The Option Investor Newsletter Sunday 09-01-2002 Copyright 2002, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: No Joy In Mudville Today Index Trader Wrap: Fifth Month Slump! Editor’s Plays: Not Quite What I Had In Mind Market Sentiment: History 101 Ask the Analyst: The Squeeze Is On Coming Events: Earnings, Splits, Economic Events Updated on the site tonight: Swing Trade Game Plan: Buckle Your Seat belt Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 8-30 WE 8-23 WE 8-16 WE 8-09 DOW 8663.50 -209.46 8872.96 + 94.90 8778.06 + 32.61 +432.32 Nasdaq 1315.06 - 65.51 1380.57 + 19.56 1361.01 + 54.89 + 58.20 S&P-100 460.80 - 13.70 474.50 + 6.06 468.44 + 9.62 + 24.77 S&P-500 916.08 - 24.78 940.86 + 12.09 928.77 + 20.13 + 44.40 W5000 8654.04 -222.85 8876.89 +106.61 8770.28 +198.41 +385.31 RUT 390.96 - 9.17 400.13 + 4.16 395.97 + 7.52 + 12.00 TRAN 2265.63 -128.69 2394.32 + 54.92 2339.40 + 7.52 +149.62 VIX 35.80 + 2.99 32.81 - 0.01 32.82 - 6.54 - 6.03 VXN 54.98 + 7.36 47.62 - 3.03 50.65 - 8.05 - 6.74 TRIN 1.20 2.87 1.52 0.90 Put/Call 0.84 0.80 0.51 0.69 ****************************************************************** No Joy In Mudville Today by Jim Brown Casey may not be at bat but Bonds and Sosa will be, but while there may be joy in the ball parks there was no joy in the markets on Friday. For the last 21 years the Friday before Labor Day closed positive 77% of the time. After a valiant effort by the Dow the tech problems on the Nasdaq became too heavy an anchor to drag. The Dow posted its fifth losing month in a row for the first time in 21 years. The fifth losing month in a row was not the only negative record set in this bear market. ICI, the official record keeper for the mutual fund industry announced that -$52.63 billion in cash flowed out of funds in July. This was the largest outflow on record since they began keeping records in 1949. This correlates to the reasons behind the July-24th low of 7532 for the Dow. If investors withdraw more money than funds are holding they have to sell stock. Funds had been very quiet about the withdrawals in hopes of preventing a bank type run that would feed on itself. Third parties like AMG Data and TrimTabs had already estimated it was in the $50 billion range. Money is still not flowing back in yet. According to TrimTabs only $1 billion flowed into equity funds last week. This does not inspire confidence in any future rally. This is also one of the reasons we did not see a big markup rally on Friday. Funds simply did not have the money to buy stocks. Friday started off positive despite an initial drop on the SUNW news. The markets recovered quickly, ignored a slightly negative Consumer Confidence number and then rallied on a much stronger than expected PMI. The Consumer Confidence number came in at 87.6 compared to a reading of 87.9 earlier this month. The current conditions component fell to 98.5 while the expectations component fell to 80.6. This falling confidence is likely to pick up speed going forward as worsening business spending weighs on jobs and salaries. Mortgage applications fell slightly showing that maybe the house buying/refinancing boom may have run out of candidates. Still traders focused instead on the gains in the PMI. It posted the first gain in three months to 54.9 from 51.5 last month. This was positive and could be a leading indicator for the ISM report next week. This report is also expected to show improvement but not enough to prevent more layoffs and more slashed earnings ahead. This was also represented in the drop in gains in Personal Income to zero. This was the first month since November that income did not rise. Consumers still spent money with spending rising +1.0%. Since we all know how to add and subtract we know this cannot continue without an increase in income. Spending will eventually shrink. The markets did dip on the SUNW and NVLS at the open but the rebounding Dow dragged the Nasdaq back into positive territory despite more chip downgrades. In the late to the party category, Merrill lowered estimates on NVLS, KLAC, AMAT and LRCX based on weak demand in the chip sector. Duh! Way to avoid the bleeding edge of investment research! Despite the downgrades and warnings NVLS actually closed up for the day and SUNW only lost -19 cents. The SOX did lose ground to close at 300 after JPM set a target of 230 for the index. Ouch! Intel also lost ground and is trading near a 52-week low on worries that it will also guide lower on its 9/5 mid-quarter update call. There are two tech conferences next week to help spread the message but that message may not be one traders want to hear. Arthur Anderson quietly closed its doors on Friday as the last of its 1200 public company clients left to a competitor. Anderson is down to 3,000 employees from 28,000 when the Enron problem began. The remaining employees will handle shutting down the remaining facilities, handling litigation and inventorying assets for the eventual billions in investor damage payments. Friday did not go as planned. I carefully scripted a dip at the open on the SUNW news followed by a rally on bargain hunting and short covering going into the close. I just could not get the market to follow my script. I have to admit the 77% positive record for the last 21 years of Labor Day Fridays had tainted my vision. I expected the bullish undertones for the week to increase near the close as bargain hunters expecting September to open strong for the seventh year in a row established positions. This string is widely reported in the stock traders almanac. The exact opposite occurred. The Dow has been having trouble with strong resistance at 8750 all week and Friday proved no different. Several times the Dow tried to penetrate that level and hold only to be knocked back again. This is the 50 DMA and the 38% retracement level and is proving to be a solid top. With oversold conditions easing and lack of volume there was just not enough power to punch through with conviction. The only conviction for the day was the slam dunk which began at 2:30. The Dow dropped -134 points to close near the lows of the day on the strongest volume of the day. According to many analysts I read this presents a bearish scenario for the normally positive post holiday Tuesday. As I mentioned above, the lack of a mark up rally by funds, very dreary earnings warnings, worry over Iraq and the 9/11 anniversary is impacting investor sentiment and clearly investors used the intraday bounce to close positions not open them. Since post holiday trading is normally volatile I think we just increased that volatility quotient substantially. There are only six trading days left before 9/11 and while I don't expect any terrorist attacks there are quite a few investors who were burned last year and have vivid recollections of their portfolio losses. With the Dow still up over +1100 points from the July lows there is plenty of profit at risk. Despite everything I wrote above I am neutral about Tuesday. I think there may be enough bullish sentiment left that when traders return from vacation there could be a flurry of buying activity. There were a lot of big block orders going at ask on the QQQ at the close. This could have been speculation on that bullishness. The problem as I see it is the distance to resistance. Had we closed right at 8750 I think we could have had a chance of a stronger rally if a strong spike over that level triggered a bunch of short covering. However, from 8658 we will be already +100 points before we reach that level and a lot of the buying pressure will have been expended. I could easily see another run to near Friday's highs of 8783 and another failure. Only this time a failure will attract strong volume with all the players back at their post. I am currently short in the Market Monitor from OEX 465, which was only two points off the high of the day. With strong resistance in that area I am very comfortable with the outlook for Tuesday. Last Sunday my target for this week was a dip to Dow 8400. 8558 was as close as we got. My target for pre-9/11 September was 8100. The Dow bounce Thursday afternoon and Friday has tempered my thought process somewhat. 8100 is only -558 points away but those would have to be garnered in more or less a straight line, a couple days of -200 drops. I don't see it happening that way based on the underlying bid last week. Every dip was met with large block orders in just enough quantity to stop the drop. Granted it will take more buyers to counter any investor flight next week because of the expected higher volume. Whatever happens we are approaching a week of possibly extreme volatility where you are either quick or busted. Once 9/11 passes there are many people expecting a strong rally. This expectation will also put a floor under the market on the 9th and 10th as risk averse bargain hunters take positions in advance. Whatever your market view the next ten trading days are definitely going to be exciting. Enter Very Passively, Exit Very Aggressively! Jim Brown Editor ******************** INDEX TRADER SUMMARY ******************** FIFTH MONTH SLUMP! By Leigh Stevens TRADING ACTIVITY AND OUTLOOK - Somewhat overlooked after the strong rebound of the past month off an extreme low, might be that August ended lower in the Dow (INDU) and the Nasdaq Composite (COMPX) relative to July, making it the FIFTH consecutive monthly decline. The S&P 500 (SPX) and S&P 100 (OEX) did eke out monthly gain - not so, with the Nas 100 (NDX). The INDU and SPX weekly loss ended a 5-week winning streak; COMPX broke 3 weeks of gains. Friday saw a consumer spending report that was up for July, relieving some fears of sagging consumer spending. I'm in the camp expecting a lot of back and forth price swings in coming weeks as inconsistent signals come in on the economy and business/consumer spending, earnings and the political and military risks of possible or actual military action against Iraq. On balance we could be sideways into October when we start to see earnings. Technically, as I wrote in my last Trader's column about the wedge patterns - see "Reversal patterns: Wedges" at http://www.OptionInvestor.com/traderscorner/082902_2.asp there is measuring tendency in the pattern - once there is a break below the top end of the narrowing pie-shaped wedge, an implied objective becomes for a move back down to the "base" of the pattern. In this case this would be back to a retest of the prior lows or near to them. I'm not sure that this will happen but we often see retests of lows and when buying support again comes in, the next rally phase is often then the more sustained and steady advance. S&P 100 Index (OEX) - Daily/Hourly charts: Friday's rally did not get away to the upside and was basically turned back by the trendline resistance which I anticipated would contain rallies - this is fairly typical for Head & Shoulder's (H&S) top patterns when they are valid - that is, a "return" to the neckline is fairly common. More in Trader's Corner: Reversal patterns: the Head & Shoulder's - http://www.OptionInvestor.com/traderscorner/061602_1.asp Unless there is a close above 468, in which case the top pattern may be "nullified" - the next downside technical objective, as noted on the chart above, continues to be the 450 area. Friday's rally looked like the shorting/bearish (put buy) opportunity I thought it would be. Eventually, a future downswing could carry to the 440 area. The most significant resistance in terms of the intermediate trend is in the 480 area. A weekly close over 480 sets up objectives to 490-495 or 500. S&P 500 Index (SPX) - Weekly chart: Technical resistance in terms of the weekly chart - the prior September low - in the 945 area is basically acting as the bearish stopper so far. I think this continues as SPX drifts back down lower in its broad downtrend channel. Major resistance is in the 1000 area - major support, at the low end of the channel, is 700-775. S&P 500 Index (SPX) - Hourly chart: My near term objective to the 900 area is activated with the failure of the return rally to penetrate 930. A move below 900 activates a possible next objective to 875 on a future downswing. A move above pivotal resistance at 930 would set up possible upside to the 955 area, which is looks to the least likely course, with the break below the minor flag per the chart notations. DJ Industrial Index (INDU) Weekly chart: Major support looks like 8000, then 7500. 9000 has been the pivotal resistance and is deflecting rallies. Expect this to continue. DJ Industrial Index (1/100 of INDU) - $DJX - Daily/Hourly charts: The rally at the end of the week, carried to the area of the trendline resistance in the 87.6 area, but not above it - which is why I emphasize what it can do on an hourly closing basis - preferably wait for 2 consecutive hourly closes above trendline resistance to "confirm" that the rally really has buying behind it or is just a head fake rally with technical buying pushing stocks up on a low volume day - not buying that is in "strong hands" due to investment accumulation - rather, traders play. DJX's next downside technical objective is to 85 per my prior notes on this objective based on the Head & Shoulder's (H&S) top and this measurement does not imply that the trend will not carry still lower. On the upside, a close above 87.6 would suggest covering short stock and long DJX put positions - if so, then resistance at the trendline comes in at 90-90.5, for a bearish re-entry play. Nasdaq Composite (COMPX) Weekly chart: The bigger perspective is all in the long-term chart and I've noted the likely outlook for September - some trading plays will develop no doubt - they always do. But investment time - not likely! Support looks like 1200-1190. Resistance is 1400 - plays are within this range I think. Best guess is a sideways trading range sets up. Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts: My projected "minimum" downside objective of 23.00 based on the Head & Shoulder's top was met on the decline within a couple of ticks but I think will be seen again and possibly to 22.5 - a retest of the prior swing low seems increasingly likely in the Q's. 24.5, at the H&S neckline, is the pivotal resistance - that is, a move above it sets up higher level objectives, specifically to 25.5 and a retest the other way - at the swing high. "Leigh Stevens is on a personal leave from OIN for Sept. and Oct. as he travels back to New York for the various memorial services for Cantor Fitzgerald employees along with some well deserved vacation. He will continue to write for the Trader's Corner during this time as his schedule permits. In November he will resume contributing to OIN on a regular basis including his Index Trader commentary each week." Good trading success! Leigh Stevens ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** Editor's Plays ************** Not Quite What I Had In Mind The DJX laddered entry put play from last week did not play out exactly as scripted. The down/up/down/up/down was not a scenario I diagramed. If you were following the concept then you should have been filled with an average price of around $1.40 a contract. I arrived at this based on these executions: 20 @ 8900 for $1.35 10 @ 8800 for $1.65 10 @ 9000 for $0.95 10 @ 8700 for $1.70 Average cost = $1.40 The option traded as high as $2.40 on Thursday and closed at $1.80 on Friday. I covered the possible scenarios for Friday in my Thursday night market wrap and suggested cautious traders might want to lock in some profit on the morning dip, it traded as high as $2.00, and then reenter on any bounce on Tuesday. If you took that path then you should be profitable and flat. Look for a bounce on Tuesday to somewhere around 8750 and go long again. Target your exit for somewhere in the 8300-8400 range. If you are still long these puts then set your stop loss for just over 8800, say 88.25. Target your exit for somewhere in the 8300-8400 range. My downside targets are higher than they were last week based on the underlying bid this week. *************************** I was really torn about a new play this week. I think the possibility of a homerun in a laddered DJX call play over the next two weeks is very strong. I repeat VERY strong. However, if we did get another terrorist event traders could lose 100% of their investment. I tried every way I could to come up with something on the SMH (semiconductor holders) but gave up based on the JPM 230 target and the failure to drop this week. It looked like a prime opportunity but I was not happy with any result. I thought about going to directional plays on stocks again like puts on KKD but this too will be influenced by 9/11. While looking at a directional play on the QQQ I decided there was an opportunity I could not pass up. This will be another laddered entry play WITH insurance against a catastrophe. The premiums are so cheap on the QQQ that this play looks great. QQQ Laddered entry with insurance: The concept is to accumulate a large call position in the QQQs before 9/11. We will buy the October $24 calls and buy the September $24 put for insurance. If the unthinkable happens then the insurance will cover the cost of the calls. If nothing happens then we close the put side on 9/12 and ride the calls back up. Sept $24 Put QAV-UX Closing price on Friday $1.35 Oct $24 Call QAV-JX Closing price on Friday $1.50 I am anticipating the Put premium to decay to $1.25 over the holiday weekend and the Call premium to decay to $1.35-$1.40. Because we are going to buy the calls on a dip the price will be even less. The scenario looks like this. I am going to try and accumulate 150 October $24 calls for an average cost of $.15 cents each. No I am not on drugs. I am going to do this with an average down approach and with the puts as insurance. I am using 50 and 150 as the numbers of contracts for the example. Use any number of contracts you like for your account size but keep the ratios the same. Tuesday morning: Buy 50 contracts of the September $24 put at market. Try and wait to see if there will be any bounce and try to buy these as the bounce fades. The higher you can buy them the better the reward. The scenario assumes no bounce and a price of $1.25. This is your insurance position. Once your insurance is in place buy the following quantities of the October $24 calls at market as each trigger point is touched. This works very easy if you have a broker like PreferredTrade.com which allows option execution based on the underlying stock price. If you don't have this feature then you will have to enter them manually. Please use market orders for 50 contracts of less. You will be automatically executed at the ask and no broker will ever see the order. If you try to squeeze a limit order in you may not get filled and your profits will suffer. Using the October $24 call - QAV-JX Buy 10 calls at market if QQQ touches 23.00 (est price $1.25) Buy 10 calls at market if QQQ touches 22.75 (est price $1.15) Buy 15 calls at market if QQQ touches 22.50 (est price $1.00) Buy 20 calls at market if QQQ touches 22.25 (est price $0.75) Buy 25 calls at market if QQQ touches 22.00 (est price $0.60) Buy 30 calls at market if QQQ touches 21.75 (est price $0.50) Buy 40 calls at market if QQQ touches 21.50 (est price $0.35) The option prices are very rough estimates! DO NOT TRY TO PLACE LIMIT ORDERS FOR THESE PRICES! Using the numbers above the total invested for all the calls should be somewhere in the $9,800 range. (very rough estimate) If the QQQ actually touches $21.50 again as it did back on August 5th then you will be filled on all your calls and the September $24 puts should be worth around $2.75 each. Personally I would enter a limit order in advance to sell the puts at market if the QQQ hit $21.50. Assuming we get no bounce on Tuesday and you have to pay $1.25 for the puts then your cost is $6,250. If the QQQ hit $21.50 and you sold at $2.75 then your profit would be $7,500 on the puts. Assuming your cost on the calls was $9,800 as I estimated then subtract your $7,500 profit on the puts and you have a total cost for 150 calls of $2,300 or $.15 cents each. If nothing happens on 9/11 and the QQQs return to last weeks level of $26.00 then your $24 calls should be worth $2.50 or $37,500. MAJOR DISCLAIMER !!! There is no way in heck that the scenario described above will EVER play out exactly as scripted. I am making no specific claims that anyone will make any specific amount of money and it is possible to lose much of your investment if the market does not cooperate. Potential Problems: The market does not go down. You will be stopped out of the puts for a loss. I would suggest Dow 9100 as a stop loss. It failed to reach that level last week and I doubt it will reach it this week. Close the puts, end of play. The market does not go down as much as expected. If the QQQ dips to trigger several of your calls and then rebounds set a stop loss on the puts at the QQQ level where you bought them. If you bought them at QQQ $24.50 then once you have been triggered on some calls set a stop loss on the puts at QQQ $24.50. The calls will be profitable and the puts will be closed at a minor loss. The QQQs go down below 21.50 and don't come back. You will lose the difference between what you sold the puts for and the cost of the calls. In the example it would be around $2,300. However, you do have an extra month on the calls and plenty of upside potential. They only have to come back a little to break even. The QQQs go down half way and 9/11 passes uneventfully. Close the puts at the open on 9/12 or the close of 9/11. Don't wait for the puts to be stopped out. Ride the calls back up. ************** This is a really simple play. Follow the instructions to the letter and it should be very profitable. Obviously the maximum profitability only occurs if the QQQ drops to $21.50 and rebounds. As with any trade there are risks. Do not attempt this trade with money you cannot afford to lose. Despite the insurance puts there is always a possibility of loss due to improper execution and unforeseen market events. ************************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** History 101 by Steven Price This morning started out with mixed economic data. The University of Michigan Consumer Sentiment Index came in under expectations, adding to the evidence that consumers are still worrying about the economy, as reflected similarly in Tuesday's Consumer Confidence report. On the positive side, personal spending increased more than expected, at 1%, as durable goods orders carried the day. This was the biggest jump in 9 months. The downside to that report is that personal income showed no increase, versus an expectation of an increase of 0.2%. We all know what happens when spending goes up, but income does not. Alan Greenspan spoke this morning at the Kansas City Fed's annual economic conference in Jackson Hole, Wyoming. He basically said that the demand for high tech products, while great, was overcome by even greater increases in supply. His assessment of the bursting of the high-tech bubble was, "In light of the burgeoning supply, the pace of increased demand for the newer technologies, though rapid, fell short of that needed to sustain the elevated real rate of return for the whole of the high-tech capital stock. Returns on the securities of high-tech firms ultimately collapsed, as did capital investment. Similar, though less severe, adjustments were occurring in many industries across our economy." Or, put more simply, we got ahead of ourselves. Greenspan gave no real indication of what the FOMC would do with interest rates on September 24, but also did nothing to contradict statements made by several Fed governors that the next interest rate move was more likely to be tightening than easing, and that current rates were sufficient to spur economic growth. The Nasdaq gave back most of yesterday's gains, after warnings from Novellus and Sun Microsystems underscored what we already knew - that IT spending is still in decline. The Dow actually made an effort, at one point trading up in triple digits, before giving up 7.49 to finish at 8663.50. This started out looking like the beginning of the annual Labor Day equity shopping spree, and ended up looking like a Labor Day 1/2 off sale. The opening Tuesday after labor Day has seen the Dow up for the last six years. This does not mean that it stays up during the month of September, which has traditionally been its worst time of the year. The Semiconductor Index (SOX.X) managed to hold itself above the 300 level, in spite of the tech warnings. While I can't explain exactly why this is, it may have something to do with one of the lightest volume days of the year, with the NYSE trading only 1.07 billion shares and the Nasdaq only 1.08. The Dow finished its fifth straight monthly decline for the first time since 1981 and with September traditionally poor, we will most likely see 6 months in a row. The only thing that may save it is a rally following September 11th, if there are no incidents. The feeling is that many investors are still on the sidelines, waiting for the anniversary to pass. If it passes without incident, then they will jump back in. I'm not sure how sound this theory is, since there are many other reasons for the stock market swoon. Unemployment and a VERY slow growing economy are two that come to mind. If history is going to repeat itself once again, look for a rally on Monday, followed by a pullback into September. Because this year is different than any other, based on what happened a year ago, I will not be surprised if things do not go exactly as expected. Six straight years of history, however, are hard to argue with. If you must go long, keep a few puts for protection, you will most likely need them in the near future. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10679 52-week Low : 7702 Current : 8663 Moving Averages: (Simple) 10-dma: 8851 50-dma: 8718 200-dma: 9701 S&P 500 ($SPX) 52-week High: 1226 52-week Low : 797 Current : 916 Moving Averages: (Simple) 10-dma: 937 50-dma: 917 200-dma: 1065 Nasdaq-100 ($NDX) 52-week High: 1782 52-week Low : 892 Current : 942 Moving Averages: (Simple) 10-dma: 996 50-dma: 977 200-dma: 1319 ----------------------------------------------------------------- Dow Jones Home Construction Index (DJUSHB): This group has been flying in the with mortgage rates low and mortgage applications at record highs. The party seems to have taken a break, however. Purchasing applications were down 7% this week and a report surfaced that industry insiders had dumped over $250 million worth of stock more than they had purchased during the second quarter. Combine these facts with the summer season coming to a close, and we may be seeing a slowdown overall. Talk of rates increasing in the future, rather than decreasing, has also sent the speculative buyers to the sidelines. The Index dropped below its 200-dma, 50-dma and 10-dma, which had been converging, in the last two days. 52-week High: 397 52-week Low : 183 Current : 322 Moving Averages: (Simple) 10-dma: 333 50-dma: 333 200-dma: 334 ----------------------------------------------------------------- Market Volatility It's interesting to see the VIX stay fairly high heading into a long weekend. While this isn't unexpected, it does mean there are an awful lot of traders willing to trade time decay losses for the chance at a big move next week. The Dow falling back into negative territory by the end of the day seems to have reminded everyone of just how negative a month September can be. CBOE Market Volatility Index (VIX) = 35.80 -0.52 Nasdaq-100 Volatility Index (VXN) = 54.98 –0.07 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.82 325,617 266,126 Equity Only 0.63 265,220 166,099 OEX 0.65 16,033 10,352 QQQ 1.01 30,274 30,489 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 44 - 5 Bull Confirmed NASDAQ-100 52 + 0 Bull Correction DOW 57 - 3 Bull Confirmed S&P 500 58 + 0 Bull Alert S&P 100 56 - 1 Bull Alert Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.46 10-Day Arms Index 1.31 21-Day Arms Index 1.25 55-Day Arms Index 1.32 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 they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 1481 1219 NASDAQ 1457 1691 New Highs New Lows NYSE 25 22 NASDAQ 26 65 Volume (in millions) NYSE 1,076 NASDAQ 1,079 ----------------------------------------------------------------- Commitments Of Traders Report: 08/27/02 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 added 3,000 contracts to their long positions, while small traders reduced longs by almost 4,000. Small traders also added a similar amount to the short side. Commercials Long Short Net % Of OI 08/06/02 431,590 478,879 (47,289) (5.2%) 08/13/02 427,618 475,536 (47,918) (5.3%) 08/20/02 422,100 469,556 (47,456) (5.3%) 08/27/02 425,982 469,087 (43,105) (4.8%) 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 08/06/02 159,561 67,434 92,127 40.5% 08/13/02 155,040 66,546 88,494 39.9% 08/20/02 156,974 69,071 87,903 38.9% 08/27/02 153,152 72,408 80,744 35.8% 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 increased their long contracts by 3,500 contracts, and added only 1,200 to the short side. Small traders, on the other hand, reduced long contracts by 1,200, while leaving shorts relatively unchanged. Commercials Long Short Net % of OI 08/06/02 41,014 50,025 (9,011) ( 9.9%) 08/13/02 42,303 50,354 (8,051) ( 8.7%) 08/20/02 41,876 49,461 (7,585) ( 8.3%) 08/27/02 45,354 50,634 (5,280) ( 5.5%) 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 08/06/02 11,547 8,782 2,765 13.6% 08/13/02 12,797 8,933 3,864 17.8% 08/20/02 11,321 7,980 3,341 17.3% 08/27/02 10,156 8,040 2,116 11.6% 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 reduced their shorts by 1,000 contracts, while leaving long positions approximately the same. Small traders increased both positions slightly. Commercials Long Short Net % of OI 08/06/02 23,491 14,290 9,201 24.4% 08/13/02 22,837 13,833 9,004 24.6% 08/20/02 21,160 15,349 5,811 15.9% 08/27/02 21,023 14,328 6,695 18.9% 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 08/06/02 7,981 9,258 (1,277) ( 7.4%) 08/13/02 5,050 8,349 (3,299) (24.6%) 08/20/02 6,216 8,163 (1,947) (13.5%) 08/27/02 6,825 8,438 (1,613) (10.6%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ *************** ASK THE ANALYST *************** The Squeeze Is On by Steven Price Semiconductor Sector Index (SOX.X) I've been getting so many emails about different semiconductor stocks, I thought we could take a look at some recent levels for the index. The news in the sector has been dominated by warnings from chipmakers to equipment makers. In addition, PC makers are seeing low demand and the large server market is shrinking. What we are actually seeing here is a battle that is getting squeezed to the point of a breakout. While the news is almost always bad for this sector, the technicals are actually telling a different story. After the warnings from Sun Microsystems and Novellus, it looked like we'd be seeing a break in the SOX below 300, taking most of the stocks in the sector with it. That did not happen. Going back to August 19, the Dow, NDX, Nasdaq and S&P 500 all broke above their 50 day moving averages. The SOX followed the broader indices up to this point, but instead of breaking through, was turned away. It did, however, break out of its descending channel, going back to the beginning of June, on August 16. The rejection at the 50-dma looked troublesome, and in spite of fighting it for a few days, the index quickly fell back, giving up 75% of its gains. As it fell, and the warnings about lack of IT spending kept coming, the group appeared headed below the previous low of 282.75. But a funny thing happened as we approached 300. The darn thing stopped dead in its tracks. While it approached 300, so did the old descending channel. Now we have not only an even number level of support, but also the top trend line of the channel that also appears to be giving some serious support here. On the other hand, we have a descending 50-dma, which is putting on the squeeze from above. Right now, there is pressure from all sides. The top trendline seems to be keeping the group from crossing back into the channel and resuming its free fall. However, as the 50-dma gets closer, we are bound to get a break in one direction. Once that break occurs, these prior levels of resistance and support will be gone and we should see a large move. When will this happen? While there is no way to be sure, I have drawn an extended trend line, approximately over the 50-dma. If we were to continue trading at this level, the lines would intersect around the end of September. While I think we will see a break before then, it won't be long until time takes care of the barriers for us. Once these are removed, some of those semis that won't seem to go in our direction should pick up steam. ************* COMING EVENTS ************* ================================================== Market Watch for the week of September 2nd ================================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ CRHCY CRH Plc Tue, Sep 3 -----N/A----- N/A ROP Roper Industries Tue, Sep 3 After Market Close 0.55 ----------------------- WEDNESDAY ----------------------------- GLH Gallaher Group PLC Wed, Sep 4 Before the Bell N/A IPR International Power Wed, Sep 4 -----N/A----- N/A NSM National Semiconductor Wed, Sep 4 During the Market 0.01 SIGY Signet Group Wed, Sep 4 Before the Bell 0.37 TKP Technip-Coflexip Wed, Sep 4 -----N/A----- N/A TI Telecom Italia Wed, Sep 4 -----N/A----- N/A ------------------------- THURSDAY ----------------------------- ABS Albertson`s Thu, Sep 5 Before the Bell 0.54 CPB Campbell Soup Thu, Sep 5 Before the Bell 0.14 CHU China Unicom Limited Thu, Sep 5 Before the Bell N/A DEO Diageo PLC Thu, Sep 5 02:00 am ET N/A SZE Suez SA Thu, Sep 5 -----N/A----- N/A TTWO Take-Two Int Software Thu, Sep 5 Before the Bell 0.07 ------------------------- FRIDAY ------------------------------- None ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable NBY NBC Capital 4:3 09/09 09/10 BLUD Immucor Inc. 3:2 09/13 09/16 -------------------------- Economic Reports This Week -------------------------- On the heels of Labor Day, this Market Watch could serve as sonar for investors fishing in the sea of money. ============================================================== -For- Monday, 09/02/02 ---------------- None Tuesday, 09/03/02 ----------------- Auto Sales (NA) Aug Forecast: 6.2% Previous: 6.5% Truck Sales (NA) Aug Forecast: 8.9M Previous: 8.1M ISM Index (DM) Aug Forecast: 51.8 Previous: 50.5 Wednesday, 09/04/02 ------------------- Construction Spnding(DM)Jul Forecast: -0.4% Previous: -2.2% Thursday, 09/05/02 ------------------ Initial Claims (BB) 08/31 Forecast: 395K Previous: 403K Productivity-Rev. (BB) Q2 Forecast: 1.1% Previous: 1.1% ISM Services (DM) Aug Forecast: 54.0 Previous: 53.1 Factory Orders (DM) Jul Forecast: 4.7% Previous: -2.4% Friday, 09/06/02 ---------------- Nonfarm Payrolls (BB) Aug Forecast: 47K Previous: 6K Unemployment Rate (BB) Aug Forecast: 5.9% Previous: 5.9% Hourly Earnings (BB) Aug Forecast: 0.3% Previous: 0.3% Average Workweek (BB) Aug Forecast: 34.2 Previous: 34.0 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********************* SWING TRADE GAME PLAN ********************* Buckle Your Seat belt Traders are split about the possibilities over the next ten days but one thing we can count on is extreme volatility. The professionals will be back at work on Monday and volume should return. Hopefully a solid direction will return with them. To read the rest of the Swing Trader Game Plan click here: http://www.OptionInvestor.com/itrader/indexes/swing.asp 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. 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The Option Investor Newsletter Sunday 09-01-2002 Sunday 2 of 5 In Section Two: Index Trader Game Plans: THE SECTOR BEAT - 9/1 Daily Results Call Play of the Day: BRL Put Play of the Day: SYMC Dropped Calls: PNRA Dropped Puts: ADI, GS ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********************** INDEX TRADER GAMEPLANS ********************** THE SECTOR BEAT - 9/1 by Leigh Stevens NEWS & VIEWS - On Friday, technology in general showed the most weakness, with the networking (NWX), software (GSO), and Internet (INX) sectors leading the declining groups. Biotech (BTK) continued to correct. Banks (BIX), Oil (OIX), oil services (OSX), Retail (RLX), and Forest & Paper product (FPP) sectors were all a bit higher - the forest & paper product stock group was up the most and it was only a percent and a half higher. Sun Micro (SUNW) fell nearly 4% after indicating late Thursday in its mid-quarter update that its Q1 revenue would likely come in at the low end of its projected range. Sun also stated there were signs the market for IT spending could be worsening - oh, this was good news! But Sun didn't not guide lower in its earnings estimates and reiterated its expectations for a slight loss for the quarter. In the Internet group, Amazon (AMZN) announced that Thomas Szkutak would become its chief financial officer, who had previously served as CFO for a division of General Electric, GE Lighting. Maybe Amazon is getting even more like the rest of corporate America. And, CFO's who used to toil in relatively obscurity, are now in the spotlight - or in handcuffs in some cases! Yahoo rose slightly but at least added to its Thursday's strong gains on an Analyst upgrade. Internet rocks! In Biotech news, Genelabs (GNLB) doubled its share price after receiving FDA go ahead for its lupus medication, Prestara - who thinks of these names and how do they do it? I'll wager that they're well paid to think up these names! Sectors HIGHER on Friday - Sectors LOWER on Friday - SECTOR TRADE RECOMMENDATIONS - NEW/OPEN TRADE RECOMMENDATIONS - NONE TRADE LIQUIDATIONS - NONE SECTOR HIGHLIGHTS - Biotechnology Index ($BTK.X) STOCKS: ABGX; ADRX; AFFX; AMGN; BGEN; CELG; CEPH; CHIR; CRA; DNA; ENZN; GENZ; GILD; HGSI; ICOS; IDPH; IMCL; IMNX; INCY; MEDI; MLNM; MYGN; PDLI; TARO; TEVA; VRTX; XOMA Short positions in the Biotech HOLDR's (BBH) have been profitable since the Index pierced its up trendline. My downside target in BBH is to the 75-76 area. Resistance overhead is at 90, and I would maintain a stop just above this level. Gold & Silver Sector Index ($XAU.X) STOCKS: ABX; AEM; AU; FCX; GOLD; HGMCY; MDG; NEM; PD; PDG; SIL The upside XAU technical breakout was above resistance implied by its 50 and 200-day moving averages as well as its down trendline - all converging. I continue to anticipate the Gold & Silver stock sector, having further upside potential. While it may be the "kiss of death" if I am BULLISH on gold stocks, this view appears warranted by the technical picture here. Buy weakness, especially dips back toward the 68 area in XAU. At a minimum XAU looks like it could get back up the 78-80 area. Given the uncertainties provided by a possible showdown with Saddam - a shoot out at the OK corral - call purchases in this sector is a possible "disaster" hedge. War scares and the actual event, if it occurs, has in the past driven down stock prices, except for things like gold and oil, especially when the fight has been in or near the mideast oil patch. "Leigh Stevens is on a personal leave from OIN for Sept. and Oct. as he travels back to New York for the various memorial services for Cantor Fitzgerald employees along with some well deserved vacation. He will continue to write for the Trader's Corner during this time as his schedule permits. In November he will resume contributing to OIN on a regular basis including his Index Trader commentary each week." Good trading success! Leigh Stevens *********************************************************** DAILY RESULTS *********************************************************** For Best Alignment view in Courier Ten Font ******************************************* CALLS Mon Tue Wed Thu Week BRL 70.71 1.25 -0.47 1.75 1.30 -0.79 Great start DRI 25.63 0.21 0.39 0.57 0.50 0.83 Inside day PII 73.35 0.71 0.39 -1.90 0.90 0.10 Higher base PNRA 28.31 -0.51 -0.66 -0.55 1.84 -0.83 Drop, cut loss PUTS A 13.43 0.01 -0.90 -0.33 –0.15 -2.76 New, Cheap but weak ADI 24.10 0.53 -0.52 -0.95 0.26 -1.73 Drop, profits BJ 24.55 -0.18 -0.25 -0.36 0.17 -1.83 New lows EXC 46.82 0.06 -0.28 -0.56 –0.69 -4.54 New, Piling On GS 77.30 0.90 -0.65 -1.22 0.30 -1.55 Drop, stagnant IBM 75.38 -0.98 -1.46 0.06 0.56 -5.02 Contrarian KBH 47.95 0.78 -1.36 -0.31 –0.44 -2.45 New, Run Over MXIM 31.60 -0.01 -2.04 -1.41 0.56 -4.33 Still weak SYMC 28.55 -0.24 -1.09 -0.44 0.72 -3.40 New, breakdown QLGC 33.55 0.18 -1.31 -0.56 0.62 -3.49 Diving UNH 88.35 -0.73 -2.12 -1.35 0.76 -2.75 50-dma a problem UTX 59.39 -0.60 0.70 -0.91 –0.53 -1.24 Under $60 ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's • $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees • Easy screens for spreads, collars, or covered calls! • Contingent, Stop Loss, Trailing stop, or OCO • 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* BRL – Barr Laboratories $70.71 (-0.71 last week) See details in play list Put Play of the Day: ******************** SYMC - Symantec - $28.55 -2.00 (-3.02 for the 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 ^^^^^ PNRA $28.31 -0.99 (-0.99 for the week) In spite of an expanding business plan and good profit out look, this stock was turned back decisively today. With the 200-dma looming above at $30.27, and the stock closing near its lows, it is looking weaker than we like in a call play. The best traders let their winners run, and cut their losses. That is what we will do with this one. We are closing PNRA, and will look for better opportunities. PUTS ^^^^ ADI $24.10 -0.46 (-1.86 for the week) ADI has gone our way, albeit very slowly. With all the bad news on the semiconductors, it is surprising that the sector did not drop further today. The fact that it was one of the slowest days of the year may have had something to do with that, however we are going to steer our "put money" toward stocks in the sector with more movement. We will close this play for a profit and continue our short sentiment with other tech plays. --- GS $77.30 (-1.00) With Friday's attempted rally, we had GS trading above $79 before the late-day slide, which dropped the stock back near unchanged at the close. But we're going to take this opportunity to exit the play. It has been interesting in the past couple days to witness the stock's refusal to go lower, despite continued bad news in the sector. The play worked nicely for us, with GS retracing much of its recent rally by yesterday's open near the $75.50 level. Let's step aside on this one and focus on plays with a better risk reward ratio. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 09-01-2002 Sunday 3 of 5 In Section Three: New Calls: None Current Calls: PII, BRL, DRI New Puts: KBH, SYMC, A, EXC ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** NEW CALL PLAYS ************** None ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ****************** CURRENT CALL PLAYS ****************** PII – Polaris Industries - $72.80 +0.85 (+1.62 for the week) Company Summary: Polaris designs, engineers, manufactures and markets snowmobiles, all-terrain vehicles, personal watercraft, Victory motorcycles, and the Polaris RANGER for recreational and utility use with annual 2001 sales of $1.5 billion. Polaris is the largest snowmobile manufacturer in the world, and one of the largest U.S. manufacturers of ATVs and personal watercraft. Polaris markets a complete line of Pure Polaris(TM) apparel, accessories, and parts available at Polaris dealerships. Consumers can also purchase apparel and accessories around the clock online at www.purepolaris.com. The Polaris Professional Series, a line of heavy duty Workmobiles(TM) targeted at lawn and landscape companies, equipment rental companies and construction operations, marks Polaris' expansion into the commercial equipment marketplace. Polaris Industries Inc. trades on the New York Stock Exchange and Pacific Stock Exchange under the symbol "PII," and the company is included in the S&P SmallCap 600 stock price index. (source: company release) Why We Like It: Polaris has been moving sideways for the last few days. However, given the recent volatility and several down days for the Dow, PII seems to be consolidating at a higher level, rather than experiencing swings with the rest of the market. The trade of $72.00 earlier in the week created a 3-box reversal down on the point and figure chart, however the support and reversal up in price the last couple of days looks like it is on the verge of forming a bull flag formation. This formation is similar to its last consolidation, which turned out to be a bull wedge. For the past six years, the first day after Labor Day weekend has been up, before the September swoon takes over. If we see a rally on Monday, PII should break out of its current consolidation to the upside. This breakout could lead to higher ground for a stock that has been resilient to market pullbacks. This is most likely due to the fact that recessions have had little impact on this maker of big-ticket toys for adults. The stock has posted over 4 straight years of earnings growth and it doesn't appear the trend will end anytime soon, as snowmobile season is just getting started. BUY CALL SEP-70*PII-IN OI= 100 at $4.60 SL=2.50 BUY CALL SEP-75 PII-IO OI= 409 at $2.00 SL=1.20 BUY CALL OCT-70 PII-JN OI= 13 at $6.70 SL=3.20 BUY CALL OCT-75 PII-JO OI= 18 at $3.80 SL=2.00 Average Daily Volume = 244.8 K --- BRL – Barr Laboratories $70.71 (-0.71 last week) Company Summary: Barr Laboratories is a pharmaceutical company engaged in the development, manufacture and marketing of generic and proprietary prescription pharmaceuticals. Barr markets approximately 85 pharmaceutical products, representing various dosage strengths and product forms of approximately 35 chemical entities. BRL's product line focuses principally on oncology and female healthcare categories, including hormone replacement and oral contraceptives. The company's Duramed subsidiary develops, manufactures and markets a line of prescription drug products in tablet, capsule and liquid forms. Why We Like It: Did you catch a piece of that entry point? We added BRL to the call list on Thursday due in part to the stock's positive price action at the 200-dma. But what seems to be driving the stock's strength is investor's anticipation that the generic drug makers will be successful in taking business from the large Biotech firms, just like they have with the traditional pharmaceutical companies. After Thursday's rebound from the 200-dma ($67.76), shares of BRL really outperformed the broad market on Friday, launching through the 10-dma ($69.74) and the $70 resistance level enroute to a 3.5% advance. What is so impressive about this is that the broad markets ended with a small loss, along with both the Biotechnology sector (-4.2%) and the Pharmaceutical sector (DRG.X), which did well to end near unchanged. Even volume was impressive, with BRL trading nearly its daily average number of shares on the lightest volume day of the year. This exhibition of relative strength bodes well for our play going into next week, whether the broad markets rally or not. Daily Stochastics are just starting a bullish reversal, indicating BRL could be setting up for a strong breakout through the $71-72 resistance level. Use a dip back near the 10-dma to initiate new positions, or else wait for a decisive breakout over the $72 level to enter the play. Keep stops in place at $66 (just under last week's relative lows) until BRL successfully pushes through overhead resistance. BUY CALL SEP-70*BRL-IN OI=231 at $3.00 SL=1.50 BUY CALL SEP-75 BRL-IO OI=329 at $0.90 SL=0.50 BUY CALL OCT-70 BRL-JN OI=164 at $4.50 SL=2.75 BUY CALL OCT-75 BRL-JO OI= 29 at $2.05 SL=1.00 Average Daily Volume = 603 K --- DRI – Darden Restaurants, Inc. $25.63 (+0.83 last week) Company Summary: Darden Restaurants, Inc. is the largest publicly held Casual Dining restaurant company in the United States. The company operates over 1100 restaurants in 49 states, including 629 Red Lobster and 472 Olive Garden restaurants. In addition, DRI operates 37 restaurants in Canada. The company operates all of its North American restaurants, while Red Lobster Japan Partners, a Japanese retailer unaffiliated with Darden, operates 34 Red Lobster restaurants pursuant to an Area Development and Franchise Agreement. DRI is the parent company of GMRI Inc., which along with other Darden subsidiaries, own the operating assets of the restaurants. Why We Like It: We mentioned on Thursday that DRI was due for a bit of profit taking after 7 straight days of gains and that's exactly what happened on Friday. DRI caught our attention due to its positive price action over the past few weeks, which appears to be motivated by the belief that people are still spending money on eating out, even if they are cutting back on other forms of consumption. We'll get the real answer to that question on September 19th, when DRI releases earnings. Without strong volume to keep pushing the stock higher on Friday, gravity took over, pulling the stock right back to the $25.50 support level. For those still looking to enter the play, the setup is looking pretty good here, following Friday's inside day. That inside day gains additional credence due to the light volume (half the ADV) and gives us some actionable levels for initiating new positions. A rebound from the $25.50 level or a breakout above $26.25 (just above Thursday's high) can both be used for new entry points, depending on what the market delivers. Recall that DRI has been working its way higher in an ascending channel (best seen on the hourly chart) over the past 3 weeks, and should continue to do so over the near-term. The bottom of that channel is now at $25, so be careful about entering the play if the stock falls below that level. We are keeping our stop in place at $24.50 this weekend. BUY CALL SEP-25 DRI-IE OI=486 at $1.50 SL=0.75 BUY CALL SEP-27 DRI-IY OI= 31 at $0.35 SL=0.00 BUY CALL OCT-25*DRI-JE OI=473 at $2.00 SL=1.00 BUY CALL OCT-27 DRI-JY OI= 90 at $0.85 SL=0.40 Average Daily Volume = 1.46 mln ************* NEW PUT PLAYS ************* KBH - KB Home - $47.95 -0.11 (-2.34 for the week) Company Summary: KB Home is one of America's largest homebuilders with domestic operating divisions in some of the fastest-growing areas of the country including: West Coast -- California; Southwest -- Arizona, Nevada and New Mexico; and Central -- Colorado, Florida and Texas. Kaufman & Broad S.A., the Company's majority-owned subsidiary, is one of the largest homebuilders in France. In fiscal 2001, the Company delivered homes to 24,868 families in the United States and France. It also operates a full-service mortgage company for the convenience of its buyers. Founded in 1957, KB Home is a Fortune 500 company listed on the New York Stock Exchange under the ticker symbol "KBH." Why We Like It: KBH has enjoyed a terrific run as mortgages have sunk to historically low levels and home buying has occurred at a record pace. Much of the valuation of this and other homebuilders was based on continuation of this trend. The problem with these valuations is that while rates are still low, talk of rate changes have shifted from cuts to increases. Four Fed Governors in the past month have indicated that rates are currently low enough to spur economic recovery and that the next move will most likely be a raise back to more normal levels. Add to this factor the seasonal ingredient, as summer is ending and the hottest home buying time of the year is fading. The first indication that the party may be over, or at least fading into night is the MBA Mortgage Applications Survey, which showed a decline from last week. Purchasing applications sunk by 7%, as it appears that many of those who would be taking advantage of low rates for home purchasing have already done so. Another factor weighing on this sector is the surge in prices, which has priced many would-be buyers out of the market. In addition the coastal markets have become overpriced and saturated and can expect to see a slowdown as well. Apparently industry executives are seeing the same signs, as a report on Thursday showed they had been unloading shares in their companies, at a clip of $258 million more than they had purchased, in the second quarter alone. Consumer Confidence and Consumer Sentiment both came in lower than expected this week, which shows consumers are worried about the economy. This should affect the housing market as well, as people who are worried about jobs generally put off new home purchases. From a technical standpoint KBH has begun to rollover after consolidation between $49 and $52. The stock dropped to its 50- dma on Thursday and closed just a penny underneath it. On Friday, it once again closed underneath the 50-dma and broke $48.00. The next real level of support looks like the 200-dma of $44.50. A break below that level could land the stock around $40. KBH has experienced a three-box reversal down on the PnF chart, with support there at $44 and $41. We will use an initial target of $41 on the play. We may see a Dow rally on Tuesday, as has been tradition after Labor Day. However, this rally is usually short lived and met with a September swoon. Look for a rollover from a Dow rally as a point to initiate short positions. Place stops at $51.25, above Tuesday's high, when the stock broke down from its consolidation. BUY PUT SEP-50*KBH-UJ OI= 1849 at $3.50 SL=2.00 BUY PUT OCT-50*KBH-VJ OI= 611 at $4.80 SL=2.50 Average Daily Volume = 1.11 mil --- SYMC - Symantec - $28.55 -2.00 (-3.02 for the week) Company Summary: Symantec, the world leader in Internet security technology, provides a broad range of content and network security software and appliance solutions to individuals, enterprises and service providers. The company is a leading provider of client, gateway and server security solutions for virus protection, firewall and virtual private network, vulnerability management, intrusion detection, Internet content and e-mail filtering, remote management technologies and security services to enterprises and service providers around the world. Symantec's Norton brand of consumer security products is a leader in worldwide retail sales and industry awards. Headquartered in Cupertino, Calif., Symantec has worldwide operations in 38 countries. Why We Like It: Symantec had been in consolidation since its gap down in the beginning of June, forming a rectangle pattern between $30 and $35. The general rule is that the longer a pattern takes to form, the more significant is its breakout. SYMC got that breakout today to the downside. This maker of network security software for a variety of computing functions is, unfortunately for them, reliant on a healthy computer business environment for continuing growth of its business. With demand for PCs and servers shrinking, SYMC could be looking at a significant drop- off in business. Server demand dropped 13% for the four largest companies, and warning after warning has hit the street about a decline in IT spending. The recent revelations that the holiday sales season for PCs may also not be what was expected will not help SYMC, either. The latest warning was from Sun Microsystems, which said spending by corporate clients has decreased enough for them to lower earnings forecasts. This came at the same time Novellus lowered the current quarter's revenue guidance. SYMC's technical breakdown looks significant and very bearish. A breakdown from a $5 deep rectangle, which had formed over 3 months, carries with it a minimum measuring downside objective to $25.00. However, the next level of significant support below that objective is $16, which also happens to be just above the 52-week low. A look at the point and figure chart shows a spread triple bottom breakdown, with a bearish vertical count of $23. This formation, according to Professor Earl Davis of Purdue University, carries with it an 86.5% chance of profitability, for an average gain of 24.9% within 4.6 months. A gain of 24.9% from the breakdown point of $30 would place the stock around $22.50. The combination of bearish vertical count and bearish probability will help place our initial target around $23. If the Nasdaq continues to give up its gains, this target may be conservative and we can always lower our stop. Look for a possible rally on Tuesday coming out of Labor Day, as has been the pattern in the recent past. This rally is usually met with resistance and leads us into the September swoon. Use a rollover from a Monday rally to initiate new short positions. Place stops at $31.00, as a rally to this point would place SYMC back into its consolidation rectangle. BUY PUT SEP-30*SYQ-UF OI= 1426 at $2.85 SL=1.50 BUY PUT OCT-30*SYQ-VF OI= 11381 at $3.70 SL=2.00 Average Daily Volume = 4.12 mil --- A – Agilent Technologies $13.43 (-2.59 last week) Company Summary: Agilent Technologies is a global diversified technology company that provides enabling solutions to high growth markets within the communications, electronics, healthcare and life sciences industries. The company provides test instruments, standard and customized test, measurement and monitoring instruments and systems for the design, manufacture and support of electronics and communications devices. Additionally, A provides fiber optic communications devices and assemblies, integrated circuits for wireless applications, application-specific integrated circuits, optoelectronics and image sensors. Why We Like It: Help! I've fallen and I can't get up. There sure hasn't been much good news in the Networking sector (NWX.X) lately, and Wednesday's warning from Nortel activated the bears again last week. Spending on Telecom equipment has been sliding down a slippery slope and SUNW's CFO didn't help matters with his comments about a still-deteriorating IT spending environment. Shares of A have been generating one sell signal after another on the PnF charts since last May. Each time it looks like the stock might find some support, it turns out that "real support" likely exists at a lower level. The negative news from NT caused the stock to gap down on Wednesday, then again on Thursday, and still again on Friday. Each of those gaps was met with plenty of eager sellers, which has driven the stock to 3 consecutive 52-week lows. Even with very light volume in the broad market on Friday, A saw volume of 50% above the ADV. Clearly there is a strong motivation to get out of the stock before it falls any further. The triple-bottom breakdown on the PnF chart provides some clarity, as it is now generating a bearish price target of $9. While the argument could be made that an oversold bounce is due, waiting for that event would have kept you out of the drops over the past 3 days. Take advantage of an oversold bounce by entering on the rollover, ideally at $14 or $14.50. A rebound to the $15 level would make for a choice entry, but at this point that seems very unlikely. Should A continue downwards without pause, look to enter the play on a breakdown below $13.25 (just below Friday's low). We want to give the trade room to work, so initial stops are set at $15.50. Take note of the fact that we have listed October strikes for this play, rather than September. This is to insulate us from the effect of time decay, if A takes a bit of time before its next breakdown. BUY PUT OCT-15*A-VC OI=422 at $2.50 SL=1.25 BUY PUT OCT-12 A-VV OI=798 at $1.20 SL=0.50 Average Daily Volume = 2.61 mln --- EXC – Exelon Corporation $46.82 (-4.29 last week) Company Summary: Exelon Corp. is the parent corporation for each of Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO), which are electric utilities. Exelon, through its subsidiaries, operates in three business segments: Energy Delivery, Generation and Enterprises. The Energy Delivery segment consists of the retail electricity distribution and transmission businesses of ComEd in northern Illinois and PECO in southeastern Pennsylvania and the natural gas distribution of PECO in the Pennsylvania counties surrounding the city of Philadelphia. Generation is made up of the electric generating facilities, energy marketing operations and equity interests in Sithe Energies, Inc. and AmerGen Energy Company, LLC. Enterprises consists of competitive retail energy sales, energy and infrastructure services, communications and other investments weighted towards the communications, energy services and retail services industries. Why We Like It: If you thought the accounting nightmare had gone away, it is time to think again! There are still a number of companies whose recent accounting practices are being called into question by Federal regulators. EXC took a big hit on Friday, and believe it or not, it was due to an accounting issue. The Federal Energy Regulatory Commission (FERC) issued an order earlier in the week requesting a change in the way EXC handled $4.8 billion in goodwill relating to the company's acquisition of ComEd's assets and liabilities. On Friday, EXC announced that they would ask FERC to take another look at this issue and that seemed to get the bears growling, as they knocked the stock back for more than a 6% loss by the end of the day on more than double the daily average volume. The Utility sector (UTY.X) has been recovering from its deep oversold condition at the end of July, but it looks like that rebound has run its course, with the index rolling over just below the $300 level. Note that this level had provided support several times over the past year, so it is now likely to be strong resistance. Turning to EXC, if the accounting issue continues to grow (as we have seen several times in the past year) we could see support levels melting away like ice in the desert in July. An oversold rebound from Friday's selloff could provide for the best entries into the play, so long as EXC remains below the high of Friday's session. We are setting our stop at $49.25, just above Friday's high of $49.05. Look to enter on a rollover below that level. Note that the PnF chart won't generate a sell signal until EXC drops under $45, so wait for that level to be broken on strong volume before opening momentum-based positions. BUY PUT SEP-50 EXC-UJ OI=30 at $3.80 SL=2.25 BUY PUT SEP-45*EXC-UI OI=22 at $1.20 SL=0.50 Average Daily Volume = 1.20 mln ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. 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The Option Investor Newsletter Sunday 09-01-2002 Sunday 4 of 5 In Section Four: Current Put Plays: BJ, IBM, MXIM, QLGC, UNH, UTX Leaps: Return To The Primary Trend Traders Corner: Questions on Strangling the QQQs – Part II ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's • $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees • Easy screens for spreads, collars, or covered calls! • Contingent, Stop Loss, Trailing stop, or OCO • 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** CURRENT PUT PLAYS ***************** BJ - BJ's Wholesale Club - $24.55 -0.24 (-1.70 for the week) Company Summary: BJ's Wholesale Club, Inc. introduced the wholesale club format to New England in 1984 and has since expanded to become a leading warehouse club in the eastern United States. BJ's currently operates 138 clubs in sixteen states. Why We Like It: BJ finished the day down 0.24 today, but a look at the intraday activity showed more significance than a small drop. The stock traded as low as $23.30, which was its lowest level since March 1999. This drop surpassed recent lows of $24.50 by a long shot. This morning's Consumer Sentiment number came in lower than expected. When combined with the disappointing Consumer Confidence number earlier in the week, consumer spending does not look promising. Personal spending was up 1% in July, but personal income was flat, indicating a trend that will most likely not continue. Most of the increase came in durable goods, high-ticket items like automobiles not found at BJ's. The recent downgrade of BJ and other retailers by Merrill Lynch was based on lack of consumer spending, and with retail chain store sales still looking weak, the 1% spending increase appears to be simply window dressing for the retailers Today's break in support also added another box to the PnF chart, and is approaching the low end of the PnF range at $22. The fact that the company showed an earnings decline on a sales increase does not bode well for the near future. The stock did close above the recent $24.50 low, and this could be an indication of support. The fact that here were enough sellers, however, to break 3 year lows indicates there is probably more downside. A rebound on a day when volume was very light is not very convincing, and we will retain our short position in BJ with an initial target around $20. BUY PUT SEP-25*BJ-UE OI= 93 at $1.55 SL=0.75 BUY PUT OCT-25 BJ-VE OI=259 at $2.05 SL=1.00 Average Daily Volume = 1.01 mil --- IBM - International Business Machines $77.96 -1.46 (-2.44 for the week) Company Summary: IBM is the world's largest information technology company, with 80 years of leadership in helping businesses to innovate. IBM is a leading provider of e-business solutions and is dedicated to helping customers, IBM Business Partners, and developers leverage the potential of the Internet and network computing across a wide range of businesses and industries. The company offers a host of cross-industry and industry specific solutions designed to meet the needs of growing companies. (source: company press release) Why We Like It: IBM has continued its rollover since consolidating over $80 after the recent breakout. Since its drop, it looks headed back to the breakout point of $74 - at the least. On a day when the Dow was up, IBM continued to give back gains. The stock is the third most heavily weighted stock in the Dow and a rising tide in this case will usually lift all boats. Not with IBM. The stock's recent gains look mostly due to short covering after a breakout from a long period of consolidation. The short interest of 28% is considered high, and although the stock is not considered hard to borrow, 28% still constitutes a lot of short holders. Those traders that sold the top of the consolidation range for almost two months were forced to cover when it broke out to the upside. With those buyers out of the way, and continued tech warnings, IBM has little to hold it up. The server business is shrinking and after warnings from Novellus on consumer spending and Sun Microsystems regarding a lack of spending on big-ticket tech equipment, IBM's business looks like it is in fore more stormy weather. One thing to keep in mind heading into Tuesday, is that the first day after Labor Day weekend is usually up, before falling back to Earth. As IBM is a Dow stock, the possibility remains that it could rally to start the day. New entries on this play should wait for a break in any rally to achieve a more profitable entry point. BUY PUT SEP-80*IBM-UP OI= 12187 at $5.80 SL=2.90 BUY PUT OCT-80 IBM-VP OI= 32299 at $7.00 SL=3.50 Average Daily Volume = 9.16 mil --- MXIM – Maxim Integrated Products $31.60 (-3.93 last week) Company Summary: MXIM designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high-frequency design processes and capabilities that can be used in custom design. MXIM's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. Why We Like It: The bears have been beating up on the Chip stocks for the past 2 weeks, and that much is evident from a quick glance at the Semiconductor index (SOX.X). The rally off the July lows has been almost completely wiped out and the month of August came to an end with the SOX posting its 5th consecutive monthly decline. To put it into perspective, in the past 5 months, the SOX has lost almost exactly half its value. And judging by the never-ending stream of warnings and downgrades in the sector, things aren't about to get better anytime soon. We've been riding this trend with our MXIM play, as we began coverage shortly after the stock rolled over from its 4-month descending trendline near $37.50. The past couple days have seen the stock attempting to rebound (possibly on hopes of a seasonal rally following Labor Day), but there just hasn't been enough volume to get the job done. In fact, the intraday rallies up near the $33 level have just been providing us with decent, albeit tardy, entries into the play. Rather than looking like a potential bottom is forming, MXIM is presenting us with a chart that looks ready to break down. Take advantage of any failed rallies below our $34 stop next week to initiate new positions. Just in case the bulls come back from the Holiday weekend rejuvenated, keep those stops in place. BUY PUT SEP-35*XIQ-UG OI=2379 at $4.30 SL=2.75 BUY PUT SEP-30 XIQ-UF OI=3352 at $1.60 SL=0.75 Average Daily Volume = 8.89 mln --- QLGC – QLogic Corporation $33.55 (-3.05 last week) Company Summary: Somebody has to make the equipment that lets your computer talk to all its peripheral equipment, and QLGC does it well. A leading designer and supplier of semiconductor and board-level input/output (I/O) management products, QLGC has been providing SCSI-based connectivity solutions to this market sector for over 12 years. QLGC's I/O products provide a high performance interface between computer systems and their attached data storage peripherals, such as hard disk and tape drives, removable disk drives and RAID (redundant array of independent disks) subsystems. The company is also the market share leader in Fibre Channel host bus adapters, a market segment that is receiving tremendous attention from investors. Why We Like It: If price action is any indication, the continuous stream of negative news announcements in the land of Technology are starting to wear down any bullish enthusiasm that might have entered the marketplace over the past month. It seems that there are multiple warnings and/or downgrades in the Semiconductor sector (SOX.X) every day, and the abysmal comments from SUNW's CFO about the poor IT spending environment certainly didn't help. All we have to look at for confirmation of the weakness in the Technology arena is the price action in the SOX. Over the past 2 weeks, the SOX has given back nearly its entire rally off the July lows, ending the month of August in the red - again - and coming to rest right on pivotal $300 support. Despite that persistent weakness, shares of QLGC have been making a concerted effort to maintain altitude. That effort was futile on Friday, with the stock shedding another 5% to close near $33.50. Look for any weakness next week to drive QLGC down to the $32.50 level, which will likely prompt the next oversold rebound. $32.50 is the site of the 62% retracement of the stock's rally off the lows last September and produced a solid rebound 3 weeks ago. With the deteriorating environment for IT spending, we don't expect that bounce to carry very far. Use a drop into the $32 area as an opportunity to book partial gains on open positions and then look to re-enter at a higher level, when the expected bounce runs out of gas. A likely level to enter new positions will be near Thursday's resistance ($35.50) or developing resistance near $34.50. Keep stops set at $36. BUY PUT SEP-35*QLC-UG OI=4870 at $2.85 SL=1.50 BUY PUT SEP-32 QLC-UZ OI=1482 at $1.70 SL=0.75 BUY PUT SEP-30 QLC-UF OI=3329 at $0.95 SL=0.50 Average Daily Volume = 13.2 mln --- UNH – UnitedHealth Group $88.35 (-1.89 last week) Company Summary: Providing a broad range of resources to help people improve their health through all stages of life, UNH forms and operates markets for the exchange of health and well being services. The company's Health Care Services segment consists of the UnitedHealthcare and Ovations businesses. UnitedHealthcare coordinates network-based health services on behalf of local employers and consumers in six broad regional U.S. markets. Ovations is a business dedicated to advancing the health and well-being goals of Americans over the age of 50. Additionally, the company's Ingenix business operates in the field of health care data and information, analysis and application. Why We Like It: We wanted a great entry into our bearish UNH play, and Friday's low-volume session appears to have provided it. Recall that the catalyst for the play comes on the heels of the negative market reception of Healthsouth's (HRC) announcement on Tuesday of a separation of its business units so as to better deal with the new rules related to outpatient surgery reimbursements. The selloff in shares of HRC infected shares of many other stocks in the Health Care Payor index (HMO.X), and UNH dropped below its 50-dma on stronger relative volume. Technically, the recent rollover in UNH made perfect sense, as it came right at the 2-month descending trendline, currently $90.75. After the stock dropped down to the $86 level on Thursday morning, we saw a bit of a lift, and Friday's rally attempt in the middle of the day pushed it right up to the $90 level, where it promptly rolled over. That made for a nice entry, but we just might get another shot at an entry near the $90 level next week, if the historical pattern of positive markets in the first couple days after Labor Day repeats. While the HMO index managed a meager gain on Friday, it is looking top-heavy as well, and any rally next week ought to be short-lived. Look for another failed rally near the $90 level (or anywhere below the descending trendline) to produce an attractive entry point into the play. Those looking for momentum entries will need to wait for UNH to fall under the $85.50 level (just below Thursday's low) before entering. Keep stops in place at $91.50. BUY PUT SEP-90 UHB-UR OI=3759 at $3.60 SL=2.00 BUY PUT SEP-85*UHB-UQ OI=3844 at $1.60 SL=0.75 Average Daily Volume = 2.65 mln --- UTX – United Technologies Corp. $59.39 (-1.09 last week) Company Summary: As a diversified manufacturing company, UTX has four principal operating segments: Otis (elevators and escalators), Carrier (heating, ventilation and air conditioning systems), Pratt & Whitney (aircraft engines and space propulsion), Flight Systems (helicopter electrical systems). Between the Pratt & Whitney and Flight Systems divisions, UTX participates in virtually all aspects of the design and manufacture of aircraft propulsion systems, from engines and their associated flight controls to auxiliary power units, compressors and instrumentation. Why We Like It: The jury is still out on whether or not the Boeing machinists will strike, and news that a new vote will take place after next week's meeting in Washington, along with the attempted rally seemed to give the UTX bulls new hope on Friday. The stock managed to rally back to above $60 in the middle of the day, but when the air was let out of the market-wide market rally, the stock fell back, as it should. UTX's orders from Boeing could take a substantial hit if the strike materializes. The technicals are not in the bulls' favor either, as Thursday's intraday dip below the $58 level created a fresh Sell signal on the PnF chart, paving the way for a decline down towards the current bearish price target of $48. Despite the failure of today's rally, the possibility still exists for another rally attempt early next week. With the deterioration in market sentiment likely to follow the DOW's 5th straight month of declines, any rally is likely to be short-lived and will provide us with the attractive entry point we're looking for. Use a failed rally near the $60 level to initiate new positions, or else wait for UTX to fall under last Thursday's low. Keep stops set at $61. BUY PUT SEP-60*UTX-UL OI=2797 at $3.10 SL=1.50 BUY PUT SEP-55 UTX-UK OI=2074 at $1.40 SL=0.75 Average Daily Volume = 2.94 mln ------------------------------------------------------------ WINNER of Forbes Best of the Web Award • optionsXpress voted Favorite Options Site by Forbes • Easy screens for spreads, collars, or covered calls • Free streaming quotes • Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***** LEAPS ***** Return To The Primary Trend By Mark Phillips mphillips@OptionInvestor.com The bulls had their brief moment in the sun, but I fear that now it is done. I pointed out last week that the bulls managed to close out the week with their 5th consecutive gain, a feat they hadn't managed in the S&P 500 (SPX) since the fall of 1999. Well, while they did manage to close the SPX barely positive for the month, the DOW ended with its 5th consecutive monthly loss, an event that hasn't occurred in over 20 years, since 1981! This is the perfect backdrop for understanding the difference between the primary and secondary trend. The primary trend of this market is down and is likely to remain so for some time to come. That trend will be broken by brief (and likely explosive) moves to the upside, as the secondary trend makes its appearance, correcting the periodic oversold conditions. That is essentially what we have seen over the past 5 weeks, is the market working off a significant oversold condition. During that time, most of the bullish percent readings have moved near the top of their normal ranges -- sure there is further to go, but I believe to continue driving higher, the markets need some solid positive news. Have you seen any of that around here lately? GDP growth is anemic, Consumer Confidence is waning, Employment is showing no real signs of improvement and the Fed has made it clear that they have no intention of dropping interest rates in the near term. Housing, the one bright spot in the economy over the past 2 years is looking like it has run its course. And if we are to believe that insider sales are a leading indicator, then news from last week that executives at the major home-construction firms have been selling their shares in large numbers over the past year is an ominous sign. Hardly a day goes by when we don't hear warnings and downgrades coming out of the Semiconductor and IT markets. The Biotechs are under pressure due to increasing competition likely to come from the Generic Drug companies. The spectre of litigation in the Brokerage sector hasn't gone away by any stretch of the imagination, and Brazil is still a ticking time bomb, no matter what we hear on CNBC. The situation with respect to Iraq is murky at best, but it certainly appears to me that it is a question of when, not if the U.S. will makes its move to oust Saddam. I don't mean to sound like Chicken Little here, but my job isn't to tell you what you want to hear. It is to tell you what I believe. And based on both the fundamental information (news) and technical information (charts and indicators), I think this rally has just about run its course. We may waffle around current levels in the broad market before the primary trend reasserts itself, but right now bullish positions carry far more risk than bearish positions. I was already becoming more cautious as of last weekend, and that should have been apparent from my aggressive tightening of stops on all of our open Portfolio plays. That concern appears to have been well-founded, as 4 out of our 6 plays were stopped out last week. Fortunately, all except for INTC were closed out with a gain. The DJX play is looking like it will be come to an end next week and WMT is amazing me with its resilience. For those of you nervous about those open positions, I would recommend closing them on any failed rally next week. See below for my detailed comments on the rest of the plays. Portfolio: DJX - After breaking below the bottom of that bearish ascending wedge last week, the bears took a couple of runs at our $86 stop, but couldn't quite manage it, possibly due to the anemic market-wide volume. It looks to me like the bulls have just about breathed their last, but I'm going to give this play one more week in hopes that the historical pattern of a rally following Labor Day pans out one more time. One way or the other, I expect this play to be closed out by next weekend. While I'm leaving our stop in place at $86, I want to take advantage of any rally early next week to exit at a higher level. Should the bulls manage to propel the DJX above $88, then I would look to close the play on the first sign of weakness. WMT - That's 2 weeks in a row that the bears couldn't take out our $52.50 stop and contrary to my expectations, it looks like WMT might actually take another run at the $55 resistance level. Even the stream of poor results out of the Retail sector (WMT included) couldn't break this one down, so we're still hanging in there. As long as our stop remains intact, then WMT still looks good. But take note of the fact that weekly Stochastics are now entering overbought. Perhaps we've seen just about all there is to this rally. Look for WMT to test the $55 level again next week if we get a post Labor Day rally. A successful breakout will have us raising our stop to $54 to prevent giving back our substantial gains. Nervous traders may want to just close open positions if WMT can get back near its relative highs of the past couple weeks. Watch List: MO - Drat! Foiled again! Just when it looked like selling pressure was going to drive MO down near our entry target, the company comes out and raises its dividend by 10%. That was all the motivation the bulls needed to start accumulating the stock again and we missed out on the move. The stock is still pinned under its bearish resistance line on the PnF chart ($52) and the 2-month descending trendline on the candle chart ($51), so I'm hopeful we'll get one more decent pullback to provide entry into the play. Note that a trade at $46 or below on the PnF chart would put the stock back into sell mode now, so avoid the play if it drops that low. I'm raising the entry target this weekend to the $47-48 level. Target entries on a rebound from that area, and then follow it up with a stop at $46. BA - The Transports got hammered again last week, partially due to a rash of downgrades in the Airline sector and partially due to some negative comments from the Trucking sector. BA really didn't move much, and I think this is primarily due to concerns about the pending machinist strike. We're going to stick to our guns here, focusing on the bearish price target of $32 from the PnF chart. A drop down to that level (possibly on news of an actual strike) should give us the attractive entry we're looking for, and the ability to manage risk with a tight stop at $30 after entry. BBH - Now that's frustrating! Just when it looked like we were going to get an ideal entry into our bearish BBH play, the generic drug makers torpedoed the sector with their plea to Congress to allow them to horn in on the Biotech drug market, much like they have taken market share from the traditional Pharmaceutical companies. The BBH reversed sharply downwards on the news, and with the weekly Stochastics now in full bearish roll, I think we have seen the high for this cycle. I think it is time to get more aggressive with new bearish entries into this sector, so I'm lowering our entry target to the $86-88 area. Any failed rally in that neighborhood next week could be the last gasp before the bottom falls out. After entry, we'll place a rather liberal stop at $93, the site of the most recent high. If you take a look at the meager gains we ended up accruing in the GE, MSFT and QQQ plays, I think you can gain an appreciation for how difficult it can be to harvest profits from explosive bullish moves in a primary bear market. We got what I think are very good entry points into each of those plays, and exited last week on violations of tight stops. These plays were well managed, yet the gains only ranged from 0-20%. Volatile action like we have seen for the past 2 months is not for the faint of heart, and makes for very challenging trading if it lasts for more than a few days. And look at that pesky VIX! Since the July lows, the VIX has yet to drop below 30, even on an intraday basis. That tells me that there is still a goodly amount of fear in the market, and rightly so. I wouldn't rule out the possibility of another big selloff in the September-October timeframe, which would be accompanied by the VIX moving north of 50 again. My hope is that in that situation, the broad market would be able to successfully test the July lows, giving us the potential of a lasting bottom from which we could rally at least into the end of the year. My biggest concern is that we just waffle sideways to down, as that would fail to give the bulls cause to buy or the bears cause to short. As traders, we want strong moves that we can profit from, and hopefully the return of the professionals from vacation will give us some directional conviction in the weeks ahead. Until the market makes its intentions known, I continue to advocate small positions and tight stops. I can promise you that is how I'll be playing it. Have a safe and enjoyable holiday weekend! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: DJX.X 08/06/02 '02 $ 86 DJX-LH $ 4.80 $ 5.80 +20.83% $86 '03 $ 88 ZDJ-LJ $ 7.50 $ 9.40 +25.33% $86 WMT 08/06/02 '03 $ 50 WMT-AJ $ 3.80 $ 6.80 +78.95% $52.50 '04 $ 50 LWT-AI $ 7.30 $10.60 +45.21% $52.50 Puts: None LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: BA 06/30/02 $32 JAN-2004 $ 45 LBO-AI CC JAN-2004 $ 40 LBO-AH JAN-2005 $ 50 ZBO-AJ CC JAN-2005 $ 40 ZBO-AH MO 08/25/02 $47-48 JAN-2004 $ 50 LMO-AJ CC JAN-2004 $ 45 LMO-AI JAN-2005 $ 50 ZMO-AJ CC JAN-2005 $ 40 ZMO-AH PUTS: BBH 08/30/02 $86-88 JAN-2004 $ 80 EVK-MP JAN-2005 $ 80 EIL-MP SMH 09/01/02 $25.50-26.00 JAN-2004 $ 20 KBS-MD JAN-2005 $ 20 ZTO-MD New Portfolio Plays None New Watchlist Plays SMH - Semiconductor HOLDR $24.10 **Put Play** When you're on the wrong side of a trade, the first step is to cease being wrong. Based on the very poor price action and the endless stream of bearish news coming out of the Semiconductor sector (SOX.X) over the past 2 weeks, it is clear that I was very premature in trying to call a tradable bottom in the SMH. It looks to me like the rally off the early-August lows has run its course, and new lows will be seen in the very near future. It all started with a Goldman Sachs report that Taiwan Semiconductor (TSM) intended to cancel significant orders with equipment suppliers. Then Intel's CEO gave a negative pronouncement about the future last Tuesday that sounded an awful lot like a warning. Finally, NVLS added some confirmation with its mid-quarter update last Thursday, indicating that they are experiencing significant order cancellations. Inquiring minds can put 2 and 2 together and figure out that some of those cancellations are likely coming from TSM. Sprinkled throughout this rash of bad news were the multiple, daily brokerage downgrades of numerous individual stocks within the sector. Turning to the technicals, we can see that SMH's PnF chart is still on a Buy signal, but given the bad news, I expect that to be nullified shortly with a bit more negative price action. A print of $22 will create a new sell signal and have the bears eyeing a new target of $14. I have a hard time conceiving of the SOX moving that low, but who knows. The PnF chart of the SOX is currently pointing to a bearish target of $224, so clearly there is significant downside in store. As another measure of the dismal price action, look at the weekly Stochastics, which are starting to rollover after only making it half-way to overbought. With the daily Stochastics already buried in overbought, I'm really hoping we get some sort of rally attempt next week to give us a favorable entry into the play. I consider a lift to the $25.50-26.00 area to be a gift of an entry, although we may not get that lucky. Judging by the poor price action over the past few days, the bulls may not have enough strength to get this group off the mat before the bears start their next assault. One way or the other, I fully expect to take an entry into this play in the next week, and I'll let the action of the daily Stochastics be my guide. It is trying to rise right here, but when it rolls over again, I want to be in this play. I don't expect anything to inject new life into the sector over the next few months, so I'm going to start out with a wide stop at $29, just above the recent closing highs. BUY LEAP JAN-2004 $20 KBS-MD BUY LEAP JAN-2005 $20 ZTO-MD Drops GE $31.30 My nervousness about the price action in GE appears to have been justified. With the broad market rolling over early in the week, GE had little choice but to go with the flow. Remember how the stock has been unable to trade $33? That lack of strength was the real clue that this rally has run its course. Wednesday's drop through $31.50 took us out of the play, and just in time, too! Lehmann trimmed estimates for the conglomerate Thursday morning and with weekly Stochastics rolling over from overbought, it looks like we got a fortuitous exit from the play. INTC $17.19 It looks like we had good reason for shortening the leash on our INTC play, as the Semiconductor sector really got abused again last week. After failing to push through the $20 level, INTC was looking a bit top-heavy, and the CEO sealed the stock's fate with his cautionary comments that sounded an awful lot like a warning. INTC dropped under our tight $17.75 stop on Tuesday and we are out. Don't look for this one to reappear on our play list until there is some indication that the fundamental picture in both the PC and Semiconductor industries is showing signs of improvement. MSFT $49.38 Even mighty MSFT couldn't stay out of the way of the bears last week, falling below $50 on Wednesday. I think you can now see the wisdom in tightening that stop to the $50 level. While we could see a continuation of the rally next week, we're out with a gain ahead of the historically bearish month of September. I expect MSFT will be one of the stocks that will lead the NASDAQ out of its funk, but judging by the lack of strength on Friday, we may have to wait a while longer before that happens. QQQ $23.48 The NASDAQ indices led the DOW and S&Ps back below the important 50-dmas last week. In retrospect, I probably should have made the stop tighter than the $24 level, to preserve more of our gains, but I really thought that ascending trendline would hold. Bottom line is that we're out with a gain. Note how the weekly Stochastics is threatening to roll over without getting anywhere near overbought territory. We need to let this one stabilize at a lower level before we consider playing it again. SMH $24.10 Reversal of fortune! Based on the relentless stream of bad news from the Semiconductor sector over the past week, I no longer even want to consider a bullish trade in the SMH. Friday's weakness kept the SOX pinned right at the critical $300 support level, but I expect that to be converted to resistance in short order. The picture for the Chip stocks is so grim, that I'm going to switch sides this weekend, and that's why we're listing the SMH as a new Put play on the Watch List. ************** TRADERS CORNER ************** Questions on Strangling the QQQs – Part II By Mike Parnos, Trading With Attitude Good strategies are hard to find. So when we find one, even if it takes a little thought, it’s worth learning. At the Couch Potato Trading Institute, the only dumb question is the one that is not asked. If CPTI students can memorize a TV Guide, they won’t give up until they’ve learned a strategy. The following questions are based on a strategy originally described in my column in OI’s Sunday, August 25th newsletter. It’s under the “Option 101” category in the OI archives. If you haven’t read it, you might want to review it to bring yourself up to speed. Also, review my Thursday, August 29th column for more questions and answers. Mike, I was going over your strategy last night. This should basically work on anything if you factor the ATR (Average True Range). I don’t know your background so I won't go into a bunch of TA babble. Plus, not to split hairs, but it looks like the QQQs’ 8- week ATR is $2.60. One would think there's likely a better and worse time to enter this trade. Do you think we can pick any day anywhere in the expiration cycle to implement this and make it profitable? Response: The problem with this strategy is that, with most underlyings, there is too much time premium. Thus, the risk is too high. It would require an excessive move to make it work each time instead of a relatively predictable move (3 points on the QQQs). I originally heard about this strategy from a commodities broker. He's doing it on oil options and, because of a lower volatility, he's able to put on a strangle out three months and still make it work. There are times that the third month would certainly come in handy in waiting for the big move. Plus, it allows for potentially two or three remaining long inexpensive options to be working simultaneously as opposed to one or two if we can only go two months out. I’ve tried to adapt it to the QQQs. You make a good point. I never really thought about Average True Range, but perhaps I should. There are some exceptionally bright OI columnists who sleep with charts under their pillow, dream of ascending wedges and exponential moving averages, then absorb all the information through osmosis. Unfortunately, I’m not one of them. I'm more T&A friendly than TA friendly. I usually look at a chart and use my thumbnail and imaginary lines to measure and calculate support, resistance, trendlines, etc. I suspect there are more optimum times to enter these trades -- particularly when the QQQs are at short-term support or resistance. Either it's going to reverse trend or break out -- thereby increasing the probability of success. Hi Mike, Just finished reading your strategy write-up. It is a very interesting. I put some thought into it. Instead of buy ITM strangle, you can just buy OTM strangle with less capital outlay: Trade A: QQQ = $26. Buy $25C & Buy $27P Trade B – OTM: QQQ = $26. Buy $25P & Buy $27C If you can get A for $4.50, you can get B for less than $2.50, say $2.40. The risk graphs for both are nearly identical, same up and down side break-evens. If the QQQ goes up to $29 within 30 days, the $25 call is worth $4.35 based on your calculation. You have a $27 put left for a net debit of $0.15. In the meantime, the $27 call will be worth more than $2.40. Sell it and you have a free trade on the $25 put. Please share your thoughts on this analysis. Response: You make a good point. The out-of-the-money puts and calls time value is about the same as the time value in the in-the-money puts and calls. The only difference is that once the QQQs start to go in a direction, the ITM options will have more delta working for them. Plus, for example, if the QQQs are at 23 after a reversal move, using the OTM puts, you would have a 25 put. Using the ITM method, you would have the 27 puts – about 20% more delta. I like the way you think. Keep the ideas coming. I need all the help I can get. (DELTA -- the amount the value of an option increases when the underlying stock increases by $1.00. For instance, the QQQs are trading at $24 and the $24 strike option is trading at $1.80. The delta would be about .50. That means that if the QQQs trade up to $25, the value of the $24 option would increase by about $.50 to $2.30. Now that the $24 option is $1 in the money, the delta will increase by about 10%. So, for every dollar the QQQs go up, the $24 option will increase by $.60. The further in the money the option becomes, the higher the delta and the more the option participates in the movement of the stock.) Mike, Interesting trade profiled for the couch potato. I looked back at some recent history and confirmed your premise that the QQQ's regularly move over $3 in a 30-45 day period. In fact, in the last six months, they have moved over $3 on ten occasions. Only three of those were to the upside. If I understand your strategy, when the QQQ's move up $3 you sell the call. What if it goes up $3 more? Response: You wouldn't necessarily sell if the QQQs are continuing down. Once they've gone down the three points, you might want to place an alert ¼-point above. If you sell too soon, you might miss the "huge" move we were hoping for. It can happen at any time. If the QQQs get down to support at 21.30, they may reverse and bounce up, or they may break through and go directly into the toilet. Whatever they do, support and resistance levels seem to have violent moves -- either continuing through the level in question or reversing. They're great places to put on the strangle. Trading ranges, like rules, are made to be broken. Ranges don't last forever. This might be the time and it would sure be nice to own an in the money option going in the right direction. Mike, I was paper trading after I read your article last Sunday: “bought”10 Calls and 10 Puts on the QQQ (Oct. $27 puts, and Oct. $25 Calls). Today (Thursday) the QQQs reached $23.02, and the Oct 27 puts) opened at 10:10 at 3.90. Would it have been wise to sell the Oct. $27 puts at that price? Response: Good observation! It all depends on how aggressive you are as a trader. I was watching on Thursday morning when the QQQs hit $23.02. At that point, for a few minutes, there was the opportunity to sell the October $27 puts for $4.15. At that time, the October $25 calls still had a value of .90. The QQQs subsequently bounced up as high as $24.20 with the October $25 calls selling for about $1.35. If you add the $4.15 and $1.35, you get $5.50. That's a $1.15 profit on a risk of only about $2.35 in a week – almost 50%. Not too shabby! If you can pay attention to the market, can recognize opportunities when they present themselves, and are ready to act, to hell with the strategy. If you can snatch a hefty percentage profit in a short time, go for it! I’ve quoted Yogi Berra before, “If you come to a fork in the road, pick it up!!” _________________________________________________________________ Iron Condor Update: BBH is at $82.65 – Although it’s drifting lower, it’s still in our 30-point range of $80-$110. We put on the hypothetical Iron Condor trade on last week with BBH. We put on a Sept. $80/$75 bull put spread and a Sept. $110/$115 bear call spread for a credit of $1.10. The objective is for BBH to close inside the 30-point range. So far, so good. We’ll keep a close eye on it. Happy trading! The CPTI credo: May our remote batteries and self-discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. 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The Option Investor Newsletter Sunday 09-01-2002 Sunday 5 of 5 In Section Five: Covered Calls: Market Terms & Definitions: Understanding Stock Stages Naked Puts: Investing 101: Understanding Risk and Reward - Part I Spreads/Straddles/Combos: A Key Test Approaches! Updated In The Site Tonight: Market Watch Market Posture ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************* COVERED CALLS ************* Market Terms & Definitions: Understanding Stock Stages By Mark Wnetrzak One of our new readers asked for an explanation of the different stages of a stock's movement and the way we use these cycles to identify favorable issues for covered-call positions. Attn: Covered-Calls Editor Subject: Stock Stages Mark, I have question regarding about the technical comments use in the descriptions of the covered-call candidates. I noticed that the term Stage-I and Stage-II are used in many of the play write-ups. I assume this refers to the chart and the technical condition of stock. Could you please explain these terms and the way they are used to select bullish stocks for covered-call plays. Thank You, TY TY, Technical analysis is a method of stock market research using indicators, charts, and computer programs to track price trends of stocks, bonds, commodities, and market indexes. A technician understands the fundamental values of securities but focuses on the historical behavior of the market, industry groups or sectors and individual stocks. The goal is to use their price movements, trends and chart patterns to predict future direction and changes in character. Most of this analysis is based on the fact that the values of stocks reflect what people think they are worth, not what they are really worth. Technical indicators are also used to generate buy or sell signals when specific parameters are met and stage analysis can be helpful in initiating new positions. The four basic stages of a stock-movement cycle are described at length in "Secrets for Profiting in Bull and Bear Markets," by Stan Weinstein. Here is a brief description of the first two categories and a simple explanation of how they can help identify favorable issues, as well as some hints for timing the entry transactions. Stage I is the basing stage that can last for months or sometimes years. The condition is usually defined by little or no vertical activity with a long-term moving average that is basically flat. A common axiom suggests that, "the longer the base, the stronger the case" on a break-out. Issues with this type of pattern can offer reasonable covered-call positions with relatively low capital risk as long as the neutral-trend or lateral trading range continues. STAGE I CHART: Extreme Networks (NASDAQ:EXTR) Stage II is when the issue begins to exhibit signs of a new upward trend. The stock price closes above its long-term moving average (150-200 dma) and Stage I resistance on heavy volume. This is the ideal time to enter a bullish position. Investors should look for the next resistance level above the base to identify any potential "failed rally" points and should try to focus on stocks that have "room to run." Bullish traders should enter issues that are starting Stage II climbs, or in Stage II climbs and buying on pullbacks to technical support. STAGE II CHART: Neoware Systems (NASDAQ:NWRE) Some hints... 1. Stage II is the "ideal" time to enter for a bullish play. For trend trading, pick stocks that are in stage II rallies and buy on the pullbacks to technical support or major trend-lines. 2. Look for volume -- this is vital! Most big movers climb on substantially larger volume than that which occurs at any time during the basing stage. 3. Look for strong Relative Strength. When a stock breaks out of a base, the relative strength should cross up above the zero line into positive territory. The higher the climb to cross above the zero line, the more upside potential in the movement. 4. Look for the "Runners Crouch" pattern before the stock breaks out of a long-term base. In many cases, stocks will go through a short period of "building steam." It's usually a small dip to gather strength for the upward push above the moving average. Once the stock crosses above the top of the base (resistance) it should also continue through the moving average. 5. As the rally begins in earnest, the long-term moving average should start to turn upward and after the stock corrects back to a technical support area, the next run-up, which must be supported by heavier-than-average volume, should continue until a new (near-term) high is achieved. It is important for new traders to become familiar with the common methods used to determine the overall movement of the market and apply this knowledge as a practical element of a proven trading strategy. After you are comfortable with the popular indicators, combine them with proven timing strategies and practice using the various systems until your "paper" portfolio is profitable on a regular basis. 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 ALKS 7.70 8.21 SEP 7.50 1.25 *$ 1.05 11.8% NXTL 5.49 7.61 SEP 5.00 1.10 *$ 0.61 10.1% WEBX 15.02 14.73 SEP 15.00 1.40 $ 1.11 8.9% MDR 6.00 7.05 SEP 5.00 1.50 *$ 0.50 8.0% FFIV 14.04 12.50 SEP 12.50 2.55 $ 1.01 7.6% ISIS 11.25 10.12 SEP 10.00 2.05 *$ 0.80 7.6% MNS 11.20 10.50 SEP 10.00 1.75 *$ 0.55 6.3% AMR 11.14 10.19 SEP 10.00 1.65 *$ 0.51 5.8% NWRE 16.94 17.82 SEP 15.00 2.65 *$ 0.71 5.4% XOMA 5.66 5.42 SEP 5.00 0.95 *$ 0.29 5.4% ICST 20.74 17.83 SEP 17.50 4.20 *$ 0.96 5.0% AFFX 18.51 18.01 SEP 15.00 4.40 *$ 0.89 4.6% MRCY 24.79 24.93 SEP 22.50 3.60 *$ 1.31 4.5% NET 14.56 13.00 SEP 12.50 2.55 *$ 0.49 4.4% IDTI 15.20 13.23 SEP 12.50 3.30 *$ 0.60 4.4% MLNM 14.16 12.26 SEP 12.50 2.45 $ 0.55 3.4% ORCL 10.79 9.59 SEP 10.00 1.15 $ -0.05 0.0% TIBX 5.21 4.21 SEP 5.00 0.70 $ -0.30 0.0% *$ = Stock price is above the sold striking price. Comments: A rather interesting week as the major averages consolidated the end-of-summer rally. Now the question is: Will support hold? Most of the positions in the covered-call portfolio are also consolidating and testing support areas. This corrective action offers a chance to evaluate the strength of individual stocks: do they stop near the top of support or move towards the bottom? The probability of violating a "low" increases the deeper a stock penetrates its support area. For example, Millennium Pharmaceutical (NASDAQ:MLNM) would indicate underlying strength if the stock were to remain near $12 (as opposed to moving towards $10) as it consolidates. As for unpleasant surprises this week, early exit candidate Semtech (NASDAQ:SMTC) warned it would fall short of analysts' estimates and disclosed that a dispute with one of its customers could result in it being forced to pay damages totaling $115 million. Obviously, exiting on Monday's pause or on Tuesday as the stock resumed moving down (prior to Wednesday's drop) would've been wise indeed. Next week, we will show Tibco Software (NASDAQ:TIBX) closed as the stock reversed last week's rally and moved to a new low. Protecting capital appears to be the name of the current game. Positions Closed: Semtech (NASDAQ:SMTC) 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 IMCL 8.30 SEP 7.50 QCI IU 1.30 1265 7.00 20 10.9% JDEC 13.05 SEP 12.50 QJD IV 1.30 941 11.75 20 9.7% NWRE 17.82 SEP 15.00 QQA IC 3.30 266 14.52 20 5.0% OSTE 9.34 SEP 7.50 OQQ IU 2.20 225 7.14 20 7.7% TDY 17.80 SEP 17.50 TDY IW 1.05 6 16.75 20 6.8% V 12.96 SEP 10.00 V IB 3.30 1149 9.66 20 5.4% VMSI 22.30 SEP 20.00 QMP ID 2.80 0 19.50 20 3.9% 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 IMCL 8.30 SEP 7.50 QCI IU 1.30 1265 7.00 20 10.9% JDEC 13.05 SEP 12.50 QJD IV 1.30 941 11.75 20 9.7% OSTE 9.34 SEP 7.50 OQQ IU 2.20 225 7.14 20 7.7% TDY 17.80 SEP 17.50 TDY IW 1.05 6 16.75 20 6.8% V 12.96 SEP 10.00 V IB 3.30 1149 9.66 20 5.4% NWRE 17.82 SEP 15.00 QQA IC 3.30 266 14.52 20 5.0% VMSI 22.30 SEP 20.00 QMP ID 2.80 0 19.50 20 3.9% 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). ***** IMCL - ImClone $8.30 *** Martha's Bane In A Trading Range *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product candidate, Erbitux (cetuximab), is a therapeutic monoclonal antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. ImClone's next most advanced product candidate, BEC2, is a cancer vaccine. In addition to the development of its lead product candidates, the company conducts research, both independently and in collaboration with academic and corporate partners, in a number of areas related to its core focus of growth factor blockers, cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. With all the "bad" news surrounding ImClone, traders have been speculating on a near-term recovery in the stock. This position takes advantage of the over-priced options and the short-term trading range of a stock that shows support at our cost basis. SEP 7.50 QCI IU LB=1.30 OI=1265 CB=7.00 DE=20 TY=10.9% ***** JDEC - J.D. Edwards $13.05 *** Entry Point *** J.D. Edwards (NASDAQ:JDEC) is a provider of agile, collaborative solutions for the connected economy. The firm delivers a range of integrated, collaborative software for supply chain management (planning and execution) procurement and customer relationship management, in addition to workforce management and functional support. Customers can choose to operate its software on a wide variety of computing environments, and the firm supports several different databases. J.D. Edwards distributes, implements and supports its software worldwide through 55 offices and more than 350 third-party business partners. Shares of JDEC rallied sharply after the company reported third-quarter earnings that beat Wall Street estimates and offered an earnings outlook in line with analyst expectations. In addition, the company is one of the few software makers to report sequential and year-over-year revenue increases. Analysts attributed that strength to J.D. Edwards' increased focus on selling new customer-relationship management and supply-chain management products to its installed base of 6,400 customers. The company has also released a new version of its software that enables customers to buy smaller pieces rather than an entire suite. Investors looking for a long-term portfolio candidate should consider this conservative entry in an issue with a bullish technical outlook. SEP 12.50 QJD IV LB=1.30 OI=941 CB=11.75 DE=20 TY=9.7% ***** NWRE - Neoware Systems $17.82 *** Earnings Rally *** Neoware Systems (NASDAQ:NWRE) provides software and solutions to enable appliance computing, a web-based computing architecture targeted at business customers that is designed to be simpler and easier than traditional personal computer-based computing. The company's software and management tools power and manage a new generation of smart computing appliances that utilize the benefits of open, industry-standard technologies to create new alternatives to PCs used in business and a variety of proprietary business devices. Neoware Systems provides its software on top of a number of embedded operating systems, including Microsoft's Windows CE and NT Embedded, as well as an embedded version of the Linux operating system. Neoware has been in "rally mode" since last November with the issue moving from $2 to $14 in only 10 months and the stock appears to be gaining strength. This week, Neoware reported sharply higher revenue and earnings for its 4th- quarter and fiscal year ended June 30, 2002. The company said revenues increased 165% to $14.1 million and net income increased 278% to $1.7 million, or $0.13 per fully diluted share, excluding an income tax benefit recorded during the quarter. Neoware is gaining market share with growing profitability, a strong balance sheet and no debt. NWRE is also one of the nicer looking charts (jinx?!?) we have seen in some time and investors can use this position to speculate on the future movement of its share value. SEP 15.00 QQA IC LB=3.30 OI=266 CB=14.52 DE=20 TY=5.0% ***** OSTE - Osteotech $9.34 *** Pullback = Entry Point? *** Osteotech (NASDAQ:OSTE) provides services and products primarily focused in the repair and healing of the musculoskeletal system. These products and services are marketed primarily to the orthopaedic, spinal, neurological, oral/maxillofacial, dental and general surgery markets in the United States and Europe. The allograft bone tissue Osteotech processes is procured by independent tissue banks or other Tissue Recovery Organizations, primarily through the donation of tissue from deceased human donors and is used for transplantation. The company has two primary operating segments: the Grafton Demineralized Bone Matrix Segment, and the Base Allograft Bone Tissue Segment. Osteotech rallied sharply almost doubling its share value after the company reported a quarterly profit and raised its full-year outlook on more tissue supply and legal settlements. The stock has been consolidating for the last week or so and this pullback could be offering long-term investors a second chance at owning an industry-leading issue at a favorable cost basis. SEP 7.50 OQQ IU LB=2.20 OI=225 CB=7.14 DE=20 TY=7.7% ***** TDY - Teledyne $17.80 *** New 5-Year Contract *** Teledyne Technologies (NYSE:TDY) is a provider of sophisticated electronic components, instruments and communications products, including data acquisition and communications equipment for airlines and business aircraft, monitoring and control instruments for industrial and environmental applications and components, and subsystems for wireless and satellite communications. The company also provides systems engineering solutions and IT services for space, defense and industrial applications, and manufactures general aviation and missile engines and components, as well as onsite gas and power generation systems. Teledyne operates four business segments: Electronics and Communications, Systems Engineering Solutions, Aerospace Engines and Components and Energy Systems. Teledyne rallied at the end of July after the company reported earnings and announced a five-year, $22 million contract from the U.S. Army's Space and Missile Defense Command to continue the development of Teledyne's Missile Defense Systems Exerciser. Technically, the issue appears to have successfully completed a consolidation phase and investors can use this play to speculate on the company's future at the risk of owning the stock at a favorable cost basis. SEP 17.50 TDY IW LB=1.05 OI=6 CB=16.75 DE=20 TY=6.8% ***** V - Vivendi $12.96 *** Bottom-Fishing In The Media Sector *** Vivendi Universal (NYSE:V) is a global media and communications company engaged in businesses that focus primarily on two core areas: Media and Communications; and Environmental Services. The Media and Communications business operates a number of integrated businesses in the music, multimedia and publishing, film and pay television, telecommunications and Internet industries. The Environmental Services business includes world-class water, waste management, transportation and energy services operations. Media stocks have started to show some life as traders move into the sector, speculating on future consolidations. Vivendi may be considering an initial public offering with Liberty Media as the company struggles to restructure and reduce debt. On Friday, Vivendi announced that it is selling its money-losing Internet venture and several French magazines. The technicals suggest a bullish change of character in V and this play offers traders a great way to speculate on the future movement of the issue in a conservative manner. SEP 10.00 V IB LB=3.30 OI=1149 CB=9.66 DE=20 TY=5.4% ***** VMSI - Ventana Medical $22.30 *** Bracing For A Rally? *** Ventana Medical Systems (NASDAQ:VMSI) develops, manufactures and markets instruments and consumables that are used to automate diagnostic and drug discovery procedures in clinical histology laboratories and drug discovery laboratories worldwide. Ventana's product offerings comprise Tissue Processors and Staining Systems and Associated Reagents. Its products are used in many centers for cancer research and treatment including Johns Hopkins Hospital, the Mayo Clinic and Memorial Sloan-Kettering Cancer Center. The company reported in mid July that profits and sales rose during the second quarter and Ventana also raised its earnings forecast for 2003, saying that sales of products used to automate tissue preparation improved. The company expects to see sales growth of about 20% from 2001 and net income of 5% to 7% of sales. Traders who like the outlook for the company can use the solid technical support near $19 to justify this speculative position. SEP 20.00 QMP ID LB=2.80 OI=0 CB=19.50 DE=20 TY=3.9% ***** ***************** 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 CAL 10.17 SEP 10.00 CAL IB 1.10 1461 9.07 20 15.6% CRGN 5.81 SEP 5.00 CQX IA 1.15 226 4.66 20 11.1% ADRX 24.63 SEP 20.00 QAX ID 5.70 5829 18.93 20 8.6% NUS 12.50 SEP 12.50 NUS IV 0.60 62 11.90 20 7.7% CCK 5.82 SEP 5.00 CCK IA 1.05 2844 4.77 20 7.3% MATK 18.00 SEP 17.50 KQT IW 1.25 210 16.75 20 6.8% PPD 20.67 SEP 17.50 PPD IW 3.90 734 16.77 20 6.6% SNDK 16.21 SEP 15.00 SWQ IC 1.80 2133 14.41 20 6.2% SLAB 22.59 SEP 20.00 QFJ ID 3.30 442 19.29 20 5.6% CCMP 42.45 SEP 35.00 UKR IG 8.40 204 34.05 20 4.2% ***************** NAKED PUT SECTION ***************** Investing 101: Understanding Risk and Reward - Part I By Ray Cummins A noted author once said, "Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for." When it comes to trading, people have different viewpoints about risk. The dictionary defines risk as the possibility of loss or injury but, as with most abstract concepts, risk is relative. As children, we learned about potentially hazardous activities such as crossing the street. As young adults, we discovered the risks inherent in driving a car, and that the insurance to offset that risk can be very costly. As homeowners, we became aware of the dangers of fire, floods and earthquakes. In fact, throughout the entire aging process, we gain a better understanding of the types of risk and the various ways to manage our activities in order to safely claim the innumerable rewards that are available in today's vigorous and dynamic society. With all of this experience, even the average person is quite adept in the area of risk management and if only they could learn to apply these acquired skills in their trading endeavors, success would be virtually assured. From an investing standpoint, risk is the possibility of losing money, either in a specific position or with a large portfolio of financial instruments. There are, however, other forms of risk and one of the most obvious is lost potential. A trader stands to lose prospective profits if he takes no action on a specific set of favorable circumstances and the failure to act or react, in a timely manner, can be a very costly decision. A similar type of risk can emerge when a person has unrealistic objectives or goals. A correctly defined target, based on historical performance and practical volatility estimates, is often the difference between a a profitable outcome and a losing play. For long-term investors, a risk that is often forgotten is inflation risk; the possibility that higher overall prices will reduce the relative gains of a successful portfolio. Despite these would-be perils, the stock market offers the most conservative and practical means of capital appreciation for the average investor. Regardless of the approach or strategy one uses to participate in the financial markets, there is risk. Fortunately, there are some basic guidelines that will substantially reduce investing losses. The first step is to identify any attitudes or behaviors that can lead to unfavorable results. This step is very important because it is hard to control or manage risk when emotion and instinct are primary players in the trading process. The next phase requires a thorough understanding of the methods used to control risks. The most popular technique for limiting financial exposure, regardless of the commodity or instrument, is diversification. The rule here is simple: "Do not put all your eggs in one basket!" Spread your portfolio holdings over a broad range of issues so they don't all decrease in value because of a single event. While even the most catastrophic events can generally be managed to reduce the effects of the shortfall, there are occasions when issues plunge without warning leaving no opportunity for exit or adjustment. Unforeseen events simply occur; negative earnings, shareholder lawsuits, detrimental news in the industry or sector and changes in public sentiment. All of these activities can affect the success of an individual position but with a diversified portfolio, the overall effects are minimal. Diversification also allows you to take advantage of the large variety of investment vehicles available in the financial markets, and an assortment of positions in different categories will ensure that at least part of your portfolio is outperforming the major indices. Another way to limit the effects of unexpected market volatility is to invest systematically, using the ongoing price fluctuations to lower the average price (or basis) in a position by purchasing identical amounts of the issue on a fixed schedule. The strategy offers an excellent way to smooth abrupt changes in the price of long-term portfolio holdings and it is also a popular method for recovering share value losses after an extended decline. This approach works well for those participants who understand that the stock market historically moves in cycles, and that focusing on the ultimate outcome is a proven risk-control strategy. In most cases, the strategy of averaging down is a practical and viable technique for conservative investors however, the purchase of additional shares should never considered if the added exposure is not justified by the current technical or fundamental outlook for the issue. In the next segment, we will learn how to assess specific risk exposures, evaluate the risk-reward tradeoff and develop a plan for managing risk in a conservative investment portfolio. 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 JDEC 13.05 13.05 SEP 10.00 0.45 *$ 0.45 12.8% MRVL 22.21 19.06 SEP 17.50 0.50 *$ 0.50 11.0% NWRE 14.00 17.82 SEP 10.00 0.40 *$ 0.40 10.9% FDRY 8.99 8.75 SEP 7.50 0.35 *$ 0.35 10.3% MGAM 24.24 21.25 SEP 20.00 0.55 *$ 0.55 9.9% AMLN 13.00 12.06 SEP 10.00 0.40 *$ 0.40 9.7% INVN 28.36 34.13 SEP 22.50 0.85 *$ 0.85 9.4% JDEC 13.40 13.05 SEP 10.00 0.25 *$ 0.25 9.3% ICOS 27.49 24.28 SEP 20.00 0.75 *$ 0.75 8.7% WMGI 20.49 20.22 SEP 17.50 0.45 *$ 0.45 8.6% CVTX 26.01 21.73 SEP 20.00 0.70 *$ 0.70 8.6% VRTX 22.41 19.90 SEP 20.00 0.65 $ 0.55 8.3% PPD 21.95 20.67 SEP 15.00 0.35 *$ 0.35 8.0% ENZN 24.13 22.00 SEP 17.50 0.60 *$ 0.60 8.0% SIE 22.88 19.32 SEP 17.50 0.40 *$ 0.40 7.0% TTWO 23.40 25.10 SEP 17.50 0.40 *$ 0.40 6.8% LNCR 33.38 32.05 SEP 30.00 0.80 *$ 0.80 6.5% NPSP 23.06 20.27 SEP 15.00 0.45 *$ 0.45 6.4% PPD 22.23 20.67 SEP 12.50 0.35 *$ 0.35 6.3% HGSI 17.59 15.06 SEP 12.50 0.25 *$ 0.25 5.8% HGSI 17.87 15.06 SEP 12.50 0.30 *$ 0.30 5.6% IMN 33.05 33.25 SEP 30.00 0.55 *$ 0.55 5.6% CLS 23.80 22.97 SEP 17.50 0.30 *$ 0.30 5.2% GISX 21.32 19.61 SEP 20.00 0.75 $ 0.36 4.9% *$ = Stock price is above the sold striking price. Comments: With the major indices testing recent support areas, the market is truly at a "key" moment. Any further declines after Labor Day will change the overall bias to "negative" and if that occurs, position management will become crucial to maintaining portfolio profits. From a technical point of view, the rally in Marvell Technology Group (NASDAQ:MRVL) has come to an abrupt end and a close below $18 would be a bearish indication. Multimedia Games (NASDAQ:MGAM) has retreated to a near-term support area and any further decline should be seen as a potential "early-exit" signal. Global Imaging Systems (NASDAQ:GISX) has moved back to a previous trading range and with the issue currently below the sold strike, it may be prudent to close the play on any future rally. Sierra Health (NYSE:SIE) is testing 3-month lows and the buying support at $17 is the last line of defense. CV Therapeutics (NASDAQ:CVTX) and Vertex Pharmaceuticals (NASDAQ:VRTX) have very similar chart patterns, neither of which inspires confidence in their near-term outlooks. Positions Closed: OSI Pharmaceuticals (NASDAQ:OSIP) 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 ADRX 24.63 SEP 15.00 QAX UC 0.25 760 14.75 20 7.3% HD 32.93 SEP 30.00 HD UF 0.40 5067 29.60 20 5.7% IMDC 23.45 SEP 20.00 UZI UD 0.40 31 19.60 20 9.6% ITMN 24.87 SEP 20.00 IQY UD 0.30 5005 19.70 20 8.5% IVGN 35.60 SEP 30.00 IUV UF 0.35 90 29.65 20 5.9% PPD 20.67 SEP 15.00 PPD UC 0.35 1130 14.65 20 11.9% RGLD 14.86 SEP 12.50 MJQ UV 0.25 97 12.25 20 9.9% TYC 15.69 SEP 12.50 TYC UQ 0.30 18223 12.20 20 13.3% UOPX 28.78 SEP 25.00 UBY UE 0.45 124 24.55 20 8.4% 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 TYC 15.69 SEP 12.50 TYC UQ 0.30 18223 12.20 20 13.3% PPD 20.67 SEP 15.00 PPD UC 0.35 1130 14.65 20 11.9% RGLD 14.86 SEP 12.50 MJQ UV 0.25 97 12.25 20 9.9% IMDC 23.45 SEP 20.00 UZI UD 0.40 31 19.60 20 9.6% ITMN 24.87 SEP 20.00 IQY UD 0.30 5005 19.70 20 8.5% UOPX 28.78 SEP 25.00 UBY UE 0.45 124 24.55 20 8.4% ADRX 24.63 SEP 15.00 QAX UC 0.25 760 14.75 20 7.3% IVGN 35.60 SEP 30.00 IUV UF 0.35 90 29.65 20 5.9% HD 32.93 SEP 30.00 HD UF 0.40 5067 29.60 20 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). ***** ADRX - Andrx Corporation $24.63 *** Generic Drug Speculation *** Andrx Corporation (NASDAQ:ADRX) is a specialty pharmaceutical company engaged in the formulation and commercialization of oral controlled-release generic and brand pharmaceuticals utilizing its proprietary drug delivery technologies. Andrx also markets and distributes pharmaceutical products manufactured by third parties. Andrx recently announced that the United States Food and Drug Administration has approved the marketing of its 500-mg strength generic version of Naprelan. Naprelan is used for the treatment of pain caused by arthritis, osteoporosis and other inflammatory conditions. Andrx plans to begin marketing its generic version of Naprelan next month and the revenues should bolster the company's bottom line. From a technical viewpoint, the issue appears to be forming a support area near $20 and this position allows traders to speculate on the company's future in a conservative manner. SEP 15.00 QAX UC LB=0.25 OI=760 CB=14.75 DE=20 TY=7.3% ***** HD - The Home Depot $32.93 *** Blue Chip Play! *** Home Depot (NYSE:HD) is a home improvement retailer. Home Depot has 1,400 Home Depot stores throughout the United States, Canada, Argentina and Mexico, and 41 EXPO Design Center stores in the United States. Home Depot stores sell a wide variety of building materials, home improvement, lawn and garden products and provide a number of services. EXPO Design Center stores sell products and services primarily for design and renovation projects. EXPO Design Centers offer interior design products, such as kitchen and bathroom cabinetry, tiles, flooring and lighting fixtures and installation services. In addition, as of fiscal year-end 2001, the company was operating four Villager's Hardware test stores in New Jersey. These offer products for home enhancement and small projects. The company also has one test store in Texas, The Home Depot Floor Store, which sells flooring products. For investors with a long-term outlook, The Home Depot is great holding in the retail group and this position offers a low risk cost basis in the issue. SEP 30.00 HD UF LB=0.40 OI=5067 CB=29.60 DE=20 TY=5.7% ***** IMDC - Inamed $23.45 *** Bullish Sector! *** Inamed (NASDAQ:IMDC) is a global medical device company engaged in the development, manufacturing and marketing of products for breast and facial aesthetics and obesity intervention. These products include breast implants for aesthetic augmentation and for surgery (reconstructive) following a mastectomy; a range of dermal products to correct facial wrinkles; and minimally invasive devices for obesity intervention, including the LAP-BAND® System indicated for severe and morbid obesity. Inamed shares were boosted earlier in August after favorable second-quarter results. The medical device firm announced cash earnings of $11.8 million, or $0.54 a share, a penny above the average estimate of analysts. Sales reached $71.7 million in the latest three months, up almost 15% from the year-ago period and looking ahead, the company forecast earnings of $1.90 to $2.00 per share for fiscal 2002. Investors were apparently pleased with the news and a cost basis below $20 (near the 30-dma) is a favorable price for this issue. SEP 20.00 UZI UD LB=0.40 OI=31 CB=19.60 DE=20 TY=9.6% ***** ITMN - InterMune $24.87 *** New Drug Developments! *** InterMune (NASDAQ:ITMN), formerly InterMune Pharmaceuticals, makes and commercializes products for the treatment of serious pulmonary and infectious diseases and cancer. In the United States, the firm markets its lead product, ACTIMMUNE, for the treatment of chronic granulomatous disease, a life-threatening congenital disorder of the immune system, and severe, malignant osteopetrosis, also a life-threatening congenital disorder causing an overgrowth of bony structures. Globally, InterMune markets Amphotec for the treatment of invasive aspergillosis, a life-threatening fungal infection. The firm has mid- or advanced-stage trials underway for ACTIMMUNE and Amphotec in a range of new disease indications; idiopathic pulmonary fibrosis, infections caused by various fungi that attack patients with weakened immune systems, ovarian cancer, other types of cancer and cystic fibrosis. Shares of InterMune have been "on the move" since the biotech firm said its Actimmune drug improved survival rates among patients with a lung disease. At the same time, the firm also acknowledged that the results from late-stage patient testing showed the drug failed to meet its primary goal, which was slowing the progression of the disease. But, InterMune's stock rose even though the drug fell short of its main goal because the survival benefit results convinced investors that Actimmune would continue to post strong sales results. Traders who agree with that outlook can speculate conservatively on the future share value of ITMN with this position. SEP 20.00 IQY UD LB=0.30 OI=5005 CB=19.70 DE=20 TY=8.5% ***** IVGN - Invitrogen $35.60 *** A Profitable Quarter! *** Invitrogen (NASDAQ:IVGN) develops, manufactures and markets more than 10,000 products for the life sciences markets. Invitrogen's products are principally research tools in reagent and kit form, biochemicals, sera, media, and other products and services, which the company sells to corporate, academic and government entities. The company focuses its core business on two principal segments, Molecular Biology Products and Cell Culture Products. Invitrogen said in July that it achieved a second-quarter profit as sales of its tool kits for genetic research rose and it ceased writing off costs of a merger. Invitrogen posted a net profit of $8.1 million, or $0.15 a share, compared with a loss of $35.1 million, or $0.67, a year ago. The company also recently announced that its board authorized the repurchase of up to $300 million of the company's common stock over the next three years. IVGN has an established trading range near $30-$35 and this position allows investors to speculate on the company's near-term share value with relatively low risk. SEP 30.00 IUV UF LB=0.35 OI=90 CB=29.65 DE=20 TY=5.9% ***** PPD - Pre-Paid Legal Services $20.67 *** More Speculation! *** Pre-Paid Legal Services (NYSE:PPD) was one of the first companies in the United States organized solely to design, underwrite and market legal expense plans. The company's legal expense plans (referred to as Memberships) currently provide for a variety of legal services in a manner similar to medical reimbursement plans. Plan benefits are provided through a network of independent law firms, typically one firm per state or province. Members have direct, toll-free access to their Provider law firm rather than having to call for a referral. Legal services include unlimited attorney consultation, traffic violation defense, auto-related criminal charges defense, letter writing/document preparation, will preparation and review and a general trial defense benefit. Lots of speculation on Pre-Paid since the company announced that, for corporate governance purposes, four directors were leaving the board. There is also news concerning the lead institutional plaintiff in the federal securities class action lawsuit filed against Pre-Paid, who is withdrawing from any further involvement with the litigation. Traders can speculate on the outcome of the recent events with this position. SEP 15.00 PPD UC LB=0.35 OI=1130 CB=14.65 DE=20 TY=11.9% ***** RGLD - Royal Gold $14.86 *** Market Hedge *** Royal Gold (NASDAQ:RGLD) is the largest U.S.-based royalty firm engaging in the acquisition and management of precious metal royalty interests. Royal Gold seeks to acquire existing royalties or to finance projects that are in production or near production in exchange for royalty interests. The firm, to a reduced extent, also explores and develops properties thought to contain precious metals and seeks to obtain royalty and other carried ownership interests in these properties through the subsequent transfer of operating interests to other mining companies. Substantially all of the firm's revenues are and can be expected to be derived from royalty interests, rather than from mining operations conducted by the company. During 2001, the company focused on the acquisition of royalty interests, rather than the creation of such interests through exploration, followed by further development and property transfers to larger mining companies. RGLD is our broad-market hedge for the coming month and traders who believe that equity values will continue to slump can profit from the likely rise in gold stocks with this position. SEP 12.50 MJQ UV LB=0.25 OI=97 CB=12.25 DE=20 TY=9.9% ***** TYCO - Tyco International $15.69 *** Bottom Fishing *** Tyco International (NYSE:TYC) is a diversified manufacturing and service company. Tyco is the world's largest manufacturer and servicer of electrical and electronic components; the largest designer, manufacturer, installer and servicer of undersea telecommunications systems; the largest manufacturer, installer and provider of fire protection systems and electronic security services and the largest manufacturer of specialty valves. Tyco also holds strong leadership positions in medical device products, and plastics and adhesives. The firm operates in more than 100 countries and had fiscal 2001 revenues from continuing operations of approximately $34 billion. The effects of corporate scandals have apparently started to fade as Tyco shares are establishing a base near $12-$13. Investors who want a speculative position in a former market bellwether should consider this play. SEP 12.50 TYC UQ LB=0.30 OI=18223 CB=12.20 DE=20 TY=13.3% ***** UOPX - University of Phoenix Online $28.78 *** Rally Mode *** University of Phoenix Online (NASDAQ:UOPX) is a provider of unique, accessible, and accredited educational programs for working adults. The firm began operations in 1989 by modifying courses developed by University of Phoenix's physical campuses for delivery via modem to students worldwide. University of Phoenix Online now offers 11 accredited degree programs in business, education, information technology and nursing. Students can participate in their online classes anytime via the Internet by using basic technology such as a Pentium-class personal computer, a 28.8K modem and an Internet service provider, thereby enhancing the accessibility of and the potential market for its programs. Shares of UOPX soared Thursday after the company's parent, Apollo Group, provided a bullish outlook for the first quarter and fiscal 2003. Phoenix Online also posted solid results and forecast revenue of $100 million to $101 million for the first quarter, and $490 million to $495 million for the year. Investors who wouldn't mind owning this unique company at a cost basis near $25 can profit from future upside activity in the issue with this position. SEP 25.00 UBY UE LB=0.45 OI=124 CB=24.55 DE=20 TY=8.4% ***** ***************** 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 CCK 5.82 SEP 5.00 CCK UA 0.20 6170 4.80 20 17.8% LMNX 8.00 SEP 7.50 UEN UU 0.25 405 7.25 20 12.9% HGMCY 14.25 SEP 12.50 QHG UV 0.30 2599 12.20 20 10.7% COCO 37.25 SEP 35.00 UCS UG 0.85 89 34.15 20 9.6% CIMA 23.01 SEP 20.00 UVK UD 0.40 563 19.60 20 9.2% COX 25.85 SEP 22.50 COX UX 0.45 1342 22.05 20 9.2% PLMD 24.42 SEP 17.50 PM UW 0.30 515 17.20 20 8.8% ZQK 22.41 SEP 20.00 ZQK UD 0.35 30 19.65 20 7.7% CCMP 42.45 SEP 30.00 UKR UF 0.30 358 29.70 20 5.2% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A Key Test Approaches! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** August 30, 2002 Stocks drifted lower Friday on light volume, pushing the major equity averages to a pivotal area of technical support ahead of the Labor Day holiday. Technology issues were the primary catalyst for selling pressure as lackluster forecasts from Sun Microsystems (NASDAQ:SUNW) and BellSouth (NYSE:BLS) weighed heavily on the group. Sun Micro's CFO lowered the computer maker's revenue outlook for the coming quarter and said corporate spending may actually be weakening. BellSouth added fuel to the fire, saying 2002 earnings will fall below expectations due to a restructuring and weak sales in its wireless business as well as the turbulent economy. The NASDAQ Composite index ended near the low of the day, down 20 points at 1,314. The blue-chip average fared better in early trading but eventually yielded to the bearish trend as its computer hardware components slumped. The Dow Jones industrial average ended with a loss of 7 points at 8,663. The broad market finished the week with a downward bias as investors were plagued by another round of gloomy forecasts from corporate America. The S&P 500-stock index sagged 2 points to 916, and few experts have confidence in its ability to hold that level in the coming weeks. Trading was lean with exchange volumes among the lowest of the year ahead of the long holiday week-end. Breadth was mixed with advancing issues outnumbering decliners 5 to 4 on the NYSE while decliners edged past advancers by an 8 to 7 ratio on the NASDAQ. Bonds ended with solid gains heady gains after trading in a large range during the morning session. The 10-year Treasury was up 3/32 to yield 4.13% while the 30-year bond advanced 17/32 to yield 4.93%. ****************************************************************** - PORTFOLIO SUMMARY - ****************************************************************** Last week's new plays (positions/opening prices/strategy): Amer. Intl. (NYSE:AIG) SEP70C/65C $0.60 credit bear-call Apache Oil (NYSE:APA) SEP65C/60C $0.60 credit bear-call Lockheed (NYSE:LMT) SEP70C/65C $0.55 credit bear-call Barr Labs (NYSE:BRL) SEP60P/65P $0.50 credit bull-put Cephalon (NSDQ:CEPH) SEP35P/40P $0.60 credit bull-put JDS Uniph. (NSDQ:JDSU) MAR2.5C/5C $0.85 debit bull-call Dupont Phot. (NSDQ:DPMI) SEP30C/20P $0.10 credit synthetic Verity (NSDQ:VRTY) DEC15C/10P $0.10 credit synthetic Emulex (NYSE:ELX) SEP17C/17P $2.60 debit straddle eBay Inc. (NSDQ:EBAY) SEP65C/55P $1.90 credit strangle Forest Labs (NYSE:FRX) SEP80C/65P $1.30 credit strangle Most of our new positions fared well this week, despite the large fluctuations in share values. All of the credit spreads were available at acceptable prices and the bearish activity worked in favor of American International Group and Apache Oil. The only position of concern in that category is Lockheed Martin, as the issue rallied in conjunction with defense-related stocks and may move higher if there is more news of a potential war with Iraq. Among the bullish issues, Verity and Jds Uniphase tumbled with the technology group as cautious statements from tech-industry leaders halted the NASDAQ recovery. The delta-neutral group was active with traders participating in the "premium-selling" plays and the sole debit straddle. Forest Laboratories appears stable but eBay is testing the lower portion of a recent trading range and may require an adjustment before the September expiration. Emulex enjoyed a brief, but unrewarding, bout with the downside break-even point as the issue hit $16 during Wednesday's session. The bearish portion of the straddle traded as high as $2.15, only $0.45 short of the total cost of the play. Portfolio Activity: The recent decline in equity values has boosted the probability of profit in almost all of our bearish positions but there is one issue that has moved in opposition of the primary trend. Express Scripts (NASDAQ:ESRX) closed Thursday's session within $0.70 of our sold (call) strike price and a widespread sell-off on Friday was our only hope to remain in the position. Fortunately, the stock retreated to a more comfortable range near $48, but it is above a short-term moving average and may again test resistance near $50 in the coming weeks. On the flip side, International Business Machines (NYSE:IBM) is sliding back down to a previous trading-range top near $73-$74 and if the sell-off in technology shares continues, there is little chance it will remain above the break-even point in our bullish position. Another issue on the watch-list is Lexmark (NYSE:LXK), and FTI Consulting (NYSE:FTN) could be considered a potential "early-exit" candidate as well. The calendar spreads group is holding up well, considering the recent downward bias and Dupont (NYSE:DD), Pharmacia (NYSE:PHA), Amlyn Pharmaceuticals (NASDAQ:AMLN) and Kellogg (NYSE:K) are all trading within a profitable range. The speculative, time-selling position in Nextel (NASDAQ:NXTL) remains comfortably above the break-even point and with the long position expiring in January, there is plenty of time to lock-in a reasonable profit. In the category of synthetic positions, Mylan Laboratories (NYSE:MYL) has stalled near $34 and the previous credit (near $0.70) will likely be the maximum gain achieved in the bullish play. A very similar situation exists in the more recent positions in Oracle (NASDAQ:ORCL), Peoplesoft (NASDAQ:PSFT) and Check Point Software (NASDAQ:CHKP), all of which have slumped in conjunction with the renewed selling pressure in the technology group. Questions & comments on spreads/combos to Contact Support ****************************************************************** - SPECULATION PLAYS - These positions are based on recent increased activity in the stock and/or its underlying options. All of these plays offer favorable risk-reward potential, but they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** XMSR - XM Satellite Radio Holdings $5.43 *** Tune-in To XM! *** XM Satellite Radio Holdings (NASDAQ:XMSR), America's leading satellite radio service, is transforming an industry that has seen little technological change since FM, almost 40 years ago. XM's programming lineup features 100 coast-to-coast digital channels: 71 music channels, many of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 29 channels of sports, talk, children's and entertainment. XM was named 2001 "Product of the Year" by Fortune, an "Invention of the Year" by Time and won Popular Science's 2001 "Best of What's New" Grand Award in the electronics category. XM also won several awards at the 2001 CES, including "Best of CES" in the automotive category, and received a coveted "A" rating from Entertainment Weekly. XM's strategic investors include America's leading car, radio and satellite TV companies -- General Motors, American Honda Motor, Clear Channel Communications and DIRECTV. Here is another "buy and forget" speculation play, an approach that a reader recently requested, with low cost and large upside potential. Technically, the stock has recovered from a lengthy downtrend and the volume-supported buying pressure suggests the share value may eventually return to a previous range near $12. The first test of resistance will occur near $6.50 and another level of supply exists at $8, but the probability of an extended rally offers a reasonable speculation opportunity in this long- term position. PLAY (speculative - bullish/debit spread): BUY CALL JAN-5.00 QSY-AA OI=2872 A=$1.90 SELL CALL JAN-7.50 QSY-AU OI=508 B=$0.95 INITIAL NET-DEBIT TARGET=$0.85-$0.90 POTENTIAL PROFIT(max)=180% B/E=$5.90 ****************************************************************** HET - Harrah's Entertainment $47.54 *** Gaming Sector *** Founded 65 years ago, Harrah's Entertainment (NYSE:HET) operates 26 casinos in the United States, primarily under the Harrah's brand name. Harrah's Entertainment is focused on building brand loyalty and value with its target customers through a unique combination of great service, excellent products, unsurpassed distribution, operational excellence and technology leadership. Harrah's also owns and operates the Bluegrass Downs, a harness racetrack located in Paducah, Kentucky, and owns a 1/3 interest in Turfway Park LLC, which is the primary owner of Turfway Park thoroughbred racetrack located in Boone County, Kentucky. The gaming sector has been relatively bullish, despite the broad market declines in 2002 and Harrah's Entertainment is one of the leaders in that industry. The firm is expanding its presence on a continuing basis and company officials announced Thursday that Harrah's would buy a 95% stake in Louisiana Downs racetrack with plans to initiate extensive renovations, including installation of slot machines and other gaming devices. The stock reacted favorably to the announcement and traders who believe issue will climb higher in the coming weeks can attempt to profit from that outcome with this speculative position. PLAY (very speculative - bullish/synthetic position): BUY CALL SEP-50.00 HET-IJ OI=814 A=$0.50 SELL PUT SEP-42.50 HET-UV OI=512 B=$0.40 INITIAL NET CREDIT TARGET=$0.00-$0.10 TARGET PROFIT=$0.50-$0.75 Note: Using options, the position is similar to being long the stock. The initial collateral requirement for the sold (short) put is approximately $1,450 per contract. ****************************************************************** TTWO - Take-Two Interactive Software $25.10 *** Earnings Play *** Headquartered in New York City, Take-Two Interactive Software (NASDAQ:TTWO), is an integrated global developer, marketer, distributor and publisher of interactive entertainment software, games and accessories for the PC, PlayStation, PlayStation2, Xbox, Nintendo GameCube, and Nintendo Game Boy Advance. The company publishes and develops products through its wholly owned subsidiary labels: Rockstar Games, Gotham Games, Gathering of Developers, Joytech and Global Star. The firm maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. Shares in video game publisher Take-Two Interactive Software rallied to a recent high Thursday after an industry analyst said he expected the company's third-quarter results to top estimates. Take-Two is scheduled to report earnings next week, but unless the numbers are stellar, the issue could retreat to the bottom of the current range near $20, just as it did after the quarterly announcement in June. Traders who believe the stock has little chance to move above $30, regardless of the posted results, can attempt to profit from future downside activity with this play. PLAY (speculative - bearish/synthetic position): BUY PUT SEP-20 TUO-UD OI=1143 A=$0.40 SELL CALL SEP-30 TUO-IF OI=1395 B=$0.30 INITIAL NET-CREDIT TARGET=$0.00-$0.10 TARGET PROFIT=$0.40-$0.70 Note: Using options, the position is similar to being short the stock. The initial collateral requirement for the sold call is approximately $550 per contract. ****************************************************************** HSY - Hershey Foods $75.75 *** Distressed Sale? *** Hershey Foods (NYSE:HSY) and its subsidiaries are engaged in the manufacture, distribution and sale of consumer food products. The company produces and distributes a broad line of chocolate and non-chocolate confectionery and grocery products. Hershey's principal product groups include chocolate and non-chocolate confectionery products sold in the form of bar goods, bagged items and boxed items; and various grocery products in the form of baking ingredients, chocolate drink mixes, peanut butter, dessert toppings, and beverages. The planned sale of Hershey Foods is in jeopardy, due not only to legal issues but also to the lack of potential suitors at the asking price ($12 billion), and analysts are saying the odds are low that an acquisition will occur in the coming weeks. Problems with antitrust regulations have weighed heavily on negotiations with Nestle and now the Swiss company's executives have decided to pursue a deal only if Hershey's price tag falls closer to $11 billion, slightly below $80 a share for the popular candy-maker. If that's the best offer on the table and there is a chance the deal might not go through in the near-term, then this position offers reasonable speculation for aggressive traders. PLAY (conservative - bearish/synthetic position): BUY PUT SEP-65 HSY-UM OI=1012 A=$0.70 SELL CALL SEP-80 HSY-IP OI=9077 B=$0.75 INITIAL NET-CREDIT TARGET=$0.10-$0.20 TARGET PROFIT=$0.60-$1.25 Note: Using options, the position is similar to being short the stock. The initial collateral requirement for the sold call is approximately $2,650 per contract. ****************************************************************** - CREDIT SPREADS - These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ****************************************************************** COCO - Corinthian Colleges $37.25 *** Hot Sector! *** Corinthian Colleges (NASDAQ:COCO) is a private, for-profit, post-secondary education company, with over 25,000 students enrolled in its programs. The company currently operates 56 colleges in 20 states, including 17 in California and nine in Florida, and serves the segment of the population seeking to acquire career-oriented education. The firm offers a variety of master's, bachelor's and associate's degrees and diploma programs through two primary operating divisions. The firm's Corinthian Schools subsidiary operates 35 diploma-granting schools with curricula primarily in the healthcare, electronics and information technology fields, and seeks to provide its students a solid base of training for a variety of entry-level positions. The company's Rhodes Colleges subsidiary operates 21 degree-granting colleges, and offers curricula principally in business, healthcare, information technology and criminal justice. PLAY (conservative - bullish/credit spread): BUY PUT SEP-30 UCS-UF OI=96 A=$0.25 SELL PUT SEP-35 UCS-UG OI=89 B=$0.85 INITIAL NET-CREDIT TARGET=$0.65-$0.75 PROFIT POTENTIAL(max)=15% B/E=$34.35 ****************************************************************** NKE - Nike $43.18 *** The Sell-Off Continues *** Nike (NYSE:NKE) principally is engaged in the design, development and worldwide marketing of footwear, apparel, equipment and other clothing accessory products. Nike sells its products to over 17,000 retail accounts in the United States and through a mix of independent distributors, licensees and subsidiaries in over 140 countries around the world. Virtually all of Nike's products are manufactured by independent contractors. Most of the company's footwear products are produced outside the United States, while apparel products are produced in the United States and abroad. PLAY (conservative - bearish/credit spread): BUY CALL SEP-50.00 NKE-IJ OI=849 A=$0.20 SELL CALL SEP-47.50 NKE-IW OI=532 B=$0.45 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$47.80 ****************************************************************** UTX - United Technologies $59.39 *** Trading Range? *** United Technologies Corporation (NYSE:UTX) provides a range of high technology products and support services to the building systems and aerospace industries. The firm conducts its many businesses through four segments: Otis (elevators, escalators, automated people movers and service); Carrier (commercial and residential heating, ventilating and air conditioning (HVAC) systems and equipment, commercial and transport refrigeration equipment, and aftermarket service and components); Pratt & Whitney (commercial, general aviation and military aircraft engines, parts, service, industrial gas Whitney turbines and space propulsion); and Flight Systems (commercial and military helicopters, parts and service, and aerospace products and aftermarket services). PLAY (conservative - bearish/credit spread): BUY CALL SEP-70 UTX-IN OI=1745 A=$0.10 SELL CALL SEP-65 UTX-IM OI=3248 B=$0.55 INITIAL NET-CREDIT TARGET=$0.50-$0.55 PROFIT POTENTIAL(max)=11% B/E=$65.50 ****************************************************************** XL - XL Capital $73.61 *** Insurance Sector Slump! *** XL Capital (NYSE:XL), formerly EXEL Merger Company, is a provider of insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. The company provides property and casualty insurance on a global basis and generally writes specialty coverages for commercial customers. Specific lines of business written are third-party general liability insurance, environmental liability insurance, directors/officers liability insurance, professional liability insurance, aviation and satellite insurance, employment practices liability insurance, surety, marine insurance, property insurance and other insurance covers, including program business as well as political risk insurance. Premiums written vary by jurisdiction principally due to local market conditions and legal requirements. PLAY (conservative - bearish/credit spread): BUY CALL SEP-85 XL-IQ OI=58 A=$0.30 SELL CALL SEP-80 XL-IP OI=1416 B=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 PROFIT POTENTIAL(max)=14% B/E=$80.60 ****************************************************************** - STRADDLES AND STRANGLES - Despite the recent decline in implied volatility, there are very few issues that meet our criteria for favorable debit straddles. However, these stocks have relatively inexpensive option premiums, a history of adequate price movement and the potential for some volatility in their sectors and/or industry groups. As with any positions, they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** SRNA - Serena Software $15.21 *** Technology Volatility *** Serena Software (NASDAQ:SRNA) is the Enterprise Change Management (ECM) industry leader. For over twenty years Serena has focused exclusively on providing application change management solutions to the world's leading enterprises, and today its products are in use at over 2,750 customer sites, including 42 of the Fortune 50. Serena leads the way in ECM by offering a single point of control to manage software code and Web content changes throughout the enterprise, from the mainframe to the Internet. This ensures the application's availability and speeds time to market, while also reducing development costs. With headquarters in California, the firm serves customers worldwide through local offices and an international network of distributors. PLAY (very speculative - neutral/debit straddle): BUY CALL SEP-15.00 NHU-IC OI=112 A=$1.20 BUY PUT SEP-15.00 NHU-UC OI=132 A=$0.95 INITIAL NET-DEBIT TARGET=$2.00-$2.05 TARGET PROFIT=15-25% ****************************************************************** DQE - DQE Incorporated $15.01 *** Probability Play *** Headquartered in Pittsburgh, DQE (NYSE:DQE) delivers essential energy products and related services. Its principal subsidiary, Duquesne Light Company, is a leader in the transmission and distribution of electric energy, offering unique technological innovation and superior customer service and reliability to more than a half million direct customers throughout southwestern Pennsylvania. AquaSource, a subsidiary, is a water resource management company that acquires, develops and manages water and wastewater systems and complementary businesses. PLAY (very conservative - neutral/debit straddle): BUY CALL NOV-15.00 DQE-KC OI=340 A=$0.85 BUY PUT NOV-15.00 DQE-WC OI=205 A=$1.00 INITIAL NET-DEBIT TARGET=$1.70-$1.75 TARGET PROFIT=25-40% ****************************************************************** ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. 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