The Option Investor Newsletter Sunday 11-04-2001 Copyright 2001, All rights reserved. 1 of 5 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/164_1.asp Entire newsletter best viewed in COURIER 10 font for alignment Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 11-02 WE 10-26 WE 10-19 WE 10-12 DOW 9323.54 -221.63 9545.17 +341.06 9204.11 -140.05 +224.39 Nasdaq 1745.73 - 23.23 1768.96 + 97.65 1671.31 - 32.09 + 98.10 S&P-100 559.99 - 7.99 567.98 + 14.18 553.80 - 6.98 + 11.40 S&P-500 1087.20 - 17.41 1104.61 + 31.13 1073.48 - 18.17 + 20.27 W5000 10016.81 -168.72 10185.53 +290.64 9894.89 -154.23 +212.01 RUT 433.07 - 5.58 438.65 + 12.95 425.70 - 2.89 + 13.62 TRAN 2246.66 - .92 2247.58 + 73.30 2174.28 - 60.45 + 25.31 VIX 32.40 + 1.87 30.53 - 5.31 35.84 - .61 + 1.79 VXN 61.19 + 4.28 56.91 - 12.37 69.28 + 3.30 + 2.63 TRIN 0.92 0.87 1.19 1.08 TICK +701 +828 +342 +283 Put/Call .70 .53 .80 .76 ****************************************************************** Strong Finish For Bad Week! by Jim Brown The Dow made it two in a row with a +59 point gain after struggling back from a -50 point deficit caused by the jobs report. While the Nasdaq closed fractionally lower it was due mostly to profit taking from Thursday's Microsoft induced romp. Even after two days of strong gains the Dow still lost -221 for the week but is closing in again on resistance at 9400. After finally escaping the October hex the markets are looking forward to a week without negative economic reports. The jobs report did come in much worse than expected with the biggest drop in jobs in 21 years. 415,000 jobs were lost in the wake of the 9-11 attack and the unemployment soared to a five year high of 5.4%. Just a couple months ago this news would have sent the markets reeling into a death spiral but after the constant barrage of bad news investors shook off the initial impact and bought the dip again. The bad news is already in the markets and short of another terrorist attack the Fed meeting next week and Cisco’s earnings are the only major potholes in our road to recovery. The Microsoft settlement got much of the press on Friday but the stock was flat after a major gain on Thursday. The opponents, or should I say competitors, were very vocal and very irate. The comments were focused on the inability of the government to force a substantial change in policies even after Microsoft was judged to be a monopoly. The settlement was viewed by almost everyone as barely even a slap on the wrist and a license to eliminate the competition. About the only major win for the Justice Dept was the insertion of a three member oversight committee with full access to books, records and even software code. The term of the deal is for five years with another two years if Microsoft is deemed to have violated the law during the first five years. Three detectives to cover all of Microsoft! What an insurmountable task. The prospect of a revitalized and aggressive Microsoft has sent chills through the software community. Probably the only reason the stock did not rally again was that most people were in shock and disbelief that the penalty was so light. They kept expecting something else to appear. If Microsoft does get this deal done we can be assured that the stock price will reflect it very quickly. Remember that MSFT straddle in the Editors plays several weeks ago? Get ready to rock and roll! If the Microsoft news was good for the markets, news from Qwest was the anchor that held it back. With more impact than the Jobs report the surprising news shut down the network sector. Qwest CEO Joe Nacchio told all contractors to stop network construction immediately. Alarms went off among all network gear suppliers. Just this Wednesday the CEO painted a worst case scenario that envisioned NO network spending by Qwest in 2002 other than routine maintenance. The directive on Friday that told contractors to cease all work immediately was a shock to projects currently underway. Qwest said they would continue to evaluate their needs as they moved forward and would reinstate the current projects when/if they were needed. Fourth quarter spending is projected to drop to less than $700 million from $3 billion initially expected. The most likely to suffer from the cutback are CIEN and JNPR and both stocks fell substantially on Friday. Qwest had initially budgeted $8.5 billion for capital spending in 2002 but said on Friday it could fall to under $2 billion. This is a serious blow to the telecom supplier sector because of the size of the drop as well as possible contagion to other carriers like WCOM and SBC. On the brighter side of the economic picture semiconductor billings improved for the third month in a row. Some of the increase was based on seasonal production but the majority of the gains were due to inventory levels coming inline with current production requirements. The Asia Pacific region posted a significant improvement which is a leading indicator since most components are assembled in this region. There will be some deterioration in these numbers due to the Qwest news today but the beginning signs of a recovery are slowly coming to light. Last Sunday I mentioned three sectors that could be trouble in the past week. Semiconductor, Biotech and Retail. Each were right at resistance and could possibly roll over and take the Nasdaq with them. The SOX.X dropped almost -60 points on Monday/Tuesday but rallied back to exactly the same spot we were in last Sunday. The Retail Index RLX.X was at a dead stop around the 820 level of resistance and also fell substantially during the week only to recover most of the losses by the close on Friday. The negative economic news depressed the outlook for retail in advance of the holiday season. The biotech index also fell substantially but did not recover as strongly as the other Nasdaq leaders. Many drug and biotech stocks saw selling in the last 15 min on Friday as it appeared the profit taking might not be over. Each sector had been a leader out of the Sept-21st lows but more importantly had gained strongly the prior week. The resulting sell off of each was exactly what we feared. The coming week should be interesting since the biggest earnings announcement for the week, CSCO, is on Monday and is in a sector that has already suffered greatly. The networking sector had been hit harder than most with the drop in telecom spending but had rebounded on every little bit of hope since Oct-5th. Not only will all eyes be on Cisco to decide the fate of networkers they will look to Cisco for some clue as to when a future tech revival in general will appear. The guidance they give will be crucial to any further progress in the current rally. Much of the weakness in tech on Friday was related to worry about their numbers. Qualcomm is the next most visible announcement on Tuesday but they will likely be overshadowed by the Fed meeting results. The Fed meeting on Tuesday is the major economic event for the week. The dismal economic numbers this past week including the biggest job loss in over two decades has increased the chance of a larger rate cut than previously expected. Most analysts had expected a 25 point cut but the fed funds futures are showing about a 65% chance of a 50 point cut. This would be the 10th cut this year and by far the most aggressive series in recent memory. The Fed needs to assert its control by being aggressive once again and not play it safe with only a quarter point. The economy is struggling to pull itself off the bottom after the attack and another 50 point cut would show the Fed to still be onboard. For a market that has shaken off every piece of bad news for weeks it would be a shame to be scuttled by the Fed. I say scuttled because almost every analyst and trader are counting on the 50 point cut to the extent that, just like the bad news, it is already priced into the market. Does it matter really whether it is 25 or 50? Not to me but it is a sentiment thing. Traders are so used to receiving 50 point presents that not getting one is like getting an empty box under the Christmas tree. We are easily spoiled and the talking heads convince us that we need it whether we do or not. In reality it will not make any real difference to the current economy in the near term. Just like the previous nine have gone undetected the tenth one will also. These things are like antibiotics. You start feeling better after the first three or four but you still take the whole bottle to finish off the bugs. This rate cut is likely the last for the year even though there is another meeting on December 11th. The minutes from the October 2nd meeting will be released on Thursday which will allow analysts to see how concerned the Fed was last month and compare it to the statement from Tuesday's meeting for changes. The markets are facing a crucial test next week. The Dow has been trading in a range between 9000-9400 for four weeks. There was jubilation that the 9000 level held again on Thursday but there was no volume to support the conviction. The market internals are marginal despite the upward bias. The sentiment is there but the buyers are still waiting on the sidelines for the most part. The Dow faces stiff resistance at 9400 and I am sure most investors are waiting for a break through of that level before committing themselves. If the Dow fails again it will be the fifth time at that level and could setup another retest of the lows to convince traders that the bottom is past. The Nasdaq is poised to test resistance at 1750 for the third time since the attack. To say everything rests on Cisco would be too broad a claim but almost everything does. If they can just say that they think the bottom has passed and orders are improving slightly, that would be the key to the next leg up. If the Nasdaq fails at 1750 again after the CSCO earnings then there would be nothing left to power the next attempt and things could get ugly. Buyers stepped in at 9000/1650 last week just like I suggested would happen. Those buyers are now out there on faith and hoping that the Fed and their fellow traders do not desert them. The longer they wait for reinforcements the more nervous they will become. The most positive sector on Friday was semiconductors again and they are poised to breakout of resistance and make a run based on the tidbits of good news I wrote about above. AMAT, KLAC, NVLS, ALTR and others all look alike on the charts. They are at or near new highs since Oct 1st but they cannot hold the Nasdaq up by themselves. They SOX is commonly referred to as the head of the snake (Nasdaq) and where it goes the snake will follow. For our benefit let's hope the SOX can power through the 500 resistance level on Monday and lead the Nasdaq to something better than the fractional loss from Friday. That will set the stage for some positive Cisco comments and maybe convince some more cash to come off the sidelines. If you are in the market from the dip to 9000 last week then set your stops on Monday morning and wait for the CSCO/FED story to unfold. If you are not in the market wait for a move over 9425 before opening any new long positions. It is not that far away but moving over that level should cause shorts to cover again and power the next wave. If the news is bad shorts will try to sell at 9400 and push the Dow back down again. This is our line in the sand for this week. Keep your stops tight on open positions and don't buy more until we are above 9425. Investing should not be difficult but somehow we seem to make it that way. Enter passively, exit aggressively! Jim Brown Editor ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES * EASY screens for covered calls, spreads, and straddles * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** Editor's Plays ************** Recap, New Straddle Candidate, Top 20 and an Apology Recap: The put plays last week were perfectly predicted but far too conservative and we did not get hit on any of them. A classic case of being right in the direction but wrong in the timing. All of the plays would have been very profitable from the Monday open but none hit the entry points described in the plays. If you jumped the gun you made money but those of us who did not force the trades did not lose any money either. If we always wait for our entry points we will make fewer trades but they should be more profitable in the long run and isn't that what it is all about anyway? Straddle Timing When you are an "opportunity trader" you are constantly looking for those situations that seem too good to pass up. Where the chart signals are screaming to do something. I think Barr Labs is just that type of signal. Notice the bottoms in July and September exactly on the 200DMA. The bounce each time was in the $20 range. Will it do it again? The news on Barr is glowing. They have approval to make generic Cipro and could start production in two to three weeks on 30 million tablets a month. They recently raised guidance to between $1.30 and $1.40 per share when analysts were only expecting $1.28. Their biggest product is currently a generic form of Prozac and they expect to have approval for another 12 generic drugs by June-2002. So why the big drop in October? They acquired Duramed Pharmaceuticals on Oct-23rd for a 1:4 (approx) share exchange. Thus the reason for the drop. Duramed announced record profits on a +64% increase in sale the day before the merger. While I think the prospects are very good for Barr the play I am going to recommend is for a straddle on the stock. There are many ways to play this and I am going to try and touch on multiple options. Using the cheap November out of the money options it would require about an $8 move in either direction to be assured of a profit. Depending on the speed of the move it could be less but this is a reasonable estimate. I would not recommend this option. The at the money November options would require the identical move in only two weeks to break even. I would not recommend this option. The best straddle play in my opinion would be the December out of the money options. You have about seven weeks for a break out or a break down and BRL has shown that it can move fast in either direction. The drawback to this straddle is the price of admission. At $7.20 the stock has to make a big move quick to maintain time value and gain appreciation. I think I would place a stop on both options to close them once the play moved in the opposite direction. If BRL hit $73 I would close the put with the idea that the bounce was underway and I would be looking for $90 again. Same with the call. If BRL hit $67 I would close the call and hope for something in the high $50 range. By closing the positions in the opposite direction you save some of the premium and reduce the cost of the trade. Simple approach: Nobody can know for sure but after researching the stock I feel pretty positive about the outlook. Buying a naked Dec-$70 or $75 call for $4-$6 on any bounce would look very good to me. Remember the key word here is bounce. While we expect the 200DMA to hold as it did in the past we can never be sure. You could also buy a Nov-$70 put for $3.10 as insurance or even a Nov-$65 for $1.40. You will still be at risk but not for the total investment unless the stock stops dead on $70. Aggressive approach; Sell the Dec-$100 naked put for $28 and buy insurance with the Nov $70 put at $3.10. Your maximum loss is $3.10 for the Nov option plus $1.00 for stock depreciation and your maximum gain is $23.90. ($28 - 4.10) The only other risk is that you may be assigned early and have to resell the naked side should that happen. As I have taught previously you have no real risk in oss by assignment as long as you resell the naked side on the same day that you are assigned. I have probably confused everyone completely and I suggest you choose only the strategy you understand fully and are the most comfortable with. Top 20 List The following list is stocks that appeared as I was doing my research for the weekend articles. I make no representations for any individual stock but each has a trend which I would not hesitate to play. Please do your own research before going long on any of these stocks. I have not checked for earnings dates or any news relating to any of these stocks. AMAT $37.96 Next resistance $47 ABI $30.25 Resistance 30.50 ALGX $ 7.45 Next resistance 12.25 HRB $34.52 Next resistance 36-38.50 CCMP $70.83 New relative high, next resistance $80.00 CRUS $12.95 New relative high EDS $55.37 $1.00 from new 52-week high FDX $42.21 $1.00 from breakout on cheap oil FFIV $16.91 At resistance, could fly on CSCO news. GNTA $14.45 $.60 from new high HRS $35.00 Will make all electronics for joint strike fighter KLAC $45.06 Next resistance $52 LIZ $47.50 New relative high LRCX $21.34 New relative high, next resistance $28 NMTC $25.44 New relative high, steady trend SEAC $27.36 New relative high SIAL $39.42 Minimum risk SMTC $41.80 New high, steady trend TRW $35.62 New relative high YUM $51.08 New high These are just food for thought and not expected to be guaranteed winners. Good Luck Apology: Answers to questions from prior Editors Plays I give up! I mis-spoke! Please forgive me! Two weeks ago I wrote about "Maximum Potential, Minimum Risk" using LEAPs as covered calls. I used the term "maximum risk" in describing the amount of initial risk involved in entering the play. This was an error on my part in calling it "maximum" instead of "initial". Remember, this was the night my hard drive crashed and I had been at work for about 24hrs when I wrote that column. That is not an excuse but it is the only one I have for the brain fade that caused this terminology slip. I did mention terms like "up front risk" instead of "maximum" in describing the JNPR example. Using the CIEN example (@$16.43) of a selling a Jan-2004 $40 call for $2.70 and buying an Apr-2002 $15 put for $3.70 the "initial" risk would only be $1.00. The "maximum risk" would be the difference between the purchase price of the stock $16.43 and $15.00 on expiration Friday in April plus the $1.00 difference paid in the price of the put/call plus any amount paid to buyback the call in April. For example, if CIEN was at $14.00 the put would be $1.00, the difference between $14 and the $15 strike. The call would probably be somewhere in the $1.50 range. If you tried to close the entire play because it is not going in your direction it would look like this. Cost of entering: Stock $16.43 + $1.00 difference in call/put or $17.43 total per share. Value at exit: Stock $14, Put $1.00, Call $1.50. Closing the position completely would generate $13.50 in cash for a $3.93 maximum loss. $14 + $1.00 = $15 - $1.50 for call buyback. That is the maximum loss you could suffer. The loss does not get any worse regardless of the stock price. Assume CIEN at $5. Put = $10 Stock = $5 Call = (.25) Total = $14.75 cash out for $2.68 loss I apologize for the error and hope this explains how the trades would really work. I am going to answer some of the reader questions that I received from this article as well. ************ Dear Jim, I found your strategy Maximum Potential, Minimum Risk very tempting. But have one question. Say on the example of Cien: Buy 1000 Cien $16.43 buy Apr -2002 $15 Put EUQ-PC $3.70 sell Jan -2004 $40 Call LGE-AH $2.70, Say the stock price moves up buy Apr -2002 to $20 -$30 or $40, How can I calculate the price for the Jan -2004 $40 Call for Apr. -2002? (I have tried various Option - Pricing models without success) Is there a rule of thumb? Looking at the money option price with the same time span (Apr.2002 - Jan -2004 = 15 month) does not work, since there are no prices for 2003. Do you have to hold until the stock price reaches the strike price? An answer would be very much appreciated. I am a subscriber to OIN. Carl in Ireland. Answer: Carl, I do not know of anyway to accurately price an option six months in the future. If you attempt to close the play at the end of April 2002 you will lose profit. You would need to hold the position until expiration of the LEAP call to maximize your profit. It is possible to get an early exercise of the LEAP but you cannot count on it. We are selling the call to offset the price of the put and our total profit is the difference between the current $16.43 and the $40 strike price of the call. We want to be called out in this example. Using a $40 strike and assuming the stock is at $45 we would make $23.57 profit on the stock minus the $1.00 difference in the price on the put/call. The only time you would be concerned about the price of the leap call is if you wanted to buy the call option back on the hopes that the stock would go higher. You would be better off just being called away and buying more stock at the $40 level. Otherwise you would have to pay a time premium on the call to get it back and that would impact your profits. You can be content with the $23.57 profit and don't worry about the call price if you wait until the call expires. If you were fortunate enough to have the stock accelerate rapidly to say $50 or more in just a couple months then the time value of the call leap would decrease significantly and make it easier to get out early with as much rofit as possible. I checked several stocks in the $50+ range and their $40 2004 call leaps had about $6 in time premium. If CIEN was trading in the $50+ range by April-2002 I would gladly close the play for the $23.57 profit minus a $6 time premium and use the money to buy something else. Once the stock price has gone substantially over the strike price your investment is dead money since your total returns are capped at the $23.57 level and the time clock of lost opportunity is running. We should all be so lucky as to have everyone of our covered calls closed for a 100% profit before they expire. Jim ************** Dear Jim, I've been a subscriber to Option Investor for some time now. I have learned much of what I understand about technical analysis and its application from you, and am very grateful for your teachings. I don't ask questions often, but have one for you now that I hope you can find the time to answer for me. It is important, at least for me. I understand the strategy you've explained to us, purchasing a stock, selling a leap against it and purchasing a shorter term put(say April for example), to provide a very good risk/reward scenario. As usual from you, very smart and informative. The only concern I have is that if the stock goes up say 75% from your put strike price to your leap strike price and you wish to close the position to get into something else will your gains in the stock be lost by the gains in the leap and loss on the puts when you close those positions resulting pretty much in a wash? Or for example also, if the stock goes above your leap strike price by April can you expect to be called out immediately and realize your gains at that point in time? Or in this case would the leap you sold continue to exist holding your funds committed to the stock and only able to move on by closing the leap by buying it back and selling the stock, again for a wash on the whole deal. I understand that if the leap is exercised by calling the stock out from me I would realize my gain on the play(Great!). But if it's not, than are my funds committed to the term of the leap with no way for me to close the positions without buying back the leap and therefore losing a fair portion of the stocks gain? Obviously I have not had much experience in trading leaps, though I have used similar strategy with much shorter term stock and option plays usually only selling a call out about 2 or 3 months. I'm hoping you can shed some light on what I can expect under these kind of circumstances using leaps. Again thank you Jim for your wonderful teachings, you are the best, Richard A. Answer: Richard, as you can see from the prior answer this was a real source of concern from many readers. I probably got two dozen questions like this. You put it so eloquently I thought I would show your question as well. (it did not hurt that you said good things about us either!) I agree that once the stock is in the middle of the range, say $30 on CIEN, that buying back the call to close the play could rob you of a major portion of your profits. That time premium is at the highest when the stock nears the strike price. Still there would be profit in the CIEN scenario. I looked up a couple stocks in the $30 range today (AXP, STM) and priced their $40 leaps which were $4.40 and $6.40 respectively. Using the average of $5.40 as the buyback price with CIEN at $30 then your profit would look like this. Stock $16.43 to $30.00 = $13.57 profit Cost of call buyback = $5.40 Cost of protective put = $1.00 Total profit = $13.57 - $6.40 = $7.57 or a 43% return on the trade. If this happened in 4-6 months we would all be glad to do this twice a year from now on! Obviously not as exciting as the $22.57 target when we entered the trade but then it did not take two plus years. If it was possible to make 43% twice a year then your two year return would look something like 170%. Whereas holding the origional trade two years to make 129% suddenly looks anemic. A famous (infamous) writer once said "sell too soon". How you manage your investments is a personal decision but I would constantly monitor the progress of the underlying stock and should the upward trend fail I would not hesitate to take a profit and pick another trade. Hope this helped. Jim ********* **************** MARKET SENTIMENT **************** Indecision By Eric Utley The market's sentiment is currently easy to gauge. The difficulty lies in determining what's next. Indeed, there are a lot of mixed signals out there, and some are downright confusing. Wedges, triangles, consolidations. Call it what you will, I saw a lot of apprehension late last week, despite what the averages did. Take for instance the recent price action of Beam (NYSE:IBM). It's been tightening. A cool guy I know pointed out the price action in Zions Bank (NASDAQ:ZION) last week. Another current Option Investor call play, its price has been tightening, too. Point & Figure users shouldn't have any trouble finding triangles. I found a whole bunch late Friday night. Take a look at RF Micro (NASDAQ:RFMD). This weekend's COT report reveals anything but conviction. Just take a look at the numbers in the S&P. Bullish percent data is still conflicting. The NDX is bear confirmed, INDU bull confirmed, and the others on bull alert. Anybody see the move in the Gold Sector Index (XAU.X)? How about that reversal in bonds? See the 10-year (TNX.X) yield last Thursday and again Friday? Under what economic conditions would gold be bought and bonds sold? INFLATION! What generally causes inflation? Economic growth. What's good for stocks? Economic growth. Why, then, was energy whacked Friday? Doesn't economic growth spur demand for oil? Why would Retail (RLX.X) lead a rally, following the release of the worst employment report in 20 years? If you have the answer, let me know. Look, I know that stocks generally lead by 6 to 9 months. But some things just don't make sense right now. Forget about it. "Trade what you observe," I'm frequently told. I'll be doing that next week, waiting for the break. I think it's going to be big. ----------------------------------------------------------------- Market Volatility VIX 32.40 VXN 61.19 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.70 478,895 336,379 Equity Only 0.57 434,188 247,691 OEX 1.26 6,861 8,674 QQQ 1.06 33,635 35,719 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 29 + 1 Bull Alert NASDAQ-100 53 + 0 Bear Confirmed DOW 50 + 0 Bull Confirmed S&P 500 44 + 1 Bull Alert S&P 100 43 + 1 Bull Alert Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.49 10-Day Arms Index 1.20 21-Day Arms Index 1.13 55-Day Arms Index 1.18 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when the do, they can signal significant market turning points. ----------------------------------------------------------------- Advancers Decliners NYSE 1569 1509 NASDAQ 1622 1922 New Highs New Lows NYSE 83 51 NASDAQ 45 55 Volume (in millions) NYSE 1,118 NASDAQ 1,627 ----------------------------------------------------------------- Commitments Of Traders Report: 10/30/01 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercial traders, for the most part, maintained their most bullish posture of the year last week. % of OI was virtually unchanged. Open interest among small traders was a little more volatile last week, but didn't reveal any conviction either way. Commercials Long Short Net % Of OI 10/16/01 378,866 415,289 (36,423) (4.5%) 10/23/01 377,177 413,658 (36,481) (4.6%) 10/30/01 377,468 413,729 (36,261) (4.6%) Most bearish reading of the year: (111,956) - 3/6/01 Most bullish reading of the year: ( 36,481) - 10/16/01 Small Traders Long Short Net % of OI 10/16/01 124,568 73,779 50,789 25.4% 10/23/01 127,016 71,212 55,804 28.2% 10/30/01 123,546 71,225 52,321 26.9% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 Commercial traders significantly added to short positions last week by more than 3,000 contracts net. Small traders went the other way, adding to longs and shedding a few shorts. Commercials Long Short Net % of OI 10/16/01 27,398 40,397 (12,999) (19.2%) 10/23/01 29,920 40,358 (10,438) (14.9%) 10/30/01 32,055 45,574 (13,519) (17.4%) Most bearish reading of the year: (15,521) - 3/13/01 Most bullish reading of the year: (1,825) - 1/02/01 Small Traders Long Short Net % of OI 10/16/01 12,901 6,893 6,008 30.5% 10/23/01 11,567 6,934 4,633 25.0% 10/30/01 12,725 6,475 6,250 32.5% Most bearish reading of the year: (1,028) - 1/02/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Commercial interests grew slightly less bullish last week as measured by the drop in % of OI. It's worth noting that that trend has been in place for the past few weeks. Small traders, meanwhile, went back to more of a bearish stance from the week ago period, albeit a modest change. Commercials Long Short Net % of OI 10/16/01 25,402 10,267 15,135 42.5% 10/23/01 25,568 11,832 13,736 36.7% 10/30/01 25,872 12,556 13,316 34.7% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 10/16/01 4,514 12,104 (7,590) (45.7%) 10/23/01 4,902 11,900 (6,998) (41.6%) 10/30/01 4,261 11,220 (6,959) (45.0%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************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 ************************************************************** *************** ASK THE ANALYST *************** It's About Ambition By Eric Utley Lover out off the streets Gonna go where the bright Lights and big city meet With a red guitar on fire Desire, Desire As much as I hate to admit, last weekend was a bad one on the river. It's unthinkable, I know. But, for reasons unknown to me, I could NOT hook a damn fish. It's not like they weren't hitting my fly. The fish were and therein lied the problem. It's amazing how much psychology is involved in my fly fishing. I take it far too seriously. For instance, last weekend, after missing...oh...about a dozen fish, I entered my little zone of concentration during the final hour on the river. My aim in entering that frame of mind is to focus on nothing but the moment; the instant a fish hits my fly. But, there are a few problems with my little zone, such as focusing to the point of paralysis. There were several instances last weekend when a fish hit my fly and I didn't even flinch, let alone attempt to set the hook. I couldn't move. Then, I tried anticipating when a fish would hit my fly, you know?, ahead of time. It was quite a spectacle. I was randomly jerking my rod through the air, aimlessly trying to catch the...water? This, from a seasoned fly fisherman? A pro? Meanwhile, some [expletive deleted] was about 25 yards up the stream, witnessing my little world of frustration. He had no problem hooking fish, and less of a problem announcing his victories to the rest of the river, myself included. The nerve. "Poor show," I thought to myself. After purposely losing count of how many fish I missed, I intentionally snagged my line on the opposing bank, broke off my fly, hurled my fly rod through the air and onto the near bank, did the same with my sunglasses, splashed the water, hoping to scare fish away from the guy up-stream, and cursed the sport as I exited the river. "Poor show," I thought to myself. Bailey, who unfortunately accompanied me on the trip, was laughing atop the far side of the bank. I failed to see the humor in the situation. I suppose my strong desire to succeed drives me to act foolishly at times, whether that achievement comes from fly fishing or trading. It's my hope that you never witness me miss a trade: "Uhh, I think the 'Q,' 'W,' 'Ctrl,' keys and the space bar landed by your feet...Sorry." Please send your questions and suggestions to: Contact Support ---------------------------- Insurance Sector (IUX.X) Update A lot of questions about the IUX last week, and rightfully so. After giving the sell signal at 700, and completing the bearish triangle, the IUX traded as low as 678 last week. That move was good for a one or two day trade, but the following rebound later in the week might have some questioning conviction levels. Of course, if you're holding a straddle/strangle on the IUX through one of its components, then last week's volatility shouldn't have been a cause for concern. Those holding straight bearish positions should pay close attention to the 725 to 730 area next week. If the IUX continues higher, the aforementioned resistance area is of utmost importance. A trade past 730 would generate a new buy signal and negate the bearish triangle. But, what about?: A Purdue University study by Professor Earl Davis found that on average, the "bullish triangle" was profitable 71.4% of the time with an average gain of 30.9% in a 5.4 month time frame. The "bearish triangle" was profitable 87.5% of the time, with an average gain of 33.3% in a 2.5 month time frame. The bearish triangle is one of the higher probability and more profitable of point & figure formations, make no mistake about that! But, there are times (12.5% of the time) when the pattern fails. However, if you can find a 87.5% probable trade, take it every time! That's why I highlighted this set-up last week and it's why I'll highlight bearish triangles in the future. If you can make money 87.5% of the time, the other 12.5% of the time is a matter of risk management. Getting back to the IUX, I was encouraged Wednesday to see the IUX give up quite a bit of relative strength versus the S&P 500 (SPX.X), but that one day dynamic reversed Thursday and Friday, when the IUX tracked the market pretty closely. It's also important to recognize that the IUX set another lower relative low last Thursday. It remains to be seen if it sets another lower relative high. A rollover somewhere between 715 and 720 would make a lot of sense and mark that relatively lower high. ---------------------------- Comcast - (NASDAQ:CMCSK) I enjoy this column quite a bit. Thanks for all your teachings. I have been following Comcast and have noticed that it appears to be forming a head and shoulders pattern as well as a possible island reversal on the daily charts. The stock has also been bouncing off of the $35.00 level. Is this a good long term 3 to 6 months play? I would like to purchase options within the same time frame. - Thanks, Angel Thank you, Angel. I see the reversal day on September 21 down around $32 and the potential for a head-and-shoulders bottom in Comcast. But, I have two problems with a bullish thesis here in CMCSK: The stock is trading poorly relative to the Nasdaq-100 (NDX.X) and It's been in a descending trend since May. A quick glance at CMCSK's Point & Figure chart reinforces its trend - the stock hasn't given a buy signal since early April. But, the reversal day and potential for a head-and-shoulders bottom - a pattern indicative of higher prices - beg the question: Is Comcast's outlook improving? For the bullish thesis to grow stronger, CMCSK needs to gain some strength relative to the Nasdaq-100 and break above its descending trend line. The 60-minute chart below reveals the stock's shorter-term descending trend. I had a hard time finding the neckline of CMCSK's potential head-and-shoulders. I would most like to place it at the $38 level because of the observation in early October. But, I could also see the neckline at $39.50. The shoulders sit right around the $35 level. And the volume around the formation of the shoulders and head at $32 give the pattern all the more credence. Using the $38 level as the neckline, the bullish price objective of the pattern is $44. I think it would take CMCSK about 3 months to reach that objective, assuming it breaks out of the pattern. ---------------------------- Krispy Kreme (NYSE:KKD) I wanted your opinion on KKD - Krispy Kreme Donuts. Their daily stochastics look like they are beginning to turn up. Also their earnings are scheduled for Nov. 16th and they have a history of beating the estimates and raising guidance. I thought they might have an earnings run. What do you think? - Chris Thanks for the question, Chris. I'm cruising to a warm place over the holidays and will be sporting a Speedo, much to the chagrin of my friends, so I haven't been consuming many of Krispy's doughnuts lately. The stock's been on sale for about the past two weeks. While still one of the stronger stocks in the market, it hasn't been performing well recently. The lows are getting lower. The Daily Stochastics crossed over last week, but I'd like to see the stock break above its recent descending trend line before buying the crossover in the oscillator. Or, a working off of the current oversold condition followed by a relatively higher crossover in Daily Stochastics, similar to how the oscillator traded in early August. KKD has some support around the $34 level. But below that, there isn't any to speak of until $32. I don't have any insight into the company's earnings report, but will point out that the stock is still a short sellers favorite. The most recent short interest data reveals about 25 percent of the float has been sold short. That's just trouble waiting to happen and could lend a bid to the stock on any pullback. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* ============================================================== Economic Reports As we start to wrap up the major earnings announcement for the 3Q investors will still be looking for guidance going forward but the Fed meeting on Thursday and the PPI report on Friday will be the major economic events/reports to watch. There is a strong expectation that Alan Greenspan and the FOMC will cut rates again. The question is by how much? ============================================================== Monday, 11/05/01 NAPM Services Oct Forecast: 47.0% Previous: 50.2% Tuesday, 11/06/01 FOMC Meeting Wednesday, 11/07/01 Productivity-Prel Q3 Forecast: -1.2% Previous: 2.1% Wholesale Inventories Sep Forecast: -0.3% Previous: -0.1% Consumer Credit Sep Forecast: $0.5B Previous: $2.3B Thursday, 11/08/01 Initial Claims 11/03 Forecast: N/A Previous: 499K Export Prices ex-ag. Oct Forecast: N/A Previous: 0.2% Import Prices ex-oil. Jul Forecast: N/A Previous: 0.0% FOMC 10/02 Friday, 11/09/01 PPI Oct Forecast: -0.3% Previous: 0.4% Core PPI Oct Forecast: -0.1% Previous: 0.3% Mich Sentiment-Prel. Nov Forecast: 80.5 Previous: 82.7 ************************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. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 11-04-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/164_2.asp ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES * EASY screens for covered calls, spreads, and straddles * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* AMAT - Applied Materials $37.97 (+1.10 last week) See details in sector list Put Play of the Day: ******************** DYN - Dynergy $33.45 (-5.00 last week) See details in sector list ************************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 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ CSCO $17.26 (-0.03) CSCO reports after the bell Monday and may see a late run ahead of its numbers. The $18 area continues to allude the stock, so a break above there Monday may carry the stock higher into its report. Look for any such strength to exit positions. IMNX $23.35 (-2.16) We're starting to see some weakness in the Biotech sector (BTK.X), as it struggles to hold above the $550 level and that weakness can be clearly seen in shares of IMNX. The stock appears to be rolling over at a lower high and we have the potential of a head-and-shoulders top developing. Despite the fact that it is still over our $22 stop and the 20-dma, the weakness throughout last week has us taking the cautious approach and dropping the play this weekend. Use any strength next week to exit open plays. JNJ $58.98 (+0.31) After breaking above the triple top at $57 nearly 3 weeks ago, shares of JNJ have been struggling to extend their gains. Unfortunately, the bulls haven't been able to make any progress, as the stock has stagnated between the $57-59 price levels. While the stock could still move higher, we have lost patience and rather than wait for our stop to be triggered, we'll move JNJ off the playlist this weekend and focus our efforts on stronger plays. Use any bullish moves on Monday as an opportunity to exit open positions at a better price. PUTS ^^^^ THQI $55.57 (+3.25) THQI soared higher last Friday on heavy volume. The stock not only violated our stop level at $53.75, but also broke above the upper-end of its descending channel and recent relative highs around $55. Traders with remaining open positions should look for any weakness early next week to exit plays. HD $40.32 (+0.03) A week of ugly economic reports has increased investor hopes of a larger rate cut from the Fed when it meets next week, and shares of HD defied logic on Friday. Rising 5% on heavy volume is not the kind of action we like to see in our put plays. But the real clincher is that the stock closed solidly above our stop and the $40 resistance level. Fortunately we never got a decent entry into the play, so we'll drop it this weekend and look for higher-odds plays. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** SIAL - Sigma-Aldrich $39.41 (+2.06 last week) Sigma-Aldrich develops, manufactures, and distributes a broad range of biochemicals, organic chemicals, chromatography products and diagnostic reagents. These chemical products and kits are used in scientific and genomic research, biotechnology, pharmaceutical development, the chemical industry, and for the diagnosis of disease. The Chemical Sector Index (CEX.X) broke out above a long standing resistance line last week, as well as a short-term resistance level. After its intraday advance past the 404 level, the CEX could be poised to work higher over the short-term. We concede that the Chemical sector is not the sexiest, but we're into making money and think there could be some of that to be done in the CEX over the next few weeks. For its part, the CEX could face some resistance around its 200-dma at the 410 level, but beyond that doesn't have much congestion until 420. SIAL - a component of the CEX - has been on the mend in a big way over the past week. The stock has a strong ascending trend working in its favor and should be carried higher if the CEX follows through next week. The stock closed on its high for the day last Friday, but has some slight resistance just overhead at its 10-dma at $39.82. An advance past that level, however, confirmed by a breakout above $40, could indicate higher prices and be used for an entry point. The stock has some support around the $38.75 level, and again at $38. Any market weakness could drag the CEX lower and SIAL along with it. A bounce from either of the aforementioned levels, in the event of market weakness, could be used as an entry point. Our stop is initially in place at $37.50. ***November contracts expire in two weeks*** BUY CALL NOV-40 IAQ-KH OI=202 at $0.95 SL=0.50 BUY CALL DEC-40*IAQ-LH OI= 52 at $1.85 SL=1.00 BUY CALL DEC-45 IAQ-LI OI= 30 at $0.45 SL=0.00 BUY CALL JAN-40 IAQ-AH OI=124 at $2.15 SL=1.25 BUY CALL JAN-45 IAQ-AI OI=197 at $0.65 SL=0.25 Average Daily Volume = 516 K AMAT - Applied Materials $37.97 (+1.10 last week) Applied Materials develops, manufactures, markets and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Many of AMAT's products are single-wafer systems designed with two or more process chambers attached to a base platform. The platform feeds a wafer to each chamber, allowing the simultaneous processing of several wafers to enable high manufacturing productivity and precise control of the process. These platforms support chemical vapor deposition, physical vapor deposition, etch and rapid thermal processing technologies. There is no arguing that Semiconductor stocks have been incredibly strong over the past month as investors jockey for position to profit from the economic recovery when it occurs. Following conventional wisdom that Chip Equipment stocks should benefit first, shares of AMAT have been on a steady rise since October 3rd. The ascending trendline (currently $34) has provided support several times over the past month and should continue to do so. All of the shorter-term moving averages have turned up with the exception of the 50-dma ($35.77). And AMAT rallied solidly through that level on Thursday before continuing to rise on Friday. The stock is now at a critical level of resistance at $38. Breaking out above that level should see the stock challenge resistance at $40 and possibly $42 in short order. So momentum traders will want to target a solid breakout above $38 for new positions, with an eye towards harvesting some profits at the levels listed above. Dip-buyers will want to focus on the ascending trendline, as short-term dips near that level should also provide attractive entries into the play. We are initially placing our stop at $33.50. Earnings are scheduled for November 14th, so anticipation of that event could provide an additional bullish catalyst over the next 2 weeks. ***November contracts expire in two weeks*** BUY CALL NOV-35 ANQ-KG OI=11469 at $4.10 SL=2.50 BUY CALL NOV-37*ANQ-KU OI= 7151 at $2.40 SL=1.25 BUY CALL NOV-40 ANQ-KH OI=12694 at $1.25 SL=0.50 BUY CALL DEC-37 ANQ-LH OI= 1378 at $4.20 SL=2.50 BUY CALL DEC-40 ANQ-LI OI= 2926 at $2.90 SL=1.50 Average Daily Volume = 16.5 mln BAC - Bank of America Corp. $60.87 (+0.22 last week) Providing a diversified range of banking and certain non-banking financial products and services, BAC's operations consist of Consumer Banking, Commercial Banking, Global Corporate and Investment Banking, and Principal Investing and Asset Management. Consumer Banking targets individuals and small businesses, while Commercial Banking targets businesses with annual revenues up to $500 million. Global Corporate and Investment Banking provides investment banking, trade finance, treasury management, leasing and financial advisory services. Principal Investing includes direct equity investments in businesses and general partnership funds, while the Asset Management businesses are split into three branches; Private Bank, Banc of America Capital Management and Banc of America Investment Services. While Bank stocks as a sector (BKX.X) have been struggling to build some kind of upward trend, shares of BAC are actually accomplishing it. After a brief dip to the $50 level in September, we can see a solid pattern of higher lows and the stock is just about to break above the $61 resistance level. While there is more resistance arrayed overhead at $62, $63.50 and then $65, it looks like BAC is intent on challenging those levels over the next couple weeks. The ascending trendline is currently resting at $59, and is backed up by intraday support at $58.50 and the 50-dma at $58.34. Target new entries on a dip near the $58.50-59.00 level or wait for a breakout above the $61 level before taking on new positions. Initial stops are in place at $58. ***November contracts expire in two weeks*** BUY CALL NOV-60*BAC-KL OI=33447 at $2.40 SL=1.25 BUY CALL NOV-65 BAC-KM OI=19723 at $0.40 SL=0.00 BUY CALL DEC-60 BAC-LL OI= 3088 at $3.90 SL=2.50 BUY CALL DEC-65 BAC-LM OI= 4798 at $1.45 SL=0.75 Average Daily Volume = 6.31 mln ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 11-04-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/164_3.asp ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES * EASY screens for covered calls, spreads, and straddles * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ****************** CURRENT CALL PLAYS ****************** ZION - Zions Bancorp $48.04 (-0.41 last week) Zions Bancorporation is a financial holding company that owns and operates six commercial banks with a total of 374 offices. The company provides a full range of banking and related services through its banking and other subsidiaries, primarily in Utah, Idaho, California, Nevada, Arizona, Colorado, and Washington. The tightening of ZION's trading range is amazing. The stock is coiling tighter with each day on decreasing volume too. We can only speculate that ZION is going to make a big breakout soon. Noting its recent and strong trend, we'd speculate that the stock is going to breakout to the upside, potentially ahead of the Fed's meeting next week. The best way to watch for a breakout is continue monitoring ZION's sector in the Bank Sector Index (BKX.X). If we see strength in the broader market (SPX.X) and the BKX.X early next week, then we have a green light to enter call plays in ZION on a breakout above the $48.75 level. From there, the stock could head to the $52 area with little effort so long as the BKX.X and SPX.X advance. The tight trading range also allows for relatively easier risk management because traders can set tight stops in order to protect against a breakdown from current levels. Therefore, entries at current levels can be approached, ahead of any potential breakout, with tight stops just below the trading range; for example, a stop at $47.25 would protect against a breakdown. This play is pretty straightforward: Watch for an advancing market and sector, then enter on a breakout. ***November contracts expire in two weeks*** BUY CALL NOV-45*ZNQ-KI OI=222 at $3.60 SL=2.75 BUY CALL NOV-50 ZNQ-KJ OI=450 at $0.70 SL=0.25 BUY CALL DEC-45 ZNQ-LI OI= 60 at $4.50 SL=3.50 BUY CALL DEC-50 ZNQ-LJ OI=453 at $1.75 SL=1.00 Average Daily Volume = 602 K SPW - SPX Corp. $103.65 (-0.43 last week) SPX Corp is a global provider of technical products and systems, industrial products and services, service solutions and vehicle components Its products include storage area network, fire detection and building life-safety products, television and radio broadcast antennas and towers, transformers, substations and industrial mixers and valves. SPW showed impressive relative strength last week and closed strongly going into the weekend. The stock's back-to-back days of solid gains late last week reinforced that fact. It closed just off of its day highs Friday, which bodes well going into next week's trading. But, don't let emotions cloud objectivity. If you entered on the dip down around the $98 to $99 area and were looking for a rally back to relative highs, don't be afraid to take a little off the table. That's not to say that SPW won't work higher, because the stock looks strong. But booking partial gains might not be a bad idea after a $4 move in the underlying. Moving forward, a breakout above relative highs at $104.50 could see SPW moving up towards the $107.50 area - its next site of resistance after the relative highs. The $107 to $108 area should prove to be a significant resistance area for SPW, so consider raising stops on open positions or booking partial gains if the stock does reach that area next week. Also, traders looking for a breakout above $104.50 should make sure to confirm an advancing market before entering such a trade. SPW has followed the Dow and S&P pretty closely, so traders will want to see that dynamic continue next week. But a breakout above $104.50 should target the $107 to $108 area over the short-term, so consider the risks in doing so. Maybe a pullback before a breakout attempt would offer a better entry opportunity than any potential breakout itself. ***November contracts expire in two weeks*** BUY CALL NOV-100 SPW-KT OI= 42 at $6.60 SL=5.00 BUY CALL NOV-105*SPW-KA OI= 17 at $3.90 SL=2.50 BUY CALL NOV-110 SPW-KB OI=253 at $2.00 SL=1.50 BUY CALL DEC-105 SPW-LA OI=454 at $7.50 SL=6.25 BUY CALL DEC-110 SPW-LB OI=425 at $5.00 SL=4.00 Average Daily Volume = 410 K SUNW - Sun Microsystems $11.44 (+1.04 last week) Sun Microsystems is a worldwide provider of products, services, and support solutions for building and maintaining network computing environments. Sun sells scalable computer and storage systems, high-speed microprocessors, and a comprehensive line of high-performance software for operating network computing equipment. Good day in SUNW last Friday! We were encouraged by its out performance to the upside, noting the fractional gain in the Nasdaq-100 (NDX.X) and fractional loss over on the Composite (COMPX). Should the Nasdaq continue higher next week, we'll probably see SUNW continue to out perform to the upside. The next level of resistance is located at the $12 level, which may be a site to book some very short-term gains for those who entered down around $11 last Friday. The $12 level is the site of SUNW's gap lower from late August. It may serve as a natural point of reaction after the stock's recent strength. But that much may also depend on the broader tech sector. The Hardware Sector Index (GHA.X), of which SUNW is a component, has some resistance around the 229 level. If the GHA breaks out above its resistance level next week, then SUNW should be able to clear $12. It may also be worth while to monitor IBM when trading SUNW. Also a component of the GHA, a breakout in IBM above its resistance at $110 could also help to lift SUNW. On any market weakness, dip buyers might now turn to the $10.75 level as a potential support area and possible bounce point. ***November contracts expire in two weeks*** BUY CALL NOV-10*SUQ-KB OI=55068 at $1.65 SL=1.00 BUY CALL NOV-12 SUQ-KV OI=29596 at $0.35 SL=0.00 BUY CALL DEC-10 SUQ-LB OI=43025 at $2.20 SL=1.50 BUY CALL DEC-12 SUQ-LV OI=19236 at $0.90 SL=0.50 BUY CALL JAN-12 SUQ-AV OI=40935 at $1.25 SL=0.75 Average Daily Volume = 46.9 mln BRCM - Broadcom Corporation $37.85 (+0.80 last week) Sitting in the sweet spot between the Broadband and Semiconductor sectors, BRCM is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using proprietary technologies, the company designs, develops and supplies integrated circuits for several markets including digital cable set top boxes, cable modems, high-speed office networks, home networking, and digital subscriber lines. It may look like BRCM didn't go anyplace this week, but those of us that watched it closely were presented with a nearly perfect entry point on Tuesday/Wednesday. Profit taking drove the stock down to bounce right on its ascending trendline, very near the 10-dma (currently $35.04) before the buyers appeared, helping to propel BRCM back up to end the week with a fractional gain. BRCM is once again nearing resistance near $39 and could easily see a breakout that takes it through $40 to make a run at the $45 level. The key will be the broader Semiconductor sector (SOX.X) which is currently testing descending trendline resistance at $491. Target fresh positions in BRCM on a dip back to the trendline (currently ), so long as the SOX doesn't violate its ascending trendline (now at $450). Alternatively, use a SOX rally over $492 to initiate new positions in BRCM as the stock pushes above $39. Keep stops in place at $34. ***November contracts expire in two weeks*** BUY CALL NOV-35 RCQ-KG OI=6005 at $4.70 SL=2.75 BUY CALL NOV-40*RCQ-KH OI=6049 at $2.05 SL=1.00 BUY CALL DEC-35 RCQ-LG OI= 677 at $6.80 SL=4.75 BUY CALL DEC-40 RCQ-LH OI=1687 at $4.40 SL=2.75 BUY CALL DEC-45 RCQ-LI OI=1402 at $2.65 SL=1.25 Average Daily Volume = 12.1 mln IBM - Int'l Business Machines $109.50 (-1.66 last week) International Business Machines uses advanced information technology to provide customer solutions. The company provides value to its customers through a variety of solutions including technologies, systems, products, services, software and financing. IBM's three hardware product segments are comprised of Technology, Personal Systems and Enterprise Systems. Other major operations consist of a Global Services segment, a Software segment, a Global Financing segment and an Enterprise Investments segment. Still waiting. IBM made it onto the call list in anticipation that its impressive relative strength would enable it to outperform over the near term, but only if the DJIA could stage a rebound from the 9000 level or breakout over the $110 level. Well, we got the rebound from 9000, but IBM is still stuck in the range of $107-110. So the action plan remains the same for next week; target a dip to 9000 on the DJIA, with IBM finding strong buying volume above the $107 level. That is the aggressive approach. The safer entry will likely come from IBM leading the DJIA above the 9500 level by breaking out above $110 and moving back into the $111-120 range from earlier in the year. Volume has been waning over the past week, so if you're going to target a breakout, make sure it is occurring on strong volume. Our stop remains at $107. ***November contracts expire in two weeks*** BUY CALL NOV-105 IBM-KA OI=15553 at $6.00 SL=4.00 BUY CALL NOV-110*IBM-KB OI=21849 at $2.60 SL=1.25 BUY CALL NOV-115 IBM-KC OI=14991 at $0.90 SL=0.50 BUY CALL DEC-110 IBM-LB OI= 7539 at $5.50 SL=3.50 BUY CALL DEC-115 IBM-LC OI= 4245 at $3.20 SL=1.50 Average Daily Volume = 8.56 mln NVDA - NVIDIA Corporation $47.17 (+1.38 last week) NVIDIA Corporation designs, develops and markets 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user. Used in a wide variety of application including games, the Internet and industrial design, the company's products were the first to incorporate a 128-bit multi-texturing graphics architecture. This design approach delivers to users a highly immersive, interactive 3D experience with compelling visual quality and stunning effects at real-time frame rates. NVDA sells its products to major PC manufacturers such as Compaq, Dell, Gateway, Hewlett-Packard and IBM. Quite possibly one of the best performing stocks of the year, NVDA continues to attract investor attention due to its impressive relative strength. While a 100% rise since the September lows is impressive, it looks even better when you consider the stock is up more than 200% since the beginning of the year. Not only that, but the company has continued to grow revenues and earnings throughout the year. An impressive feat in such a depressing economic climate. On Thursday, the company could be set to wow the street again, as it is set to release its most recent quarterly results after the closing bell. After once again finding support at the 20-dma (now $42.24) last Tuesday, shares of NVDA have been marching north again. This brings the bulls within striking distance of the $49-50 resistance level, and above there lie new all-time highs. Target another intraday dip to intraday support at $44 or the 20-dma for fresh entries, but wait for the bounce before taking the plunge. Alternatively, wait for NVDA to power through the $50 level on strong volume before playing. Either way, keep stops in place at $41.50 and remember that the play will end on Thursday, as we don't want to hold over the announcement. ***November contracts expire in two weeks*** BUY CALL NOV-45*RVU-KI OI=7554 at $4.70 SL=2.75 BUY CALL NOV-50 RVU-KJ OI=4818 at $2.05 SL=1.00 BUY CALL DEC-47 RVU-LW OI= 859 at $6.00 SL=4.00 BUY CALL DEC-50 RVU-LJ OI=2253 at $4.80 SL=3.00 BUY CALL DEC-52 RVU-LT OI= 695 at $4.00 SL=2.50 Average Daily Volume = 7.32 mln ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 11-04-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/164_4.asp ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES * EASY screens for covered calls, spreads, and straddles * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************* NEW PUT PLAYS ************* DYN - Dynergy $33.45 (-5.00 last week) Dynergy is a provider of energy and communications solutions to customers in North America, the United Kingdom and Continental Europe. The company's expertise extends across the entire convergence value chain, from broadband, power generation and wholesale and direct commercial and industrial marketing and trading of power, natural gas, coal, emission allowances, and weather derivatives to transportation, gathering and processing of natural gas liquids. The utility companies, especially those engaged in the "trading of power," haven't been receiving much love lately. Maybe a once big company by the name of Enron has something to do with that? The recent Enron scandal has caused a loss of confidence in companies that trade power. While analysts have tried recently to defend Enron's competitors, such as Dynergy, the market has echoed a different sentiment, namely a loss in confidence. As Enron sinks further into the mire of its own making, others in the group could be pressured lower. DYN looks as if it's going to retest its recent relative lows around the $30 level. Despite the strength in the broader market last week, DYN continued along its descending trend, which has been in place for the last two weeks. The stock fell to a relative low last Friday, closing near the low for the week. There's not much support to speak of below current levels, with an unfilled gap still remaining at the $31.25 level. Further weakness could be seen early next week to at least the site of that gap, if not down to relative lows near $30. Below $30, DYN doesn't have historical support until the $20 area. While quite a distance away from current levels, we see the potential for DYN to trade down to that level if its current trend persists. Weakness from current levels could be used to take new entries early next week. Rollovers near $35 could be used to target shoot put plays if the stock rebounds. Our stops is initially in place at $37. ***November contracts expire in two weeks*** BUY PUT NOV-35*DYN-WG OI=4490 at $3.20 SL=2.50 BUY PUT NOV-30 DYN-WF OI= 624 at $0.95 SL=0.50 Average Daily Volume = 1.95 mln AHC - Amerada Hess $58.36 (-5.51 last week) Amerada Hess explores for, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place in the United States, United Kingdom, Norway, Denmark, Gabon, Algeria, Azerbaijan, Indonesia, Thailand, Malaysia, Brazil and other countries. The oil sector headed lower late last week on falling energy prices. That trend could continue if demand doesn't return to the sector. Amerada is one of the weaker stocks in the group; the stock fell to a new 52-week low last Friday. The stock doesn't have much historical support immediately below current levels. We're targeting the $55 level to the downside over the short-term. Bearish energy traders can look for a breakdown below the $58 level early next week for an entry point into downside momentum. That should leave a solid $3 to the $55 for any position put on at that level. A trade put on at $58 might consider a stop at $60, giving the trader a more favorable potential reward than risk. Although, our coverage stop is initially in place at $61. If the Oil Index (OIX.X) does rebound early next week, look for AHC to rollover near the $60 level. A rollover at that price would provide a favorable entry on strength. ***November contracts expire in two weeks*** BUY PUT NOV-60*AHC-WL OI=631 at $2.85 SL=1.75 BUY PUT NOV-55 SPC-WI OI=341 at $0.60 SL=0.25 Average Daily Volume = 651 K CVTX - CV Therapeutics $36.46 (-8.15 last week) CVTX is a biopharmaceutical company engaged in the discovery and development of new small-molecule drugs to treat cardiovascular disease. The company is conducting clinical trials for three of its drug candidates. Ranolazine, the first in a new class of compounds known as partial fatty acid oxidation inhibitors, is in Phase III trials for the potential treatment of chronic angina. CVT-510, is in Phase II clinical trials for the potential treatment of atrial arrhythmias. CVT-3146 is in Phase I trials for the potential use as an adjunctive pharmacologic agent in cardiac perfusion imaging studies. So much for the "rising tide lifts all boats" theory. Despite the fact that the Biotech sector has led the recent NASDAQ strength, shares of CVTX have continued to languish in a persistent downtrend. The trendline currently rests at $48 and has turned back the bulls 3 times since early July, each time resulting in a drop down to the $36 level. But this time, things look different. Perhaps it's the increasing volume (double the ADV on Friday), or maybe it is that Friday's closing price is the lowest close for the stock since mid-April. Whatever the cause, there is a bearish trade in the making here. While a drop below $36 could certainly provide a good entry point, we would prefer a bounce back up to resistance before taking a position. With the 10-dma ($42.11), 30-dma ($42.42) and 200-dma ($42.43) all clustered together and pointing south, it looks like a formidable resistance level to be sure. A rally and subsequent rollover near this level would be ideal for new entries, although we'd be happy with a failed rally from the $40 resistance level as well. We're starting the play with our stop at $42.50. One additional note is the fact that option premiums on CVTX seem excessively expensive. This may be the sort of play that appeals to traders who prefer to sell premium, rather than buy it. That doesn't mean that we go out and sell naked options, but it would certainly make sense to consider a spread here, rather than just an outright option purchase. Nevertheless, we like the technical set-up in this play. ***November contracts expire in two weeks*** BUY PUT NOV-40 UXC-WH OI=1880 at $8.80 SL=6.25 BUY PUT NOV-35*UXC-WG OI= 950 at $6.10 SL=4.00 BUY PUT DEC-35 UXC-XG OI= 27 at $8.10 SL=1.50 BUY PUT DEC-32 UXC-XZ OI= 10 at $6.70 SL=1.50 Average Daily Volume = 448 K ************************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 ************************************************************** ***************** CURRENT PUT PLAYS ***************** GDW - Golden West Financial $47.15 (-1.81 last week) Golden West Financial is a savings and loan holding company, the principal business of which is the operation of a savings bank business through its wholly owned savings bank subsidiary, World Savings Bank, FSB. The company operates in California, Florida, Colorado, Texas, Arizona, New Jersey, Kansas, and Illinois. GDW gapped a bit higher last Friday morning, but traded lower as the day wore on. Its weakness relative to the broader last Friday was certainly encouraging and could lend to the prospects of a retest of its recent low down around $45. Although, we're unsure what impact the Fed's decision on rates will have on the S&Ls. It could potentially buoy the group over the short-term. On the other hand, if the Fed gives guidance that it's nearing the end of its easing cycle, then the S&Ls should be pressured lower as the group discounts the end of the current benign monetary policy. For new plays, traders could consider using a breakdown below the $47 level as an entry point in a declining market and sector (BKX.X). Although, we'd prefer to enter new plays on a relief rally up to resistance, possibly around the $48.50 area. Also, those traders who entered on the rollover up around the $49.59 to $50 area should be at least thinking about locking in some short-term gains. The stock's down about $3 from that area, so further weakness below current levels would allow for favorable exit points for those with open positions. ***November contracts expire in two weeks*** BUY PUT NOV-55 GDW-WK OI=533 at $8.20 SL=6.50 BUY PUT NOV-50*GDW-WJ OI=178 at $3.70 SL=2.50 Average Daily Volume = 966 K EBAY - eBay $51.70 (-5.03 last week) eBay is a United States based dynamic pricing online trading platform located at ebay.com. eBay developed a Web based community in which buyers and sellers are brought together in an efficient format to buy and sell items, such as collectibles, automobiles, high end or premium are times, jewelry, electronics and a host of other items. We were a day early with the EBAY Play of the Day last Thursday. The stock finished fractionally higher last Thursday, but succumbed to further selling pressure Friday. The stock's weakness relative to the broader tech sector late last week was obviously encouraging for those of us on the bearish side. We'll continue watching for a breakdown below the $50 level going into next week's trading which, if happens, traders might use as an entry point into new positions. However, new entries into weakness should only be pursued in a declining market and with weakness in the Internet Sector (INX.X). While there exists some support just beneath the $50 level around $48.50, a break below $50 should portend further weakness over the short-term. If you'd like to get in before any forthcoming breakdown below $50, we'd like to point out EBAY's recent tendency to rollover at the $54 level. A key retracement level, the $54 resistance area capped EBAY's rally attempts last Thursday and Friday. Another relief rally up to and subsequent rollover from the $54 level should offer a favorable entry point. ***November contracts expire in two weeks*** BUY PUT NOV-55*QXB-WK OI=3281 at $5.00 SL=4.00 BUY PUT NOV-50 QXB-WJ OI=6919 at $2.40 SL=1.50 Average Daily Volume = 7.50 mln SPC - St. Paul Companies $48.90 (-1.06 last week) The St. Paul Companies is a management company principally engaged, through its subsidiaries, in providing commercial property-liability insurance, and reinsurance products and services worldwide. The company owns F&G Life Insurance Company and, through its majority ownership of The John Nuveen Company, has a presence in the asset management industry. It's make or break time for SPC. The stock, carried higher by the broader market and the IUX late last week, rallied right up to the upper-end of its descending channel at the $49 level, which not by coincidence is the site of our stop. With that being the case, SPC's recent rally could provide an excellent entry point IF the IUX rolls over from its current levels. Believe it or not, we like SPC as a put play at current levels because an entry around $49 can be managed with a tight stop up around $49.50 or $49.75. That would give the stock room to move, but still manage risk in the event of any further upside from current levels. If SPC does rollover from the $49 level, and continues along its descending channel, then the next stop to the downside should be somewhere around the $45 level. A trade down to $45 would mark another lower relative low in its channel. As such, you might now see why we like the trade at current levels. It offers less than a $1 of risk to the upside, while the downside potential could be as much as $4 from current levels. ***November contracts expire in two weeks*** BUY PUT NOV-50*SPC-WJ OI=291 at $2.45 SL=1.75 BUY PUT NOV-45 SPC-WI OI=455 at $0.75 SL=0.25 Average Daily Volume = 1.49 mln AIG - American International Grp. $81.60 (-2.20 last week) Engaged in a broad range of insurance and insurance-related activities through its subsidiaries, AIG's primary focus is on its general and life insurance businesses. Additionally, the company is growing its presence in financial services and asset management. Other operations include auto insurance, mortgage guaranty, annuities, and aircraft leasing. With operations in 130 countries, AIG generates more than half of its revenues outside the United States. Traders that are quick on the trigger managed to get a nice ride out of AIG last week as the Insurance sector (IUX.X) headed south in a big way. After rolling over right at the descending trendline (then at $83.50), the stock plunged south, helped along by the breakdown in the IUX, which turned the neutral triangle into a bearish one. That leg of the decline came to a halt Thursday morning (providing the opportunity to harvest some profits), as AIG bounced from the 50-dma ($78.26) and recovered for the remainder of the week. That brought AIG back up near the descending trendline (now at $82). It looks like it is time for the next leg down, as the combination of the trendline and 20-dma (currently $82.33) should stop the current rally in its tracks. Target a rollover from the $82 level, or possibly an intraday spike near $83 for new entries. Keep stops set at $83.50, and monitor the IUX to make sure it remains below the critical $725 level. ***November contracts expire in two weeks*** BUY PUT NOV-85 AIG-WQ OI= 937 at $4.20 SL=2.75 BUY PUT NOV-80*AIG-WP OI=7595 at $1.40 SL=0.75 BUY PUT DEC-80 AIG-XP OI=1174 at $3.10 SL=1.50 BUY PUT DEC-75 AIG-XO OI= 550 at $1.75 SL=1.00 Average Daily Volume = 7.02 mln MDT - Medtronic, Inc. $40.46 (-1.79 last week) As a medical technology company that provides lifelong solutions for people with chronic disease, MDT offers therapies to restore patients to fuller, healthier lives. Reading like a medical journal, applications for the company's primary products include bradycardia pacing, tachyarrhythmia management, atrial fibrillation, heart failure, coronary and peripheral vascular disease, cardiac surgery, spinal and neurosurgery and neurodegenerative disorders. Health Care stocks appear to have run out of steam, and that fact can be clearly seen in the Health Care index (HCX.X), which has rolled over and is now finding resistance at the declining 200-dma ($816). It looks like the index could breakdown even further in the days ahead and that should lead our play on MDT to break below the $40 support level. Once that level is violated, hungry bears will set their sights on the $38 level, where the stock found support in mid-September. We want to take advantage of any near-term strength, as it will likely serve to give us a better entry for the next decline. The 10-dma (currently $41.90) has been providing resistance as well, and should continue to keep the bulls in check. With our stop resting at $42.50, we want to look for a rollover below the $42 resistance level to usher us into new plays. Continue to watch the HCX for clues as to sector movement ***November contracts expire in two weeks*** BUY PUT NOV-45 MDT-WI OI=4616 at $4.70 SL=2.75 BUY PUT NOV-40*MDT-WH OI=7752 at $0.95 SL=0.50 BUY PUT DEC-45 MDT-XI OI= 240 at $5.00 SL=3.00 BUY PUT DEC-40 MDT-XH OI= 202 at $1.80 SL=1.00 Average Daily Volume = 3.93 mln ***** LEAPS ***** Despite Impressive Resilience, This Rally Looks Tired By Mark Phillips Contact Support After the drop early in the week, the broad markets showed amazing resilience, as they battled their way back from recent support levels. The recovery was so impressive because it came on the heels of a series of abysmal economic reports. My personal opinion is that the bullish enthusiasm is overdone and the bears are about to come out of hibernation. Perhaps the bulls are waiting breathlessly for the next rate cut from the Fed on Tuesday. The last 10 months have seen a never-ending string of cuts that have failed to rescue our economy. Will one more cut finally do the trick? I wouldn’t bet on it. But I do think there are some investors who are watching both that event and the pending stimulus package being debated in Congress, with the expectation that the combined effect will reinvigorate the economy. We'll see... With the first quarter of negative GDP growth under our belts now, I can't see any way of avoiding an official recession, and there are very few bright spots in the economy. My fearless market forecast calls for thunderstorms and possibly some flash floods over the next several weeks. While I do think that the post-attack selloff put an important low in place, I am not yet convinced that it is THE Bottom. At a minimum, that low will need to be tested, and if there aren't solid signs of recovery by March/April of next year, I'm looking for another round of selling that would likely take out those lows. I, for one, am hoping we don't see that, but will willingly trade the opportunities that are offered to me. Afterall, it does no good to try and force trades that the market is currently not in favor of. For instance, I am eager to fill up our Watch List with attractive bullish plays, but the charts are telling me not to do it. I must have looked at 300 charts of LEAP Candidates this weekend and nearly every one showed the weekly stochastics topping out and getting ready to reverse. Good for puts, but not what we are looking for from our bullish plays. The markets are due to give back some of the ground they have gained since late September, and in the process, we'll see many stocks' weekly charts come back into oversold territory. Then we look for the stocks that are putting in solid higher lows and ride them higher. Rest assured that the Watch List will fill up quickly as we see which stocks hold up the best between now and the end of the year. Anyone looking for evidence that the downside has higher odds right now only needs to look at the VIX. I watch the fear index every day and what is grabbing my attention now is the fact that both the daily and weekly oscillators descended into oversold and the daily moved back towards overbought. With Friday's close at 32.40, we're still well into traditional "buy" territory, but that doesn't mean we're going to fall back into the traditional range anytime soon. I'm paying attention to the oscillators and right now they are telling me that the VIX is poised to move higher. Stay tuned to find out if I'm right or wrong... It seems like many of our Watch List plays are getting a bit stale, as they have been there so long without giving us a chance at an entry. This is where patience will pay dividends. Since those stocks have been strong performers over the past 6 weeks, it makes sense that they will continue to shine after the next dip as well. All we need to do is place our Entry Targets intelligently, and then we can strike as the stocks come to us. I'm pretty happy with the targets we currently have in place, with the exception of Nokia (NYSE:NOK), on which we raised the target this week to what I think is a more reasonable target. I got a great email earlier this week that just goes to prove that diligent research and application of technical tools can enable any one of you to pinpoint attractive LEAPS plays. Just as I was perusing the weekly/daily chart of Verisign (NASDAQ:VRSN), I got the following question: "...how come you have not added VRSN as leap put play the monthly weekly and daily look very bad, it could play out to be a good one as PUT." Sure enough, the VRSN charts are aligned in favor of the bears and I think it is worth taking a peek at the charts for everyone's enjoyment. Let's start with the monthly/weekly montage. No matter how you slice it those are a couple of unpleasant charts (unless you happen to own puts). Now trading at less than 20% of its 2000 highs, VRSN is downright cheap on a relative basis. But with no earnings with which to gauge the stock's true value, we are left with no choice but to use the technicals of the chart to determine a course of action. The neutral wedge on the weekly chart looks like it is about to become a bearish wedge -- with the Stochastics in full dive now, it appears very unlikely that VRSN will be able to avoid a drop well below the ascending trendline. Needless to say, the optimum time to put the stock on our Watch List was a month ago and I missed it. Looking at the daily chart, you can see that VRSN is now buried in oversold territory and primed for another bounce. While we are not adding the stock to our Watch List yet, I will keep an eye on the stock over the course of the next week or so. If the daily chart starts showing signs of weakness before taking out the upper trendline, we'll revisit the stock, either here or in my Wednesday column. We may not play the stock, but the process should prove educational for all of us. I mentioned last week that I was looking for a LEAPS Put play in the Insurance sector (IUX.X) due to the formation of the neutral triangle in the IUX that I expected to break in favor of the bears. Sure enough, we got that initial break this week when the index traded as low as $678. Despite the recovery towards the end of the week, there is no arguing that the trend over the past few weeks is down, and I'm looking for even more weakness in the months ahead. I drilled down into various Insurance stock charts and try as I might, I couldn't find a better candidate (at least not with LEAPS available) than American International Group (NYSE:AIG). So AIG makes it onto the Watch List this week, with the details laid out below. As far as the Portfolio is concerned, things got off to a bad start, thanks to Goldman Sachs reshuffling their Recommended List stocks. Two of our Portfolio plays, MO and PCS got removed from their list and the resulting waves of selling drove both of them below our stops. See the drop writeups below for details. Speaking of drops, I had a few questions this week about the drops from last week (ENE and GD) and why their results didn't show up in the Track Record on the website. Rather than respond to each of you individually, I decided to clarify the process here for everyone's edification. Recall that our process here is to add a play to the Watch List first. Then when (if) we get an entry, the play moves onto the Portfolio and we then track it from there. When we exit the play, the results move to the Track Record and we retain all our results there. However, it is possible that we drop a given play without ever finding an acceptable entry point. If that happens (as was the case with last week's drops), then there will be no entry made in the Track Record file, since there was no position to track. Hopefully that clears things up. For those of you that are relatively new to the LEAPS column, I would recommend taking the time to read the Strategy section on the website (accessible from the Strategy link at the top of this page on the site). There, I have gone through a detailed description of how to utilize the LEAPS column. We're holding our breath on our two remaining Portfolio plays, as they weakened significantly this week. Eli Lilly (NYSE:LLY) rallied above $80 before plunging back to $76 and then recovering at the end of the week, as the neutral wedge continues to tighten. It will break one way or the other, and when it does we'll either have confirmation that we are on the right side of the trade or a strong indication that we should get out. For now, we wait. The story is less rosy for our Calpine (NYSE:CPN) play, as the stock rolled over right at the descending trendline this week. I'm hoping that we see things solidify for the independent power producers as we head into the winter months, but if not, we're protected by our stop just below the September lows. That about wraps it up for this week. To recap, it looks like some near-term weakness should materialize and that will usher us into the next wave of bullish plays. In the meantime, there could be some attractive plays on our bearish candidates. Remember, developing your trading plan while the markets are closed gives you a wonderful level of discipline that you can apply to the pursuit of profits while the markets are open. Discipline and Patience. The two pillars at the door of any good investing strategy. Have a great week! Mark Phillips Contact Support LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP LLY 10/17/01 '03 $ 75 VIL-AO $10.80 $12.40 14.81% $ 72 '04 $ 80 LZE-AP $12.20 $14.30 17.21% $ 72 CPN 10/25/01 '03 $ 25 OLB-AE $ 6.00 $ 6.10 1.67% $ 19 '04 $ 30 LZC-AF $ 6.50 $ 6.30 - 3.08% $ 19 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: 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 TYC 09/16/01 $45 JAN-2003 $ 45 VYL-AI CC JAN-2003 $ 40 VYL-AH JAN-2004 $ 50 LPA-AJ CC JAN-2004 $ 40 LPA-AH NOK 09/23/01 $16-17 JAN-2003 $17.5 VOK-AW CC JAN-2003 $ 15 VOK-AC JAN-2004 $17.5 LOK-AW CC JAN-2004 $ 15 LOK-AC BRCM 10/28/01 $27-28 JAN-2003 $ 30 OGJ-AF CC JAN-2003 $ 25 OGJ-AE JAN-2004 $ 30 LGJ-AF CC JAN-2004 $ 25 LGJ-AE EMC 11/04/01 $11 JAN-2003 $12.5 VUE-AV CC JAN-2003 $ 10 VUE-AB JAN-2004 $12.5 LUE-AV CC JAN-2004 $ 10 LUE-AB PUTS: EBAY 10/19/01 $55-56 JAN-2003 $ 50 OIY-MJ JAN-2003 $ 60 OIY-ML AIG 11/04/01 $85-86 JAN-2003 $ 80 VAF-MP JAN-2003 $ 80 LAJ-MP New Portfolio Plays None New Watchlist Plays EMC - EMC Corporation $13.09 ** CALL PLAY** Along with all the other Big-Cap Technology stocks, EMC has been sold unmercifully this year, driving the stock as low as $10 in late September. A quick look at the last several earnings releases makes it clear that the selling was justified. Quarterly earnings a year ago were 25 cents per share, while the most recent quarter saw the company posting a 12 cent loss. Ouch! In looking at the chart though, I see the formation of a solid base beginning to take shape. Just as investors began selling the stock well in advance of the decline in earnings, they will buy the stock in advance of an improvement in business conditions. This is clearly an aggressive play where we are betting on an economic recovery propelling EMC out of its current trading range over the next year, possibly as high as the $30 level. But I like it, mainly due to the fact that it is a well-run company and should benefit from any substantial government stimulus package that reinvigorates capital investment. While the weekly Stochastics have slowly drifted upwards over the past 6 weeks, price has remained rather stagnant, trapped between $10-14. But what really got my attention was the monthly chart, with its Stochastics buried in oversold and possibly beginning to reverse. I like this for a bottom-fishing play as we can enter it cheaply and manage our risk with a nice tight stop. Due to the tight trading range, it will be difficult to use the daily Stochastics to fine-tune our entry point. So we'll just use price levels instead. Target entries on a dip near the $11 level and then set stops at $9.50. Dropping below that level would indicate the September lows couldn't hold and we are premature to the play. BUY LEAP CALL JAN-2003 $12.50 VUE-AV BUY LEAP CALL JAN-2003 $10.00 VUE-AB **Covered Call** BUY LEAP CALL JAN-2004 $12.50 LUE-AV BUY LEAP CALL JAN-2004 $10.00 LUE-AB **Covered Call** AIG - American International Group $81.60 ** PUT PLAY** With its broad global exposure, AIG is a major player in the general and life insurance industry. In the wake of the September 11th attack, both AIG and the broader Insurance sector (IUX.X) have seen some dramatic price swings in the past 6 weeks. Both Eric Utley and Jeff Bailey have recently written about the neutral triangle setup in the IUX, and the move lower this week made things tilt more into the bear camp. But we got a late-week rebound bringing the IUX back into the middle of the range. AIG tracks the IUX extremely well, making it an attractive way to trade the movement of the sector, but keep the liquidity offered by an individual stock. At any rate, AIG has delivered some attractive short-term put plays recently and is currently on the OIN Put list. What got my attention is the fact that the weekly Stochastics for AIG are just starting to roll over from overbought, and the stock is trapped under long-term resistance near $86. And then we have the month-long descending trendline that keeps pushing the stock lower. I think we'll get one more cycle up from oversold to overbought before getting a high-odds entry, but then I expect AIG to head much lower, possibly below $70 again. Our target will consist of a rollover in price near the $85-86 level, accompanied by the daily Stochastics rolling over. That will simply confirm the rollover on the weekly chart and we'll be off to the races. It will likely take another week or two, but should provide some juicy profits for those interested in a longer-term bearish play. BUY LEAP PUT JAN-2003 $80.00 VAF-MP BUY LEAP PUT JAN-2003 $80.00 LAJ-MP Drops MO $47.70 Scorched by an analyst downgrade on Tuesday, our MO play has come to an end. Goldman Sachs removed the stock from its Recommended List and the resultant selling pressure dropped the price below our $48 stop. While price has solidified since then, with the weekly Stochastics now headed south, it looks like MO could see more weakness in the weeks ahead. Given the current market environment, we're happy to lock in our gains and move on to the next play. PCS $22.11 Variations on a theme. Investors hung up on PCS Tuesday after Goldman Sachs removed the stock from its Recommended List and the stock plunged through the long-term ascending trendline, coming to rest just above $22. While there has been a slight price recovery over the past few days, it now looks like the trendline will act as resistance, rather than support. In retrospect, we probably should have dropped the play last weekend after PCS fell back under the 200-dma. That would have allowed us to exit the play with a modest gain, rather than a loss. That's why they say hindsight is 20-20. At any rate, PCS now moves to the drop list. ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 11-04-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/164_5.asp ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES * EASY screens for covered calls, spreads, and straddles * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************* COVERED CALLS ************* Trading Basics: A Brief Change Of Pace By Mark Wnetrzak One of our readers asked for some ideas on the use of trading systems with short-term strategies such as buying and selling stocks and also call and put options. While this section is generally devoted to covered-call strategies, we decided this was a good opportunity to review the subject of trading systems. The fundamental objective of any trading system is to identify and profit from, significant moves in a specific issue. Methods that allow big profits at the risk of occasional, limited losses are generally the most successful. However, there is a dilemma that frequently prevents new investors from developing effective techniques. The problem is, if you want to formulate the most productive system, you will likely need to focus on short-term indicators, thus using less stable data, which eventually leads to a higher probability of losing positions. Trading methods that rely on longer-term data are ordinarily more successful but at the same time, their profits occur at a much slower rate. The actual design of an efficient system need not be different for longer term or shorter term purposes; the key is how you act upon the data that is presented. Experienced traders, who have acquired patience, are content to wait for the correct signals. They have great respect for money and will participate only when the situation exhibits a superior potential for profit. Novice traders are a picture of contrast. They see the stock market as a means of getting rich thus, they rely primarily on instinctive as opposed to intuitive thinking, and they are often in too much of a hurry to wait for the correct signals. These traders have little respect for money and the market's complex nature, and with that kind of irreverent attitude, they are often doomed to failure. As traders, our primary task is to identify potentially profitable situations. The basic goal of a trading system is to determine when and at what price to place the initial order and how to take profits efficiently with limited losses. There are a number of different approaches to developing an effective system but they all have one thing in common: a method to control losses. The most popular method of managing a position is through the use of trailing stops but many traders have difficulty with the correct placement of these simple exit orders. Of course, there are many popular techniques to determine the proper entry and exit points including: arbitrary, fixed dollar amounts; a percentage of the price level; or a calculated value based on the volatility of the issue. Most professional traders prefer the use of consistent, similarly sized stops in a particular system however, the actual value of the loss-limit is not crucial to long-term performance. It's much more important to examine the risk of the system as a whole, following the procedure through multiple trades until an effective, yet cautious exit strategy can be determined. The most difficult aspect of profit target/loss limit development is that strategies which provide the highest potential return are also the ones that let the trade, in a short-term system, retreat back to the point where the initial stop-loss is activated. Even when the position is substantially profitable, there is a chance that the trend will reverse and turn the trade into a loss. A system of that type will generally provide the greatest net profit in the long run however, it's not as easy to manage as a procedure that uses a trailing stop. Obviously, the easiest way to achieve large gains is to make sure you capture all of the major moves in the positions that you enter, but that is easier said than done. Unfortunately, the use of a trailing stop can prematurely close a position that could eventually produce a much larger return. In fact, the primary drawback of this approach is that potentially profitable trades are often "stopped out" at much lower prices, before they have chance to fulfill their original expectations. Many traders prefer to exit with a "limit" order when a position is moving in their favor. However, that also presents a problem because it prevents the trade from achieving maximum profit when the market moves substantially in the forecast direction. At the time, if the market reacts violently against the trade, the system must limit the affects of the unexpected activity, closing the position quickly and with relatively little loss. The best trading mechanisms are those that achieve a degree of consistency, using effective exit routines that provide a high percentage of winning trades and at the same time, prevent big winners from turning into losers. Most professional traders prefer systems that allow the position to achieve maximum return initially, and as the market consolidates, also provide a method for locking-in gains at a profitable level. With this approach, the goal is to exit the trade while the issue is moving favorably, before the eventual retreat significantly erodes position profits. The end result is that portfolio growth is more consistent, and in my experience, that is the best way to approach the market. Trade Wisely! SUMMARY OF PREVIOUS CANDIDATES ***** Note: Margin not used in calculations. Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield GSPN 11.04 10.65 NOV 10.00 1.85 *$ 0.81 12.8% INFA 7.99 9.00 NOV 7.50 1.20 *$ 0.71 11.4% AMLN 8.59 7.85 NOV 7.50 1.65 *$ 0.56 7.0% ISSX 19.01 27.00 NOV 15.00 5.10 *$ 1.09 6.8% TRMB 18.26 18.10 NOV 17.50 1.50 *$ 0.74 6.4% KROL 13.75 16.39 NOV 12.50 2.10 *$ 0.85 6.3% LWIN 16.33 15.01 NOV 15.00 1.95 *$ 0.62 6.2% TERN 9.22 10.76 NOV 7.50 2.10 *$ 0.38 5.8% PCYC 23.15 22.21 NOV 20.00 3.90 *$ 0.75 5.6% FFIV 15.43 16.91 NOV 12.50 3.50 *$ 0.57 5.2% BRCD 25.36 25.53 NOV 17.50 8.80 *$ 0.94 4.9% CIEN 17.13 15.09 NOV 12.50 5.30 *$ 0.67 4.9% CELG 33.44 34.58 NOV 30.00 4.40 *$ 0.96 4.8% ISSX 25.16 27.00 NOV 20.00 6.00 *$ 0.84 4.8% AFCI 21.98 19.80 NOV 17.50 5.20 *$ 0.72 4.7% OVER 19.19 22.67 NOV 15.00 4.80 *$ 0.61 4.6% BRCD 24.69 25.53 NOV 17.50 7.90 *$ 0.71 4.6% MCAF 21.35 22.67 NOV 17.50 4.70 *$ 0.85 4.4% GNTA 14.40 14.45 NOV 12.50 2.25 *$ 0.35 4.2% AVNT 11.30 9.22 NOV 10.00 2.30 $ 0.22 3.5% *$ = Stock price is above the sold striking price. Comments: Do the major averages need to test the September low or will they just consolidate in a more lateral fashion? Inquiring minds want to know! All we are asking as covered call writers, is for a neutral to slightly bullish outlook. Amylin Pharmaceuticals (NASDAQ:AMLN) is testing support though the technicals suggest a bullish resolution. Kroll (NASDAQ:KROL) has now resumed its up-trend and is off the danger list. CIENA Corp. (NASDAQ:CIEN) appears headed towards support around $12.50 and should be monitored closely as the Networking Sector rebound fizzles. Advanced Fibre (NASDAQ:AFCI) also continues to hold at support as it consolidates in a laterally. Avant! Corp. (NASDAQ:AVNT) may fill the gap but the technicals suggest a long-term outlook is appropriate. Consider rolling down to a lower strike price in the near term, on any further weakness. NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield ALTR 22.65 NOV 20.00 LTQ KD 3.10 4641 19.55 14 5.0% ANAD 16.95 NOV 15.00 AUZ KC 2.40 369 14.55 14 6.7% ARXX 14.61 NOV 12.50 ARX KV 2.50 1014 12.11 14 7.0% IMDC 21.30 NOV 20.00 UZI KD 1.80 21 19.50 14 5.6% MEDC 21.20 NOV 17.50 MQH KW 4.20 296 17.00 14 6.4% NMTC 25.44 NOV 22.50 QEK KX 3.50 105 21.94 14 5.5% RETK 21.89 NOV 20.00 QRD KD 2.70 57 19.19 14 9.2% Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield RETK 21.89 NOV 20.00 QRD KD 2.70 57 19.19 14 9.2% ARXX 14.61 NOV 12.50 ARX KV 2.50 1014 12.11 14 7.0% ANAD 16.95 NOV 15.00 AUZ KC 2.40 369 14.55 14 6.7% MEDC 21.20 NOV 17.50 MQH KW 4.20 296 17.00 14 6.4% IMDC 21.30 NOV 20.00 UZI KD 1.80 21 19.50 14 5.6% NMTC 25.44 NOV 22.50 QEK KX 3.50 105 21.94 14 5.5% ALTR 22.65 NOV 20.00 LTQ KD 3.10 4641 19.55 14 5.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** ALTR - Altera $22.65 *** Bottom Fishing? *** Altera (NASDAQ:ALTR) designs, manufactures and markets programmable logic devices (PLDs) and associated development tools. PLDs are semiconductor integrated circuits that customers can program using its proprietary software, which operate on personal computers and engineering workstations. Altera was one of the first suppliers of complementary metal oxide semiconductor (CMOS) programmable logic devices. The company offers a broad line of CMOS programmable logic devices that address high-speed, high-density and low-power applications. Altera's products serve a wide range of markets, including telecommunications, data communications, electronic data processing and industrial applications. Altera reported dismal earnings in October due to the continued weakness in the semi- conductor industry. Analysts are saying the sector will not begin to firm until after January and the question is; Has it been priced in? The stock is currently forming an ascending triangle and has recently moved above its 50-dma. Short-term speculation that offers a favorable cost basis. NOV 20.00 LTQ KD LB=3.10 OI=4641 CB=19.55 DE=14 TY=5.0% ***** ANAD - Anadigics $16.95 *** On The Rebound! *** Anadigics (NASDAQ:ANAD) is a supplier of radio frequency/microwave integrated circuit solutions for the communications industry. The company's products are used to send and receive signals in a variety of broadband and wireless communications applications. In the broadband markets, the focus is on applications for cable subscriber products, cable infrastructure systems, and fiber optic communications systems. In the wireless market, Anadigics' efforts are focused on applications for cellular and personal communication systems handsets. In October, Anadigics posted lower third-quarter earnings amid harsh business conditions, but said it expects to return to profits in the second half of 2002. Shares of Anadigics rallied strongly this week after company officials reiterated a rosy view of growth prospects at a Prudential Securities conference. Company officials believe earnings and revenues will start heading back up in the fourth-quarter, led by demand for wireless and CDMA products. We simply favor the recent breakout on heavy volume that moved the stock above its October high. NOV 15.00 AUZ KC LB=2.40 OI=369 CB=14.55 DE=14 TY=6.7% ***** ARXX - Aeroflex $14.61 *** Earnings Rally! *** Aeroflex (NASDAQ:ARXX) uses its design, engineering and manu- facturing abilities to produce microelectronic, integrated circuit, interconnect and testing solutions. The company's products are used in the fiber optic, broadband cable, wireless and satellite communications markets. Aeroflex also designs and manufactures motion control systems and shock and vibration isolation systems that are used for commercial, industrial and defense applications. Aeroflex's operations are grouped into three segments: microelectronic solutions, test solutions, and isolator products. On Tuesday this week, Aeroflex reported a first-quarter net loss that beat the analysts' consensus estimate, citing a solid book-to-bill ratio and strength in its aerospace- defense and automated test systems lines. Aeroflex said it expects second-quarter sales to rise 10% to 15% sequentially, gross margins from 34% to 36%, and operating expenses from 34% to 35% of sales. The company also said it expects its operations to return to profitability in its December quarter. We like the explosive rally this week but prefer a more conservative entry point with a cost basis near support. NOV 12.50 ARX KV LB=2.50 OI=1014 CB=12.11 DE=14 TY=7.0% ***** IMDC - Inamed $21.30 *** New Developments! *** Inamed (NASDAQ:IMDC) is a global surgical and medical device company engaged in the development, manufacturing and marketing of products for the plastic and reconstructive surgery, aesthetic medicine and obesity markets. IMDC sells a variety of lifestyle products including breast implants for cosmetic augmentation and collagen-based facial implants to correct facial wrinkles and to improve lip definition. IMDC operates through three business units, which include McGhan Medical, Inamed International, and BioEnterics. Shares of IMDC starting moving higher in late October after the company announced plans to develop and market their Hylaform line of products in the United States. Inamed markets Hylaform products in Europe and other countries as a dermal filler to treat facial lines, wrinkles and scars. Investors were happy with the news and now the issue has moved back to an old price range on heavy buying pressure and robust volume. Investors can establish a discounted cost basis in the issue with this position. NOV 20.00 UZI KD LB=1.80 OI=21 CB=19.50 DE=14 TY=5.6% ***** MEDC - Med-Design $21.20 *** New Product = Royalties *** Med-Design (NASDAQ:MEDC) principally is engaged in the design, development and licensing of safety medical devices intended to reduce the incidence of accidental needle-sticks. Each safety medical device the company designs and develops incorporates its proprietary needle retraction technology. The company's products can be categorized into four groups: hypodermic syringes used to inject drugs and other fluids into the body; fluid collection devices used to draw blood or other fluids from the body; venous and arterial access devices used to provide access to patients' veins and arteries; and specialty safety devices for other needle based applications. Investors started buying shares of MEDC a few days before the company's quarterly earnings announcement and the interest continued to increase after results were published. MEDCs' earnings were favorable but analysts were focused on events that occurred during the third quarter including a licensing agreement with MedAmicus and the fact that the FDA cleared Becton Dickinson's application to market a new spring-based retractable blood collection set that will provide royalties for Med-Design. Speculate on the future of MEDC with this low risk position! NOV 17.50 MQH KW LB=4.20 OI=296 CB=17.00 DE=14 TY=6.4% ***** NMTC - Numerical Technologies $25.44 *** Rally Mode! *** Numerical Technologies (NASDAQ:NMTC) is a commercial provider of proprietary technologies and software products that enable the design and manufacture of subwavelength semiconductors. NMTC offers technology products, software products and services that together provide a comprehensive subwavelength design-to-silicon solution. The company's patented phase-shifting technology, combined with its proprietary optical proximity correction and process modeling technologies form the foundation of its subwave- length solution. NMTC's subwavelength solution integrates these technologies into each key stage of semiconductor manufacturing to form an integrated design-to-silicon flow. NMTC shares moved to a recent high on Friday even as stocks in the business soft- ware group retreated. The unexpected technical strength suggests that NMTC is a favorite among investors in that group and this position establishes a conservative cost basis in the issue. NOV 22.50 QEK KX LB=3.50 OI=105 CB=21.94 DE=14 TY=5.5% ***** RETK - Retek $21.89 *** Short-term Speculation *** Retek (NASDAQ:RETK) provides advanced application software to help retailers create, manage and fulfill consumer demand. The company's software solutions enable retailers to use the Internet to communicate and collaborate efficiently with their suppliers, distributors, wholesalers, logistics providers, transportation companies, brokers, consolidators and manufacturers. Advanced predictive capabilities provide accurate forecasts of consumer demand, and integration between planning and execution functions enables retailers to respond more rapidly to changes in either supply or demand. Retek is primarily focused on retailers with sales of $500 million and above. Retek has been "on the rebound" since mid-October when the company announced favorable earnings and said that third-quarter sales rose 80% to $47.5 million compared with the year earlier quarter. Software license revenue rose 103% to $35.1 million, due to the addition of new customers and expanded relationships with current clients. The issue has moved above a near-term resistance area at $20 and appears ready to challenge the next level of sellers at $25. NOV 20.00 QRD KD LB=2.70 OI=57 CB=19.19 DE=14 TY=9.2% ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional 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 and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield STOR 5.18 NOV 5.00 OSU KZ 0.55 5757 4.63 14 17.4% VRTA 10.67 NOV 10.00 UFA KB 1.25 262 9.42 14 13.4% MANU 8.14 NOV 7.50 ZUQ KU 1.05 235 7.09 14 12.6% OAKT 10.22 NOV 10.00 KAU KB 0.65 244 9.57 14 9.8% NTAP 14.99 DEC 12.50 NUL LV 3.70 3055 11.29 49 6.7% DCTM 16.15 DEC 15.00 QDC LC 2.60 4 13.55 49 6.6% MU 24.75 NOV 22.50 MU KQ 2.90 4499 21.85 14 6.5% NGEN 8.57 DEC 7.50 GUN LU 1.75 314 6.82 49 6.2% MCAF 22.67 NOV 20.00 CFU KD 3.20 52 19.47 14 5.9% BEAS 12.61 DEC 10.00 BUC LB 3.40 2743 9.21 49 5.3% ***************** NAKED PUT SECTION ***************** Investing 101: Slow And Steady Wins The Race By Ray Cummins One of our readers asked for some guidelines concerning risk and reward in conservative option-trading strategies. Everyone knows you have to assume a certain amount of risk to earn a reward but the key to successful investing is to minimize your exposure to the perils of the market, and that typically involves utilizing strategies which generate lower returns. Risk is a fact of life for any investor and it is very important to consider risk and evaluate it along with the potential reward when selecting a trading style. Different investing strategies have different levels of risk and understanding this concept is the first step to success. In addition, some trading methods are not appropriate for all investors and another essential step in determining the best way to approach the market is identifying your personal comfort zone or risk tolerance level. Some of the best option traders earn the bulk of their annual profits in just a few plays but is that the right style for you? These traders can comfortably accept the possibility that the value of their portfolio will change substantially over very short periods while others will simply panic and bail-out of the market at the worst possible time. That is why the tolerance for risk varies so much from person to person and in addition, it changes over time based on individual financial circumstances. In most cases, relative stability is more important than higher returns, thus we focus on strategies (such as conservative covered-call writing and selling out-of-the-money puts) that offer a high probability of achieving a limited, but acceptable profit. Many investors can't get past the fact that earning 3-6% monthly is an "acceptable" return and one that will generate wealth in the long run. The key to this concept is Compound Interest; a function of capital accumulation that Albert Einstein described as the "greatest invention of mankind." Of course, we all know how it relates to our savings accounts and mortgage loans but few traders thoroughly assess its subtle, long-term affect on their portfolio value. As an investor, you benefit financially from compound interest when you reinvest not only the original capital, but also the returns from each successful trade. The total profit you earn on your investments will vary based on the the gains from each trade and on the number of times you achieve that return in a given time period. Most traders are surprised to learn that a 6% monthly return is roughly equal to a 100% yearly profit after adding the gains from compounding. Another bonus is that, unlike a bank account, you do not have to reinvest the profits in the same instrument (such as a savings account), but rather you can move the money from stocks to options or other issues as opportunities present themselves. This means you can diversify your portfolio as well as compound the returns. Obviously, anyone who has followed the market in recent months knows that stock prices do, in fact, go down and that is why it is so important to enter new positions only when the conditions are optimal. That means initiating a trade only when favorable technical or fundamental indications are present and there is a relatively high probability of a reasonable profit. It is also essential for the position to be one in which the trader feels comfortable, not only in terms of the initial cost or margin requirement, but also with regard to the underlying strategy and its risk characteristics. Investors who are not absolutely convinced about the outlook for a candidate, or completely knowledgeable about a particular strategy (and the potential adjustments), should probably not initiate a new position until those issues are resolved. Trading just for the sake of being "in the game" is never appropriate and although it is difficult to remain on the sidelines when others are talking about their recent winners, the consequence of careless trading decisions can be financially devastating. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS CANDIDATES ***** Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield CNXT 10.15 11.19 NOV 7.50 0.35 *$ 0.35 12.8% TTN 27.00 25.44 NOV 22.50 0.60 *$ 0.60 12.6% SURE 13.25 11.45 NOV 7.50 0.25 *$ 0.25 12.5% FFIV 16.55 16.91 NOV 12.50 0.30 *$ 0.30 12.0% GNSS 39.18 47.85 NOV 30.00 0.90 *$ 0.90 11.2% OVER 25.50 22.67 NOV 20.00 0.40 *$ 0.40 10.5% JNPR 23.66 19.48 NOV 15.00 0.50 *$ 0.50 10.4% PWAV 16.20 15.52 NOV 12.50 0.25 *$ 0.25 10.4% SMTC 40.21 41.69 NOV 32.50 0.60 *$ 0.60 9.7% EMLX 24.65 24.21 NOV 15.00 0.45 *$ 0.45 9.1% SAGI 21.65 26.37 NOV 17.50 0.40 *$ 0.40 8.8% NETA 18.38 19.58 NOV 15.00 0.45 *$ 0.45 8.8% RFMD 24.30 20.47 NOV 15.00 0.55 *$ 0.55 8.8% IMMU 16.30 18.13 NOV 12.50 0.35 *$ 0.35 8.4% CMNT 15.25 15.00 NOV 12.50 0.35 *$ 0.35 8.2% AFFX 31.70 30.04 NOV 25.00 0.35 *$ 0.35 7.6% BRCM 31.80 37.85 NOV 20.00 0.60 *$ 0.60 7.5% QLGC 37.06 40.84 NOV 22.50 0.65 *$ 0.65 7.0% STE 23.24 22.50 NOV 20.00 0.30 *$ 0.30 6.8% WEBX 29.77 29.67 NOV 20.00 0.35 *$ 0.35 6.0% QLGC 38.50 40.84 NOV 22.50 0.45 *$ 0.45 6.0% VRTS 29.08 30.96 NOV 17.50 0.30 *$ 0.30 5.3% QLTI 23.71 19.00 NOV 20.00 0.60 $ -0.40 0.0% *$ = Stock price is above the sold striking price. Comments: All of our portfolio positions were positive until Friday morning when QLT Inc. (NASDAQ:QLTI) took an unexpected plunge after the company and Novartis were informed by the Vitreous Society, a physician organization specializing in retinal diseases, that the Centers for Medicare and Medicaid Services is proceeding with the policy implementation process, albeit "cautiously" since Visudyne is not yet approved by the FDA for patients who have the occult form of wet age-related macular degeneration (AMD). AMD is a disease that scars the retina and is the leading cause of blindness in elderly people. The news did not initially appear to be that negative but traders were concerned the drug-maker's blindness treatment may fail to be approved for new coverage by the CMMS. Over 1.6 million shares changed hands, more than five times QLTI's three-month average even as the company was trying to quell speculation that coverage won't be extended for the new uses. Since the issue was already on our current watch-list, we decided to close the position as initially suggested, for a small loss. Among the remaining portfolio plays, Juniper (NASDAQ:JNPR) and Overture (NASDAQ:OVER) are retreating after recent rallies and it will be interesting to see at what point those two issues regain their bullish composure. A move below the sold strike in either position will signal our exit. NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield AFFX 30.04 NOV 25.00 FIQ WE 0.35 1081 24.65 14 10.4% CELG 34.58 NOV 30.00 LQH WF 0.40 725 29.60 14 9.0% GNSS 47.85 NOV 40.00 QFE WH 0.80 514 39.20 14 14.4% KLIC 17.34 NOV 15.00 KQS WC 0.35 97 14.65 14 15.4% MRVL 27.73 NOV 22.50 UVM WX 0.45 866 22.05 14 15.5% PWAV 15.52 NOV 12.50 VFQ WV 0.40 931 12.10 14 24.2% SMTC 41.69 NOV 35.00 QTU WG 0.55 345 34.45 14 11.3% Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield PWAV 15.52 NOV 12.50 VFQ WV 0.40 931 12.10 14 24.2% MRVL 27.73 NOV 22.50 UVM WX 0.45 866 22.05 14 15.5% KLIC 17.34 NOV 15.00 KQS WC 0.35 97 14.65 14 15.4% GNSS 47.85 NOV 40.00 QFE WH 0.80 514 39.20 14 14.4% SMTC 41.69 NOV 35.00 QTU WG 0.55 345 34.45 14 11.3% AFFX 30.04 NOV 25.00 FIQ WE 0.35 1081 24.65 14 10.4% CELG 34.58 NOV 30.00 LQH WF 0.40 725 29.60 14 9.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** AFFX - Affymetrix $30.04 *** Multiple Upgrades! *** Affymetrix (NASDAQ:AFFX) is engaged in the field of DNA chip technology. Affymetrix has developed and intends to establish its GeneChip system and related micro-array technologies as platforms for acquiring, analyzing and managing information in the field of genetics. Their system consists of disposable DNA probe arrays containing gene sequences on a chip, reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays and software to analyze and manage genetic information from the probe arrays. The company sells its products directly to pharmaceutical and biotechnology companies, academic research centers, private foundations and clinical reference laboratories in the United States and Europe. The AFFX rally began when the company and Hyseq (Nasdaq:HYSQ) announced the settlement of all existing litigation between the two firms and said that they have formed a new collaborative venture to accelerate the development of opportunities in the DNA array market. AFFX followed that news with a favorable earnings report and was quickly upgraded by a slew of analysts. This position offers a discounted cost basis in the issue. NOV 25.00 FIQ WE LB=0.35 OI=1081 CB=24.65 DE=14 TY=10.4% ***** CELG - Celgene $34.58 *** Entry Point! *** Celgene (NASDAQ:CELG) is a biopharmaceutical company engaged primarily in the discovery, development and commercialization of orally administered, small-molecule drugs for the treatment of cancer and inflammatory diseases, via gene regulation. The company has developed and integrated a large set of proprietary drug discovery technologies to accelerate the application of genomics to the development of new classes of gene-regulating drugs. The company's drug discovery and development programs are focused in several disease areas in which dysregulation of a specific gene plays a major role in the onset and progression of disease, including cancer and inflammatory diseases. Celgene recently posted favorable earnings, with sales of THALOMID. up 24% from last year, and up 16% sequentially. Prescriptions rose 50% in the third quarter compared to the prior year. Celgene announced Thursday that a novel small molecule inhibitor of a protein kinase appears to effectively inhibit the growth of breast and prostate tumors, according to pre-clinical studies. With the strong technical support area near $29, this position offers a low risk entry point in the issue. NOV 30.00 LQH WF LB=0.40 OI=725 CB=29.60 DE=14 TY=9.0% ***** GNSS - Genesis Microchip $47.85 *** Solid Earnings! *** Genesis Microchip (NASDAQ:GNSS) is a leading supplier of cost effective integrated circuits and software solutions, enabling the convergence of Internet information and video. Flat-panel displays, digital televisions, digital CRTs and consumer video products all benefit from Genesis technology, which connects and formats any kind of source content to be displayed with the highest image quality on any type of screen. Shares of GNSS rallied in October after the company posted quarterly revenues of $36.1 million, up 140% over the previous year. The CEO said the company's strong performance for the quarter is attributable to previous design wins and he expects continued demand for their technology. The recent price activity in GNSS is bullish and this position establishes an acceptable cost basis in the issue. NOV 40.00 QFE WH LB=0.80 OI=514 CB=39.20 DE=14 TY=14.4% ***** KLIC - Kulicke and Soffa $17.34 *** Analyst Upgrades! *** Kulicke and Soffa Industries (NASDAQ:KLIC) is a supplier of semiconductor assembly interconnect equipment, materials and technology. Chip and wire solutions combine wafer dicing, die bonding and wire bonding equipment with saw blades, die collets, wire and capillaries. Flip chip solutions include wafer bumping technology, die placement equipment and Ultravia high density substrates. Chip scale and wafer packaging solutions include solder sphere attachment systems and Ultra CSP technology. Test interconnect solutions include standard and vertical probe cards, ATE interface assemblies and ATE boards for wafer testing, and test sockets and contactors for all types of packages. Shares of KLIC rallied last week after a couple of analysts upped their outlook for the stock and said they expect a positive earnings surprise when the company reports its quarterly results on 11/15. We simply favor the strong rally on heavy volume and a test of the 2001 highs appears likely in the next few sessions. NOV 15.00 KQS WC LB=0.35 OI=97 CB=14.65 DE=14 TY=15.4% ***** MRVL - Marvell Technology $27.73 *** Chip Sector Rally! *** Marvell Technology (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed signal and digital signal processing technology for communication markets. The company's products provide the critical interface between analog signals and the digital information in computing and communications systems and enables its customers to store and transmit digital information quickly and reliably. The company also develops high-performance communications internetworking and switching products for the broadband communications market. The recovery in MRVL's share value began in mid-October when Credit Suisse First Boston initiated coverage of the communications chipmaker with a "buy" rating and a $25 price target. The CFSB analyst said MRVL should outperform its peer group and based on the bullish technical indications, a cost basis near $22 is very reasonable for investors who wouldn't mind owning the issue. NOV 22.50 UVM WX LB=0.45 OI=866 CB=22.05 DE=14 TY=15.5% ***** PWAV - Powerwave $15.52 *** Speculation Only! *** Powerwave Technologies (NASDAQ:PWAV) designs, manufactures and markets ultra-linear radio frequency (RF) power amplifiers for use in the wireless communications market. RF power amplifiers, which are key components of wireless communications networks, increase the signal strength of wireless transmissions from the base station to the handset while reducing interference, or "noise." Powerwave manufactures both single and multi-carrier RF power amplifiers for a variety of frequency ranges and transmission protocols. PWAV shares rallied in early October after the company posted losses that were higher than expected, but forecast meaningful growth in the coming quarters. Company officials noted the strength in Powerwave's newest product area, amplifiers for the emerging 3G W-CDMA market, which accounted for over 25% of third quarter revenue. Some analysts offered bullish recommendations after the news and investment bank Morgan Stanley suggested the stock was a "deal" at $13-$14. We would rather own it at a discounted cost basis near technical support. NOV 12.50 VFQ WV LB=0.40 OI=931 CB=12.10 DE=14 TY=24.2% ***** SMTC - Semtech $41.69 *** New 2001 High! *** Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal semiconductors. Semtech designs, manufactures and markets a wide range of products for commercial applications, the majority of which are sold to the communications, industrial and computer markets. Semtech's semiconductors enable power management, test, protection and a wide range of other functions in products that require analog or mixed-signal processing. Semtech's customers are primarily original equipment manufacturers that produce and sell electronics. SMTC shares rallied last week in conjunction with the bullish activity in the semiconductor group and now the issue is trading at a yearly high. Investors who are interested in the chip sector can use this position to establish a favorable cost basis in the issue. The company's quarterly earnings are due November 19. NOV 35.00 QTU WG LB=0.55 OI=345 CB=34.45 DE=14 TY=11.3% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional 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 and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield NTAP 14.99 NOV 12.50 NUL WV 0.40 1667 12.10 14 22.2% BRCD 25.53 NOV 20.00 BQB WD 0.45 4421 19.55 14 17.6% MCAF 22.67 NOV 20.00 CFU WD 0.55 31 19.45 14 17.2% BRCM 37.85 NOV 30.00 RCQ WF 0.55 6399 29.45 14 14.7% PECS 25.30 NOV 22.50 PQD WX 0.50 4 22.00 14 13.9% BBOX 50.90 NOV 45.00 QBX WI 0.65 70 44.35 14 9.3% AMAT 37.97 NOV 30.00 ANQ WF 0.30 5537 29.70 14 8.3% QCOM 53.52 NOV 40.00 AAW WH 0.35 7131 39.65 14 6.9% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, November 2 Blue-chip stocks moved higher Friday amid optimism that much of the bad news about the economy has been factored into current share values. The Dow Industrials closed up 59 points at 9,323 after spending much of the session in negative territory. The index of "old economy" stocks was led by gains in AT&T (NYSE:T), Boeing (NYSE:BA), Home Depot (NYSE:HD), McDonald's (NYSE:MCD), Minnesota Mining (NYSE:MMM), Honeywell (NYSE:HON) and Wal-Mart (NYSE:WMT). Technology issues took a breather after Thursday's rally with the NASDAQ Composite ending the session right where it started at 1,745. Among the hi-tech leaders, semiconductor stocks advanced for the third consecutive session and computer hardware issues also ended higher. The broader market S&P 500 Index ended the day unchanged as retail, chemical, gold, paper, insurance and brokerage stocks saw limited buying while oil and oil service, natural gas, and utility issues consolidated. The activity on the trading floor was muted with only 1.11 billion shares exchanged on the NYSE and 1.65 billion shares changing hands on the NASDAQ. Market breadth ended mixed, with winners edging losers 16 to 15 on the Big Board and decliners outpacing advancers 19 to 16 on the technology exchange. Bonds retreated after two sessions of enormous gains with the 30-year treasury falling 2 15/32 to yield 4.95%. Last week's new plays (positions/opening prices/strategy): Cabot Micro (NSDQ:CCMP) DEC80C/DEC55P $0.75 credit synthetic Open Text (NSDQ:OTEX) NOV30C/NOV25P $0.25 credit synthetic Technitrol (NYSE:TNL) JAN30C/NOV30C $1.25 debit calendar Lockheed (NYSE:LMT) NOV40P/NOV45P $0.60 credit bull-put Protein Labs (NSDQ:PDLI) NOV27P/NOV30P $0.35 credit bull-put Cabot Micro (NASDAQ:CCMP) was an outstanding performer, offering a better than expected entry opportunity early in the week and then rallying to a recent high on strength in the semiconductor group. The synthetic position yielded an excellent "early-exit" profit after only three days in the play. Our other synthetic position was in Open Text (NASDAQ:OTEX) and although the issue dropped far more than we expected, it finished the week higher and the play has already achieved a small gain. The worst performer from last Sunday's Spreads section was Technitrol (NYSE:TNL) and the only consolation in the conservative "time-selling" play is that we have three months for the issue to rebound and produce a profit. Our new position in Lockheed Martin (NYSE:LMT) was not available at the target price, but there was an acceptable opening credit for traders who are bullish on the issue. Protein Design Labs (NASDAQ:PDLI) dipped along with the majority of technology stocks on Monday and the target credit in the spread was easily achieved. Portfolio Activity: There was little activity in the Spreads portfolio this week and of the current positions, there are no issues on the watch-list. Among the credit spreads, Merck (NYSE:MRK), Nvidia (NASDAQ:NVDA) and the dual position in the S&P 100 Index (OEX) are at maximum profit. The adjusted diagonal position in Drexler (NASDAQ:DRXR) is comfortably profitable with the underlying issue well above the sold strike at $17.50. The credit strangles in Invitrogen (NASDAQ:IVGN) and Murphy Oil (NYSE:MUR) are performing just as expected, and the Covered-calls with LEAPS position in Microsoft (NASDAQ:MSFT) has already produced a favorable gain. It is also interesting to note that the bearish calendar spread in Astoria Financial (NASDAQ:ASFC) went on to achieve even greater profits after we closed the position for a sizeable gain and traders who held the long-term calls in Hollywood (NASDAQ:HLYW), Interactive Data (NASDAQ:IDCO) and Newell-Rubbermaid (NYSE:NEW) have reaped additional rewards. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** SUNW - Sun Microsystems $11.44 *** On The Rebound! *** Sun Microsystems (NASDAQ:SUNW) is a global provider of products, services and support solutions for building and maintaining network computing environments. Sun sells scalable computer and storage systems, high-speed microprocessors, and a comprehensive line of high-performance software for operating network computing equipment. The company also provides a broad range of services, including support, professional services and education. Sun's products are used for many commercial and technical applications in various industries including telecommunications, financial services, manufacturing, government, education and research, retail, health care, digital media and entertainment. Sun uses open industry standards, the Solaris Operating Environment and also UltraSPARC microprocessor architecture. Sun Microsystems has always been one of the "darlings" of the technology sector but in recent history, its share value has fallen to unthinkable lows. Now the issue is showing new signs of life and with the solid support near $10 and favorable option premiums, this position offers reasonable speculation for traders who wouldn't mind owning the stock. Target a credit in the play initially, to allow for a brief consolidation from last week's rally. PLAY (speculative - bullish/synthetic position): BUY CALL DEC-12.50 SUQ-LV OI=19236 A=$0.85 SELL PUT DEC-10.00 SUQ-XB OI=1906 B=$0.65 INITIAL NET CREDIT TARGET=$0.00-$0.10 TARGET PROFIT=$0.60-$0.75 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $390 per contract. ****************************************************************** INTU - Intuit $42.65 *** Earnings Speculation! *** Intuit (NASDAQ:INTU) offers a wide variety of small business, tax preparation and personal finance software products and related products and services that enable people and small businesses to revolutionize how they manage their activities. The company's products and services include QuickBooks, Quicken, TurboTax and Lacerte desktop software products, as well as an expanding array of Internet-based products and services, including QuickBooks Deluxe Payroll service, QuickBooks Internet Gateway services, the Site Builder website tool, TurboTax for the Web, Quicken.com, Quicken Loans and QuickenInsurance. Intuit offers its products and services through four principal business divisions: Small Business, Tax, Consumer Finance and International. Our recent time-selling position in Technitrol (NYSE:TNL) did not start out as well as expected so we decided to search for another candidate for traders who participate in bullish calendar spreads. Intuit's option premiums have been higher than normal over the past few weeks and the upcoming earnings report appears to be the catalyst for the increase in implied volatility. The quarterly announcement is expected on 11/15, just prior to the expiration of options in November and that combination of events offers an interesting opportunity for speculative traders. We expect to make an adjustment to the position prior to the release of the earnings report. PLAY (speculative - bullish/calendar spread): BUY CALL JAN-45 IQU-AI OI=10998 A=$4.20 SELL CALL NOV-45 IQU-KI OI=2318 B=$1.25 INITIAL NET DEBIT TARGET=$2.80-$2.95 TARGET PROFIT=25%-40% ****************************************************************** BGEN - Biogen $56.06 *** Trading Range? *** Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally engaged in developing, manufacturing and marketing drugs for human healthcare. Biogen derives most of its revenues from the sales of its Avonex (Interferon) product for the treatment of relapsing forms of multiple sclerosis, and from royalties on worldwide sales by licensees of a number of products covered under patents controlled by the company. Such products include forms of alpha interferon, hepatitis B vaccines and hepatitis B diagnostic test kits, among others. Biogen continues to have an active development program related to Avonex, and is conducting several important clinical trials of the product. Biogen also continues to devote significant resources to its other ongoing development efforts. This position in BGEN was discovered with one of our primary scan/sort techniques; identifying issues with limited upside and bullish options activity. The recent upside movement in the biotechnology group had relatively little affect on BGEN's share value and there is no reason to expect a significant (near-term) change in the current trend. In addition, the out-of-the-money call options are slightly inflated and the potential for a successful (technical) recovery is affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. PLAY (conservative - bearish/credit spread): BUY CALL NOV-65 BGQ-KM OI=1210 A=$0.20 SELL CALL NOV-60 BGQ-KL OI=2432 B=$0.75 INITIAL NET CREDIT TARGET=$0.60-$0.65 PROFIT(max)=14% ****************************************************************** - STRADDLES AND STRANGLES - Traders have been asking for more debit-straddle candidates and although the premiums for options are at relatively high levels, we found some issues that offer acceptable risk/reward ratios for short-term speculation plays. Both of these positions are based on the current price of the underlying issue and recent activity or technical trends. The probability of profit in these plays is higher than average based on theoretical option pricing, but as with any recommendations, they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** ABMD - Abiomed $22.87 *** Probability Play! *** Abiomed (NASDAQ:ABMD) is a developer, manufacturer, and marketer of medical products designed to safely and effectively assist or replace the pumping function of the failing heart. Abiomed's current commercial products and primary products in development are the BVS product line and the AbioCor system, respectively. These products are systems, or product lines, that consist of various component products. In addition, the company is in the early stages of research and development of other potential products for heart failure patients. PLAY (speculative - neutral/debit straddle): BUY CALL NOV-22.50 IBU-KX OI=322 A=$1.45 BUY PUT NOV-22.50 IBU-WX OI=100 A=$1.10 INITIAL NET DEBIT TARGET=$2.30-$2.45 TARGET PROFIT=20% ****************************************************************** JNPR - Juniper Networks $19.48 *** Cisco Earnings Monday! *** Juniper Networks (NASDAQ:JNPR) is a provider of purpose-built Internet infrastructure solutions that meet the scalability, performance, density and compatibility requirements of rapidly evolving, optically enabled Internet Protocol networks. The company's products are specifically designed, or purpose-built, for service provider networks and to accommodate the size and scope of the Internet. Juniper Networks' Internet backbone routers offer customers increased reliability, performance, scalability, interoperability and flexibility. The company's products combine high-performance, ASIC-based packet-forwarding technology, the features of the JUNOS Internet software and an Internet-optimized architecture into a purpose-built solution for the service provider market. The company's primary focus in its designs is to offer customers increased reliability, performance, scalability, interoperability and flexibility. PLAY (speculative - neutral/debit straddle): BUY CALL NOV-20 JUX-KD OI=6165 A=$1.75 BUY PUT NOV-20 JUX-WD OI=18307 A=$2.15 INITIAL NET DEBIT TARGET=$3.75-$3.80 TARGET PROFIT=20% ****************************************************************** STK - Storage Technology $19.49 *** Cheap Options! *** Storage Technology Corporation (NASDAQ:NASDAQ) designs, develops, manufactures and markets a broad range of information storage products, and also provides maintenance and consulting services. These storage products and services are designed to provide customers with a broad range of solutions for the storage and retrieval of digitized electronic data. StorageTek's solutions are designed to be easy to manage and allow universal access to data across servers, media types and storage networks. STK's products are used by a broad range of customers that include large multinational companies, mid-size and small businesses and governmental agencies encompassing a broad range of industry sectors, such as financial services, retail sales, telecom, transportation and a variety of manufacturing industries, as well as educational, scientific and medical institutions located around the world. PLAY (speculative - neutral/debit straddle): BUY CALL NOV-20 STK-KD OI=246 A=$0.65 BUY PUT NOV-20 STK-WD OI=63 A=$1.15 INITIAL NET DEBIT TARGET=$1.65-$1.70 TARGET PROFIT=25% Note: The Delta or "hedge ratio" in the position suggests that we should buy 3 calls for every 2 puts (3:2 ratio) to maintain a neutral outlook. However, any upward movement in the issue on Monday should allow both sides of the position to be purchased at similar prices. ****************************************************************** ************************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. 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