The Option Investor Newsletter Wednesday 03-26-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: In Section One: Wrap: It's Not the Economy... For Now Futures Wrap: Positively Neutral Index Trader Wrap: Rangebound Weekly Fund Family Profile: BNY Hamilton Funds Options 101: Consolidation Updated on the site tonight: Swing Trader Game Plan: Home in the Range Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 03-26-2003 High Low Volume Advance/Decl DJIA 8229.88 - 50.35 8284.99 8187.73 1546 mln 521/999 NASDAQ 1387.45 - 3.56 1397.94 1383.35 1374 mln 806/545 S&P 100 442.07 - 2.70 445.43 440.46 totals 1327/1544 S&P 500 869.95 - 4.79 875.80 866.47 RUS 2000 368.18 - 3.61 371.79 367.65 DJ TRANS 2203.88 + 1.81 2214.48 2190.91 VIX 32.16 - 0.50 33.52 32.05 VIXN 43.94 - 1.06 45.56 43.43 Put/Call Ratio 0.86 ******************************************************************* It's Not the Economy... For Now by Steven Price The market seems to be betting on an economic recovery when the conflict in Iraq is finally behind us. Unfortunately this morning's economic numbers let us know that the recovery is still a ways off. The market took an undecided approach to the data, while it continued to focus on the war in Iraq. One of the biggest factors preventing an economic collapse in the United States over the past year has been the strength of the housing sector. With consumers able to tap into their homes for re-financing dollars and also sell their houses in a sellers' market, there has been a reliable source of emergency dollars since interest rates - and mortgage rates - began dropping to multi-decade lows. Apparently some of those dollars have finally begun to slow. After a year in which it seems everyone with the ability to re-finance or buy a new house did so, we are starting to see declines in the housing market that have become measurable in numbers released over the past couple of days. February new home sales fell 8.1% to an annual rate of 854,000. This follows a 12.6% decline in January and is the lowest level since August 2000. The weather in the Northeast was partially to blame, as that area saw a decline of 37% to its lowest level since 1996, but with consecutive declines to multi-year lows, the trend seems obvious. The trend also seems to confirm comments that Alan Greenspan made earlier this year that we could not expect to rely on money from the housing market to the same extent we have over the past year. Further evidence that the market is cooling is the 352,000 homes that stood for sale at the end of the month, which is the highest number since June 1996. The 20 basis point jump in the 30-year mortgage probably won't help the recent declines, either. Recent data did show a drop in mortgage delinquencies, but the data does not include those mortgages in any stage of foreclosure. According to the Mortgage Bankers Association, "The percentage of loans in the process of foreclosure was 1.18 at the end of the 2002 fourth quarter, up from 1.15 percent at the end of the third quarter. This most likely indicates that loan foreclosures, which lag unemployment and delinquencies, are peaking." We also got data on durable goods that was not terribly encouraging. Monthly orders for durables dropped 1.2% in February and reflected drops in demand for computers (-12%), machinery (- 2.5%), automobiles, electronics (-1.9%) and metals (-2%). Shipments of durables also fell, dropping 1.6%, accompanied b a drop of 0.3% in unfilled orders and a 0.1% decrease in inventories. Just to clarify, these are not signs of growth. If we factor out defense, the non-defense capital goods number showed a decline of 5.2% (although without the 26% drop in commercial aircraft orders the decline was 2.8%). Orders excluding defense dropped 2.7%, wiping out January's 2.2% gain and more. These numbers show that while many economists are hoping that businesses will increase spending with the war behind us, it has yet to happen. The University of Michigan Consumer Sentiment report that comes out on Friday may give us an indication of just when we can expect to see a turnaround in spending. As long as consumer spending remains questionable, companies will refrain from placing orders for new capital equipment. After the lowest Consumer Confidence reading in ten years on Monday (which reflected data only up to March 18), Friday's data, which is more consumer heavy and reflects data tallied up through this week, may give us an idea of just how consumers are reacting to the war thus far. One of the areas I've given a lot of attention lately is the oil market. It is a reflection of how the well the war is going from an economic standpoint and reflects costs to businesses which have played a role in many recent earnings releases. Today's example of that factor came from Temple-Inland (TIN), which announced it would see a first-quarter loss, as opposed to the $0.15 gain expected by analysts. It blamed higher energy and pension costs, with energy costs making up more than 2/3 of that equation. Today's intraday drop in the broader markets once again accompanied a rise in oil prices, as reflected by the crude oil futures. May Crude Oil Futures rose 0.62 per barrel, following several disappointing overseas developments. The first was the fact that the Iraqi military has begun burning oil fields in Rumalia, which produces slightly more oil per day than the state of Texas. Add to that the advancement of Turkish troops toward northern oil fields in Kirkuk and suddenly the control of oil fields by the U.S. looks murky. While it is unlikely that anyone but the U.S. will eventually control those supplies, assuming control may take longer than planned. Crude Oil Futures reflected that activity and traded pretty much in tandem (inversely) with the Dow for most of the day. While this certainly is not a traditional measure of the equity market, such as activity in the bond market, it seems to be serving that purpose during the conflict with Iraq. In fact, the failure to break the $29 per barrel level mid-day timed closely with the bounce in the Dow. The events in Iraq have even trumped the news coming out of Venezuela, which announced that it intended to start exporting gasoline by the end of the month. Last year that country exported 16.7 million barrels of gasoline, so it could have a noticeable impact once those exports begin. I imagine things would be much different if the U.S. was invading France. We may be tracking the price of wine stocks instead. Chart of Crude Oil Futures It seems that each day we get some additional news that tells us the war will be a more drawn out affair than expected. Today we heard that Iraqis have had success in destroying U.S. tanks and are planning on blowing up bridges as the U.S. closes in on Baghdad. That news continued to drive us today and the market reacted intraday to rumors and developments yet again. While we traded in a very tight range for the most part, we did make a couple of trips outside that range on war-related news/rumors. We saw a quick intra-day drop on a rumor that the government was raising the terror alert to red status, which is the highest level of alert. That rumor turned out to be false and we got a sudden bounce. That bounce was followed by news that the U.S. had attacked an Iraqi convoy of 1,000 vehicles moving south to engage U.S. troops and we rallied all the way back into the green temporarily. Intraday Chart of the Dow We did get another look at a support level that has held up well over the past week. On the way up last week, we saw several pullbacks to the OEX 437-440 level that has been pivotal over the past several months. Even on the code red rumor, the pullback stopped at OEX 440.46. The 50% retracement of the August highs and October lows in the Dow and OEX have acted as both support on the latest rally and also as resistance during a consolidation period at the end of January and beginning of February. That retracement comes in at OEX 437 and has put a floor on the market since the big breakout. Traders looking for a pivot point in a market that is hard to assess can use that level as the closest indicator to where we now stand. Chart of the OEX The Nasdaq Composite also continues to find a ceiling at the 1400 level. That level has acted as resistance (within a couple of points) in six of the last seven sessions. The first bullish move in the equities that sticks will likely have to involve a break back above that level. We did get through it on March 21, when we ran into the 1426 level that has been even more pivotal. However, since the pullback on Monday, we have been unable to crack it again, although we have tried the past two sessions, with highs of 1400 and 1397. In business news, Sears said it is considering selling its troubled credit card unit. The $30.8 billion dollar portfolio, which garnered attention for its possible defaults in 2002 that required the company to set aside millions of dollars, is expected to fetch around $6 billion. While the money will help clear up the company's balance sheet, critics are pointing to the $1.5 billion in profits - 60% of the company's total - that Sears will lose and saying that the loss of revenue may make it more difficult to turn around other sectors of its business. While Sears is hoping that the portfolio sells at a premium, the poor economy and increasing bankruptcies might weigh against the price a big credit card issuer, such as Citibank or Bank One, might be willing to pay. Investors loved the news, however, jumping into the stock, which gained $2.69. Another factor that continued to weigh on the market was yesterday's vote by the Senate to cut the President's tax-cut plan in half. Those cuts could severely reduce his plan to eliminate the double taxation on dividends. The plan, when announced, led to a big rally due to the sudden inflated value of dividends to both corporations and the shareholders that receive them. If those dividends don't receive the tax benefits President Bush is pushing for, they can suddenly lose as much value as they seemed to have gained, taking value out of the stocks that pay them. For the first time in a while, we traded in a tight range, with only a couple of intraday swings that qualified as significant moves. And those moves were mostly news-based. Volume was also on the light side at 1.2 billion shares on the NYSE and 1.4 billion shares on the NASDAQ. The aimless drifting for most of the day seemed to signal exhaustion and a waiting period for the next big development in the war effort. While the economic data we saw suggests a worsening economy, all attention remains on the war as it appears to be the last great hope for the economy. If the theory that businesses will start spending once it is over pans out, then we may make another run at last year's highs. However, with no hard evidence yet that that is the case, the market will continue to trade on hope, or the lack thereof. ************ FUTURES WRAP ************ Positively Neutral By Vlada Raicevic Daily Settlement Numbers 4:15pm ET DOW Last: 8229.88 Net: -50.35 High: 8284.99 Low: 8187.73 YM 03M Last: 8200 Net: -42 High: 8277 Low: 8161 S&P 500 Last: 869.95 Net: -4.79 High: 875.80 Low: 866.47 ES 03M Last: 868 Net: -4.25 High: 875.50 Low: 864.75 Nas 100 Last: 1066.30 Net: -0.27 High: 1074.98 Low: 1060.05 NQ 03M Last: 1070.50 Net: +5 High: 1078.50 Low: 1063 DAILY PIVOTS YM 03M R2: 8325 R1: 8258 Pivot: 8209 S1: 8142 S2: 8093 ES 03M R2: 880 R1: 873 Pivot: 869 S1: 863 S2: 858 NQ 03M R2: 1086 R1: 1078 Pivot: 1071 S1: 1063 S2: 1055 Futures traded in a small range in the overnight session and opened basically unchanged today. There was initially some selling, but price quickly turned and moved up to find resistance at the 875 spot. Selling took over and we had a double bottom at the 867 area which lead to another bounce to 875. After some sideways movement, a rumor that the terror alert had been moved to Red led to the strongest selling of the day to 864.75, still well above yesterday's low of 861.25 and Monday's low of 860.50. At this point a buy program kicked in and moved the ES up five points in a single candle, some consolidation followed, then had another run up to take out the triple top at 875 by .50 before retreating. For ES, price movement was generally around the Pivot, barely moving halfway to either R1 or S1. The NQ is slightly more bullish, having traded the last two days above the Pivot, cycling above and below the halfway point between Pivot and R1. Yesterday we discussed the possibility of having reached a point where the market would tell us whether the bull run from last week had ended, or if we were just consolidating before another push upward. We did not get confirmation of either possibility today. While there was more volatility today, the net result was generally neutral. This means that our daily charts have not changed much, with indicators basically stagnant but still bullish. ES Pivot Chart: Pivot charts shows how we continue to trade around the Pivot area with only a brief visit to R1 yesterday. The bias is slightly down as shown by the green channel lines. ES 270 Minute Chart: A brief visit to recent lows still holds. The move up from this area brought Macd to back to the centerline, but it is now at absolute neutral. Stochastic is mixed with slow turning up and fast turning down, ADX is completely chopping around with sellers/buyers about even. This chart is not telling us much, which is not a surprise. ES 60 Minute Chart: Neutral is the word here as well. Macd is about as flat as it can be, and it is flat right on the centerline, with RSI doing the same thing via smaller and smaller wiggles. Indicators are not telling us anything. The 200 period regression channel is slowly going horizontal, showing even 200 60-minute periods are slowly going net neutral. The faster regression channel, the 78 period, is still pointing up and remains bullish. In fact, price is trending sideways towards the bottom of that channel which now sits at 864. We should test that area at some point tomorrow, and it may be interesting to see if we bounce there, or on any additional selling, if the center of the 200 period channel will act as support, which now sits at the 857 area. NQ 270 Minute Chart: This is less neutral and slightly more bullish than the ES chart, but it also has some cracks showing which point to a possible eroding of that positive edge. Macd is above its trendline, and is peeking slightly above the centerline, but the last candlestick has turned it over again. ADX shows both buyers and sellers are disappearing, with neither side willing to take a stand. RSI broke above its downtrend line like Macd, but has turned over and is now threatening to break below it again. A positive break followed immediately by a negative break of a trendline is often more bearish than a simple break below the trendline. However, that trendline on the RSI could also now become support if we move up from here. ES 60 Minute Chart: Both of the regression channels still show a nice bullish upward slant, and price is nowhere near the lower channel of the short term (blue) regression. Price seems to be using the center of the longer term channel as support. If compared to the ES, you can see that the ES is further above the center of the longer term regression. Therefore, the ES is more bearish NQ on the 78 period regression channel, but is more bullish than the NQ on the longer term 200 period regression channel. As much I look at these charts today, I really don't have all that much to say. We are in the middle of the bridge, neither closer to the bull on one side, or the bear on the other. Hang on to your hats, because when we get a decisive direction, it may be a very quick move. ******************** INDEX TRADER SUMMARY ******************** Rangebound Jonathan Levinson Today's session was a study in rangebound trading, with little excitement for bulls or bears. Volume was lighter than we've seen of late, with 1.55B NYSE shares and 1.4B COMPX shares changing hands. The markets opened flat and drifted higher, never seriously challenging upper resistance before moving lower without challenging support. What followed was an extension of the same, with little of interest along the way. The fed added $4.75B via overnight repurchase agreements, refunding the 1.5B expiring from yesterday's repos with a net addition of 3.25B. For all that, treasuries saw only light buying, with the five year yield (FVX) closing down 3 basis points, the ten year (TNX) down 1.7 basis points, and the thirty (TYX) down .4 bps. The lack of excitement was like a wet blanket thrown on the volatility indices, with the VIX closing down .50 to 32.16, QQV down 1.04 to 38.38 and the VXN down 1.06 to 43.94. Particularly for the COMPX and QQQ, moves of that magnitude would imply a nice gain for the day, but the price failed to participate, with the all of the major indices closing lightly in negative territory. These moves lower in the volatility indices diverge from the price, and are either giving us early warning of an impending bullish jump in equity prices, or merely reflecting a very low volatility day. A glance at the charts shows these volatility measures moving to their lower supports, and a bounce from here would mean a move lower for equities. Chart of the VIX The VIX, while on "sell" signals (bullish for equities), is in a bull wedge. A failure to take out the lower support line would be bearish for equities. Chart of the QQV We see that the QQV too is resting upon significant support while printing sell signals on the oscillators and moving averages. On to equities: Chart of the INDU The INDU put in another rangebound consolidation day on light volume. While there were no sell signals given, the stochastic and its slower cousin, the MacD, seem to be headed in that direction. It is bad form to anticipate signals, and we will not do that, so for now the only thing to do is note the pivot levels and wait for the market to tell us what it wants to do. With the VIX resting on critical support in a potentially bullish chart pattern and the oscillators closer to overbought than to oversold, bulls need to be careful here. Note that the 5 day SMA, represented by the blue line at 8306.67, never got tested today. I'm posting the daily pivots based on today's session. For the weekly and monthly pivots, please see Jeff's index wrap here: http://members.OptionInvestor.com/Itrader/marketwrap/iw_032503_1.ASP INDU R2 8331.46 R1 8280.67 P 8234.20 S1 8183.41 S2 8136.94 Chart of the SPX The SPX printed an inside day on volume roughly equal to that seen yesterday. Again, no sell signals, and today showed us no decent signals except for intraday scalps. The 5 day SMA was never touched. Energy is clearly building for a strong move, and whether it comes on a downside VIX breakdown and a blast higher for the SPX or a fulfillment of the VIX bullflag and a breakdown for the SPX, only time will tell. In the meantime, here are the daily pivot levels to watch. SPX R2 880.07 R1 875.01 P 870.74 S1 865.68 S2 861.41 I would add that 850 SPX is significant support below S2. Chart of the OEX The same comments apply to the OEX. An inside day, slightly lighter volume, no clear signals, no test of the 5 day SMA. Clearly, the 439 support level is key, and tomorrow should resolve our conundrum. OEX R2 447.62 R1 444.84 P 442.65 S1 439.87 S2 437.68 Chart of the COMPX The indecision in the market is clearly reflected in today's candle, with a top and bottom spike closing in the middle of the day's range. As with the other indices, the 5 dma provided resistance, but unlike the other indices, it was not only tested but actually exceeded for a brief moment. Volume today was lighter on the COMPX than for the other indices, and the stochastic is closer to a sell signal than for the INDU, OEX and SPX. As we see below for the QQQ, which is actually on a stochastic sell signal, the COMPX is either leading the decline and implying a downside breakout for the other indices, or setting us up for a headfake. It would not be the first. COMPX R2 1404.14 R1 1395.81 P 1389.58 S1 1381.25 S2 1375.02 I agree with the above pivots, but would add that 1368 is the level I'm waiting for to confirm a downside breakout. 1421 is the rally high from last week, and 1425 would be the level conservative bulls are watching for confirmation of a show of strength. Chart of the QQQ QQQ posted a closing gain of 15 cents, but like the COMPX, looks like the weakling of the bunch. Note that the Qubes finish trading at 4:15 EST, and those 15 extra minutes brought the QQQ higher from its 4PM print. A series of candle stars show indecision here, and the stochastic is on a sell signal confirmed today. According to the stochastics, QQV should bounce off its lower trendline tomorrow and add some premium to QQQ options. The 5 day SMA was exceeded but not on a closing basis. QQQ R2 26.97 R1 26.76 P 26.56 S1 26.35 S2 26.15 As we can see, tomorrow will be a critical day. With the indices building energy for their next move, traders will want to be attentive and tight on their stops. The markets have been anything but simple this month, and capital preservation remains a traders number one task. ------------------------------------------------------------ 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 ------------------------------------------------------------ ************************** WEEKLY FUND FAMILY PROFILE ************************** BNY Hamilton Funds BNY Hamilton Funds is a family of no-load mutual funds advised by The Bank of New York, one of the most experienced U.S. investment managers with roots tracing back more than 150 years. Currently, BNY offers more than one dozen mutual funds along the risk-reward spectrum, designed to meet a variety of investment objectives and risk tolerances. The Hamilton Funds are suitable for regular and tax-advantaged accounts, such as IRAs. The BNY Hamilton Funds have no loads or sales charges and require a minimum initial investment of $2,000 to open a regular account. The initial minimum is $500 for automatic investment programs and just $250 to open an IRA account. So, the BNY Hamilton Funds are designed to be affordable and accessible. Two funds, BNY Hamilton Multi-Cap Equity (BKMCX) and BNY Hamilton (BNSVX), are currently offered on a no-load, NTF ("no-transaction fee") basis through Schwab's Retail OneSource program. The funds are also available through Dreyfus LION (NTF), Scottrade, and TD Waterhouse, per Morningstar's report. For more information or to get a prospectus, call 800-426-9363 or log on to the BNY Hamilton Funds website at www.bnyhamiltonfunds.com. Fund Overview The BNY Hamilton Funds currently offer seven equity fund products to choose from, including the recently merged BNY Hamilton Multi- Cap Equity Fund (BKMCX) which Gannet Welsh & Kotler, Inc. ("GWK") serves as investment sub-advisor. Not all of the stock funds are currently available to retail investors, however. The funds that offer Investment Class shares are: BNY Hamilton Funds: Equity Funds BNY Hamilton Large Cap Growth Fund (BLCGX) BNY Hamilton Small Cap Growth Fund (BNSVX) BNY Equity Income Fund (BNEIX) BNY Hamilton Multi-Cap Equity Fund (BKMCX) BNY Hamilton's growth-oriented equity management style is based on a discipline of relative earnings strength. The approach is described as "forward looking" and combines both "top down" and "bottom up" approaches. BNY's top-down framework assesses major economic, political and social trends to identify the sectors of the market with favorable growth prospects. That work is merged with bottom-up, fundamental research of individual companies. The fund family's equity-income product, the BNY Hamilton Equity Income Fund (BNEIX), pursues long-term capital appreciation with a yield that is greater than the yield of the S&P 500 index. It invests in a diversified portfolio of high-quality common stock, securities convertible into common stock, and REITs (real estate investment trusts). In stock selection, BNY Hamilton emphasizes the securities of established U.S. and foreign companies. The BNY Hamilton Multi-Cap Equity Fund (BKMCX) began investment operations in December 1996 and was merged into the BNY Hamilton Funds in October 2002. This strategy provides broad exposure to the U.S. stock market by investing in a diversified portfolio of value and growth stocks of various market capitalizations. Thus, Lipper aptly categorizes the fund as a multi-cap core fund while Morningstar (which does not have a multi-cap style box) puts the fund in its large-blend category for comparison purposes. Only two of the BNY Hamilton fixed income funds are available to the retail marketplace. The two BNY funds with Investment Class shares are as follows: BNY Hamilton Funds: Fixed Income Funds BNY Hamilton Intermediate Government Fund (BNIGX) BNY Hamilton Intermediate New York Tax-Exempt (BNNYX) BNY Hamilton Intermediate Government Fund (BNIGX) pursues a high level current income, consistent with capital preservation. Its primary investments include high-grade U.S. government and agency securities with a weighted-average maturity of 3-10 years. Their New York tax-exempt fund has a similar intermediate-term emphasis as applied to high-quality New York municipal securities. Both the BNY equity funds and fixed income funds have disciplined investment strategies that are consistently applied and emphasize risk management and continual portfolio oversight. The different investment strategies are based on analytical frameworks that aim to "chart a steady course" as BNY puts it, regardless of economic changes and current market conditions. BNY Hamilton's portfolio managers are guided by the Bank of New York's Investment Policy Committee, a senior team of investment managers averaging 26 years of investment management experience. This Committee follows and interprets economic and market data, and recommends an asset allocation framework for the managers to go by. They also provide guidance relating to specific security selections for each of the BNY Hamilton Funds. The BNY Hamilton portfolio managers are supported by a Research Team that works within these guidelines; combining fact-finding with fundamental analysis in an effort to identify investments that offer above average return potential. In the next section, we see how well the BNY Hamilton Funds have performed vs. index and fund peer benchmarks. Fund Performance The highest-rated BNY Hamilton fund in Morningstar's system is the recently merged BNY Hamilton Multi-Cap Equity Fund (BKMCX), which receives a 5-star overall rating for risk-adjusted return performance in the large-blend category. According to the fund tracker, the Multi-Cap Equity Fund sub-advised by Gannet Welsh & Kotler has produced above average returns overall compared with other large-blends, with a relatively low risk level. For the trailing 5-year period through March 25, 2003, the fund had a negative average annual return of 2.7%, beating the broad S&P 500 index by an average of 0.5% a year over the time period. That was good enough to rank the fund in the 29th percentile of the large-blend category for 5-year performance. Note, however, that the fund's relative performance has trailed off since 2001, so new investors may want to proceed with caution here. The only other BNY Hamilton fund with a better than average star rating is the BNY Hamilton Small Cap Growth Fund (BNSVX), which sports a 4-star overall performance rating in the mid-cap growth fund category. So while the fund purchases small-growth stocks, its average style over the past three years is closer to that of mid-cap growth funds. Compared with mid-growth style funds, the fund has produced above average returns overall, with an average relative risk level. The BNY Hamilton Small Cap Growth Fund had a positive return of 6.0% on an annualized basis through March 25, 2003, beating the S&P 500 index by an average of 9.2% a year over the same period. That performance was strong enough to land in the top 5% of the Morningstar mid-growth category for 5-year performance. Return performance here has been a little more consistent than the BNY Multi Cap Equity Fund. Long-term, risk-tolerant investors that seek the higher return potential of mid/small-cap growth stocks have a good choice here. The BNY Equity Income Fund (BNEIX) has produced average returns with below average risk relative to other large-value funds per Morningstar, for a 3-star overall performance rating. Over the trailing 5-year period as of March 25, 2003, the fund generated an annual average loss of 2.7%, beating the S&P 500 index by an average 0.5%. So, its performance over the past five years has been similar to that of the BNY Multi Cap Equity Fund strategy. Over the past year, its relative performance has improved, with the fund ranking in the top quintile for 1-year performance and ranking in the top 5% of the large-value group based on its YTD 2003 performance. Investors desiring to invest in established, large-cap companies such as Johnson & Johnson, Exxon Mobil, The 3M Company and MetLife may want to consider this conservatively managed equity fund for a portion of their long-term portfolio. BNY Hamilton's fixed income performance has been competitive in relation to similar funds. The Intermediate Government Fund is rated 3 stars by Morningstar, but note that Morningstar has the fund in its long-term government bond fund category rather than in the intermediate-government group. Compared with other long- term government bond funds, the fund has produced average total returns over time, with "low" risk. It would be interesting to see how the fund would rate versus intermediate-term government funds. Over the past five years, the Intermediate Government Fund had a 5.8% average annual total return, lagging the LB Aggregate index by an average of 1.5% a year and the Lehman Long-Term Government index by an average of 3.3%. So, this fund could have done much better over the long term. Over the past year, with the wind of declining interest rates propelling it, the fund produced a 10.8% total return for investors. Still, its long-term record deserves caution. Conclusion Characteristic of all the BNY Hamilton funds are their focus on risk management. In all of the funds we looked at, risk levels were comparable or better than similar funds, with the possible exception of the BNY Hamilton Intermediate Government Fund that over the past three years lands in the long-government category. Its risk level may be higher than other intermediate-term funds, which invest in government securities due to its long-term bond maturity structure. Long-term investors looking to add some octane to their equity portfolios may want to consider the BNY Small Cap Growth Fund, which invests in emerging growth companies with high risk-reward potential. Conservative stock investors may prefer BNY Hamilton Equity Income Fund, which seeks growth of capital with a higher yield than that of the S&P 500 index. For more information or to download a prospectus, log on the BNY Hamilton Funds website at www.bnyhamiltonfunds.com. Steve Wagner Editor, Mutual Investor email@example.com *********** OPTIONS 101 *********** Consolidation by Mark Phillips mphillips@OptionInvestor.com Following the explosive moves in the broad market over the past couple weeks, a bit of consolidation was to be expected, and that seems to be what we're seeing over the past couple days. War news is still the dominant driver in the market, but that should start to fade a bit as we head into the April earnings cycle. It remains my view that investors looking for good news about economic growth, increased business spending an improvement on the corporate earnings front are being set up for another disappointment. As we've discussed recently, the market is in the process of correcting its latest extreme oversold reading, and the clearest picture of that shift can be seen in the bullish percent readings, which have all improved dramatically in the past two weeks. The consolidation we're seeing over the past couple days though, is just a part of a much larger consolidation pattern that likely will still take some time to work through. I certainly don't have any special knowledge about how this consolidation will resolve itself, but it will certainly be exciting when the pattern breaks. We've been talking at great length in recent months about the interesting (and somewhat anomalous) behavior of the VIX. We've been watching that descending trendline connecting the highs from last July and October, noting that the VIX just can't seem to push through that trendline (except for a one-day wonder on March 12th), despite the persistent market volatility. On a micro scale, the most interesting feature of the VIX is displayed on days like today, where the market falls, yet so does the VIX. Put in layman's terms, this behavior seems to indicate that based on action in the options market, fear of the downside is continuing to wane. While writing my LEAPS commentary over the weekend, I noted that there appears to be another trendline in play on the VIX, which started with the lows last March. Taken together, these two trendlines show a huge consolidation wedge in the VIX, which must resolve itself before the end of May. Weekly Chart of the CBOE Market Volatility Index (VIX.X) See how this huge wedge comes to a point by the end of May? One way or the other, the VIX is going to need to break out of this pattern by that time. Will it just crawl past one of those trendlines, or will it be an explosive move? Obviously I don't know the answer, but I'm expecting a big move. The big unknown is which way it will break. As you might guess, my expectation is for a break to the upside, based on my bearish outlook for the broad markets through at least the middle of the year. One other aspect of the VIX that Linda Piazza and I have been noticing is the extremely high (relative to historical norms) level of the 200-dma of the VIX, which is now at an all-time high of 35.77. Since I used a weekly chart above, I've approximated the 200-dma by using a 40-week moving average, which currently sits at 35.61. A couple months ago, I looked back through the long-term VIX chart and found that at no time have we seen the VIX able to move more than 17% below its 200-dma. Extrapolating that out to the future, with the 200-dma hovering just below 36, I recently postulated that the new "floor" for the VIX is near 29.50. Using a value for the 200-dma of 35.77 and multiplying by 83% (a 17% drop below the 200-dma) gives a value of 29.69. What I find interesting here is that a quick look at that lower trendline shows that the VIX should find support in the 29.00- 29.25 area. Not exactly the same number, but if we push that test out to the middle of April, that trendline will be right at the 29.50 level. If nothing else, it certainly bears watching the pattern. In my mind, the whole picture of consolidation became that much clearer on Monday, when I read Linda's Index Wrap, "Making Predictions". In her response to a readers request for a prediction of where the OEX was headed, Linda drew some interesting trendlines that deviated just slightly from what I had on my charts at the time. You see, I had noticed that Friday's rally had driven the OEX through its long-term (connecting the highs from August 2001 and March 2002) descending trendline and was a bit surprised that it had broken so easily. But Linda pointed out that on long-term charts, it is sometimes more effective to use a log chart. When I changed my scale to 'log' I noticed that the upper trendline I had drawn popped up significantly to about $473. That combined with the trendline from the July lows shows a similar consolidation wedge to what we see on the VIX chart. Daily Chart of the S&P 100 (OEX.X) The way I see it, investors think the market has discounted the worst possible scenario for the economy. In fact, they've demonstrated that belief on 3 separate occasions in the past year - July, October and then again on March 12th. This is just the latest recovery from the bottom of what is now becoming a rather mature consolidation pattern. I don't think the worst has been factored in yet, but the real verdict will come from the market, not from my assertions. If my expectations are to be met, then sometime between now and early June, the OEX should break down below its ascending trendline on a closing basis, while at the same time, the VIX explodes through its descending trendline. So how will I know if I'm wrong? I'll have my first indication of that development with an OEX rally through its descending trendline (currently just above $470), which will likely be accompanied by the VIX falling below 29. But for real confirmation of a bullish resolution to this pattern, we'll need to see the OEX rally through the $490 level, which would represent a breakout over both the August and December highs of last year. There's still a fair amount of time left in this consolidation pattern, but hopefully this analysis can provide another tool for traders to use when trying to evaluate the longer-term direction of the market, planning their trades accordingly. Questions and comments are always welcome. Mark ------------------------------------------------------------ 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 ------------------------------------------------------------ *********************** SWING TRADER GAME PLANS *********************** Home in the Range We remained range bound for most of the day, with light volume and a small floor to ceiling measurement in one of the more boring sessions in recent weeks. 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The Option Investor Newsletter Wednesday 03-26-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: In Section Two: Stop Loss Updates: BRL Dropped Calls: None Dropped Puts: None Play of the Day: Call - BVF Big Cap Covered Calls & Naked Puts: Fear And Trepidation In The Equity Markets Updated on the site tonight: Market Posture: Running in Place Market Watch: Holding Recent Gains ------------------------------------------------------------ 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 ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** BRL Adjust up from $51.75 to $52.90 ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ------------------------------------------------------------ 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 ------------------------------------------------------------ ********************** PLAY OF THE DAY - CALL ********************** BVF – Biovail Corporation $40.30 (+1.24 last week) Company Summary: Biovail Corporation is a full-service pharmaceutical company that applies its proprietary drug delivery technologies in developing "oral controlled-release" products throughout North America. The company applies its proprietary drug delivery technologies to successful drug compounds that are free of patent protection to develop both branded and generic oral controlled-release products. BVF has applied its technologies to develop 18 products to date and currently has 16 others under development. Why We Like It: After a tenuous breakout over the $40 level early last week, our BVF play needed to gather its strength for a sustained move through that level by consolidating above the $39 support level (prior resistance). The bulls needed the help of a strongly positive broad market to get the job done, but by midday on Friday, BCR had climbed back over that $40 level and this time it closed there. Can it keep going? It certainly looks that way, with only mild resistance between here and the bottom of the late April gap at $43.66. We've been targeting new entries near the bottom of the recent consolidation range and another pullback into the $39.00-39.50 area may be the last chance to get on board before this train leaves the station. Should BVF push higher out of the gate on Monday, momentum traders can consider entries on a push above $40.75. Friday's gains in the broad market seem to have factored in the belief that the Iraq war will end this weekend, and if it does, we could get a powerful follow-through rally both in the broad market, as well as our BVF play. The 5-week ascending trendline has now risen to $38.30, and that trendline should hold on any significant pullback. So let's raise the stop to $38 this weekend. Why This Is Our Play of the Day: BVF has been sitting on our list for a while, but it appears we are finally seeing the strength we got a snapshot of when we first added it. We had been looking for a move over $40 after the bounce from support and not only did we get that move, but today's action appears as though the stock may be there to stay. After breaking to a new 10-month high, it bucked the broader market trend today, adding to recent gains while the Biotech Index (BTK) and Pharmaceutical Index (DRG) both finished in the red. Maybe more important was the pullback that followed the broad market reaction to a rumor that the terror alert was being raised to red. That rumor proved untrue and the broad markets recovered. On the pullback, BVF found support above $40 for the first time, reaching a low of $40.16, before heading higher and challenging $41 again. The high of the day was $41.00 and although we like entries on the support at $40, more conservative traders can wait for a trade of $41.25 to make sure that high of the day doesn't act as resistance, since it came at a round number. BUY CALL APR-40*BVF-DH OI=6800 at $2.10 SL=1.00 BUY CALL APR-45 BVF-DI OI= 725 at $0.40 SL=0.00 BUY CALL JUL-40 BVF-GH OI=1696 at $4.30 SL=2.15 BUY CALL JUL-45 BVF-GI OI= 889 at $2.00 SL=1.00 Average Daily Volume = 1.05 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 ------------------------------------------------------------ ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* Fear And Trepidation In The Equity Markets By Ray Cummins Stocks edged lower Wednesday on concerns of a prolonged conflict in Iraq and worries about the weak outlook for the U.S. economy. The Dow Jones Industrials Average sank 50 points to 8,229 amid declines in industry bellwethers such as Honeywell (NYSE:HON), Alcoa (NYSE:AA), and Boeing (NYSE:BA). The NASDAQ fell 3 points to 1,387 despite gains in Internet, chip-equipment and software shares. The S&P 500 Index slid 5 points to 869 as housing, drug, consumer goods and paper-related stocks led the broader market lower while retail, utility, oil service, oil, defense, biotech, airline, and gold issues saw limited buying pressure. Breadth was negative as decliners paced advancers by a 9 to 7 ratio on both the NYSE and the technology exchange. Overall volume was relatively light, with 1.39 billion shares changing hands on the Big Board and 1.29 billion shares moving on the NASDAQ. In the government bond market, prices of benchmark 10-year Treasuries rose 1/32, yielding 3.94%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 3/25/03 *************** 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 our subscribers, 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 editor of this section does not take actual positions in any published plays and the summary comments are 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 in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield CELG APR 23 21.25 26.25 $1.25 8.68% 5.88% ERES APR 20 19.20 25.76 $0.80 8.04% 4.17% EXPE APR 40 39.50 52.71 $0.50 4.15% 1.27% GENZ APR 30 29.60 35.84 $0.40 4.69% 1.35% KLAC APR 33 31.95 38.17 $0.55 5.84% 1.72% MSFT APR 24 23.35 25.49 $0.40 4.85% 1.71% Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield COF APR 33 33.05 30.33 $0.55 5.56% 1.66% MERQ APR 35 35.80 32.45 $0.80 7.15% 2.23% PHM APR 50 51.10 51.73 ($0.63) 0.00% 2.15% * IGEN APR 45 45.55 36.82 $0.55 7.71% 1.21% MCHP APR 25 25.40 22.50 $0.40 7.37% 1.57% Capital One (NYSE:COF) and Mercury Interactive (NASDAQ:MERQ) remain on the "early-exit" watch-list. Conservative traders should have closed the position in Pulte Homes (NYSE:PHM) to limit potential losses. Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status AMGN 55.33 58.46 APR 48 50 0.30 49.70 $0.30 Open NKE 46.48 52.89 APR 40 43 0.30 42.20 $0.30 Open ADBE 33.02 31.67 APR 25 30 0.50 29.50 $0.50 Open CMCSA 29.91 29.31 APR 25 28 0.30 27.20 $0.30 Open FRX 53.10 54.23 APR 45 50 0.60 49.40 $0.60 Open LXK 65.89 64.63 APR 55 60 0.50 59.50 $0.50 Open SLM 110.21 112.20 APR 95 100 0.45 99.55 $0.45 Open Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status CTX 50.03 55.28 APR 60 55 0.60 55.60 $0.32 Open LEN 49.40 54.70 APR 60 55 0.55 55.55 $0.55 Open LEH 53.42 59.35 APR 65 60 0.55 60.55 $0.55 Open BHI 30.13 29.83 APR 35 32 0.25 32.75 $0.25 Open INTU 50.44 38.89 APR 60 55 0.55 55.55 $0.55 Open OMC 53.96 56.72 APR 65 60 0.50 60.50 $0.50 Open Positions in Centex (NYSE:CTX), Lennar (NYSE:LEN), and Lehman Brothers (NYSE:LEH) are on the "early-exit" watch-list. Synthetic Positions ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status GGP 54.02 54.62 APR 55 50 0.00 0.30 Open Calendar Spreads **************** No Open Positions Credit Strangles **************** No Open Positions 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 new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital 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 - NAKED PUTS 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. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** APPX - American Pharmaceutical $23.19 *** Rally Mode! *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products. The company produces over 100 generic injectable pharmaceutical products in more than 300 dosages and formulations. Its primary focus is in the oncology, anti-infective and critical care markets. The firm manufactures products in all of the three basic forms in which injectable products are sold: liquid, powder and lyophilized (freeze-dried). APPX - American Pharmaceutical $23.19 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 17.5 AQO PW 727 0.20 17.30 5.5% 1.2% TS SELL PUT APR 20 AQO PD 1,123 0.55 19.45 11.0% 2.8% * SELL PUT APR 22.5 AQO PX 580 1.40 21.10 18.5% 6.6% ************** GENZ - Genzyme General $36.00 *** Bullish Biotech! *** Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme Corporation, a biotechnology and human healthcare company that develops products and provides services for unmet medical needs. Genzyme General develops and markets therapeutic products and diagnostic products and services with an emphasis on genetic disorders and other chronic debilitating diseases with defined patient populations. The company is organized into two segments, Therapeutics, which focuses on developing and marketing products for genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and specialty therapeutics, and Diagnostic Products, which develops, markets and distributes in vitro diagnostic products. The company also operates a wholly owned subsidiary, GelTex Pharmaceuticals. GENZ - Genzyme General $36.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 30 GZQ PF 2,840 0.30 29.70 4.6% 1.0% * SELL PUT APR 32.5 GZQ PP 571 0.60 31.90 6.9% 1.9% SELL PUT APR 35 GZQ PG 836 1.25 33.75 11.3% 3.7% ************** KLAC - KLA Tencor $38.35 *** Chip-Equipment Leader! *** KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. The company's large portfolio of products, software, analysis, services and expertise is designed to help integrated circuit manufacturers manage yield throughout the entire wafer fabrication process, from research and development to final mass production yield analysis. The company offers a broad spectrum of products and services that are used by every major semiconductor manufacturer in the world. These customers turn to the company for in-line wafer defect monitoring; reticle and photomask defect inspection; CD SEM metrology; wafer overlay; film and surface measurement; and overall yield and fab-wide data analysis. KLAC - KLA Tencor $38.35 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 32.5 KCQ PZ 4,269 0.40 32.10 5.3% 1.2% * SELL PUT APR 35 KCQ PG 10,691 0.85 34.15 8.8% 2.5% SELL PUT APR 37.5 KCQ PU 7,436 1.45 36.05 12.0% 4.0% ************** NVLS - Novellus Systems $30.12 *** Semiconductor Sector *** Novellus Systems (NASDAQ:NVLS) manufactures, sells and services semiconductor processing equipment. The company's products are comprised primarily of advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface prior to these deposition processes. Novellus is a supplier of high productivity deposition and surface preparation systems used in the fabrication of integrated circuits. Chemical Vapor Deposition systems employ a chemical plasma to deposit all of the dielectric (insulating) layers and certain of the metal (conductive) layers on the surface of a semiconductor wafer. Physical Vapor Deposition systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an aqueous solution. NVLS - Novellus Systems $30.12 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 25 NLQ PE 10,410 0.35 24.65 6.4% 1.4% * SELL PUT APR 27.5 NLQ PY 4,364 0.85 26.65 10.9% 3.2% SELL PUT APR 30 NLQ PF 2,825 1.80 28.20 17.3% 6.4% ************** ROOM - Hotels.com $60.74 *** Merger/Buy-Out Coming? *** Hotels.com (NASDAQ:ROOM) is a provider of discount hotel rooms and other lodging accommodations, allowing customers to select and book hotel rooms in major cities through the firm's Websites and its toll-free call centers. The firm contracts with hotels in advance for volume purchases and guaranteed availability of hotel rooms and vacation rentals at wholesale prices and sells these rooms to consumers, often at discounts to published rates. In addition, its relationships often allow Hotels.com to offer its customers hotel accommodation alternatives for otherwise unavailable dates. The company has room supply agreements with over 4,500 lodging properties in 178 major markets in North America, the Caribbean, Western Europe and Asia. ROOM - Hotels.com $60.74 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 50 URD PJ 1,746 0.90 49.10 8.2% 1.8% * SELL PUT APR 55 URD PK 1,961 1.85 53.15 12.0% 3.5% SELL PUT APR 60 URD PL 989 3.60 56.40 17.5% 6.4% ************** YHOO - Yahoo! $24.76 *** New 2-Year High! *** Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer services company that offers a comprehensive branded network of properties and services to more than 200 million individuals worldwide. The company offers an online navigational guide to the Internet via its www.yahoo.com Website, which is a guide in terms of traffic, advertising and household and business user reach. Through Yahoo! Enterprise Solutions, the firm also provides many business services designed to enhance the productivity and Web presence of its clients. Yahoo! has offices in the United States, Europe, Asia, Latin America, Australia and Canada. YHOO - Yahoo! $24.76 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 20 YHZ PD 23,151 0.20 19.80 4.9% 1.0% TS SELL PUT APR 22.5 YHQ PX 3,180 0.60 21.90 9.6% 2.7% * SELL PUT MAY 22.5 YHQ QX 487 1.05 21.45 7.2% 4.9% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** BSTE - Biosite $38.47 *** A Big Day! *** A leader in the drive to advance diagnosis, Biosite (NASDAQ:BSTE) is a unique research-based company dedicated to the discovery and development of novel protein-based diagnostic tests that improve a doctor's ability to diagnose debilitating and life-threatening diseases. The firm combines integrated discovery and diagnostics businesses to access proteomics research, identify proteins with high diagnostic utility, develop and commercialize products and educate the medical community on new diagnostic approaches that improve health care outcomes. Biosite's "Triage" rapid diagnostic tests are used in approximately 50 percent of U.S. hospitals and in approximately 40 international markets. BSTE - Biosite $38.47 PLAY (conservative - bullish/credit spread): BUY PUT APR-30.00 BQS-PF OI=2066 A=$0.35 SELL PUT APR-35.00 BQS-PG OI=684 B=$0.70 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$34.60 ************** CFC - Countrywide Financial $58.00 *** All-Time High! *** Countrywide Financial (NYSE:CFC), formerly Countrywide Credit Industries, is a holding company that originates, purchases, sells and services mortgage loans through its major subsidiary, Countrywide Home Loans. The company's mortgages are principally prime credit first-lien mortgage loans secured by single one- to four-family residences (prime credit first mortgages). The firm also offers home equity loans and sub-prime credit loans. CFC, through its other wholly owned subsidiaries, offers products and services that are largely complementary to its mortgage banking business, including lender-placed mortgage insurance, insurance brokerage, mortgage-backed securities brokerage and underwriting, brokerage of bulk servicing transactions, loan processing and servicing in foreign countries, and retail banking. The company conducts its business through four segments: Insurance Segment, Capital Markets Segment, Global Segment and Banking Segment. The company's quarterly earnings are due 4/29/03. CFC - Countrywide Financial $58.00 PLAY (conservative - bullish/credit spread): BUY PUT APR-50.00 CFC-PJ OI=3069 A=$0.25 SELL PUT APR-55.00 CFC-PK OI=1167 B=$0.60 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$54.60 ************** ERTS - Electronic Arts $59.56 *** On The Rebound! *** Electronic Arts (NASDAQ:ERTS), headquartered in Redwood City, California, is the world's leading interactive entertainment software company. The firm develops, publishes and distributes software worldwide for the Internet, personal computers and video game systems. Electronic Arts markets its products under four brand names: EA SPORTS, EA GAMES, EA SPORTS BIG and EA.COM. ERTS - Electronic Arts $59.56 PLAY (conservative - bullish/credit spread): BUY PUT APR-50.00 EZQ-PJ OI=1439 A=$0.30 SELL PUT APR-55.00 EZQ-PK OI=3027 B=$0.75 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$54.50 ************** 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. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** BSX - Boston Scientific $43.25 *** Sell-Off In Progress! *** Boston Scientific (NYSE:BSX) is a global developer, manufacturer and marketer of less-invasive medical devices. The firm's unique products are offered by two major business groups, Cardiovascular and Endosurgery. The Cardiovascular segment focuses on products and technologies for use in the firm's interventional cardiology, interventional radiology, peripheral vascular and neurovascular procedures. The Endosurgery organization focuses on products and technologies for use in oncology, vascular surgery, endoscopy, urology and gynecology procedures. BSX - Boston Scientific $43.25 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL APR 47.5 BSX DW 1,955 0.40 47.90 3.9% 0.8% TS SELL CALL APR 45 BSX DI 2,106 1.15 46.15 9.1% 2.5% ************** IGEN - IGEN International $35.26 *** Premium-Selling Only! *** IGEN International develops and markets products that incorporate its proprietary electrochemiluminescence (ORIGEN) technology, which permits the detection and measurement of various biological substances. ORIGEN provides a combination of speed, sensitivity, flexibility and throughput in a single technology platform. The product is incorporated into instrument systems and other related consumable reagents, and IGEN also offers assay development and services used to perform analytical testing. Products based on ORIGEN technology address the Life Sciences, Clinical Testing and Industrial Testing worldwide markets. IGEN - IGEN International $35.26 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL APR 45 GQ DI 2,841 0.45 45.45 7.9% 1.0% * SELL CALL APR 40 GQ DH 2,986 1.30 41.30 16.1% 3.1% SELL CALL APR 35 GQ DG 3,121 3.00 38.00 22.8% 7.9% ************** NE - Noble Corporation $32.40 *** New Downtrend? *** Noble Corporation (NYSE:NE) is a provider of diversified services to the oil and gas industry. The firm performs contract drilling services with a fleet of 49 offshore drilling units located in key markets worldwide. Its fleet of floating deepwater units consists of nine semisubmersibles and three dynamically positioned drillships, seven of which are designed to operate in water depths greater than 5,000 feet. Its premium fleet of 34 independent leg, cantilever jack-up rigs includes 21 units that operate in depths of 300 feet and greater, four of which operate in depths of 360 feet and greater, and 11 units that operate in depths up to 250 feet. Its fleet also includes three submersible drilling units. Over 60% of the fleet is deployed in global markets, principally the North Sea, Brazil, West Africa, the Middle East, India and Mexico. The firm also provides labor contract drilling services, site and project management services, and engineering services. NE - Noble Corporation $32.40 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL APR 35 NE DG 1,362 0.55 35.55 6.7% 1.5% * SELL CALL APR 32.5 NE DZ 184 1.40 33.90 13.0% 4.1% ************** VIA'B - Viacom Class B $38.51 *** Downgrade = Sell-Off! *** Viacom (NYSE:VIA), together with its subsidiaries, is a widely diversified worldwide entertainment company. The company owns and operates advertiser-supported basic cable television program services through MTV Networks and BET: Black Entertainment TV and and premium subscription television program services through the Showtime Network in the United States and internationally. The Television segment consists of the CBS and UPN television networks. Infinity's operations are focused on "out-of-home" media with operations in radio broadcasting. The Entertainment segment's principal businesses are Paramount Pictures, which produces and distributes motion pictures. The company operates in the home video retail business, which includes both rental and sale of videocassette and DVD products. The company also publishes and distributes consumer hardcover books. VIA'B - Viacom Class B $38.51 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL APR 42.5 VMB DV 1,990 0.35 42.85 3.9% 0.8% TS SELL CALL APR 40 VMB DH 1,993 1.05 41.05 9.3% 2.6% ************** 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. ************** CCMP - Cabot Microelectronics $44.61 *** Failed Rally? *** Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization (CMP). CMP is a polishing process used by IC device manufacturers to planarize or flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. Planarization is a polishing process that levels, smoothes, and removes the excess material from the surfaces of these layers. CMP slurries are liquid formulations that facilitate and enhance this polishing process and generally contain engineered abrasives and proprietary chemicals. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. CCMP - Cabot Microelectronics $44.61 PLAY (conservative - bearish/credit spread): BUY CALL APR-55.00 UKR-DK OI=1385 A=$0.30 SELL CALL APR-50.00 UKR-DJ OI=1858 B=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$50.50 ************** DVN - Devon Energy $47.70 *** Trading Range? *** Devon Energy Corporation (NYSE:DVN) is an independent energy firm engaged primarily in oil and gas exploration, development and production; the acquisition of producing properties; the transportation of oil, gas and natural gas liquids, and the processing of natural gas. The company operates oil and gas properties in the United States, Canada and internationally. Its North American properties are concentrated within five geographic areas. Operations in the United States are focused in the Permian Basin, the mid-continent, the Rocky Mountains and onshore and offshore Gulf Coast. Canadian operations are focused in the Western Canadian Sedimentary Basin in Alberta and British Columbia. Operations outside North America include Azerbaijan, Brazil, China and West Africa. Devon also has a large marketing and midstream business. DVN - Devon Energy $47.70 PLAY (conservative - bearish/credit spread): BUY CALL APR-55.00 DVN-DK OI=1243 A=$0.15 SELL CALL APR-50.00 DVN-DJ OI=6118 B=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$50.45 ************** IP - International Paper $35.63 *** Sector Slump! *** International Paper (NYSE:IP) is a global forest products, paper and packaging firm that is complemented by an extensive distribution system, with primary markets and manufacturing operations in the United States, Canada, Europe, the Pacific Rim and South America. The firm's businesses are separated into six segments: Printing Papers, Industrial and Consumer Packaging, Distribution, Forest Products, Carter Holt Harvey and Specialty Businesses and Other. The firm owns or manages approximately nine million acres of forestlands in the United States, mostly in the South, approximately 1.5 million acres in Brazil and has, through licenses and management agreements, harvesting rights on government-owned timberlands in Canada and Russia. The company's quarterly earnings are due 4/24/03. IP - International Paper $35.63 PLAY (conservative - bearish/credit spread): BUY CALL APR-40.00 IP-DH OI=7468 A=$0.15 SELL CALL APR-37.50 IP-DU OI=7095 B=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$37.75 ************** SEE DISCLAIMER - SECTION 1 ************** ************** MARKET POSTURE ************** Running in Place To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_032603.asp ************ MARKET WATCH ************ Holding Recent Gains To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/wl_032603.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. 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