we'll get another solid entry point into put plays sometime between Thursday morning and Friday afternoon. My sense is that Wednesday's lows will eventually be taken out. On a final note, I send my prayers to those brave Americans who are on their way to defend our freedom. May you return home safely! Eric Utley Option Investor ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************** MARKET SENTIMENT **************** Turnaround By Jeffrey Canavan A rash of earnings warnings coupled with economic and political uncertainty sent the Dow tumbling before a late-day rally took hold. A 144-point drop may not look good, but considering the Dow was down over 420 points, it was a small victory for bulls. Adobe's (ADBE) $4 drop contributed to a 2.86% decline in the software sector after the company gave less than inspiring guidance for the fourth quarter. Take Two Interactive Software (TTWO) also warned of lower fourth quarter revenues due to changes that would need to be made to the content of some of its more violent upcoming video games. Electronic Arts (ERTS) also got caught up in the selling, losing 5.89%. Symantec was the one bright spot, up 3.74%, on the company's detection and repair solutions for the Nimda virus. Semiconductor Index Daily Chart Software stocks had a rough day, but semiconductors were the worst performing tech sector of the day, closing down 3.76%. Rambus (RMBS) and Motorola (MOT) posted small gains, but $2 drops by KLA-Tencor (KLAC), Novellus (NVLS), and Applied Materials (AMAT) dragged the sector lower. The sector was able to bounce off a fitted 61.8% retracement at 389, and move higher to close at 418. Halfway between two retracement levels, the SOX looks like a 50/50 proposition right now. Wireless Telecom Index Daily Chart But not all was glum in techland, anything that didn't require a wire did well. The Wireless Telecom Index (YLS) posted a 2.24% gain. Handset makers, service providers, and chipmakers all did well, but will they continue to do so? While wireless stocks haven't fallen with the rest of the market, they have just consolidated between 80 and 82 for the past five days. If the rest of the market rebounds, these stocks might get left behind. Oil and oil service stocks fell again today, losing 4.13% and 7.74% respectively. A possible decrease in demand due to a slowing economy continues to weigh on oil stocks. Gold stocks finished up 0.36%. They're not falling, but they're not posting consecutive gains either. A snapback rally should see beaten down sectors do well, but until then some of the boring Dow stocks like Procter and Gamble, Alcoa, and Coke look like the safest long plays. *************************Sector Watch**************************** Support Close Resistance DJIA | 8,650 | | 8759 | | | | 9,110| NASD | 1,490 | | 1528 | | | | 1,670| S&P 500 | 1,000 | 1016 | | | | | 1,100| Rus 2000 | 385 | | 403 | | | | 455| Semis | 385 | | 419 | | | | 538| Biotech | 405 | | | 438 | | | 475| Internet | 90 | | 96 | | | | 105| Networking | 217 | 225 | | | | | 260| Software | 100 | | | 124 | | | 159| Banking | 565 | | | | 583 | | 595| Retail | 695 | | | 725 | | | 765| Drugs | 365 | | 374 | | | | 410| Support Alerts: Rus 2000, Semis, Software, Biotech, Biotechs Resistance Alerts: ____________________________________________________ | Long | Short | Strength | Relative | | Term | Term | of | Strength | | Trend | Trend | Trend | vs S&P 500 | DJIA | Bearish | Bearish | Strong | Negative | NASD | Bearish | Bearish | Strong | Negative | S&P 500 | Bearish | Bearish | Strong | -- | Rus 2000 | Bearish | Bearish | Strong | Negative | Semis | Bearish | Bearish | Strengthening | Negative | Biotech | Bearish | Bearish | Weak | Negative | Internet | Bearish | Bearish | Strong | Negative | Networking | Bearish | Bearish | Strong | Negative | Software | Bearish | Bearish | Strong | Negative | Banking | Bearish | Bearish | Strong | Neutral | Retail | Bearish | Bearish | Strong | Negative | Drugs | Bearish | Bearish | Weak | Positive | _____________________________________ | Short-Term | | Point and | | Overbought/ | Momentum | Figure | | Oversold | | Signal | DJIA | Oversold | Falling | Sell | NASD | Oversold | Falling | Sell | S&P 500 | Oversold | Falling | Sell | Rus 2000 | Oversold | Falling | Sell | Semis | Oversold | Falling | Sell | Biotech | Oversold | Falling | Sell | Internet | Oversold | Falling | Sell | Networking | Oversold | Falling | Sell | Software | Oversold | Falling | Sell | Banking | Oversold | Falling | Sell | Retail | Oversold | Falling | Sell | Drugs | Oversold | Falling | Sell | AP OB = Approaching Overbought AP OS = Approaching Oversold ***************************************************************** ***** LEAPS ***** Now What? By Mark Phillips Contact Support That is the question that is on every investors' mind after the stunning events of the past 9 days. The unprecedented terrorism on U.S. soil has conclusively removed the possibility of a 2nd-half recovery from the radar screen and we are now asking ourselves how low this market can go. And when is it likely to recover? Sure it is oversold, but that doesn't mean that it has to recover anytime soon. I hope that it does, but given the shock that our economic system has taken recently, many of the factors that we were hoping for to propel us down the road to recovery have been wiped off the map. Consumer Confidence has been decimated by recent events -- can consumer spending be far behind? What about the housing market; will it start to falter now that investor and consumer confidence has been shaken? As bad as things look right now, we are just about to enter earnings warning season. With the economic shutdown that occurred last week, it seems a foregone conclusion that there are going to be some ugly admissions coming out in the next few weeks. Are those likely warnings already factored into the decline we have seen this week, or will it inflict more damage to our already fragile markets? As trading resumed this week, we saw the VIX charge above 47 on both Monday and again today before declining back to today's closing value (43.22), all while the markets have continued to decline. Today's afternoon short-covering rally was good to see, but a look at the closing numbers shows that all the major indices closed in negative territory again. Volume was heavy, which is encouraging, but was it capitulation? Was there enough fear at the lows today to give us more than a quick bounce? Most of these are rhetorical questions and to be honest, your guess is as good as mine. But my job is to try to provide actionable trading/investing advice so that you can make better decisions and eventually profit from those decisions. So let me do my best to prognosticate. We all know that 75-80% of a stock's movements are dictated by the broader market trend and right now that is clearly down...and steeply too! So let's see where we might expect the market to find some life before we start blindly chasing our favorite play. I have come to view the S&P500 (SPX.X) as the best measure of the broad market, so I dredged up a monthly chart to see what the long-term picture has to offer. The good news is that the end may be in sight. The bad news is that it could be well below current levels, meaning the bears are still in control. I applied some of the technical tools that I have discussed both here and in my Monday columns, and I think this chart provides a vivid example of the value of looking at these long-term charts from time to time. I started with a Fibonacci retracement, originating at the 1990 lows (not shown) and culminating at the highs just over a year ago. The 38% retracement level has been violated big time with the recent market decline, leaving the next likely support level at the 50% retracement, at 910. This lines up nicely with support between 900-950, dating from the latter half of 1997 and late 1998. Adding credence to the theory that there is still more downside in the SPX is the Stochastics oscillator, which is once again on the down-swing with the fast line now threatening to break to its lowest level in over a decade. Barring some unseen positive factor, it seems inevitable that the oscillator will enter oversold territory before finally bottoming and allowing us to consider the possibility of a sustained recovery. I know it's a grim picture, but I'm just trying to provide the best advice possible for long-term investors. Right now, the best play I can conjure up is to hang onto that cash until we see definitive signs of a bottom forming. No amount of patriotic sentiment or short-covering can stop the market from going where it wants to go. The disaster of last week just hastened the current leg of this bear market. Hindsight being 20-20, I noticed a couple of interesting things on the SPX chart as highlighted below. The bearish Stochastics divergence made itself known as early as the beginning of 1999 and gave us a strong confirmation as the markets began their decline after Labor Day a year ago. One other bearish confirmation signal was the drop November 2000 drop of the SPX under its 20-month moving average (near 1400). The 20-mma then became resistance, before the decline picked up steam. That violation was a powerful signal that the bear had its claws extended. It was at that point that I should have changed my focus from LEAP Calls to LEAP Puts. I offer my sincere apologies for missing the boat on that one. I can honestly say it is new to me like it is to many of you. We haven't had a protracted bear market like this since well before I entered the financial markets, so it has been quite a learning experience. I am older and definitely much wiser for the experience. The reason I spent so much time on this tonight is not to highlight a trade to take in the next week or month. My purpose is one of much greater importance and intended to be applied over a much longer timeframe. The conditions seen on this chart will likely repeat in our trading careers -- more than once for many of us. This is a learning experience of monumental proportions. Those that are able to internalize the lessons learned will be prepared to profit handsomely when these basic conditions repeat, while simultaneously ignoring the noise that emanates from the self-proclaimed experts in the media. It won't be in the next 5 years and I would be surprised if it occurs in less than 10. It will take time (lots of it) for the pain of the recent decline to fade from investors' minds and allow them to speculate wildly on the next "Tulip Bulb Craze", but it will happen. Human behavior repeats and it is our job to recognize the repeating patterns and profit from them. But that is for a time far in the future. Closer to the here and now, our beloved market will find a bottom and begin to find its way down the road to recovery. It won't be a rocket ride, but when valuations have come down to reasonable levels and signs of economic recovery can be clearly seen, LEAP Calls will once again shine as the stellar investment vehicle they were designed to be. Despite my bearish diatribe, I think there are still attractive long-term bullish plays. But we have to be ever-mindful of grabbing solid entry points and must nibble on those opportunities, not gobble them up with blind bullish enthusiasm. The short-covering rally this afternoon could be the opening volley in that bottoming process, but we need to see some serious follow-through in the days and weeks ahead to confirm that hypothesis. Tonight I'm giving the axe to our Walt Disney (NYSE:DIS) play due to the dramatic change in the fundamentals for the whole entertainment sector. While we could place a stop just under the lows of this week, with consumers less willing to frivolously spend money, I would look at this play as unlikely to recover in a timely manner. On the brighter side, I have been encouraged enough by the bullish comments coming out of the Wireless sector to step into the Sprint PCS (NYSE:PCS) play. Nokia (NYSE:NOK) got the ball rolling earlier in the week with positive comments and PCS cooperated by repeatedly bouncing from just above $22, the upper end of our target zone. Other than those two plays, we are in a holding pattern on the rest of the Watch List and Portfolio. Philip Morris (NYSE:MO) and Clorox (NYSE:CLX) are holding their own, while Global Marine (NYSE:GLM) took out our $14 stop and moved to the drop list. This is due to bearish sentiment in the Oil and Oil Services sector on the heels of the changes to the political picture in the Middle East. Weakness has continued to plague our Calpine (NYSE:CPN) and Enron (NYSE:ENE) Watch List plays causing them to continue their declines. ENE is now testing the $25-26 level, but I'm not in a hurry to take a position. The change in the fundamental picture could easily drive the stock down to $24 or even the $20 area before buyers begin to nibble again. Similarly, CPN fell to the $21-22 area before bouncing strongly at the end of the day. A renewed bounce from the $22-23 area could provide solid entries, although I would not be surprised to see a drop into the $18-20 range before the slide is over. The main reason I have left both these plays on the Watch List is that I feel the selling will be overdone, providing us with attractive entries into plays that should shine once the current economic uncertainty begins to clear up. As a proxy for the broad non-technology market, General Electric (NYSE:GE) has been hit hard over the past few days, falling to $31, a level not seen since late 1998, before recovering above $32 at the close of trading on Wednesday. There seems to be a fair amount of support in the $32-33 level, and that could provide for attractive entries, but ONLY if the bounce comes on heavy volume. Otherwise, I would caution standing aside until the current volatility begins to subside and the stock shows its willingness to observe levels of support. Tyco International (NYSE:TYC) has been similarly punished, falling into the middle of our target range. Will we get an attractive entry here? Only time will tell, but remember the critical importance of solid buying volume, not just one-day short-covering. If we don't get it, we don't want to nibble at new positions. Finally, we have our Drug play, Eli Lilly (NYSE:LLY) which is showing its defensive nature by holding up rather well in the current economic uncertainty. While we may be looking at a good entry point as the stock has fallen back to $74 and bounced, I am holding off on new positions for now. Patience is the key, and in my opinion, it is better to miss a winning trade than take an entry prematurely and suffer a loss. Our newest Watch List play provides a clear reminder of just what I want to avoid. Gapping sharply higher at the open on Monday, the stock has spent the rest of the week falling back to earth. Chasing the stock higher and entering "at any price" would have had us filled at the high and watching our losses mount. We'll move our entry target up slightly, as a dip below $75 appears unlikely after the strong upward move seen this week. Also, we know that gaps almost always get filled, and we have a big one between $76-80. Fundamentally, the stock is well positioned to benefit from any ramp-up in military spending. If we can get an attractive entry, it will make a nice addition to our Portfolio. Volatility as measured by the VIX is quite high and could go higher before it heads much lower. Our best entries will come as the VIX declines to more reasonable levels (in the low 30's) in conjunction with an improvement in the broad market. Should those events coincide with an attractive entry setup in one or more of our Watch List plays, then I'll be more willing to open new positions. But until then, I'll be very reluctant to throw my cash into the market. I hope you found this mid-week update useful in place of my usual educational article. Next week, I should be able to share my first article on the topic of LEAPS Puts and how we can use them to profit in both up and down markets. Best Wishes for a safe and profitable week! Mark Phillips Contact Support LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP CLX 03/13/01 '03 $ 35 VUT-AG $ 6.10 $ 8.30 36.07% $ 38 MO 07/30/01 '03 $ 45 VPM-AI $ 6.10 $ 8.40 37.70% $ 47 PCS 09/17/01 '03 $ 25 VVH-AE $ 5.00 $ 6.10 22.00% $21.50 '04 $ 25 LVH-AE $ 7.10 $ 8.30 16.90% $21.50 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CPN 07/08/01 $22-23 JAN-2003 $ 25 OLB-AE CC JAN-2003 $ 25 OLB-AE JAN-2004 $ 30 LZC-AF CC JAN-2004 $ 30 LZC-AF ENE 07/29/01 $24 JAN-2003 $ 25 VEN-AE CC JAN-2003 $ 20 OFE-AD JAN-2004 $ 25 LYN-AE CC JAN-2004 $ 20 LYN-AD LLY 08/05/01 $73-74 JAN-2003 $ 75 VIL-AO CC JAN-2003 $ 70 VIL-AN JAN-2004 $ 80 LZE-AP CC JAN-2004 $ 70 LZE-AN GE 08/12/01 $32-33 JAN-2003 $ 40 VGE-AH CC JAN-2003 $ 30 VGE-AF JAN-2004 $ 40 LGR-AH CC JAN-2004 $ 30 LGR-AF GD 09/16/01 $76-78 JAN-2003 $ 75 VJH-AO CC JAN-2003 $ 65 VJH-AM JAN-2004 $ 80 KJD-AP CC JAN-2004 $ 70 KJD-AN TYC 09/16/01 $42-44 JAN-2003 $ 45 VYL-AI CC JAN-2003 $ 40 VYL-AH JAN-2004 $ 50 LPA-AJ CC JAN-2004 $ 40 LPA-AH New Portfolio Plays PCS - Sprint PCS $23.20 It is hard to find a stock in any sector that has held up better than PCS recently. Even with the worsening recession and the devastating effects of last week's tragedy, PCS has held support near $22 and has spent the past 4 trading days recovering from 6-month ascending trendline. That's right...the stock is still posting higher lows in the face of economic and political uncertainty. Ironically, last week's tragedy has many consumers that didn't think about it before, considering the need to have a cell phone. Stocks throughout the Wireless sector have been showing signs of strength all week, but none have shown the resilience or consistent buying volume of PCS. We've been watching the stock for some time now, as the weekly Stochastics oscillator has been trying to enter a new uptrend. And with the strong surge seen on the daily chart this week, it looks like the move may be underway. With the stock's refusal to sell off with the broad markets on Monday, we took our position, and from the action over the past 2 days, it looks like it was a good move. Particularly encouraging is the strong buying volume (more than double the ADV) seen on Wednesday as PCS powered through its 20-dma (currently $24). As good as things look right now, we must keep in mind that the markets are still very unsettled and we must protect our position with a tight stop. We are initially placing it at $21.50, just below the stock's recent lows and the ascending trendline. Those that are looking to initiate a new position will want to look for an intraday dip into the $23-24 range that is met by solid buying support. The stock appears positioned to challenge its recent highs at $26, and then $27. If the bulls can clear those levels, we could see PCS charge into the $30-32 range in the months ahead. BUY LEAP JAN-2003 $25.00 VVH-AE $5.00 BUY LEAP JAN-2004 $25.00 LVH-AE $7.10 New Watchlist Plays None Drops DIS $18.50 The events of the past 9 days have had a devastating effect on consumer confidence and their willingness to spend money on entertainment. DIS has taken a major hit, and in Wednesday's trading, the stock fell below $17 for the first time since early 1995. While we could set a stop below the day's lows and wait for the recovery, I think the stock will be hard pressed to stage much of a recovery in the next several months. One particular development that really has me concerned is the way the company is going about its share-repurchase program. DIS is selling $1 billion of bonds to raise cash so that they can buy their own stock. That just doesn't seem too smart to me, and it will clearly have a depressive effect on the stock as the company struggles to recover from the inevitable drop in revenue. I feel more comfortable taking the loss and finding a more attractive play in the days and weeks ahead. Use any strength in the days ahead to exit open positions, but not to initiate new plays GLM $13.20 Contrary to what we would typically expect with increased tensions in the Middle East, Crude Oil and stocks in the Oil sector have come under strong selling pressure in recent days. Anticipation that OPEC will continue to keep supplies flowing, while domestic demand for the black gold will fall sharply has the entire sector feeling the attack of the bear. Our $14 stop finally got smashed on Wednesday, and while we are tempted to hang on for a sustained bounce, we will stick with our discipline and exit the play tonight. The fundamental picture has clearly made a turn for the worse, and appears unlikely to reverse any time soon. ************* NEW CALL PLAY ************* CMVT - Comverse Technology $24.25 +1.58 (+2.26 this week) Comverse Technology designs, develops, manufactures, markets and supports computer and telecommunications systems and software for multimedia communications and information processing applications. We're looking to take advantage of any further strength in the Nasdaq with this play. It is therefore predicated on a follow-through of Wednesday's rebound into Thursday's session. CMVT was one of the first stocks in the Nasdaq to turn into positive territory Wednesday. Following its dip down to the $21.50 level earlier in the day, CMVT staged an impressive rally going into the close. The stock has some relative strength working for it currently and we're looking to hop onto the momentum train to the upside. But we need to make it clear that the Nasdaq needs to continue advancing into Thursday's session for this play to be a success. While we'd like to maintain coverage for a longer time period, this could turn out to be only a short-term play if the Nasdaq doesn't rebound from its current levels. In terms of execution, new positions can be taken at current levels early Thursday, depending upon market conditions. If the Nasdaq advances out of the gate, confirm direction in the Networking Sector Index (NWX.X) and consider entering new positions in CMVT at current levels. If, however, the Nasdaq retraces some of its late day advance Wednesday before heading higher, look for CMVT to pullback into support around the $23.00 area. To the upside, the stock will face congestion starting around the $25.50 area up to $26.50. That general area could provide an exit point for a very short term trader if they gain a favorable entry into the play. Our stop is initially in place at $21.50, but traders should use their own discretion when determining their own unique stops. BUY CALL OCT-20*CQV-JD OI= 37 at $5.10 SL=3.75 BUY CALL OCT-22 CQV-JX OI= 61 at $3.40 SL=2.25 BUY CALL OCT-25 CQV-JE OI=771 at $2.10 SL=1.25 BUY CALL JAN-25 CQV-AE OI=866 at $4.30 SL=3.00 Average Daily Volume = 6.07 mln ***************** STOP-LOSS UPDATES ***************** QQQ - call Adjust from $00.00 up to $28.25 ATK - call Adjust from $00.00 up to $74.25 AMR - call Adjust from $16.00 up to $17.50 HDI - put Adjust from $00.00 to $42.00 P - put Adjust from $57.50 down to $56.00 CHV - put Adjust from $89.50 down to $88.00 NVLS - put Adjust from $34.75 down to $34.00 SEBL - put Adjust from $18.50 down to $18.00 CHKP - put Adjust from $34.00 down to $31.00 ************* DROPPED CALLS ************* IMCL $56.60 +6.59 (+2.87) Bristol Myers announced that it would pay $1 billion for a 20 percent stake of IMCL. That news sent shares screaming higher. For those that entered on the dip Tuesday, Wednesday's gains provided an excellent exit point. We're dropping coverage in light of Wednesday's big rally. Traders with open positions can use any further strength in Thursday's session to exit plays. ************ DROPPED PUTS ************ No Dropped Puts for Wednesday ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** QQQ - Nasdaq-100 $29.97 -0.53 (-4.13 this week) The Nasdaq-100 Index Tracking stock encompasses the largest and most actively traded companies on The Nasdaq Stock Market. Its components include Microsoft, Intel, Qualcomm, Cisco, Oracle, and Amgen, among others. Most Recent Update We're still waiting for the QQQs to come to us. The contract has yet to fall as low as the $29 level this week, but it could see that level in the coming sessions. To recall, we'd like to see the QQQs trade down around the $29 level, which would have us on bullish alert. From there, a subsequent advance back above the $30 level would offer an action point. If the aforementioned scenario unfolds this week, bullish traders would be well-served to monitor the big dogs of the Nasdaq-100 in MSFT, INTC, QCOM, CSCO, ORCL, and DELL. The individual issues can offer insight into the QQQs, and can often serve as leading indicators. Comments We got our entry into the QQQs Wednesday. It's now a matter of managing the trade and risk. As oversold as the Nasdaq is, the QQQs could have some significant upside from current levels if the buyers continue carrying stocks higher. Exit points will vary with risk preference and trading styles. Initially, we had been targeting the $34.50 area, but that may be too high in light of the QQQs further slide. Those with shorter time horizons might look for an exit area around $31.50 to $32. Above, the 10-dma at $33.70 may prove to be formidable resistance. BUY CALL OCT-29 QAV-JC OI= 1060 at $3.00 SL=2.00 BUY CALL OCT-30*QAV-JD OI= 6420 at $2.45 SL=1.75 BUY CALL OCT-31 QAV-JE OI= 2539 at $1.95 SL=1.25 BUY CALL OCT-32 QAV-JF OI=12650 at $1.55 SL=1.00 BUY CALL OCT-33 QAV-JG OI=14869 at $1.20 SL=0.75 Average Daily Volume = 55.0 mln ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Renewed Fear And Anxiety In The Equity Markets By Ray Cummins Stocks slumped to new lows today in the third consecutive session of selling after last week's terrorist attack on the United States. The broader market sank amid renewed worries of a global recession after the Federal Reserve said the economy remained sluggish, even before the recent tragedy and may indeed be headed for a recession. Option Trading Mechanics: The Possibility of Early Assignment With the recent downturn in share values, a number of readers have asked about the likelihood of early assignment in "naked" option positions. In fact, one of the most common questions we receive from new subscribers concerns the potential for early assignment of "in-the-money" options. In most cases, the probability of being "exercised" is relatively low and only when you are short in an option position with no extrinsic value does the likelihood of an unwanted assignment become a concern. However, one of the more popular strategies used by aggressive traders; selling "deep-in-the-money" Puts, involves a higher risk of assignment and there are some facts you should know before participating in this technique. When you sell an option, as an opening transaction, you are the Seller or Writer. Writers are obligated to buy the underlying interest at the strike price (with a Put) or sell the underlying interest at the strike price (with a Call) if the contract is exercised. With American Style options, the instrument can be exercised on any trading day prior to the expiry date. The last day to exercise an American-style option is usually the third Friday of the month in which the contract expires (expiration Friday). The option exchanges have a cut-off time of 5:30 P.M., Eastern Standard Time, for receiving an exercise notice. However, most brokerage firms have an earlier cut-off time that may affect when you receive a notice of assignment. When an option writer receives an exercise notice that obligates him to buy the underlying security at the specified strike price, he can simply buy the stock or initiate an offsetting transaction such as buying another ITM Put (and eventually exercising it) or shorting the underlying. Due to pricing disparities, there may be an advantage to one of these (or other) alternate "covering" strategies. As expiration approaches and the sold (short) Puts become further in-the-money, you run a higher risk of having the stock put to you. It can, and sometimes does, happen prior to expiration, but the actual percentage of early assignments is statistically very low. If there is a strong move in the stock in the right direction, you might consider repurchasing the Puts, especially with deep-ITM positions, because they have relatively low Delta (great for sold Puts) and perform almost as well as a position in the stock. Of course, that also frees your portfolio collateral for additional plays with greater (relative) profit potential and eliminates the risk of early assignment. Also, as expiration approaches, you may consider rolling the position out to a future date, where there is a lower risk of assignment due to the additional time premium (extrinsic value) in the option. The term "rolling" means that an existing option position is liquidated and a similar position is established to replace it. If the replacement position differs from the original position with respect to only the exercise price, the position is said to have been "rolled up" or "rolled down". If the only difference between the positions was the expiration month, you've "rolled out" to a future position. The Options Industry Council, a non-profit association created to educate the investing public and brokers about the benefits and risks of exchange-traded options, has recently distributed some interesting facts concerning the topic of early assignment. First, regarding the Options Clearing Corporation, the largest clearing organization in the world for financial derivatives instruments. Operating under the jurisdiction of the Securities and Exchange Commission, the OCC is the issuer and registered clearing facility for all U.S. exchange-listed securities options. To ensure fairness in the distribution of equity and index option assignments, The Options Clearing Corporation utilizes a random procedure to assign exercise notices to the accounts maintained with OCC by each Clearing Member. The assigned firm must then use an exchange approved method (usually a random process or the "first-in, first-out" method) to allocate those exercise notices to accounts which are short the options. With that in mind, here are some general guidelines concerning the early assignment of short option positions: Surprisingly, only 10% (on average) of options end up being exercised and the percentage hasn't varied much over the years. That means option exercises are not that common. The majority of option exercises (and the corresponding assignments) take place when the option approaches expiration. It usually doesn't make sense to exercise an option which has any time premium over intrinsic value and for most options, that doesn't occur until close to expiration. In general terms, a Put which goes in-the-money is more likely to be exercised than a Call (in similar circumstances) because the trader who exercises a Put uses it to sell his shares and receive cash. A person exercising a Call option uses it to buy shares and must pay cash. Traders are more likely to exercise options when they can receive cash sooner, as opposed to situation with Calls, where exercise means you have to pay cash sooner. However, the simple fact is, there is no absolute method to predict when you will be assigned on a short option position; it can happen any day the market is open for trading. Good Luck! Summary of Previous Candidates (as of 9/18/01): Covered Calls: (Margin not used in calculations) Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield GILD SEP 50 48.06 49.05 $0.99 2.1% TECD SEP 40 38.67 37.01 ($1.66) 0.0% Cubist (NASDAQ:CBST) was closed last week when the issue broke below a recent support area near our sold strike price. Tech Data (NASDAQ:TECD) and Gilead (NASDAQ:GILD) have exhibited similar technical indications and should also be exited. Naked Puts: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield PDLI SEP 40 39.00 44.99 $1.00 5.7% GILD SEP 45 44.20 49.05 $0.80 6.3% CCMP SEP 55 54.15 56.50 $0.85 5.6% CCMP SEP 55 54.40 56.50 $0.60 5.1% CHIR SEP 45 44.35 43.67 ($0.68) 0.0% TECD SEP 40 38.85 37.01 ($1.84) 0.0% Cubist (NASDAQ:CBST) was closed last week when the issue broke below a recent support area near our sold strike price. Chiron (NASDAQ:CHIR) and Tech Data (NASDAQ:TECD) have exhibited similar traits and should also be exited. The remaining bullish plays are on the "watch-list" and should be closed on further weakness. Cabot (NASDAQ:CCMP) is at a "key" moment and should be closed if it fails to recover at support near $55. Previously Closed Positions: Synopsis (NASDAQ:SNPS), Optimal Robotic (NASDAQ:OPMR), Analog Devices (NYSE:ADI). Naked Calls: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield NVDA SEP 52.5 53.30 31.94 $1.40 6.2% Debit Straddles: Stock Position Debit Target Value Gain Status TEVA SEP70c/70p $3.65 $4.40 $11.00 $7.35 Closed The Sony (NYSE:SNE) debit straddle (SEP-$50) was closed early at a "break-even" exit but the original position eventually exceeded the target profit with an $8.00 profit on $5.75 invested. Sell Strangles (CALLS): Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield QCOM SEP 70 71.25 46.37 $1.25 6.2% NVDA SEP 95 96.20 31.94 $1.20 6.6% ENZN SEP 70 71.00 50.00 $1.00 8.9% Sell Strangles (PUTS): Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield NVDA SEP 30 29.50 31.94 $0.50 4.8% Previously Closed Positions: Qualcomm (NASDAQ:QCOM), Enzon (NASDAQ:ENZN). Credit Spreads: Stock Pick Last Position Credit C/B G/L Status BBY $58.72 $49.37 SEP70c/65c $0.50 $65.50 $0.50 Open GS $78.55 $67.50 SEP90c/85c $0.45 $85.45 $0.45 Open NKE $48.00 $43.04 SEP40p/42p $0.40 $42.10 $0.40 Open IVGN $63.99 $62.65 SEP80c/75c $0.75 $75.75 $0.75 Open KMI $54.33 $55.35 SEP45p/50p $0.70 $49.30 $0.70 Open BSC $55.50 $45.63 SEP65c/60c $0.65 $60.65 $0.65 Open EBAY $56.91 $50.00 SEP70c/65c $0.75 $65.75 $0.75 Open VGR $42.70 $41.75 SEP35p/40p $0.75 $39.25 $0.75 Open IBM $104.13 $96.40 SE115c/110c $0.70 $110.70 $0.70 Open Positions Closed Monday: AHC $78.15 $72.10 SEP70p/75p $0.65 $74.35 ($2.15) Closed CHV $93.01 $87.76 SEP85p/90p $0.75 $89.25 ($1.49) Closed UDS $51.82 $49.16 SEP45p/50p $0.65 $49.35 ($0.19) Closed Previously Closed Positions: Banc Of America (NYSE:BAC), Bowater (NYSE:BOW), Corinthian Colleges (NASDAQ:COCO), Lennar (NYSE:LEN), Potash (NYSE:POT). New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. We monitor the positions marked with ***. *************** BULLISH PLAYS - Naked Puts & Combinations This week's E-mail included a request for more conservative credit-spreads. Today's selection of candidates includes a number of positions using that popular strategy. *************** ACS - Affiliated Computer Services $86.90 *** New High! *** Affiliated Computer Services (NYSE:ACS) provides a full range of information technology services to clients, including technology outsourcing, business process outsourcing and systems integration services. The company serves two primary markets: the commercial sector and the Federal Government market. Within the commercial sector, Affiliated provides business process outsourcing, systems integration services and technology outsourcing to a variety of clients nationwide, including retailers, local municipalities, state agencies, healthcare providers, telecom companies, wholesale distributors, manufacturers, utilities, financial institutions and insurance companies. Services in the federal government market are comprised of business process outsourcing, systems integration services and technology outsourcing. The company has offices in North America, as well as Central America, South America, Europe, Africa and the Middle East. ACS is one of the very few (only?) technology stocks that posted a new, all-time high in today's session. Traders say the reason for its recent success is that the company is fundamentally sound and will benefit from increased spending by the U.S. government. Indeed, Affiliated recently won a payroll services contract from the U.S. Department of Defense worth $354 million over the next 10 years. A report noted that the contract calls for Affiliated to provide pay-related services to almost 2.5 million retirees and annuity holders with a monthly payroll of $2.6 billion, making it one of the company's biggest federal government contracts. That is great news for long-term investors and the premiums in this conservative spread help provide a low-risk method to profit from future recent bullish activity. ACS - Affiliated Computer Services $86.90 PLAY (conservative - bullish/credit spread): BUY PUT OCT-75 ACS-VO OI=313 A=$0.75 SELL PUT OCT-80 ACS-VP OI=4 B=$1.25 INITIAL NET CREDIT TARGET=$0.60-$0.65 PROFIT(max)=13% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ACS *************** IMCL - Imclone Systems $56.60 *** Bristol-Myers Alliance! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company that is developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company focuses on three major strategies for treating cancer, growth factor blockers, cancer vaccines and unique angiogenesis inhibitors. The company's lead product candidate, IMC-C225, is a therapeutic monoclonal antibody that inhibits stimulation of a receptor for growth factors upon which certain solid tumors depend in order to grow. IMC-C225 has been shown in Phase I/II trials to have an acceptable safety profile, to be well tolerated and, when administered with either radiation therapy or chemotherapy, to enhance tumor reduction. Even as the broader markets were retreating today, shares of IMCL were up significantly on news of an alliance with Bristol-Myers Squibb (NYSE:BMY) in which the two companies will co-develop and co-promote a cancer treatment called IMC-C225 in the United States, Canada and Japan. Under the terms of the agreement, Bristol-Myers will acquire approximately 14 million IMCL shares, roughly 20% of the total outstanding, at a price of $70 per share. The size of the equity stake, in addition to the sizeable premium over IMCL's current price suggests BMY may be considering an acquisition of the company in the longer-term. In addition to the stock purchase, Bristol-Myers will pay the company a total of $1 billion in three cash payments for the achievement of two milestones: one upon the completion of the Biologics License Application submission with the FDA, and another upon the marketing approval of IMC-C225 by the FDA. ImClone will also receive a significant share of future product revenues. The stock has excellent buying support near our target cost basis and the favorable option premiums will allow traders to speculate, in a conservative manner, on the future movement of the company's share value. IMCL - Imclone Systems $56.60 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT OCT 40 QCI VH 115 0.70 39.30 5.9% *** SELL PUT OCT 45 QCI VI 73 1.05 43.95 8.6% SELL PUT OCT 50 QCI VJ 341 2.10 47.90 11.7% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IMCL *************** JEC - Jacobs Engineering $64.63 *** On The Rebound! *** Jacobs Engineering Group (NYSE:JEC) is a professional services company that offers four categories of professional services: project services, including engineering, design, architectural and other related products; process, scientific and systems consulting services; operations and maintenance (O&M) services; and construction services. The company provides its services through offices and subsidiaries located in the United States, Europe, Asia, Mexico, Chile and Australia. Shares of Jacobs Engineering have rebounded in recent sessions as investors moved into companies with geographically diverse profit sources and consistent earnings histories. These unique characteristics are surfacing in some of the consulting firms and Jacobs continues to be one of the industry leaders, having recently acquired a number of significant contracts as well as achieving numerous design/product wins. Analysts believe the company's ability to benefit from additional contract wins and future demand is still not fully reflected in the current share value and our position offers a way to speculate conservatively on that outlook. PLAY (conservative - bullish/credit spread): BUY PUT OCT-50 JEC-VJ OI=690 A=$0.50 SELL PUT OCT-55 JEC-VK OI=317 B=$1.15 INITIAL NET CREDIT TARGET=$0.70-$0.80 PROFIT(max)=16% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=JEC *************** NOC - Northrop Grumman $97.00 *** Defense Sector Rally! *** Northrop Grumman Systems Corporation (NYSE:NOC) is a global aerospace and defense company. Northrop provides technologically advanced products, services and solutions in national defense and commercial electronics, systems integration, current information technology and non-nuclear shipbuilding and systems. Northrop Grumman has operations in 44 states and 25 countries, through which it serves U.S. and international military, government and commercial customers. Earlier this year, the company completed the acquisition of Litton Industries, making Litton a 97%-owned subsidiary of Northrop Grumman. Litton Industries designs, builds and overhauls non-nuclear surface ships and is a major provider of defense and commercial electronics technology, components and materials for government and commercial customers world wide. Few stocks have survived the recent market sell-off but with the nation possibly gearing up for a long-term battle with terrorism, defensive companies are seen as a solid bet to attract investors in the coming months. Today a number of defense issues received a vote of confidence and NOC was one of the more-bullish stocks, up over $2 to a recent high of $97 on heavy volume. Since there will likely be a consolidation during the next few days, we are going to use a limited-risk spread position, with a cost basis well below the current price of the stock, to profit from any future bullish activity. NOC - Northrop Grumman $97.00 PLAY (moderately aggressive - bullish/credit spread): BUY PUT OCT-85 NOC-VQ OI=9 A=$0.70 SELL PUT OCT-90 NOC-VR OI=23 B=$1.65 INITIAL NET CREDIT TARGET=$1.00-$1.15 PROFIT(max)=25% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=NOC *************** VZ - Verizon $53.90 *** Cellular Industry Surge! *** Verizon Communications (NYSE:VZ) provides communications services. The company has four reportable segments, which it operates and manages as strategic business units and organizes by products and services. Domestic wire-line communications services principally represent the company's 16 operating telephone subsidiaries that provide local telephone services in over 30 states in the U.S. Domestic wireless products and services include cellular, Personal Communications Services, paging services and equipment sales. The company's International segment includes international wire-line and wireless communications operations, investments and management contracts in the Americas, Europe, Asia and the Pacific. Through its Information Services segment, the company provides print and online directory publishing and related content for communications products and services. Despite the austere economic outlook and the overall negative sentiment following last week's terrorist attacks, the cellular industry is experiencing an unexpected rise in sales activity. Analysts say cellular companies are seeing a sales boost from the crisis because there was a need for communication and people now realize that cell-phones really are an important security tool. In addition, industry forecasters see it as a new catalyst for a technology sector that is already set for growth and advertising executives believe that wireless and telecommunications companies will be one of the few groups that will maintain their ad budgets following the attacks. Even before last week's tragedy, wireless telephone firms were on track to post solid third-quarter results and the U.S. wireless penetration rate, or the percentage of the population that owns cellular phones, is one of the lowest among developed nations. According to SoundView Technology, the top five wireless carriers are expected to post a 20% year-over-year increase in total subscribers at the end of the third quarter and that's ample incentive to bring investors back into the wireless communications segment. VZ - Verizon $53.90 PLAY (conservative - bullish/credit spread): BUY PUT OCT-45 VZ-VI OI=6250 A=$0.30 SELL PUT OCT-50 VZ-VJ OI=17804 B=$0.95 INITIAL NET CREDIT TARGET=$0.70-$0.75 PROFIT(max)=16% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=VZ *************** BEARISH PLAYS - Naked Calls & Combinations *************** ABK - Ambac Financial Group $48.00 *** A Big Mover! *** Ambac Financial Group (NYSE:ABK), headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, is a leading guarantor of municipal and structured finance obligations. While remaining a leading insurer of municipal bonds, Ambac has also grown its franchise and has successfully applied its triple-A rated guarantee to markets beyond traditional municipal finance. Ambac is also a provider of financial guarantees to the structured, asset-backed securities sectors. In addition, Ambac works with clients in Europe, Japan and select markets in Latin America and Australia. Ambac shares tumbled today after the financial services firm said its net par exposure to the Port Authority of New York and New Jersey following the recent terrorist attacks is over $350 million. The company also provided information about its net par exposure to U.S. airlines and the effect of widened credit derivative spreads. Ambac announced it has $530 million in exposure in enhanced equipment trust certificate transactions for three U.S. airlines, but doesn't currently expect material losses from those obligations. The widening credit derivative spreads will however result in an unrealized "mark-to-market" loss of up to $10 million, or approximately $0.05 a share that will be excluded from the company's reported and core earnings. The news, although apparently less negative than expected, was bad enough to push the company's share value down almost 10%. There will certainly be a technical rally in the coming weeks, but it is unlikely the issue will reach our target position in the next 30 days. PLAY (aggressive - sell naked call): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL CALL OCT 55 ABK-JK 2 0.75 55.75 5.9% *** SELL CALL OCT 50 ABK-JJ 0 2.15 52.15 11.3% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ABK *************** PGR - Progressive $119.01 *** Rolling Over! *** The Progressive Corporation (NYSE:PGR) is an insurance holding company. Progressive has 76 subsidiaries as well as two mutual insurance company affiliates. Progressive's numerous insurance subsidiaries and affiliates provide personal automobile insurance and specialty property-casualty insurance and related services throughout the United States. The company's property-casualty insurance products protect its customers against collision and physical damage to their motor vehicles and liability to others for personal injury or property damage arising out of the use of those vehicles. This play is simply based on the current price or trading range of the underlying stock and its recent technical history. The near-term PGR price trend is bearish and reflects a pronounced negative divergence from an intermediate-period moving average. In addition, the decline has come on increasing selling pressure and a recent support level near $128 has been violated. With the third consecutive failure at $135 in late July, a short-term "triple top" formation is in place and due to the heavy overhead supply at our strike price of $130, the share value has little chance of moving back above that range in the coming month. PGR - Progressive $119.01 PLAY (conservative - bearish/credit spread): BUY CALL OCT-135 PGR-JG OI=178 A=$0.95 SELL CALL OCT-130 PGR-JF OI=265 B=$1.55 INITIAL NET CREDIT TARGET=$0.65-$0.75 PROFIT(max)=15% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PGR *************** SEE DISCLAIMER ***************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* 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. 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