The Option Investor Newsletter Sunday 07-14-2002 Copyright 2002, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. 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 7-12 WE 7-05 WE 6-28 WE 6-21 DOW 8684.53 -694.97 9379.50 +136.24 9243.26 - 10.53 -220.42 Nasdaq 1373.50 - 74.86 1448.36 - 16.58 1464.96 + 24.01 - 63.79 S&P-100 458.91 - 33.75 492.66 + 2.54 490.12 + .70 - 12.34 S&P-500 921.39 - 67.64 989.03 - .79 989.82 + .69 - 18.14 W5000 8711.50 -601.90 9313.40 - 70.63 9384.03 - 5.95 -159.74 RUT 413.28 - 27.64 440.92 - 21.74 462.66 + 1.59 + 2.00 TRAN 2480.14 -172.50 2652.64 - 77.68 2730.32 - 25.32 + 82.50 VIX 38.33 + 8.12 30.21 + 1.08 29.13 - 2.15 + 1.35 VXN 66.00 + 9.72 56.28 - 1.67 57.95 - 1.35 + 3.63 TRIN 0.89 0.28 1.18 2.01 Put/Call 0.64 .77 .66 1.27 ****************************************************************** Back in the Red Again! by Jim Brown After a one week pause the Dow resumed it downward trend with the worst performance since the week after 9/11 The spectacular +323 point gain from last Friday was wiped out with a huge -694 point drop for the week. (-6.8%) The Nasdaq, although more resilient, also dropped another -74 points. This was the worst showing for both indexes in some time. The bad news still remains more downside risk ahead. Chart of the Dow Chart of the Nasdaq After the Dell guidance on Thursday and JNPR beating estimates, GE announced earnings on Friday and met street estimates on the surface. GE affirmed estimates going forward but cautioned that the good times had not yet returned. Analysts were quick to point out that GE earnings only increased +5.5% after special items were discounted. Not the +14% headline number, which was reported. The opening bounce was blunted by the Retail Sales report, which beat the consensus on the surface with a +1.1% gain but a closer look revealed that ex-autos it was only +0.4%. This is still good but left spoiled traders wanting more. The big rally blunting news was the Consumer Sentiment report which showed a drop to 86.5 from Junes 92.4. June had also dropped from 96.9 to 92.4. This represents a -10.4 drop in the last two months. The expectations component dropped a spectacular -9.4 points in the first half of July alone. The 78.5 reading is the lowest since last November. Analysts blamed the markets, worries over corporate finance and continued rises in unemployment as the reasons. The drop in sentiment is a leading indicator for a drop in consumer spending and analysts fear an indicator of the coming second dip. Economists swear a double dip recession is not probable but the signs are creeping back into the economy. Corporate problems were again in the headlines. Duke Energy and El Paso Energy acknowledged that they were under investigation for energy trading schemes. This tanked the energy sector again and helped push the Dow utilities close to a new low. News reports repeated the claim that Ebbers knew about the fraudulent transaction for at least a year and the SEC announced they had issued dozens of restraining orders and asset seizures. They said they are also pursuing vigorously and quickly to prosecute the guilty corporate officers. Expect the WCOM officers to be on the top of that list. Investigators said that there was absolutely no doubt that many more people at WCOM were aware of the problems. While the news is good long term for the market the short term impact was psychologically negative. 25 banks filed suit against WCOM on Friday for defrauding them of $2.5 billion six weeks before disclosing the $3.6 billion scam. After the bell the Wall street Journal reported that Qwest was going to restate their 2001 results and erase more than $1 billion in revenue from transactions under investigation by the SEC. The "swap" transactions were used by several telecom firms to inflate revenues when there was actually no financial benefit. Qwest has $26 billion in debt and its credit rating has been cut to junk. This may not be the end and it is seen as a preemptive event but one that the SEC could see as not strong enough. In an effort to avoid investor flight FNM and FRE decided to register their stock with the SEC but the agreement stopped short of requiring them to register their debt and mortgage bonds with the government. FNM CEO said it has not issued stock since the 1980s but makes 1,500 debt issuances and more than 40,000 mortgage backed security releases annually. SEC chief Pitt endorsed the arrangement in lieu of proposed legislation that would repeal their exemptions from reporting to the SEC. FRE and FNM have more then $1.3 trillion in debt and Congress had introduced legislation to cancel their exemptions in reporting on that debt. The companies have resisted calls for normal mandatory disclosure requirements. Wonder why they are so strongly against it? Enquiring minds want to know. An era passed into history on Friday. Investment banker Robertson Stevens closed their doors for the last time. It was announced 15 min after the market closed that Fleet Boston had given up on trying to sell the company and issued the order to close the it. Tough times when well known and highly reputable companies with over 850 remaining employees are shut down due to lack of interest. Fleet paid $700 million for RS in 1998 to capitalize on the technology boom and the IPO frenzy. They anticipate a charge of nearly $500 million for the shutdown. I wonder if they are going to auction off the 2,000 flat panel monitors they were showing in their trading room? Give me a dozen at $250 please! TrimTabs.com reported that nearly $6.3 billion flowed out of equity funds in the holiday shortened week ended Wednesday. While this compares favorable on the surface with the $10 and $9 billion prior weeks we need to remember it was really only three days. The bottom line is that investor sentiment has not changed and with the huge drop in the markets this week the number next Friday could be significantly higher. However, we are reaching the law of diminishing returns. $1 billion withdrawn from the markets a month ago was when stocks were selling at much higher levels. $1 billion next week could actually represent $1.25 billion the prior week and even $1.5 billion a couple weeks earlier. With new lows far outpacing new highs every day the loser stocks are getting much cheaper. An average of 436 stocks made new lows every day last week. How much does every billion withdrawn from equity funds next week really represent when it was first invested? Something to think about. First Call went on record again with the prediction that earnings for the second half could be rocky and analysts estimates are far too aggressive. I have mentioned this before so I will be brief. They claim the economic possibilities are far too grim for the current optimistic projections for the last two quarters. When analysts estimated earnings for the full year back in late 2001 they were operating on the assumption that the recovery would be stronger than it has been. Therefore the expectations are too optimistic. They have been too slow to revise them in hopes they would not have to look like idiots to the public. The closer we get to the 3Q the more drastically they will have to reduce them. To put it bluntly, after the reduced expectations are seen in the current earnings cycle the forecast for 3Q/4Q will drop quickly and with it the stock prices. This earnings estimate inflation and the possibility of negative disclosures does not bode well for the earnings cycle that moves into full speed next week. With the push to prosecute, freeze, confiscate assets, fire and ride executives out of town on a rail in full view of the press, the urge to "under report" and "over disclose" will be strong. What good is it to report pumped up earnings if you only have to restate when pressured by the SEC and investor watchdogs? It is a self defeating prospect and everyone will think twice before doing it this quarter. This is the primary reason the markets are in free fall. Fear of the unknown! They can no longer count on the estimated earnings being right or even close and the only protection is to move to cash until the smoke clears. This week we have Intel leading the way on Tuesday. Widely expected to guide lower their guidance will be critical for techs. Should they miss estimates the blow would be even worse. IBM follows on Wednesday and you know I expect trouble there. IBM not only may miss estimates but could rock the markets by disclosing any number of negative events. Nobody will want to be long the market when they announce. Microsoft will announce on Thursday and could actually beat estimates if the switch to a new licensing scheme produced a buying rush before it took effect on July-1st. All three of these are Dow components and a drop to disaster levels by the first two announcements could see a rebound on positive Microsoft news. If MSFT were to guide lower I do not even want to consider the result. Sound bearish enough? I am just trying to be realistic and paint the picture graphically enough for everyone to understand the complications. The Dow may have dropped -694 points for the week but there are those technical analysts that are predicting much worse. There are numerous "experts" now pointing out their version of a head and shoulders top and predicting dire results. While I do not give the very long term theory much credence and would rather base my assumptions on current events I feel the need to point out this projection. For more information on this pattern click here; http://www.stockcharts.com/education/What/ChartAnalysis/headShouldersTop.html Personally I think the earnings event risk from next week coupled with a desire to stand aside until the September bottom is tested by the Dow is a strong enough reason to expect something in the 8100 range soon regardless of what technical pattern you lay over it. Technicians have a habit of ignoring news events and assuming their chart patterns will lead them. I agree to some extent but the charts don't know who will confess next or how bad IBM will miss earnings. Real investors are standing aside because they are fed up with the current situation and fear the future. The charts are the speedometer which indicates the speed of the crash and will tell us later how bad it was. The bottom line to me is "why buy?" If you are an investor today you may be thinking about picking up some "cheap" stocks for the eventual recovery. The problem is still cheap by what yardstick? Price, PE, historical valuations? What if, like WCOM, they admit they falsified $3.6 billion in earnings over the last two years? Can they suddenly become overpriced? The point of course is that literally millions of investors are considering the risk of being in the market today and deciding cash looks better every day. Before I scare you out of being an investor completely just remember that when the smoke clears over the next 90 days the real bargains will appear. Those that are patient will profit handsomely. The market is NOT going to run away from us over the next week or two. Despite any short-term relief rallies the mother of all call opportunities will still be in our future. Be sure to check out the Traders Corner by Mike Parnos today. http://www.OptionInvestor.com/indexes/traderscorner.asp Enter Very Passively, Exit Very Aggressively! Jim Brown Editor Was this commentary helpful to you? Yes/No? I appreciate your comments. Jim@OptionInvestor.com Editors note: If you feel you have a specific trading style, technique, indicator, market view or anything that would benefit our readers, please email me and lets give everyone the benefit of your experience. Everybody has a different view of the same market and how to profit from it. We will review it and publish the best ones in the newsletter. They don't need to be pretty or professional, just well thought out with enough documentation to prove your case. If you are a successful trader in this market then others want to know your secrets! Email jim@OptionInvestor.com ******************** INDEX TRADER SUMMARY ******************** WHAT NEXT? by Leigh Stevens TRADING ACTIVITY AND OUTLOOK - A big earnings week this week - many stocks are quite oversold but buyers are few, so what does the market do? Maybe goes sideways for a day or two (or three) in an "indecision" pattern, until/unless a big gun company wows us with earnings either well above or below expectations. You have the Dow making a minor double bottom (8600), but with the average still well above its September low at 8062, relative to this week's close at 8684 - and a very weak close at that, relative to last week's open at 9375. Last weeks Dow loss from open to weekly close was 691 points or 7%! Like a famous senator once said, a few billion dollars here a few billion there and pretty soon you're talking about real money. You have the Nasdaq 100 (NDX) and its tracking stock, QQQ, starting to trade sideways as key Nasdaq stocks mark time, waiting for earnings and due to being more oversold than the Dow stocks. The Nasdaq Composite (COMP) was down 66 points or 4% on the week - a real switch relative to when tech was leading the market lower over past weeks and months. Hey, the market metes out "equal opportunity" punishment sooner or later - it was the turn of the Dow darlings last week! What's a poor trader to do? Maybe, not much, until we see some more market moving news! S&P 500 (SPX) Index - Daily/Hourly charts: The market is oversold, oversold, oversold - but, so what! The market was overbought, overbought, overbought at the 2000 top. The "overbought"/"oversold" concept is only meaningful in a "normal" market or in trading range - in other words it’s a relative concept, that does not provide useful help in trading strategies in "extreme" markets like this one. Being oversold does not necessarily mean that there is huge risk in shorting the market on rallies. A rally back to 953 in SPX, at the upper envelope line on the hourly chart, or to the 965 area, at the top of the downtrend channel would warrant a bearish play. If there was a close above 965, that would be an area to exit puts and look to re-short/buy puts again in the 980 area, at the 21-day day moving average. On the downside, I'll be looking at buying calls if SPX gets back to the 900 area, especially if the index shows an oversold reading again on the two hourly oscillators. S&P 100 (OEX) Index - Daily/Hourly charts: The weekly playbook is the same here as in the "500" index, only the numbers are different. Resistance implied by the upper envelope line is in the 475 area. Above this level, even stronger resistance is implied by the upper channel line in the 490 area - doubly so with the 21-day moving average at around 480 currently. 447-449 is where I anticipate near support. I would be inclined to buy on a dip into this area or possibly on a breakout above the recent high at 466 - what I don't like about this strategy, is that OEX will likely then soon run into overhead resistance. Better to wait to buy puts again on a rally if the prior 466 high is exceeded. Dow Index (1/100: $DJX.X) - Daily/Hourly charts: Nasdaq 100 ($NDX.X) Weekly chart: It's pretty simple - when NDX breaks out above 1089, resistance implied by the prior high and the long-term down trendline, this would be a "breakout" and potential major turnaround, at which point we can maybe buy and hold the NDX options and the QQQ stock and options for longer than a couple of days - maybe, even a couple of weeks! Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts: The QQQ pattern represents what can happen in a very oversold market - sellers stop pressing the short side, but buyers may still be lacking. Result: a narrowing of the price range, a type of "compression". Which way it will go, no one knows - until it "breaks" out either way. We have a cluster of 3 lows in the Q's at 23.5 to 24.4. On the upside, there are 4 (up) swing highs ranging from 25.5 to 26.5-26.8. The distance between this current trading-range is relatively narrow. Of course, what came before this recent narrowing of the price range, is the unrelenting downtrend that is so apparent on the daily chart. The lower envelope line has generally "contained" the lows, but the stock has "walked" down along the lower envelope line, and the trend is steadily down. At best there are occasional rallies to the centered 21-day moving average. The recent minor double bottom low does give pause to pressing the short side below 24. I suggested on our Market Monitor to short the stock/buy QQQ puts on the move up toward the upper channel line on Friday. I'm short the stock at 24.90, but have suggested a tight stop at 25.15 in case the Q's break out above the down trendline that has again started to form on the intraday charts. Its possible that the Nasdaq will continue the pattern of moving to ever new downswing lows. At a minimum I anticipate a pullback to the 24 area. The likelihood seems greater for the stock to move a dollar lower than a dollar higher, from Friday's 24.8 close. On the other side, a close above 25.5 is a bullish turn - if this develops, it may signal a further move up to the more significant resistance at and above 26. INTC (Intel) reports after the close on Tuesday; IBM on Wednesday and MSFT (Microsoft) on Thursday. Hang on to your hats folks! Earnings surprises, either plus or minus, should move QQQ out of this current range. If their reports are "neutral" only or in line, my expectation is that the Nasdaq is more inclined to rally on the absence of (more) bearish news. The S&P and Dow stocks, lately showing more weakness than the Nasdaq market, will also be an influence. The Dow was down 7%, but Nasdaq was still down 4% last week so one market will still weigh on the other. Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** Editor's Plays ************** Not Even Close! Both of the put plays from last week never even got close to their execution triggers. The market failed to follow through on the Friday rally and dropped like a rock. End of story. Despite my butchering of the option symbol on the QQQ July-26 put there were several readers who figured it out and were able to enter the trade at the $1.00 target based on the option price. That put traded over $2.50 on Thursday. Congratulations guys! Unfortunately nobody was able to get into the DJX-95 put for the target of $1.50, the low was $2.65, and it traded well over $8.0 on Thursday. Expiration and earnings in the same week!!! Wow! I thought I would suggest some plays based on the strategy Mike Parnos outlined in Sunday's Traders Corner. He is suggesting straddles on the big name earnings events using 90 day or longer options. With multiple big names this week it was not hard to find some candidates. ******************** Intel on Tuesday. Intel is expected to guide lower and could drop several dollars if this comes to pass. However because everyone expects negative news any positive events will be a serious shock to the shorts. At this point the bad news is already priced in and the good news is absent. Using the October options the OCT-17.50 straddle with Intel at $17.99 would cost $5.35. ($2.95 call, 2.40 put) Because option premiums decline slower farther away the losing side will not lose as much as the winning side is likely to gain. Hard core straddle players will look at the cost of the July 17.50 straddle at $2.00 and wonder why anybody would pay the cost for the October premiums. First, because with July options you only have three days before they expire. The premium on the losing side will evaporate before the open on Wednesday with no time value left. The $1.25 call could be bid a nickel at the open with any kind of negative news. That same negative news may not be enough to knock Intel below $16.50 initially and the put will never reach $1 in value. The lesson here, when in doubt buy time. If you know for sure then you don't need the straddle or the time and can just buy the correct option. That "knowing for sure" thing has always been a problem for me..... *************************** ITG on Wednesday (time unknown) No, not IBM. I was going to profile IBM but the options were nearly $14 for the straddle. I ran across ITG instead which according to Yahoo, announces on Wednesday as well. ITG options are much less expensive and have the ability to move just as much. ITG is in the business of providing automated equity trading services and transaction research to institutional investors. They are currently acquiring HOEN which has some substantial trading losses which are potentially covered by insurance. ITG is being forced to put $2.4 million of the acquisition price in escrow in order to continue fighting the insurance company for payment of these claims. The disclosure process could be interesting on ITG if there are any skeletons in their closet or in the HOEN closet. The October $30 straddle is $5.80 with the $30 put already $1.05 ITM. The July straddle is only $2.05 with the put $1.05 ITM. Any negative surprise could be really exciting! ********************* EMC on Thursday (BTB) This is my favorite. The trend is up and EMC has been so battered it would be hard for them to say anything bad enough to take them much below $7.00. This means any really sharp drop could accelerate the price of the put to a breakeven and leave you with a free call for October. The cost of the entire straddle is only $2.80 and the possibility of EMC trading over $10 by October is good. !!!! For an even cheaper play, buy the July $7.50 put instead for $.15, yes fifteen cents. If it is going to crash it will be on Thursday (they announce before the open) and that put could be cheap insurance on your long call. If they do not crash and say something good instead then the fifteen cents is nothing to the gain on the call. *********************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** You Know The Feeling by Steve Price You know the feeling you get as the roller coaster levels off after a steep drop; that split second feeling of relief, which is suddenly gone as you feel yourself shaking toward the next plunge. That pretty much describes the past week in the stock market. Thursday's rebound was just that - a temporary reprieve before the next drop. This took place Friday in the Dow, which was dragged down by a weak consumer confidence report and by the retailers after home Depot was downgraded by Merrill Lynch to a "neutral" rating, from a "strong buy," shedding 7.4% percent of its value and bringing Wal-Mart and Lowes along for the ride. The nearly 10% drop in the retail index this week mirrored losses in the broader markets. Retail sales appeared to beat expectations with a 1.1% increase, versus the expected 0.6% increase, however, after a 3.4% spike in auto sales was stripped away, the number reflected only a 0.4% increase versus an expectation of 0.5%. The University of Michigan Consumer Sentiment Index came in at 86.5, a fall from June's 92.4 level, reflecting the public's jitters from corporate scandals that continue to seep out week after week. These will no doubt be fueled by the Justice Department's probe of Duke Energy's trading operations. The Dow's loss of more than 7% since last Friday's close was its worst one- week drop since immediately after September 11, as it appears to be playing catch up to the S&P 500 and Nasdaq. This loss was underscored by the cyclicals, which gave up almost 8% for the week. Dell helped maintain the Nasdaq's Thursday closing level, which had already suffered a 5.2% drop for the week, when it announced after Thursday's bell that market share gains would allow it to surpass second quarter revenue and profit targets. Juniper also released encouraging news with better than expected second quarter results. Still, the tech sector continues to seek out new lows. On the positive side, the CBOE's put/call ratio dropped from the 80% range it had maintained all week into the 60% range on Friday, reflecting less panic put buying as a percentage of total options traded. Next week there are some big shots releasing earnings, most notably Intel, IBM and Microsoft, which should keep that feeling of anticipation as we come out of the latest drop and rattle toward the next turn. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 11350 52-week Low : 8062 Current : 8684 Moving Averages: (Simple) 10-dma: 9046 50-dma: 9655 200-dma: 9823 S&P 500 ($SPX) 52-week High: 1316 52-week Low : 901 Current : 921 Moving Averages: (Simple) 10-dma: 954 50-dma: 1030 200-dma: 1097 Nasdaq-100 ($NDX) 52-week High: 2071 52-week Low : 946 Current : 1000 Moving Averages: (Simple) 10-dma: 1003 50-dma: 1145 200-dma: 1390 ------------- Retail Index ($RLX) The RLX, which had shown the relative strength of consumer spending, has finally given in amid wilting consumer confidence and a big downgrade to one of its heavies. In the front of the toboggan sat Home Depot (NYSE:HD), followed by WalMart (NYSE: WMT),BJ's Wholesale Club (NYSE:BJ), Federated Department Stores (NYSE:FD), and Lowes (NYSE:LOW). The sector hasn't seen this level since October and appears to be in the process of finding out just how steep the hill below it will be. 52-week High: 367 52-week Low : 251 Current : 296 Moving Averages: (Simple) 10-dma: 315 50-dma: 337 200-dma: 332 --- Light Sweet Crude Oil (CL02Q, August contract), Oil Index ($XOI), Oil Service Sector ($OSX) How interesting! The Oil Index ($XOI) and Oil Service Sector Index ($OSX) have been pummeled over the last week, while Light, Sweet Crude Oil (CL02Q) continues its upward trend. Is it all Cheney's fault? Have the problems in refining and marketing only caught up in the last week? Could it be weakness in jet fuel demand that has been lingering since September. Hmmm. Moving Averages: (Simple) Light Sweet Crude: Current: 27.48 10-dma: 26.73 50-dma: 26.14 200-dma: 23.40 Oil Index: Current: 501.79 10-dma: 532.47 50-dma: 539.85 200-dma: 524.56 Oil Service Sector: Current: 83.66 10-dma: 88.97 50-dma: 99.78 200-dma: 89.24 ----------------------------------------------------------------- Market Volatility The VIX continues to trade in 40 range, trading over 41 intraday on Thursday and just under 40 on Friday. It's chart shows it possibly rounding off, but this could be due to option sellers trying to capture premium decay over the weekend. Sellers frequently come into the option pits on Friday afternoon with their palms out (selling) when volatility reaches high levels. The sellers hope any loss from their short gamma position due to a market move on Monday doesn't overcome the three days worth of time decay profit over the weekend. The VXN gave back a couple of points as the Nasdaq hung in after positive announcements from Dell and Juniper. CBOE Market Volatility Index (VIX) - 38.09 –0.55 Nasdaq-100 Volatility Index (VXN) - 66.38 -2.61 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.64 644,723 415,399 Equity Only 0.55 507,321 279,681 OEX 0.61 39,952 24,470 QQQ 0.46 72,256 33,260 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 41 - 0 Bull Correction NASDAQ-100 21 + 6 Bull Alert DOW 23 - 0 Bear Confirmed S&P 500 26 - 0 Bear Confirmed S&P 100 23 - 0 Bear Confirmed 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 1.43 10-Day Arms Index 1.42 21-Day Arms Index 1.41 55-Day Arms Index 1.39 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. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 1252 1874 NASDAQ 1561 1769 New Highs New Lows NYSE 32 182 NASDAQ 75 102 Volume (in millions) NYSE 1,865 NASDAQ 1,687 ----------------------------------------------------------------- Commitments Of Traders Report: 06/25/02 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 Commercials gave back only 700 of their net short positions, a small percentage change, maintaining a bearish position. Small Traders added back a couple of thousand contracts to their long position. Commercials Long Short Net % Of OI 06/18/02 437,530 487,956 (50,426) (5.4%) 06/25/02 378,214 438,775 (60,561) (7.4%) 07/09/02 396,321 456,164 (59,843) (7.0%) Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: ( 36,481) - 10/16/01 Small Traders Long Short Net % of OI 06/18/02 181,178 88,517 92,661 34.3% 06/25/02 134,380 62,792 71,588 36.3% 07/09/02 145,017 71,402 73,615 34.0% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 114,510 - 3/26/02 NASDAQ-100 Commercials added only slightly to their net short position, maintaining the status quo. Small Traders reduced their net long position by over 40%. Commercials Long Short Net % of OI 06/18/02 54,816 49,169 5,647 5.4% 06/25/02 27,238 35,926 (8,688) (13.8%) 07/09/02 31,227 39,592 (8,725) (12.3%) Most bearish reading of the year: (15,521) - 3/13/02 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 06/18/02 20,883 29,153 (8,270) (16.5%) 06/25/02 14,749 7,570 7,179 32.2% 07/09/02 12,520 8,348 4,175 20.0% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 8,460 - 3/13/02 DOW JONES INDUSTRIAL Dow Commercials brought their long positions back up to their previous levels, adding almost 2,000 contracts. Small Traders maintained their previous bullish levels. Commercials Long Short Net % of OI 06/18/02 25,995 19,115 6,880 15.1% 06/25/02 18,016 13,255 4,761 15.2% 07/09/02 20,761 14,122 6,639 19.0% 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 06/18/02 5,379 11,813 (6,434) (37.2%) 06/25/02 6,414 6,597 183 1.40% 07/09/02 6,831 6,623 208 1.50% Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ *************** ASK THE ANALYST *************** Midway Point By Eric Utley Well, we’re about half way through what are known as the summer doldrums. But I have to confess that the last few weeks have been anything but dull. And the action should continue to at least provide entertainment, if not a few profits. Granted, we’re entering into the worst months for the Nasdaq, historically speaking of course. But the seasonality comes at an interesting time for this intermediate-term cycle, which has some of the more important indicators of the market pointing towards some upside. Still, it’s hard to remain too attached to the screens. What with all the fishing to be done this summer. See ya’ on the river! The point and figure charts that appear in this column were created using www.Stockcharts.com. Please send your questions and suggestions to: Contact Support ---------------------------- Tyco (NYSE:TYC) I was wondering with all that has gone on what your thinking was for TYC. I’ve been thinking about buying the stock for a bottom fishing play, what are your thoughts? – Thanks, Roger Thank you for the question, Roger. Obviously TYC, the stock and the company, has been through a lot in the last six months. I’ll spare you the details, and save those for the journalists who have been covering this story as it unfolds. After all, it’s still being written. The biggest loss at TYC was its credibility, which takes time to restore in the marketplace. That’s my sense with TYC, just from a feeling. Moreover, there’s been a lot of technical damage done, which itself needs time to repair. The two, credibility and price, go hand in hand in my opinion. Though TYC has a long road ahead of it, there have been some short-term improvements in its technical position in the last few weeks. For one, the stock is back on a buy signal which is why I consider its current technical position improved. The rally off of the most recent leg lower carried TYC up to the $16 level, putting the stock back on a buy signal and paving the way, perhaps, for further upside work. What I find interesting is the sideways, narrowing consolidation that has been put in place in the last month. The stock held the $11.50 level twice now, which makes it a double bottom and reference point for short term support. If the stock can breakout above its most recent relative high at the $16 level, then I think there could be some decent upside to TYC. But of course you need to play it with a smart stop, which I think is at the $11 level. Obviously the closer you can get the stock to that level, the better because of the reduced risk near support. ---------------------------- Ford (NYSE:F) What are your thoughts on F? Where do you see it going and Where do you see support and resistance? – Thanks, Chuck. Good question, Chuck. Thank you. The broader auto sector, including the manufacturers and the parts makers, were trading incredibly well coming out of the September 11 event and into the early part of this year. The zero percent financing offered up by the manufacturers caused a huge boost in sales, which trickled down through the entire sector. It was only two months ago that the leaders in the sector were trading at yearly highs. Just take a look at the daily of General Motors (NYSE:GM), which looks now like it has fallen off of a cliff. So what happened? I’m not quite sure the exact reasons, but I think the discontinuation of the zero percent financing was disliked by the market as it hurt sales. Plus the growing concern over the strength of the consumer is hurting the auto sector. Last week’s sentiment numbers pretty much confirmed what we’ve been seeing the consumer sensitive sectors of the market such as the autos. The shift in sentiment in the auto sector about two months ago really hurt the weak players in the group, which F is one of. Just looking at the GM chart versus F up until the last two months showed just how weak F was to the rest of the leaders. Again, GM was at a yearly high, yet F was trading down near a multi year low. Still, F had shown some technical improvements since last fall, but I’m beginning to believe that the improvements in F were only related to the sector sentiment, and not specific to the company itself. The reason being because of the stock’s relative weakness. The shift in sentiment was all that was needed to break F from its slight upward trend, and down to new lows in last week’s session. The stock lost all that it had built in the last six months with the recent breakdown, and I think it really helps to confirm just how bad business has gotten on F. I think that the stock is a good short for fundamental reasons, if only you can get it at a good risk management level near resistance. Even though it’s a low priced stock, I have the feeling that it’s going to become a lot cheaper. F is not necessarily a great short where it is now, only because it’s had a big downside move in the last three days. But if it were to come back up into short term resistance, then I think that you can jump all over this thing. ---------------------------- 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 ************* ================================================== Market Watch for the week of July 15th ================================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- BAC Bank of America Mon, Jul 15 -----N/A----- 1.39 BRE BRE Properties Mon, Jul 15 After the Bell 0.68 CSL Carlisle Companies Mon, Jul 15 After the Bell 0.77 CTSH Cognizant Tech Sol Mon, Jul 15 After the Bell 0.36 CBSS Compass Bancshares Mon, Jul 15 -----N/A----- 0.60 ETN Eaton Mon, Jul 15 -----N/A----- 1.20 FNM Fannie Mae Mon, Jul 15 -----N/A----- 1.52 FTN First Tennessee Ntl Mon, Jul 15 Before the Bell 0.67 FBF FleetBoston Financial Mon, Jul 15 Before the Bell 0.71 HIB Hibernia Corporation Mon, Jul 15 -----N/A----- 0.38 HU Hudson United Bancorp Mon, Jul 15 -----N/A----- 0.56 GMH Hughes Electronics Mon, Jul 15 Before the Bell -0.16 RX IMS Health Mon, Jul 15 After the Bell 0.23 JBHT JB Hunt Transportation Mon, Jul 15 -----N/A----- 0.27 MYG Maytag Mon, Jul 15 After the Bell 0.85 MHK Mohawk Industries Mon, Jul 15 -----N/A----- 1.11 NTRS Northern Trust Mon, Jul 15 Before the Bell 0.57 PKG Packaging Corp of Am Mon, Jul 15 Before the Bell 0.12 PP Prentiss Properties Mon, Jul 15 After the Bell 0.85 SKM SK Telecom Mon, Jul 15 Before the Bell N/A SKFR SKF AB Mon, Jul 15 Before the Bell N/A SWBT Southwest Bancorp TX Mon, Jul 15 After the Bell 0.42 ------------------------- TUESDAY ------------------------------ AL Alcan Inc. Tue, Jul 16 -----N/A----- 0.41 ALS Alstom SA Tue, Jul 16 Before the Bell N/A ASO AmSouth Bancorporation Tue, Jul 16 Before the Bell 0.41 AAPL Apple Computer Tue, Jul 16 After the Bell 0.09 ONE Bank One Tue, Jul 16 Before the Bell 0.68 COF Capital One Financial Tue, Jul 16 After the Bell 0.86 CAT Caterpillar Tue, Jul 16 Before the Bell 0.73 CEC CEC Entertainment Tue, Jul 16 -----N/A----- 0.52 CNT CenterPoint Prop Trust Tue, Jul 16 After the Bell 0.99 CYN City National Tue, Jul 16 Before the Bell 0.88 CNB Colonial BancGroup Tue, Jul 16 -----N/A----- 0.30 CPWR Compuware Tue, Jul 16 After the Bell 0.05 FBAN F.N.B. Corporation Tue, Jul 16 After the Bell 0.52 FITB Fifth Third Bancorp Tue, Jul 16 Before the Bell 0.68 FULT Fulton Financial Tue, Jul 16 After the Bell 0.32 GCI Gannett Tue, Jul 16 Before the Bell 1.13 GM General Motors Tue, Jul 16 Before the Bell 2.42 GNTX Gentex Tue, Jul 16 -----N/A----- 0.25 GSB Golden State Bancorp Tue, Jul 16 Before the Bell 0.87 GPT GreenPoint Financial Tue, Jul 16 Before the Bell 1.28 HDI Harley-Davidson Tue, Jul 16 After the Bell 0.44 HCN Health Care REIT Tue, Jul 16 After the Bell 0.66 HNI Hon Industries Tue, Jul 16 Before the Bell 0.29 HCBK Hudson City Bancorp Tue, Jul 16 After the Bell 0.23 INTC Intel Tue, Jul 16 After the Bell 0.11 JEF Jefferies Group Tue, Jul 16 Before the Bell 0.64 JNC John Nuveen Tue, Jul 16 Before the Bell 0.31 JNJ Johnson & Johnson Tue, Jul 16 Before the Bell 0.58 KEY KeyCorp Tue, Jul 16 Before the Bell 0.57 LLL L-3 Comm Hldg Tue, Jul 16 Before the Bell 0.47 MDC M.D.C Holdings Tue, Jul 16 Before the Bell 1.11 MEG Media General Tue, Jul 16 Before the Bell 0.65 MEL Mellon Financial Corp Tue, Jul 16 -----N/A----- 0.47 MER Merrill Lynch Tue, Jul 16 Before the Bell 0.58 MLNM Millennium Pharm Tue, Jul 16 After the Bell -0.19 MIL Millipore Tue, Jul 16 After the Bell 0.46 MOT Motorola Tue, Jul 16 After the Bell -0.04 MLI Mueller Industries Tue, Jul 16 Before the Bell 0.55 NXTL Nextel Communications Tue, Jul 16 Before the Bell -0.25 PPP Pogo Producing Tue, Jul 16 -----N/A----- 0.38 PII Polaris Industries Tue, Jul 16 Before the Bell 0.81 PCP Precision Castparts Tue, Jul 16 Before the Bell 0.77 RJF Raymond James Tue, Jul 16 -----N/A----- 0.50 RFMD RF Micro Devices Tue, Jul 16 After the Bell 0.00 COL Rockwell Collins, Inc. Tue, Jul 16 Before the Bell 0.32 RDC Rowan Companies Tue, Jul 16 Before the Bell -0.11 PHG Royal Philips Tue, Jul 16 Before the Bell N/A STT State Street Tue, Jul 16 Before the Bell 0.52 SYK Stryker Tue, Jul 16 After the Bell 0.40 TDS Telephone Data Tue, Jul 16 Before the Bell 1.02 TER Teradyne Tue, Jul 16 After the Bell -0.30 NLS The Nautilus Group Tue, Jul 16 After the Bell 0.64 NYT The New York Times Co Tue, Jul 16 Before the Bell 0.52 TRMK Trustmark Corporation Tue, Jul 16 -----N/A----- 0.48 TSS TSYS Tue, Jul 16 -----N/A----- 0.15 USM U.S. Cellular Tue, Jul 16 Before the Bell 0.60 USB US Bancorp Tue, Jul 16 During the Market 0.45 VRTS Veritas Software Tue, Jul 16 After the Bell 0.14 WM Washington Mutual Tue, Jul 16 After the Bell 0.99 WFC Wells Fargo Tue, Jul 16 Before the Bell 0.82 WABC Westamerica Bancorp Tue, Jul 16 -----N/A----- 0.64 WHR Whirlpool Tue, Jul 16 Before the Bell 1.46 ----------------------- WEDNESDAY ----------------------------- AMD Advanced Micro Devices Wed, Jul 17 After the Bell -0.45 ALEX Alexander&Baldwin Wed, Jul 17 After the Bell N/A ATI Allegheny Technologies Wed, Jul 17 Before the Bell -0.07 ADS Alliance Data Sys Corp Wed, Jul 17 After the Bell 0.13 ABK Ambac Financial Wed, Jul 17 Before the Bell 1.12 ASD American Standard Wed, Jul 17 -----N/A----- 1.67 APH Amphenol Wed, Jul 17 -----N/A----- 0.45 AMR AMR Wed, Jul 17 -----N/A----- -2.99 ASML ASML Holdings NV Wed, Jul 17 Before the Bell -0.11 ADP Automatic Data Prcsng Wed, Jul 17 After the Bell 0.47 BK Bank of New York Wed, Jul 17 Before the Bell 0.51 BA Boeing Wed, Jul 17 Before the Bell 0.80 BOKF BOK Financial Wed, Jul 17 -----N/A----- 0.56 BCR C.R. Bard Wed, Jul 17 After the Bell 0.82 CSG Cadbury Schweppes Wed, Jul 17 Before the Bell N/A CDWC CDW Computer Centers Wed, Jul 17 After the Bell 0.48 CLS Celestica Wed, Jul 17 After the Bell 0.27 CD Cendant Wed, Jul 17 After the Bell 0.37 CTX Centex Corporation Wed, Jul 17 Before the Bell 1.26 CERN Cerner Wed, Jul 17 After the Bell 0.31 CNF CNF Inc. Wed, Jul 17 After the Bell 0.36 CCE Coca-Cola Enterprises Wed, Jul 17 Before the Bell 0.39 CMA Comerica Wed, Jul 17 Before the Bell 1.00 DCN Dana Wed, Jul 17 -----N/A----- 0.43 DPH Delphi Wed, Jul 17 Before the Bell 0.39 DOV Dover Wed, Jul 17 After the Bell 0.31 DSL Downey Financial Wed, Jul 17 Before the Bell 1.10 ET E*TRADE Wed, Jul 17 After the Bell 0.11 EXTR Extreme Networks Wed, Jul 17 After the Bell 0.03 FMBI First Midwest Bancorp Wed, Jul 17 -----N/A----- 0.46 F Ford Motor Company Wed, Jul 17 Before the Bell 0.26 FRX Forest Laboratories Wed, Jul 17 Before the Bell 0.58 GD General Dynamics Wed, Jul 17 Before the Bell 1.27 GENZ Genzyme Wed, Jul 17 Before the Bell 0.25 GPN Global Payments Wed, Jul 17 After the Bell 0.31 GGG Graco Wed, Jul 17 Before the Bell 0.41 GBBK Greater Bay Bancorp Wed, Jul 17 Before the Bell 0.58 HET Harrah`s Entertainment Wed, Jul 17 Before the Bell 0.70 HON Honeywell Wed, Jul 17 Before the Bell 0.55 HMT Host Marriott REIT Wed, Jul 17 Before the Bell 0.35 HI Household Intl Wed, Jul 17 Before the Bell 1.08 IDPH Idec Pharmaceuticals Wed, Jul 17 After the Bell 0.19 IBM Intl Bus Machines Wed, Jul 17 After the Bell 0.83 ITG Investment Tech Grp Wed, Jul 17 -----N/A----- 0.42 JPM J.P. Morgan Chase & Co Wed, Jul 17 Before the Bell 0.65 KMI Kinder Morgan Wed, Jul 17 -----N/A----- 0.57 KRI Knight-Ridder Wed, Jul 17 Before the Bell 0.88 KFT Kraft Foods Inc. Wed, Jul 17 After the Bell 0.54 LEG Leggett & Platt Wed, Jul 17 After the Bell 0.31 LECO Lincoln Electric Wed, Jul 17 Before the Bell 0.46 LIN Linens `n Things Wed, Jul 17 Before the Bell 0.11 MAN Manpower Wed, Jul 17 Before the Bell 0.25 MDG Meridian Gold Wed, Jul 17 After the Bell 0.15 MEOH Methanex Wed, Jul 17 -----N/A----- 0.07 MCHP Microchip Technology Wed, Jul 17 After the Bell 0.15 NCF Ntl Com Fncl Corp Wed, Jul 17 During the Market 0.38 NATI National Instruments Wed, Jul 17 After the Bell 0.15 NAP National Processing Wed, Jul 17 Before the Bell 0.28 NYCB New York Com Bancorp Wed, Jul 17 Before the Bell 0.51 NOC Northrop Grumman Wed, Jul 17 Before the Bell 1.46 NUE Nucor Wed, Jul 17 -----N/A----- 0.52 ODP Office Depot Wed, Jul 17 Before the Bell 0.20 PFE Pfizer Wed, Jul 17 -----N/A----- 0.32 PPDI Phar Product Dvlopmnt Wed, Jul 17 After the Bell 0.31 PCL Plum Creek Timber Wed, Jul 17 After the Bell 0.26 PLCM Polycom Incorporated Wed, Jul 17 After the Bell 0.13 PGR Progressive Wed, Jul 17 After the Bell 0.80 PFGI Provident Fnl Grp Wed, Jul 17 Before the Bell 0.58 PEG Public Service Ent Grp Wed, Jul 17 Before the Bell 0.68 RTN Raytheon Co. Wed, Jul 17 After the Bell 0.54 RSLN Roslyn Bancorp Wed, Jul 17 -----N/A----- 0.43 SIB SI Bank & Trust Wed, Jul 17 After the Bell 0.37 SEBL Siebel Systems Wed, Jul 17 After the Bell 0.09 SKYF Sky Financial Group Wed, Jul 17 -----N/A----- 0.39 SII Smith International Wed, Jul 17 After the Bell 0.27 SON Sonoco Products Wed, Jul 17 -----N/A----- 0.40 SOTR SouthTrust Wed, Jul 17 -----N/A----- 0.45 STJ St. Jude Medical Wed, Jul 17 Before the Bell 0.35 SWK Stanley Works Wed, Jul 17 Before the Bell 0.72 SYMC Symantec Wed, Jul 17 After the Bell 0.32 SNV Synovus Financial Wed, Jul 17 After the Bell 0.29 TCB TCF Financial Wed, Jul 17 Before the Bell 0.76 TFX Teleflex Wed, Jul 17 After the Bell 0.86 TLAB Tellabs Wed, Jul 17 Before the Bell 0.01 TIN Temple Inland Wed, Jul 17 -----N/A----- 0.37 KO The Coca-Cola Company Wed, Jul 17 Before the Bell 0.52 TBL Timberland Wed, Jul 17 Before the Bell 0.11 UB UnionBanCal Wed, Jul 17 After the Bell 0.80 UTX United Technologies Wed, Jul 17 -----N/A----- 1.20 UHS Universal Health Srvcs Wed, Jul 17 After the Bell 0.64 VLY Valley Ntl Bancorp Wed, Jul 17 -----N/A----- 0.38 VFC VF Wed, Jul 17 Before the Bell 0.63 WES Westcorp Wed, Jul 17 After the Bell 0.55 ZION Zions Bancorp Wed, Jul 17 After the Bell 0.90 ------------------------- THURSDAY ----------------------------- ATR AptarGroup Thu, Jul 18 After the Bell 0.50 ACI Arch Coal Thu, Jul 18 -----N/A----- -0.08 ARM ArvinMeritor Inc. Thu, Jul 18 Before the Bell 0.83 AF Astoria Financial Thu, Jul 18 Before the Bell 0.72 ATML Atmel Thu, Jul 18 -----N/A----- -0.05 ALV Autoliv Thu, Jul 18 Before the Bell 0.47 ACLS Axcelis Technologies Thu, Jul 18 After the Bell -0.04 BXS BancorpSouth Thu, Jul 18 After the Bell 0.36 BAX Baxter International Thu, Jul 18 Before the Bell 0.48 BGEN Biogen Thu, Jul 18 Before the Bell 0.30 BCC Boise Cascade Thu, Jul 18 Before the Bell -0.05 BRCM Broadcom Thu, Jul 18 After the Bell -0.07 BR Burlington Resources Thu, Jul 18 Before the Bell 0.36 ELY Callaway Golf Thu, Jul 18 After the Bell 0.43 POS Catalina Marketing Thu, Jul 18 After the Bell 0.18 CX Cemex, S.A. de C.V. Thu, Jul 18 -----N/A----- 0.73 CEN Ceridian Thu, Jul 18 Before the Bell 0.16 CF Charter One Financial Thu, Jul 18 After the Bell 0.63 CHRT Chartered Semi Manu Thu, Jul 18 After the Bell -0.76 CFBX Com First Bankshares Thu, Jul 18 Before the Bell 0.48 ED Consolidated Edison Thu, Jul 18 -----N/A----- 0.50 CTB Cooper Tire & Rubber Thu, Jul 18 Before the Bell 0.48 CR Crane Thu, Jul 18 After the Bell 0.41 CY Cypress Semiconductor Thu, Jul 18 Before the Bell -0.07 CYT Cytec Industries Thu, Jul 18 After the Bell 0.42 DCX DaimlerChrysler Thu, Jul 18 Before the Bell 0.72 DHR Danaher Thu, Jul 18 -----N/A----- 0.65 DAL Delta Air Lines Thu, Jul 18 Before the Bell -1.39 DLX Deluxe Thu, Jul 18 Before the Bell 0.75 DL Dial Thu, Jul 18 Before the Bell 0.32 DO Diamond Offshore Drill Thu, Jul 18 Before the Bell 0.10 DOL Dole Food Thu, Jul 18 Before the Bell 1.01 EBAY eBay Thu, Jul 18 After the Bell N/A ELUX Electrolux Ab Thu, Jul 18 -----N/A----- 0.77 LLY Eli Lilly Thu, Jul 18 Before the Bell 0.61 EMC EMC Thu, Jul 18 Before the Bell -0.02 ESV ENSCO International Thu, Jul 18 Before the Bell 0.13 FIC Fair Isaac &Co Thu, Jul 18 After the Bell 0.41 FMER FirstMerit Thu, Jul 18 Before the Bell 0.52 FO Fortune Brands Thu, Jul 18 Before the Bell 0.87 FCX Freprt-McMoRan Cop/Gld Thu, Jul 18 Before the Bell 0.03 GTW Gateway Thu, Jul 18 After the Bell -0.17 GPC Genuine Parts Thu, Jul 18 -----N/A----- 0.55 GP Georgia-Pacific Thu, Jul 18 Before the Bell 0.44 GDW Golden West Financial Thu, Jul 18 -----N/A----- 1.41 GDT Guidant Thu, Jul 18 After the Bell 0.49 HSC Harsco Corporation Thu, Jul 18 Before the Bell 0.69 HBAN Huntington Bancshares Thu, Jul 18 Before the Bell 0.32 ITW Illinois Tool Works Thu, Jul 18 Before the Bell 0.85 IR Ingersoll-Rand Co. Ltd Thu, Jul 18 Before the Bell 0.72 IP International Paper Thu, Jul 18 Before the Bell 0.20 JEC Jacobs Eng Grp Inc. Thu, Jul 18 Before the Bell 0.50 JCI Johnson Controls Thu, Jul 18 Before the Bell 1.80 LM Legg Mason Thu, Jul 18 During the Market 0.68 LVLT Level 3 Communications Thu, Jul 18 Before the Bell -0.83 LIZ Liz Claiborne Thu, Jul 18 Before the Bell 0.35 LMT Lockheed Martin Thu, Jul 18 -----N/A----- 0.57 MAT Mattel Thu, Jul 18 Before the Bell 0.05 MCDTA McDATA Corporation Thu, Jul 18 After the Bell -0.07 MERQ Mercury Interactive Thu, Jul 18 After the Bell 0.14 MSFT Microsoft Thu, Jul 18 -----N/A----- 0.42 NBR Nabors Industries Thu, Jul 18 -----N/A----- 0.18 NCC National City Thu, Jul 18 Before the Bell 0.61 GAS Nicor Thu, Jul 18 After the Bell 0.65 NOK Nokia Corporation Thu, Jul 18 -----N/A----- 0.17 NT Nortel Networks Thu, Jul 18 -----N/A----- -0.09 OO Oakley Thu, Jul 18 Before the Bell 0.31 PTEN Patterson-UTI Energy Thu, Jul 18 Before the Bell -0.03 PBCT People`s Bank Thu, Jul 18 After the Bell 0.20 PSFT PeopleSoft Thu, Jul 18 After the Bell 0.13 MO Philip Morris Thu, Jul 18 -----N/A----- 1.23 PBI Pitney Bowes Thu, Jul 18 After the Bell 0.59 PMCS PMC-Sierra Thu, Jul 18 After the Bell -0.08 PSD Puget Sound Energy Thu, Jul 18 After the Bell 0.22 QLGC QLogic Thu, Jul 18 After the Bell 0.23 RATL Rational Software Thu, Jul 18 After the Bell 0.03 RHI Robert Half Intl Thu, Jul 18 After the Bell 0.02 RG Rogers Communications Thu, Jul 18 Before the Bell N/A TSG Sabre Holdings Corp Thu, Jul 18 Before the Bell 0.56 SANM Sanmina-SCI Corp. Thu, Jul 18 -----N/A----- 0.02 SCHL Scholastic Thu, Jul 18 -----N/A----- 1.25 SFA Scientific-Atlanta Thu, Jul 18 After the Bell 0.25 SEIC SEI Investments Thu, Jul 18 Before the Bell 0.30 SHW Sherwin-Williams Thu, Jul 18 Before the Bell 0.67 SIVB Silicon Vly Bancshares Thu, Jul 18 -----N/A----- 0.33 LUV Southwest Airlines Thu, Jul 18 -----N/A----- 0.11 SOV Sovereign Bancorp Thu, Jul 18 After the Bell 0.31 FON Sprint (FON Group) Thu, Jul 18 Before the Bell 0.33 PCS Sprint (PCS Group) Thu, Jul 18 Before the Bell -0.07 STU Student Loan Thu, Jul 18 After the Bell N/A SUNW Sun Microsystems Thu, Jul 18 After the Bell 0.01 SUP Superior Industries Thu, Jul 18 Before the Bell 0.71 SBL Symbol Technologies Thu, Jul 18 After the Bell 0.04 TE TECO Energy Thu, Jul 18 Before the Bell 0.54 TXT Textron Thu, Jul 18 -----N/A----- 0.76 MNI The McClatchy Company Thu, Jul 18 Before the Bell 0.77 TKR Timken Thu, Jul 18 Before the Bell 0.27 TMK Torchmark Thu, Jul 18 Before the Bell 0.87 TAC TRANSALTA CORP Thu, Jul 18 -----N/A----- N/A TRB Tribune Thu, Jul 18 Before the Bell 0.45 TRW TRW Thu, Jul 18 Before the Bell 1.09 UNP Union Pacific Thu, Jul 18 Before the Bell 1.06 UPC Union Planters Thu, Jul 18 After the Bell 0.62 UIS Unisys Thu, Jul 18 After the Bell 0.13 UNH UnitedHealth Group Thu, Jul 18 Before the Bell 0.95 SLM USA Education Thu, Jul 18 Before the Bell 1.10 UTSI UTStarcom Thu, Jul 18 After the Bell 0.22 VRTX Vertex Pharmaceuticals Thu, Jul 18 -----N/A----- -0.28 WB Wachovia Thu, Jul 18 Before the Bell 0.69 WTNY Whitney Holding Thu, Jul 18 -----N/A----- 0.54 WL Wilmington Trust Thu, Jul 18 -----N/A----- 0.50 XLNX Xilinx Thu, Jul 18 After the Bell 0.12 ------------------------- FRIDAY ------------------------------- AKS AK Steel Holding Fri, Jul 19 -----N/A----- 0.02 AVP Avon Products Fri, Jul 19 Before the Bell 0.63 AVX AVX Corporation Fri, Jul 19 Before the Bell -0.01 CUM Cummins Inc. Fri, Jul 19 -----N/A----- 0.19 ERICY Ericsson LM Telephone Fri, Jul 19 -----N/A----- -0.03 FSS Federal Signal Fri, Jul 19 Before the Bell 0.24 MRK Merck Fri, Jul 19 Before the Bell 0.76 PEP Pepsico Fri, Jul 19 -----N/A----- 0.52 VC Visteon Fri, Jul 19 Before the Bell 0.56 WPO Washington Post Fri, Jul 19 -----N/A----- 4.50 WIT Wipro Limited Fri, Jul 19 -----N/A----- 0.20 ZBRA Zebra Technologies Fri, Jul 19 Before the Bell 0.53 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable KRB MBNA Corporation 3:2 07/12 07/15 SBCF Seacoast Banking Corp. 3:1 07/12 07/15 ERES eResearchTechnology 3:2 07/16 07/17 REXL Rexhall Industries 2:1 07/18 07/19 ANFI American National Fin Inc.5:4 07/18 07/21 DSWL Deswell Industries 3:2 07/22 07/23 CHS Chicos FAS 2:1 07/26 07/29 -------------------------- Economic Reports This Week -------------------------- While there is a full house of economic reports this week they will all take a back seat to the flood of Q2 earnings reports that will hit Wall Street. Big boys like INTC on Tuesday, IBM on Wednesday and MSFT on Thursday will be headliners. ============================================================== -For- Monday, 07/15/02 ---------------- Business Inventories(BB)May Forecast: -0.1% Previous: -0.2% Tuesday, 07/16/02 ----------------- Industrial Prduction(DM)Jun Forecast: 0.4% Previous: 0.2% Capacity Utilization(DM)Jun Forecast: 75.8% Previous: 75.5% Wednesday, 07/17/02 ------------------- Housing Starts (BB) Jun Forecast: 1.680M Previous: 1.733M Building Permits (BB) Jun Forecast: 1.660M Previous: 1.676M Thursday, 07/18/02 ------------------ Initial Claims (BB) 07/13 Forecast: N/A Previous: 403K Leading Indicators (DM) Jun Forecast: -0.1% Previous: 0.4% Philadelphia Fed (DM) Jul Forecast: 18.0 Previous: 22.2 Friday, 07/19/02 ---------------- Trade Balance (BB) May Forecast:-$35.5B Previous: -$35.9B CPI (BB) Jun Forecast: 0.1% Previous: 0.0% Core CPI (BB) Jun Forecast: 0.2% Previous: 0.2% Treasury Budget (DM) Jun Forecast: $25.7B Previous: $31.9B Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! 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The Option Investor Newsletter Sunday 07-14-2002 Sunday 2 of 5 ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********************** INDEX TRADER GAMEPLANS ********************** WEEKLY SECTOR TRADER: Sunday, 7/14/02 THE SECTOR BEAT - 7/14 by Leigh Stevens The slowing of downside momentum and the trend toward more of a sideways move in the Nasdaq, is reflected in some of the key tech sectors like (Computer) Boxmakers, Internet, Networking, Semiconductors, Software and even the Telecom sector - these 6 "ugly duckling" sectors are all featured in the "Highlights" section below. There are in every market cycle a rotational nature to market corrections as sectors that were leaders fall out of favor - fund managers especially tend to book profits on stock groups that are "fully priced" (relative to fundamental outlook for the companies involved) and start to "probe" other stock groups that are the current ugly ducklings - in this group are the Defense, Financial, and Gold stocks. These 3 are also featured in this week's Highlights section. UP THE MOST on Friday - DOWN THE MOST on Friday - SECTOR TRADE RECOMMENDATIONS & REVIEW - NEW TRADE RECOMMENDATION(S) - NONE OPEN TRADE REC(S) - NONE OPEN POSITIONS - Long HHH at 21.50 (Internet HOLDR's) Stop: 20.00 Long SMH at 28.30 (Semiconductor HOLDR's) Stop: 27.00 Long IJS at 81.60 (S&P 600 Small Cap Value fund iShares) CHANGE STOP TO: 78.50, from 79.50 While I would liked to see IJS move up from the first "touch" of the low end of its downtrend channel, it is holding in this area, which is the key thing. However, my exit/stop point is too close the most recent low and I have lowered it by one point. I think that after the current correction has run its course, there is upside potential for the "small caps" over the coming months - I continue to view this segment of the market as offering better upside potential than the big cap S&P and Nasdaq stocks. TRADE LIQUIDATIONS - NONE SPECIFIC SECTOR HIGHLIGHT(S) - Boxmaker Index - Computers ($BMX.X) STOCKS: AAPL; CPQ; DELL; GTW; HWP; IBM; SNE; SUNW; UIS; VRTS The computer makers, as a group are more or less holding above, especially on a closing basis, the sector index's Sept. low. If this continues, look at the individual stock charts for similar patterns, suggest looking at call possibilities for some of these stocks. UPDATE: 7/14 Defense Index; Amex ($DFI.X) STOCKS: ATK; BA; COL; DRS; EASI; EDO; ERJ; ESL; FLIR; GD; INVN; ITT; LLL; LMT; NOC; OSIS; RTN; SSSS; TDY; TTN; UIC I estimated that DFI would fall to 565 at a "minimum". Now, it looks even as though the sector could fall all the way back to the early-year relative low around 508. The sector index needs to close above 565 to make it look like the sector was no longer in free fall and could rebound. UPDATE: 7/14 Financial Index; NYSE ($NF.X) STOCKS: This index is composed of all the financial stocks on the NYSE; e.g., banks, insurance, etc. The Financial Index has completed a 62% retracement of its Sept. to spring run up. Now what? It's generally been the case in past down markets, that there is little hope for a NYSE/S&P type rally until and unless the financial stocks are participating - this sector tends to function as a "bellwether" for the NYSE market. If 535 does not hold and a rebound begin, there is a potential next for the NF index to fall to the 520 area - 517 is the 75% retracement level. (If 517 is exceeded, I anticipate a retest of the prior low at 483.) UPDATE: 7/14 Gold & Silver Sector Index ($XAU.X) STOCKS: ABX; AEM; AU; FCX; GOLD; HGMCY; MDG; NEM; PD; PDG; SIL I thought that perhaps XAU was regaining its footing and would have another up "leg", but the pattern continues to have a bearish cast. The recent (up) swing high reversed at a level below the previous rally peak - and, this top appears to be "contained" by a down trendline off the XAU top at 89. I am inclined to sell rallies until and unless the above trendline is decisively penetrated. The gold bulls must not be looking at the charts or seeing what I'm seeing - plus, those who favor gold as a political uncertainty hedge, forget that the cessation or subsiding of these threats always leads to gold sinking back to where its fundamentals justify the price to be, which appears to be at and under $300 the oz. Absent significant INFLATION, gold has no higher fundamental justification for sustained high prices. UPDATE: 7/14 Internet Index; CBOE ($INX.X) AMZN; AOL; CHKP; CMGI; CNET; CSCO; DCLK; EBAY; ELNK; EXPE; FMKT; HLTH; HOMS; INKT; INSP; JNPR; OVER; RNWK; TMCS; YHOO The Internet stock sector index has "leveled" off and is trending more sideways now, than lower. Whether this will lead to another rally back to resistance at the upper end of its downtrend channel, but it’s a possibility. If you look at some of the individual stocks, they appear to be doing the same - perhaps most everyone who wants to/is going to sell these stocks has done so for the most part. UPDATE: 7/14 Networking Index ($NWX.X) STOCKS: ADCT; ADPT; ALA; AV; BBOX; CIEN; CMVT; COMS; CSCO; EXTR; FIBR; GLW; HLIT; JDSU; JNPR; LU; NT; ONIS; RBAK; RSTN; SBL; SCMR; SONS; TALX; TLAB Technology and networking in a "wired" world are still important businesses. The recent rebound in the Networking stocks as a group is either a "dead cat" bounce or the cat has a few "lives" left. However, resistance at the upper trend channel boundary and as implied by the 50-day moving average at 179.9, is about the maximum I can see NWX doing for a while. 140 is near support and the "pivotal" point - a move to below this level would suggest that the stocks are again sinking due to too little buying interest still. UPDATE: 7/14 Semiconductor Sector Index ($SOX.X) STOCKS: AMAT; AMD; CMOS; CREE; IDTI; INTC; KLAC; LLTC; LSCC; LSI; MOT; MU; NSM; NVDA; NVLS; PMCS; RMBS; TER; TXN; XLNX Same comments - A close above 400-405 is needed to suggest that a more substantial turnaround (than short-covering) in the SOX was underway. However, the recent rebound does appear to have gotten a bit of traction as the market anticipates perhaps a better earnings picture presented by Intel and other chip makers in the earnings reporting period ahead. Intel reports on Tuesday. Stay tuned! UPDATE: 7/14 Software Index; Goldman Sachs ($GSO.X) STOCKS: ERTS; INFA; INKT; INTU; ISSX; ITWO; IWOV; JDEC; MANU; MENT; MSFT; MUSE; NATI; NOVL; NTIQ; ORCL; PMTC; PRGN; PRSF; PSFT; RATL; RETK; REY; RHAT; RNWK; SEBL; SNPS; SY; SYMC; TIBX; VIGN; VRTS; WEBM; WIND; YHOO We're still seeing the minor bullish price/RSI divergence with the RSI indicator as it trends higher during which prices fell and then moved sideways. Meanwhile, the software HOLDR's have been trending sideways in possible "basing" action. Time will tell on this. The "lead" for GSO may come from Microsoft this week, which reports on Thursday after the close. A move in the sector stock SWH above $30 would be a bullish breakout. Conversely, if 25.00 is penetrated, especially on a closing basis, more weakness would appear to lie ahead. UPDATE: 7/14 Telecoms Index; No. American ($XTC.X) STOCKS: AT; BLS; FON; LU; LVLT; MCIT; NT; NXTL; Q; SBC; T; TMX; VZ; WCOM Well, every dog has its day and this is no exception. Telecom has been in an unrelenting downtrend, but there is usually a price reached that reflects a "value" proposition. Maybe this group is somewhat "fairly" priced now, perhaps it’s a short-covering bounce - but there is either a rally here that makes more shorting attractive or the sector is going to have a bit more upside follow through, say back up to resistance implied by its 50-day moving average at 473. This is a key area - every prior approach to this level was followed by a reversal this year. UPDATE: 7/14 Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com *********************************************************** DAILY RESULTS *********************************************************** Please view this in COURIER 10 font for alignment ************************************************* CALLS Mon Tue Wed Thu Week ESST 17.65 0.31 -0.79 -1.09 1.48 -0.32 Dropped, top MSFT 51.86 -1.98 0.29 -0.97 0.66 -3.04 Dropped, weak INTU 47.76 -2.36 -0.63 -0.24 1.32 -2.33 Ready for highs NVDA 19.90 0.66 -0.96 -0.51 1.84 1.00 Confirmed at 21 ORCL 9.68 -0.74 0.08 -0.42 0.44 -0.37 Dropped, roll? MMM 120.87 -0.72 -1.15 -4.00 -2.60 -9.00 Holding support EMC 8.55 -0.17 0.25 0.13 0.35 0.96 Holding up well OMC 52.44 2.78 -0.56 -0.38 2.77 7.66 Nice break out PUTS LXK 50.51 1.17 -1.91 -3.12 0.88 -1.49 Short covering XL 78.75 -0.12 -2.11 -2.02 0.45 -3.25 Close to entry LLY 50.26 1.47 -2.11 -1.80 1.52 -0.36 Dropped, bounce AMGN 34.30 -1.84 -1.33 -2.40 1.95 -3.75 Beat biotech LM 43.25 0.17 -1.95 -2.23 0.36 -3.25 Bad business MRK 45.75 -1.05 -2.06 -2.18 0.71 -3.31 Unhealthy stock RE 51.36 -1.16 -2.54 -1.84 1.09 -3.44 Insurance blues PHCC 19.50 -1.32 -0.25 -0.81 -1.48 -3.85 At entry point? BJ 36.50 -0.05 -0.81 -0.41 0.82 -1.95 New, sentiment SBC 26.94 -0.09 -1.03 -0.57 0.64 -2.06 New, buy WCOM? VZ 35.30 -0.34 -1.18 -1.26 1.50 -3.59 New, Little support ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's • $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees • Easy screens for spreads, collars, or covered calls! • Contingent, Stop Loss, Trailing stop, or OCO • 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* MMM – Minnesota Mining and Mfg. $120.87 (-9.00 last week) See details in play list Put Play of the Day: ******************** SBC – SBC Communications $29.64 (-2.06 last week) See details in play list ************************** 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 ^^^^^ MSFT $51.86 (-2.99)Try as they might, the bulls just couldn't get any positive action going in MSFT last week. Sure, the broad market weakness didn't help matters, but we were looking for the stock to lead the market higher on hopes of a positive earnings report this week. Instead, the stock continued to decline all week, coming to rest just below $52. While still above our stop, the prospects don't look good for a bullish run ahead of the company's earnings report on Thursday, so we're going to drop the play this weekend to clear the deck for better plays. ESST $17.65 (-0.32) ESST can get out of its own way. The stock is having trouble with short term congestion and since it can’t get moving higher, we fear that it will fall back to earth. The stock is topping out around the $18 level with little sign of showing follow through. If in open plays, look to set a tight stop to protect against further downside, or look to exit on an early pop higher in next week’s trading. ORCL $9.68 (-0.37) ORCL didn’t follow through to the upside as much as we had expected in last Friday’s session. The stock is showing signs of weakness, which we want no part of. Look to exit open plays on an advance up to or above the $10 level next week, or look to set a stop below the most recent relative low at the support trend line at the $9.42 level. PUTS ^^^^ LLY $50.26 (-1.99) You know the saying that all good things must come to an end. Well, that is the case with our LLY play, as it appears the downward momentum has come to an end. We got a nice little ride out of LLY after it broke down under the $55 level and traded as low as $47.10 this week. However, the past 2 days have seen solid, albeit small, gains from the stock despite the continuing broad market weakness. Even the DRG index has spent the last 2 days in the green, so you can see how the momentum has slowed. The bulls are trying to put in a bottom here and that means further downside progress is going to be hard to come by. Time to take our gains off the table and go hunting for more easy pickings elsewhere. *********** 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. ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** 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 07-14-2002 Sunday 3 of 5 ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** NEW CALL PLAYS ************** None ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ****************** CURRENT CALL PLAYS ****************** MMM – Minnesota Mining and Mfg. $120.87 (-9.00 last week) Commonly known as the maker of the ubiquitous, adhesive-backed Post-It Notes, MMM is also a leading manufacturer of a variety of industrial, consumer, and medical products. Reflective sheeting on highway signs, respirators, spill-control sorbents, and Thinsulate brand insulations are just some of the company's industrial products. MMM also makes microbiology products, making it easier for food processors to test for the microbiological quality of food. Traders that were looking for MMM to come in a bit for an attractive entry point on Friday were certainly not disappointed. We've pointed out the stock's recent propensity to bounce from the $120 area and Friday's session provided 2 such opportunities; the first at the open and the second in the final 30 minutes of the day. But we really want to see a bounce with some conviction to tell us that MMM wants to run higher. The morning bounce ran out of steam before 11am ET and the afternoon rebound was likely just a bit of short-covering ahead of the weekend. We need to see some real enthusiastic buying and we're expecting to see that come into the stock ahead of the company's earnings report a week from Monday. The company recently raised its earnings guidance (on July 1st), so it seems a fair bet that there aren't any negative surprises waiting to be released. The big question is whether the improved earnings picture is due to cost-cutting, sales growth or the beneficial impact of the falling dollar on this multi-national company. Whatever the case, as long as the $120 level holds as support, then rebounds from this area look attractive for new entries. Traders looking for some confirmation before playing will want to wait for MMM to power through the $124 resistance level before taking a position. Stops remain set at $119. *** July contracts expire next week *** BUY CALL JUL-120 MMM-GD OI=3587 at $3.10 SL=1.50 BUY CALL JUL-125 MMM-GE OI=4236 at $1.00 SL=0.50 BUY CALL AUG-120 MMM-HD OI= 104 at $6.00 SL=4.00 BUY CALL AUG-125*MMM-HE OI= 418 at $3.40 SL=1.75 BUY CALL AUG-130 MMM-HF OI=1438 at $1.70 SL=0.75 Average Daily Volume = 1.84 mln INTU – Intuit $47.76 (-2.33 last week) Intuit, Inc. is a provider of small business, tax preparation and personal finance software products and Web-based services that simplify complex financial tasks for consumers, small businesses and accounting professionals. The Company's principal products and services include Quicken, QuickBooks, Quicken TurboTax, ProSeries, Lacerte and Quicken Loans. Intuit offers products and services in five principal business divisions, which include Small Business, Tax, Personal Finance, Quicken Loans and Global Business. It was a volatile week for INTU last week. The stock traded lower in the early part of the week after running to a new yearly higher in the week prior. The stock traded down to its ascending support line which has held the trend higher since early March, more specifically since the beginning of early May for the particular trend line that we’re using. The pullback to support in last week’s trading may have offered what turns out to be an excellent entry point into this strong technology stock. INTU broke back above its short term congestion in Friday’s session and continued higher to punch through its then overhead 10-dma. The stock is now poised to retest its relative highs up around the $50 level in next week’s trading. The biggest factor will be the broader market, and specifically the Nasdaq. If the tech sector can find its legs in the next few days, then INTU has a very good shot at retesting its highs. Such a move could offer a very short term trader a quick scalp from the entry taken near ascending support in last week’s session. Otherwise, a more aggressive trader might look to hold onto positions upon a break above relative highs, which could also be used for an entry point into new call plays into strength. BUY CALL JUL-45 IQU-GI OI=3686 at $3.50 SL=2.75 BUY CALL JUL-50*IQU-GJ OI=5571 at $0.65 SL=0.75 BUY CALL AUG-50 IQU-HJ OI= 797 at $2.55 SL=1.50 BUY CALL AUG-55 IQU-HK OI= 497 at $1.05 SL=0.75 Average Daily Volume = 3.21 mln NVDA – NVIDIA $19.90 (+1.00 last week) NVIDIA Corporation designs, develops and markets graphics and media communication processors and related software for personal computers (PCs), workstations and digital entertainment platforms. The Company provides an architecturally compatible top-to-bottom family of performance 3-D graphics processors and graphics processing units (GPUs) that set the standard for performance, quality and features for a broad range of desktop PCs. They range from professional workstations to low-cost PCs and mobile PCs, and from performance laptops to thin-and-light notebooks. NVIDIA's 3-D graphics processors are used for a wide variety of applications, including games, digital image editing, business productivity, the Internet and industrial design. NVDA finally punched through its overhead resistance at the psychologically and technically significant $20 level in last Friday’s session. But the breakout didn’t come as we had quite expected. The stock gapped higher in Friday’s session on the strength in the pre market futures, but then proceeded to trade lower into the close of the stock, actually closing back below the $20 level by a fractional amount. But the breakout above the $21 level confirmed our bullish thoughts on this stock, and we actually view the pullback as a good opportunity to pick up new call entries on weakness. Aggressive traders can look to take new plays at current levels early next week so long as the semi sector confirms, as does the Nasdaq. In a positive market, NVDA should be able to gain some momentum and continue up to its next level of overhead congestion, which sits just below the $25 level. Traders can confirm such momentum with a break above last Friday’s intraday high at the $21.08 level, or higher. The curling 10-dma now at the $18.28 level should offer support on any pullback and entry opportunities as well. BUY CALL JUL-17*UVA-GW OI=2798 at $2.85 SL=1.25 BUY CALL JUL-20 UVA-GD OI=5848 at $1.20 SL=0.50 BUY CALL AUG-17 UVA-HW OI=3492 at $4.10 SL=2.50 BUY CALL AUG-20 UVA-HD OI=1810 at $2.55 SL=1.75 Average Daily Volume = 11.2 mln OMC - Omnicom Group Inc $52.44 +3.05 (+7.66 for the week) Omnicom is a leading global marketing and corporate communications company. Omnicom's branded networks and numerous specialty firms provide advertising, strategic media planning and buying, direct and promotional marketing, public relations and other specialty communications services to over 5,000 clients in more than 100 countries. (Source: company press release) OMC enjoyed a robust day. After a pullback from its initial break over $50, OMC rallied for the remainder of the day, reaching a high of $53.40 before settling back at $52.44 for a gain of over $3 (worth 6.17%). OMC continued the strong upward trend from the last couple of weeks, in spite of the overall market's weakness, which is a good sign for this play. While a $3 per day move may be too much to expect from this stock on a regular basis, there is obviously a feeling of relief among investors after the company reassured them with a 48 page explanation of accounting practices and other financials earlier in the week. This financial transparency could help bring in new money while shorts are probably scrambling for cover now that OMC has broken the psychological $50 barrier. Believe it or not, the PnF chart for OMC is showing a fresh triple-top breakout. The current vertical count is projecting a bullish price target of $70. Of course, there could still be resistance around $55, however it appears the next significant resistance point is in the $58 range, where shares ran out of steam in late June. Traders should also note that after two big up days, OMC could be due for a small pull back. We'd look for a dip to $51 or even $50 should the broader markets continue to tank next week. We will raise our stop on OMC to $49.45, just below Wednesday's high. BUY CALL AUG-50 OMC-HJ OI=3334 at $6.10 SL=3.00 BUY CALL AUG-55*OMC-HK OI= 563 at $3.20 SL=1.50 BUY CALL OCT-50 OMC-JJ OI= 202 at $8.80 SL=5.50 BUY CALL OCT-55 OMC-JK OI= 456 at $5.40 SL=3.00 Average Daily Volume = 3.62 mln EMC - E M C Corp $8.55 +0.40 (+0.96 for the week) EMC Corporation is the world leader in networked information storage, information management software and the provider of information storage infrastructure. Major customers include the world's largest banks and financial services firms, manufacturers, telecommunications providers, airlines, transportation companies, Internet providers, retailers, educational institutions, pharmaceutical companies and regional and national government agencies. (Source: company website) On a relatively flat day for the tech sector, EMC continued its slow and steady rise after breaking above the $8 mark yesterday. The stock opened above yesterday's high by a nickel, rose to a high of $8.70 and then settled back into the $8.50 range, where it stayed most of the day. EMC's eventual close at $8.55 is above the first resistance level of $8.50 we identified in the original play call. The next likely resistance point will be the $9.00 round number line. We will point out that today's rally was on strong volume of 23.4M shares, a little less than yesterday, but still a lot more than the average daily volume. There is obviously some short-covering that is occurring now that EMC is over $8.00 but it could be, dare we say it, new money coming in to this beaten down stock. Maybe value buyers are placing some bets in electronic storage, of which EMC is the king. Another idea to keep in mind is EMC has been up strongly two days in a row. If you are looking for a new entry point we'd probably wait for a pull back to the $8.00 to $8.25 area. Gap trading fanatics will look at this morning's gap and expect EMC to fill it. It's rather small so we're not so sure this gap "has" to be filled. Keep in mind EMC's earnings release is next Thursday morning and we'll probably close this play on Wednesday afternoon. BUY CALL AUG- 7.50 EMC-HU OI= 9634 at $1.50 SL=0.65 BUY CALL AUG-10.00 EMC-HB OI= 4470 at $0.35 SL=0.00 BUY CALL OCT- 7.50*EMC-JU OI= 8304 at $1.80 SL=0.80 BUY CALL OCT-10.00 EMC-JB OI=11569 at $0.75 SL=0.00 Average Daily Volume = 16.6 mln ************* NEW PUT PLAYS ************* VZ - Verizon Communications $35.30 -$2.30 (-3.59 for the week) Verizon Wireless is the nation's leading provider of wireless communications. The company has the largest nationwide wireless voice and data network and 30 million customers. Headquartered in Bedminster, NJ, Verizon Wireless is a joint venture of Verizon Communications and Vodafone (NYSE: VOD). (Source: company press release) Verizon opened down and continued its drift lower rather quickly today, setting yet another 52 week low today. This stock has been in a descending channel since the end of May and shows very little support going forward. It actually appears that VZ could fall through the bottom of this short-term seven-week old channel just as it has fallen through the bottom of its longer-term July 2001 through June 2002 descending channel. VZ has not seen this price level since May of 1997. It has swooned along with the rest of the telecom sector, however it failed to follow the sector's small rebound today. J.P. Morgan dialed down its expected earnings per share growth estimates for 2003 for the Baby Bells (VZ, SBC, BLS), to 1 percent, versus current expectations of 4 percent. Morgan also predicted the Bells would need to reduce their workforce by an additional 4 percent beyond already announced reductions in order to protect the bottom line. Verizon was the hardest hit of the three and shows little promise of a rebound. There has been heavier than normal volume during VZ's recent slide, not a good indication for the stock. OI will consider a move under $35.00 as our trigger to go short. In addition to the bad news on VZ, Telus, which is 24% owned by Verizon and is Canada's number two phone company, recently saw its debt ratings cut by Dominion Bond Rating Service, which warned the ratings could eventually be cut to "junk" status. This move could be just what the bears need to drive the stock further south. Traders can place an initial stop at 37.75, just above VZ'z upside resistance of the last couple of days. Once we're triggered we'll probably adjust our stop a bit lower to reduce risk. The current vertical count on VZ's PnF chart is pointing to a target of $29.00. We're going to aim for the $30 area (probably $30.50) as our profit target. BUY PUT AUG-40*VZ-TH OI= 1246 at $5.50 SL=3.20 BUY PUT AUG-35 VZ-TG OI= 1580 at $2.40 SL=1.20 BUY PUT OCT-40 VZ-VH OI= 8422 at $6.80 SL=4.50 BUY PUT OCT-35 VZ-VG OI=15970 at $4.00 SL=2.75 Average Daily Volume = 6.58 mln BJ – BJ’s Wholesale Club $36.50 (-1.95 last week) BJ's Wholesale Club, Inc. is a warehouse club operator in the eastern United States. As of February 2, 2002, the Company operated 130 warehouse clubs in 15 states, and had approximately 6.9 million members. Warehouse clubs offer a narrow assortment of brand name food and general merchandise items within a wide range of product categories. In order to achieve high sales volumes and rapid inventory turnover, merchandise selections are generally limited to items that are brand name leaders in their categories. Since warehouse clubs sell a diversified selection of product categories, they attract customers from a wide range of other wholesale and retail distribution channels, such as supermarkets, supercenters, department stores, drug stores, discount stores, office supply stores, consumer electronics stores, automotive stores and wholesale distributors. The University of Michigan reported last Friday morning that its index of consumer sentiment plunged during July. The drop was attributed to fear over the impact of corporate scandals on the economy. The index fell to 86.5 during July, well below June’s readings and estimates for that matter. The University of Michigan concluded that the sharp drop off in consumer sentiment could result in much lower spending in the second half of the year. That spells trouble for the major retailers who have been trading relatively well this year versus the steep drop off in the broader market and especially in technology shares. However, the retail sector is showing signs of weakening in the last few weeks, which could lead to a lot more downside given the recent shift in the sentiment of the consumer. Discount retailers such as BJ are exposed to just as much risk as the high end luxury retailers. For its part, BJ has been trending lower since this spring. The stock has been consolidating its most recent sell off in the last month, between the $36 and $39 levels. But it appears as if the stock is ready to breakdown from its short term consolidation on the heels of last week’s consumer numbers. Breakdown/momentum traders can look for a decline below the $36 level early next week on heavy volume and further weakness in the retail sector index. Confirm such a move with weakness in the broader market. Our stop is initially set at the $40 level. A relief rally up to, but below the $40 level, can be used to enter put plays near resistance. BUY PUT JUL-35 BJ-SG OI=30 at $0.50 SL=0.00 BUY PUT AUG-35*BJ-TG OI= 5 at $1.30 SL=0.75 Average Daily Volume = 664 K SBC – SBC Communications $29.64 (-2.06 last week) With 61 million phone lines in 13 states, SBC is the #2 local phone outfit in the United States. It's not just a local operation either, as the company has stakes in Telecom operations in 23 other countries around the world. The services and products that SBC offers vary by market, and include local exchange services, wireless communications, long distance services, Internet services, cable and wireless television services, security monitoring, telecommunications equipment, messaging, paging, and directory advertising and publishing. There should be no doubt by this point that the Telecom business is a tough arena in which to make a buck. Worldcom is soon to arrive on the scrap heap, AT&T is trading for a mere $10 and most of the suppliers to this group are trading in single digits. Even for the stronger companies in the Telecom Services arena are starting to feel the pinch. Witness shares of SBC, which until fairly recently, were holding above multi-year support near $35. That support gave way last month and now the stock is chipping away at the $29-30 support level dating back to 1997. Judging from the pattern of one violated support level after another, this support will fail too, leading SBC down to the next meaningful support in the $23-25 area. All we need is the right catalyst to get the bears motivated and we think we've got just the ticket. SBC has been mentioned as a possible bidder for either Worldcom or Qwest. In its eagerness to have the problems of these failing Telecoms dealt with, the FCC has said it would be open to any bid. Needless to say, with the huge debt overhang of both companies, the winning bidder would inherent significant problems. Additionally, the company is set to release earnings on July 23rd, and we're looking for weakness to prevail leading up to the announcement. With the tentative breakdown under the $30 level, this is shaping up as weak resistance and another failure to rally through this level can be used for new entries. A better entry point would be a failed rally near the $31 level. Due to the overwhelming weakness in both the stock and the sector, we can set a tight stop at $31.25. *** July contracts expire next week *** BUY PUT JUL-30 SBC-SF OI=6532 at $1.10 SL=0.50 BUY PUT AUG-30*SBC-TF OI=2001 at $1.95 SL=1.00 BUY PUT AUG-25 SBC-TE OI=1721 at $0.55 SL=0.25 Average Daily Volume = 7.92 mln ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. 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The Option Investor Newsletter Sunday 07-14-2002 Sunday 4 of 5 ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's • $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees • Easy screens for spreads, collars, or covered calls! • Contingent, Stop Loss, Trailing stop, or OCO • 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** CURRENT PUT PLAYS ***************** XL - XL Capital $78.75 (-3.25 last week) XL Capital Ltd., formerly EXEL Merger Company, is a provider of insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. The Company provides property and casualty insurance on a global basis. XL Capital generally writes specialty coverages for commercial customers. Specific lines of business written include third-party general liability insurance, environmental liability insurance, directors and officers liability insurance, professional liability insurance, aviation and satellite insurance, employment practices liability insurance, surety, marine insurance, property insurance and other insurance covers, including program business and political risk insurance. It was another great week for put players in the insurance sector. The group continues to lose strength as the trend of selling remains very strong. For its part, XL shed another $3 and change for the week, adding to its losses from the prior week. The majority of the stock’s losses came in the early part of the week when the broader market was having trouble finding support. The should be the key to this play moving forward in that we want to see further deterioration in the broader market to bring weakness in to XL. In the last two sessions, the stock has caught a bid on what appears to be routine short covering in a longer term descending trend. It wouldn’t be such a bad thing to see the stock tick slightly higher in next week’s session so as to offer another good entry point into put plays. Traders seeking new entry points can look for a rally up to and rollover from the downward sloping 10-dma, which finished last week at the $80.90 level. The 10-dma should come down further in next week’s trading and offer entry points at slightly lower prices. Look for that rollover upon a return of weakness in the major market averages. BUY PUT JUL-85*XL-SQ OI=359 at $6.70 SL=4.50 BUY PUT JUL-80 XL-SP OI=200 at $2.80 SL=1.00 Average Daily Volume = 871 K LM – Legg Mason $43.25 (-3.23 lat week) Legg Mason, Inc. is a holding company, which, through its subsidiaries, is principally engaged in providing asset management, securities brokerage, investment banking and related financial services to individuals, institutions, corporations and municipalities. The Company's principal asset management subsidiaries are Legg Mason Funds Management, Inc., Western Asset Management Company and Western Asset Management Company Limited, Perigee Investment Counsel Inc., Brandywine Asset Management, Inc., Batterymarch Financial Management, Inc., Legg Mason Capital Management, Inc., Bartlett & Co., LeggMason Investors Holdings plc, Barrett Associates, Inc., Gray, Seifert & Co., Inc. and Berkshire Asset Management, Inc. The Company's real estate finance subsidiary is Legg Mason Real Estate Services, Inc., and Legg Mason Wood Walker, Incorporated is its primary broker-dealer subsidiary. The brokerage sector took it on the chin in last week’s trading as it has done for the last several months. The growing pessimism surrounding corporate America and the stock market is wreaking havoc on these companies. As one corporate scandal after another comes to light the public continues to lose its trust of the market, which is causing more and more players to leave the game. In an already weak economic and market environment, the exodus of the individual investor into safer cash type investments and real estate is leaving the major brokers with a smaller pool of revenue opportunities. LM is no exception and is one of the harder hit because of its heavy exposure to the individual investor aspect of the money business. The stock precipitously dropped in last week’s trading to the tune of losing more than $3 on the week. The losses could continue piling up, which means profits for put players. The stock rebounded in the last two days on relatively lighter volume, which hinted at short covering instead of any meaningful buying. We’ll be looking for a rollover once that short covering loses steam to the upside. Traders can start looking for rollovers from current levels, or at slightly higher levels such as between the $44 and $45 levels. BUY PUT JUL-45*LM-SI OI= 85 at $2.40 SL=0.75 BUY PUT AUG-45 LM-TI OI=975 at $3.90 SL=1.50 Average Daily Volume = 390 K MRK – Merck $45.75 (-3.31 last week) Merck & Co., Inc. is a global, research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures, and provides pharmaceutical benefit services through Merck-Medco Managed Care, L.L.C. (Merck-Medco). The Company's operations are managed principally on a products and services basis and are comprised of two business segments: Merck Pharmaceutical, which includes products marketed either directly or through joint ventures; and Merck-Medco. Merck Pharmaceutical products consist of therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. Investors are running from the major drug makers at an increasing rate as one problem after another drags down the sentiment in the group. MRK has been among the hardest hit and for good reason. The company has had an extremely difficult time getting its Medco IPO off of the books and raising capital in the markets. The continued delay of that IPO should continue translating into further weakness in shares. And the longer the delay, the lower MRK is likely to travel. The stock is growing increasingly technically weak, as was demonstrated during last week’s sharp sell off which saw the stock lose over $3 on the week. In the last two days however the stock has rebounded on what appears to be classic short covering, in a pattern that we’ve seen in this stock since the beginning of its steady drift lower since mid May. The stock may have another day or two of short covering in it before the downward trend resumes to take MRK to a new relative low. Look for the buying pressure to abate early next week, and watch for a rollover from short term resistance as an entry point into new put plays. The stock has short term congestion between current levels and overhead to the $47 mark. Any weakness in between there can be used as an entry point into new plays. BUY PUT JUL-45*MRK-SI OI=3807 at $1.10 SL=0.75 BUY PUT AUG-45 MRK-TI OI=2380 at $2.35 SL=1.00 Average Daily Volume = 6.92 mln RE – Everest RE Group $51.36 (-3.44 last week) Everest Re Group, Ltd.'s principal business, conducted through its operating subsidiaries, is the underwriting of reinsurance and insurance in the United States, Bermuda and international markets. The Company underwrites reinsurance both through brokers and directly with ceding companies, giving it the flexibility to pursue business regardless of the ceding company's preferred reinsurance purchasing method. The Company underwrites insurance principally through general agency relationships. The insurance sector is coming under increased amounts of investor scrutiny, and from several different directions. The negative sentiment is no more apparent in the insurance sector than in shares of RE. The stock has been on a steep slide since this spring, and there are no signs that that trend is nearing an end. Other stocks in the insurance industry, such as the fellow put play on XL, reveal a very similar technical picture. In the last two days, like most everything else on the put list, RE has rebounded on short covering so as to work off some of its short term oversold condition. The stock had grown quite oversold through last Wednesday’s relative low, so it was only a matter of time before the stock rebounded for a relief rally. That’s exactly what the stock is in the middle of going through Friday’s close. What we have to do now is get ready for another entry opportunity upon a rollover from short term resistance. We believe that the pattern of relatively higher lows will continue into the next week as RE remains under heavy institutional distribution. The stock should start to weaken near the $52 to $53 level, where conveniently the 10-dma now sits and should offer pressure from the upside. Put players can look to take new plays near those levels with a tight stop just above short term resistance above the $55 level which held strong during the early part of last week’s trading. BUY PUT JUL-50*RE-SJ OI=10 at $0.85 SL=0.50 BUY PUT AUG-50 RE-TJ OI= 5 at $2.55 SL=1.50 Average Daily Volume = 582 K PHCC – Priority Healthcare $18.22 (-3.85 this week) Priority Healthcare Corporation (PHC) is a national distributor of specialty pharmaceuticals and related medical supplies to the alternate site healthcare market, and is a provider of patient- specific, self-administered biopharmaceuticals and disease treatment programs to individuals with chronic diseases. The Company sells over 3,500 SKUs (stock-keeping units) of specialty pharmaceuticals and medical supplies to outpatient renal care centers and office-based physicians in oncology and other physician specialty markets. PHC offers value-added services to meet the specific needs of these markets by shipping refrigerated pharmaceuticals overnight in special packaging to maintain appropriate temperatures, offering automated order entry services and offering customized distribution for group accounts. Goldman Sachs upgraded shares of PHCC this morning. The brokerage firm raised its rating to a trading buy from an outperform investment rating. Goldman based its upgrade on the stock’s valuation and the confidence in the company’s fundamental position. The analyst that issued the upgrade reiterated his belief in second quarter estimates for 23 cents in earnings. We’re just not quite sure what a trading buy recommendation is, but the market didn’t seem to know either. Granted, PHCC did stage a mini rebound during the session, but the stock didn’t display any real relative strength for the day. Instead, its strength appeared to be a function of the rebound in the broader market, and not necessarily the upgrade. Moreover, it’s feasible that more than a few shorts may have been caught on the wrong side of the upgrade. More than anything, we view the upgrade as an opportunity to gain better entry points into this weak healthcare play, and certainly not a change or reversal in the trend that has been in place since early this year. The stock has technical resistance coming up at the $21 level which is reinforced by the downward sloping 10-dma, which closed just below there in last Friday’s session. The stock wasn’t even able to close above the key $20 level in last Friday’ sessions, so we may even begin to see further failures at that level which would serve as entry points on a rollover. If entering into strength doesn’t suit your strategy, then wait for a breakdown and look for entry points into weakness below the $18 level. BUY PUT JUL-20*UHP-SD OI=46 at $1.40 SL=1.05 BUY PUT AUG-17 UHP-TW OI=90 at $1.15 SL=0.75 Average Daily Volume = 393 K AMGN – Amgen, Inc. $34.30 (-3.77 last week) The biggest of the Biotech big guns, AMGN makes and markets therapeutic products for hematology, oncology, bone and inflammatory disorders, as well as neuroendocrine and neurodegenerative diseases. Anti-anemia drug Epogen and immune system stimulator Neupogen account for about 95% of sales. Its Infergen has been commercialized as a treatment for hepatitis C, and Stemgen is approved for stem cell therapy in Australia, Canada, and New Zealand. The company has a strong pipeline of new drugs in various stages of development as well as research and marketing alliances with Hoffman-La-Roche and Johnson & Johnson. Despite Friday's modest rally (+2.5%) in the Biotechnology sector (BTK.X), eager bulls were unable to stave off the sharp afternoon selloff. Market-wide in its scope, it dragged the index down near its opening value before mercifully permitting a bit of a bounce in the final hour. As expected, AMGN rallied with the BTK in the morning, but weakness started cropping up here much earlier. The high of the day was posted by 11am and then the remainder of the day was a series of lower highs and lower lows. Despite the late-day rebound off the lows, AMGN finished fractionally lower, showing some bearish divergence from the BTK. It is interesting to note that the stock found resistance right at the $35 level before rolling over, giving us clear confirmation that the bears are still in charge. Even if another round of short-covering surfaces next week, AMGN has some formidable resistance looming at $36, which will be unlikely to fall to the bulls without a solid broad-market rally. Use failed rallies at $35 or $36 to initiate new positions, keeping stops set at $37. A volume-backed drop below $32.25 will be required to satisfy entry requirements for momentum traders. *** July contracts expire next week *** BUY PUT JUL-35*AMQ-SG OI=5134 at $1.80 SL=0.75 BUY PUT JUL-32 AMQ-SZ OI=1256 at $0.75 SL=0.25 BUY PUT AUG-32 AMQ-TZ OI=1135 at $2.40 SL=1.25 Average Daily Volume = 14.0 mln LXK – Lexmark International $50.51 (-1.79 last week) Wrapping its arms around the entire life-cycle of printers, LXK develops and manufactures a broad range of laser, inkjet and dot matrix printers for the office and home markets. The company is also the exclusive source for new print cartridges for the laser and inkjet printers it manufactures. Additionally, LXK provides supplies for IBM printers and offers after-market laser cartridges for the large installed base of a range of laser printers sold by other manufacturers. Just when it looked like the positive DELL news was going to help power our LXK play through the $51.50 resistance level on Friday, salvation arrived in the form of another broad market selloff. LXK reversed right at the $51.50 level, providing another attractive entry for eager bears. Unfortunately, the late day rebound off the lows prevented the stock from dipping back under the $50 level at the close. LXK is set to report earnings a week from Monday, and based on DELL's comments there shouldn't be any reason to rejoice when LXK provides its results. According to DELL, the quarter is looking strong, but not due to demand growth. The growth driver for its PC business is the company's claim that it continues to take market share from competitors. To try and compensate for that loss of market share, HPQ could try to increase their market share in the printer arena by slashing prices. Of course LXK would likely follow suit and then we'd have a price war on our hands. And that would necessarily cut it profit margins, resulting in lower earnings. It's a tough business environment out there and right now everything is pointing to price weakness for the likes of LXK. Use repeated forays into the $51 area to initiate new positions as the rollover commences. Alternatively, a drop below $49.75 (the top of Friday's gap) can be used for aggressive entries, as it would likely lead to a filling of that gap down to the $49 level, providing a bit of breathing room while waiting for a breakdown to lower levels. *** July contracts expire next week *** BUY PUT JUL-50 LXK-SJ OI=1351 at $1.70 SL=0.75 BUY PUT AUG-50*LXK-SK OI= 123 at $3.70 SL=2.25 BUY PUT AUG-45 LXK-SK OI=1114 at $1.85 SL=0.75 Average Daily Volume = 1.43 mln ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***** LEAPS ***** Bears Still Firmly In Control By Mark Phillips mphillips@OptionInvestor.com I remember commenting last weekend that we needed to be extra careful because there were likely plenty of surprises ahead. I couldn't have been more right! If only I could figure out what those surprises were going to be in advance. Here's just a sampling of the surprises that caught my attention: PG got hit by the wave of accounting-related rumors that have been plaguing the market. Despite the company denying the veracity of the rumors, PG ended the week at its lowest level since late February. Needless to say, that one is a drop this weekend. Another of our plays got stopped out this week in the wake of negative news. XOM fell hard after the chairman announced plans to sell 50,000 shares. The reaction was swift and violent, driving the stock to its lowest level since September. Wednesday's CSCO upgrade was a breath of fresh air to the bulls, and that was probably a big part of what lent strength to the Semiconductor and Networking sectors throughout the remainder of the week. Noted perennial bear Barton Biggs dragged the markets back from the abyss on Thursday when he stated he was getting cautiously bullish. He's not expecting this is THE bottom, mind you. But he does think we are getting set up for the next bear-market rally. The VIX briefly topped 40 for the first time since September. All right, that last one wasn't a surprise, as I've been expecting this for quite a while. In fact, that foray over 40 looks like the first volley in my MOCO strategy that I've been rambling on about for several weeks now. Of course, Abbey Joseph Cohen hasn't acknowledged the existence of the great bear yet, so the end is likely not in sight. We'll all know that the bottom is at hand when perennial bulls like Ms. Cohen throw in the towel and abandon their ridiculously bullish estimates for the market. In the meantime, it looks like more feeding for the bear. We are just now entering the July earnings season and there are some heavy weights kicking things off next week. Look for markets to move in the wake of announcements from MSFT, INTC and IBM among others. GE managed to assuage investor concerns a bit with their in-line earnings report on Friday. In fact, GE is our new Watch List Call play this weekend. Given the recent price stability (holding above $16) level, I was tempted to initiate the INTC play this week, but opted for the path of safety. Earnings are next week, and I think the better course of action is to wait and see what they have to say first. WMT is still on hold due to its weak price action, QQQ is trying to put together a decent base and BBH is meandering near a potential tradable bottom. In retrospect we just missed the high odds entry on the BBH play as the Biotech sector was falling apart. Right on direction, wrong on timing. I don't see a strong recovery for the industry anytime soon though, and I'm keeping the play alive a bit longer on expectations that we could get a nice entry if the NASDAQ manages to stage a decent rally. I'll provide more details on my thinking next week. The only other noteworthy item in the Playlist this week is the change to our BA Watch List play. As another surprise surfaced last week, BA broke down pretty hard, and it looks like a test of the September lows is in the cards. I've lowered the entry target to $32-33 based on the bearish price target on the PnF chart, $32. It's time to take a wait and see approach here, as well. Looking at the broad markets, it is rather interesting that the strongest area right now is Technology. Could that have anything to do with the fact that the NASDAQ-100 Bullish % reversed into Bull Alert last week? As for the DOW and S&P500, its still full bear ahead. I'm not looking for the NAZ to be able to lift the rest of the market on its shoulders, but it is encouraging to see a bit of internal strengthening. Speaking of internal strengthening, how about that BRCM? What a champ! Needless to say we FINALLY took a position on that one; it took long enough, don't you think? Yes, the S&P500 finally got a bounce from the $900 level on Thursday, which is the site of one support zone dating back to 1997. Don't look for that level to hold long term though. The DOW appears intent on retesting its September lows and it still has about 600 points to go based on Friday's close. If the DOW does retest, then it is a sure bet that the S&P500 trades much lower. I've heard the 850 level postulated as important support, but my money is still on either $800 or possibly even $740. The deciding factor will be the words of wisdom coming out of this earnings season. If the CEOs and CFOs have some good news about an improvement in the profit picture for investors, then I could be all wrong. Don't forget the other risk of this earnings season. With the increased scrutiny on corporate accounting, it is a sure bet that if a company has any accounting-related skeletons in their closet, the CEOs are going to err on the side of caution and tell all. I don't imagine there are too many company officers that are looking forward to repeating the trial by fire that the officials of Enron, Imclone and now Worldcom have experienced. In summary, there are a lot of risks in the current market and unless earnings provide some positive surprises (I'm not holding my breath on that score), there is very little good news for investors to pin their hopes on. Hmmm, being the contrarian that I am, maybe that lack of encouraging news will be just what we need to see the capitulation to send us on our much hoped for summer rally. Hey, I can hope can't I? Whatever you do, be very careful out there! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: MSFT 05/13/02 '03 $ 55 MSQ-AK $ 5.90 $ 6.00 + 1.69% $48 '04 $ 55 LMF-AK $10.20 $11.20 + 9.80% $48 QQQ 06/26/02 '03 $ 28 OZC-AB $ 2.45 $ 2.05 -16.33% $22.50 '04 $ 28 LRI-AJ $ 4.50 $ 4.10 - 8.89% $22.50 BRCM 07/10/02 '03 $ 20 RCQ-AD $ 3.10 $ 5.30 +70.97% $16 '04 $ 20 LGJ-AD $ 6.00 $ 8.50 +29.41% $16 Puts: None LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: WMT 03/31/02 HOLD JAN-2003 $ 55 VWT-AK CC JAN-2003 $ 50 VWT-AJ JAN-2004 $ 55 LWT-AK CC JAN-2004 $ 50 LWT-AJ INTC 06/16/02 $16-17 JAN-2003 $ 20 NQ -AD CC JAN-2003 $ 15 NQ -AC JAN-2004 $ 20 LNL-AD CC JAN-2004 $ 15 LNL-AC BA 06/30/02 $32-33 JAN-2003 $ 35 BA -AG CC JAN-2003 $ 30 BA -AF JAN-2004 $ 35 LBO-AG CC JAN-2004 $ 30 LBO-AF JAN-2005 $ 40 ZBO-AH CC JAN-2005 $ 30 ZBO-AF GE 07/14/02 $27.50-28.00 JAN-2003 $ 30 VGE-AF CC JAN-2003 $ 27 VGE-AY JAN-2004 $ 30 LGR-AF CC JAN-2004 $ 25 LGR-AE PUTS: BBH 06/09/02 $80, $85 JAN-2003 $ 85 GBZ-MQ JAN-2004 $ 80 KOV-MP JAN-2005 $ 85 XBB-MP GD 07/14/02 $100-102 JAN-2003 $ 95 GD -MS $107-108 JAN-2003 $100 GD -MT JAN-2004 $ 90 KJD-MR JAN-2004 $100 KJD-MT JAN-2005 $ 90 ZZJ-MR JAN-2005 $100 ZZJ-MT New Portfolio Plays BRCM - Broadcom Corp. $17.06 ** Call Play ** Sometimes relative strength builds over a long period of time and sometimes it springs forth out of thin air. The latter seems to be the case with shares of BRCM, as the stock vaulted substantially higher at the end of last week. Looking under the surface though, reveals several factors that contributed to the impressive move through the $20 level on Friday. First off, the NASDAQ Bullish % reversed into bull alert after hitting a low of 8. The Semiconductor index (SOX.X) continues to be the go-to sector for Technology bulls and that can be seen in the SOX's outperformance last week. Additionally, there were positive comments made about CSCO, painting Networking stocks with a slightly bullish tint and BRCM benefited from that information as well. But that is just the background. I considered taking an entry the week before when the stock gapped higher from just below the $16 level, but expecting that gap to fill, I opted to wait. What really got my attention this week was the fact that even with weakness apparent in most areas of the market (even the SOX), BRCM simply refused to drop into that gap. See how the $16.50 level repeatedly held the price up on Monday, Tuesday and Wednesday? After 3 days of this action, with the broad market in decline, I opted to pull the trigger and in retrospect, I am really glad I did. Thursday and Friday saw strong gains in BRCM and it closed on Friday above the $20 level for the first time in almost a month. The picture has now turned bullish, with the stock generating a fresh buy signal on the PnF chart, accompanied by a bullish price target of $28. That target may grow depending on the near-term price action, but for now, a drop to $18.75 (bottom of Friday's gap) or $17.00-17.50 (resistance from early last week) can be used for initiating new positions. Stops are set at $16, just below the top of the gap on July 5th. BUY LEAP JAN-2003 $20 RCQ-AD $3.10 BUY LEAP JAN-2004 $20 LGJ-AD $6.00 New Watchlist Plays GD - General Dynamics $96.31 **Put Play** For month now, there has been no arguing with the impressive strength in the Defense sector, as the Defense Industry index (DFI.X) has risen to one new high after another. One of the most impressive stocks in the sector has been General Dynamics, which has been in an extended bull run since early 2000. With the current bidding war over TRW, shares of all the companies in the running to acquire the firm have become favored targets of the bears. The action of the past 3 weeks has been decidedly bearish, resulting in several negative technical developments. The PnF chart printed a double-bottom breakdown as the stock fell below the $102 level. The vertical count is now pointing to a downside target of $78. The weekly Stochastics have rolled over again and this time are giving us one of my favorite setups, that of bearish divergence. Note that the most recent high in price resulted in a lower high in the Stochastics. That is a strong signal of inherent price weakness. Adding more emphasis to the picture shown on GD's chart is the damage that has been done to the overall sector, with the DFI index breaking down in a big way, falling all the way to its resistance from the December-January timeframe. To be sure, the stock is breaking down out of a strong and mature bullish trend, and after the big selloff in the past few weeks, there is almost certainly a significant rebound in the near future. But when that rebound has run its course, it should allow us some attractive entries into the play. Look for a rally to and then rollover from the $100-102 resistance area to provide high odds entries for the next powerful leg down. We could see a rally up to the $107-108 area before GD rolls over again, although I think that is a much lower probability. Regardless of where the oversold rebound runs out of steam, I think it is clear that the high odds direction over the intermediate term is down. We'll use daily Stochastics to help time our entry, and then set a stop according to where we enter the play. Tentatively, I expect to place a stop at $106 if filled on the lower entry and $111 if filled at the higher target. One other note: if the higher entry target is the one that provides entry, the recommendation will be to use the $100 strikes. BUY LEAP JAN-2003 $ 95 GD -MS BUY LEAP JAN-2003 $100 GD -MT BUY LEAP JAN-2004 $ 90 KJD-MR BUY LEAP JAN-2004 $100 KJD-MT BUY LEAP JAN-2005 $ 90 ZZJ-MR BUY LEAP JAN-2005 $100 ZZJ-MT GE - General Electric $28.60 **Call Play** We've noted in the past that GE tends to trade in lockstep with the DOW, making it an excellent proxy for playing the broader market. The stock has continued to be under significant selling pressure over recent months as the bears have relentlessly pushed the stock down to test the September lows and more importantly achieve the bearish PnF price target of $27. It should come as no surprise that GE rebounded strongly after achieving that target late last week, trading as low as $26.40. We're initiating this play on two premises. With the VIX tracking as high as 41 last week, it is looking like we are getting close to a tradable market bottom. Not THE bottom, but one that could produce a decent summer rally. Additionally, now that GE has achieved its price target, it makes downside risk that much easier to quantify and control. Make no mistake, GE has some work to do before it is a strong bullish candidate, as it needs to build a fresh buy signal on the PnF chart, but it looks like we are getting ready to start that rebuilding process. Of course, we also need to point out that the company posted in-line earnings results on Friday and reaffirmed its full year earnings targets. This would have been a perfect opportunity for the company to reveal any accounting skeletons in its closet and the fact that nothing material was mentioned is a good sign. Bouncing sharply higher on the news, GE created a bit of a gap on the daily chart and we're looking for that gap to fill over the next week or so. Look to initiate new positions on a dip and rebound from the $27.50-28.00 area and set a tight stop just below last week's intraday lows. BUY LEAP JAN-2003 $30 VGE-AF BUY LEAP JAN-2003 $27 VGE-AY For Covered Call BUY LEAP JAN-2004 $30 LGR-AF BUY LEAP JAN-2004 $25 LGR-AE For Covered Call Drops PG $87.90 As it turned out, the initial break of the lower channel line was the warning signal to get out of the PG play. After a mild rebound right to the bottom of that channel on Monday, the bottom fell out on Tuesday. That reversal was our cue to get out and now it is clear that the market was nervous about something; telegraphing that through the resultant price action. Rumors surfaced late in the week of accounting problems, which sent the stock reeling as low as $82 on Friday. Despite the fact that the company has stated that there is no foundation for the rumors, the technical damage has been done. There's little hope for the bulls here over the near-term. Yet again, we are provided with a reminder of why we must use stop losses! XOM $38.23 Our XOM play was looking pretty solid right up until last Tuesday. While a bit of weakness was evident in the daily chart, it looked like nothing buy participation in the overall market decline and it was encouraging to see the stock holding above the $39 level. But then the news hit that the chairman had filed to sell 50,000 shares, setting off a wave of selling over the next 3 days. Needless to say, Wednesday's drop kicked us out of the play, with our violated stop at $38.50. A look at the subsequent decline after our exit underscores the importance of using stop losses. *********** OPTIONS 101 *********** Are You A "Millionaire" or "The Weakest Link?" by Mike Parnos, Investing With Attitude During the bull market investors were playing "Who Wants To Be A Millionaire?" and were winning on a regular basis. It was a no- brainer. There was no need to phone a friend or even ask the audience. When the market turned and it was time to actually use brains, the name of the game changed to "The Weakest Link" -- and we found out who the weakest links were. Early in life, in kindergarten, children learn the art of finger painting. A piece of paper, a tube of blue, a tube of red, a smudge here, a smudge there and, before you know it, there's a masterpiece attached to a refrigerator door. As children become "adults," they learn the time-honored tradition of not taking responsibility for much of anything. Instead of finger painting, the great American pastime has become finger "pointing." Today, in our litigious society, people seek to fund their retirement with compensation from large corporations or insurance companies whenever anything goes wrong in their life. They don't search for remedies - they search for excuses. A few years back a woman sued McDonalds when she spilled some coffee on her lap. She claimed the coffee was too hot. McDonalds caved in and gave her a nice chunk of money to go away as part of a nuisance settlement. She was a klutz with a coffee stain. Now she's a klutz with money. For decades the tobacco industry has been deluged with lawsuits by those who foolishly ignored the Surgeon General's warning. This brought finger-pointing to a new level. It has become an art form as smokers try to place the blame on anyone handy - especially if the pockets are deep and the nuisance value is high enough. How does this pattern apply to recent stock market developments? In the past few years, individual investors have lost trillions of dollars as the stock market declined. Those are a lot of zeroes and commas -- and a bitter pill to swallow. Nest eggs and retirement accounts evaporated a lot faster than they had been accumulated. Inexperienced investors had trusted their money to "financial professionals" to invest or tried on their own to jump on the money train before it derailed. Individuals had to just suck it up and take responsibility for their own poor judgment of investments and/or advisors. Their fingers were poised to point, but had no specific direction. But now, it appears the game may have changed. There are some deep pockets to go after. Let the games begin. Not long ago, brokerage firm Merrill Lynch & Co. was sued by a former client who claimed he was misled by a bullish stock recommendation. Merrill Lynch agreed to pay Debases Kanjilal, a 46-year old pediatrician, $400,000 to settle a case filed with the New York Stock Exchange. Kanjilal suffered a loss of $500,000 after having invested in Infonet, an Internet stock, based upon the buy recommendation of prominent technology analyst Henry Blodget. Merrill Lynch's caving in may have opened Pandora's box. It's just what losing investors were looking for - someone else to blame. They now have a direction to point their finger. They may have found a way to be absolved of their own ignorance. These same brokers and analysts were heroes when the market was skyrocketing and the profits piling up. In the midst of the euphoria, as a money manager, it was tough to be wrong. Now it's the brokers, financial planners, analysts, accountants, and anyone who has ever voiced an opinion or generated a quarterly report are in the sights of securities attorneys - and no silencers are being used. Ambulance chasers could become portfolio chasers. In the "slip and fall, give me a call" tradition, a former broker, Robert Magnan, has taken the torch and is championing the cause of losing investors everywhere. He portends to want to help recover losses. However, Magnan has a cloudy past of his own. In 1997, as a broker, he pleaded guilty to five counts of securities fraud. He now maintains his current mission is to "make amends for my 10 years in the brokerage business." He had a "backlog" of over 300 clients with a total of about $40 million in losses. Magnan, whose form employed 15 telemarketers, anticipates 6,085 new cases from his referral network of 13 lawyers. A case can probably be made against your neighborhood full service investment professionals. They sat idly by - not advising or explaining to clients, who didn't know any better, to either sell or how to insure their portfolios. Maybe I've watched too many courtroom dramas, but the concept of "depraved indifference" -- usually applied to murder cases – could logically be applied to the investment world. To parallel the legal definition of "depraved indifference" – "Circumstances would indicate a depraved indifference to a portfolio of investments exists when one engages in conduct (a stock recommendation or an overlooked business expense) that creates a grave risk of loss to another person's portfolio and thereby causes substantial losses." Let the legal community chew on that for a while. You can take responsibility for your finances -- or not. You can take responsibility for your life - or not. You can possibly become a millionaire or you can continue to be the weakest link. Remember, it's the weakest link that goes home with nothing. Finger pointing is the highest form of weakness. When you choose to blame anyone but yourself for your problems, you ARE the weakest link. Mike Parnos Mparnos@OptionInvestor.com ----------------------------------------------------------------- Strategy Du Jour It seems a number of readers are interested in pursuing their degree, so here's another strategy -- direct from the Couch Potato Trading Institute. For those of you who watch cable, you may have seen the new series The Shield. It's the story of a rogue cop who, along with his special task force, operates both inside and outside the law to ultimately resolve situations and end up with something that occasionally approximates justice. The only thing that is predictable is that it is unpredictable. If 10 minutes of an episode go by without anything outrageous happening, you can bet that the next 10 minutes will be wild. Well, I like my stocks the same way - wild and unpredictable. And in the wonderful world of options, I discovered a way to take advantage of these situations with minimal risk. It's a variation of the Straddle. What's the best part of using a Straddle? You don't have to pick a direction. If you know the direction a particular stock (or index) will move, you've probably been hiding under a desk at the FDA or know the same little voice that whispers in Martha Stewart's ear. I don't hear voices and it's been awhile since I could fit under a desk, so, like you, I have to do a little homework. In true couch potato tradition, this can be easily done while watching a baseball game - a game in which they spend twice as much time scratching and spitting as playing. First, we have to look for a stock that's current volatility is lower than its historical volatility. Maybe the stock has been consolidating for a while, has an upcoming earnings announcement or simply has a history of large spikes. For example, Microsoft (MSFT) has been a bit of a sleeping giant, trading in the $50-$55 range since late April. On Tuesday, MSFT was trading at about $54.50. Looking out about three months, let's buy the October 55 put for $5.00 and the October 55 call for $5.20. We've invested a total of $10.20 in this straddle, but we're not risking $10.20. Why? Because we're going to hold the position for the maximum of a month. If, in four weeks, MSFT hasn't made a substantial move, we will exit the position. The reason for selecting an option at least three months away is that, during the first month, there will be minimal erosion of premium - usually 15% or less. For this example, we'll use 15%. Therefore, if we close out the MSFT position in a month, we'll actually be risking only 15% of the $10.20 - about $1.50. That's the worst-case scenario. I like it when my risk is defined. Like I know that when I eat two Twinkies, the most weight I can gain is the actual weight of the Twinkies. For me, that's an acceptable risk. The way we profit in our straddle position is that, when a major move occurs, the side of the straddle that is increasing will go up faster than the opposite side will go down. If MSFT were to announce an earnings warning next week, it's not unrealistic to expect the stock to dip 5-7 points. If MSFT tanked by $5.00, the October 55 call could be worth about $8.10 and the October put could be worth about $3.00. The total is $11.10. Sudden major moves are usually accompanied by an increase in volatility and a subsequent increase in option premiums. So, it's likely that the $8.10 could turn into $8.25 and the $3.00 could be $3.10. Now, as we liquidate the position, we've taken in $11.35. What did we pay to enter the position? $10.20. We've made the difference between $11.35 and $10.20 -- $1.15. What did we risk? $1.50. Our return on our risk is 76.7% ($1.10 divided by $1.50). Straddles are also functional in that they consist of the purchase of options and can be used by option traders who don't yet have trading approval to trade spreads. This isn't an exact science and the above numbers are projections that are close enough to get the point across -- straddles, if put on selectively and treated with loving discipline, can be a couch potato's dream trade. Ain't life sweet? What more could you ask for? A gourmet dinner, orchestra seats at the theater, a night of unbridled passion and a profitable trade. You can have it all. But, without the profitable trade, you probably might not be able to afford it. Your evening might consist a Gilligan's Island rerun, a TV dinner, and a response of "You've Got To Be Kidding". ------------------------------------------------------------------ P.S. At Thursday's close, the MSFT spread described above could have been closed for $11.00. MSFT only moved down two points, but the volatility of the entire market spiked - and option premiums went along for the ride. Liquidating at $11.00 would have provided an $.80 profit in three short days with virtually no time erosion exposure. Occasionally the market gives you a gift, but don't hold your breath waiting for the next one! mparnos@OptionInvestor.com ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. 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The Option Investor Newsletter Sunday 07-14-2002 Sunday 5 of 5 ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************* COVERED CALLS ************* Option Trading 101: Covered-Call Basics By Mark Wnetrzak One of our readers had some great questions about the covered-call strategy and our popular (and free) option trading calculator. Attn: Mark - Covered-Calls editor Subject: Covered-Call Calculator Mark, I was going through some old newsletters trying to learn about covered calls and I noticed that (the 4/7/2002 newsletter) you have created an Excel-based CC calculator. I checked on the OI website but came up empty. Could you send me a copy (or the OI link) of it. I think a CC calculator would help me understand when I have a profit/loss and the amount time necessary to stay in a trade. I like what I know about CC's, the strategy of consistent, low risk profits. The thing I am most confused on is the length of time necessary to be in the trade. And other questions like: When can I get out of the trade? Do I always have to wait for expiration? How does my profit vary with the price of the stock? For example, if I buy a $20 stock and sell a $5 call, is my profit the same down to $15 and then I start to lose money below $15? I know I have a lot of questions in this email. If you could just point me in the right direction, I'd appreciate it! Thanks, JW JW, First, I have attached a copy of the OIN calculator file. It is really nothing special but it works well (requires MSExcel-95 or higher). There is a brief explanation at the bottom of the screen for each column and there are six strategy tabs to choose from for various option trading techniques. As far as potential yields and return on investment calculations, the formulas and explanations can be found at: http://members.OptionInvestor.com/archive/readerswrite/2000/060800_1.asp With the covered-call strategy, we favor a short-term approach, which isn't predicated on forecasting a stock's (or the market's) directional movement. Still, whether the covered write strategy is applied short-term or longer term using LEAPS, it requires a neutral to slightly bullish outlook on the underlying equity and the overall market. Generally, professionals will vary the length of the sold calls as well as use different strike prices to balance their risk with the potential return on investment. The approach you take will depend on your personal preference and risk-reward tolerance. "Options: As A Strategic Investment" is an excellent resource for new traders and it explains all aspects of the covered write strategy. The book is available at the local library or the OIN bookstore. Regarding the length of time necessary to be in the trade, you can buy back the calls (American style options) any time you want as long as your stock hasn't been assigned (called away), and then sell the stock or even write new calls against it. If you aren't worried about keeping the stock, then having it called away early is not a problem and will actually increase your target yield by providing the maximum return in a shorter time frame. As far as position adjustments, technical analysis is used by many traders to identify areas of support or resistance, which can assist in establishing the correct exit points. There are various stop-loss methods an investor can employ in position management: a fixed percentage of one's overall portfolio, a specific dollar amount, a violation of a technical trend-line, etc. Whether it is automatic or mental doesn't really matter, the real key is that the system is adhered to because the ability to limit losses is paramount to a profitable portfolio. The book, Secrets for Profiting in Bull and Bear Markets by Stan Weinstein, is an excellent reference for new traders and should help provide a basic understanding of technical analysis of stocks and the financial markets. Best regards, Mark W. OIN Editors Note: The issues offered in this section are provided to supplement your search for profitable trading positions. As with any investment, you must decide if the published selections meet your personal criteria for profitable covered-call plays. The strategy we utilize in selecting these candidates is based on the "total return" concept originated by option guru Larry McMillan. With this conservative approach, an investor considers the covered write as a single entity and is not interested so much in stock ownership or bullish movement in the underlying, but in obtaining a consistent (monthly) return on investment. In evaluating plays, we are only interested in the stock remaining above our cost basis for the duration of the position; we are not concerned about the issue's upside potential. Since we utilize "in-the-money" options, the maximum gain is established upon entry, and additional bullish movement, beyond the sold option's strike price, is meaningless. Of course, it is still good advice to only purchase stocks you wouldn't mind owning, as that is always a possibility with this strategy. With that fact in mind, it is imperative that investors perform their own due diligence and only enter positions that meet their personal risk-reward tolerance. 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 EXTR 10.01 10.67 JUL 10.00 0.85 *$ 0.84 19.9% EXTR 10.09 10.67 JUL 10.00 1.00 *$ 0.91 14.5% EMC 7.59 8.55 JUL 7.50 0.50 *$ 0.41 12.6% RIMM 13.35 13.82 JUL 10.00 3.80 *$ 0.45 10.2% MCDT 8.90 9.76 JUL 7.50 1.75 *$ 0.35 7.1% IVGN 31.30 29.42 JUL 27.50 4.60 *$ 0.80 6.5% HPLA 13.95 15.21 JUL 12.50 2.40 *$ 0.95 6.0% REV 4.96 4.73 JUL 5.00 0.45 $ 0.22 5.3% CANI 11.26 10.30 JUL 10.00 1.85 *$ 0.59 4.5% MCDT 8.99 9.76 JUL 7.50 1.90 *$ 0.41 4.2% COB 5.35 4.57 JUL 5.00 0.70 $ -0.08 0.0% MCAF 14.26 11.91 JUL 12.50 2.25 $ -0.10 0.0% JDEC 12.65 11.23 JUL 12.50 0.85 $ -0.57 0.0% JBHT 31.05 28.10 JUL 30.00 2.15 $ -0.80 0.0% FBR 12.73 11.08 JUL 12.50 0.75 $ -0.90 0.0% ABFS 25.48 23.00 JUL 25.00 1.45 $ -1.03 0.0% STAR 22.70 20.89 JUL 22.50 0.65 $ -1.16 0.0% NCEN 31.85 27.05 JUL 30.00 3.40 $ -1.40 0.0% QSFT 13.50 10.11 JUL 12.50 1.50 $ -1.89 0.0% QSFT 14.53 10.11 JUL 12.50 2.40 $ -2.02 0.0% DRIV 9.19 8.44 AUG 7.50 2.25 *$ 0.56 5.0% ZIXI 5.48 4.28 AUG 5.00 1.20 $ 0.00 0.0% *$ = Stock price is above the sold striking price. Comments: Boy, is it "bearish" or what? Hey, I couldn't take it anymore and grabbed a few QQQ calls just for kicks. As for the Covered Call section, the extended downward move is forcing a continued culling of worrisome issues. As we said last week, Manhattan Associates (NASDAQ:MANH) was at a key moment and Retek (NASDAQ: RETK) helped push it over the edge with its earnings warning after the close on Monday. Investors who didn't exit on Monday had little opportunity to salvage the position after Tuesday's gap-down open. The effect is also obvious in both Quest Software (NASDAQ:QSFT) positions, which will be shown closed next week. Several other stocks suffered technical or fundamental break- downs and will be shown closed: McAfee.com (NASDAQ:MCAF), Lone Star Steakhouse (NASDAQ:STAR), and New Century (NASDAQ:NCEN). With one week to go, several of the other positions could also be closed if they break technical support or move to new relative lows. As always, there is the 'option' to adjust positions that you desire to keep by rolling forward and/or down, depending on your outlook. As for our August positions, we will be monitoring Zixit (NASDAQ:ZIXI) for a break below the June low (on a closing basis) as an exit signal. Positions Closed: PETsMART (NASDAQ:PETM), Mirant (NYSE:MIR), Manhattan Associates (NASDAQ:MANH) and Impax Laboratories (NASDAQ:IPXL). 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 AMLN 10.00 AUG 10.00 AQM HB 0.90 31 9.10 35 8.6% BRCD 18.50 AUG 15.00 BQB HC 4.40 477 14.10 35 5.5% BRCM 20.39 AUG 17.50 RCQ HW 3.90 2003 16.49 35 5.3% EXTR 10.67 AUG 10.00 EXJ HB 1.70 867 8.97 35 10.0% NPSP 17.11 AUG 12.50 QKK HV 5.60 170 11.51 35 7.5% PCS 6.02 AUG 5.00 PCS HA 1.40 2366 4.62 35 7.1% SNDK 14.40 AUG 12.50 SWQ HV 2.85 108 11.55 35 7.1% 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 EXTR 10.67 AUG 10.00 EXJ HB 1.70 867 8.97 35 10.0% AMLN 10.00 AUG 10.00 AQM HB 0.90 31 9.10 35 8.6% NPSP 17.11 AUG 12.50 QKK HV 5.60 170 11.51 35 7.5% PCS 6.02 AUG 5.00 PCS HA 1.40 2366 4.62 35 7.1% SNDK 14.40 AUG 12.50 SWQ HV 2.85 108 11.55 35 7.1% BRCD 18.50 AUG 15.00 BQB HC 4.40 477 14.10 35 5.5% BRCM 20.39 AUG 17.50 RCQ HW 3.90 2003 16.49 35 5.3% 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). ***** AMLN - Amylin Pharmaceuticals $10.00 *** New Partnership? *** Amylin (NASDAQ:AMLN) is a biopharmaceutical company engaged in the discovery, development and commercialization of drug candidates for the treatment of diabetes and other metabolic disorders. Amylin has exclusive rights to two drug candidates that are in late-stage development for the treatment of diabetes, SYMLIN (pramlintide acetate) and AC2993 (synthetic exendin-4). The company has a third drug candidate, AC3056, in early stage clinical trials, and main- tains a focused research and development program to discover and in-license additional drug candidates for metabolic diseases. Amylin recently presented favorable SYMLIN and AC2993 results at the 62nd annual scientific sessions of the American Diabetes Association. Amylin's CEO has said that the company is currently in discussions with a potential AC2993 partner. Investors looking to add a biopharmaceutical company to their portfolios can obtain a favorable entry point with this play. AUG 10.00 AQM HB LB=0.90 OI=31 CB=9.10 DE=35 TY=8.6% ***** BRCD - Brocade $18.50 *** At Long-Term Technical Support *** Brocade Communications Systems (NASDAQ:BRCD) is a provider of infrastructure for storage area networks (SANs), offering a product family of Fibre Channel fabric switches that provide an intelligent networking foundation for SANs. The company delivers and enables hardware and software products, education and services that allow companies to implement highly available, scalable, manageable and secure environments for business-critical storage applications. Companies can leverage Brocade's SAN infrastructure solutions to connect servers with storage devices and scale them independently, consolidate and share servers and storage resources, centralize data management, share valuable backup resources across the enterprise, and provision and manage more storage without increasing personnel resources. On Wednesday, Morgan Stanley said it raised its rating on Brocade to "over-weight" from "equal-weight" based on expectations that the company's new computer storage area networks could add to profits. Though the analysts are cautious on the sector, they still retained a $25 price target for the stock. This play takes advantage of the current bullish momentum and offers reasonable cost basis in the issue. AUG 15.00 BQB HC LB=4.40 OI=477 CB=14.10 DE=35 TY=5.5% ***** BRCM - Broadcom $20.39 *** Earnings Rally Equals Relief? *** Broadcom (NASDAQ:BRCM) is a provider of highly integrated silicon solutions that enable broadband communications and networking of voice, video and data services. Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for every major broadband communications market. Broadcom's diverse product portfolio includes solutions for digital cable set-top boxes and cable modems; high-speed local, metropolitan and wide area and optical networks; home networking; Voice over Internet Protocol; carrier access; residential broadband gateways; direct broadcast satellite and terrestrial digital broad- cast; digital subscriber lines; wireless communications; SystemI/ OTM server solutions, and broadband network processors. Analysts recently said that they expect Broadcom to meet targets for the June quarter and are expecting some growth for next quarter. The company will report earnings this week on July 18. We simply favor the rally this week on increasing volume in the face of a declining market. Investors who believe the stock has made a successful test of the September low can use the recent technical strength to obtain a relatively low risk cost basis in the issue. AUG 17.50 RCQ HW LB=3.90 OI=2003 CB=16.49 DE=35 TY=5.3% ***** EXTR - Extreme Networks $10.67 *** Change Of Character? *** Extreme Networks (NASDAQ:EXTR) is a provider of network infra- structure equipment for business applications and services. The company delivers high-performance application and services infra- structure for enterprise, service provider and metropolitan area networks (MANs)-based on technology that combines high performance, intelligence and a low cost of ownership. The company's family of Summit stackable, BlackDiamond and Alpine chassis switches share the same consistent hardware, software and management architecture, enabling businesses to build a network infrastructure that is simple, easy to manage and scalable to meet the demands of growing businesses. Investors appear to be relieved that Extreme will not issue a warning prior to the company's earnings report due on July 17. We favor the strong technical support area near $10 and the move through the long-term downtrend line (two-year chart), which suggests a positive change of character. AUG 10.00 EXJ HB LB=1.70 OI=867 CB=8.97 DE=35 TY=10.0% ***** NPSP - NPS Pharmaceuticals $17.11 *** On The Rebound! *** NPS Pharmaceuticals (NASDAQ:NPSP) is a biopharmaceutical company engaged in discovering, developing and commercializing small molecule drugs and recombinant proteins. The company's product candidates are primarily for the treatment of bone and mineral disorders, gastrointestinal disorders and central nervous system disorders. NPS Pharmaceuticals has three product candidates in active clinical development and several pre-clinical product candidates. Two of these product candidates, Preos and AMG 073, are in Phase III clinical trials. The company's third product candidate, ALX-0600, is in a pilot Phase II clinical trial. NPSP rallied this week after a favorable Salomon Smith Barney release said the company has been making solid progress in resolving the manufacturing issues with its lead drug candidate Preos. Speculators have moved into the stock pushing the share price up $5 in two days as news on Preos is expected soon. Traders can speculate on the near-term performance of the issue with this conservative position. AUG 12.50 QKK HV LB=5.60 OI=170 CB=11.51 DE=35 TY=7.5% ***** PCS - Sprint PCS $6.02 *** Cheap Speculation! *** Sprint PCS (NYSE:PCS) operates a digital personal communication system wireless network in the U.S., using a single frequency and a single technology. Sprint PCS, a subsidiary of Sprint Corp. (NYSE:FON), comprises Sprint Corporations' wireless PCS operations. The PCS Group has licenses to serve the entire United States population, including Puerto Rico and the United States Virgin Islands. The PCS Group also includes Sprint Corporation's investment in Pegaso Telecomunicaciones, S.A. de C.V. (Pegaso), a wireless operation in Mexico; SVC BidCo L.P., a joint venture to acquire wireless spectrum rights, and Virgin Mobile U.S.A., a joint venture to market wireless services. Regardless of the recent slump in share value, Sprint PCS is one of the top companies in the Wireless sector and among many institutional investors, it is also one of the core holdings. The current technical outlook is recovering and our position offers an excellent reward potential at the risk of owning this industry-leading issue at a favorable cost basis. AUG 5.00 PCS HA LB=1.40 OI=2366 CB=4.62 DE=35 TY=7.1% ***** SNDK - SanDisk $14.40 *** Technically, It's Bottom-Fishing *** SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash memory storage products that are used in a wide variety of electronic systems. The company has designed its flash memory storage solutions to address the storage requirements of emerging applications in the consumer electronics and industrial/communica- tions markets. SanDisk's products are used in a number of rapidly growing consumer electronics applications, such as digital cameras, PDA's, portable digital music players, digital video recorders and smart phones, as well as in other applications, such as routers and switches and wireless communications base stations. SanDisk's products include removable CompactFlash cards, MultiMediaCards, FlashDisk cards and Secure Digital Cards and embedded FlashDrives and Flash ChipSets with storage capacities ranging from 8 megabytes to 1.2 gigabytes. SanDisk appears to have made a successful test of the September low and the recent move back above both the 30- and 50-dma bodes well for the future. We favor the technical support near the cost basis in this position and investors who are interested in a long-term portfolio position in the Data Storage Devices sector should consider this issue. AUG 12.50 SWQ HV LB=2.85 OI=108 CB=11.55 DE=35 TY=7.1% ***** ***************** 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 RMBS 5.05 AUG 5.00 BNQ HA 0.65 1155 4.40 35 11.9% LVLT 5.56 AUG 5.00 HGY HA 0.95 1887 4.61 35 7.4% ICST 20.21 AUG 17.50 IUY HW 3.80 0 16.41 35 5.8% AWE 6.09 AUG 5.00 AWE HA 1.40 1666 4.69 35 5.7% BYD 15.32 AUG 15.00 BYD HC 1.15 538 14.17 35 5.1% SLAB 25.55 AUG 20.00 QFJ HD 6.60 0 18.95 35 4.8% MRVL 24.00 AUG 20.00 UVM HD 5.00 257 19.00 35 4.6% CHRT 21.05 AUG 20.00 UCT HD 2.00 704 19.05 35 4.3% ***************** NAKED PUT SECTION ***************** Trading Basics: Make A Plan And Follow It! By Ray Cummins One of our new readers offered some excellent comments on why it is so important to adopt a systematic approach to trading. Attn: OIN Traders Corner Subject: Advice For A New Trader Greetings, I am writing to you as a trial member of the Option Investor Newsletter. I have found your information to be very helpful for a new trader and with the variety of strategies offered, there is something for everyone. The approach I am taking is very conservative but one theme I noticed among all the different articles, regardless of the type of strategy, is the need to have a trading plan for each position in your portfolio. From what I have learned, this plan should include criteria and conditions, as well as a set-up for the entry, a target profit, a maximum loss limit, and a procedure for any adjustments. It is obvious why you might need this level of complexity for some of the advanced strategies but why is it necessary for simple call and put buying? In fact, I think some traders might tend to focus too much on the method behind the trade rather than on the selection of the stock itself. My goal is to achieve a balance between the two, yet I don't want to sacrifice success because I have neglected the more important component. It is really that important to have a plan every time you trade an option? My compliments on a fine product. BD Hello BD, As a new participant in the options market, the first thing you must understand is: the majority of traders lose money because they do not have a plan identifying how and when to exit their plays. Maximizing profits from winning trades, while preserving capital in losing positions, is critical to long-term success. Unfortunately, that task can be incredibly difficult without a comprehensive trading system. Human nature is one the many obstacles that new investors must overcome to be successful in the stock market. Every trade we make is affected by hope, greed, and fear and the influence of these feelings is the biggest single factor an investor must understand if he expects to profit on a consistent basis. Of course, trying to separate emotions from trading decisions is a very difficult task. As humans, we tend to act on a given set of circumstances in a very predictable manner and those natural instincts cause many traders to make emotional judgments, rather than mechanical decisions, when the situation becomes complex. To make matters worse, a trader will commit the same mistake in the future if there is not a properly pre-planned reaction to a particular sequence of events. In fact, most investors believe their response is proper in the consequence of what the market has done when in reality, the correct action should be a result of a predetermined resolution to a given set of criteria. Some of us are better at controlling their emotions than others, but everyone can benefit from the use of a systematic approach to managing portfolio positions. Unfortunately, many investors spend all their time looking for the perfect system; the "Holy Grail" of trading that produces a profit every time. Obviously, the "perfect" method does not exist. If it did, there would be no market because those with access to the system would quickly acquire all of the average trader's money. It is the element of randomness in share price movement that insures a predictable or "scripted" pattern of trading can not exist and that is the most important component of our market system. Since every strategy has specific advantages and drawbacks, successful traders follow simple guidelines that help ensure profitable results. First, they use a disciplined approach, adhering to strict principles of money management. Although losses are an unavoidable part of the game, successful traders remove ego and emotions from the outcome by executing the system as it was designed. They use discipline in applying the technique, ensuring it is initiated in a timely manner and during the appropriate market conditions. They have confidence in a methodical process and the patience to allow it time to work as intended. These sophisticated participants have have no margin for faulty judgment or excessive capital exposure but they know that a trader with a well-devised plan can be wrong about the market more often than not and still be successful. 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 SLAB 26.80 25.55 JUL 22.50 0.60 *$ 0.60 18.6% CANI 11.50 10.30 JUL 10.00 0.35 *$ 0.35 14.7% CLHB 13.52 10.31 JUL 10.00 0.40 *$ 0.40 14.0% CANI 11.07 10.30 JUL 10.00 0.50 *$ 0.50 11.3% LNCR 31.86 31.38 JUL 30.00 0.55 *$ 0.55 10.5% YHOO 15.49 12.94 JUL 12.50 0.30 *$ 0.30 9.3% SIE 19.20 20.23 JUL 17.50 0.65 *$ 0.65 8.5% COCO 33.89 30.13 JUL 30.00 0.60 *$ 0.60 8.5% COCO 33.00 30.13 JUL 27.50 0.30 *$ 0.30 8.1% CUM 31.86 29.97 JUL 30.00 0.45 $ 0.42 8.1% BCE 18.22 17.94 JUL 17.50 0.25 *$ 0.25 8.0% LNCR 30.71 31.38 JUL 27.50 0.70 *$ 0.70 7.8% FBR 10.65 11.08 JUL 10.00 0.35 *$ 0.35 7.7% CACI 36.51 36.78 JUL 32.50 0.80 *$ 0.80 7.6% FCN 33.30 33.30 JUL 30.00 0.35 *$ 0.35 7.3% SIE 22.35 20.23 JUL 20.00 0.35 *$ 0.35 7.3% APN 10.85 10.80 JUL 10.00 0.25 *$ 0.25 7.3% CHBS 41.19 39.51 JUL 35.00 0.35 *$ 0.35 7.1% ASYT 20.35 17.40 JUL 17.50 0.35 $ 0.25 6.4% IBC 28.88 27.00 JUL 25.00 0.35 *$ 0.35 6.3% SWFT 21.50 21.17 JUL 20.00 0.55 *$ 0.55 6.2% SCIO 28.94 28.27 JUL 25.00 0.55 *$ 0.55 5.8% ATTC 31.25 31.52 JUL 30.00 0.80 *$ 0.80 5.8% SWFT 22.65 21.17 JUL 20.00 0.35 *$ 0.35 5.6% SKX 22.10 18.10 JUL 17.50 0.30 *$ 0.30 5.5% DG 18.50 18.20 JUL 17.50 0.30 *$ 0.30 4.9% YCC 26.74 24.54 JUL 25.00 0.55 $ 0.09 0.8% MOVI 20.18 16.60 JUL 17.50 0.35 $ -0.55 0.0% EXPD 32.17 28.84 JUL 30.00 0.35 $ -0.81 0.0% *$ = Stock price is above the sold striking price. Comments: This week's activity did little to help the helped the bullish positions in our portfolio but fortunately, the majority of plays came through the sell-off unscathed. Of course, the concern now is that a few negative earnings surprises from the top-tier companies will drag the market lower, limiting any upside potential for those who achieve favorable results. In fact, many analysts are saying the outlook for stocks is so bearish that only an "apocalyptic" event will preclude the equity markets from enduring significant downside activity in the near future. With that attitude in mind, we are going to maintain a cautiously optimistic viewpoint for the strongest issues in the portfolio and exit (or adjust) any plays that have less than outstanding technical indications. The current watch-list includes almost every issue listed in the summary, so be diligent in your position management during the coming week. Positions Closed: Yellow Corp. (NASDAQ:YELL), JDA Software (NASDAQ:JDAS) 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 AMAT 18.48 AUG 15.00 ANQ TC 0.55 3042 14.45 35 10.7% ATMI 23.54 AUG 20.00 ASQ TD 0.75 20 19.25 35 9.8% CSCO 14.38 AUG 12.50 CYQ TV 0.50 18552 12.00 35 9.9% DT 12.00 AUG 10.00 DT TB 0.25 174 9.75 35 7.1% MU 23.39 AUG 17.50 MU TP 0.45 1484 17.05 35 7.6% PDLI 10.95 AUG 7.50 PQI TU 0.20 720 7.30 35 7.3% QCOM 28.11 AUG 20.00 AAW TD 0.40 1112 19.60 35 5.8% RGLD 14.10 AUG 12.50 MJQ TV 0.60 27 11.90 35 11.2% RIMM 13.82 AUG 10.00 RUL TB 0.25 420 9.75 35 7.2% 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 RGLD 14.10 AUG 12.50 MJQ TV 0.60 27 11.90 35 11.2% AMAT 18.48 AUG 15.00 ANQ TC 0.55 3042 14.45 35 10.7% CSCO 14.38 AUG 12.50 CYQ TV 0.50 18552 12.00 35 9.9% ATMI 23.54 AUG 20.00 ASQ TD 0.75 20 19.25 35 9.8% MU 23.39 AUG 17.50 MU TP 0.45 1484 17.05 35 7.6% PDLI 10.95 AUG 7.50 PQI TU 0.20 720 7.30 35 7.3% RIMM 13.82 AUG 10.00 RUL TB 0.25 420 9.75 35 7.2% DT 12.00 AUG 10.00 DT TB 0.25 174 9.75 35 7.1% QCOM 28.11 AUG 20.00 AAW TD 0.40 1112 19.60 35 5.8% 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). ***** AMAT - Applied Materials $18.48 *** Reader's Request! *** Applied Materials (NASDAQ:AMAT) develops, manufactures, markets and services semiconductor wafer fabrication equipment and other related parts for the worldwide semiconductor industry. Applied Materials' customers for these products include semiconductor wafer manufacturers and semiconductor IC manufacturers. Applied makes systems that perform: chemical vapor deposition, physical vapor deposition, electroplating, etch, ion implantation, rapid thermal processing, chemical mechanical polishing, metrology and wafer/reticle inspection. Applied sells most of its single-wafer, multi-chamber systems based on four main platforms: the Centura, the Endura, the Endura SL and the Producer. One of our readers asked if this would be a good candidate for selling (OTM) puts, to own the issue for a long-term portfolio. Despite its recent share value losses, Applied Materials continues to dominate the market for capital equipment used to make micro-processors and memory chips. From a technical viewpoint, the stock is volatile but over the past decade, the company has posted has earnings increases of 30 to 50% after coming off major lows percent and the rebound from the current nadir could be even greater. Those who want to own the top company in the chip-equipment group can use this position to establish a reasonable basis in the issue. AUG 15.00 ANQ TC LB=0.55 OI=3042 CB=14.45 DE=35 TY=10.7% ***** ATMI - Atmi Inc. $23.54 *** AMAT Alternative! *** ATMI Inc. (NASDAQ:ATMI) is supplier of materials, equipment and related services used in the manufacture of semiconductor devices. The company targets the front-end semiconductor materials market, which includes the processes used to convert a bare silicon wafer into a completely functional wafer that contains many copies of a semiconductor device or chip. ATMI's operations are organized along two business segments: Materials, which provides a broad range of ultra-high-purity semiconductor materials, as well as semiconductor materials packaging and basic delivery systems, and Technologies, which provides the sensors for the workplace and manufacturing environment that detect materials as they travel through the workplace, point-of-use environmental equipment that abates materials, specialty thin film deposition services that provide coated wafers directly to the company's many customers and outsourced parts cleaning and semiconductor fabrication tool maintenance. For traders are more inclined to focus on technical indications, ATMI offers a favorable alternative to AMAT. The issue has established a near-term base at $20 (our sold strike) on heavy buying pressure and the support area offers a perfect "early-exit" signal in the event of further downside activity. AUG 20.00 ASQ TD LB=0.75 OI=20 CB=19.25 DE=35 TY=9.8% ***** CSCO - Cisco Systems $14.38 *** Networking Giant! *** Cisco Systems (NASDAQ:CSCO) is engaged in networking for the Internet. Cisco Internet Protocol-based networking solutions are installed at corporations, public institutions and telecom companies, and are found in a growing number of medium-sized commercial enterprises. The company provides a broad line of solutions for transporting data, voice and video around the world. Cisco solutions are designed to allow networks, both public and private, to operate with flexibility, security, and performance. Cisco shares rebounded this week after Merrill Lynch analyst Samuel Wilson upgraded the stock, citing healthier fundamentals and attractive valuation. Wilson commented, "Our macro leading indicators continue to point toward a recovery in communications equipment new orders during the second half of 2002, with revenues following shortly thereafter." He also said the fundamentals at Cisco are improving, and the company is expected to show top and bottom line out-performance before year end. Investors who agree with that outlook can "lock-in" a cost basis of $12 with this position. AUG 12.50 CYQ TV LB=0.50 OI=18552 CB=12.00 DE=35 TY=9.9% ***** DT - Deutsche Telekom AG $12.00 *** On The Rebound? *** Deutsche Telekom AG (NYSE:DT) is a European telecommunications company that offers fixed-line voice telephony products and services through more than 50 million access lines. Through T-Mobile, Deutsche Telekom serves approximately 31 million mobile telephony customers in Europe. The company is also a provider of high-speed digital access lines with over 600,000 digital service lines and 17 million channels utilizing the information transfer standard known as Integrated Services Digital Network. Deutsche Telekom provides new asymmetric digital subscriber line services. T-Online is an Internet provider with approximately 8 million subscribers. Deutsche Telekom's subsidiaries and investments include various telecom companies in the United Kingdom, France, Austria, Central and Eastern Europe, the United States and Asia. In May 2001, the company acquired VoiceStream Wireless and Powertel. Deutsche Telekom recently released upbeat details of first-half results saying that earnings before interest, taxes, depreciation and amortization rose from the comparative 2001 period, driven by growth at its wireless arm and stabilization at its fixed-line unit. The company's full earnings report is due in mid August and traders can speculate conservatively on that announcement with this position. AUG 10.00 DT TB LB=0.25 OI=174 CB=9.75 DE=35 TY=7.1% ***** MU - Micron Technology $23.39 *** Mega Memory Maker! *** Micron Technology (NYSE:MU) and its subsidiaries are principally engaged in the design, development, manufacturing and marketing of semiconductor memory products. The company offers products that include dynamic random access memory, synchronous dynamic random access memory, double data rate dynamic access memory, legacy dynamic random access memory products, static random access memory products and Flash products. Memory chip-maker Micron Technology said last week it expects strong demand for personal computers in the second half of this year, which should lead to higher selling prices for its products. News of a merger with Hynix Semiconductor also resurfaced Friday and traders who think the outlook for Micron is improving can profit from future upside activity in the issue with this position. AUG 17.50 MU TP LB=0.45 OI=1484 CB=17.05 DE=35 TY=7.6% ***** PDLI - Protein Design Labs $10.95 *** Biotech Bottom Fishing! *** Protein Design Labs (NYSE:PDLI) is engaged in the development of humanized monoclonal antibodies for the prevention and treatment of disease. The company has licensed specific rights to its humanized antibody product, Zenapax, to Hoffmann-La Roche and its affiliates, which markets it for the prevention of kidney transplant rejection. Protein Design is also testing Zenapax for the treatment of autoimmune disease. In addition, the company has several other humanized antibodies in clinical development for autoimmune and inflammatory conditions, asthma and cancer. Protein Design Labs saw renewed buying interest in its stock last week after some favorable product developments and this position offers a great entry price in the issue. Traders should target a higher premium in the play initially, to increase the potential return on investment. AUG 7.50 PQI TU LB=0.20 OI=720 CB=7.30 DE=35 TY=7.3% ***** QCOM - Qualcomm $28.11 *** CDMA Lives On! *** Qualcomm (NASDAQ:QCOM) is a worldwide developer and supplier of code division multiple access (CDMA)-based integrated circuits and system software for wireless voice and data communications and global positioning system products. Qualcomm offers complete system solutions, including software and integrated circuits for wireless handsets and infrastructure equipment. This complete system solution approach provides customers with their advanced wireless technology, enhanced integration and interoperability, as well as reduced time to market. Qualcomm provides integrated circuits and unique system software to many wireless handset and infrastructure manufacturers. South Korea's Samsung Electronics, a major manufacturer of CDMA phones, recently said it may double its investment in handset production in 2002, depending on market conditions. That would significantly boost QCOM's roll-out of networks and phones based on the company's CDMA standard, which offers twice the voice capacity of old networks with "always-on" data connections more than twice as fast as traditional, dial-up telephone modems. Traders who wouldn't mind owning QCOM for $20 per share can speculate on the company's future growth with this position. AUG 20.00 AAW TD LB=0.40 OI=1112 CB=19.60 DE=35 TY=5.8% ***** RGLD - Royal Gold $14.10 *** A Simple Hedge Play! *** Royal Gold (NYSE:RGD) is engaged in the acquisition and management of precious metals royalties. Royal acquires existing royalties or finances projects that are in production or near production in exchange for royalty interests. The company, to a reduced extent, also explores and develops properties thought to contain precious metals and seeks to obtain royalty and other carried ownership interests in these properties through the subsequent transfer of operating interests to other mining companies. Substantially all of the company's revenues are and can be expected to be derived from royalty interests, rather than from actual mining operations conducted by the Company. Royal recently completed the sale of 500,000 shares of common stock to a single institutional investor at a price of $13.75 per share. The proceeds from the offering will be used to advance the company's royalty acquisition program and allow them to maintain strong working capital. Investors who want a diverse portfolio can use this position to hedge against bearish activity in the broader equity markets. AUG 12.50 MJQ TV LB=0.60 OI=27 CB=11.90 DE=35 TY=11.2% ***** RIMM - Research In Motion $13.82 *** Optimistic Outlook! *** Research In Motion Limited (NASDAQ:RIMM) is a designer, builder and marketer of wireless solutions for the mobile communications market. Through the development and integration of hardware, software and services, RIM provides solutions for seamless access to time-sensitive information including e-mail, messaging, online and intranet-based applications. RIM technology also enables a broad array of third party developers and manufacturers in North America and around the world to enhance their many products and services with wireless connectivity. RIM's portfolio of products includes the RIM Wireless Handheld product line, the BlackBerry wireless e-mail solution, embedded radio modems and software development tools. Shares of Research In Motion have been "on the rebound" since the company affirmed its prior sales outlook for the current quarter and said it may even meet previous goals for the full year. RIM said that higher-margin products helped the hand-held paging company deliver far narrower-than-expected losses in its first quarter as revenue just topped expectations. Traders who think the company's cautiously optimistic outlook will translate to higher share values can profit from future bullish activity in the issue with this position. AUG 10.00 RUL TB LB=0.25 OI=420 CB=9.75 DE=35 TY=7.2% ***** ***************** 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 SLAB 25.55 AUG 20.00 QFJ TD 1.10 13 18.90 35 15.4% FEIC 24.01 AUG 20.00 FQE TD 0.85 6 19.15 35 11.5% OVER 23.77 AUG 17.50 GUO TW 0.60 4686 16.90 35 9.7% MRVL 24.00 AUG 17.50 UVM TW 0.60 299 16.90 35 9.7% ICST 20.21 AUG 15.00 IUY TC 0.50 0 14.50 35 9.6% BRCM 20.39 AUG 15.00 RCQ TC 0.50 3350 14.50 35 9.5% EXTR 10.67 AUG 7.50 EXJ TU 0.25 245 7.25 35 9.1% NAUT 13.00 AUG 12.50 NQT TV 0.40 10 12.10 35 6.8% GE 28.60 AUG 25.00 GE TE 0.55 7743 24.45 35 5.7% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Dow Downfall Continues! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** July 12, 2002 The Dow Industrial Average plunged for the fifth straight session Friday amid a sell-off in America's most popular hardware store, The Home Depot (NYSE:HD). The blue chip average slumped 117 points to 8,684, led by a slide in Home Depot shares after Merrill Lynch slashed its rating on the company to "neutral" on speculation that sales are sluggish compared with rival Lowe's (NYSE:LOW). Weakness was also seen in Coca-Cola (NYSE:KO), SBC Communications (NYSE:SBC), Procter & Gamble (NYSE:PG) and Boeing (NYSE:BA). The NASDAQ ended little changed after rallying early in the session on positive from Dell Computer (NASDAQ:DELL) and Juniper Networks (NASDAQ:JNPR). The hi-tech index also benefited from select buying in hardware, chip and networking issues. In the broader equity markets, biotech, gold and drug shares edged higher but selling pressure in retail, utility, bank and defense issues pushed the S&P 500-stock index 6 points lower to 921. Volume totaled 1.59 billion on the NYSE and 2.01 billion on the NASDAQ. Market breadth ended negative, with decliners surpassing advancers 3 to 2 on the NYSE and 6 to 5 on the technology exchange. On the fund flow front, Trim Tabs estimated that all equity funds had outflows of $6.3 billion over the week ended July 10 compared with outflows of $10.9 billion during the prior week. Equity funds that invest mainly in U.S. stocks saw outflows of $5.9 billion, versus outflows of $10.9 billion in the prior week. Treasury issues rallied throughout the week with yields on the benchmark 10-year note falling to an eight month low. The 10-year Treasury rose 13/32 to yield 4.58% while the 30-year government bond gained 15/32 to yield 5.34%. Last week's new plays (positions/opening prices/strategy): Bed-Bath (NSDQ:BBBY) JUL32P/JUL35P $0.40 credit bull-put Intuit (NSDQ:INTU) JUL40P/JUL45P $0.50 credit bull-put Weatherford (NYSE:WFT) JUL55C/JUL50C $0.55 credit bear-call Centex (NYSE:CTX) AUG65C/AUG45P $1.20 credit strangle Symantec (NSDQ:SYMC) AUG45C/AUG25P $1.25 credit strangle Hovnanian (NYSE:HOV) AUG40C/AUG30P $0.20 credit synthetic Total Fina (NYSE:TOT) AUG85C/AUG75P $0.10 credit synthetic The bearish market activity early in the week played havoc with our new bullish positions. Favorable trends in Hovnanian, Total Fina Elf and Bed, Bath & Beyond were abruptly reversed, leaving little opportunity for position adjustments. (It's amazing how quickly and dramatically the technical outlook for a stock can change!) Fortunately, the "premium-selling" plays held up well with both issues remaining in their respective trading ranges. Of the entire selection of new candidates, only Weatherford and Intuit traded as expected. Market Activity: The market's cautiously optimistic outlook turned to unrestrained pessimism on Monday and the selling pressure continued relatively unabated throughout the week as investors purged their portfolios in the wake of falling share values. Volatility soared to recent highs and as with most financial issues, the cycle simply fed upon itself, forcing equity prices exponentially lower as more traders placed "sell" orders. Some pundits suggested the bearish trends provided ample confirmation of future downside activity while the more optimistic analysts noted the potential for a classic "V- shaped" bottom in the coming weeks. From a purely technical point of view, the outlook is slightly bullish in the near-term due to the "oversold" conditions, however an extended time-frame reflects the truly unfavorable state of the market. In fact, a number of chart formations indicate the bottom will begin to form near 860 (on the S&P 500-stock index) and that is not a very encouraging forecast for most investors. Our outlook is more positive than most, but it's hard to see past the reality of single-digit prices for the hi-tech bellwethers of recent years. Stocks like Sun Microsystems (NASDAQ:SUNW), Oracle (NASDAQ:ORCL), Ciena (NASDAQ:CIEN), PMC Sierra (NASDAQ:PMCS), JDS Uniphase (NASDAQ:JDSU) and Comverse Technology (NASDAQ:CMVT) have all fallen from grace in the wake of the bursting stock-market bubble and there is little chance these issues will ever return to their previous valuations. With that type of unpredictability in equity prices, it is very difficult for new traders to discover how to become successful in this vicious game (before they lose all their money). Indeed, learning to correctly apply profitable strategies is the key to long-term success in any type of trading and that is the subject of today's most excellent E-mail question. Questions & comments on spreads/combos to Contact Support ****************************************************************** - READER'S WRITE E-MAIL REPLIES - ****************************************************************** Attn: Spreads/Combos Editor Subject: Option Trading Strategies Dear Mr. Cummins, I would like to seek your opinion on advice on my future trading. I have seemed to try just about every type of option trading, and due to my impatience or lack of trading skill, have watched my large gains turn into bigger losses over the last two years. I would like to settle on one or two trading methods and become proficient in them. Because I am unable to sit in front of my computer screen daily (because of my job), your spread and straddle recommendations seem to fit my trading schedule and parameters. Though I would love to be able to receive the 100- 500% profits touted by straight call or puts, I have come to the conclusion that I would much rather see a consistent profit flow on a monthly basis. So, what would you recommend for a $100,000 account? Are there a certain number of spreads per account, or contracts per spread that should be used for an account? Should I focus only on bullish or bearish strategies, or implement all of the recommendations in your articles for a balance? And in addition to these types of trades, are there any other recommendations that might you have for my situation? I know how busy you must be, but I would appreciate any assistance you could provide. Thank you, KT Hello KT, I admire you for undertaking the task of identifying the most appropriate trading strategy for your situation and circumstance. It is a difficult and time-consuming chore but one that is very important for long term success in the options market. Many new traders neglect this requirement and despite any initial triumphs, the omission is eventually reflected in the performance of their portfolios. Before I make any suggestions, you should understand that my skills exist in the area of research and teaching others about risk management and pricing theory. I do not consider myself a professional trader, nor do I have a desire to be one. I have many friends who are professionals (brokers, floor specialists and market-makers) and it takes a special kind of individual to live those lifestyles. Indeed, I have found after a number of years in the industry that I am more suited to simply providing information (and some guidance) to other traders and managing a low stress portfolio for personal capital appreciation. The strategies I use are not unlike the ones listed in the various sections of the OIN, but I take a more conservative approach than most. The options market traditionally yields 3%-4% on a monthly (annualized) basis to those who develop a sensible trading plan and correctly apply proven trading techniques in the appropriate conditions (and that's fine for me). This general rule is valid almost across-the-board with regard to the various methods used by today's top traders and to be honest, the strategies haven't changed much in years. The key to success is found not in the specific approach you take, but rather in the way you manage each and every position in your portfolio. As far as favored techniques, I prefer premium-selling positions with high probability and limited risk such as OTM credit spreads on broad indexes (OEX/SPX) and occasionally, individual issues. I will also sometimes speculate with a synthetic position (bullish or bearish) if the risk/reward outlook is very attractive. It is important to not limit your portfolio to directional trading only and in that respect, debit straddles can be very attractive when the implied volatility in options is near historical lows. Also, the strategy is easily managed without continually monitoring the underlying issue and its option prices, thus is may be appropriate for your situation. When the equity markets resume their positive trends, I will transition to bullish diagonal and calendar spreads (and covered-calls on LEAPS) as well as selling cash-secured puts on portfolio-quality issues. Regarding money management, the old adage "never put all your eggs in one basket" holds true in the financial markets and professional players generally limit their portfolio exposure to 10-15% on any one position. That ratio is appropriate for most combination and spread techniques and diversity is a very important component of success for any type of trading. As far as the candidates in the OIN, I strongly recommend that you do NOT "implement all of the recommendations" that are offered. As stated in the disclaimer: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. Another thing to remember is the Spreads/Combos section content is directed in large part by the OIN's readers and the favorite strategies (regardless of the market condition/character) among subscribers continue to be: OTM credit-spreads, debit straddles, bullish calendar spreads (especially CCs w/LEAPS) and synthetic positions. The point is, there are many situations when a play is offered because the readership favors that technique, even if it is not the most theoretically correct approach for the current market conditions. I hope that helps you narrow the search for favorable strategies and when you find something that works, let me know so I can share your success with other traders who use the OIN to improve their skills and increase their profits in the options market! Good Luck! Ray ****************************************************************** - Speculation Plays - These positions are based on recent increased activity in the stock and/or its underlying options. All of these plays offer favorable risk-reward potential but they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** CIEN - Ciena $5.56 *** Networking Recovery! *** Ciena Corporation (NASDAQ:CIEN) is engaged in the intelligent optical networking equipment market. Ciena offers a portfolio of products for communications service providers worldwide. The company's customers include long-distance carriers, competitive and incumbent local exchange carriers (CLECs), Internet service providers, wireless and wholesale carriers. Ciena makes optical transport and intelligent optical switching systems that enable service providers to provision, manage and deliver high-bandwidth services to their customers. The company has pursued a strategy to develop and leverage the power of disruptive technologies to change the fundamental economics of building carrier-class tele- and data-communications networks, thereby providing its customers with a competitive advantage. The company's intelligent optical networking products are designed to enable carriers to deliver any time, any size, any priority bandwidth to their customers. Ciena is one of the past darlings of the networking segment and it was a very popular stock during the rise of the NASDAQ. In more recent times, the issue has suffered along with every other hi-tech stock from the massive sell-off that decisively erased the market capitalization of virtually every technology company. Now the issue resides in the single-digits but analysts say the company has bullish potential after announcing a reorganization to speed product development and slash costs in a weak telecom environment where customer spending has been severely reduced. Ciena has combined its four product development organizations into two teams to meld the various network elements into fewer, multi-function products and the move should help the company embark on a long-term recovery in the coming months. Traders who agree with a positive outlook for CIEN's share value can speculate on that outcome with this combination play. Note: This play utilizes Jim Brown's (OIN Founder/Chief Editor) popular technique of writing "in-the-money" Puts to profit from future upward movement in the underlying issue. A near-term Put is also purchased to limit downside risk in the position if the recovery does not begin in the next few months. More information on this unique strategy can be found at: http://members.OptionInvestor.com/editorplays/042201_1.asp PLAY (speculative - bullish/short-put combination): SELL PUT JAN04-15.00 LGE-MC OI=1529 B=$9.80 BUY PUT OCT02-5.00 EUQ-VA OI=1384 A=$0.90 INITIAL NET CREDIT TARGET=$8.90-$9.00 TARGET PROFIT=$2.00-??? Note: There is a collateral requirement for the sold (short) Put, whether it is partially covered in the initial spread or exists "naked" when the long option expires. Please review the terms of the collateral requirements with your broker. ****************************************************************** SEPR - Sepracor $8.84 *** Same Strategy - Different Stock! *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The company's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which the company refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to any currently marketed products. Stocks in the generic drug group have been plagued by concerns over increased competition in the industry and the downward momentum in Sepracor shares, which began when the FDA denied approval for Soltara, the company's anti-allergy drug, has only recently come to an end. While there is no reason to anticipate higher prices in the near-term, Gary B. Smith of Thestreet.com says: "The longer we move sideways, the better chance we have of moving up, not down." That seems to be the case with Sepracor and traders who believe the upside potential outweighs the risk of downward movement can speculate on the stock's future activity with this position. PLAY (speculative - bullish/short-put combination): SELL PUT JAN04-15.00 LGD-MC OI=2262 B=$7.60 BUY PUT OCT02-7.50 ERQ-VU OI=300 A=$1.10 INITIAL NET CREDIT TARGET=$6.70-$6.75 TARGET PROFIT=$1.50-??? Note: There is a collateral requirement for the sold (short) Put, whether it is partially covered in the initial spread or exists "naked" when the long option expires. Please review the terms of the collateral requirements with your broker. ****************************************************************** PDLI - Protein Design Labs $10.95 *** Bottom Fishing! *** Protein Design Labs (NYSE:PDLI) is engaged in the development of humanized monoclonal antibodies for the prevention and treatment of disease. The company has licensed specific rights to its humanized antibody product, Zenapax, to Hoffmann-La Roche and its affiliates, which markets it for the prevention of kidney transplant rejection. Protein Design labs is also testing the drug Zenapax for the treatment of autoimmune disease and the company has several other humanized antibodies in development for autoimmune and inflammatory conditions, asthma and cancer. Protein Design Labs enjoyed buying interest in its stock last week after some favorable product developments. A European biotech company focused on cancer immunotherapies, Igeneon AG, has licensed from PDL a humanized monoclonal antibody under an option agreement signed by the companies in 2000. Igeneon will receive exclusive worldwide rights to develop and market the antibody while PDL will receive an upfront fee, plus milestone payments and royalties on any product sales generated by the antibody. PDL also recently began a Phase I clinical trial to evaluate the safety and tolerability of its humanized antibody Nuvion in patients with ulcerative colitis. PDL said the Phase I, dose-escalation pilot study of Nuvion will be conducted in patients whose ulcerative colitis has not responded to steroid therapy. The company believes that a unique antibody such as visilizumab, which induces apoptosis or programmed cell death of activated T cells, could provide therapeutic benefit in ulcerative colitis because it has previously shown evidence of activity in early stage trials in graft-versus-host disease and kidney transplantation, in which steroids also are a concomitant therapy. Traders who think PDLI is in the early stages of a recovery can attempt to profit from future upside movement in the issue with this position. PLAY (speculative - bullish/synthetic position): BUY CALL AUG-12.50 PQI-HV OI=965 A=$0.80 SELL PUT AUG-10.00 PQI-TB OI=980 B=$0.85 INITIAL NET CREDIT TARGET=$0.15-$0.25 TARGET PROFIT=$0.75-$1.00 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $430 per contract. ****************************************************************** NXTL - Nextel Communications $4.40 *** Cheap Speculation! *** Nextel Communications (NASDAQ:NXTL) provides digital, mobile communications across the United States by offering integrated wireless services under the Nextel brand name, primarily to business users. The company's digital network constitutes an integrated wireless communications system utilizing a single transmission technology: integrated Digital Enhanced Network technology, which was developed by Motorola. Customers are able to access digital mobile telephone services, such as speakerphone, conference calling, voice mail, call forwarding and additional line service; Nextel Direct Connect service, which allows any subscribers in the same local calling area to contact each other instantly on a private "one-to-one" call or on a group call; Internet services, mobile messaging services, e-mail and advanced Java-enabled business applications, marketed as Nextel Wireless Web services, and international roaming capabilities, marketed as Nextel Worldwide. Nextel shares soared last week amid rumors of consolidation among the nation's major wireless carriers and reports of an impending buy-out circulated after the Wall Street Journal said VoiceStream is holding preliminary merger discussions with AT&T Wireless. The deal would involve VoiceStream's parent Deutsche Telekom acquiring AT&T Wireless for an estimated $10 billion, creating the country's second-largest provider with 26 million subscribers. While most analysts say the marriage is unlikely, other company pairs might be more viable and traders are placing their bets on the potential partners. Speculation surrounding Nextel's upcoming earnings is also fueling option interest and the disparity in near-term call premiums, along with the healthy overhead supply near our sold strike price, make this position viable for those who participate in time-selling strategies. PLAY (speculative - bullish/calendar spread): BUY CALL JAN-5 FQC-AQ OI=6790 A=$1.45 SELL CALL AUG-5 FQC-HQ OI=6416 B=$0.55 INITIAL NET DEBIT TARGET=$0.75-$0.85 TARGET PROFIT=25%-50% ****************************************************************** - CREDIT SPREADS - ****************************************************************** HDI - Harley-Davidson $48.94 *** Technicals Only! *** Harley-Davidson (NYSE:HDI) is primarily a motorcycle manufacturer and marketer. The company operates in two principal business segments: Motorcycles and Related Products, which designs, manufactures and sells primarily heavyweight touring, custom and performance motorcycles, as well as a range of motorcycle parts, accessories and general merchandise, and Financial Services, which, through the company's main subsidiary, Harley-Davidson Financial Services, is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail installment sales contracts, primarily motorcycles and various non-commercial aircraft. The Motorcycles segment includes the group of companies doing business as the Harley-Davidson Motor Company, subsidiaries of H-D Michigan, and Buell Motorcycle Company. HDFS is an agency for certain unaffiliated insurance carriers providing property/casualty insurance and extended service contracts to motorcycle owners. The company's quarterly earnings are due on July 16. This position was discovered with one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. PLAY (conservative - bearish/credit spread): BUY CALL AUG-60 HDI-HL OI=3821 A=$0.20 SELL CALL AUG-55 HDI-HK OI=3271 B=$0.75 INITIAL NET CREDIT TARGET=$0.60-$0.65 PROFIT(max)=14% ****************************************************************** - EXPIRATION WEEK STRADDLES - One of our readers asked for some speculative straddles in the technology group and despite the recent market volatility, there are a few good candidates for neutral, option-buying strategies. Here are some possible straddles, based on analysis of historical option pricing and technical background. Recent news and market sentiment will have an effect on the issue so review each play thoroughly and make your own decision about its future outcome. ****************************************************************** AAPL - Apple Computer $17.50 *** Earnings Play! *** Apple Computer (NASDAQ:AAPL) designs, manufactures and markets personal computers and related personal computing systems and communicating solutions for sale mainly to education, creative, consumer and business customers. Substantially all of Apple's net sales over the last five years have been derived from the sale of its Apple Macintosh line of personal computers and related software and peripherals. The company offers a range of personal computing products including desktop and notebook personal computers, related devices and peripherals, networking and connectivity products, and various third-party hardware products. All of the Company's Macintosh products utilize PowerPC RISC-based microprocessors. PLAY (speculative - neutral/debit straddle): BUY CALL JUL-17.50 AAQ-GS OI=4931 A=$0.80 BUY PUT JUL-17.50 AAQ-SS OI=52478 A=$0.95 INITIAL NET DEBIT TARGET=$1.60-$1.65 TARGET PROFIT=15-25% ****************************************************************** GENZ - Genzyme General $17.75 *** Active Biotech Issue! *** Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme Corporation, a biotechnology and human healthcare company that develops products and provides services for unmet medical needs. Genzyme General develops and markets therapeutic products and diagnostic products and services with an emphasis on genetic disorders and other chronic debilitating diseases with defined patient populations. The company is organized into two segments, Therapeutics, which focuses on developing and marketing products for genetic diseases and other chronic debilitating diseases, including a unique family of diseases known as lysosomal storage disorders, and specialty therapeutics, and Diagnostic Products, which develops, markets and distributes in vitro diagnostic products. The company also operates a wholly owned subsidiary, GelTex Pharmaceuticals, Inc., which Genzyme General acquired in December 2000. PLAY (speculative - neutral/debit straddle): BUY CALL JUL-17.50 GZQ-GW OI=1174 A=$1.30 BUY PUT JUL-17.50 GZQ-SW OI=3697 A=$1.00 INITIAL NET DEBIT TARGET=$2.15-2.20 TARGET PROFIT=15-25% ****************************************************************** INTC - Intel Corporation $17.99 *** Earnings Play! *** Intel Corporation (NASDAQ:INTC) is semiconductor chip maker that supplies the computing and communications industries with chips, boards, systems and software building blocks that are integral to computers, servers and networking and communications products. The company offers products at various levels of integration, allowing customers to create advanced computing and communications systems. Intel's main products include microprocessors, chipsets, boards, networking and communications products, such as Ethernet network interface cards and network processors, embedded control chips and flash memory used in cellular handsets and handheld computing devices, as well as cellular baseband chipsets. The company is organized into four operating segments: the Intel Architecture business, consisting of the Desktop Platforms Group, the Mobile Platforms Group and the Enterprise Platforms Group; the Intel Communications Group; the Wireless Communications and Computing Group, and the New Business Group. PLAY (speculative - neutral/debit straddle): BUY CALL JUL-17.50 NQ-GW OI=27592 A=$1.20 BUY PUT JUL-17.50 NQ-SW OI=25371 A=$0.75 INITIAL NET DEBIT TARGET=$1.75-$1.85 TARGET PROFIT=15-25% ****************************************************************** LLY - Eli Lilly $50.26 *** Drug Sector Volatility! *** Eli Lilly & Company (NYSDE:LLY) discovers, develops, makes and sells pharmaceutical products. Eli Lilly offers neuroscience products, endocrine products, anti-infectives, oncology products, animal health products and cardiovascular agents. Lilly makes and distributes its products through owned or leased facilities in the United States, Puerto Rico and 26 other countries. The company's products are sold in approximately 160 countries. Eli Lilly directs its research efforts primarily toward the search for products to diagnose, prevent and treat human diseases. The company also conducts research to find products to treat diseases in animals, and to increase the efficiency of food production for animals. PLAY (speculative - neutral/debit straddle): BUY CALL LLY-GJ JUL-50 OI=1543 A=$1.85 BUY PUT LLY-SJ JUL-50 OI=210 A=$1.60 INITIAL NET DEBIT TARGET=$3.25-$3.35 TARGET PROFIT=15-25% ****************************************************************** ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************ MARKET WATCH ************ Several plays were triggered last week, and led to good trades. Will next week bring with it more good fortune? To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/071402.asp ************** MARKET POSTURE ************** Following the action mid week, Market Posture was quiet Friday. What awaits next week? 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