The Option Investor Newsletter Wednesday 10-16-2002 Copyright 2002, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: The Great Pretenders Futures Wrap: Intel Taketh away, IBM Giveth back Index Trader Wrap: A turn of events Weekly Fund Family Profile: Loomis Sayles Funds Traders Corner: Using Dow Futures to hedge IBM options Options 101: Blind Squirrel Finds Acorn Updated on the site tonight: Swing Trader Game Plan: Tech Surprise After Tech Surprise Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 10-16-2002 High Low Volume Advance/Decl DJIA 8036.03 - 219.65 8232.10 8013.41 1787 mln 303/1460 NASDAQ 1232.42 - 50.02 1253.61 1229.06 1406 mln 385/1008 S&P 100 436.19 - 7.07 447.26 425.54 totals 688/2468 S&P 500 860.20 - 21.25 881.27 841.44 RUS 2000 350.85 - 9.67 360.63 346.53 DJ TRANS 2201.30 - 85.16 2285.25 2182.73 VIX 41.97 + 2.23 49.71 46.28 VIXN 56.87 + 0.50 59.76 56.87 Put/Call Ratio 1.25 ******************************************************************* The Great Pretenders by Steven Price It appears that several of yesterday's contenders have been exposed as pretenders, instead. Stocks such as General Motors (GM), Citigroup (C) and Motorola (MOT) have seen a quick end to last week's rally, as earnings from both the companies themselves, and competitors, have shown the spotlight a little brighter on the fourth quarter outlooks. Last night's Intel earnings miss and comments about the fourth quarter got the ball rolling, but it should have been apparent even before that release that the good news wasn't really so good. Citigroup (C) included the sale of assets in their earnings release, which is a one-time occurrence. If they are relying on this type of income to meet earnings, then I get the feeling they are looking hard for ways to prop up the stock. With so many problems relating to bad debt and trading losses permeating the banking sector, it is hard to imagine that Citigroup doesn't face many of the same challenges. They have not (yet) announced problems in those areas, which makes me think there may be a time bomb somewhere on the horizon. Especially considering the broad base of problems at J.P. Morgan, which released figures today. J.P. Morgan Chase (JPM) beat earnings estimates, but profits still fell 95% from a year ago. The company announced 2000 additional job cuts, and hinted that there may be more to come. Vice Chairman Marc Shapiro said," We're going to continue to adjust our expenses to fit our revenues." The company said it was committed to maintaining its dividend and the regular payment of that dividend at least for this quarter. JPM's investment banking unit lost over $250 million, compared to a $700 million profit a year ago. Underwriting revenues also fell 18%. Trading revenues fell from $1.5 billion a year ago, to $370 million and fixed-income profits fell 50%. One of the biggest problems for JPM was bad debt, which cost the company over a $1 billion. Shapiro said that the company was aggressive in getting large write-offs on the telecom sector in the rear view mirror, but that loans to energy trading firms were now starting to create problems for banks. General Motors beat earnings yesterday by $0.21, which seems to be a huge margin. However, the full year estimates would indicate a fourth quarter below expectations, when taking into account the third quarter numbers. The stock was also downgraded recently, citing deteriorating auto industry fundamentals and pricing pressure on new and used cars. The company is already offering zero percent financing, which doesn't leave much room to account for lower prices without further damaging the bottom line. Standard and Poor's, which cited increasing pension liabilities and weakening North American demand for autos, cut the company's long-term debt today. S&P also said it may be cutting ratings on Ford (F), as well. Ford beat earnings estimates today, but still lost money in the third quarter. The loss came out to about $53 for every vehicle built in North America. It also announced that the return on its U.S. pension fund assets was down 15%, increasing its underfunded status to $6.5 billion, from $3.2 billion at the end of the previous quarter. About 70% of the fund's assets are invested in stocks. The CFO said the company had enough cash to deal with the pension shortfall. If the stock market does begin to turnaround, a continued rally could bail GM and Ford out of some of their current pension fund problems. However, it is a tenuous position to be in, considering the weak economic fundamentals. GM is looking at a current shortfall of around $20 billion. Boeing (BA) released earnings, which fell 43% from the year ago period. The company saw its commercial airplane revenue sink 24%, as it delivered 73 commercial jets during the quarter - 47 fewer than last year. However, it lowered the delivery estimate for next year from 275-300 planes, to 275-285 planes, and said 2004 should see a similar range. For the first time ever, in 2003, Boeing's military and aerospace aircraft division will surpass its commercial division. Another first is that rival Airbus will ship more planes than Boeing in 2003. The company also said that its commercial satellite and launch business would continue to struggle for several years. The Dow rally finally reversed direction today, as it ran into some important technical levels. The 1000-point gain of the last several days lost steam as it neared previous support, right around 8300. In fact there are quite a few technical indicators between 8200 and 8400. The 50-day moving average of 8277 was the first barrier. The recent drop from August-October, which saw the Dow fall from 9077 to 7197, was the down leg of a head and shoulders formation, with the right shoulder base at 8305. That 8305 level was also the 50% retracement of the July-August rally and served as support on 7 out of 10 days prior to the head and shoulders breakdown in September. In addition to these levels, there was also the 61.8% retracement of the recent drop, just above at 8359. So the fact that we pulled back today was somewhat predictable, when looking at the overextended rally on no real good news, and the significant resistance overhead. Chart of the Dow Jones Last night, Jim Brown pointed out in his Market Wrap the similarities between the appearance of the late July rally and the current rally. What he couldn't point out yesterday was that today's pullback would stop at the same level as the rally in July did (8030 vs. 8036). Dow Comparison After this morning's releases, the market geared up again for another big release after the bell. IBM beat expectations by 0.03 per share. After selling off, following a dividend cut form EDS, last month, Big Blue has come back strong. The stock traded as low as $54.01 before the recent rally. It finished the day at $64.90, down $3.58. However, after the earnings release, the stock traded as high as $70 after hours. Profits were still off 19% from last year, but investors apparently felt it had been oversold. This probably means a rally in the morning, but whether or not the Dow can get through that 7300 level should tell us a lot. We have already seen a break in the trend of lower highs, and if we can set some higher lows the pullback, we could start to see the building blocks of a rally. What makes me still highly skeptical is that the majority of reporting companies are still seeing poor results ahead. Even if the market is somewhat oversold, the trend of reductions in capital spending continues. If the fourth quarter and 2003 estimates are being reduced now, it is likely that firms are still hoping for the best and the current reductions don't reflect the true dangers ahead. After all, there is no reason for a company to let the cat completely out of the bag if there is a chance that things can turn around between now and then. On Monday, I included a graph of the Semiconductor Sector Index (SOX.X) that showed the index on the verge of a breakout. I looked back to the rebound attempt in late September as the measuring stick for the pattern of lower highs. The closing high of 256 and intraday high of 263 were both broken with Tuesday's rally. The index also broke out of its descending channel. So it appeared got that breakout yesterday, only to have the party spoiled by Intel's earnings miss and cautious comments going forward. Motorola (MOT) also warned that it would miss expectations for the fourth quarter and next year, and investors hammered it to its lowest level in 10 years. However, after the close today, QLogic (QLGC) beat expectations and was trading up over $2.50 after hours. Advanced Micro Devices (AMD) posted a larger than expected loss, but sales were in line with projections and it predicted higher sales and a smaller loss for the fourth quarter. This news, combined with IBM's surprise, may indicate that today's sector reversal may simply be a pullback on the way back up. It is hard to believe that is the case, with Intel's cautious comments being echoed by Novellus (NVLS), but we try to remember to trade what we see and the SOX may be giving us some long opportunities (I'm waiting for lightning to strike me for even mentioning chips as a long play). A bear could point to the rebound attempt in August as the high which would have to be broken in order to break the trend, as well as the 50-dma looming overhead. The 50-dma provided resistance to that rebound attempt in August, so I'm a little torn at the moment, but we should be aware of these different levels in deciding which way to play the sector. A decisive break above the 50-dma would certainly provide bulls with a little more fuel. Chart of the SOX Earnings season tends to bring an awful lot of whipsawing. Things look bleak, and then all of a sudden the world is a brighter place. Intel warns, and then IBM beats expectations. If Microsoft has positive comments on Thursday, we may see the bulls in full stampede on Friday morning, only to sit back and think about the overall economic picture over the weekend. While we have seen some technical barriers crossed, I still have a hard time believing in a long-term rally. When the unemployment lines shrink, and businesses begin talking about increasing capital spending, then I may start buying out of the money calls again. Until then, trading the swings for short-term moves still seems the most prudent plan. Today's pullback fell short of 8000, indicating we may now be seeing support at a previous level of resistance. To the upside, the 8300-8400 range will be tough to break through. Look for a bounce in the morning, on the heels of Big Blue, but look for the above outlined resistance to come into play soon thereafter. ************ FUTURES WRAP ************ Intel Taketh away, IBM Giveth back by Alan Hewko futures@OptionInvestor.com ------------------.----------------------- Forget where the market closed at 4 PM on Wednesday. IBM's earnings to the upside tonight changed all of that. In one sentence, Intel's terrible earnings Tuesday night caused the Dow -220 market we saw on Wednesday. IBM's earnings Wednesday afterhours (close $65, after hours $70) brought the bulls back. As previously done, the below abbreviations apply for this article: ES = E-mini SP500 December futures YM = E-mini Dow $5 December futures NQ = E-mini NDX 100 December futures ----------------.----------------- Futures Prices: Time IBM ES YM NQ 4:00 PM 65 860 8020 914 4:08 PM halted 865 8060 922 at time of IBM earnings 4:15 PM halted 863 8043 925 8:00 PM 70 876 (1) 935 (1)Dow Futures closed at 5 PM at 8063, re-opens 9:30 PM ES futures are higher by 16, NQ higher by 20 vs 4 PM close. I've showed you a few times, an ES chart of what happens sometimes at 3 AM when Europe opens in the futures overnight market. The below is an ES charts from about Wed 2PM thru Wed 8pm on how ES futures reacted to the IBM earnings, and then its guidance during its conference call. A fair amount of futures information is provided during the trading day, so for tonight please view today's Market Monitor for the Intraday futures comments. -----------------.---------------- FUTURES TRADE SIGNALS for Wed Oct 16 for today (in the Market Monitor) generated one trade: Short ES futures at 871.50, covering 1/2 position size at 868.50 for +3 point gain, and covering remaining 1/2 position at 863.50 for +8 ES point gain. Result was: 1/2 size : Gain of + 3 ES points, $150 per contract (3 x $50), or gain of + 15% based on $1000 margin. 1/2 size : Gain of + 8 ES points, $400 per contract (8 x $50), or gain of + 40% based on $1000 margin. ----------------.---------------------- Wednesday was all about last night's very bearish Intel (INTC) earnings news; and quite simply the market leaked lower most of the day until some short covers took place around 2-3 PM. I had referred several times the last 2 days during that impressive 1,000 point Dow rally, that ES futures had a downward gap it needed to fill at 852-855. That gap came very close to filling today as ES saw day lows of 856-857 at approx 2 PM and 3:30 PM My view is that after a 1,000 4-day Dow move, Shorts were expecting a triple header : bad earnings from INTC on Tue, IBM on Wed, and MSFT on Thur to generate a Long Profit taking selling event, with a possible target of Dow 7500-7600. I'm sure Shorts were very happy to see INTC miss very bad, and the Dow -220 day today had them thinking, 1 down, 2 more to go and we'll be back at Dow 7500-7600 by this coming Monday. IBM tonight ruined that Bear party. As you know by now, IBM beat by 3 cents, and some decent guidance was provided. IBM closed at 65, and was trading at $70 after-hours. A Short now wonders what MSFT has to say. Will they follow INTC's example and miss or have negative guidance. or Will they follow IBM's example Thursday morning has some economic reports, as well as earnings from EMC, NOK, MO, S, SAP. MSFT is the largest company reporting Thursday afterhours, and are somewhat famous for being masters at managing their earnings. THOUGHTS FOR THURSDAY: Many shorts are now "trapped" Assuming no vast surprises on the morning economic data, or from Thursday morning earnings, there will be a very large gap up. Gap up days are always difficult. 1. Gap and run or 2. Gap and trap or 3. Gap up, dip a bit lower, then continue higher. I shall use the ES level of 872-875 (and Tue's high of 882) to get a sense for the market's direction. Please join us in Market Monitor Thursday morning for a better feel on how the open looks. WEDNESDAY CHARTS ARE BELOW: Given what happened after-hours Wed, they are somewhat moot, but some pivot numbers have been noted: ES: (Emini SP500 futures) Dow Industrials: NQ (Emini NDX futures) It will be an interesting Thursday and Friday [grins] Alan Hewko Questions/comments ? email to futures@OptionInvestor.com ******************** INDEX TRADER SUMMARY ******************** A turn of events The major indexes gave back some of their gains today with disappointments from Intel (INTC) $13.54 -18% and Motorola (NYSE:MOT) $7.85 -22% giving bearish traders a bit of a reprieve from a four session rally. In after hours trading, bulls battled back after Dow component International Business Machines (NYSE:IBM) $64.90 -4.2% gained back today's losses and then some with after-hours trading at $70.00 on the New York ECNs after reporting earnings that beat the Street's estimates by 3 cents a share. In recent months, disappointing earnings sent investors scurrying toward the safety of Treasuries, but an encouraging sign today was that the 5, 10 and 30-year Treasuries all edged lower with the shorter-term 5-year Treasury Note futures (fv02z) 112'075 lower by -0.09%, while the longer-dated 30-year Treasury futures (us02z) 109'25 -0.34% closing below its 50-day moving average for a second consecutive session. 30-year Treasury Note (PRICE) - Daily Interval While stock traders are familiar with the saying "short-squeeze," bond traders currently talk of a "long squeeze" in Treasury bonds. In essence, bond traders and investors that have been stashing cash in Treasuries may be getting "squeezed" out of their bonds after buying some historically low YIELDS. Some follow through "squeeze" action may have been taking place today, but I think it is encouraging to an equity bull that money didn't flood back into the perceived safety of Treasuries. In our Index Trader Wrap on Sunday, October 6th, http://members.OptionInvestor.com/itrader/marketwrap/100602_1.asp we noted that the benchmark 10-year YIELD ($TNX.X) finished that week with a higher YIELD (caused by selling in the 10-year) and stocks staged an impressive rally last week. While we could argue that the longer-dated 10 and 30-year Treasuries are getting "long-squeezed" right now, this is why I'm keeping an eye on the shorter-term 5-year Treasury, which also saw marginal selling today. The reason I want to watch all Treasuries is we need to be careful that bond traders don't just take money out of the "riskier" longer-dated maturities and stash it in the shorter-date and "safer" maturities. I won't discuss the YIELD curve here, but for those interested, John Seckinger wrote a great piece for the OI Trader's Corner titled "Yield Curve" on September 24th. http://www.OptionInvestor.com/traderscorner/092402_1.asp For those that do read John's piece on the Yield Curve, here's today's closing futures prices for the Treasuries. US02Z=109'25, TY02Z=113'04 and FV02Z=112'075. (30, 10, 5 year). NASDAQ-100 Index Tracking Stock (QQQ) - Daily Interval It's interesting that the "riskiest" Treasury bond (30-year) breaks below its 50-day SMA, while the "riskier" NASDAQ-100 (NDX.X) 910 -4.23% and QQQ $22.78 -3.31% have recently broken above their 50-day SMA's. I can't believe I'm writing this, but the Q's actually traded pretty darned good today consider the "bombshell" that Intel (INTC) unloaded last night. Aggressive bulls can look long and use a tight stop just under today's lows of $22.50. I like the way the QQQ's pulled into our "old" upward trend, but held that trend as support. Near-term target would be 80.9% retracement of $24.21, with a close eye on the Treasury markets. If bonds get "flushed" QQQ should trade strong. Just understand, there's going to be some jitters between bulls and bears during earning's season! S&P 100 Index Chart - Daily Interval Despite some analyst's questioning Citigroup's (NYSE:C) $33.85 -0.85% recent "quality of earnings," the KBW Bank Index (BKX.X) 726.91 -0.77% and Citigroup hardly budged and held the bulk of their gains. While bulls and bears would like to see the OEX pull back into the 418-420 ranges, a break above today's high could bring another wave of buying into the OEX. Trade strategy for those not holding a bullish position could be to take a 1/4 position on a break back above 442. Those bulls holding out for a pullback with stochastics "overbought" can establish 1/4 or 1/2 bullish positions into the 418-430 zone. I would think a trader using some trade size limitations and trade management would be well served to do so during earning's season. I really think a pullback into 418-430 that found a brief dip below the 418 level (say some type of earning's woes), but would see a rebound higher back within the 418-430 range and a move higher. Despite today's lower OEX index action, the OEX bullish % ($BPOEX) actually saw a net gain of 1 stock to a point and figure "buy signal" today at 37% bullish. S&P 500 Index Chart - Daily Interval The SPY found intra-day support near our 50% retracement bracket. While somewhat "unconventional" our fitted retracement sure seemed to provide resistance at this level in late September, but held firm despite Intel's news. Tomorrow morning, a bull may actually "hope" form some bad news from EMC, which has warned on earnings in previous sessions for the SPY to dip into the $83.77- $85.97 zone. I might sound like I'm beating a John Seckinger "drum" tonight, but tomorrow morning, a trader following a trade technique called "Open to Close" may be useful for trade setup in the morning. John wrote about this technique in his October 8th Trader's Corner article titled "Open to Close." http://www.OptionInvestor.com/traderscorner/100802_2.asp With S&P futures building gains tonight after IBM's earnings, this trading technique may be useful tomorrow morning. Dow Industrials Chart - Daily Interval While I wouldn't say that IBM's earnings were anything for a bull to cheer about, bears probably didn't get their "daily double" dose of bad news from another tech-component to add onto Intel's shellacking. Bulls can be looking long on this pullback with 1/4 positions for now, which would give some cushion to support at 7,962 and 7,745. I thought for "sure" that the Dow would trade 8,000 today, but it didn't. If that's a sign that bears are still rather aggressive in their covering, then there may be more bullishness to be found should the Dow make a break above its 50- day SMA and Monday's high. Jeff Bailey ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************** WEEKLY FUND FAMILY PROFILE ************************** Loomis Sayles Funds The Loomis Sayles Funds are a family of 14 no-load mutual funds designed to meet a broad range of investment objectives. Their funds may be purchased directly or through Schwab, Fidelity and other fund networks. Established in 1926, Loomis Sayles is one of the oldest investment management firms in America with $60.8 billion in assets under management as of June 30, 2002. Mutual funds comprised $7.3 billion or 12 percent of the firm's assets at mid-year 2002. Through its institutional channels and no-load family of funds, Loomis Sayles & Co. manages both fixed income and equity assets for institutional, high net worth and mutual fund clients. The firm's investment staff (509 as of June 30, 2002) is one of the largest in the industry, reflecting a strong commitment to high quality, proprietary research. Headquartered in Boston, Loomis Sayles maintains regional offices in New York, Chicago, Detroit, Washington DC, Milwaukee, Minneapolis/St. Paul, Pasadena and San Francisco. Loomis Sayles & Co. today is one of 14 affiliates and divisions that comprise CDC IXIS Asset Management North America, a wholly owned subsidiary of CDC IXIS Asset Management, France's leading institutional money manager. Affiliates of Loomis Sayles & Co. include AEW Capital Management; Capital Growth Management; Caspian Capital Management; CDC IXIS Asset Management Advisors Group; CDC IXIS Asset Management Associates; CDC IXIS Asset Management Services; Harris Associates; Jurika & Voyles; Reich & Tang Capital Management; Reich & Tang Funds; Snyder Capital Management; Vaughan, Nelson, Scarborough & McCullough; and Westpeak Global Advisors. Loomis Sayles' mutual funds come in three classes: institutional, administrative ("admin") and retail shares. Institutional class shares have no 12b-1 fee and $250,000 minimum initial investment, except for Loomis Sayles Bond Fund ($25,000). Admin shares are available only through 401(k) administrators and wrap programs, and charge up to 0.25% of average net assets to offset record- keeping costs (in addition to a 0.25% 12b-1 fee). Retail class shares have a 0.25% 12b-1 fee, and are available directly from Loomis Sayles for a minimum initial investment of $2,500. They may also be purchased through over 100 fund networks. Our focus is on the 11 Loomis Sayles funds open to retail investors (three funds are available only to the institutional marketplace). Mutual Funds Overview According to the Loomis Sayles website, the following investment strategies are available to retail investors directly or through leading mutual fund marketplaces as follows: Equity Funds: -Research -Growth -Aggressive Growth -Small Cap Growth -Small Cap Value -International Equity -Emerging Markets Fixed Income Funds: -Benchmark Core Bond -Investment Grade -Bond -Global Bond Loomis Sayles Research Fund was introduced in July 2000 to expand the firm's institutional lineup, and was made available to retail investors in November 2001. Lauriann Kloppenburg, who has been with Loomis Sayles since 1982 and is director of equity research today, serves as the lead portfolio manager of the Research Fund. This product seeks to capitalize on the depth and experience of Loomis Sayles' equity analysts and their "proprietary" internal research capability, their so-called "cornerstone for 70 years." The equity analysts are grouped in teams representing each sector of the S&P 500 Index. They meet regularly to discuss trends and exchange stock ideas, focusing on companies possessing strong or improving fundamentals. Each team then decides what equities to recommend for purchase (or sale) in their respective sector. In other words, the Research Fund seeks to leverage the information advantage the firm believes it has in the form of a single "best ideas" portfolio. While the fund can invest in companies of any size, it generally lands in the large-cap core (blend) style box. Loomis Sayles offers only one value-driven fund at this time, the Small-Cap Value Fund (LSCRX), but it has more of a core style, at least as far Lipper and Morningstar are concerned. Both trackers have the Small-Cap Value Fund in the small-cap core (blend) style box. Loomis Sayles' core value product (Value Fund) is available only to institutional investors currently. On the growth side, Loomis Sayles has three growth-oriented fund products. Loomis Sayles Growth Fund was launched in May 1991 to the institutional marketplace and invests primarily in large-cap growth stocks. Retail class shares of the Growth Fund were made available on December 31, 1996. Loomis Sayles Aggressive Growth Fund (LAGRX) and Small-Cap Growth Fund (LCGRX) were also started on December 31, 1996, both institutional and retail class shares. Aggressive Growth Fund invests mainly in mid-cap growth equities, while Small-Cap Growth Fund as its name suggests focuses on small rapidly growing companies. Loomis Sayles offers two international equity fund products, one focused on the developed foreign markets, and one focused on the developing (emerging) markets. The International Equity product was launched in May 1991, and was opened to the retail market in December 1996. It has a "growth" style and invests primarily in mid/large-cap stocks. The Emerging Markets product was launched in November 1999, and was opened to retail investors in May 2000. It has a mid-cap growth style bias. Loomis Sayles' global equity fund product (Worldwide Fund) is available only to institutional investors at this time. The firm offers four fixed income strategies to retail investors, which all seek to achieve high total investment return through a combination of current income and capital appreciation. The four funds vary in terms of their average credit quality and maturity. Like Loomis Sayles Growth Fund, Loomis Sayles Bond Fund (LSBRX) was launched in 1991 and opened to retail investors in December 1996. It invests primarily in mid-grade (A/BBB) corporate bond securities with long-term maturities. The Investment Grade Bond Fund began operations in December 1996, and introduced a retail share class in January 2002. It invests mainly in intermediate, investment-grade securities. The Benchmark Core Bond fund product was introduced in May 1997 and was recently opened to the retail marketplace in April 2002. It's designed to serve the role of a "core" bond fund, one that invests in both high-quality government bonds and medium-grade corporate bonds with intermediate-term to long-term maturities. The U.S. Government Securities Fund product is offered only to institutional investors currently. Loomis Sayles Global Bond Fund has its origin in May 1991, and introduced a retail class share in December 1996. It seeks to provide high total investment return by investing primarily in medium-grade foreign bonds with long-term maturities. Being a global bond fund it may invest in U.S. fixed income securities also (30% is common). Our Favorite Funds Our favorite U.S. equity product is the Loomis Sayles Research Fund (ticker N/A) run by director of equity research, Lauriann Kloppenburg. It does not have an established track record yet, but should serve its "large-cap core" role nicely. It invests across various industries within a sector and allocates assets across sectors in weightings that are relatively similar to the market (S&P 500 index). The Research Fund seeks to "add value" over the benchmark through security selection using proprietary internal research, rather than making big sector bets that have potential to backfire. As of September 30, 2002, the Research Fund was down 26.8% on a YTD basis compared to losses of 28.2% for the S&P 500 index and 28.2% for the average large-cap core fund per Lipper. The fund is almost a full percentage point behind the benchmark index on an inception-to-date basis, however. Still, I like the chances of this disciplined strategy over time, which seeks to leverage Loomis Sayles' equity analysts and information advantage in the form of a single "best ideas" portfolio. If you think that we are in the early stages of the next growth cycle in the market then you may wish to consider one of Loomis Sayles' growth-oriented stock funds. Loomis Sayles Growth Fund (ticker N/A) is the most conservative of three pro-growth funds since it invests primarily in the large-cap growth sector. The Loomis Sayles Aggressive Growth Fund (LAGRX) emphasizes the mid capitalization sector while Loomis Sayles Small Cap Growth Fund fishes in small-cap waters. Each fund has a different risk and reward tradeoff. Among fixed income funds we like the prospects of the Benchmark Core Bond Fund (ticker N/A) over time. It invests primarily in investment grade, fixed income securities (including government, corporate, mortgage-backed and asset-backed securities) and may invest in bonds of any maturity. Overall, it seeks to create a portfolio similar to the Lehman Aggregate Bond Index with regard to weightings among segments of the investment-grade bond market. In other words it's similar to the benchmark bond index in terms of its risk factors (duration/maturity, industry sectors, credit quality, and call protection). Through September 30, 2002, the Benchmark Core Bond Fund product had an inception-to-date annualized total return of 6.9%. That return is comparable to other intermediate-term investment-grade bond funds per Lipper but about 1.2% less a year on average than the benchmark (Lehman Aggregate Bond index). However, since new co-managers (Richard Rezek and Kurt Wagner) took over the day to day portfolio management on May 1, 2002, return performance has improved. The fund produced a 2.7% return in Q2 2002 and a 4.3% return in Q3 2002 (using institutional class share information). Bond investors seeking the higher yield and return potential of global fixed income securities should like Loomis Sayles Global Bond Fund (ticker N/A). It invests mostly in investment grade, fixed income securities (including convertibles) denominated in various currencies, including U.S. dollars or in multi-currency units ("Euro"). Note that foreign securities may present risks not associated with investments in comparable securities of U.S. issuers, such as currency fluctuations, political and economic instability, and differences in accounting/reporting standards. Compared with its benchmark (Salomon Brothers World Government Bond index) and its global fixed income fund peers, the Loomis Sayles Global Bond Fund has performed very well, generating an average annual return of 7.3% over the trailing 10-year period thru September 30, 2002. That compares to an annual-equivalent return of 5.8% for the benchmark index, and 5.2% for the Lipper average of global income funds. Since December 31, the fund is up around 10 percent. Conclusion Some of Loomis Sayles' retail class shares do not have symbols yet due to their small size or because they are relatively new. You can obtain more information by calling 1-800-633-3330, and speaking with a Loomis Sayles representative. Fund prospectus information is available online at www.loomissayles.com. I'd be remiss if I didn't mention Loomis Sayles Provident Fund (LSCGX), the firm's only Morningstar 5-star rated stock mutual fund. The Provident Fund, however, has a $2.5 million minimum initial investment. Its large-cap blend style makes it a fine "core" holding. If it opens to the retail market, you may want to have a closer look. Steve Wagner Editor, Mutual Investor email@example.com ************** TRADERS CORNER ************** Using Dow Futures to hedge IBM options by Alan Hewko futures@OptionInvestor.com Wednesday, Oct 16 2002 I had noticed an interesting trade today, but given its complex nature, did not view the Market Monitor as the proper venue to discuss it. I would like to review it nonetheless, as it's rather eloquent. In short, the trade would have used Dow Futures to hedge an IBM option position into IBM's earnings Wed night, October 16. ________________________________________________________________ Trade Setup: Last night, Intel (INTC) had terrible earnings causing Wednesday's Dow -200 point decline. IBM, a Dow 30 stock, had earnings tonight with some expecting them to miss earnings or provide negative guidance which would match the bearish words from INTC just last night. IBM spent most of the afternoon going sideways at $65, which was 3 points lower than yesterdays close. The Dow spent most of the afternoon at the 8050 level. If you were an IBM Option Market Maker today, would you price IBM Oct 65 Calls and IBM Oct 65 Puts cheaply or would you price them high? Obviously, given the vast uncertainty of IBM's earnings, you would price them very high, making them "expensive". Once the Option market makers discovered tonight what IBM had to say on their earnings and forward-looking guidance, the premium of those IBM October options would be reduced as the uncertainty factor was removed by hard data. The key to this trade is that "smart money" will often SELL expensive option premium (and find a way to hedge it) vs. BUYING expensive option premium. (read that again for its the key to the entire trade) October options expire this Friday. YM (Dow $5 Futures) trade until 5 PM (long after IBM earnings would be released). ________________________________________________________________ Trade Details: It is now Wednesday at 1:30 PM, a few hours before IBM earnings. IBM Stock is $65 and sideways. Dow is sideways at 8050. IBM October 65 Calls are $2.20 x $2.30 IBM October 65 Puts are $2.40 x $2.50 Short (sell to open) 10 IBM Oct 65 Calls at $2.20, $2200 Short (sell to open) 10 IBM Oct 65 Puts at $2.40, $2400 Your total CREDIT from these 2 positions is $4.60, $4600 In a perfect world, you now want IBM to close at 65.00 this Friday at 4 PM so both of those options will expire worthless and you get to keep 100% of the above premium that you sold today. ________________________________________________________________ You realize there are 3 possible scenarios: IBM closed at $65, and you see it trading at either $60 or $70 tomorrow, with the third possibility (slight) that the earnings are a "non-event" and the stock looks to remain at/near $65 1. IBM follows INTC and has TERRIBLE earnings. Your guess is IBM will head to the $60 level. As Dow Futures will be trading when IBM earnings come out, you would then open a Dow Futures SHORT with a fill at 8000 with a size of 5 futures contracts; and take all 3 positions home overnight. Why? When IBM goes lower off those terrible earnings, it will go under the 65 strike price. IBM 65 Calls will go down at tomorrow's open, and likely to become worthless as they expire this Friday. You sold them for $2.20 and will get to keep all of that premium. IBM 65 Puts will increase in value at tomorrow's open; but much closer to their intrinsic (or real) value as expiry is coming up. If IBM stock opens at $60 tomorrow morning and the Dow at 7850; the IBM 65 Puts would likely be about $5.50 to $6.00 range. You are however fully hedged as you still are Short Dow Futures. You sold those 65 Puts for $2.40 and they are now at $5.75 (-3.35 or negative $3,335 for you); but you have a gain of 150 YM points (Dow $5 futures) in the 5 contracts you took home [Gain of 150 points x $5 per point x 5 contracts = + $3750] from your Dow futures short from 8000; and this fully offsets the losing "Short IBM 65 put position" Result of this scenario at IBM $60, Dow 7850: Position: Value Your Profit/Loss Short 10 IBM 65 Calls at $2.20, $2200 $ 0 + $2,200 Short 10 IBM 65 Puts at $2.40, $2400 $ 5,500 - $3,100 Short 5 YM Dow Futures from 8000 $ 3,750 + $3,750 ------ Your total Profit + $2,850 2. IBM has an earnings surprise to the UPSIDE Your guess is IBM will head to the $70 level. ACTION: Hedge by opening a YM (Dow futures) LONG at 8060 with a size of 5 futures contracts, and take all positions home overnight. In this case, the Calls will increase in value, the puts will become worthless. IBM tomorrow trades at $70, Dow trades at 8200 and the IBM Oct 65 Calls would likely be $5.50x$6.00 (Calls you sold for $2.20); however, once again, you are fully hedged by still being Long Dow futures. Dow is 8200 so the 5 Long YM (Dow$5 futures) contracts you hold long from 8060 are worth a gain of 140 points (8200-8060=140), and have a Gain of + $3,500 (140 Dow points x $5 per point x 5 contracts = $3,500) Result of this scenario at IBM $70, Dow 8200: Position: Value Your Profit/Loss Short 10 IBM 65 Calls at $2.20, $2200 $ 5,750 - $3,550 Short 10 IBM 65 Puts at $2.40, $2400 $ 0 + $2,400 Long 5 YM Dow Futures from 8060 $ 3,500 + $3,500 ------ Your total Profit + $2,350 You might ask why the total profit is less when IBM had good earnings vs. bad. I took the real-world assumption that you would have had a harder time going long those Dow futures and would have needed to pay a bit more to create the hedge. Why? Because IBM beating earnings was more of a surprise than them missing; and you would have had long buyers and shorts covering (on a short squeeze) creating a condition of needing to pay a higher price to open the Dow Futures long hedge. 3. IBM earnings are a "non-event" and are inline with so/so guidance. This was the least likely possibility, but nonetheless, something you needed to consider. You would expect IBM to trade between 64 and 66. ACTION: You do not hedge with Dow Futures, neither long or short. We've seen cases where a highly anticipated important stock earnings becomes a total boring "non-event". It's neither good nor bad. Let's assume IBM opens tomorrow at $66.33 and appears to just drift sideways. Since the option market makers now know the result of IBM's earnings, the option premium for all October options gets reduced, also, even though it's just one day, there is a fair amount of time decay as they expire this Friday. At IBM stock of $66.33 tomorrow IBM Oct 65 calls are $1.50 x $1.80 IBM Oct 65 puts are $0.80 x $1.00 We close out this position by "buying to close" both IBM positions. ACTION: Buy (to close) IBM 65 calls at $1.80, $1800 Buy (to close) IBM 65 puts at $1.00, $1000 Result of this scenario at IBM $66.33, Dow 8100: Position: Shorted 10 IBM 65 calls at $2.20, $2200 Buy to cover 10 IBM 65 calls at $1.80, $1800 Profit/Loss on this position: + $700 Shorted 10 IBM 65 puts at $2.40, $2400 Buy to cover 10 IBM 65 puts at $1.00, $1000 Profit/Loss on this position: + $1,400 No Dow Futures hedge position was established Profit/Loss on this position: Not applicable Grand total of this Trade: + $2,100 (700+1400) ________________________________________________________________ Summary: If you read this article twice, you might discover it is not as complicated as it appears on the surface. It is an elegant and somewhat complicated method to simply gain profit by selling expensive option premium and then hedging with futures. The risk on the trade was rather small. Naturally, some of the above numbers are an educated guess as to where the options would trade at, but they serve the purpose for this example. Alan Hewko Questions/comments? futures@OptionInvestor.com *********** OPTIONS 101 *********** Blind Squirrel Finds Acorn by Mark Phillips mphillips@OptionInvestor.com As the pivotal month of October reaches its mid-point, the one factor that has remained constant is volatility. Triple-digit moves on the DOW continue to be a nearly daily occurrence, as investors struggle to make sense of the early earnings reports coming out of Corporate America. Since the August highs, the markets have been sold hard, with all of the major indices (with the notable exception of the OEX) moving to fresh multi-year lows. At the same time, all of the PnF Bullish Percent readings moved very close to the extreme readings found in late July, the last time the market attempted to put in a bottom. Two weeks ago, with the broad markets looking like they were trying to form a bottom, I went looking for some metrics that could be used to gauge the likelihood of a bottom formation. In case you missed it, here are the three signs I was looking for, to prompt me to consider fishing for a bottom. 1. VIX pushing above 50 again with the broad markets slightly breaking their lows for the year. 2. Bullish Percent charts for the major indices reversing from oversold condition below current levels. 3. Successful upturn in multiple oscillators (MACD, RSI and Stochastics) on weekly charts of all the major indices. Hmmmm...that's kind of interesting. Since that time, all of those factors have shaped up in the bulls' favor. Is it any surprise that the DOW experienced a powerful 1000+ point rally off its recent lows? Let's look at the individual factors, as they have shaped up over the past few weeks. Volatility (VIX): When we looked at the VIX two weeks ago, I pointed out that the index had been rangebound between 40-48, and needed to either break out over the 48 level or print a value of 39 or below to break out of this range. I was looking for the VIX to push through the 50 level, in conjunction with the broad market violating the July lows. With the broad market already deep in oversold territory, my expectations were for any breakdown to be short-lived, leading to a strong short-covering rally. Sure enough, last week's market weakness led the VIX to push briefly above 50, while the DOW, SPX and NDX all pushed to new multi-year lows. Since last Thursday morning, the VIX has fallen from a high of 50.48 to a low yesterday afternoon of 39.58. Isn't it interesting how the print at 50 confirmed the PnF Buy signal just in time for the market (and VIX) to reverse with vigor? The PnF picture for the VIX has changed dramatically in the past couple weeks, and it is in the bulls favor. Take a look at the updated PnF chart below and you can see that the drop in the VIX in recent days has put the VIX on its first PnF Sell signal since early September. Point & Figure Chart of the VIX As the VIX is a pretty reliable measure of investor fear, this reversal of fortunes in the supply/demand of the 'Fear Index' tells me that this fledgling rally in the broad market still has some room to run. Bullish Percent: Index July Low October Low Current S&P 500 12% 19% 32% -- Bull Alert DOW 3% 7% 36% -- Bull Confirmed NASDAQ-100 8% 13% 38% -- Bull Alert That's one heck of a recovery in such a short period of time. Typical of a bear-market rally, the rebound has been fast and furious, as shorts have stumbled over one another trying to close profitable positions before those profits melt away. While the initial upthrust has been violent and abrupt, dominated by huge gap moves, the internal strengthening demonstrated by the improvement in the Bullish Percent numbers hints that the market has already factored in most of the negative earnings news and is willing to let prices continue higher over the near term. Price Charts: That leaves us with one more piece of the puzzle that needs to be evaluated -- the progression of the weekly price charts, along with their oscillators, such as Stochastics and RSI. Just 2 weeks ago, the S&P 500 (SPX.X) was struggling to hold above the 800 level, while the NASDAQ-100 (NDX.X) had just posted fresh multi-year lows near 825. Clearly, that situation has improved significantly since then, but let's see what those weekly charts have to say. Weekly Chart of the SPX and NDX The recovery off the price lows of last week has put the charts in a much more bullish position. The weekly Stochastics have reversed nicely out of oversold territory, as the price charts have marched sharply higher. And then we have some bullish divergence between the price charts and the RSI oscillator. While price in both the SPX and NDX moved to lower lows than what was seen in July, the RSI for both indices put in higher lows. This gives us another hint that the bulls are gaining strength. Well, how do you like that? All three of the indications that I was looking for to signal the next sustained bullish move have been satisfied -- and in short order, to boot! Every once in a while, a blind squirrel manages to find an acorn! Of course, we need to temper any bullish long-term enthusiasm with the realization that both of these indices are still well under their multi-month descending trendlines and we still haven't seen the pattern of lower highs challenged. Before we'll even have a hint that the bearish nature of the market has changed, we need to see a higher high to break the persistent downtrend of the past 2+ years. That means the NDX needs to push through the 1055 level, while the SPX will need to convince us by scaling the August highs near 965. Between here and there, significant upside exists for traders that are willing to side with the bulls for awhile. To recap, all the weekly charts are in the early stage of a bullish advance, the VIX has turned bearish (bullish for equities) and all of the Bullish Percent charts are telling us of a bullish advance that is just getting started. Does this mean that we can go long with impunity? Not by a long shot! But it does tell us that the trading environment has changed. No longer is "Sell the Rallies" the battle cry of the successful trader. Since late July, we went from deeply oversold to overbought and back to oversold. Now we are in the process of working off that oversold condition, and now "Buy the Dips" appears to be the 'en vogue' approach. Changing our bias as quickly as the current market environment demands is difficult, even for experienced traders. Hopefully this discussion, where we have combined option volatility analysis and supply/demand metrics (Bullish Percent charts) with the more widely understood price charts gives you a fresh view and more tools to apply in the battle we face every day. Best Trading Wishes! Mark ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *********************** SWING TRADER GAME PLANS *********************** Tech Surprise After Tech Surprise Tech stocks are set to rocket on Thursday if the earnings after the bell are to be believed. IBM beat estimates by 3 cents, MACR beat by 11, QLGC beat by 2 cents and SYMC raised their guidance. The October bulls should have a field day with these results. To read the rest of the Swing Trader Game Plan Click here: http://www.OptionInvestor.com/itrader/indexes/swing.asp ************************Advertisement************************* _If you haven_t traded options online _ you haven_t really traded options,_ claims author Larry Spears in his new compact guide book: _7 Steps to Success _ Trading Options Online_. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* 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 Wednesday 10-16-2002 Copyright 2002, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: none Dropped Calls: MBG Dropped Puts: none Play of the Day: Call - LLY Spreads, Combinations & Premium-Selling Plays: From Rally To Retreat! Updated on the site tonight: Market Watch Market Posture ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************** STOP-LOSS UPDATES ***************** none ************* DROPPED CALLS ************* MBG $29.27 -2.53 (-0.92 for the week) Mandalay Bay saw its rebound fail today, after Lehman Brothers made comments regarding the drop-off in business in riverboat markets. Tropical storm Isidore interrupted business at Gulf coast casinos owned by MBG and others. In spite of increases in business at Las Vegas strip casinos, investors sold-off MBG and other gaming stocks. MBG had successfully tested its 200-dma, currently $29.76, on several occasions last week, however today's drop took it below that level and engulfed most of the last week's activity. We don't like the technical breakdown in MBG and will walk away and find better opportunities. ************ DROPPED PUTS ************ none ************************Advertisement************************* _If you haven_t traded options online _ you haven_t really traded options,_ claims author Larry Spears in his new compact guide book: _7 Steps to Success _ Trading Options Online_. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** LLY - Eli Lilly - $63.66 -0.35 (+1.66 for the week) Company Summary: Lilly, a leading innovation-driven corporation, is developing a growing portfolio of best-in-class pharmaceutical products by applying the latest research from its own worldwide laboratories and from collaborations with eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly provides answers -- through medicines and information -- for some of the world's most urgent medical needs. (source: company release) Most Recent Write-Up: Lilly broke out on the daily chart after consolidating between $60 and $55 for the better part of the last 2 months. While the broader market screamed forward the last four days, Lilly just continued its upward movement in orderly fashion, which began prior to the rally. On Monday, it broke out on the point and figure chart, trading over $63 to get the stock above resistance from the end of August. It then reversed course and headed lower, but found support right at $61, for a successive higher low. Today, the stock sat close to unchanged for most of the morning, before starting its climb toward another new high. While watching LLY intraday can be frustrating from the long side, the stock has now posted gains for 6 of the past seven days, losing only $0.01 on the one day it did not. We are approaching the 200-dma of $65.54 and the stock could certainly see some resistance there. The company settled a lawsuit today over a 1991 suicide that a man's family based on his use of Prozac, and Johnson and Johnson beatings earning's also helped its rise. If we experience a broad market pullback, after the recent surge, a sinking tide could drag LLY back a bit with it. We are raising our stop on the play to $61, where the stock found support yesterday. Another higher low, above this level, can be used for long entries, as long as the bottom is not falling out of the Dow. In the case of a major sell-off, we don't recommend long entries. Why This is Our Play of the Day: LLY did its best to buck the trend this morning, achieving a new relative high of $65.00. While it has some resistance at the 200-dma of $65.53 looming above, the stock continues to find intraday support at successively higher round numbers. Friday was $60, Monday was $61, Tuesday was $62 and Wednesday was $63. While it couldn't hold its high, in the face of a sinking tide, we are looking for a market rebound in the morning to give it another push. When a stock begins to look extended, we look for signs of a pullback for entry. LLY has experienced pullbacks intraday, but has been so strong that it has posted gains in 6 of the last 7 trading sessions, and the only pullback was today's loss of 0.35 on a day when the Dow lost over 200 points. Conservative traders can look for a break above the 200-dma of $65.44 to initiate a long play. However, we favor entry on a pullback to intraday support of $63, or a show of new intraday support of $64. BUY CALL NOV-60 LLY-KL*OI= 1801 at $5.40 SL=2.70 BUY CALL NOV-65 LLY-KM OI= 5447 at $2.20 SL=1.10 BUY CALL JAN-60 LLY-AL OI= 9096 at $7.30 SL=3.75 BUY CALL JAN-65 LLY-AM OI= 7948 at $4.30 SL=2.20 Average Daily Volume = 4.38 MIL ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* From Rally To Retreat! By Ray Cummins Stocks recoiled Wednesday amid renewed selling pressure after a cluster of market bellwethers warned of challenging economic conditions. The Dow Jones Industrial Average fell 219 points to 8,036 in response to negative comments from Intel (NASDAQ:INTC), Boeing (NYSE:BA) and Coca-Cola (NYSE:KO). The NASDAQ Composite fared no better, down 50 points to 1,232 on weakness in networking and computer hardware issues. In the broader market, airline, auto, financial, utility and cyclical shares were sharply lower while gold-related stocks edged into the plus column. The Standard & Poor's 500-Stock Index slid 21 points to 860. Trading volume was light at 1.55 billion the NYSE and at 1.59 billion on the hi-tech exchange. Decliners trounced advancers 3 to 1 on the Big Board and more than 3 to 2 on the NASDAQ. Treasury notes rebounded as stocks slumped. The 10-year note edged up 12/32 to yield 4.04% while the 30-year government bond was off 15/32 to yield 4.99%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 10/15/02 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of actual traders, due to the variety of ways in which each play can be opened, closed and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The play commentary (when provided) is simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it replace your duty to diligently monitor and manage the positions in your portfolio. Naked Puts Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mo. Yield AMGN OCT 35 33.15 50.48 $0.85 6.1% CHTT OCT 35 34.50 41.40 $0.50 4.3% CCMP OCT 30 28.90 42.12 $1.10 8.1% INTU OCT 40 38.60 49.53 $1.40 6.9% INVN OCT 25 24.45 31.71 $0.55 6.3% MIK OCT 40 39.35 43.00 $0.65 4.6% ROOM OCT 40 39.25 55.17 $0.75 5.1% BSTE OCT 20 19.65 28.55 $0.35 5.6% ESRX OCT 45 44.50 57.05 $0.50 4.0% GD OCT 75 73.65 80.00 $1.35 5.3% INVN OCT 25 24.45 31.71 $0.55 7.8% NOC OCT 110 108.55 115.39 $1.45 4.0% XAU OCT 60 59.25 61.16 $0.75 4.6% AZO OCT 70 69.30 83.50 $0.70 4.0% BSTE OCT 22 22.10 25.90 $0.40 8.3% ESRX OCT 45 44.45 28.55 $0.55 5.6% FRX OCT 70 69.20 97.06 $0.80 4.7% ROAD OCT 30 29.65 38.98 $0.35 5.8% SCHL OCT 40 39.55 47.95 $0.45 4.6% AZO OCT 75 74.05 83.50 $0.95 6.7% FRX OCT 80 79.30 97.06 $0.70 4.9% WLP OCT 72 71.80 84.80 $0.70 4.9% AMGN OCT 40 39.65 50.48 $0.35 9.1% BSX OCT 32 32.30 35.19 $0.20 5.9% FRX OCT 80 79.55 97.06 $0.45 5.9% UHS OCT 50 49.65 55.83 $0.35 6.2% WLP OCT 72 72.15 84.80 $0.35 4.5% GILD NOV 25 24.35 34.00 $0.65 7.0% TARO NOV 28 26.90 35.16 $0.60 5.4% Positions in L-3 Communications (NYSE:LLL), Engineered Support Systems (NASDAQ:EASI) and Capital One Finance (NYSE:COF) have been closed, though all three issues have rebounded with the recent rally. The position in Cognizant Technology Group (NASDAQ:CTSH), while closed early to prevent losses, is currently positive. Naked Calls Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield QLGC OCT 40 41.20 26.40 $1.20 9.7% INTU OCT 50 51.50 49.53 $1.50 6.8% EBAY OCT 65 66.20 58.01 $1.20 5.5% QLGC OCT 45 45.45 26.40 $0.45 4.9% XL OCT 80 81.25 79.40 $1.25 4.6% DIA OCT 86 87.15 82.80 $1.15 4.0% MUR OCT 90 91.75 89.60 $1.75 6.2% BZH OCT 70 70.70 62.80 $0.70 5.5% MUR OCT 90 91.35 89.60 $1.35 6.7% SNPS OCT 40 40.70 38.23 $0.70 14.6% KSS NOV 65 65.90 58.60 $0.90 5.8% SIAL NOV 50 50.75 48.26 $0.75 5.0% As previously noted, Murphy Oil (NYSE:MUR) has resumed its upward trend and conservative traders should consider closing the position to lock-in profits and/or limit losses. Intuit (NASDAQ:INTU) and XL Capital (NYSE:XL) are on the early exit watch-list after Tuesday's market-wide rally. November plays in Kohl's Stores (NYSE:KSS) and Sigma Aldrich (NASDAQ:SIAL) should be monitored for continued upside activity as they approach near-term resistance areas. Put-Credit Spreads Stock Gain Symbol Pick Last Month L/P S/P Credit C/B (Loss) Status MBG 32.46 31.80 OCT 27 30 0.30 29.70 $0.30 Open APOL 43.48 45.05 OCT 35 40 0.50 39.50 $0.80 Open ETM 48.45 48.80 OCT 40 45 0.65 44.35 $0.03 Open UNH 89.50 96.47 OCT 80 85 0.65 84.35 $0.65 Open INTU 45.90 49.53 NOV 35 40 0.60 39.40 $0.60 Open MME 38.08 41.77 NOV 30 35 0.55 34.45 $0.55 Open Positions in Lowe's Companies (NYSE:LOW), Stryker (NYSE:SYK), Patterson Dent (NASDAQ:PDCO) and H&R Block (NYSE:HRB) were previously closed to prevent losses. Just as "Murphy's Law" would have it, they are all currently positive. Call-Credit Spreads Stock Gain Symbol Pick Last Month L/C S/C Credit C/B (Loss) Status JNJ 55.48 59.56 OCT 65 60 0.50 60.50 $0.50 Open? MSFT 48.58 52.29 OCT 60 55 0.55 55.55 $0.55 Open PHM 48.46 43.01 OCT 60 55 0.60 55.60 $0.60 Open WFT 39.37 42.20 OCT 50 45 0.60 45.60 $0.60 Open WY 49.78 44.98 OCT 60 55 0.60 55.60 $0.60 Open LEN 55.07 57.14 OCT 65 60 0.70 60.70 $0.70 Open PII 65.02 61.91 OCT 75 70 0.50 70.50 $0.50 Open ATK 69.25 60.20 OCT 80 75 0.45 70.45 $0.45 Open FNM 64.62 70.98 OCT 75 70 0.55 70.55 ($0.43) Open? AHC 62.35 67.61 NOV 75 70 0.60 70.60 $0.60 Open HET 44.70 46.28 NOV 55 50 0.50 50.50 $0.50 Open HRB 37.45 45.51 NOV 50 45 0.60 45.60 $0.09 Open? The previously closed position in Apache (NYSE:APA) is positive, however Total Fina (NYSE:TOT) is $0.67 "in the red." Johnson & Johnson (NYSE:JNJ) has moved through the top of a recent trading range and conservative traders should consider closing the play. H&R Block (NYSE:HRB) is quickly becoming a "thorn in the side" of this researcher as the issue has rampant volatility and gives little advance notice when it changes direction. Credit Strangles Stock Strike Strike Cost Current Gain Potential Symbol Month &Price Basis Price (Loss) Mon. Yield INTU OCT 50C 51.50 49.53 $1.50 6.8% INTU OCT 40P 38.60 49.53 $1.40 6.9% GILD OCT 35C 36.45 34.00 $1.45 9.8% GILD OCT 30P 28.50 34.00 $1.50 10.4% BBBY OCT 27P 27.05 34.17 $0.45 6.2% BBBY OCT 37C 38.30 34.17 $0.80 7.1% CAI OCT 30P 29.55 38.46 $0.45 5.0% CAI OCT 40C 40.55 38.46 $0.55 5.3% WFMI OCT 40P 39.45 46.70 $0.55 4.2% WFMI OCT 50C 50.50 46.70 $0.50 3.6% CCMP OCT 50C 50.30 42.12 $0.30 4.7% CCMP OCT 30P 29.65 42.12 $0.35 5.5% EBAY OCT 60C 61.00 58.01 $1.00 6.5% EBAY OCT 50P 49.20 58.01 $0.80 6.3% RNR OCT 40C 40.50 42.93 ($1.40) 0.0% RNR OCT 35P 34.45 42.93 $0.55 8.0% The bearish position in Renaissance Holdings was closed last Thursday when the issue moved above the sold strike on heavy volume. The losses in the position were offset by the credit received in the bullish portion of the neutral-outlook play. Synthetic Positions: Stock Pick Last Position Credit C/B M/V Status THC 51.55 50.40 NOV55C/46P 0.00 46.62 0.10 Open EXPE 46.06 48.83 NOV35P/55C 0.10 55.10 1.85 Open? ANSI 37.38 35.56 NOV40C/35P 0.10 34.90 0.80 Open? Advanced Neuromodulation (NASDAQ:ANSI) provided an acceptable early profit on Friday when the issue rallied to a new high at $39.01. However, Expedia (NASDAQ:EXPE) was the big winner this month, offering a credit of almost $2 in the bearish position after only 4 trading sessions. Questions & comments on spreads/combos to Contact Support *************** NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. The positions with *** will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. *************** BULLISH PLAYS - Premium Selling All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. *************** AMGN - Amgen $50.38 *** An Old Favorite *** Amgen (NASDAQ:AMGN) is a biotechnology company that discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology. The firm makes and markets human therapeutic products, including Epogen, Neupogen, Aranesp, Neulasta and Kineret. Amgen focuses its research and development efforts on therapeutics delivered in the form of proteins, monoclonal antibodies and small molecules in the areas of nephrology, cancer, inflammation and neurology and metabolism. The company has research facilities in the United States, and has clinical development staff in the United States, the European Union, Canada, Australia and Japan. Amgen has acquired Immunex, a biopharmaceutical company dedicated to developing immune system science to protect human health. Immunex successfully developed two products, Enbrel and Leukine, and was marketing four products treating multiple indications, Enbrel, Leukine, Novantrone and Thioplex. AMGN - Amgen $50.38 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 40 AMQ WH 5,085 0.60 39.40 5.3% *** SELL PUT NOV 42.5 AMQ WV 1,149 0.90 41.60 6.5% SELL PUT NOV 45 AMQ WI 8,098 1.35 43.65 8.0% *************** ATH - Anthem $73.50 *** Bullish Sector! *** Anthem NYSE:ATH), formed as a wholly owned subsidiary of Anthem Insurance, is a health benefits company. The company offers a diversified mix of managed care products as well as broad range of administrative and managed care services and partially insured products for employer self-funded plans and specialty products, including group life, disability, prescription management, workers compensation, dental and vision. In July 2002, the company merged with Trigon Healthcare, a managed healthcare firm. Anthem serves approximately eight million members primarily in Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Maine, Colorado and Nevada. The firm owns the exclusive right to market its products and services using the Blue Cross Blue Shield (BCBS) names, and marks in all eight states under license agreements with the Blue Cross Blue Shield Association, an association of independent BCBS plans. ATH - Anthem $73.50 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 65 ATH WM 35 0.90 64.10 3.9% "TS" SELL PUT NOV 70 ATH WN 0 2.00 68.00 6.8% *************** ERTS - Electronic Arts $68.16 *** All-Time High! *** Electronic Arts (NASDAQ:ERTS), headquartered in Redwood City, California, is the world's leading interactive entertainment software company. Founded in 1982, the company is the leading software maker for video game systems including the PlayStation2 computer entertainment system, the PlayStation console, Nintendo GameCube, Xbox video game system from Microsoft, computers and the Internet. The company publishes and distributes software worldwide. Electronic Arts sells its products under four brand names: EA SPORTS, EA SPORTS BIG, EA GAMES and EA.COM. ERTS - Electronic Arts $68.16 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 55 EZQ WK 2,229 0.70 54.30 4.5% *** SELL PUT NOV 60 EZQ WL 4,267 1.25 58.75 5.8% SELL PUT NOV 65 EZQ WM 915 2.45 62.55 8.8% *************** FRX - Forest Laboratories $97.67 *** Rally Continues! *** Forest Laboratories (NYSE:FRX) and its many subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products that require a physician's prescription, as well as non-prescription pharmaceutical products sold over-the-counter. Forest's most important United States products consist of branded ethical drug specialties marketed directly, or detailed, to doctors by the firm's Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare and Forest Specialty Sales sales forces. Such products include Celexa, Forest's SSRI for the treatment of depression; the respiratory products Aerobid and Aerochamber; Tiazac, Forest's once daily diltiazem for the treatment of hypertension and angina, and Infasurf, a lung surfactant for the treatment and prevention of respiratory distress syndrome in premature infants. FRX - Forest Laboratories $97.67 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 85 FHA WQ 700 1.00 84.00 3.5% "TS" SELL PUT NOV 90 FHA WR 1,284 1.80 88.20 5.1% *** SELL PUT NOV 95 FHA WS 201 3.10 91.90 7.4% *************** INVN - InVision Technologies $32.79 *** Aviation Security *** InVision Technologies (NASDAQ:INVN) is a provider of Federal Aviation Administration (FAA)-certified explosives detection systems (EDSs) used at airports for screening checked passenger baggage. The company has delivered over 160 EDS units to U.S. airports and over 100 EDS units for installation in airports outside of the United States. The company's products are based on advanced computed tomography, which is the only technology for explosives detection that has met the FAA certification standards. InVision Technologies was the first manufacturer, and is one of only two manufacturers, whose EDS products have been certified by the FAA for screening checked baggage. INVN - InVision Technologies $32.79 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 22.5 FQQ WX 353 0.40 22.10 5.5% *** SELL PUT NOV 25 FQQ WE 715 0.55 24.45 7.4% SELL PUT NOV 30 FQQ WF 435 1.75 28.25 13.8% *************** OVER - Overture Services $29.73 *** Rally Mode! *** Overture Services (NASDAQ:OVER) is engaged in the provision of pay-for-performance search services on the Internet. Overture operates an online marketplace that introduces consumers and businesses that search the Internet to advertisers that provide products, services and information. Advertisers participating in the company's marketplace include retail merchants, wholesale and service businesses and manufacturers. Overture facilitates these introductions through its search service, which enables advertisers to bid in an ongoing auction for priority placement in the company's search results after editorial approval. The company's marketplace offers consumers and businesses quick, easy and relevant search results for products, services and information, while providing advertisers with a cost-effective way to target them. OVER - Overture Services $29.73 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 22.5 GUO WX 930 0.40 22.10 6.0% *** SELL PUT NOV 25 GUO WE 2,183 0.85 24.15 10.1% *************** TRMS - Trimeris $49.39 *** Priority Drug Review *** Trimeris (NASDAQ:TRMS) is engaged in the discovery and development of fusion inhibitors, a new class of antiviral drug treatments. Fusion inhibitors impair viral fusion, a complex process by which viruses attach to and penetrate host cells. If a virus cannot enter a host cell, the virus cannot replicate. By inhibiting the fusion process of particular types of viruses, the company's drug candidates under development offer a novel mechanism of action with the potential to treat a variety of medically important viral diseases. Trimeris is a development stage company. The firm has invested a significant portion of its time and financial resources in the development of T-20, its lead drug candidate. If Trimeris is unable to commercialize T-20, its business will be significantly harmed. TRMS - Trimeris $49.39 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 40 RQM WH 302 0.65 39.35 5.6% *** SELL PUT NOV 45 RQM WI 28 1.50 43.50 8.5% *************** WMT - Wal-Mart $56.76 *** Rallying Retail Giant! *** With annual sales of $218 billion, Wal-Mart Stores (NYSE:WMT) operates more than 2,800 discount stores, Super-Centers and Neighborhood Markets, and more than 515 SAM'S CLUBS in the U.S. Internationally, the firm operates over 1,200 units and employs 1.3 million associates worldwide. Last year, Wal-Mart associates raised and contributed $196 million to support communities and local non-profit organizations. FORTUNE magazine recently named Wal-Mart the third "most admired" company in America and one of the 100 best companies to work for in the U.S. According to a recent study, Americans say Wal-Mart is the company they think of first in supporting local causes and issues, and that is one of the main reasons people shop at Wal-Mart. WMT - Wal-Mart $56.76 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT NOV 47.5 WMT WW 13,701 0.45 47.05 3.1% "TS" SELL PUT NOV 50 WMT WJ 9,330 0.75 49.25 4.3% *** SELL PUT NOV 55 WMT WK 1,595 1.75 53.25 7.3% *************** BULLISH PLAYS - Credit Spreads *************** HCA - HCA Inc. $51.18 *** Sector Rally! *** HCA (NYSE:HCA) is a healthcare services company that operates approximately 200 hospitals comprised of general, acute care hospitals, psychiatric hospitals and hospitals included in joint ventures. In addition, the company operates approximately 80 freestanding surgery centers. The firm's facilities are located in 23 states, England and Switzerland. HCA's general, acute care hospitals provide a full range of services to accommodate such medical specialties as internal medicine, surgery, cardiology, oncology, neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency services. Outpatient and most ancillary healthcare services are provided by HCA's general, acute care hospitals and through the firm's freestanding outpatient surgery and diagnostic centers, and rehabilitation facilities. HCA's psychiatric hospitals provide a full range of mental healthcare services through inpatient, partial hospitalization as well as outpatient settings. HCA - HCA Inc. $51.18 PLAY (conservative - bullish/credit spread): BUY PUT NOV-45.00 HCA-WI OI=225 A=$0.40 SELL PUT NOV-47.50 HCA-WW OI=279 B=$0.65 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$47.20 *************** UNH - UnitedHealth Group $97.98 *** All-Time High! *** UnitedHealth Group (NYSE:UNH) forms and operates markets for the exchange of health and well being services. Through its family of businesses, the company helps people achieve optimal health and well being through all stages of life. The firm's revenues are derived from premium revenues on insured (risk-based) products, fees from management, administrative and consulting services and investment and other income. It conducts its business primarily through operating divisions in the following business segments: Uniprise; Healthcare Services, which includes the UnitedHealthcare and Ovations businesses; Specialized Care Services, and Ingenix. UNH - UnitedHealth Group $97.98 PLAY (moderately aggressive - bullish/credit spread): BUY PUT NOV-85.00 UHB-WQ OI=262 A=$0.85 SELL PUT NOV-90.00 UHB-WR OI=382 B=$1.45 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$89.35 *************** Neutral Plays - Credit Strangles Here are some new candidates for traders who use neutral-outlook premium-selling strategies. Both issues have a relatively stable chart pattern and robust option prices, however current news and market sentiment will have an effect on this position, so review the play thoroughly and make your own decision about its outcome. *************** CDWC - CDW Computer Centers $48.44 *** Solid Earnings! *** CDW (NASDAQ:CDWC), ranked #414 on the Fortune 500, is a leading provider of technology solutions for businesses, government agencies and educational institutions nationwide. CDW is a principal source of technology products and services including top name brands such as Cisco, Compaq, Computer Associates, Hewlett-Packard, IBM, Intel, Microsoft, and Toshiba. The firm distributes contracts to various end users for both customized and standardized on-site services supplied directly by providers such as HP Services and Unisys and for training programs provided by firms such as KnowledgeNet and Productivity Point International. CDWC was founded in 1984 as a home-based business and today employs 2,800 coworkers whose efforts generated net sales of $4 billion in 2001. CDW's direct model offers one-on-one relationships with its knowledgeable account managers; purchasing by telephone, fax, the company's award-winning site or customized CDW@work(TM) extranets; custom solutions and daily shipping; flexible financing solutions; and pre- and post-sales technical support, with factory-trained and A+ certified technicians on staff. Editors Note: Wait for a reaction to Wednesday evening's earnings report from International Business Machines (NYSE:IBM) before initiating this position. CDWC - CDW Computer Centers $48.44 PLAY (aggressive - neutral/credit strangle): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL CALL NOV 55 DWQ KK 211 1.10 56.10 7.5% SELL PUT NOV 40 DWQ WH 621 1.15 38.85 9.0% *************** GILD - Gilead Sciences $34.10 *** Trading Range! *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five products that are marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $34.10 PLAY (moderately aggressive - neutral/credit strangle): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL CALL NOV 40 GDQ KH 6,789 0.50 40.50 5.8% SELL PUT NOV 27.5 GDQ WY 6 0.60 26.90 7.5% *************** BEARISH PLAYS - Naked Calls Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. *************** BZH - Beazer Homes $60.25 *** Construction Sector Slump *** Beazer Homes USA (NYSE:BZH) designs, builds and markets single family homes in the following locations within the United States: Florida, Georgia, North Carolina, South Carolina, Tennessee, Arizona, California, Colorado, Nevada, Texas, Maryland, Virginia, New Jersey, and Pennsylvania. The company designs its homes to appeal primarily to entry-level and first time move-up homebuyers. The company's objective is to provide its customers with homes that incorporate quality and value while seeking to maximize its return on invested capital. Beazer's homebuilding and sales activities are conducted under the name of Beazer Homes in each of its markets except in Colorado (Sanford Homes) and Tennessee (Phillips Builders). BZH - Beazer Homes $60.25 PLAY (moderately aggressive - sell naked call): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL CALL NOV 60 BZH KL 201 4.30 64.30 14.3% SELL CALL NOV 65 BZH KM 437 2.00 67.00 8.9% SELL CALL NOV 70 BZH KN 162 0.90 70.90 5.6% *** *************** DHR - Danaher $55.75 *** Accounting Issues? *** Danaher Corporation (NYSE:DHR) is a producer of precision motion control products, scientific and technical tools and instruments for commercial and industrial applications. The firm conducts its operations through two business segments: Process/Environmental Controls and Tools & Components. Process/Environmental Controls, in 2001, encompassed three strategic platforms, which included Motion Control, Environmental and Electronic Test, and its focused niche businesses, which included Power Quality, Aviation & Defense and Industrial Controls. In 2002, a fourth strategic platform, Product Identification, was added to that market segment through the acquisition of Videojet Technologies. The Tools & Components segment encompasses one strategic platform, Mechanics Hand Tools, and five focused niche businesses, which include Jacobs Chuck Manufacturing Company, Delta Consolidated Industries, Jacobs Vehicle Systems, Hennessy Industries and Joslyn Manufacturing Company. The company's earnings are due on October 17. DHR - Danaher $55.75 PLAY (moderately aggressive - sell naked call): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL CALL NOV 55 DHR KK 282 4.60 59.60 15.8% SELL CALL NOV 65 DHR KL 297 2.20 67.20 13.7% SELL CALL NOV 70 DHR KM 353 0.85 70.85 6.7% *** *************** BEARISH PLAYS - Credit Spreads All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. *************** TLM - Talisman Energy $35.81 *** Lowered Outlook *** Talisman Energy (NYSE:TLM) is a diversified oil and gas producer based in Calgary, Alberta, Canada. The Company is also North American natural gas supplier and is expanding into a number of international areas. Talisman's Canadian exploration and development program is focused on large, relatively deep, natural gas prospects. Canada accounts for 48% of Talisman's production. The Company will continue to develop commercial hubs around core operated properties and infrastructure in the North Sea. In its Southeast Asia segment, the Company's is focused on continued development of its reserves in the gas business in Indonesia, Malaysia and Vietnam, as well as oil opportunities in each of these countries. Talisman also has an operated gas discovery offshore Papua New Guinea. In its Sudan segment, the Company will continue to develop oil fields in Blocks 1a and 2a and explore large targets in Block 4. TLM - Talisman Energy $35.81 PLAY (conservative - bearish/credit spread): BUY CALL NOV-45.00 TLM-KI OI=1404 A=$0.35 SELL CALL NOV-40.00 TLM-KH OI=1362 B=$0.90 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$40.60 *************** TEVA - Teva Pharmaceuticals $64.90 *** FDA Approval Pending? *** Teva Pharmaceutical Industries (NASDAQ:TEVA) is a global healthcare firm specializing in pharmaceuticals. Teva has major manufacturing and marketing facilities in Israel, the North America and Europe. Teva's scope of activity extends to many facets of the industry, with a primary focus on the manufacturing and marketing of products in the areas of human pharmaceuticals and active pharmaceutical ingredients. Teva produces generic drugs in all major therapeutics and steriles in a variety of dosage forms, from tablets and capsules to ointments, creams and liquids. In addition, the firm makes drugs in niche markets where it has a relative advantage in research and development. The firm distributes its API to manufacturers around the world as well as supporting its own pharmaceutical production. TEVA - Teva Pharmaceuticals $64.90 PLAY (aggressive - bearish/credit spread): BUY CALL NOV-75.00 TVQ-KO OI=92 A=$0.40 SELL CALL NOV-70.00 TVQ-KN OI=532 B=$1.30 INITIAL NET-CREDIT TARGET=$0.90-$1.00 POTENTIAL PROFIT(max)=23% B/E=$70.90 *************** SEE DISCLAIMER *************** ************** MARKET POSTURE ************** Whiplash To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_101602.asp ************ MARKET WATCH ************ Back to the Well To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/wl_101602.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. 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