The Option Investor Newsletter Sunday 07-21-2002 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 7-19 WE 7-12 WE 7-05 WE 6-28 DOW 8019.26 -665.27 8684.53 -694.97 9379.50 +136.24 - 10.53 Nasdaq 1319.15 - 54.35 1373.50 - 74.86 1448.36 - 16.58 + 24.01 S&P-100 423.10 - 35.81 458.91 - 33.75 492.66 + 2.54 + .70 S&P-500 847.75 - 73.64 921.39 - 67.64 989.03 - .79 + .69 W5000 8083.00 -628.50 8711.50 -601.90 9313.40 - 70.63 - 5.95 RUT 386.20 - 27.08 413.28 - 27.64 440.92 - 21.74 + 1.59 TRAN 2332.18 -147.96 2480.14 -172.50 2652.64 - 77.68 - 25.32 VIX 43.45 + 5.12 38.33 + 8.12 30.21 + 1.08 - 2.15 VXN 61.17 - 4.83 66.00 + 9.72 56.28 - 1.67 - 1.35 TRIN 1.44 0.89 0.28 1.18 Put/Call 1.14 0.64 .77 .66 ****************************************************************** Last Line of Defense Breaks! by Jim Brown It is starting to become a nasty habit with the Dow losing more than -665 points two weeks in a row. The -390 point drop on Friday was not as critical as the actual levels that were broken. I hate to be the bearer of bad tidings but the final bastion of post 9/11 support is now history. The Dow was the last index to fail and it went down in flames. The Dow broke the 8063 post 9/11 reaction low at 3:36 PM and there was not even a blip on the chart when it was passed. Traders watched in shock as the down volume swamped up volume and accelerated into the close. Chart of the Dow Chart of the Nasdaq 100 Volume across all exchanges was 5.394 billion shares. Up volume was only 741 million shares with down volume of 4.062 billion. This nearly 6:1 ratio was bad but analysts are still predicting that things will get worse. The Russell-2000, normally a leading indicator for the broader market lost another -27 points to close at 386 and well off the 465 high from three weeks ago. The standout for the week was the NDX. The Nasdaq 100 still lost ground, -35 points for the week, but only -3.5% when the other major indexes were down over -6%. This would indicate that tech stocks could be the leaders once the bottom is found. The morning started off bad with Dow component JNJ down -$9 after saying it was under investigation for record-keeping irregularities relating to a factory that makes Eprex. This is not an accounting problem but concerns records relating to the manufacture of the drug. According to all accounts this is a non-event and we are adding JNJ as a call play today. Still the negative sentiment surrounding a Dow component down -$9 set the tone for the markets. It did not help any that Microsoft finished up their earnings release yesterday with cautious comments about the coming quarter. If the biggest and most Teflon covered tech company could be facing a challenging quarter then what would the rest of the industry be facing. SUNW had positive things to say on Thursday but analysts read between the lines on their guidance and decided that the outlook was worse than they thought. MSFT lost -1.55 for the day and SUNW dropped -26% to $4.24. Microsoft would have been down more except for some massive buy on close orders for several tech stocks. MSFT saw orders for nearly two million shares at the close. IBM saw nearly one million shares trade, INTC over one million and nearly two million in ORCL. Somebody saw the support in the NDX and decided they wanted to be long tech for Monday. OR, they decided enough was enough without a major NDX drop and they covered their shorts. Another factor in the sell off was the massive trade imbalance reported on Friday. The trade deficit jumped to $37.6 billion and the largest number on record. This number was impacted in some extent to the fall of the dollar. It now takes more dollars to buy merchandise than it did several months ago. The economic numbers may be less than desirable but the main number we need to worry about is the cash outflow from equity funds. AMG Data said in the week ended Wednesday $11.4 billion in cash was taken out of equity funds. When you consider more than $1.5 trillion in market cap was lost in the markets in the last two weeks these investors may be considering themselves lucky. The number we hit today on the Dow, under 8000, is exactly where the Dow was in July 1997. Exactly five years of profit has gone up in smoke. This was the worst two weeks for the Dow since the 1987 crash. The damage this week was not limited. Every sector regardless of previous strength, future outlook, market cap or depth of oversold was spared. The Russell-2000 has died. The SPX/OEX have both died. On the S&P fully 27% of the stocks set new 52-week lows this week. Only 5% of the S&P are above their 200 DMA and only 1% are above their 50 DMA. The bear market has been chewing up company after company and the carnage is far from complete according to many. There are still profits in risk in companies like the home builders and defense stocks and until those winners are dumped with the rest the selling will continue. I have read and listened to every conceivable version of the fate of the markets today. I have head Dow 11,000 to Dow 5,000 by year end. (yes there are still some diehard bulls) I have heard dire predictions for next week and the possibility for another -600 point drop. When everyone was ready to call a bottom last week it appears that they are now projecting the bottom well out into the future. It appears everyone is trying to go on record as being more bearish than everyone else. This is great news! It means the bottom, if there really is one, "should" not be far away. In reality I think it is farther than even some serious bears may want to admit. There are so many problems that just fixing one or two will not cure the patient. Some of the problems are date specific and cannot be cured next week. The dollar continues to fall and overseas investors are still repatriating funds and moving out of the U.S. stock market. Margin selling is gaining speed as the hard core who leveraged down on every dip are being wiped out right and left. Funds are selling to raise cash for redemptions as thousands of investors call it quits. The only people not selling are the hedge funds which are covering shorts in expectation of a coming rebound. (remember the buy on close orders on Friday?) The selling is so widespread that it is being felt in rural America. My wife stopped at a large yard sale on Friday. Seemingly everything but the kitchen sink was on sale. The owners husband is a full service broker and she said he was afraid to answer the phone. Every call was somebody liquidating their account. Many had been clients for many years. They saw the handwriting on the wall and were raising cash to downsize their lifestyle. While that is a sign of true capitulation it also raises a critical point. When the 1987 crash was over millions of investors were no longer in the market, either by choice or by liquidation. When this crash is over there will be far more investors, due to the Internet investing craze, that will no longer be in the market due to choice, bad decisions or forced liquidation. In 1987 almost all investors had brokers to bounce decisions off of. (I know the obvious conclusion here but hear me out.) With the Internet empowering investors to make their own decisions, many with no guidance or education at all, the money flowed and flowed and flowed. The well has now run dry for roughly 60% of the Internet investors if estimates are to be believed. Those investors will not be back any time soon. This is a major hit for those investors, to the wealth effect and to the future market. Consumption was rampant during the market bubble. Cars, boats, big screen TVs, dvd players, personal computers, etc. Money was easy and the IRAs and 401Ks were an ever growing bank account providing security for the spendthrift lifestyle. Fast forward to the present. Unemployment is very high. Layoffs are continuing to be announced daily. Major corporations are closing factories and reporting massive write offs. Profit projections for 15%-50% growth are being revised downward to +1% to +4%. The world is suddenly not a safe place and fear of flying takes on an entirely new meaning. Suddenly the term "earnings surprise" has mutated into "surprised if they have earnings". The investing public will likely see the largest bankruptcy in corporate America by Monday. WCOM has gone from offering half the Internet capacity in the U.S. to a $100 billion black hole for investors. WCOM will surpass the prior largest bankruptcy of Enron just a couple months ago. While this is very bad the worst may be yet to come. Even Greenspan warned that there are many more accounting problems in our future. The markets today are reacting to the coming accounting lottery. The top 900+ companies in America have been given till August 14th to begin certifying their financial statements under criminal penalties. Various estimates vary from 10 to 100 companies will disclose accounting skeletons and if you are holding one of these companies when they announce you will win the prize. That prize will be a stock price that could be cut in half or worse overnight. If it can happen to WCOM it can happen to anybody. This is breeding a lot of uncertainty in the investor world. With capital retention the number one priority the only thing you can do is move out of stocks that you feel are not 100% squeaky clean. Who is that? Even GE has come under fire for possible accounting problems and that means anybody is suspect. It does not have to be a little guy stretching the truth to entice investors to his $5 stock. It can be anyone as we have see recently from the negative news events. The investing public is so scared right now that JNJ dropped -$9 on news that an employee who works in the boiler room filed a grievance suit and the Feds decided to investigate. The stock lost $23 BILLION in market cap in one day. The employee claimed he was pressed to cover up a lapse in a manufacturing process in 1999 and then fired a couple days before a future inspection by the FDA. Suddenly the blackmail possibilities are endless. Is this worth $23 billion? Of course not but it illustrates the fear in the markets. Where to from here? To use a phrase from Art Cashin, "investors have gone from disappointment to disillusionment and are on the verge of despair." The keyword here is "verge". Despite the massive Dow drops over the last two weeks (-14.4%) most agree we have not seen the bottom. With the failure of the last major psychological level for the Dow, that being 8063, we are free to trade down to 7400 without any serious resistance. Yes, I said 7400. Will we see that on Monday? I doubt it but with the current depth of negative sentiment I think we will get there. With so many analysts calling for massive capitulation on Monday morning I doubt we will see that either. The market never gives us what we expect in the short term but is normally predictable longer term. I will leave the discussion about individual support and resistance levels to Leigh in his Index Wrap this weekend and stick to the general outlook. I think the severely oversold conditions will produce a rebound soon, probably Monday afternoon or Tuesday. It is a simple technical fact that you can't push stocks down much farther without a relief rally to equalize pressure. The spring will only compress so far! This will only be a trading bounce. With August 14th looming in our future it will be very hard to mount any kind of sustained rally until all the bad news is over. Several readers have asked about the VIX this weekend. The VIX hit a high of 43.79 on Friday and closed at 43.36. This level has not been seen since Sept-24th. Before that you have to go all the way back to the October-1998 crash when it traded as high as 60 to find another surge of this magnitude. Historians know that extremely high VIX readings predict market bottoms almost exactly. The only criteria here is how high is high? While the VIX was over 43 on Sept-24th it was also over 57 several days before. While it was 43 on Oct 11th 1998 it was over 60 on October 4th. In normal markets a high reading in the mid 30s is enough to bring buyers flocking in from the sidelines. In abnormal markets there is an outside force controlling the markets and the VIX which is an indicator of fear is simply an indicator that fear is rising. Many felt the VIX should have been higher on Friday. I agree. Option expiration held it down. The VIX is calculated on by taking a weighted average of the implied volatilities of eight OEX calls and puts. The options chosen have an average time to maturity of "30" days. This means on expiration Friday the options used are a month in our future and they are not quite as volatile as the current month options. The bottom line, we may see a higher VIX this week but the number itself should only be taken as one of several indicators for the time to buy. The put/call ratio at 1.14 today is another strong indicator of an impending relief rally but it can also move higher. The bottom line is fasten your seat belts and stow your tray tables the ride ahead could still be bumpy! Enter Very Passively, Exit Very Aggressively! Jim Brown Editor Was this commentary helpful to you? Jim@OptionInvestor.com ******************** INDEX TRADER SUMMARY ******************** TWENTY PERCENT by Leigh Stevens TRADING ACTIVITY AND OUTLOOK - That's how much the Dow has fallen in just 9 weeks! This makes just the fifth time that the DJIA has fallen that much in that short of a time span. It can take that long to make up your mind about what fund to invest in your retirement account. Speaking of which, Americans are finding that their retirement nest eggs in equities are shrinking rapidly and they are unhappy about it! The unhappiness with the Market is being felt in fund land - not FUNland, but funds, as in mutual funds - total fund net OUTflow in the week ending last Wed, was $11.4 billion. All of June was only $11 billion out. At this rate it will be a trillion for the year! Wonder how the redemptions will fare over the weekend as folks reflect on the market hemorrhaging and the kind of stats just mentioned. By the way, one encouraging historical note is provided by the NY Times this weekend - the last 4 times of a Dow plunge of 20% or more in 9 weeks, led to these rebounds a year later: Week ending 6/27/62 - 1 year later +33.7%; 9/13/74, - l year later up 29.1%; 10/23/87 - following year, +11.9; 9/21/01 (close: 8236) - 9/21/02 Dow close is unknown; Week ending last week, 7/19/02 - what 7/19/03 brings regarding the Dow close is really unknown. Here are some more - stats, I mean - the S&P 500 is at its lowest level since 1997 is down 44% from its March high. The Nasdaq Composite is back to its May '97 lows and is off 74% from its March 2000 price peak. Well, I always say, deep retracements can be as much as 75%. And, the Nasdaq at least appears to be digging in. All that money coming out of "old economy" stocks is going somewhere - besides walking out the door, that is. And, the global decline in the equities markets has got many thinking that the U.S. economic rebound may not be the engine of a world wise recovery so soon. Or, worse, that the U.S. may falter in its recovery. It would seem that President Bush could go on the tube and say some more proactive things to reassure people, but "CEO presidents" may not be better than business CEO's in rallying the troops! Bad news came from several companies - I mentioned Sun Micro (SUNW) on Thursday as being in line with Street expectations on current earnings - of course, it was sales being under expectations and SUNW "guidance" on what's ahead, that dropped the stock. SUNW fell a whooping 26% on Friday (from 5.80 to 4.25) - and, hey, this a good company! You know what the market has done to BAD ones. Microsoft (MSFT) came in with better than expected earnings, but said that sales of its Xbox gaming systems were disappointing. Guess the gamers won't put up with the same stuff we do in MSFT Windows. Johnson & Johnson (JNJ), another good company, was a total drag on the Dow at the end of last week, as its shares plunged nearly 16% on Friday, on reports that the government was conducting a criminal investigation into its Puerto Rico (PR) manufacturing facility - its anemia drug made there has been linked to some serious health problems in Europe and Canada. JNJ then said over the weekend that accusations made by a former PR employee, has nothing to do with the illnesses in patients using the drug produced at their island plant. However, it's unclear whether this all has anything to do with the criminal probe - the feds aren’t saying. So it goes in the Street of Dreams or lately, the Street of Nightmares. Program style trading (buys or sells of a "basket" of at least 15 stocks with each stock having a share value of at least $50,000) was active as many funds, especially S&P 500 (SPX) Index funds, did significant portfolio "rebalancing". Gone from SPX on Friday were RD, UN, NT, AL, ABX, PDG and N; newly added were EBAY, ERTS, UPS, GS, PRU, PFG and SDS. My last week's Trader's Corner column article was on Program Trading, including that variation known as Index Arbitrage involving S&P 500 futures and its "Fair Value". Now you may be tired of the "old" news, like the "old" economy (you may not be happy with the "new" economy either, but at least its new) and wonder what I think is coming NEXT. Me too, wonder that is. Well, as usual, I have a few things to say about the indices. S&P 100 (OEX) Index - Daily/Hourly charts: S&P 500 (SPX) Index - Hourly chart: 432 was a "minimum" downside objective based on the Head & Shoulder's top pattern on the hourly and half hour charts and you can see why such targets can imply a minimum objective only. OEX has now reached the low end of the re-drawn steeper down trendline of the price channel - the one reflecting the accelerated downside momentum this month. If the indices hold true to past patterns as regards the channel and given the near-term oversold conditions implied by the longer hourly stochastic model, there "should" be a rebound. However, we have to also note the possibility that prices just continue to "walk" down that trendline. I think the odds favor a bounce, perhaps back up to the 447 area, which was the recent "breakdown" point, as the slide beginning Thursday broke under a "line" of support implied by the low end of the prior 2-day trading range. 436, at the prior (down) swing low may provide immediate overhead resistance. I will be looking for a buying opportunity in the near-term such as Monday and suggest that it may be time to cover put positions. It's been consistently profitable to sell rallies, especially ones that get the index back up to technical resistance areas. The only wrinkle now is that with the sharply increased volatility of the last month (VIX close on Friday: 43.45, highest since 9/17!) and the resulting sharply increased premiums, it pays to trade selectively, such as buying puts on strength and waiting for the periodic "extremes". S&P 5100 (SPXOEX) Index - Hourly chart: My "minimum" SPX downside target from last week was to 866 and of course it overshot this. If you look at the lower envelope lines, such as on the OEX and DJX daily charts, these bands were tracking the lows until - they well "off" them like off a cliff. Where from here? The SPX is also now at the low end of the new lower downtrend channel, is oversold and "ripe" for a technical rebound - one perhaps greater than a "dead cat" bounce. You can't bounce a cat very far. My cat won't stand for it either! 876 at the previous swing low may be the first resistance point. 895 is the equivalent "line" of resistance that SPX might get back up to if a rally got some traction. I'm not discounting the fact that the indices went out at their lows and bearish sentiment is running very high - where are the buyers going to come from. There are always some willing buyers if they think they can make a buck and the sellers see advantages to waiting for a next rally to sell into. Time will tell - stay tuned! Dow Index (1/100: $DJX.X) - Daily/Hourly charts: If DJX can rebound to above 82.5, possible upside is back up to first trendline resistance around 85.5-86. If the Dow continues to sink, 8,000 is potential support. Given the oversold condition, sellers are likely to stop pressing the short side at DJX 80 or Dow 8000, unless Monday brings some huge new negative story of corporate chicanery. The Dow has followed the other indices to exceed its intraday, post 9/11 low. Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts: QQQ may be turning the corner, given the minor emerging up trend patter of slightly higher recent Hourly lows and the apparent sideways trend to the past week's lows on the Daily chart. I also think that a close eye needs to be kept on Cisco (CSCO), in case it starts rapidly sinking again to its prior lows around 12.3 - stock went out at 13.6. Microsoft (MSFT) is another potential loose cannon that could lead to a new down leg in the Q's if the stock can't find support again in the 48.3-49 area - MSFT closed the week at 49.56. On the Friday Market Monitor, I recommended going long QQQ at 23.30 if the opening looks lower - this in order to try to stay out of the way of opening volatility on the downside, only to see the stock rebound later. I think that QQQ can get back up to 26 area again, especially if MSFT and CSCO stabilize. I rely a lot on the bellwether big cap Nasdaq stocks as a guide to trading the Nasdaq 100 (NDX) and its tracking stock (QQQ). If there is another downside break, 23.00 is a minimum next target, but with potential to the 22 area thereafter. Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** Editor's Plays ************** Only One Only one play this week. Considering the chances for a major drop on Monday/Tuesday and a strong rebound I have picked one target shooting play as a candidate for next week. There are any number of good stocks you can pick for put plays at the open on Monday but with August options highly priced it would require a major move to profit before premium decayed. I think it is better to try and target shoot the indexes and buy calls on the way down with a staggered position approach. Since we have no idea how far or how fast these indexes will move the concept will involve entering a portion of your total position as certain price points are passed. Only with a disaster drop will the complete position be entered. This play assumes a market drop on Monday/Tuesday and a relief rebound before the end of the week. This is only a trading play and it is expected that the market will end down for the week. QQQ - Nasdaq tracking stock. chart of the QQQ Chart of the NDX Using the QQQs we know that the low from the prior week was $23.53. If the NDX is holding above the 1997 lows of 930, the low last week was 945, then we could assume a fairly narrow trading range on the QQQ. It has been moving between 23.75 and 26.25 for three weeks. The odds are good that we will see a dip on Monday/Tuesday and a rebound for at least one day. It is currently $23.99. Since it is likely to open down on Monday we will set our first buy stop at 23.50, just below last weeks low. We are going to use the Aug-$24 call, which is ask today at $1.50. As it falls farther out of the money the premium will drop drastically. For instance the $25 call is only $1.05. This would mean the $24 call would be $1.05 with the QQQ at $23.00. (all prices are estimates) For discussion purposes I am going to use a total position size of 50 contracts. You use whatever quantity fits your account size and risk profile. The QQQ has a 40:1 ratio to the NDX. This means for every 40 points the NDX moves the QQQ will move $1. If we are assuming the NDX will not drop below 925-930 or worst case 900 then we need to plan our entry points accordingly. The NDX closed at 965. Every 10 point move should equate to .25 on the QQQ. If we start our acquisition program at 950 then a rough guesstimate would be $23.60 on the QQQ. We are going to skip the odd cents and make the first buy at $23.50. We will scale into the position by adding 10 contracts (or your multiple) at every quarter increment the QQQ moves lower. 10 @ $23.50 (NDX 940) est $1.35 total invested $1335 avg $1.34 10 @ $23.25 (NDX 930) est $1.20 total invested $2535 avg $1.27 10 @ $23.00 (NDX 920) est $1.05 total invested $3585 avg $1.19 10 @ $22.75 (NDX 910) est $0.85 total invested $4435 avg $1.11 10 @ $22.50 (NDX 900) est $0.70 total invested $5135 avg $1.02 Assuming the NDX dipped all the way to 900 your total investment would be $5,135 plus commissions or an average of slightly more than $1.00 per contract. (all prices are just estimates) If the NDX returns to the current levels 965 ($24.00) on any rebound then the position would be worth $1.50 per contract or approximately $7,500 for a 50% return. (rounded) The risk here is that it will not return. To protect yourself against this possibility you can buy 20 contracts of the Aug-$25 put at the open on Monday. Since the open is probably going to be lower than Friday's close (NDX 965, QQQ 23.99) the contracts will cost you a little more than the $2.05 closing bid on Friday. (This is an insurance policy and not a profit play) Assume the NDX does fall to 900 or below and stops. At 900 the QQQ would be around $22.50. The put contract would be worth about $3.00 to $3.25. Closing the contract would not cover your costs on the calls and would only defray the expense by a $2000 or so. However it is an insurance policy against a catastrophic loss. If the NDX continued down then the puts would increase $1 for $1 for every point the QQQ moved lower. While the put contract is increasing in value the calls are not going to cost you any more money. That $5K is already spent. Should the NDX drop to 840 the QQQ would be $21.00 and the put contract worth $4.25 ($8500) You paid something around $4200 (20) so that is a $4300 profit on the puts to offset the loss on the calls. You are down about -$800. You would have the option of selling the puts and owning 50 contracts of the calls for $800 and a rebound to even NDX 900 would produce a handsome profit. At 900 the calls should be worth $5,135 and your basis is now $800. A rebound to 950 and the calls would be worth $7,500. You get the idea. (all prices are estimates) Obviously this is all pure speculation. In a perfect world the NDX would drop to 900, trigger all 50 contracts and rebound back to the top of its current trading range of 1060. You do the math. The put contracts are insurance and are not intended to be a profit play. It would be totally acceptable to buy the puts and have all the calls triggered and when the NDX rebounds to a profitable position on the calls (over 900) you sell the puts and put a stop loss on the calls. Any money received on the puts would be gravy. You could also hold them as insurance until the NDX recovered completely to the price you paid for the puts and just close them out for an even trade. The calls would be very profitable and you would not need the insurance anymore. I am sure many are thinking why not just wait for NDX 900 and buy the 50 contracts. What if it did not drop that far before rebounding? Nobody knows where the drop will stop and a rebound start. You could end up with 10 calls or 20 or 30 or all of them. If you wait for the bottom you may not have any. What I have described is a very simple play. I hope I have not confused you with the details. You can take any part of it or all of it and adjust it to your situation. Maybe you are willing to risk buying the calls naked without any insurance. Maybe you want to start lower, around $23.00 instead of $23.50. It is up to you. This is a guideline of a moderately safe way to speculate on a possible drop and rebound next week. Another option is to start slower, say 5 contracts and raise the number of contracts each time. This limits your initial investment and maximizes the dollar cost averaging impact. 5 @ $23.50 (NDX 940) est $1.35 total invested $ 675 avg $1.34 5 @ $23.25 (NDX 930) est $1.20 total invested $1275 avg $1.27 10 @ $23.00 (NDX 920) est $1.05 total invested $2325 avg $1.16 10 @ $22.75 (NDX 910) est $0.85 total invested $3175 avg $1.06 20 @ $22.50 (NDX 900) est $0.70 total invested $4575 avg $0.92 Two points: First, this is a trading play only and should not be held long term. The overall market trend is still down and there is no bottom in sight. We would like to think NDX 930 or even 900 will hold but there are no guarantees. If you plan on holding longer be sure to buy the puts and don't sell them until the play is profitable. Second, do not try to do this with limit buys based on option prices. The prices quoted were the closing prices on Friday. As the August options become current month next week the prices will change. There is no way to predict the actual price on Monday or Tuesday. Trying to make a limit buy in a fast moving market more often than not leaves you standing on the sidelines unfilled. Use a limit based on the QQQ price, NDX price or enter the orders manually, but enter the option order at market. For 50 contracts or less they will be filled automatically at bid/ask and nobody will have the chance to jack you around. ********************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Quicksand By Steven Price This is beginning to sound like a broken record, but things don't look so good. The S&P broke down once again, this time below the 877 support line from earlier in the week. The last time the S&P 500 reached this level was October 1997, when it traded 855.27. Our low today was 842.07. Prior to that, the S&P had found some resistance to the upside around 800 and support in the 730 range. Either of these numbers could provide support levels, however it has been almost 5 years, so it remains to be seen how effective they will be. The Dow has traded far below the lows following Sept. 11. It traded as low as 7966, its lowest point since October of 1998, before closing at 8019.26. The 8000 support level being broken is significant; between August and October of that year the Dow bounced between 7400 and 8000, after reaching over the 9000 mark in July. Of course that was on its way up. The reason there is so much volatility to the downside, as reflected in the Volatility Index ($VIX.X) hovering over 40% recently and closing today at its recent high of 43.45, is that stocks (and markets) generally fall much faster than they climb. Although this rule was broken during the Internet run-up, we all saw that the downside to that was pretty fast as well. How did we get here? Well, today's answer probably has something to do with Johnson and Johnson (JNJ), a Dow Jones Industrials component. JNJ revealed a federal probe into production at a plant in Puerto Rico, which produced Eprex, a drug that has come under attack lately for its link to a blood disorder requiring lifetime transfusions. A former employee claims he was pressed to cover up manufacturing lapses at the plant. JNJ finished down $7.88 to $41.85. Another major reason for the decline is the poor outlooks being offered by Sun Microsystems (SUNW), who predicted a loss in the first quarter of 2003 and shares ended down 27%. Plus, Ericsson (ERICY), who cut its forecast for the mobile phone systems market. Ericsson CEO Kurt Hellstroem predicted a loss in that division for 2002 and said that there was a "lack of a visible turnaround point" for the telecommunications equipment market. These comments echoed those of EMC, which stated it didn't see a return to IT customer spending any time this year. In addition, the Wall Street Journal reported that WorldCom might be filing for bankruptcy very soon, quoting an employee as claiming they only have enough cash left for a few more days. Any good news? Well actually there might be. The NDX has held its support at 950 since the end of June. The bullish percent has maintained its bull confirmed reading above 30%. This means that roughly a third of the stocks in the Nasdaq 100 are on buy signals. In the past the NDX has led the market, so I'm still clinging to this number as a barometer of possible turnaround. It will probably be significant if turns downward. The S&P 500 made several changes as of the close of business today, prompting several end of day run-ups as fund managers looked to add the new companies to their portfolios. These changes were announced July 9th, and include the following adds: United Parcel Service (UPS), Goldman Sachs (GS),Prudential Financial (PRU), eBay Inc. (EBAY), Principal Financial Group (PFG), Electronic Arts (ERTS) and SunGard Data Systems (SDS). The dropped stocks are: Royal Dutch Petroleum (RD), Unilever NV (UN),Nortel Networks (NT), Alcan Inc. (AL), Barrick Gold Corp (ABX), Placer Dome Inc. (PDG), and Inco Ltd.(N). ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10679 52-week Low : 7966 Current : 8019 Moving Averages: (Simple) 10-dma: 8675 50-dma: 9499 200-dma: 9814 S&P 500 ($SPX) 52-week High: 1226 52-week Low : 842 Current : 847 Moving Averages: (Simple) 10-dma: 915 50-dma: 1012 200-dma: 1093 Nasdaq-100 ($NDX) 52-week High: 1782 52-week Low : 946 Current : 965 Moving Averages: (Simple) 10-dma: 998 50-dma: 1125 200-dma: 1386 ----------------------------------------------------------------- Gold and Silver ($XAU.X) The XAU continued its upward contrarian creep, as the equity markets and dollar slid. It remains to be seen whether it can rebound from its highs in late May. 52-week High: dna 52-week Low : dna Current : 71.29 Moving Averages: (Simple) 10-dma: 73 50-dma: 78 200-dma: 65 ----------------------------------------------------------------- Market Volatility The Volatility Index has reached a new relative high, closing at 43.45. After a wild expiration week in which the Dow broke 8000, and the SPX reached levels not seen since 1997, the VIX foreshadows fear of what may lie ahead next week. If we continue to fall, we may see it continue to rise above 45. Last September we saw a high of 57, which shows there is plenty of room to the upside in a falling market. CBOE Market Volatility Index (VIX) = 43.36 +3.41 Nasdaq-100 Volatility Index (VXN) = 61.76 –1.85 it may seem. ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.14 923,085 1,048,059 Equity Only 1.08 651,962 708,162 OEX 1.04 84,724 87,754 QQQ 0.60 83,736 50,461 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 33 - 3 Bull Correction NASDAQ-100 31 - 4 Bull Confirmed DOW 10 + 3 Bear Confirmed S&P 500 17 - 4 Bear Confirmed S&P 100 12 - 3 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 1.41 10-Day Arms Index 1.42 21-Day Arms Index 1.48 55-Day Arms Index 1.38 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 732 2418 NASDAQ 930 2469 New Highs New Lows NYSE 28 297 NASDAQ 62 191 Volume (in millions) NYSE 2,996 NASDAQ 3,097 ----------------------------------------------------------------- Commitments Of Traders Report: 07/16/02 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 increased their short positions by 25% as the markets fell in the last period, while the small traders added almost 17,000 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%) 07/16/02 388,943 464,162 (75,219) (8.8%) 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% 07/16/02 157,370 67,247 90,123 40.1% 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 reduced their short positions by over 20% as the NDX held its own against the other market indices. Small traders reduced their overall long position by adding 2,000 short contracts. 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%) 07/16/02 33,152 39,866 (6,714) ( 9.2%) 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% 07/16/02 12,816 10,774 2,042 8.7% 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 Commercials remained virtually unchanged, while the small traders shifted from a small long position to a decidedly short position. 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% 07/16/02 20,357 14,074 6,283 18.2% 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% 07/16/02 8,524 10,133 (1,609) (8.62%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *************** ASK THE ANALYST *************** How To Be A Good Trader By Eric Utley Over the years I’ve accumulated what I consider to be a fair amount of knowledge about the market. I’ve learned how it works. I’ve learned of its nuances, its quirks, and of its seemingly illogical and unexplainable ways. It wasn’t an easy education, I’ll be the first to admit. In fact the market was the most difficult subject of study that I have ever taken on. My engineering courses in college, when I was studying chemical engineering, were a walk in the park compared to what I’ve been through with the market. But for all of its challenges, like a few blown-up accounts, the market has been the most rewarding, the most fulfilling aspect of my life to date. I think there are a couple of reasons for that. First, the market has taught me more about myself than any person or intangible experience. And its requirement of constant learning is reward enough in itself. But I’ll be honest, it’s the money that’s most important to me, and all that the money represents. Instead of a few charts this weekend, I’d like to share with you what I think it takes to win the game. Please send your questions and suggestions to: Contact Support ---------------------------- Risk Management Day trader, scalper, swing trader, investor – these are all fancy terms for what is a risk manager. The single most important aspect of any and every operation in the market is risk management. Period! Those fund managers who boast on Stock TV that they don’t use stop losses, who arrogantly believe that they’re right and the market is wrong, who under perform the market in most years, are idiots. They don’t win because they don’t know how to lose. I’ve read in dozens of trading texts that a trader should play to win, that he should not play to lose. Wrong! That axiom, if you want to call it that, is the single most flawed piece of “advice” that I’ve ever read. A trader should, first and foremost, play not to lose. Take care of not losing first, then prepare to win. Capital is the trader’s inventory, capital is most precious. Warren Buffett is one of few billionaires who created his wealth in the market. Warren Buffett once said play not to lose. ---------------------------- Method Most ends have myriad means by which they are reached. It’s not so important by what means an end is reached. It is most important to have some sort of defined means to reach an end. I haven’t read Mark Phillips’ business plan that he uses for his own trading. But I know he has one because he’s a good trader. Mark Phillips takes money out of the market by means which are unique to him. Jeff Bailey has a way that he approaches the market that is so unique I can’t put it into words. I don’t know if he can. But he has a method all right, that’s why he takes money out of the market year after year. Approaching the market from a haphazard, random direction, without a defined way to operate is walking into an end that I don’t think most want to reach in the market. It’s an end where Jeff and Mark are taking the opposite side of your trade and, believe me, that’s not a good place to be. It took me years to find a methodology with which to approach the market. But I found it, and my method works. In some ways it’s very similar to what Jeff and Mark use, it other ways it’s a world apart. ---------------------------- Discipline The man without discipline is the man without purpose and direction. If your purpose in the market is to make money, then your direction had better along the side of discipline. Discipline, in the market, means adhering to your unique method. One of the biggest mistakes that I’ve made over the years is not following what works for me. That comes with arrogance, which the market quickly removes once it surfaces in your psyche. Find what works. Do it. ---------------------------- The End It is that simple, successful trading can be reduced to just these three principles that I consider the ingredients of mastery: risk management, methodology, discipline. There’s much more than the ambiguity that I’ve offered, more science, more logic, more reason, more rational. But those are the things for you to figure out, because only you can take it that next step. No one else can do it for you, neither Jeff nor Mark nor myself. Best of luck! ---------------------------- 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 ************* COMING EVENTS ************* ================================================== Market Watch for the week of July 22nd ================================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- MMM 3M Company Mon, Jul 22 Before the Bell 1.34 ALTR Altera Corporation Mon, Jul 22 -----N/A----- 0.05 AXP American Express Mon, Jul 22 -----N/A----- 0.50 ANAT American National Ins Mon, Jul 22 -----N/A----- 1.40 AME AMETEK Mon, Jul 22 After the Bell 0.63 AHG Apria Healthcare Group Mon, Jul 22 Before the Bell 0.42 ASH Ashland Mon, Jul 22 Before the Bell 1.04 AWE AT&T Wireless Services Mon, Jul 22 -----N/A----- 0.00 AV Avaya Mon, Jul 22 After the Bell -0.04 BOH Bank of Hawaii Corp Mon, Jul 22 Before the Bell 0.41 BKNG Banknorth Group Mon, Jul 22 Before the Bell 0.50 BLS BellSouth Mon, Jul 22 Before the Bell 0.57 BWA BorgWarner, Inc. Mon, Jul 22 -----N/A----- 1.67 BG Bunge Limited Mon, Jul 22 Before the Bell 0.38 CNI Canadian Nat Railway Mon, Jul 22 After the Bell 0.86 CECO Career Education Mon, Jul 22 After the Bell 0.18 CHKP Check Point Sftwr Tech Mon, Jul 22 -----N/A----- 0.25 DNB D&B Corp. Mon, Jul 22 After the Bell 0.40 DHI D.R. Horton Mon, Jul 22 Before the Bell 0.65 XRAY DENTSPLY International Mon, Jul 22 After the Bell 0.44 EEP Enbridge Enrgy Prtnrs Mon, Jul 22 After the Bell 0.40 RE Everest Reinsurance Mon, Jul 22 After the Bell 1.31 ESA Extended Stay America Mon, Jul 22 After the Bell 0.19 FHR Fairmont Htls & Resrt Mon, Jul 22 -----N/A----- 0.29 FISV Fiserv Mon, Jul 22 After the Bell 0.34 HAS Hasbro Mon, Jul 22 Before the Bell -0.06 HE Hawaiian Electric Mon, Jul 22 After the Bell 0.79 ICBC Independence Comm Bank Mon, Jul 22 After the Bell 0.54 INET Instinet Group Llc Mon, Jul 22 -----N/A----- N/A KEM Kemet Mon, Jul 22 After the Bell 0.02 LEA Lear Mon, Jul 22 Before the Bell 1.18 LEE Lee Enterprises Mon, Jul 22 -----N/A----- 0.42 LXK Lexmark Intl, Inc Mon, Jul 22 Before the Bell 0.61 LPNT LifePoint Hospitals Mon, Jul 22 After the Bell 0.28 MWV MeadWestvaco Mon, Jul 22 Before the Bell 0.06 MCO Moody`s Mon, Jul 22 After the Bell 0.40 NFX Newfield Exploration Mon, Jul 22 -----N/A----- 0.41 NHY Norsk Hydro Mon, Jul 22 Before the Bell N/A NBP Northern Border Prtnrs Mon, Jul 22 After the Bell 0.64 NVS Novartis AG Mon, Jul 22 -----N/A----- 0.43 NVLS Novellus Systems Mon, Jul 22 After the Bell 0.08 OXY Occidental Petroleum Mon, Jul 22 -----N/A----- 0.62 PRK Park National Mon, Jul 22 -----N/A----- N/A PAS PepsiAmericas Mon, Jul 22 After the Bell 0.34 PSC Philadelphia Suburban Mon, Jul 22 Before the Bell 0.20 DGX Quest Diagnostics Mon, Jul 22 After the Bell 0.83 RYN Rayonier Mon, Jul 22 After the Bell 0.45 RNR RenaissanceRe Holdings Mon, Jul 22 After the Bell 0.98 SAFC SAFECO Mon, Jul 22 Before the Bell 0.30 SLAB Silicon Laboratories Mon, Jul 22 After the Bell 0.06 FHR Fairmont Htls & Rsrts Mon, Jul 22 -----N/A----- 0.29 FISV Fiserv Mon, Jul 22 After the Bell 0.34 HAS Hasbro Mon, Jul 22 Before the Bell -0.06 HE Hawaiian Electric Mon, Jul 22 After the Bell 0.79 ICBC Independence Comm Bank Mon, Jul 22 After the Bell 0.54 INET Instinet Group Llc Mon, Jul 22 -----N/A----- N/A KEM Kemet Mon, Jul 22 After the Bell 0.02 LEA Lear Mon, Jul 22 Before the Bell 1.18 LEE Lee Enterprises Mon, Jul 22 -----N/A----- 0.42 LXK Lexmark Intl, Inc Mon, Jul 22 Before the Bell 0.61 LPNT LifePoint Hospitals Mon, Jul 22 After the Bell 0.28 MWV MeadWestvaco Mon, Jul 22 Before the Bell 0.06 MCO Moody`s Mon, Jul 22 After the Bell 0.40 NFX Newfield Exploration Mon, Jul 22 -----N/A----- 0.41 NHY Norsk Hydro Mon, Jul 22 Before the Bell N/A NBP Northern Border Prtnrs Mon, Jul 22 After the Bell 0.64 NVS Novartis AG Mon, Jul 22 -----N/A----- 0.43 NVLS Novellus Systems Mon, Jul 22 After the Bell 0.08 OXY Occidental Petroleum Mon, Jul 22 -----N/A----- 0.62 PRK Park National Mon, Jul 22 -----N/A----- N/A PAS PepsiAmericas Mon, Jul 22 After the Bell 0.34 PSC Philadelphia Suburban Mon, Jul 22 Before the Bell 0.20 DGX Quest Diagnostics Mon, Jul 22 After the Bell 0.83 RYN Rayonier Mon, Jul 22 After the Bell 0.45 RNR RenaissanceRe Holdings Mon, Jul 22 After the Bell 0.98 SAFC SAFECO Mon, Jul 22 Before the Bell 0.30 SLAB Silicon Laboratories Mon, Jul 22 After the Bell 0.06 TXN Texas Instruments Mon, Jul 22 After the Bell 0.06 TRP TransCanada Pipelines Mon, Jul 22 After the Bell 0.23 UDR United Dominion Realty Mon, Jul 22 After the Bell 0.42 X Un. States Steel Corp. Mon, Jul 22 After the Bell -0.07 ------------------------- TUESDAY ------------------------------ NDN 99 CENTS Only Tue, Jul 23 Before the Bell 0.19 ATVI Activision Tue, Jul 23 After the Bell 0.18 ACXM Acxiom Tue, Jul 23 After the Bell 0.12 AFCI Advanced Fibre Comm Tue, Jul 23 After the Bell 0.02 AFL AFLAC Tue, Jul 23 After the Bell 0.37 APD Air Products & Chem Tue, Jul 23 Before the Bell 0.60 AC Alliance Capital Mana Tue, Jul 23 -----N/A----- 0.59 ALD Allied Capital Tue, Jul 23 Before the Bell 0.57 AMZN Amazon.com Tue, Jul 23 After the Bell -0.06 DOX Amdocs Limited Tue, Jul 23 After the Bell 0.20 AMX America Movil, Tue, Jul 23 After the Bell 0.10 AMCC App. Micro Crcuts Corp Tue, Jul 23 After the Bell -0.05 ARMHY ARM Holdings Plc. Tue, Jul 23 Before the Bell 0.05 T AT&T Tue, Jul 23 Before the Bell 0.03 AVB Avalonbay Communities Tue, Jul 23 After the Bell 0.95 AVY Avery Dennison Tue, Jul 23 During the Market 0.72 BMS Bemis Tue, Jul 23 Before the Bell 0.76 BJS BJ Services Tue, Jul 23 Before the Bell 0.18 BDK Black & Decker Tue, Jul 23 Before the Bell 0.63 BXP Boston Properties Tue, Jul 23 After the Bell 0.99 BSX Boston Scientific Tue, Jul 23 After the Bell 0.22 BMY Bristol-Myers Squibb Tue, Jul 23 -----N/A----- 0.26 BNI Burlington No Santa Fe Tue, Jul 23 Before the Bell 0.49 CHRW C.H. Robinson Wrldwde Tue, Jul 23 After the Bell 0.28 CDN Cadence Design Systems Tue, Jul 23 After the Bell 0.24 CP Canadian Pac Railway Tue, Jul 23 After the Bell 0.38 CEY Certegy Tue, Jul 23 Before the Bell 0.32 GIB CGI Group Tue, Jul 23 Before the Bell N/A CIT CIT Group Tue, Jul 23 Before the Bell 0.84 CL Colgate-Palmolive Tue, Jul 23 -----N/A----- 0.54 COC Conoco Tue, Jul 23 -----N/A----- 0.34 CBE Cooper Industries Tue, Jul 23 Before the Bell 0.68 GLW Corning Tue, Jul 23 After the Bell -0.09 CK Crompton Corporation Tue, Jul 23 After the Bell 0.15 DASTY Dassault Systemes SA Tue, Jul 23 -----N/A----- 0.23 DUK Duke Energy Tue, Jul 23 Before the Bell 0.51 ECL Ecolab Tue, Jul 23 Before the Bell 0.42 EW Edwards Lifesciences Tue, Jul 23 After the Bell 0.34 ELE Endesa, S.A. Tue, Jul 23 Before the Bell N/A EC Engelhard Tue, Jul 23 Before the Bell 0.44 EQT Equitable Resources Tue, Jul 23 Before the Bell 0.46 EXPE Expedia Tue, Jul 23 After the Bell 0.41 FCS Fairchild Semicon Intl Tue, Jul 23 After the Bell 0.04 FII Federated Investors B Tue, Jul 23 After the Bell 0.45 FCNCA First Cit BancShares Tue, Jul 23 -----N/A----- N/A FLEX Flextronics Tue, Jul 23 -----N/A----- 0.06 FLS Flowserve Tue, Jul 23 Before the Bell 0.47 FRE Freddie Mac Tue, Jul 23 Before the Bell 1.22 GMT GATX Tue, Jul 23 -----N/A----- 0.42 G Gillette Tue, Jul 23 Before the Bell 0.25 GR Goodrich Corporation Tue, Jul 23 After the Bell 0.56 GT Goodyear Tire & Rubber Tue, Jul 23 -----N/A----- 0.12 GLK Great Lakes Chemical Tue, Jul 23 After the Bell 0.31 HHS Harte-Hanks Tue, Jul 23 After the Bell 0.24 HCP Health Care Property Tue, Jul 23 Before the Bell 0.88 HMA Hlth Mngmnt Ass, Inc. Tue, Jul 23 Before the Bell 0.26 HSY Hershey Foods Tue, Jul 23 -----N/A----- 0.44 HRH Hilb, Rogal&Hamilton Tue, Jul 23 Before the Bell 0.37 ROOM Hotels.com Tue, Jul 23 Before the Bell 0.36 IMO Imperial Oil Limited Tue, Jul 23 -----N/A----- N/A N Inco Tue, Jul 23 -----N/A----- 0.25 IGT Intl Gaming Technology Tue, Jul 23 -----N/A----- 0.89 IPCR IPC Holdings Tue, Jul 23 After the Bell 0.88 JKHY Jack Henry & Ass Tue, Jul 23 Before the Bell 0.17 KMB Kimberly Clark Tue, Jul 23 Before the Bell 0.85 LAF Lafarge North America Tue, Jul 23 After the Bell 1.35 LRCX Lam Research Tue, Jul 23 After the Bell -0.07 LRY Liberty Property Trust Tue, Jul 23 -----N/A----- 0.85 LLTC Linear Technology Tue, Jul 23 After the Bell 0.17 LOGI Logitech International Tue, Jul 23 -----N/A----- 0.15 LOGI Logitech International Tue, Jul 23 During the Market 0.15 LZ Lubrizol Tue, Jul 23 Before the Bell 0.64 LU Lucent Technologies Tue, Jul 23 Before the Bell -0.14 MXO Maxtor Tue, Jul 23 After the Bell -0.36 MCK McKesson Corporation Tue, Jul 23 -----N/A----- 0.4 MGM Metro-Goldwyn-Mayer Tue, Jul 23 Before the Bell -0.47 OOM MMO2 Tue, Jul 23 Before the Bell N/A MOLX Molex Tue, Jul 23 After the Bell 0.13 MON Monsanto Co. Tue, Jul 23 Before the Bell 1.07 NBL Noble Energy, Inc. Tue, Jul 23 After the Bell 0.07 NU Northeast Utilities Tue, Jul 23 Before the Bell 0.25 ORLY O`Reilly Automotive Tue, Jul 23 After the Bell 0.42 OI Owens Illinois Tue, Jul 23 After the Bell 0.61 PTV Pactiv Tue, Jul 23 After the Bell 0.36 PYPL PayPal, Inc. Tue, Jul 23 Before the Bell 0.08 PNR Pentair Tue, Jul 23 Before the Bell 0.85 PHA Pharmacia Corporation Tue, Jul 23 Before the Bell 0.64 P Phillips Petroleum Tue, Jul 23 Before the Bell 1.03 PNW Pinnacle West Tue, Jul 23 Before the Bell 0.91 PPL PPL Corporation Tue, Jul 23 Before the Bell 0.60 PHM Pulte Homes Inc. Tue, Jul 23 Before the Bell 1.40 RSH Radio Shack Corp Tue, Jul 23 Before the Bell 0.29 RTRSY Reuters Group Tue, Jul 23 Before the Bell N/A ROK Rockwell Automation Tue, Jul 23 Before the Bell 0.26 SBC SBC Communications Tue, Jul 23 Before the Bell 0.59 SRE Sempra Energy Tue, Jul 23 Before the Bell 0.63 SIAL Sigma-Aldrich Tue, Jul 23 After the Bell 0.57 SSCC Smurfit-Stone Cont Tue, Jul 23 Before the Bell 0.04 SPW SPX Tue, Jul 23 Before the Bell 2.13 JOE St. Joe Company Tue, Jul 23 Before the Bell 0.16 SPC St. Paul Companies Tue, Jul 23 Before the Bell -0.95 STE Steris Tue, Jul 23 Before the Bell 0.14 STM STMicroelectrnics N.V. Tue, Jul 23 After the Bell 0.12 STK Storage Technology Tue, Jul 23 After the Bell 0.17 TMO Thermo Electron Tue, Jul 23 After the Bell 0.22 TMCS Ticketmaster Tue, Jul 23 After the Bell 0.17 TDW Tidewater Tue, Jul 23 Before the Bell 0.46 TYC Tyco International Tue, Jul 23 Before the Bell 0.45 UPS United Parcel Service Tue, Jul 23 Before the Bell N/A UST UST Inc Tue, Jul 23 Before the Bell 0.80 VSEA Varian Semiconductor Tue, Jul 23 After the Bell 0.08 VOLVY Volvo AB Tue, Jul 23 -----N/A----- N/A WAT Waters Corporation Tue, Jul 23 Before the Bell 0.29 WSTC West Corporation Tue, Jul 23 After the Bell 0.30 WY Weyerhaeuser Tue, Jul 23 Before the Bell 0.27 WWY Wm. Wrigley Jr. Tue, Jul 23 -----N/A----- 0.49 WPS WPS Resources Tue, Jul 23 After the Bell 0.43 WYE Wyeth Tue, Jul 23 Before the Bell 0.45 XTO XTO Energy Tue, Jul 23 Before the Bell 0.36 YRK York International Tue, Jul 23 After the Bell 1.19 YUM Yum! Brands, Inc. Tue, Jul 23 After the Bell 0.43 ----------------------- WEDNESDAY ----------------------------- ABB ABB Ltd. Wed, Jul 24 Before the Bell N/A ABY Abitibi-Consolidated Wed, Jul 24 -----N/A----- N/A ADO Adecco SA Wed, Jul 24 -----N/A----- N/A ADVP AdvancePCS Wed, Jul 24 After the Bell 0.35 AKZOY Akzo Nobel N.V. Wed, Jul 24 Before the Bell N/A AGN Allergan Wed, Jul 24 Before the Bell 0.44 AHC Amerada Hess Wed, Jul 24 -----N/A----- 1.93 AXL Am Axle & Manu Hldngs Wed, Jul 24 -----N/A----- 0.89 AMGN Amgen Wed, Jul 24 After the Bell 0.34 BUD Anheuser-Busch Wed, Jul 24 -----N/A----- 0.66 AOL AOL Time Warner Wed, Jul 24 After the Bell 0.22 ADM Archer Dnls Midland Co Wed, Jul 24 Before the Bell 0.18 BPC Banco Com Portugues Wed, Jul 24 After the Bell N/A BCE BCE Wed, Jul 24 Before the Bell 0.28 BDX Becton Dickinson Wed, Jul 24 After the Bell 0.48 BLC Belo Wed, Jul 24 Before the Bell 0.30 BBI Blockbuster Wed, Jul 24 Before the Bell 0.22 BOBJ Business Objects S.A Wed, Jul 24 Before the Bell 0.17 CBT Cabot Wed, Jul 24 After the Bell 0.38 CFFN Capitol Federal Fncl Wed, Jul 24 Before the Bell 0.30 CMX Caremark Rx Wed, Jul 24 -----N/A----- 0.25 CDX Catellus Development Wed, Jul 24 After the Bell N/A CHIR Chiron Wed, Jul 24 After the Bell 0.26 CYH Community Health Sys Wed, Jul 24 After the Bell 0.21 BVN Compania Minas Buena Wed, Jul 24 After the Bell 0.40 CNX CONSOL Energy Wed, Jul 24 -----N/A----- 0.23 CVG Convergys Corporation Wed, Jul 24 -----N/A----- 0.35 CAM Cooper Cameron Wed, Jul 24 Before the Bell 0.38 CCR Countrywide Credit Ind Wed, Jul 24 -----N/A----- 1.35 CFR Cullen/Frost Bankers Wed, Jul 24 Before the Bell 0.54 DBD Diebold Wed, Jul 24 Before the Bell 0.54 DST DST Systems Wed, Jul 24 After the Bell 0.45 DD DuPont Wed, Jul 24 Before the Bell 0.66 EDS Electronic Data Sys Wed, Jul 24 After the Bell 0.76 ENB Enbridge Wed, Jul 24 -----N/A----- N/A ENT Equant NV Wed, Jul 24 After the Bell -0.30 ESRX Express Scripts A Wed, Jul 24 After the Bell 0.59 FNF Fidelity National Fncl Wed, Jul 24 Before the Bell 0.94 FR First Indl Rlty Trust Wed, Jul 24 After the Bell 0.86 FE FirstEnergy Wed, Jul 24 -----N/A----- 0.70 FTI Fmc Technologies, Inc. Wed, Jul 24 After the Bell 0.23 FBN Furniture Brands Intl Wed, Jul 24 After the Bell 0.56 GILD Gilead Sciences Wed, Jul 24 After the Bell 0.04 GSK GlaxoSmithKline Wed, Jul 24 -----N/A----- 0.66 GSF GlobalSantaFe Corp. Wed, Jul 24 Before the Bell 0.34 GG Goldcorp Wed, Jul 24 After the Bell 0.09 GXP Great Plains Enrgy Inc Wed, Jul 24 After the Bell N/A DA Groupe Danone Wed, Jul 24 Before the Bell N/A TV Grupo Televisa, S.A. Wed, Jul 24 After the Bell 0.19 HAL Halliburton Wed, Jul 24 Before the Bell 0.16 HRS Harris Wed, Jul 24 During the Market 0.40 HCA HCA Inc. Wed, Jul 24 -----N/A----- 0.62 HP Helmerich & Payne Wed, Jul 24 -----N/A----- 0.26 IKN Ikon Office Solutions Wed, Jul 24 Before the Bell 0.23 NDE IndyMac Bancorp Inc. Wed, Jul 24 Before the Bell 0.59 IFF Intl Flavors & Frag Wed, Jul 24 -----N/A----- 0.53 ISIL Intersil Wed, Jul 24 After the Bell 0.15 IVGN Invitrogen Wed, Jul 24 After the Bell 0.45 ITT ITT Industries Wed, Jul 24 Before the Bell 0.93 KMT Kennametal Wed, Jul 24 Before the Bell 0.69 KMG Kerr-McGee Wed, Jul 24 -----N/A----- 0.70 LH Laboratory Corp. Wed, Jul 24 After the Bell 0.54 LSI LSI Logic Wed, Jul 24 After the Bell -0.09 KMT Kennametal Wed, Jul 24 Before the Bell 0.69 KMG Kerr-McGee Wed, Jul 24 -----N/A----- 0.70 LH Laboratory Corp. Wed, Jul 24 After the Bell 0.54 LSI LSI Logic Wed, Jul 24 After the Bell -0.09 MCD McDonald`s Wed, Jul 24 Before the Bell 0.38 MDU MDU Resources Wed, Jul 24 -----N/A----- 0.40 MGG MGM MIRAGE Wed, Jul 24 -----N/A----- 0.49 MCRL Micrel Semiconductor Wed, Jul 24 After the Bell 0.00 MCL Moore Corporation Wed, Jul 24 After the Bell 0.10 MUR Murphy Oil Wed, Jul 24 After the Bell 0.06 NOI National-Oilwell Wed, Jul 24 Before the Bell 0.23 NEU Neuberger Berman Wed, Jul 24 Before the Bell 0.48 NSC Norfolk Southern Wed, Jul 24 Before the Bell 0.31 NCX Nova Chemical Wed, Jul 24 Before the Bell -0.29 POC P & O Princess Cruises Wed, Jul 24 Before the Bell 0.47 BTU Peabody Energy Corp. Wed, Jul 24 Before the Bell 0.30 PD Phelps Dodge Wed, Jul 24 -----N/A----- -0.43 PXD Pioneer Natural Rsurcs Wed, Jul 24 Before the Bell 0.13 PDG Placer Dome Wed, Jul 24 -----N/A----- 0.10 PMI PMI Group Wed, Jul 24 Before the Bell 0.96 PX Praxair Incorporated Wed, Jul 24 Before the Bell 0.81 PGN Progress Energy Wed, Jul 24 Before the Bell 0.86 PL Protective Life Wed, Jul 24 Before the Bell 0.62 PUK Prudential PLC Wed, Jul 24 -----N/A----- N/A RDN Radian Group Wed, Jul 24 After the Bell 1.11 RBK Reebok International Wed, Jul 24 Before the Bell 0.30 REY Reynolds&Reynolds Wed, Jul 24 -----N/A----- 0.41 RHA Rhodia S.A. Wed, Jul 24 -----N/A----- N/A DNY RR Donnelley Wed, Jul 24 -----N/A----- 0.24 R Ryder System Wed, Jul 24 Before the Bell 0.43 RYL Ryland Group Wed, Jul 24 -----N/A----- 1.22 SNY Sanofi Synthelabo Wed, Jul 24 -----N/A----- N/A SEE Sealed Air Wed, Jul 24 -----N/A----- 0.60 SRA Serono S.A. Wed, Jul 24 Before the Bell 0.13 SI Siemens AG Wed, Jul 24 -----N/A----- N/A SEO STORA ENSO CORP Wed, Jul 24 Before the Bell N/A SUN Sunoco Wed, Jul 24 Before the Bell 0.00 SWMAY Swedish Match Wed, Jul 24 Before the Bell N/A TRLY Terra Lycos, S.A. Wed, Jul 24 -----N/A----- -0.06 TMS Thomson Multimedia Wed, Jul 24 -----N/A----- N/A URI United Rentals Wed, Jul 24 Before the Bell 0.52 UCL Unocal Wed, Jul 24 Before the Bell 0.51 USAI USA Interactive Wed, Jul 24 Before the Bell 0.09 VVC Vectren Wed, Jul 24 After the Bell 0.21 VMC Vulcan Materials Wed, Jul 24 After the Bell 0.63 BER W.R. Berkley Wed, Jul 24 After the Bell 0.63 WBST Webster Financial Wed, Jul 24 Before the Bell 0.81 WLP WellPoint Health Ntwks Wed, Jul 24 After the Bell 1.08 WOS WOLSELEY Wed, Jul 24 -----N/A----- N/A YCC Yankee Candle Wed, Jul 24 -----N/A----- 0.10 ZMH Zimmer Inc. Wed, Jul 24 After the Bell 0.30 ------------------------- THURSDAY ----------------------------- TW 21st Century Insurance Thu, Jul 25 Before the Bell 0.12 RKY Adolph Coors Thu, Jul 25 Before the Bell 1.58 AES AES Corporation Thu, Jul 25 Before the Bell 0.21 AG AGCO Thu, Jul 25 Before the Bell 0.27 ATG AGL Resources Thu, Jul 25 Before the Bell 0.20 ALB Albemarle Thu, Jul 25 -----N/A----- 0.38 ACV Alberto-Culver Thu, Jul 25 During the Market 0.60 AT Alltel Corporation Thu, Jul 25 -----N/A----- 0.80 AEP American Electric Pwer Thu, Jul 25 -----N/A----- 0.70 AIG American Intl Group Thu, Jul 25 -----N/A----- 0.85 APC Anadarko Petroleum Thu, Jul 25 Before the Bell 0.80 APA Apache Thu, Jul 25 Before the Bell 0.99 ABI Applied Biosystems Thu, Jul 25 Before the Bell 0.20 AZN AstraZeneca PLC Thu, Jul 25 -----N/A----- 0.49 AN AutoNation Thu, Jul 25 Before the Bell 0.30 BHI Baker Hughes Thu, Jul 25 Before the Bell 0.21 BLL Ball Thu, Jul 25 Before the Bell 0.79 ABX Barrick Gold Thu, Jul 25 -----N/A----- 0.11 BOL Bausch & Lomb Thu, Jul 25 Before the Bell 0.35 BRG BG Group Thu, Jul 25 -----N/A----- N/A BVF Biovail Corporation Thu, Jul 25 Before the Bell 0.38 BMC BMC Software Thu, Jul 25 After the Bell 0.08 BC Brunswick Thu, Jul 25 Before the Bell 0.43 BTY BT Group Plc Thu, Jul 25 -----N/A----- N/A CELG Celgene Thu, Jul 25 Before the Bell -0.01 CTL CenturyTel, Inc. Thu, Jul 25 Before the Bell 0.52 CHK Chesapeake Energy Thu, Jul 25 After the Bell 0.13 CPS ChoicePoint Thu, Jul 25 Before the Bell 0.32 CINF Cincinnati Financial Thu, Jul 25 -----N/A----- 0.29 CIN Cinergy Thu, Jul 25 -----N/A----- 0.49 COLM Columbia Sportswear Thu, Jul 25 After the Bell 0.13 CFB Commercial Federal Thu, Jul 25 Before the Bell 0.60 CIV Conectiv Incorporated Thu, Jul 25 Before the Bell N/A CSX CSX Thu, Jul 25 Before the Bell 0.58 DLTR Dollar Tree Stores Thu, Jul 25 After the Bell 0.21 DOW Dow Chemical Thu, Jul 25 Before the Bell 0.29 EMN Eastman Chemical Thu, Jul 25 After the Bell 0.47 EK Eastman Kodak Thu, Jul 25 Before the Bell 0.83 ERTS Electronic Arts Thu, Jul 25 After the Bell -0.08 ECA EnCana Corporation Thu, Jul 25 -----N/A----- 0.37 ENR Energizer Holdings Thu, Jul 25 Before the Bell 0.17 FOE Ferro Thu, Jul 25 Before the Bell 0.34 FTE France Telecom Thu, Jul 25 -----N/A----- N/A BEN Franklin Resources Thu, Jul 25 Before the Bell 0.48 HNT Health Net, Inc. Thu, Jul 25 Before the Bell 0.51 HR Healthcare Realty Trst Thu, Jul 25 After the Bell 0.67 IGL IMC Global Thu, Jul 25 Before the Bell 0.05 IDCO Interactive Data Corp Thu, Jul 25 Before the Bell 0.14 IRF Intl Rectifier Thu, Jul 25 After the Bell 0.25 SFI iStar Financial Inc. Thu, Jul 25 Before the Bell N/A JDSU JDS Uniphase Thu, Jul 25 After the Bell -0.03 JBLU Jetblue Airways Corp Thu, Jul 25 After the Bell 0.25 KSE KeySpan Corporation Thu, Jul 25 Before the Bell 0.21 G Lafarge Thu, Jul 25 -----N/A----- N/A LYO Lyondell Chemical Thu, Jul 25 Before the Bell -0.03 MRO Marathon Oil Corp. Thu, Jul 25 Before the Bell 0.65 MHP McGraw-Hill Thu, Jul 25 Before the Bell 0.67 MEDI MedImmune Thu, Jul 25 Before the Bell -0.12 MYL Mylan Laboratories Thu, Jul 25 Before the Bell 0.46 NFG National Fuel Gas Thu, Jul 25 After the Bell 0.32 NCR NCR Thu, Jul 25 Before the Bell 0.33 NIPNY NEC Corporation Thu, Jul 25 Before the Bell N/A NE Noble Corporation Thu, Jul 25 -----N/A----- 0.42 NRD NORANDA INC Thu, Jul 25 -----N/A----- N/A NST NSTAR Thu, Jul 25 -----N/A----- 0.58 OEI Ocean Energy Thu, Jul 25 Before the Bell 0.25 ONB Old National Bancorp Thu, Jul 25 Before the Bell 0.44 ORI Old Republic Intl Thu, Jul 25 Before the Bell 0.76 OVER Overture Services, Inc Thu, Jul 25 After the Bell 0.25 PCAR Paccar Thu, Jul 25 -----N/A----- 0.56 PY Pechiney Thu, Jul 25 -----N/A----- 0.25 PKI PerkinElmer Thu, Jul 25 Before the Bell 0.07 POT Potash Corp of Sas Thu, Jul 25 -----N/A----- 0.21 POM Potomac Electric Thu, Jul 25 -----N/A----- 0.44 PDE Pride International Thu, Jul 25 -----N/A----- 0.02 PLD ProLogis Trust Thu, Jul 25 After the Bell 0.59 QCOM Qualcomm Thu, Jul 25 After the Bell 0.22 O Realty Income Corp Thu, Jul 25 -----N/A----- 0.69 RGA Reinsurance Grp of Am Thu, Jul 25 After the Bell 0.67 REI Reliant Energy Thu, Jul 25 -----N/A----- 0.51 RRI Reliant Resources Thu, Jul 25 Before the Bell 0.41 RTP Rio Tinto PLC Thu, Jul 25 Before the Bell 2.38 RCL Royal Caribbean Thu, Jul 25 -----N/A----- 0.28 RPM RPM Thu, Jul 25 After the Bell 0.31 SGP Schering-Plough Thu, Jul 25 Before the Bell 0.43 SCIO Scios Thu, Jul 25 Before the Bell -0.59 SPI Scottish Power Thu, Jul 25 -----N/A----- N/A SMG Scotts Thu, Jul 25 Before the Bell 2.87 SCRI SICOR Thu, Jul 25 Before the Bell 0.20 SNA Snap-On Thu, Jul 25 Before the Bell 0.51 SNRA Sonera Group plc Thu, Jul 25 Before the Bell N/A SNE Sony Corporation Thu, Jul 25 -----N/A----- N/A SFG StanCorp Financial Grp Thu, Jul 25 Before the Bell 0.98 SBUX Starbucks Thu, Jul 25 After the Bell 0.13 HOT Starwood Htels&Rsorts Thu, Jul 25 Before the Bell 0.40 SV Stilwell Financial Thu, Jul 25 Before the Bell 0.35 SU Suncor Energy Thu, Jul 25 Before the Bell 0.22 TSM Taiwan Semi Manu Com Thu, Jul 25 Before the Bell 0.08 FAF The First Am Corp Thu, Jul 25 Before the Bell 0.44 PZB The Pittston Company Thu, Jul 25 -----N/A----- 0.22 TRH Transatlantic Holdings Thu, Jul 25 -----N/A----- 1.09 TZA TV Azteca S.A. de C.V. Thu, Jul 25 -----N/A----- 0.05 TXU TXU Corp. Thu, Jul 25 Before the Bell 0.71 UDI Untd Defense Ind, Inc. Thu, Jul 25 Before the Bell 0.41 VCI Valassis Thu, Jul 25 Before the Bell 0.60 VAR Varian Medical Thu, Jul 25 After the Bell 0.30 VRSN VeriSign Thu, Jul 25 After the Bell 0.15 VVI Viad Thu, Jul 25 Before the Bell 0.36 WDR Waddell&Reed Financial Thu, Jul 25 Before the Bell 0.31 WEN Wendy`s International Thu, Jul 25 -----N/A----- 0.53 XEL Xcel Energy Thu, Jul 25 After the Bell 0.42 XRX Xerox Thu, Jul 25 Before the Bell 0.00 ------------------------- FRIDAY ------------------------------- LNT Alliant Energy Fri, Jul 26 Before the Bell 0.36 ADRX Andrx Fri, Jul 26 Before the Bell 0.08 BEC Beckman Coulter Fri, Jul 26 Before the Bell 0.66 LNT Alliant Energy Fri, Jul 26 Before the Bell 0.36 ADRX Andrx Fri, Jul 26 Before the Bell 0.08 BEC Beckman Coulter Fri, Jul 26 Before the Bell 0.66 EAS Energy East Fri, Jul 26 After the Bell 0.11 HCR HCR Manor Care Fri, Jul 26 Before the Bell 0.34 PGL Peoples Energy Fri, Jul 26 Before the Bell 0.27 SCG SCANA Fri, Jul 26 Before the Bell 0.35 VRC Varco Fri, Jul 26 Before the Bell 0.20 WEC Wisconsin Energy Fri, Jul 26 Before the Bell 0.31 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable DSWL Deswell Industries 3:2 07/22 07/23 CHS Chicos FAS 2:1 07/26 07/29 ACMR A C Moore Arts & Crafts 2:1 07/31 08/01 SSD Simpson Manufacturing 2:1 - awaiting shareholder approval at 7/29/02 meeting. -------------------------- Economic Reports This Week -------------------------- Earnings, earnings and more earnings is the name of the game on Wall Street this week. Current expectations are for a follow through from Friday into Monday's open before we bounce. The economic front is clear through Thursday where economists will be watching the ECI report and the New Home Sales. ============================================================== -For- Monday, 07/22/02 ---------------- None Tuesday, 07/23/02 ----------------- None Wednesday, 07/24/02 ------------------- None Thursday, 07/25/02 ------------------ Initial Claims (BB) 07/20 Forecast: N/A Previous: N/A Durable Orders (BB) Jun Forecast: 0.5% Previous: 0.9% Employment Cost Index(BB)Q2 Forecast: 0.9% Previous: 0.8% Help Wanted Index (DM) Jun Forecast: N/A Previous: 45 New Home Sales (DM) Jun Forecast: 960K Previous: 1028K Existing Home Sales (DM)Jun Forecast: 5.73M Previous: 5.75M Friday, 07/26/02 ---------------- Mich Sentiment-Rev. (DM)Jul Forecast: N/A Previous: 86.5 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-21-2002 Sunday 2 of 5 ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** INDEX TRADER GAMEPLANS ********************** THE SECTOR BEAT - 7/21 by Leigh Stevens There are few to any trading opportunities in terms of sectors as, like the market, it's too late to short them and rallies have not followed though buy side opportunities are not either not working out or are not presenting themselves. Previously highlighted sectors that were having rallies against the market trend did present trading opportunities on the short side and which I've highlighted this month and included Gold stocks, Defense, Health Care, Health Providers, Home Builders, Oils, and Oil Services. Bearish plays in these sectors and their stocks have worked well and these sectors (except Gold) accelerated to the downside last week - however, these groups are now so far off their highs that they are not presenting a good risk to reward for new short positions in the stocks or by buying puts in the sector stocks or in the sector options where this is an option. The exception may be the Gold & Silver index sector (XAU), which has had periodic sharp rallies - such rallies have faded and lacked upside follow through. I would continue to sell or "fade" (trade against) XAU rallies, unless the Index was to close over 76, suggesting a bullish breakout above its down trendline; XAU Friday open was 72.9 and its close was 71.3. The small cap sectors, as represented by the S&P 600 small cap and Russell 2000 iShares have turned out to be disappointing as no bottom has developed. This is a stage of this bear market that could be considered to be a "blow off" in reverse - to the downside, and unlike the first half, there are NO sectors that are bucking the market trend by countertrend rallies or decisive upside reversals. Possibly Biotech is ready to buck the strong bear market trend, given recent rallies, as are some of the tech sectors - at least, "basing" sideways action is being seen in the Internet, Networking, Telecom, Semiconductors and Wireless sectors. When the overall market turns up, I will be looking at these sectors and evaluating their upside potential then. DOWN on Friday - You'll notice above from sectors down on Friday, that some of the sectors that I was talking as former countertrend "leaders" were off the most; e.g., Natural Gas, Oils, Oil Services, Forest products and Utilities. UP on Friday - Only the Gold & Silver sector Index ($XAU.X) was up slightly on the day, down from its intraday high, but up from Thursday by 8 tenths of a percent. SECTOR TRADE RECOMMENDATIONS & REVIEW - NEW/OPEN TRADE RECOMMENDATIONS - NONE OPEN POSITIONS - Long SMH at 28.30 (Semiconductor HOLDR's) LOWER STOP to 28.00 from 28.70 TRADE LIQUIDATIONS - Sold HHH (long at 21.50) (Internet HOLDR's) On 21.20 stop, on 20.85 Friday open SECTOR HIGHLIGHT - NONE Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com *********************************************************** DAILY RESULTS *********************************************************** For Best Alignment view in Courier Ten Font ******************************************* CALLS Mon Tue Wed Thu Week STM 24.01 1.09 0.04 -0.25 -0.61 0.25 Holding PMCS 10.46 1.11 -0.18 -0.26 -0.22 1.11 Holding up JNPR 8.90 0.36 0.24 0.91 -0.28 1.20 New holding trend JNJ 41.85 -1.50 1.10 1.14 -1.51 -8.65 New, oversold PUTS VZ 32.50 -0.15 -0.15 0.36 -1.31 -2.80 below channel LOW 36.03 0.82 -2.40 0.59 -0.34 -4.15 heading LOWer BLL 35.60 0.09 -0.07 -1.30 -0.30 -4.10 Off the Ball INVN 25.21 1.80 -0.53 -1.21 -2.07 -0.14 Still Bearish SBC 26.68 0.51 0.62 -1.11 -1.16 -2.32 Falling lower BBBY 29.25 -0.17 -0.52 -0.74 -0.40 -3.13 New, Trending CTX 45.75 -0.77 -2.17 -1.10 -0.31 -6.01 New, Trending GDW 60.47 0.32 0.40 -1.22 -1.87 2.33 Triple Bottom LEH 54.47 -1.11 -0.05 -1.06 -1.22 -4.48 New, failed rally UPS 67.00 -0.25 0.00 0.50 1.10 6.25 New, losing luster CI 82.16 -0.95 -1.97 -1.00 -2.53 -9.62 dropped, profits BJ 33.75 -0.53 -2.17 0.03 0.49 -2.75 dropped, support JNJ 41.85 -1.50 1.10 1.14 -1.51 -8.65 dropped, missed it EBAY 59.45 -0.21 -0.06 0.88 -1.25 -$1.56 New, Pull your bid ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* JNJ - Johnson & Johnson $41.85 -7.88 (-8.65 last week) See details in play list Put Play of the Day: ******************** UPS – United Parcel Service $67.00 (+5.74 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 ^^^^^ None PUTS ^^^^ CI $82.16 (-7.09) Quick and clean, CI provided us with a nice drop last week, as the Insurance sector got hit by a fresh round of selling. With the sharp drop in the broad market on Friday, it was impressive to see CI hold above the $80 support level. Given the stock's resilience in the face of the market-wide weakness, this looks like a good time to harvest gains and move on to other plays. There may be some more weakness early next week, and we'll want to use that weakness to hit an even better exit point. --- BJ $33.75 -0.57 (-2.75) BJ has dropped since we put this play on, but appears to have found support - or at least slowing in its descent. We feel there are other stocks in the sector that have less support and we will concentrate our efforts elsewhere. BJ has held up relatively well the last few days while the rest of the sector has dropped. This is the type of signal we see as an opportunity to take profits and close the position, rather than risking a rebound. --- JNJ $41.85 -7.88 (-8.65 for the week) This play was added Thursday, a day before its big drop. While this did not provide our readers a chance to get in, since the stock opened down, we did recommend a put spread on JNJ on Thursday morning's Market Monitor. We now consider this stock oversold and have added it to our call play list. The news in JNJ about the criminal investigation into its manufacturing practices at its Eprex plant created a severe reaction that we feel may not be entirely warranted. *********** 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. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-21-2002 Sunday 3 of 5 ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** NEW CALL PLAYS ************** PMCS - PMC-Sierra Inc. $10.46 +0.66 (+1.11 last week) Company Summary: PMC-Sierra is a leading provider of high speed broadband communications semiconductors and MIPS-based processors for Enterprise, Access, Metro Optical Transport, Storage Area Networking and Wireless network equipment that makes up the backbone of the Internet. The company offers worldwide technical and sales support, including a network of offices throughout North America, Europe and Asia. PMC-Sierra is included in the S&P 500 Index. Play Description: PMCS has been trending upward since its outside day of July 3rd, as it rebounded from a $7.57 low. The bears turned this stock back on Wednesday from an open over $11, but it rebounded today in spite of Goldman Sachs downgrade to "market outperform." They released earnings yesterday, showing a narrower loss and forecasting rising sales. Their loss was smaller than analysts predicted but less than the year ago figure. The forecast is for break even, reflecting decent cost management at PMCS. Chairman Bob Bailey said the company had benefited from newer companies using PMC-Sierra chips, which were currently under trial with telecommunications equipment makers. In an environment where most earnings news has come with profit warnings, this stock has actually projected improvement in the bottom line. PMCS has lost over 60% of its value over the last year and remains long-term oversold, as compared to the rest of the semiconductor sector, which has lost approximately 35%. This stock has held up well during the recent market bloodbath this last week. The stock has shown a 37% rise over the last week and a half, however pullback attempts have been halted above $10 the last three days. OI sees this current level as a trigger to go long. Resistance points could be $11.00 round number resistance, although the stock was able to overcome this level earlier in the week. The $12.00 mark, which acted as support in early May and resistance in mid- June could now be resistance again, especially with the 50-dma just above it. And let's not forget the $12.50 mark, an option strike sure to see some attention. Bulls will see $15 above that level, although a 50% increase is an aggressive view. OI will place its stop at $8.90, below the low for last Friday when the stock began its most recent run. BUY CALL AUG-7.5*SQL-HU OI= 345 at $3.50 SL=1.75 ($.50 premium) BUY CALL AUG-10 SQL-HB OI=2242 at $1.75 SL=0.75 BUY CALL NOV-7.5 SQL-KU OI= 184 at $4.30 SL=2.00 BUY CALL NOV-10 SQL-KB OI= 384 at $3.00 SL=1.50 BUY CALL NOV-12 SQL-KV OI= 382 at $2.00 SL=0.90 Average Daily Volume = 6.55 --- JNJ - Johnson & Johnson $41.85 -7.88 (-8.65 last week) Company Summary: Johnson & Johnson, with approximately 106,100 employees, is the world's most comprehensive and broadly based manufacturer of health care products, as well as a provider of related services, for the consumer, pharmaceutical and medical devices and diagnostics markets. Johnson & Johnson has 197 operating companies in 54 countries around the world, selling products in more than 175 countries. Play Description: This was on yesterday's put list, as it looked to be turning around just under $50.00. We were right - it opened down almost $8 today on news that the plant where they were producing Eprex may have hidden manufacturing irregularities, according to a former employee. Johnson and Johnson confirmed that it is the subject of a criminal inquiry, and the stock tanked. Eprex is a drug with its own problems. Johnson and Johnson have been under attack by Amgen, from who they licensed Eprex. Amgen has developed newer drugs, which operate similarly. However, they are trying to distance themselves from Eprex, which has some serious side effects. JNJ came out and admitted these problems and warned patients not to use the product, which can lead to a blood disorder called PRCA that requires lifelong blood transfusions Sounds pretty bad. However, this is OLD NEWS! While the general public may not have known the details of the Eprex problems, industry insiders were well aware of them. The idea of a criminal probe, in today's environment, smacks of "Enron-itis," however this is not a case of accounting woes. Also hanging over this sector are Merck's Medco accounting problems. While this stock was a sell at $50, we are looking for a bounce back up from this oversold level. OI would view a price under $44.00, the day's intraday high, as an entry point. We would not play this long if it opens above that level. We are playing this for the bounce, not for a chase. Our target would be for a strong four to five point bounce and then get out. We would place stops at $40.00 to avoid continued downside panic selling. This stock, however, opened down but maintained itself throughout the day above its low. BUY CALL AUG-40 JNJ-HH OI= 116 at $4.40 SL=2.00 BUY CALL AUG-45*JNJ-HI OI=3122 at $2.00 SL=0.90 BUY CALL OCT-40 JNJ-JH OI= 338 at $5.60 SL=3.00 BUY CALL OCT-45 OMC-JI OI= 628 at $3.20 SL=1.50 Average Daily Volume = 8.54 million ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ****************** CURRENT CALL PLAYS ****************** STM – STMicroelectronics N.V. $24.01 (+1.12 last week) Company Summary: STMicroelectonics is a global independent semiconductor company that designs, develops, manufacturers and markets semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications. These devices include automotive products, computer peripherals, telecommunications systems, consumer products, industrial automation and control systems. The company's products include standard commodity components, full custom devices, semi-custom devices and application-specific standard products for analog, digital and mixed-signal applications. Play Description: Up until the final hour on Friday, it really looked like the Semiconductor Index was going to resist the negative pull of the rest of the market. Although it dipped into negative territory several times, it continued to bounce back into the green. But the powered nose dive of the broader market finally exerted its pull of gravity and at the end the SOX fell for a 1.25% loss on the day. Our STM play didn't fare quite so well, as it gapped lower at the open and continued to deteriorate throughout the day, ending with nearly a 5% loss. Despite this less-than-stellar performance, we're sticking with the play on the basis of our expectation of a solid rally coming out of the SOX in the near future due to the recent spate of solid earnings news. In addition, STM came to rest right on solid support at the $24 level and could very well be setting us up for a fresh entry point. Use a rebound from this level or even stronger support near $23 to initiate new positions. We're keeping our stop set at $22.50. Don't forget to exit any open positions by Tuesday afternoon, as the company is slated to release its earnings report after the closing bell. BUY CALL AUG-22 STM-HX OI= 36 at $2.70 SL=1.25 BUY CALL AUG-25*STM-HE OI= 50 at $1.40 SL=0.75 BUY CALL OCT-25 STM-JE OI= 525 at $2.55 SL=1.25 BUY CALL OCT-30 STM-JF OI=2758 at $1.05 SL=0.50 Average Daily Volume = 1.58 mln --- Juniper Networks - JNPR $8.90 -0.03 (+1.20 last week) Company Summary: Headquartered in Sunnyvale, California Juniper Networks engages in the business of delivery of core, edge, mobile and cable Internet services at scale for the New Public Network. Play Description: Juniper, which was added to the OI play list on Thursday, held up well on what was a very ugly day for the market. With the Dow down almost 400 points, Juniper lost a whopping 3 cents. It opened down at $8.67 but rebounded quickly, dipping only once before coming back again. OI sees this as a sign of strength on a day when so many issues were brought to their knees. After reporting strong revenues, this stock looks to continue its upward trend, propped up by its 50-dma of $8.09, just above its previous resistance of $8.00. They reported earnings that were nil per share, however this was better than the expected loss, and kept the bulls happy. This stock could benefit from a bounce in the Nasdaq or a snapback rally in the broader markets. We continue to see possible resistance points at the 100-dma of $9.70, and again at the $10.00 round number mark. Beyond that, $12.50 looks like a possibility. OI sees the current level as an entry point to go long, however, should the markets free fall again on Monday a dip to (but preferably wait for the bounce at) $8.00 or $8.50 might be an entry point. Place stops below $8.00, the point of previous resistance. BUY CALL AUG-7.5*JUX-HU OI=3251 at $1.90 SL=0.85 BUY CALL AUG-10 JUX-HB OI=5093 at $0.50 BUY CALL OCT-7.5 JUX-JU OI=1798 at $2.55 SL=1.20 BUY CALL OCT-10 JUX-JB OI=3232 at $1.35 SL=0.65 Average Daily Volume = 13.7 mln ************* NEW PUT PLAYS ************* EBAY - eBay Inc. $59.45 -1.00 (-1.70 last week) Company Summary: eBay is the world's online marketplace(TM). Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay through auction or fixed price formats. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Play Description: Ebay has been the beneficiary of being added to the S&P 500, enjoying a last minute stock run-up to salvage its closing price. It was added as of the close of business Friday as part of a group that was announced on July 9. The stock received a small boost from the announcement, and has been in a holding pattern since. OI sees this as a bearish sign, as we feel this propping up of the stock, by fund managers who have been forced to add it to their S&P portfolios, is only temporary. EBay released earnings Thursday, which were positive, however it also gave very conservative future guidance. The earnings news had already been announced in early July, when it announced it was buying PayPal. Analysts have been concerned over the company's ability for future growth. The stock closed down on Thursday and only made it back up to Thursday's closing level with the need to add shares at today's close. EBay's P/E ratio of 117.15 is very high, and the market has not been kind to high P/Es. The stock has tried to get over the $62 mark, but has been pushed back each time. A high of $64 would have been needed to turn bullish on the PnF chart, which was unattainable. Ebay's PnF chart remains in a bearish double bottom breakdown, currently working on a bearish vertical count of $51. There has been some PnF support at $56, but this stock has plenty of room on the downside. Now that the S&P purchasing is out of the way, look for a fall. OI sees Ebay under $60 as an entry point to go short. Place stops at $62.50, above its recent attempts to break to the upside. Our target would be the $49.50 to $50.50 range but if it stalls near $52.50 we might take the money and run. BUY PUT AUG-60 QXB-TL OI=5626 at $4.20 SL=2.00 BUY PUT AUG-55*QXB-TK OI=8740 at $2.70 SL=1.25 BUY PUT OCT-50 QXB-VJ OI=2330 at $3.50 SL=1.50 SELL CALL OCT-60 QXB-JL OI=3519 at $6.50 SL= 8.50 SELL CALL OCT-55 QXB-JK OI=1195 at $9.40 SL=11.40 Average Daily Volume = 6.71 mln --- BBBY – Bed Bath & Beyond $29.25 (-3.18 last week) Company Summary: Bed Bath & Beyond is an operator of stores selling predominantly better quality domestics merchandise and home furnishings typically found in better department stores. As of May, 2002, the company had stores in 44 states. Domestics merchandise includes bed linens and related items, bath items and kitchen textiles. Home Furnishings include kitchen and tabletop items, fine tabletop and giftware, basic housewares and general home furnishings. Play Description: With Consumer Confidence sliding down the razor blade of life, and Retail Sales withering as well, it should come as no surprise that the Retail index (RLX.X) has fallen off a cliff in the past 2 weeks. In fact, the index is rapidly approaching its September low at $251. Even Walmart, the king of the discount retailers got smacked between the eyes last week for a 13% loss. Now that we've set the stage for the weakness in the sector, let's take a look at our new play, BBBY. The company caters to the higher end of the retail segment, which is likely to be one of the first to be hit by falling sales in a weak Retail environment. Couple that with expectations for weakness in the Housing arena, and shares of BBBY could be set for a fall. Judging by the price action last week, we aren't the only ones following this line of thinking. The stock broke down below longstanding support near $31 and on Friday closed under the $30 level for the first time since early November. The PnF chart presents an equally ominous picture, having recently posted a double bottom sell signal, and the tentative price target is now $22. That's a long ways to fall, and we want a piece of the action. Look to initiate new positions on a failed rally near $30.35 (Friday's intraday highs), $31 or $32 (intraday resistance throughout last week). We are initially placing our stop at $32.50. BUY PUT AUG-30*BHQ-TF OI=1426 at $2.65 SL=1.25 BUY PUT AUG-27 BHQ-TY OI= 538 at $1.45 SL=0.75 Average Daily Volume = 3.46 mln --- CTX – Centex Corporation $45.75 (-6.21 last week) Company Summary: The top home builder in the U.S., CTX operates in 20 states and Washington DC, as well as in Latin America and the UK. The company builds almost 19,000 homes a hear with an average price tag of $190,000 for both first-time and move-up buyers. The company has subsidiaries that offer home security systems and pest-control services, as well as construction contracting for hospital, school, office building and hotel projects. Rounding out the picture, CTX has interests in land development, mortgage banking, commercial real estate, and construction supply manufacturing. Play Description: The debate rages on about whether the Housing market is in a bubble, while at the same time, the prices of the Home Construction stocks continue to fall. The issue of a bubble likely isn't at work here so much as are broad market forces. Consumer Sentiment is falling, making people less willing to commit to a new home purchase. Interest rates aren't rising, but neither are they falling anymore, removing one more catalyst to buy now. In short, it appears fears of a second recessionary dip are starting to be felt even in the until-recently strong Housing sector. This weakness is clearly seen on the chart of the Dow Jones US Home Construction index ($DJUSHB), which broke several measures of support last week (including the 200-dma) and is now resting precariously on the $300 support level. If that fails to hold, then the index is likely headed back towards major support near $250. While it has held up better than the overall sector lately, CTX finally succumbed to the bearish pressure last week and broke decisively below the $49 level that has defined support since early December. With such a significant violation of support and on heavy volume, CTX looks like it will need to head down near the $40 level before finding any significant buying interest. Now that the $49 level has failed, we can use failed intraday rallies back to this area as ideal entry points. Look for an attempted rebound to occur from the $45 area, where CTX has support, and then fade that rebound when it runs out of steam, ideally in the $48-49 area. Initial stops are set rather wide at $51, where the stock continually found resistance last week. BUY PUT AUG-45*CTX-TI OI=400 at $3.30 SL=1.75 BUY PUT OCT-45 CTX-VI OI=846 at $4.90 SL=3.00 Average Daily Volume = 1.24 mln --- LEH – Lehman Brothers Holdings $54.47 (-5.06 last week) Company Summary: Through its subsidiaries, LEH constitutes one of the leading global investment banks, serving institutional, corporate, government and high-net-worth individuals clients. The company is engaged primarily in providing financial services, including securities writing and direct placements, corporate finance and strategic advisory services, private equity investments and securities sales and trading. Completing its array of banking, research and trading capabilities, LEH also engages in the trading of foreign exchange, derivative products and certain commodities. Play Description: To say that the Brokerage sector (XBD.X) looks sickly would be an understatement. One failed rally attempt after another has dragged this group lower each week and with Friday's drop, the index is sitting at its lowest level since late September. Poor market action, concerns about investor litigation and falling revenues due to less trading is all having its effect, and the net result is that investors want out of these stocks. This is clearly the case with shares of LEH, which broke down under the $56 support level last week and is precariously close to violating its $54 support, also the site of the 2% retracement of the fall rally. A quick look at the Relative Strength chart shows that until recently, LEH was holding up better than the XBD, but now it is playing catch up to the downside. That gives us a great setup for a new put play. While another oversold rebound would make for the best entries (ideally on a failed rally near the $57-58 resistance level), given the predominant market weakness, a breakdown under $54 may offer the next viable entry point. The PnF chart tells a similar story of weakness, with last week's fresh sell signal giving us a tentative price objective of $47. We are initially setting a fairly wide stop at $59, just in case we get the bounce before support fails. BUY PUT AUG-55*LEH-TK OI=1442 at $3.60 SL=1.75 BUY PUT AUG-50 LEH-TJ OI= 754 at $1.70 SL=0.75 Average Daily Volume = 2.59 mln --- UPS – United Parcel Service $67.00 (+5.74 last week) Company Summary: United Parcel Service is an express carrier package delivery company and a global provider of specialized transportation and logistics services. The company delivers packages each business day for 1.8 million customers to six million consignees. In 2001, UPS delivered an average of more than 13.5 million pieces per day worldwide. The company's primary business is the time-definite delivery of packages and documents throughout the United States and in over 200 other countries and territories. UPS has established a vast global transportation infrastructure and developed a comprehensive portfolio of guaranteed delivery services and supports them with advanced technology. Play Description: The Americanization of the S&P500 finally reached completion on Friday, just one more factor adding to the volatility of a wild expiration Friday. All of the companies being added to the index saw heavy buying at the close, as funds were loathe to take on those positions any earlier due to the wild carnage in the broad markets. Shares of UPS had actually traded well for much of the week already, having moved up from the $0 level to just over $62 on Thursday. But the volatility became rather insane on Friday, with the stock trading in a widening pattern between $61.50-64.00. And that was before the huge surge in volume (more than 20 million shares) after the closing bell that traded at $67. With the broad market clearly in trouble and likely headed substantially lower next week, it seems a pretty safe conclusion that UPS will lose a lot of the luster it had going into Friday's close. We want to take advantage of the artificial surge to initiate new positions that will benefit as the stock falls back to earth. Given the large move after the close, technical levels are rather hard to gauge right here. Although it is worth noting that $67 is the site of resistance from April 2000, so it could very possibly be where the reversal occurs. Above there, we have heavy resistance at $70, so we'll set our stop slightly higher at $70.25. Of course, if the after hours action is irrelevant (like it often is), we could see the stock roll over at the $64 resistance level, and that would also provide for a solid entry into the play. After we see where the stock settles out on Monday, we'll be able better define the action plan and set a better level for our stop. BUY PUT AUG-65*UPS-TM OI= 686 at $2.75 SL=1.25 BUY PUT AUG-60 UPS-TL OI=3499 at $0.90 SL=0.50 Average Daily Volume = 3.31 mln ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-21-2002 Sunday 4 of 5 ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************** CURRENT PUT PLAYS ***************** GDW – Golden West $60.47 (-2.15 last week) Company Summary: Golden West Financial Corporation (Golden West) is a savings and loan holding company, the principal business of which is the operation of a savings bank business through its wholly owned savings bank subsidiary, World Savings Bank, FSB (WSB). Golden West also has two other operating subsidiaries, Atlas Advisers, Inc. and Atlas Securities, Inc. These two companies were formed to provide services to Atlas Assets, Inc., a registered open-end management investment company sponsored by the Company. Atlas Advisers is a registered investment adviser and the investment manager of Atlas Assets' 14 portfolios (the Atlas Funds). Atlas Securities is a registered broker-dealer and the sole distributor of Atlas Fund shares. The principal business of the Company, through WSB, is attracting funds from the investing public and the capital markets and investing those funds principally in loans secured by deeds of trust or mortgages on residential real estate, and mortgage-backed securities. Play Description: Finding an island of strength in the current market is rapidly becoming a fruitless search, and Friday's market action is a perfect example with virtually every sector closing in the red. In that sea of red, the Banking stocks stood out again as leaders to the downside, as the Banking index shed 2.67% to close at its lowest level since September 21st. In light of that weakness, it was rather interesting to note that shares of GDW didn't continue to absolutely fall apart like they have for the past 2 weeks. Support at the $59.50 level held and the stock rebounded from its lows to close just over the $60 level. But there was some constructive (or destructive, in this case) done on the PnF chart. GDW printed a fresh triple-bottom breakdown with its trade below $60, and this will have the bears growling due to the new bearish price target of $49, which just happens to be very close to the September lows. Resistance is building in the $61 area, with even stronger resistance up at $62, and the 200-dma is sandwiched in between at $61.43. Look to initiate new positions on a failed rally in this resistance area. We are keeping our stop in place at $62.50 this weekend. BUY PUT AUG-60*GDW-TL OI=287 at $2.90 SL=1.50 BUY PUT AUG-55 GDW-TK OI=335 at $1.25 SL=0.50 Average Daily Volume = 565 K --- VZ - Verizon Communications $32.50 -$1.55 (-2.80 for the week) Company Summary: 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) Play Description: Verizon has continued its downtrend, begun at the end of May. It had been in a narrowly defined descending channel, which it fell out of with its close below $34. It has seen resistance from its 10-dma and 21-dma the entire way down. VZ traded down to $31.50, before rebounding to finish down $1.55 on the day. 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. The current vertical count on VZ's PnF chart is pointing to a target of $29.00, with no real support until then. We're going to aim for the $30 area (probably $30.50) as our profit target. We are adjusting our stop loss down to $36.00. BUY PUT AUG-35 VZ-TG OI= 2336 at $4.00 SL=2.00 BUY PUT OCT-35 VZ-VG OI=15917 at $5.20 SL=3.00 Average Daily Volume = 6.6 million --- LOW – Lowe's Companies, Inc. $36.03 -$1.82 (-4.15 last week) Company Summary: With 2001 sales of $22.1 billion, Lowe's Companies, Inc. is the world's second largest home improvement retailer. Headquartered in Wilkesboro, N.C., Lowe's is a Fortune 100 company and the 14th largest retailer in the United States. Lowe's has 110,000 and more than 800 stores in 43 states. (Source: company release) Play Description: Lowe's continues its downward swoon, along with the rest of the retail sector. We have seen heavy volume during this slide, as consumer confidence and low retail sales have hurt this sector. The Retail Index slid past levels of support at 300 and 290, and has dropped another 10% this week to 266. There was an attempt by the sector to right itself earlier in the week, but it turned out to be just a token effort that was unsustainable. The recent decline in the U.S. Home Construction Index ($DJUSHB) and talk of a housing bubble also does not bode well for Lowe's, which thrives on home improvement. Lowe's has exceeded its bearish vertical count on the point and figure chart and also broken through bullish support. Lowe's appears to have potential support around $35.00, $32.50, and then again at $30. We remain bearish on this stock, as other heavyweights in its sector Wal Mart and Home Depot also continue to slide south. Yet new entries would probably work better on a break of support at $35.00 or a failed rally between $38 and $39. BUY PUT AUG-40*LOW-TH OI=1628 at $5.00 SL=2.50 BUY PUT AUG-35 LOW-TG OI=1798 at $2.15 SL=1.00 BUY PUT OCT-40 LOW-VH OI=2895 at $6.10 SL=3.75 Average Daily Volume = 4.72 million --- BLL - Ball Corporation $35.60 (-5.53 last week) Company Summary: Ball Corp. is a manufacturer of metal and plastic packaging, primarily for beverages and foods, and a supplier of aerospace and other technologies and services to commercial and governmental customers. Ball's principal business is the manufacture and sale of rigid packaging products, primarily for beverages and foods. Polyethylene terephthalate packaging is the company's newest product line. The aerospace and technologies segment includes civil space systems, defense operations and commercial space operations. The defense operations business unit includes defense systems, systems engineering services and advanced antenna and video systems, as well as electro-optics and cryogenic systems and components. Play Description: Now that's the way to get a new put play started. When we initiated coverage on BLL on Thursday, we were hoping for one more brief pop to give us an entry into the play. But with the broad market going into free-fall at the open and continuing to deteriorate throughout the day, we had to settle for an entry on the breakdown under support. And what a breakdown it was. Continuing to give back its gains from the rally off the September lows, BLL gapped down and took out Monday's low soon thereafter, triggering our lower entry point. Even the mild support near $3 failed to produce so much as a speed-bump on the way down. Referring to our commentary in the writeup on Thursday, the PnF chart has a bearish target of $29, and the stock is making rapid progress towards that goal. We want to see an oversold rebound early next week, possibly from the $35 area, to provide new entries on a failed rally under the $38 level. As long as the Defense Industry index (DFI.X) continues its downward slide, BLL should continue to please the bears. Remember, the company is set to release earnings on Thursday before the opening bell, so all positions should be closed by the end of trading on Wednesday. Lower stops to $38.50. BUY PUT AUG-37 BLL-TU OI=489 at $3.60 SL=1.75 BUY PUT AUG-35*BLL-TG OI=770 at $2.20 SL=1.00 BUY PUT AUG-32 BLL-TZ OI=332 at $1.45 SL=0.75 Average Daily Volume = 533 K --- INVN – InVision Technologies $25.21 (+0.83 last week) Company Summary: InVision Technologies is a provider of FAA-certified explosives detection systems (EDSs) used at airports for screening checked passenger baggage. The company's EDS products are based on advanced computed tomography (CT), which is the only technology for explosives detection that has met the FAA certification standards. INVN was the first manufacturer and is one of only two whose EDS products have been certified by the FAA for screening baggage. Through the end of 2001, the company had shipped 18 EDS units for installation at United States airports and 103 units for installation in airports outside of the United States. Play Description: The fade the news crowd is definitely still alive and well, judging by last week's price action in INVN. The stock ran up early in the week and then began selling off on Wednesday after news broke that the company had received more than $100 million in additional orders from the Department of Transportation. Perhaps investors are starting to get worried about whether the funding for all these orders and projects will come in on time or get delayed like so much else tied to the Defense sector. Whatever the cause, INVN gave us a great entry as it rolled over near the $28.50 level and then proceeded to fall right to the $25 support level at the close on Thursday. Friday's action was a bit curious, as the stock firmed and held above $25 all day, actually posting a fractional gain while the rest of the market went into free fall. It is starting to look like the bears will have to get another running start to break below this support level, so we want to be on the lookout for another failed rally to allow us into new positions. A rollover below $27.50 can be used to enter new positions, but remember that time is short on this play. The company is set to release earnings after the closing bell on Tuesday, so we'll be dropping the play by then. Use a drop below support as an opportunity to harvest gains, targeting major support in the $22-23 area. BUY PUT AUG-25*FQQ-TE OI=529 at $2.75 SL=1.25 BUY PUT AUG-22 FQQ-TX OI=220 at $1.60 SL=0.75 Average Daily Volume = 1.67 mln --- SBC – SBC Communications $26.68 (-2.96 last week) Company Summary: 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. Play Description: Bankruptcy is looming large in the windscreen for Worldcom, and as we mentioned when we initiated coverage on SBC, the company may be in position to 'win' the bidding if Worldcom goes on the auction block. That win might turn out to be a booby prize given the huge debt-related problems that would go with the acquisition. Although it took its sweet time getting moving, shares of SBC finally succumbed to the selling pressure in the broad market over the past 2 days. Whether due to acquisition-related fears or downright disgust with the deteriorating prospects for the Telecom industry, it is clear that the bears are in control here. This point was underscored by Morgan Stanley's estimate cuts for the RBOCs on Wednesday, where they cited their expectation for more pressure on top-line revenues and profit margins. Looking at the intraday action on Friday though, things weren't as grim for SBC as for the rest of the market. After gapping down to $26.25, it clawed its way back to just above the $27 resistance level before selling off again in the final 30 minutes of the day. The bulls are trying to get a decent bounce going, and if successful, we could get another attractive entry point on a failed rally near the $28 level. Given the stock's resilience on Friday, we wouldn't advocate shorting into the hole here, but instead would look at a drop near the $25 level as an opportunity to harvest gains. We are lowering our stop to $28 this weekend and will be dropping the play on Monday, ahead of the company's earnings report Tuesday morning. BUY PUT AUG-30*SBC-TF OI=2364 at $3.90 SL=2.50 BUY PUT AUG-25 SBC-TE OI=2436 at $1.05 SL=0.50 Average Daily Volume = 7.92 mln ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***** LEAPS ***** Where's The Bottom? By Mark Phillips mphillips@OptionInvestor.com Now that the DOW has joined the S&P 500 and NASDAQ in having broken its September lows, that seems to be the question on everyone's mind. While the bulk of the carnage seen on Friday was focused on the DOW and S&P, no area of the market was spared from the selling frenzy. Even though it managed to hold above last week's lows, even the NASDAQ-100 suffered nearly a 3% loss and ended only 20 points above its July 11th intraday low. The strongest Technology sector throughout the day was the Semiconductors (SOX.X), which spent most of the day with a small gain. But the pressure of the market-wide selloff was more than even the Chip bulls could stand and the (not-so) mighty SOX fell underwater in the final hour. While I wouldn't go so far as to call a bottom here, this kind of wholesale abandonment of stocks, both the good and the bad, is part of the necessary cleansing process needed to put in the next tradable bottom. The next major support for the DOW looks to be in the 7500-7600 area, with the S&P 500 having to look down near the 800 level to find any meaningful historical support. Failing to hold that level brings in the possibility that we'll need to revisit the site of the 1997 lows near 740 before the bulls will be willing to come out and play again. I even found the action of the VIX to be rather disconcerting, as it only rose to 43.36. While this is the highest close for the VIX since September 21st, what bothered me is that its closing level was lower than the intraday high on Monday. It is worth noting that the S&P 500 finished at 847, nearly 30 points below Monday's intraday low. Given this pattern and the location of the next levels of support, I think the BEST scenario for next week is a continuation of the broad market decline down to the support levels I have listed above along with the VIX pushing up near the 50 level. Judging by the lack of any significant short-covering at the end of the day on Friday, that follow through could occur as early as Monday morning, after individual investors make some hard decisions this weekend. While very near-term this is a bearish, the picture I'm trying to paint is that I think we are very near serious capitulation (I know the word is terribly over-used), with just the first hints of true panic starting to appear. That should set the stage for the next bear market rally to allow us to profit from the long side. Remember that? I know it has been awhile, but help me try to visualize it. The problem I have this weekend, is not knowing from what levels we are likely to see a steady rebound. I've listed some index levels above, but what about individual equities? By far the strongest section of the market right now appears to be the Semiconductors. But we have one in the Portfolio (BRCM) and one in the Watch List (INTC). I don't want to weight too much of our attention in that area. By and large, I'm having a hard time picking long candidates here, as I don't know where they will start falling. But I'm hesitant to pick new shorts, as we are (in my opinion) so close to the bottom. My advice for the week ahead would be to stay on the sidelines and let this volatility shake out. If you must do some bottom fishing, then I think the plays we have in our list should serve that purpose well. So let's do a brief review of the listed plays and see what we expect from here: Portfolio: MSFT - While last week's action wasn't pretty, neither was it horrible. MSFT managed to not spook investors with their earnings report, but there wasn't anything that could be called a bullish catalyst either. That lack of buying incentive had the stock falling again at the close on Friday, inching below the $50 level. It looks like we are going to get another entry opportunity for those that missed it before. The key is going to be whether the bulls step up to support the stock before it violates the $48 support level. Remember this is the site of our stop, and if it is violated on a closing basis, we'll be gone. QQQ - Despite the ugly numbers on the surface, the NASDAQ-100 actually held up very well last week. Sure it closed a mere 20 points above its recent low, but it did manage to hold above that low. Helping to prop this index up is the internal strengthening that is evident on the Point and Figure Bullish Percent chart, which shows the index to still be in bull confirmed. The QQQ still looks attractive for new entries in the $23.50-24.00 area as this bottoming process continues. But keep those stops in place, just in case! BRCM - Stocks like BRCM are precisely the sort of internal strengthening I'm talking about in the NASDAQ, as the stock has continued to perform better than the NASDAQ or the SOX. BRCM did end the week with a fractional loss, but is still well above where we took our entry just over a week ago. A dip near $18.50-19.00 looks good for new entries, so long as the SOX doesn't take out its September lows. Watch List: BA - The action in BA last week was wild and wooly, just like in the rest of the market. Trying to pick an entry here would be foolhardy in my opinion, and that is just one reason why our entry target is down near the September lows. Market pressures are fierce to the downside, while the company continues to turn out solid earnings reports. Unless we see some more constructive price action that can create a fresh Buy signal, I'll continue to defer to the PnF chart for my entry target into this play. WMT - I have been cautious on this one for several weeks now, and now we know the reason why. While there hasn't been any company-specific bad news, the Consumer Confidence numbers along with some scattered bearish same store sales reports slammed the entire Retail sector, including WMT, the king of the discount retailers. While I'm not quite willing to pull the plug on this play, neither am I able to discern an intelligent level to take action. So WMT remains on hold until we can see the stock start to form a new base. GE - New 3-year lows are not what we look for in solid LEAPS candidates, but I continue to believe that we are very near a solid bottom for the stock. Aggressive traders could look to catch a bounce from the vicinity of the $24-25 level (the site of the 1998 lows), but only if accompanied by a broad-based market rebound. For our official entry strategy, we're going to wait for GE to push through the $28.50 resistance before taking a new position. INTC - Without a doubt, the action in INTC last week was truly impressive, especially in light of an earnings report that failed to thrill anyone. Nevertheless, the stock managed to continue posting higher lows over the past 2 weeks. My expectation is that it will come down to confirm support in the vicinity of $17-18 before being ready to show any real strength. Like many of you, I am frustrated that the list of plays is so short right now, but I expect to see that change substantially in the very near future. By its very nature, the LEAPS column attempts to capture longer-term moves in individual stocks, and we appear to be very near another inflection point. I am trying very hard to make sure that we don't pick the wrong direction on the wrong play just before that inflection point occurs. My expectation is that the bulls will soon come out to frolic, but I want to wait for some evidence before once again sticking my foot in my mouth. As we get closer and closer to an expected washout event, it becomes even more prudent to wait on the sidelines in cash or play with very small position sizes. That will leave us ready to wade in and pick up the pieces after the dust begins to settle. 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 GD 07/17/02 '03 $ 95 GD -MS $11.70 $19.20 +64.10% $89.50 '04 $ 90 KJD-MR $13.50 $19.60 +45.19% $89.50 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 $17-18 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 $28 JAN-2003 $ 30 VGE-AF CC JAN-2003 $ 27 VGE-AY JAN-2004 $ 30 LGR-AF CC JAN-2004 $ 25 LGR-AE PUTS: None New Portfolio Plays GD - General Dynamics $90.16 **Put Play** In what may turn out to be the shortest-lived LEAPS play in the history of this column, we were triggered for entry into the play on Wednesday. The stock popped up at the open in initial response to the company's earnings report, but the bloom came off the rose extremely quickly. After kissing our $100 entry target at the open, selling volume drove the stock down by more than $10 at the closing bell. And it got worse from there, with the stock continuing lower right up to the closing bell on Friday, shedding another $10 in the process. So what triggered such a negative investor response? Well, it wasn't what you would expect. Analysts expressed growth concerns in the wake of GD's earnings report, particularly focused on the Gulfstream executive jet division. Hmmmm, let's see. Corporate perks are under more and more scrutiny and that leads to less sales of one of the most expensive perks, the executive jet. It sure makes sense to me. And with so many companies going the way of the Dodo, I'm guessing that there could be an ample supply of corporate jets available in the used market. Normally, I wouldn't be wild about entering a new play on the day of such a large move, but since it didn't occur as a gap, it was eminently playable by those that were paying attention. At worst, when the stock broke back under the $96.50 level, that would have made for a solid entry. Alas, due to the way we track things here, we have to take our entry as of Wednesday's close, near the $90 level. Now that the stock has fallen $20 in 3 days, I wouldn't advocate new positions unless we get a failed rally at resistance up in the $86-87 area. As far as position management is concerned, it really depends where you got into the play. For those that got in early, I would advocate a stop set near $85 to preserve the bulk of those gains. But for the position we track in the Portfolio, I want to give it a bit more time to work. So, we'll set our official stop at $89.50, just below the point of entry. Take note of the fact that the current bearish price target from the PnF chart is $72. If that level is hit next week, then we'll be closing the position for a tidy gain. One other point is that due to the rapidity of the drop in price, we are only going to track the '03 and '04 LEAPS. BUY LEAP JAN-2003 $ 95 GD -MS $11.70 BUY LEAP JAN-2004 $ 90 KJD-MR $13.50 New Watchlist Plays None Drops BBH $71.29 Sometimes you can get everything right, except for the execution. We were right on our expectations that the Biotechnology sector would continue to lead on the way down, and did it ever. Unfortunately, I must have misread my charts, because each time I modified the entry strategy, we missed the entry again as the downhill cascade continued. While I'm not ready to look bullish on the sector, I do find it interesting that the weekly Stochastics is now flashing bullish divergence. And then we have the internal strengthening in the NASDAQ-100, along with the fact that the BBH held well above its recent lows last week, doing even better than the overall NASDAQ or the SOX. To me, that is a warning to remove the play from bearish consideration, before we get caught entering an ill-fated play. *********** OPTIONS 101 *********** When You Can’t Say “No” By Mike Parnos, Investing With Attitude Some people are obsessed, which is hardly breaking news. Controlling one’s obsessions is easier said than done. But they say that, if you can admit the problem, it’s half the battle. People say “no” to drugs. They may say “no” to alcohol, but they can’t bring themselves to say “no” to owning stock in a bear market – a potentially fatal character flaw that may result in the untimely death of your portfolio. It’s a disease that not even a 12-step program will help because you’ll be broke before you get to step #6. It’s the Couch Potato Trading Institute to the rescue -- where the path of least resistance and the path to profits are one in the same. We’re dedicating the Strategy Du Jour to all those lost souls who have no control and simply MUST own stocks in this market environment. In one sense, I applaud a utopian “glass is one-third full” optimistic approach to managing money. Optimism is a good quality. But it has absolutely nothing to do with reality. Dear optimist traders: Be sure to let me know what it's like to stand in line for government cheese. In this bear market, it's more likely that you’ll be the first woman member of the Augusta National Golf Club than your stocks will return to the levels of 1999 and 2000. Maybe I can help, but to do so I'll have to put you on a short leash. At the end of that leash is a "collar." In essence, what we're going to do is to put a collar on your stocks that won't let them stray too far. For example: You own 1,000 shares of widely held Micron Technology (MU). Maybe you bought it two weeks ago or two years ago. It doesn’t really matter. Early this week MU was trading at $23.00 per share. The chart indicates that it may have bottomed and is slowly working its way back up. Can we be sure? Of course not -- unless you’re hearing little voices or had a recent consultation with Miss Cleo. The fact is, we haven't had our capitulation yet. Regardless what images come to mind when you hear the word "capitulation," the one thing you don't want to do is to experience it without the proper protection. That's what the "collar" is for. If you sold the MU August $25 call, you would take in $1.50 ($1,500 for 10 contracts). Now, where is this $1,500 going to do you the most good? It's a matter of priorities. You could: 1) Fly to Vegas, catch a few shows, wine and dine at the $5.95 buffet and gamble away what's left. 2) Take your Toyota to Earl Sheib for some TLC, a little bumping and grinding and a new paint job. Your car will love you for it. 3) Treat your wife to a full day of pampering at the local Day Spa. Your wife will love you for it, but it will be forgotten in two weeks, or 4) Buy some insurance on your $23,000 investment. The astute Couch Potato Institute graduate will resist the temptations and forgo choices 1-3. He will use a portion of the $1,500 to buy 10 of the August $20 puts for $1.05 ($1,050). This will, in effect, protect you if Micron reverses direction and go back down. Keep in mind that Micron is only an earnings warning away from $15. The $20 put will protect you on any transgression below $20 through August option expiration. Plus, if you haven't noticed, you will still have $450 ($1,500 less $1,050 = $450) for pizza, chips, beer and . . . maybe a little bumping and grinding for yourself -- or even a new bathrobe. The “collar” limits what could be a catastrophic loss to a tolerable two points and allows for Micron to appreciate by $2.00 before you're at risk of losing the stock through assignment. You can repeat the process month after month until your stock gets called away – which is a good thing! It means you made money, which, if I’m not mistaken, is the object of this exercise. Some people do, however, become attached to their stocks. They think that if they lost money on a particular stock, they have to make it up in the same stock. When you buy a stock, where does it say “till death do you part?” Remember, it’s only a stock. Don’t become emotionally involved. If it goes, it goes. Add up your profits, smile and get on with your life. There are no monogamy laws or divorce penalties in the stock market. You can play the field. There are thousands of other stocks out there. Just make sure you use “protection.” Sound vaguely familiar? By the same token, if you’re bearish, you can construct the same scenario by shorting a stock, selling an out-of-the-money put and buying an out-of-the-money call to protect your short stock position. In most cases, you’re allowed to sell covered calls in your IRA. A few brokerage firms will even allow you to establish “collar” positions by purchasing the protective put in your IRA. In summation, you can have your cake and eat it too. The “collar” enables you to own a stock, have room for profit, possibly pocket a few dollars, and be protected on the downside. You’ll find that having your cake and eating it beats the hell out of the prospects of digesting a grilled government cheese sandwich. We’re not going to cure the disease with the “collar,” but we can bandage the wound and stop the bleeding – at least temporarily. However, don’t be surprised if, before long, the obsessive- compulsive stock-buyer is back out there still trying to catch those falling knives with bare hands. Go figure. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-21-2002 Sunday 5 of 5 ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************* COVERED CALLS ************* Covered-Call Basics: Trading Terms & Definitions By Mark Wnetrzak Last week's mention of the phrase "Total Return Concept" prompted a new reader to ask about its meaning. This conservative approach to the covered-write strategy was originally created by option guru Larry McMillan. The ideal investment offers limited risk and a good probability of making a profit. Our goal in this section of the newsletter is to provide plays that achieve acceptable returns while affording an above-average amount of downside protection. The technique we use to achieve this outlook is the "in-the-money" covered call. All covered-calls involve selling a call against stock that is owned. The buyer of the call option has right to "call" the stock at a specific price because he pays the writer of the option a premium for agreeing to provide the underlying shares, when and if the option is exercised. Because the call writer delivers the shares from his or her portfolio holdings, he or she is "covered." This means there is no risk to the call writer of being forced to buy (and subsequently sell) shares of a stock at a premium, after it has experienced a substantial increase in value. While the covered-call writer has no risk of losing money if the stock increases in value, there is a risk of missing out on large gains. The reason is obvious: if a stock moves above the strike price of the sold options and remains there until the expiration date, the calls will be exercised and the covered-call writer will be forced to deliver the underlying shares. The difference between the value of the stock at expiration and the sold option's strike price is the amount of upside potential lost in the strategy. At the same time, when stock declines, the covered writer will offset part of his loss by the amount of the premium received in the sale of the options. The most common approaches to the strategy are the "in-the-money" (ITM) covered-call and the "out-of-the-money" (OTM) covered-call. Many investors prefer to strive for higher potential returns with an aggressive outlook, writing out-of-the-money calls on stocks in their portfolios. These positions offer greater rewards but also have less downside protection. The maximum potential profit of an OTM position, while generally greater than that of an ITM position, will always require an increase in price by the underlying stock. Thus, by using an OTM option, the success of the overall position depends more on the movement of the stock price and less on the benefits of writing the call. In addition, the premium generated from the sale of the call is also much smaller, so the combined position will be more susceptible to loss if the stock declines. Covered-writes using ITM options are more defensive, offering less risk with a smaller reward potential. This conservative approach appeals to those investors who are attempting to earn a relatively consistent return while striving for preservation of capital. In spite of having a smaller profit potential, the ITM approach can be very attractive on a percentage return basis, especially when the stock is held in a margin account. The cost of the underlying issue is substantially reduced and even if the stock declines, the position can still return a profit. Traders who use the strategy in this manner consider both downside protection and potential profit. The combined position (both stock and options) is viewed as a single entity and the investor is not overly concerned with long-term ownership of the underlying issue. This "total return concept" represents the true focus of most successful covered call writers. Regardless of the approach you favor, a comparison should always be made with regard to the various option strikes and premiums. Investors who plan to sell OTM calls should concentrate on the "return not called." This is the return on investment that one would achieve even if the stock price were unchanged when the sold option expires. One can compare potential plays more fairly using this method, since no assumption is made about price appreciation in the underlying issue. In our conservative portfolio, we search for positions that offer a minimum return on investment of 3-5% per month with downside protection of at least 10% of the current stock price. Any position constructed using these guidelines will have comparatively low risk, regardless of the volatility of the underlying stock, since the levels of protection are substantial and there is still the expectation of a reasonable return. Since the primary objective of covered-call writing is increased income though stock ownership, the amount of downside protection and the return on investment are both important considerations in determining which approach to use. Considering the recent market volatility, any strategy that offers moderate profit potential and relatively low risk is appealing. While a minimally acceptable return is a matter of personal preference, the advantages of the "Total Return Concept" can be very attractive to many investors. Trade Wisely! SUMMARY OF PREVIOUS CANDIDATES ***** Note: Margin not used in calculations. Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield EXTR 10.01 10.29 JUL 10.00 0.85 *$ 0.84 19.9% EXTR 10.09 10.29 JUL 10.00 1.00 *$ 0.91 14.5% EMC 7.59 8.10 JUL 7.50 0.50 *$ 0.41 12.6% RIMM 13.35 12.90 JUL 10.00 3.80 *$ 0.45 10.2% MCDT 8.90 9.83 JUL 7.50 1.75 *$ 0.35 7.1% IVGN 31.30 30.88 JUL 27.50 4.60 *$ 0.80 6.5% HPLA 13.95 14.10 JUL 12.50 2.40 *$ 0.95 6.0% MCDT 8.99 9.83 JUL 7.50 1.90 *$ 0.41 4.2% REV 4.96 4.65 JUL 5.00 0.45 $ 0.14 3.4% COB 5.35 4.65 JUL 5.00 0.70 $ 0.00 0.0% CANI 11.26 8.76 JUL 10.00 1.85 $ -0.65 0.0% EXTR 10.67 10.29 AUG 10.00 1.70 *$ 1.03 10.0% AMLN 10.00 10.50 AUG 10.00 0.90 *$ 0.90 8.6% NPSP 17.11 17.66 AUG 12.50 5.60 *$ 0.99 7.5% SNDK 14.40 15.08 AUG 12.50 2.85 *$ 0.95 7.1% BRCD 18.50 18.56 AUG 15.00 4.40 *$ 0.90 5.5% BRCM 20.39 19.86 AUG 17.50 3.90 *$ 1.01 5.3% DRIV 9.19 8.64 AUG 7.50 2.25 *$ 0.56 5.0% PCS 6.02 4.86 AUG 5.00 1.40 $ 0.24 4.5% *$ = Stock price is above the sold striking price. Comments: The sky is falling! The sky is falling! The bulls are running off the cliffs and all is bleak!...except for the bears. Will it ever end? Yes! The key is to survive. We definitely culled several more issues that swooned in this horrid environment though McAfee.com (NASDAQ:MCAF) did manage to finish just above break-even. Carreker (NASDAQ:CANI) waited until Thursday to violate its 150-dma, though it did offer a less painful exit on Friday. As for August positions, Zixit (NASDAQ:ZIXI) did break below the June low and was closed though Friday's action is encouraging for those who were using the February low as an exit signal. Sprint PCS (NYSE:PCS), as expected, reported less than stellar earnings and will be watched closely next week. Positions Closed: PETsMART (NASDAQ:PETM), Mirant (NYSE:MIR), Manhattan Associates (NASDAQ:MANH), Impax Laboratories (NASDAQ:IPXL), Quest Software (NASDAQ:QSFT), McAfee.com (NASDAQ:MCAF), Lone Star Steakhouse (NASDAQ:STAR), New Century (NASDAQ:NCEN), Arkansas Best (NASDAQ: ABFS), J.B. Hunt (NASDAQ:JBHT), J.D. Edwards (NASDAQ:JDEC), Friedman, Billings, Ramsey (NYSE:FBR), and Zixit (NASDAQ:ZIXI). 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 CREE 13.98 AUG 12.50 CVO HV 2.30 3166 11.68 28 7.6% IVGN 30.88 AUG 25.00 IUV HE 6.90 0 23.98 28 4.6% JNPR 8.90 AUG 7.50 JUX HU 1.75 3565 7.15 28 5.3% LVLT 5.75 AUG 5.00 HGY HA 1.20 2197 4.55 28 10.7% SBL 8.58 AUG 7.50 SBL HU 1.50 915 7.08 28 6.4% TRLY 6.31 AUG 5.00 TJR HA 1.60 32 4.71 28 6.7% WEBX 13.88 AUG 12.50 UWB HV 2.20 60 11.68 28 7.6% 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 LVLT 5.75 AUG 5.00 HGY HA 1.20 2197 4.55 28 10.7% CREE 13.98 AUG 12.50 CVO HV 2.30 3166 11.68 28 7.6% WEBX 13.88 AUG 12.50 UWB HV 2.20 60 11.68 28 7.6% TRLY 6.31 AUG 5.00 TJR HA 1.60 32 4.71 28 6.7% SBL 8.58 AUG 7.50 SBL HU 1.50 915 7.08 28 6.4% JNPR 8.90 AUG 7.50 JUX HU 1.75 3565 7.15 28 5.3% IVGN 30.88 AUG 25.00 IUV HE 6.90 0 23.98 28 4.6% 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). ***** CREE - Cree $13.98 *** Bracing For A Rally! *** Cree (NASDAQ:CREE) develops and manufactures compound semiconductor materials and electronic devices made from commercialize silicon carbide (SiC) and gallium nitride (GaN). The company operates its business in two segments: the Cree segment, which consists of its SiC based products; and the UltraRF segment, which consists of radio frequency transistors and amplifiers on a silicon platform. The company's customers include Siemens AG, Sumitomo Corporation and Spectrian. In early June, Cree revised its revenue outlook upward, looking for an 8-11% sequential increase as apposed to a 5% increase. The company also recently announced a couple of contracts with the Office of Naval Research (ONR) worth $14.4 million and $26.5 million. The stock has been forging a Stage I base for six months and has recently moved back above its 50-dma. Traders can speculate on the near-term performance of the issue with this conservative position. AUG 12.50 CVO HV LB=2.30 OI=3166 CB=11.68 DE=28 TY=7.6% ***** IVGN - Invitrogen $30.88 *** Positive Guidance! *** Invitrogen (NASDAQ:IVGN) develops, manufactures and markets more than 10,000 products for the life sciences markets. The company's products are principally research tools in reagent and kit form, biochemicals, sera, media, and other products and services, which Invitrogen sells to corporate, academic and government entities. The company focuses its business on two principal segments, Cell Culture Products and Molecular Biology Products. Invitrogen rallied after the company reaffirmed its earnings outlook for the second quarter in line with analyst expectations. The company said it expects to report second-quarter results at or above the upper end of its range, which was $160 million to $163 million in revenue and $0.44 to $0.46 per share, before the cost related to the closing of a plant and other merger-related charges. Another chance at a conservative entry point for those investors who have a bullish, long-term outlook for the company. AUG 25.00 IUV HE LB=6.90 OI=0 CB=23.98 DE=28 TY=4.6% ***** JNPR - Juniper Networks $8.90 *** On The Mend *** Juniper Networks (NASDAQ:JNPR) is a provider of Internet infra- structure solutions that enable Internet service providers and other telecommunications service providers to meet the demands resulting from the growth of the Internet. Juniper's Internet routers are designed and purpose-built for service provider networks and offer customers performance, scalability, interoper- ability and flexibility, as well as reduced complexity and cost compared to legacy alternatives. Juniper's Internet software, called JUNOS, is designed to meet the Internet protocol (IP) network routing, operations and control requirements of service providers and is an integral embedded component of its product family system architecture. Juniper continued to rally this week after the company beat expectations last Thursday. The company posted a 2nd-quarter profit, excluding one-time items, of $421,000 on revenues of $117 million. We simply favor the bullish move through the 50-dma and this position provides a relatively low risk cost basis in the issue. AUG 7.50 JUX HU LB=1.75 OI=3565 CB=7.15 DE=28 TY=5.3% ***** LVLT - Level 3 Communications $5.75 *** Cheap Speculation *** Level 3 Communications (NASDAQ:LVLT) and its subsidiaries engage in the communications, information services and coal mining businesses through ownership of operating subsidiaries and substantial equity positions in public companies. The company is a facilities-based provider of a broad range of integrated communications services. Level 3 has created, generally by constructing its own assets, but also through a combination of purchasing and leasing of facilities, the Level 3 Network, an advanced, international, facilities-based communications network. The company has designed the Level 3 Network to provide communi- cations services that employ and leverage rapidly improving underlying optical and Internet Protocol technologies. Level 3 rallied strongly two weeks ago when it was reported that Warren Buffett and two other investors agree to invest a total of $500 million in the company to help it fund acquisitions. The rally continued this week and on Thursday, Level 3 posted a smaller- than-expected 2nd-quarter loss. The company did warn that it saw mixed signals for the future and their CEO has denied that he received stock in IPOs in exchange for pushing investment banking business to brokers. We simply favor the technical support area near our cost basis and the bullish break-out above the May high. AUG 5.00 HGY HA LB=1.20 OI=2197 CB=4.55 DE=28 TY=10.7% ***** SBL - Symbol Technologies $8.58 *** Bottom-Fishing *** Symbol Technologies (NYSE:SBL) develops, manufactures, sells and services scanner-integrated mobile and wireless information manage-ment systems that consist of mobile computing devices, wireless local area networks (WLAN), bar code reading devices, network appliance devices, peripheral devices, software and programming tools. The company's systems are designed to provide solutions to customer-specific needs in information transactions. They are used in a variety of applications, from collecting information at remote locations and transmitting information between these locations and the user's central data processing facility, to facilitating e-commerce transactions by accessing and collecting price and product information at the point of activity for storing or placing orders via the Internet. Several Symbol devices also connect wirelessly to WANs. Though Symbol's revenue dropped, the company reported Thursday that 2nd-quarter earnings, before items, rose slightly. Symbol Technology also maintained their forecast for 2002 earnings of $0.20-$0.25 a share, before non-recurring charges, on $1.3 billion of revenue. This position offers speculators a favorable entry point on an issue that recently rallied strongly on heavy volume back above its 50-dma. AUG 7.50 SBL HU LB=1.50 OI=915 CB=7.08 DE=28 TY=6.4% ***** TRLY - Terra Networks $6.31 *** Stage I Speculation *** Terra (NASDAQ:TRLY) is a global Internet network operating in 43 countries in 20 languages, reaching 109 million unique monthly visitors worldwide. Created by the combination of Terra Networks and Lycos in October 2000, Terra Lycos has operations in the U.S., Canada, Europe, Asia and Latin America. The Terra Lycos network of sites includes Lycos.com, Terra.com, AnimationExpress.com, Angelfire.com, ATuHora.com, Gamesville.com, HotBot.com, html- GEAR.com, Invertia.com, Lycos Zone, Matchmaker.com, Quote.com, RagingBull.com, Rumbo.com, Sonique, Tripod.com, Web monkey.com, Whowhere.com and Wired News (Wired.com). Terra Lycos rallied on heavy volume at the end of June, when the company agreed to sell its stake in Lycos Korea to South Korea's top mobile carrier, SK Telecom, for $10 million. The rally has continued into July with the stock moving well above its 50-dma and the June high. The long-term chart (2-year) of Terra depicts technical support around $4.50 on a stock forging a Stage I base. Traders should target-shoot a lower "net debit" in the position initially, to increase the potential return and allow for some consolidation in the underlying issue. AUG 5.00 TJR HA LB=1.60 OI=32 CB=4.71 DE=28 TY=6.7% ***** WEBX - WebEx Communications $13.88 *** Earnings Rally? *** WebEx (NASDAQ:WEBX) develops and markets services that allow end-users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard Web browser. Integrated telephony and Web- based audio and video services are also available using standard devices, such as telephones, computer Web-cameras and microphones. The company has designed and developed its technology architecture to satisfy the interactive communications requirements of a broad range of customers. The company's architecture consists of three tiers: WebEx Interactive Services, WebEx Interactive Platform and WebEx Interactive Network. WebEx reported on Thursday a record 2nd-quarter profit, which was much higher than expected as sales almost doubled. Net income was $3.3 million, or 8 cents a share, compared with a loss of $9.3 million, or 26 cents a share, for the same period last year. WebEx said its revenue rose 80% to $33.2 million as it signed up new corporate customers. Investors were pleased as the stock rallied almost two dollars on a day when all the major averages were in a free-fall. The stock has forged a 6-month base and we favor the technical support near the cost basis in this position. AUG 12.50 UWB HV LB=2.20 OI=60 CB=11.68 DE=28 TY=7.6% ***** ***************** 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 PDLI 11.94 AUG 10.00 PQI HB 2.80 755 9.14 28 10.2% HGSI 14.53 AUG 12.50 HQI HV 2.80 324 11.73 28 7.1% MXIM 39.88 AUG 35.00 XIQ HG 6.80 1494 33.08 28 6.3% CRGN 5.74 AUG 5.00 CQX HA 1.00 120 4.74 28 6.0% PPD 17.85 AUG 12.50 PPD HV 6.00 109 11.85 28 6.0% VMSI 22.76 AUG 22.50 QMP HX 1.40 67 21.36 28 5.8% AMZN 15.29 AUG 12.50 ZQN HQ 3.40 644 11.89 28 5.6% SLAB 27.82 AUG 22.50 QFJ HX 6.40 15 21.42 28 5.5% ***************** NAKED PUT SECTION ***************** Option Trading Basics: Choosing The Right Strategy By Ray Cummins One of our new readers asked for some help in choosing the best strategy for a beginning option trader. The problem is, every trader is different and no single approach to the market can work for all of them. The key to determining which strategy may be best for any one individual is suitability; matching an investors risk/reward attitude and financial condition with the appropriate trading technique. The average investor will normally do well with a position that has limited risk and large profit potential, as one successful trade can easily overcome a series of losses. A relatively new trader would probably not profit consistently as an outright buyer of options but some "buying" strategies, such as bullish calendar (time) spreads and debit straddles would be appropriate. Techniques that utilize conservative stock-option combinations such as covered-writes and bullish collars with moderate profit potential and reduced risk would also be appealing. Many traders simply want low maintenance positions with the chance to earn a reasonable profit without risking excessive amounts of capital. Low-risk "in-the-money" debit and diagonal spreads would probably be appealing to this group. A more experienced investor, who is willing to take larger risks for the opportunity of achieving greater profits, might buy and sell equity-index options. The wealthy investor may be attracted to methods that offer the opportunity to make money against portfolio collateral. Writing naked options and "out-of-the money" credit (or butterfly) spreads may solve his needs. Regardless of the way you choose to participate in the market, there will be some level of financial risk. In derivatives trading, option buyers have limited risk and unlimited reward while sellers of options have limited reward and unlimited risk. With this single perspective in mind, it's obvious why retail traders generally "buy" options. Indeed, most investors would never consider a trade with unlimited risk but, they fail to understand that almost any position, even a simple call option, which isn't hedged entails enormous speculation. A violent, adverse move, which does not allow for timely adjustments, can quickly reduce the position to a fraction of its initial value. Considering the recent volatility in the market, it's even more difficult to understand why a trader would open an outright long position without some type of loss-limiting mechanism. The only explanation is they believe the probability of catastrophic loss is very small and the potential for profit is worth the risk. That brings up another important fact about strategy selection and that is, the risk/reward characteristics of a trade are but one of the many components to evaluate. Equally important in identifying a favorable position is the probability of profit or loss. When one assesses a prospective position, the likelihood of every possible outcome must be factored into the appraisal. The question that must be answered: Is the potential reward, even a very substantial one, sufficient to offset the risk? In option trading, risk comes in many forms. Luckily, there are also many ways to trade. The most important thing to remember is the investment objectives are more crucial than the merits of the technique itself. If the strategy is not suitable for the trader, then it should not be used, no matter how attractive it appears. The goal of every new trader should be to understand the mechanics of any strategy he or she is using and try to construct a diverse portfolio of positions based on the correct balance of risk and reward, with careful regard to one's experience level and trading style. 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 27.82 JUL 22.50 0.60 *$ 0.60 18.6% CLHB 13.52 10.39 JUL 10.00 0.40 *$ 0.40 14.0% YHOO 15.49 13.37 JUL 12.50 0.30 *$ 0.30 9.3% SIE 19.20 18.35 JUL 17.50 0.65 *$ 0.65 8.5% LNCR 31.86 29.87 JUL 30.00 0.55 $ 0.42 8.0% LNCR 30.71 29.87 JUL 27.50 0.70 *$ 0.70 7.8% FCN 33.30 33.51 JUL 30.00 0.35 *$ 0.35 7.3% IBC 28.88 26.29 JUL 25.00 0.35 *$ 0.35 6.3% SCIO 28.94 30.15 JUL 25.00 0.55 *$ 0.55 5.8% ATTC 31.25 31.75 JUL 30.00 0.80 *$ 0.80 5.8% CACI 36.51 32.06 JUL 32.50 0.80 $ 0.36 3.4% APN 10.85 9.84 JUL 10.00 0.25 $ 0.09 2.6% CHBS 41.19 34.51 JUL 35.00 0.35 $ -0.14 0.0% SWFT 21.50 19.24 JUL 20.00 0.55 $ -0.21 0.0% FBR 10.65 9.25 JUL 10.00 0.35 $ -0.40 0.0% SWFT 22.65 19.24 JUL 20.00 0.35 $ -0.41 0.0% BCE 18.22 16.67 JUL 17.50 0.25 $ -0.58 0.0% CUM 31.86 28.96 JUL 30.00 0.45 $ -0.59 0.0% CANI 11.07 8.76 JUL 10.00 0.50 $ -0.74 0.0% CANI 11.50 8.76 JUL 10.00 0.35 $ -0.89 0.0% ASYT 20.35 15.39 JUL 17.50 0.35 $ -1.76 0.0% AMAT 18.48 16.80 AUG 15.00 0.55 *$ 0.55 10.7% CSCO 14.38 13.65 AUG 12.50 0.50 *$ 0.50 9.9% ATMI 23.54 20.06 AUG 20.00 0.75 *$ 0.75 9.8% RGLD 14.10 12.32 AUG 12.50 0.60 $ 0.42 7.9% MU 23.39 22.28 AUG 17.50 0.45 *$ 0.45 7.6% PDLI 10.95 11.94 AUG 7.50 0.20 *$ 0.20 7.3% RIMM 13.82 12.90 AUG 10.00 0.25 *$ 0.25 7.2% DT 12.00 11.72 AUG 10.00 0.25 *$ 0.25 7.1% QCOM 28.11 29.99 AUG 20.00 0.40 *$ 0.40 5.8% *$ = Stock price is above the sold striking price. Comments: The selling pressure has been almost unrelenting in recent sessions and the downdraft that began early in the week had a full head of steam at Friday's close. Many of our positions did not make it past Monday with precipitous declines forcing early exits in Corinthian Colleges (NASDAQ:COCO), Movie Gallery (NASDAQ:MOVI), Dollar General (NYSE:DG), Sierra Health Services (NYSE:SEI), Sketchers (NYSE:SKX), and Yankee Candle (NYSE:YCC). Despite sizeable declines, many issues in the portfolio have further downside potential thus we will continue to be diligent in our position management. From a conservative perspective, this means exiting (or adjusting) any plays that have less than outstanding technical indications in the underlying stocks. In addition, investors should limit new positions until the market exhibits signs of a basing formation and then focus only on the most bullish issues. Stocks on the early exit watch-list for August are: Royal Gold (NASDAQ:RGLD) and Atmi Inc (NASDAQ:ATMI). Positions Previously Closed: Yellow Corporation (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 BCGI 8.90 AUG 7.50 QGB TU 0.25 0 7.25 28 11.3% BRCM 19.86 AUG 15.00 RCQ TC 0.40 4309 14.60 28 9.9% DCTM 12.90 AUG 10.00 QDC TB 0.30 515 9.70 28 11.3% MCDTA 9.70 AUG 7.50 MQG TU 0.25 10 7.25 28 12.4% MOT 14.86 AUG 12.50 MOJ TV 0.25 1836 12.25 28 7.1% NXTL 6.64 AUG 5.00 FQC TQ 0.25 8747 4.75 28 17.2% QLGC 40.69 AUG 25.00 QLC TE 0.45 1156 24.55 28 5.7% SNDK 15.08 AUG 12.50 SWQ TV 0.55 152 11.95 28 14.9% 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 NXTL 6.64 AUG 5.00 FQC TQ 0.25 8747 4.75 28 17.2% SNDK 15.08 AUG 12.50 SWQ TV 0.55 152 11.95 28 14.9% MCDTA 9.70 AUG 7.50 MQG TU 0.25 10 7.25 28 12.4% BCGI 8.90 AUG 7.50 QGB TU 0.25 0 7.25 28 11.3% DCTM 12.90 AUG 10.00 QDC TB 0.30 515 9.70 28 11.3% BRCM 19.86 AUG 15.00 RCQ TC 0.40 4309 14.60 28 9.9% MOT 14.86 AUG 12.50 MOJ TV 0.25 1836 12.25 28 7.1% QLGC 40.69 AUG 25.00 QLC TE 0.45 1156 24.55 28 5.7% 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). ***** BCGI - Boston Communications $8.90 ** Wireless Sector Rally! ** Boston Communications Group (NASDAQ:BCGI) provides real-time subscriber management services to the wireless industry. The company's real-time subscriber management products include the following: proprietary software applications, which includes software suite to manage subscribers; hosting environment, which is a real-time, large scale, micro-payment transaction processing platform; Intelligent Voice Services Network, which includes edge-of-network voice services and Signaling System 7 call control; and Distribution Technology Partnership Program, which is a national payment network for cash collection. BCGI announced Friday better than expected second-quarter net income and raised its third quarter and full year projections. Total revenues rose to $14.3 million from $12.4 million a year ago, well above analyst's projections. Traders who believe BCGI's results will translate to higher share values can speculate on that outcome with this position. AUG 7.50 QGB TU LB=0.25 OI=0 CB=7.25 DE=28 TY=11.3% ***** BRCM - Broadcom $19.86 *** Solid Earnings! *** 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. Last week, chip maker Broadcom reported higher-than-expected revenues and a smaller-than-expected loss for the second quarter of 2002. The maker of integrated circuits for broadband devices said sales were $258.2 million, an 8.1% increase over the $238.8 million the prior quarter and 22.4% higher than the $210.9 million in revenue in the year-ago quarter. The stock appears to have made a successful test of the September low and investors can use this position to obtain a relatively low risk cost basis in the issue. AUG 15.00 RCQ TC LB=0.40 OI=4309 CB=14.60 DE=28 TY=9.9% ***** DCTM - Documentum $12.90 *** Improving Fundamentals! *** Documentum (NASDAQ:DCTM) is the industry's leading provider of enterprise content management, automating the production, exchange and personalization of all types of content, making it easier for its customers to gain a competitive edge by connecting employees, business partners and customers, worldwide. Built on an Internet scale, XML-enabled and standards-compliant platform, Documentum products manage Web content, power portals, enable collaborative commerce, and solve regulatory content challenges. Partners in all major industries, including high tech, pharmaceutical, healthcare, consulting services, government, manufacturing, financial services, automotive, retail, and consumer goods, build and use specialized applications using Documentum's content management infrastructure. Documentum recently reported second quarter total revenue of $54 million, a 17% increase over the same period a year ago and a 7% increase from the first quarter of fiscal 2002. License revenue for the second quarter totaled $27 million, an increase of 26% over the same period a year ago and 8% over the previous quarter. The company's bottom line appears to be improving and investors who agree with a bullish technical outlook for the issue should consider this position. AUG 10.00 QDC TB LB=0.30 OI=515 CB=9.70 DE=28 TY=11.3% ***** MCDTA - McDATA Corporation $9.70 *** Data Storage Sector *** McDATA Corporation (NASDAQ:MCDTA) is a provider of open-storage networking solutions and provides highly available, scalable and centrally managed storage area networks that provide solutions for enterprise-wide storage needs. McDATA's core-to-edge enterprise solutions consist of hardware products, software products and the associated professional services. Its SAN solutions improve the reliability and availability of data, simplify the management of SANs and reduce the total cost of ownership. McDATA recently beat second-quarter expectations for revenue and profitability largely on the strength of sales of its new 2-gigabit- per-second product line. The CEO said the company is seeing a lot of demand so far in the third quarter and has a strong pipeline of sales for its switches and higher-end directors, especially those used in SANS. Analysts say the data storage sector will be one of the first to recover in the technology group and traders can speculate on that outcome with this position. AUG 7.50 MQG TU LB=0.25 OI=10 CB=7.25 DE=28 TY=12.4% ***** MOT - Motorola $14.86 *** Wireless Sector Recovery? *** Motorola (NYSE:MOT) is a worldwide provider of communications solutions and embedded electronic solutions. The company's Intelligence Everywhere solutions include: software-enhanced wireless telephone and messaging, two-way radio products and systems, as well as networking and Internet-access products, for consumers, network operators and commercial, government and industrial customers; end-to-end systems for the delivery of interactive digital video, voice and high-speed data solutions for broadband operators; embedded semiconductor solutions for customers in wireless communications, networking and transport markets; integrated electronic systems for various automotive, industrial, telecommunications, computing, and portable energy systems markets. Stocks in the wireless sector have been down for so long that traders are looking to the group for "value" plays. Analysts have labeled Motorola as one of the best picks in the segment, saying the company is "well positioned" for a recovery and will outperform its competitors in the near term. Investors can establish a conservative cost basis in the issue with this position. AUG 12.50 MOJ TV LB=0.25 OI=1836 CB=12.25 DE=28 TY=7.1% ***** NXTL - Nextel Communications $6.64 *** Buyout Activity! *** 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 the reports that VoiceStream is holding preliminary merger talks with AT&T Wireless. Other company pairs may also be viable and traders are placing their bets on the potential partners. The company's upcoming earnings is also fueling interest in the issue and this position provides a reasonable price from which to speculate on all the activity. AUG 5.00 FQC TQ LB=0.25 OI=8747 CB=4.75 DE=28 TY=17.2% ***** QLGC - QLogic Corporation $40.69 *** Rebounding Industry! *** QLogic Corporation (NASDAQ:QLGC) is a designer and supplier of Storage Area Networking infrastructure building blocks. Its SAN infrastructure building blocks, comprised of semiconductor chips, host board adapters and switches, are integrated into storage networking solutions of the world's leading system and storage manufacturers. Companies such as Sun Microsystems, IBM, Dell Computer, Compaq Computer Corporation, Fujitsu Microelectronics, and Hitachi all use some or all of its components in the storage and systems solutions they market to the world's information technology environments. In addition to its original equipment manufacturer relationships with these and other companies, the company provides selected Fibre Channel building blocks through leading distributors, systems integrators and resellers, further expanding its reach and visibility to the information technology community. QLGC has a favorable fundamental outlook with a solid balance sheet and analysts have a positive outlook for the sector. Traders who foresee a bullish future in QLGC's share value can profit from that outcome with this position. AUG 25.00 QLC TE LB=0.45 OI=1156 CB=24.55 DE=28 TY=5.7% ***** SNDK - SanDisk $15.08 *** Mega Memory Maker! *** 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 recently reported its first profitable quarter from operations in six quarters, due to strong growth in global retail and consumer OEM sales, and lower overhead expenses. SanDisk also said third-quarter product revenues will be slightly higher than those in the second-quarter and investors appear to be pleased with the news. Traders who wouldn't mind owning the issue near $12 can speculate conservatively on the future share value of SNDK with this position. AUG 12.50 SWQ TV LB=0.55 OI=152 CB=11.95 DE=28 TY=14.9% ***** ***************** 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 VIRL 9.31 AUG 7.50 UVB TU 0.30 135 7.20 28 14.7% IFX 17.10 AUG 12.50 IFX TV 0.45 40 12.05 28 12.6% WEBX 13.88 AUG 10.00 UWB TB 0.35 58 9.65 28 12.2% PSFT 16.32 AUG 12.50 PQO TV 0.40 6147 12.10 28 11.9% PYPL 22.55 AUG 20.00 PQR TD 0.60 51 19.40 28 9.2% AVCT 15.60 AUG 12.50 QVX TV 0.25 50 12.25 28 8.0% GILD 31.76 AUG 22.50 GDQ TX 0.50 410 22.00 28 7.9% CLS 21.35 AUG 15.00 CLS TC 0.30 772 14.70 28 7.1% INVN 25.21 AUG 17.50 FQQ TW 0.35 130 17.15 28 7.1% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Capitulation On The Horizon! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** July 19, 2002 U.S. stocks plunged to five year lows Friday as concerns over the outlook for corporate profits, accounting scandals, and the value of the mighty greenback sent investors fleeing from the equity markets. The Dow Jones Industrial Average sank nearly 400 points to 8,019 with drug giant Johnson & Johnson (NYSE:JNJ) leading the decline after the blue-chip pharmaceutical firm confirmed that federal regulators are probing allegations of fraudulent record-keeping at a manufacturing plant that makes an anemia drug, one of the company's best-selling medicines. The technology-laced NASDAQ Composite Index slid 37 points to 1,319 on weakness in bellwether Sun Microsystems (NASDAQ:SUNW). The computer maker's share value dropped 25% after the company reported its first quarterly profit in a year, but forecast another loss as it fights for business in the midst of the technology downturn. The broader S&P 500-stock Index lost 33 points to end at 847 with selling pressure gripping almost every major market segment. Declining stocks slam-dunked advancers almost 3 to 1 on the New York Stock Exchange and 5 to 2 on the NASDAQ. A hefty 2.63 billion shares changed hands on the Big Board while 2.37 billion shares were exchanged on the NASDAQ. Life was better in the bond market, where the 10-year treasury advanced 13/32 to yield 4.58% while the 30-year government bond rose 15/32 to yield 5.34%. Banc of America Securities noted that domestic equity funds have seen net redemptions for 7 consecutive weeks, including an incredible $10.7 billion outflow in the last week alone. With any luck, the data may be an early indication of capitulation! Last week's new plays (positions/opening prices/strategy): Apple Comp. (NSDQ:AAPL) JUL17C/JUL17P $1.65 debit straddle Genzyme (NSDQ:GENZ) JUL17C/JUL17P $2.20 debit straddle Intel (NSDQ:INTC) JUL17C/JUL17P $1.85 debit straddle Eli Lilly (NYSE:LLY) JUL50C/JUL50P $3.25 debit straddle Prot. Design (NSDQ:PDLI) AUG12C/AUG10P $0.15 credit synthetic Ciena (NSDQ:CIEN) J0415P/OCT05P $8.90 debit put-combo Sepracor (NSDQ:SEPR) JO415P/OCT07P $6.75 debit put-combo Nextel (NSDQ:NXTL) JAN05C/AUG05C $0.80 debit calendar Harley Dav. (NYSE:HDI) AUG60C/AUG55C $0.45 credit bear-call The recent volatility in the market has been a boon to straddle traders and last week's extreme share price activity produced successful outcomes in all of our neutral-outlook positions. Volatility plays in Apple Computer and Eli Lilly were the big winners, yielding gains of 50-75% while positions in Intel and Genzyme also exceeded their respective profit targets. Among the directional plays, the synthetic position in Protein Design Labs was very productive, offering up to $1.25 profit in less than one week. The long-term positions in Ciena and Sepracor offered favorable entry prices and the latter yielded a gain of up to $0.75 during Wednesday's brief rally. The speculative time-selling play in Nextel was extremely active with the issue jumping almost 25% after the position was initiated. Because the premium disparity in the front-month options was so large, traders had the choice of rolling to a bullish diagonal spread (JAN-5C/NOV-7.5C) for a small debit or simply closing the play for a "break-even" exit. The bearish spread in Harley Davidson was available at an acceptable credit. Portfolio Activity: There is little doubt that the past 24 months will be remembered as one of the most devastating periods in the stock market for years to come. The amount of wealth lost in the recent sell-off is absolutely staggering and although the month of July did not contribute significantly (on a percentage basis) to the decline, it was definitely an era of awakening for many investors. Those who trade options were similarly aroused by the brisk increase in volatility and the corresponding rise in premiums. The most successful option trading techniques in this environment were debit straddles and bearish synthetic positions and we offered a number of profitable candidates in both strategies. Among the winning delta-neutral selections were Advanta (NASDAQ:ADVNB), Mini-NDX (CBOE:MNX) and SEI Investments (NASDAQ:SEIC). In the synthetic positions group, bearish plays in Qlogic (NASDAQ:QLGC), KLA-Tencor (NASDAQ:KLAC), and Alliant Tech. (NYSE:ATK) enjoyed excellent gains. The sole credit (short) strangle in Cephalon (NASDAQ:CEPH) ended at maximum profit but the volatile activity in a more recent position, Centex (NYSE:CTX), demonstrated why the strategy is not particularly favorable in the current market conditions. CTX abruptly departed a 7-month trading range last week, despite bullish data in the housing industry, forcing an early exit in the neutral-outlook position. Among the calendar spreads, Goldcorp (NYSE:GG) ended the expiration period within a few pennies of our "pick price" and traders can sell a new call option ($12.50) for the month of August to lower the cost of the long-term position. Caci International (NASDAQ:CACI) was not as productive and the bullish "time-selling" play was closed for a small loss ($0.45) early in the week. As you might expect, all of the bearish credit spreads were profitable including: General Motors (NYSE:GM), Honeywell (NYSE:HON), Cephalon (NASDAQ:CEPH), Philip Morris (NYSE:MO), Omnicom (NYSE:OMC), Bank One (NYSE:ONE), United Technologies (NYSE:UTX), XL Capital (NYSE:XL), and 3M Company (NYSE:MMM). Among the bullish positions, there were a few standouts. Oracle (NASDAQ:ORCL) rose almost 25% in less than one month after being selected for a (short) put combination. The upside activity provided an acceptable "early-exit" profit in the long-term play. In the credit spreads group, eBay (NASDAQ:EBAY), Electronic Arts (NASDAQ:ERTS), and United Health Group (NYSE:UNH) were able to overcome the rampant selling and spreads in those issues expired profitably. In the category of synthetic positions, Kraft Foods (NYSE:KFT) and Cognizant Technology Solutions (NASDAQ:CTSH) were the only stocks that provided favorable trading opportunities. Questions & comments on spreads/combos to Contact Support ****************************************************************** - CREDIT SPREADS - Option traders will be rolling into new positions next week and with the current unpredictable nature of the equity markets, I have decided to offer a large assortment of bullish and bearish candidates for our most requested strategy. All of these plays offer favorable risk/reward potential, based on option premiums and recent technical indications in the underlying stocks. Your task is to select the positions that are most appropriate for your overall market outlook and personal trading criteria. ****************************************************************** AET - Aetna $42.66 *** Downtrend Underway! *** Aetna (NYSE:AET) is a health benefits company whose business operations are conducted in the Health Care, Group Insurance and Large Case Pensions segments. On December 13, 2000, the company was spun off, with the remaining entity merged into a subsidiary of ING Group N.V. The Health Care segment consists of health and dental benefit products including health maintenance organization, point-of-service, preferred provider organization and indemnity products, and group insurance products including life, disability and long-term care insurance products. The Group Life Insurance segment consists principally of renewable term coverage, the amounts of which may be fixed or linked to individual employee wage levels. Large Case Pensions manages a variety of retirement products, including pension and annuity products, offered to qualified defined benefit and contribution plans. PLAY (conservative - bearish/credit spread): BUY CALL AUG-55 AET-HK OI=371 A=$0.40 SELL CALL AUG-50 AET-HJ OI=1507 B=$0.90 INITIAL NET CREDIT TARGET=$0.55-$0.70 PROFIT(max)=12% ****************************************************************** APA - Apache Oil $49.43 *** Sell-Off In Progress! *** Apache Corporation (NYSE:APA) is an energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. The company has interests in seven countries including the United States, Canada, Egypt, Australia, China, Poland and Argentina. As of January 1, 2002, Apache had estimated reserves of 599 million barrels of crude oil, condensate and NGLs (natural gas liquids) and four Tcf (trillion cubic feet) of natural gas. Combined, these total estimated proved reserves are equivalent to 1.3 billion barrels of oil or 7.6 Tcf of gas. Worldwide, in 2001, the company participated in drilling 939 new wells, with 828 (88%) completed as producers. Canada was Apache's most active region, with 447 gross new wells at a success rate of 93%. Apache also performed over 1,350 major work-overs and re-completions in North America during the year. PLAY (conservative - bearish/credit spread): BUY CALL AUG-60 APA-HL OI=520 A=$0.20 SELL CALL AUG-55 APA-HK OI=591 B=$0.65 INITIAL NET CREDIT TARGET=$0.50-$0.60 PROFIT(max)=11% ****************************************************************** APH - Amphenol $38.60 *** Bottom Fishing! *** Amphenol Corporation (NYSE:APH) is a designer, manufacturer and marketer of electrical, electronic and fiber optic connectors, interconnect systems and coaxial and flat-ribbon cable. The main end markets for the company's products are communication systems for the quickly converging technologies of voice, video and data communications; industrial factory automation equipment and mass transportation and automotive applications; and commercial and military aerospace applications. The company is also engaged in developing interconnect products for factory automation, machine tools, instrumentation systems, mass transportation applications and automotive applications, including airbags, pre-tensioning seatbelts and other on board electronics. In addition, Amphenol is a supplier of high performance, mil-specification, circular environmental connectors that require superior performance and reliability under conditions of stress and hostile environments. PLAY (moderately aggressive - bullish/credit spread): BUY PUT AUG-30 APH-TF OI=70 A=$0.30 SELL PUT AUG-35 APH-TG OI=112 B=$1.05 INITIAL NET CREDIT TARGET=$0.80-$0.85 PROFIT(max)=19% ****************************************************************** AVE - Aventis $61.30 *** Revenge Play! *** Aventis (NYSE:AVE) is engaged in the discovery and development of pharmaceutical products. Aventis offers a range of patented prescription drugs to treat patients with serious diseases in a number of therapeutic areas, including respiratory and allergy, cardiology and thrombosis, oncology and diabetes. The company also is engaged in the areas of human vaccines and therapeutic proteins. Aventis' businesses include Aventis Pharma, Aventis Pasteur, Aventis Behring, Aventis CropScience and Aventis Animal Nutrition. PLAY (conservative - bearish/credit spread): BUY CALL AUG-75 AVE-HO OI=193 A=$0.15 SELL CALL AUG-70 AVE-HN OI=103 B=$0.60 INITIAL NET CREDIT TARGET=$0.50-$0.60 PROFIT(max)=11% ****************************************************************** EBAY - eBay Inc. $59.55 *** Internet Auction Giant! *** eBay (NASDAQ:EBAY) is a Web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and other miscellaneous items. The eBay trading platform is an automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. Through its wholly owned and partially owned subsidiaries and affiliates, the Company operated online trading platforms directed towards the United States, Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland and also the United Kingdom. PLAY (conservative - bullish/credit spread): BUY PUT AUG-45 QXB-TI OI=1539 A=$0.70 SELL PUT AUG-50 QXB-TJ OI=4975 B=$1.20 INITIAL NET CREDIT TARGET=$0.55-$0.65 PROFIT(max)=12% ****************************************************************** FMX - Fomento Economico $41.50 *** U.S. Market Hedge? *** Fomento Economico Mexicano, S.A. de C.V. (NYSE:FMX) is Mexico's largest producer of beer and soft drinks, as well as a major producer of beer and soft drinks in Argentina. FEMSA's primary activities are grouped under its sub-holding companies: FEMSA Cerveza, which engages in the production, distribution and sale of beer; Coca-Cola FEMSA, which engages in the production, sale and marketing of soft drinks; FEMSA Empaques, which engages in the production and distribution of packaging materials; FEMSA Comercio, which engages in the operation of convenience stores; Desarrollo Comercial FEMSA, which retains 50.01% of the voting capital stock of Empresas Amoxxo, which operates convenience stores adjacent to gas stations; Logística CCM, which provides logistics management services to FEMSA Cerveza; and finally, FEMSA Logística, which provides logistics management services to Coca-Cola FEMSA, FEMSA Empaques, and third party clients. PLAY (conservative - bullish/credit spread): BUY PUT AUG-35 FMX-TG OI=0 A=$0.25 SELL PUT AUG-40 FMX-TH OI=10 B=$0.75 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% ****************************************************************** IDPH - IDEC Pharmaceuticals $38.78 *** On The Rebound? *** IDEC Pharmaceuticals (NASDAQ:IDPH) is a biopharmaceutical company engaged primarily in the research, development, manufacture and commercialization of targeted therapies for the treatment of many cancer and autoimmune and inflammatory diseases. The company's two primary commercial products, Rituxan and Zevalin (ibritumomab tiuxetan), are for use in the treatment of B-cell non-Hodgkin's lymphomas. The company is also developing new products for the treatment of cancer and various other autoimmune diseases such as rheumatoid arthritis, psoriasis, allergic asthma and allergic rhinitis. Rituxan, the company's first product, and Zevalin, its second product approved for marketing in the United States, as well as its other primary products under development, address immune system disorders such as lymphomas, autoimmune and many inflammatory diseases. In addition, the company has discovered other product candidates through the application of its unique technology platform. PLAY (conservative - bullish/credit spread): BUY PUT AUG-25 IDK-TE OI=385 A=$0.45 SELL PUT AUG-30 IDK-TF OI=2447 B=$0.85 INITIAL NET CREDIT TARGET=$0.50-$0.60 PROFIT(max)=11% ****************************************************************** IBM - International Business Machines $72.00 *** Big Blue! *** International Business Machines Corporation (NYSE:IBM) makes and sells computer services, hardware and software. The company also provides financing services in support of its computer business. The company's major operations comprise a Global Services segment; three hardware product segments (Enterprise Systems, Personal and Printing Systems, and Technology); a Software segment; a Global Financing segment; and an Enterprise Investments segment. IBM offers its products through its global sales and distribution organizations. The company operates in more than 150 countries worldwide and derives more than half of its revenues from sales outside the United States. PLAY (conservative - bullish/credit spread): BUY PUT AUG-60 IBM-TL OI=4957 A=$0.65 SELL PUT AUG-65 IBM-TM OI=12974 B=$1.30 INITIAL NET CREDIT TARGET=$0.70-$0.80 PROFIT(max)=18% ****************************************************************** MMM - 3M Company $108.88 *** Earnings Due! *** 3M Company (NYSE:MMM), formerly known as Minnesota Mining and Manufacturing Company, is an integrated enterprise characterized by substantial inter-company cooperation in research, development, manufacturing and marketing of products. 3M's primary business has developed from its research and technology in coating and bonding for coated abrasives, the company's original product. Coating and bonding is the process of applying one material to another, such as abrasive granules to paper or cloth (coated abrasives), adhesives to a backing (pressure-sensitive tapes), ceramic coating to granular mineral (roofing granules), glass beads to plastic backing (reflective sheeting), and low-tack adhesives to paper (repositionable notes). The company conducts its business through six operating segments: Industrial Markets; Transportation, Graphics and Safety Markets; Health Care Markets; Consumer and Office Markets; Electro and Communications Markets; and Specialty Material Markets. PLAY (conservative - bearish/credit spread): BUY CALL AUG-130 MMM-HF OI=1218 A=$0.50 SELL CALL AUG-125 MMM-HE OI=1004 B=$1.00 INITIAL NET CREDIT TARGET=$0.60-$0.70 PROFIT(max)=14% ****************************************************************** PHM - Pulte Homes $42.81 *** Sector Slump! *** Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries engage in the homebuilding and financial services businesses. The company's direct subsidiaries include Pulte Diversified Companies, Inc. (PDCI), Del Webb Corporation and others that are engaged in the homebuilding business. PDCI's operating subsidiaries include Pulte Home Corporation (PHC), Pulte International Corporation and other subsidiaries that are engaged in the homebuilding business. The company also has a mortgage banking company, Pulte Mortgage Corporation, which is a subsidiary of PHC. PLAY (conservative - bearish/credit spread): BUY CALL AUG-55 PHM-HK OI=508 A=$0.30 SELL CALL AUG-50 PHM-HJ OI=198 B=$0.80 INITIAL NET CREDIT TARGET=$0.55-$0.65 PROFIT(max)=12% ****************************************************************** RD - Royal Dutch Petroleum $42.00 *** Big Down Day! *** Royal Dutch Petroleum (NYSE:RD) is a holding company that owns, directly or indirectly, investments in the companies constituting the Royal Dutch/Shell Group of Companies (the Group). The Group includes a range of other businesses such as Shell Hydrogen, Shell Internet Works and Shell Capital. The company has a 60% interest in the Group. The operating companies of the Group are engaged in various activities related to oil and natural gas, chemicals, power generation, renewable resources and other businesses in over 135 countries. The companies of the Royal Dutch/Shell Group are engaged in the business of exploration and production, gas and power, oil products and chemicals and renewables, as well as other related activities. The Royal Dutch/Shell Group of Companies has grown out of an alliance made in 1907 between Royal Dutch and Shell Transport, by which the two companies agreed to merge their interests on a 60:40 basis, while remaining separate and distinct entities. PLAY (conservative - bearish/credit spread): BUY CALL AUG-55 RD-HK OI=473 A=$0.15 SELL CALL AUG-50 RD-HJ OI=3460 B=$0.50 INITIAL NET CREDIT TARGET=$0.45-$0.60 PROFIT(max)=9% ****************************************************************** UPS - United Parcel Service $67.00 *** Rally Mode! *** United Parcel Service (NYSE:UPS) is an express carrier package delivery company and a provider of specialized transportation and logistics services. The company delivers packages each business day for 1.8 million shipping customers to six million consignees. In 2001, UPS delivered an average of more than 13 million pieces per day worldwide. UPS' primary business is the time-definite delivery of packages and documents throughout the United States and in over 200 other countries and territories. The company has also established a vast global transportation infrastructure and developed a large portfolio of guaranteed delivery services, and it supports these services with advanced technology. The company provides logistics services, including integrated supply chain management, for major companies worldwide. UPS is also engaged in the delivery of goods purchased over the Internet. PLAY (conservative - bullish/credit spread): BUY PUT AUG-55 UPS-TK OI=2120 A=$0.25 SELL PUT AUG-60 UPS-TL OI=3499 B=$0.80 INITIAL NET CREDIT TARGET=$0.60-$0.90 PROFIT(max)=14% ****************************************************************** ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** MARKET POSTURE ************** We have once again lowered support in several areas throughout the section To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/072102.asp ********** 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
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