The Option Investor Newsletter Sunday 03-30-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Uncertanity Reigns Futures Market: Falling Asleep Index Trader Wrap: A WEEK'S DIFFERENCE! Editor’s Plays: Instant Replay Market Sentiment: Still Stuck Ask the Analyst: Sticking with their favorites Coming Events: Earnings, Splits, Economic Events Updated on the site tonight: Swing Trade Game Plan: Boy in the Bubble Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 3-28 WE 3-21 WE 3-14 WE 03-07 DOW 8145.77 -375.85 8521.62 +661.91 7859.71 +119.68 -151.05 Nasdaq 1369.52 - 51.65 1421.17 + 80.84 1340.33 + 35.04 - 32.25 S&P-100 437.94 - 18.43 456.37 + 32.30 424.07 + 3.95 - 5.24 S&P-500 863.48 - 32.41 895.89 + 62.62 833.27 + 4.38 - 12.26 W5000 8185.39 -277.93 8463.32 +566.83 7896.49 + 39.17 -115.30 RUT 368.70 - 7.53 376.23 + 21.84 354.39 + .21 - 6.34 TRAN 2163.20 -100.29 2263.49 +236.40 2027.09 - 15.39 - 6.57 VIX 32.18 - 1.44 33.62 - 2.71 36.33 + 0.68 + 1.50 VXN 43.09 - 2.69 45.78 - 0.02 45.80 - 0.59 + 0.74 TRIN 1.43 0.59 1.11 1.29 Put/Call 1.31 0.63 0.70 0.75 ****************************************************************** Uncertanity Reigns by Jim Brown The markets roiled by uncertainty last week are on the verge of seeing things more clearly. Unfortunately what they are seeing is the possibility of coalition attacks on Syria and Iran for coming to the aid of Iraq. They are seeing the potential for a war that could last months instead of weeks and the economic impact of that revelation. Add in the delisting of two major NYSE companies and a flurry of new earnings scams and it is no wonder money is flowing into bonds and out of stocks. Dow Chart - Daily Dow Chart - 45 min Nasdaq Chart - Daily Nasdaq Chart - 45 min Personal Income and Spending were announced on Friday and although income rose +0.3% for the seventh monthly increase the disposable income rose only +0.2%. This was the slowest gain since last July. For the second month spending remained unchanged with declines in durable goods and auto sales as consumers sat on their wallets. Rising unemployment and the war was given as the reasons again. Consumer Sentiment fell to a ten year low of 77.6. This was slightly better than the preliminary reading and above consensus estimates of 75.0. That is like getting an extra two cents back in your change for a Big Mac. You can hold it but it won't buy anything. The expectations component fell to 69.6 and the lowest level in nine years. Consumers fear a new recession and a lingering war. These numbers should get worse now that the war is not seen as a couple weeks at a sandy picnic. With the constant warnings that it could take months and constant updates on casualties the next sentiment numbers could be significantly lower. This weeks economic reports showed declines in almost every area and next week is not likely to be any different. Tuesday will lead off with the ISM report and the odds are very good that it will show a contraction for March. February was only barely positive at 50.5. This will not be received well by the market. Wednesday we will get Factory Orders and Thursday ISM Services. The big one is Friday with nonfarm payrolls. The large drop in payrolls last month is likely to be followed by yet another large drop for March. The +400K Jobless Claims for the last several weeks is a clear indicator of the prospects for the Jobs Report. This may not be a market mover because it is so easily predicted in advance. Analysts did however miss it by a mile last month and another big miss could be the trigger. The forecast is for a loss of -11,000 jobs. Last month the forecast was for a slight gain and we lost -308,000 jobs instead. Tuesday we will get auto sales and analysts think sales have fallen again despite steep incentives and low interest rates. Earnings also start in a week and contrary to expectations there was not a flurry of warnings over the last two weeks. The numbers of total companies prewarning are up but there was not a last minute rush to confess. This may be good news or they all just warned far enough in advance to avoid the rush. Expectations are negligible and earnings growth for the year is now estimated to be nearing the 7% range. Far below any previous estimates and below historical norms for expansion periods. The airlines took another hit on Friday with oil rising again, debt down grades, delistings and hijackings. Just when they thought it could not get worse, it did. S&P downgraded debt on four major carriers but I doubt that came as a surprise to anyone. UAL was delisted from the NYSE for trading the required number of days under a dollar. Rumors persist that UAL may break up, liquidate and possibly turn into a smaller regional carrier. Either way the stock will be worthless considering the amount of debt they owe. AMR is rumored to be nearing a bankruptcy announcement that could come as soon as Sunday. AMR is burning $5 million cash per day and getting worse. After the close a Turkish airliner was hijacked to Greece which will add to even more flight cancellations by those already afraid to fly. There was talk about a $3 billion bailout on Friday but talk has never paid any bills. One analyst said the "titans of air travel are becoming the titanics of the industry". Mutual fund buying was nonexistent on Friday. The anticipated end of quarter window dressing failed to appear as expected. The ICI survey released on Thursday showed cash still flowing out of stock funds and also showed that the cash levels were down to 4.3% of assets. Fidelity, Strong, Janus and T. Rowe Group all said they had seen inflows of cash since the market began rebounding but TrimTabs.com said a net $8 billion in cash had left funds through March 25th which included the rally period. This shows that fear of the war impact on the economy and current stock fundamentals have not been overcome by the war rally. "This is not what we trained for" was the comment by General William Wallace when questioned about the status of the war. He said he was surprised by the strength of the Iraqi forces, the lack of local support. He also said he was getting ticked off at the constant missile warnings as the Iraqi "lawn darts" were lobbed at his camp. He was aggravated that he was not allowed to go kick some butt to stop the problem at its source. He also implied that the drive had been stalled due to persistent attacks, long supply lines and lack of adequate numbers of coalition troops. These comments riled the administration and probably put Wallace in hot water but then they are not dodging the darts. Wallace is about to get help. The Pentagon said they were sending 100,000 more troops to the gulf on a rush basis but that could take another 4-6 weeks or longer. Let's call it 6-8 weeks since nothing ever goes as planned. That means they will not be there to help on the front lines, with equipment, for two months. They way I count that means end of June at the earliest for the war to be over. That would almost guarantee another recession. Rumsfeld is rumored to be on the way out of the administration for his refusal to use sufficient troops in the initial plan and for failure to recognize the threat risk. There are complaints he overestimated the potential for mass surrenders and failed to allow Tommy Franks enough forces to accomplish the task. Several analysts have said he will be gone within 30 days. To fire him now would be an admission of failure and he will likely be phased out of the public limelight over the next few weeks. That would be a trick! "Phasing out" the Secretary of Defense during a war. Obviously this is an evolving story. Another prominent name retiring is Hans Blix. He has announced he will retire in June at age 75. Obviously Hans has had a tough job lately but I hope I am that robust and in control of my faculties when I am 75. I saw him on Capitol Report this week and the interviewer was relentless. Hans was equally feisty and took no punches and delivered several of his own. I have not walked in his shoes so I can't make an opinion about his recent results but he has taken the heat and stood toe to toe with some giants. Take a rest Hans, you deserve it. Rumsfeld also warned Syria and Iran today that they were at risk of being attacked if they interfered in the war. Apparently Syria was shipping military technology to Iraq including night vision goggles. He warned them that any further such incidents would be consider hostile acts and appropriate action would be taken. The Iranian Badr Corp was also warned to leave Iraq after it was determined several hundred had crossed the border and were headed to assist the Shiite population in Basra. Saddam has killed several hundred thousand Shiites in southern Iraq and some 27 family members of the current leadership in Iran. Needless to say there is no love lost. The Badr Corp would not be coming to help the coalition but to carve out the Basra area from any future Iraq as an addition to Iran. Rumsfeld said any Iranian troops crossing the border would be considered hostile combatants. So, adding Syria and Iran to the hit list is now a possibility. Unfortunately they both have an air force unlike Iraq. I wonder with General Wallace trained for this possibility. (Just kidding, I doubt Syria and Iran would want to join the fight. Just some serious saber rattling here.) Adding to the expanding war implications was the arrest on this week of two groups of Iraq intelligence agents in different countries as they prepared to launch terrorist attacks. They were in possession of explosives and were going to attack civilian targets. One of the targets was a large hotel in Jordan. Different reports over the last couple weeks have said between 50-75 Iraqi intelligence personnel were sent out two weeks before the war to make revenge attacks on multiple countries if Iraq was invaded. Rumors say up to 25 of these were sent to infiltrate the US. The arrests of Iraqi agents in two countries would lend credence to these rumors. On another front British forces found evidence of Al Queda forces fighting on the side of Iraq near Basra. They were moving to cut them off and try to capture them late Friday. The markets reacted to all this news by retesting critical support several times. The Dow gapped down to initial support at 8130 before rebounding on news that the NYC bridge closings were not terrorist related. It rebounded to 8200 on very light volume as the various news conferences tried to put some lipstick on the war and paint a rosy picture. As further details about causalities and comments about problems in Iraq made the news the markets turned around and the Dow retested 8100 again. Short covering at the close slowed the drop and the Dow recovered to close just below 8150. The Nasdaq posted a lower high for the third consecutive day but is holding the line at 1365 support. At least that support held though Friday's close with the Nasdaq ending at 1369. Tech stocks were starting to look weaker in many sectors and the SOX for instance closed at a ten day low. Techs are actually performing worse than the broader market but they also performed better than the broader market in the recent rally. What leads up often leads down. The risk to the current markets is substantial. The reality of the war is being brought into living rooms at a pace never before experienced. The problems with the current strategies are being dissected and examined under the microscope with dozens of opinions being offered on every network. Since bad news attracts more attention the airwaves are full of controversy whenever possible. The overriding observation is that this could take another three months and the coalition does not have as much control as they are claiming. A missile hit Kuwait City on Friday night that was fired from the Faw Peninsula. This area was thought to be under coalition control and had been cleared of Iraqi forces. Obviously it wasn't. Other sources are claiming the Iraqi armor is hiding in garages and buildings only to come out after coalition forces have passed though the area. This puts them behind the coalition lines and able to wreak havoc later when not expected. Iraq had 5500 armored vehicles, 2500 artillery pieces and over one million troops in their combined army units when the war began. We have 90,000 combat troops 5000 armored vehicles and 1100 planes in Iraq. You do the math but even with the dominance of the air we are seriously outnumbered. Obviously those planes are going to get a lot of use until the 100,000 troops on order show up ready to fight. Needless to say things are not going well. As of Friday night there are 31 Marines missing in action. Marines make a point to never leave a buddy behind and the high MIA count shows how fierce some firefights have been. The realization of the reality of war will probably sink in to many investors over the weekend. The war will not be quick. It will be messy and the impact to investor sentiment and the economy will be severe. I believe the only reason we did not sell off sharply on Friday was due to the potential for a Saddam removal over the weekend and possibly some light end of quarter buying. Assuming Saddam is not retired by Monday it may be a different story. Ironically the Commitment of Traders report shows commercial traders had moved into a net long S&P position for the first time in ages. Small traders have dropped their strong bullish stance to the lowest net long position for the year. These numbers are as of March 25th and reflect the aftermath of the recent rally. The strong reversal for commercials from bearish positions several weeks ago now sets up the chance for another reversal back to bearish positions without the expected two week war. That reversal could be sharp and quick if the ISM numbers are seriously negative and the Jobs Report shows another major loss. Investors will have to decide next week if they want to tough it out and hope Iraq does not turn into a Mogadishu or a Vietnam. They will have to decide if they want to hold through another recessionary dip while casualty reports continue to pile up. The ISM and nonfarm payroll reports will help this decision process. A Dell analyst meeting on Thursday will also help provide insight into the tech spending outlook. The Dow gained +1100 points from the March lows in only eight days. It has given back only -375 points. A 50% retracement would drop the Dow to 7975. The Dow and the Nasdaq both closed just above strong but critical support on Friday (8100/1365). Should that support fail it could be due to deteriorating sentiment and profit taking from the biggest one week gain in 20 years. The charts above tell it all and I think the picture is clear. In military jargon, in a very short period of time the bulls have penetrated deep into areas recently controlled by the bears. Their support lines are stretched to the breaking point and the bears are nipping at that support. It may be time for them to fall back to regroup and wait for the reserves to make the next assault. Alternatively they could dig in and wait for this sandstorm to clear and hope the ISM on Tuesday is more ammunition and not an incoming bunker buster. Keep your head down this week or be ready to duck really fast. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Falling Asleep By Vlada Raicevic Daily Settlement Numbers 4:15pm ET > DOW Last: 8145.77 Net: -55.68 High: 8205.09 Low: 8105.79 > YM 03M Last: 8125 Net: -45 High: 8191 Low: 8082 > S&P 500 Last: 863.50 Net: -5.02 High: 869.88 Low: 860.83 > ES 03M Last: 863 Net: -4.50 High: 869.50 Low: 859.25 > Nas 100 Last: 1046.72 Net: -15.21 High: 1061.83 Low: 1044.38 > NQ 03M Last: 1051.50 Net: -10 High: 1066.50 Low: 1046 DAILY PIVOTS > YM 03M R2: 8179 R1: 8239 Pivot: 8131 S1: 8070 S2: 8022 > ES 03M R2: 874 R1: 868 Pivot: 864 S1: 858 S2: 853 > NQ 03M R2: 1074 R1: 1062 Pivot: 1054 S1: 1041 S2: 1033 This is what it looks like: Bulls still have enough hope to keep the market at current levels, Bears don't have enough confidence to fade the bullish attitude. I could type fifty different variations of that sentence, some bearish some bullish, but net result is anyone's guess. Whoever is driving this market, they are doing so part time, waking up every now and then to buy support, and then going back to sleep. Today's trading initially seemed a little bullish but ran out of steam quickly, not coming close to challenging yesterdays highs, and barely holding over the Pivot line before selling off to the early morning lows, which found some buying again, but not enough to mean anything, but enough to break the downtrend line off the highs. To be more succinct, nothing means anything. Trendlines are created then broken. Wedges are broken, but then price moves back inside. Then are broken again. Strong selling starts, and quickly ends. Strong buying starts, and then quickly ends. This is now a game of chicken. One side takes a running start, then quickly chickens out and sits down. Then the other side tries. Neither side gets anywhere. The ES had a big down day Monday. Tuesday it had a huge range which ended slightly positive. Wednesday was an inside day with a tiny range. Thursday had a bigger range, but ended in a doji. Friday was another inside day with a small range. Add all this up, and you have complete, absolute indecision. My biggest question is this: if the rally was based on our conviction of might and right, and quick war resolution, why is there no selloff when it looks like the war could be 4 to 6 times longer, and with mounting casualties? Ah the mystery of it all. ES Pivot Chart: The Pivot chart says it all. Note how the outer red lines (R2/S2) continue to contract into a smaller and smaller range, much like bollinger bands contract before a large move explodes prices one way or another. Also note how the last two days prices have spent much more time below the Pivot than the previous two days. This could be a peek into the change in sentiment. I sat here and stared at the normal charts that I post, and neither the 270 minute nor the 60 minute have any more information to them than they have the last few days. All that is present is a tighter and tighter coiling of price and indicators. The fast indicators are oscillating with smaller and smaller waves, and longer term indicators are just flatlining. ES 270 All Sessions Chart: The ES daily chart has become slightly more bearish which is to be expected with another slightly red day, and CCI, RSI and Macd are all now pointing down, but are still in bullish territory, with CCI above its moving average, and the others above their centerlines. The last three lows are all slightly higher lows, but the highs are lower highs. At this point I'm willing to look at anything to get a clue as to what is happening. The following is a 60 minute chart of the ES with the 13ema High/Low bands that I use on a 5 minute chart for scalp trades. The red arrows show bearish signals, and green arrows show bullish signals. Right now we are in a bearish state, and closing over 867.40 will give a long signal using this method. ADX shows both selling and buying have tapered off. ES 60 Minute Chart: The NQ chart shows us testing the support line again, and again holding, with losses slightly greater than for the ES and YM, with the resulting charts having a more bearish slant. The 270 minute chart shows RSI and Macd in a definite downtrend with fast stochastic ready to break it's current trendline. The biggest puzzler is the OBV which refuses to break below it's recent horizontal support. I really don't know what to make of this divergence with OBV and the other indicators. NQ 270 Minute All Sessions Chart: NQ daily chart becomes a little bit more bearish, with Macd lines starting to diverge (current trend is increasing) and CCI now below both its moving average and the +100 area. RSI is heading for it's centerline and slow stochastic is definitely rolling over. This chart looks like it is in trouble, and needs to recover within the next two days or even this slow bleed is going to turn it bearish before either the ES or YM. NQ Daily Chart: In conclusion, there is no conclusion. At a time like this a person either stands aside, preferring the neutral zone, or they take a stand based on something other than the obvious technical indicators. On Monday after the close, we can look at the monthly charts and see if they can give us any insight. For now, a quick look at the weekly charts. ES weekly had broken out of the downtrend line last week, but has now closed back below that line. Macd is still crossed bullish but is well below the centerline, RSI is still below the centerline and trendline, and MOVO is below its trendline and centerline and is pointing down. The only positives are that price is trading above the center of the regression channel (which is still pointing strongly down), and the fast indicators (fast stochastic, CCI) have moved into positive territory as of last week's close, and there was not enough selling this week to negate that move. ES Weekly Chart: NQ weekly chart is far more bullish. Price is trading around the upper reaches of the downtrending regression channel, RSI and CCI are in bullish territory and slow stochastic is above centerline, but threatening to break below. Macd is showing a bearish divergence with price and is not looking very healthy. MOVO is threatening to break the trendline formed from July lows of last year. So, although more bullish, the chart is showing some cracks on the weekly basis. NQ Weekly Chart: ******************** INDEX TRADER SUMMARY ******************** A WEEK'S DIFFERENCE! By Leigh Stevens lstevens@OptionInvestor.com Stocks traded in a narrow range on very low volume at week's end, as uncertainty and trader anxiety reigned about the course and length of the Iraqi war and its ultimate outcome on the U.S. economy. What a difference a week makes! THE BOTTOM LINE – At the most optimistic, stocks and the indices will likely trade in a sideways fashion and not post dramatic losses in the coming week. However, upside momentum is waning and prices are likely to drift lower without the conviction necessary to push the S&P through its 200-day average which has been the stopper so far. The bellwether S&P 500 or SPX may find support around 840-845. The Nasdaq is managing to trade above its 200-day moving average, which may provide a floor around 1340 in the Composite. This market could be the kiss of death for those who try to play index options unless volatility jumps due to some dramatic event such as an unleashing of WMD by Iraq or a widening U.S. conflict with the rest of the Arab and Muslim world. FRIDAY'S TRADING ACTIVITY – The Dow lost 4.4% and the Nasdaq composite was down 3.7% on the week and Friday was the 4th losing day in a row. The market in terms of the Dow and the S&P is off a little over 2% year to date - only the Nasdaq is still plus on the year, at up around 1 and a half percent. Funds inflows were noted for stock mutual funds to the tune of 3.7 billion. Bond funds had net inflows also, of around $2 billion in total. Oil service stocks rose in the regular session. However, after the close, giant oil services stock Halliburton (the company that Vice President Chaney used to head) fell on reports that the company is out of the running for a big contract in the post-war rebuilding in Iraq. The stock I love to name, Boots & Coots rallied some 35% on news that it will not file for bankruptcy - maybe they have some oil wells to put out and this expertise (and danger) ain't cheap. The sector investors love to hate, with reason - the Airlines - fell some 2.5 percent. There were some gains in gold and crude oil - the yellow metal rebounded $5.50 on the week and crude oil price jumped some 12%, after a big down move the week before - when there was the expectation that global oil supplies would not be much affected by the war being waged on the country holding the 2nd biggest global oil reserves. Crude oil finished just over $30 a barrel. Last week investors and traders were hit with the realization that there could be a prolonged conflict, which may well cause consumers and business spending to decline significantly. The capitulations that were hoped for by Iraqi forces were not materializing, nor were (this time) the Shites in the south of the country revolting against their central government. U.S. officials appeared somewhat on the defensive by week's end as they maintained that their offensive battle plan and timetable was on track and would result in the goals of regime change and disarmament. There was significant media play given to a U.S. field general who said that the unexpected tactics used by Iraqi forces and Muhaajeen irregular fighters had complicated efforts to move supplies up from the south and was slowing the campaign. The Joint Chiefs chairman had to get on the horn by holding a press conference to say that the military was on schedule with its invasion plan. It seems accurate to say, as one media military advisor stated: "war is a gamble". Couple this with our regular throwing the market dice and its double trouble. On the plus side, the market has not given back a lot of the big rebound that occurred off the low - some 1100 points in the Dow, of which there has only been about a 1/3 retracement. It seems that the market wants to look beyond this war to the resolution of a post-Saddam world when the Administration and business leaders will want to get on with their economic game plans. For now, the market is captive to the war. U.S. forces have more or less ringed Baghdad and some humanitarian relief supplies are starting to come into the southern deep water port (Umm Qasra) that is under U.S./British control. ECONOMIC & BUSINESS NEWS - Consumer spending was reported down in February for the second month in a row as reported by the Commerce Dept. on Friday. Bears pointed to this being the first back-to-back decline since the recession began a couple of years ago. Commerce also said that personal income rose by 0.3% - this report was above economists' expectations for a scant 0.1% growth - not for nothing do they call it (economics) the dismal science. Well, its true that there's not much economic cheer of late. And real disposable income fell 0.2%, the biggest drop in 7 months. OTHER MARKETS - Bonds were up, by 7/32nds. in the 10-year note. The yield is now under 4% at 3.9% - not much return there to retire on! (Many would rejoice again for the historical stock market average annual gain of 10%.) The dollar was off slightly against the Euro - it was trading hands on Friday at 1.078 versus 1.069 the day before. MY INDEX OUTLOOKS – My general outlook is for the indices to drift lower with a possible test for the market being what happens at the 21-day moving average currently intersecting in the 430 area in the S&P 100 index (OEX), my key chart this week for the NYSE market. S&P 100 Index (OEX) – Daily chart: Key OEX resistance is first, 448-450, then in the 460 area - first resistance being at the 200-day moving average, the second being represented by the top of my upper trading (envelope) band. I don't think that much progress will be made to the upside. It takes buying to get em up, but only a small amount of selling and buyers sitting on the sidelines will cause the market to drift lower. The chart above - the most bullish of my indicators is the big jump in equities put buying that occurred on Friday, putting my call to put volume ratio down into a "bearish extreme" reading. This "sentiment" indicator functions as a signal for another rally at some point, although the lead-time for this can be 1 to 5 days. Sometimes bearish sentiment goes high and stays there without the contrary move (up) happening, but this is the exception rather than the rule. The 14-day stochastic model got to an extreme and is now on a bearish crossover signal, showing that momentum is now more on the downside. This indicator can get to a more neutral reading or back into a oversold condition by lower prices OR a sideways drift - or, a combination of both things. I have no specific new trading recommendations, except to sell into (buy puts) on rallies into the aforementioned resistance areas. If long puts currently, exit is suggested if OEX gets to the 430 area and holds this level - 420 is the next technical support and I would be even more keen to take put profits in this area. S&P 100 Index (OEX) – Hourly chart: What I note with the hourly OEX chart above is that the index hasn't yet fallen back into its broad hourly downtrend channel, as I measure it currently - I expect it will, and that the Index will retrace of its recent rally, such a common 50% of it - to the 428-430 area or to around 420, a 62% retracement. The ability to hold above 430 this week would keep the correction shallow and "set up" the next rally, such as when better conditions start to prevail in our wartime situation. Note on SPX (chart not shown) - S&P 500 near support is at 850 with the most key technical support looking like 840 in the S&P 500 index - this area looks like it will offer support on any decline, but Iraq is the wild card. Any events such as the unleashing of any terror weapons of mass destruction (WMD) could be more negative than what is suggested by the current chart in terms of how it might impact the market. Nasdaq 100 Index (NDX) – Daily and Hourly charts: The recent decline "set up" after the bearish price/oscillator divergences were seen on the hourly charts per the lines sloping in the opposite direction on the right hand chart above. At least now, both of the shorter-term stochastic models are back down to oversold extremes - not so of course on the bigger picture 14-day slow stochastic. Technical support on the NDX is at 1040 - then in the 1020 area, where there is some significant chart support. 1028 is the level on the 21-day average currently and is an average I keep an eye on but 1020 looks like the more significant technical support. Two consecutive closes below 1020, suggests that NDX may again get to the 1000 level, which is at least a psychological area of significance. The even 100 and 1000 levels are generally important. Just to keep the bigger Nasdaq picture in mind, I look at the long-term monthly charts with the semi-logarithmic (equal percent moves are equal on this scale) scale to see that all the important indexes are at long-term support or back to their long- term "rate-of-change". Important trendlines like this tend to see more than one "touch" to the line. Nasdaq 100 Index (NDX) – Monthly: QQQ charts - Daily and Hourly: As usual the QQQ hourly history traces out the key chart points in good fashion due to the big participation in the Nasdaq 100 tracking stock. My last suggestion on the Q's was to short the stock above 27. Buy it back in the 25-15.25 area unless there is a decisive downside penetration of this area, in which case 23.75-24.00 looks to be support and the buy-back point. I will be watching for when the daily stochastic (length = 14) indicator gets back to the lower extreme. When the market gets oversold, just as when it gets overbought, reactions to news events tends to cause bigger moves at that point. Myself, I would just as soon sit on the sidelines for a while longer and take a time out as I remember the "war is a gamble" maxim. Especially so, given the fact that I prefer to take "normal" earnings and economic-driven risks in trading the indexes. ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** Editor's Plays ************** Instant Replay Take a look at the QQQ or DJX charts tonight and I think you will agree with my play for today. Both charts appear to be on the verge of a drop. The war was not over in a week as many had expected and now it appears it could take months and drag on the economy. With economic fundamentals coming back into focus the picture looks more like a storm cloud on the horizon than an economic sunrise. Recent surveys are showing any recovery has been pushed out into 2004 according to current corporate budgets. Add this uncertainty to the huge bounce over the last couple weeks and we are looking at a potential opportunity. Nobody can guarantee the market will drop but without a serious change in investor sentiment over the weekend it looks like a good possibility. I chose the QQQ instead of the DJX because the puts are so cheap. If I guessed wrong there is little risk. The equivalent May $78 DJX put is $2.00 and the June $78 is $2.80. May QQQ $25 put QAV-QY $1.00 Jun QQQ $25 put QAV-RY $1.35 QQQ Chart - Daily ******************************** Play updates: I am only listing the current recommendations with a link to the initial write up and unless the play changed substantially. QLGC - Qlogic Put - $38.22 3/23/03 ($39.98 when recommended) Qlogic sold off for the week despite attracting some buyers on Wednesday. The trend is still in place and any Nasdaq weakness next week should accelerate the pace. http://members.OptionInvestor.com/editorplays/edply_032303_1.asp CY - Cypress Semi Call - $7.38 3/2/03 ($6.41 when recommended) http://members.OptionInvestor.com/editorplays/edply_030203_1.asp Microsoft Call - Feb-16th $24.69 (MSFT $24.15 when recommended) Microsoft had a bad week after surging to $26.57 the week before. The stock sold off on profit taking with the market and closed back at $24.69 on Friday. There was no specific news and it appears market related. http://members.OptionInvestor.com/editorplays/edply_021603_1.asp EMC Call from Feb-2nd $7.34 ($7.70 when recommended) http://members.OptionInvestor.com/editorplays/edply_020203_1.asp NEM Put from Jan-26th $26.56 ($30.15 when recommended) Whoa! Did you get the number of that truck? NEM closed on Thursday at $24.65, down -5.50 from when the put was recommended. They announced on Friday that earnings had nearly quadrupled for the quarter due to the higher gold prices over the last three months. The stock shot up to close at $26.56 on Friday. The March put was closed last Friday for a 200% gain and the June put was up nearly +200% before the jump in the stock price. With the war likely to drag on for a couple months the decline in gold may slow. I am closing this play today with the June put still marginally profitable at $2.50. Bummer. http://members.OptionInvestor.com/editorplays/edply_012603_1.asp Powerball - From 12/29/02 The PowerBall Lottery play dropped with the market to a loss of 39%. The initial concept in December was to capitalize on any 2003 recovery by investing minute amounts of money in beaten down tech companies and expecting many of them to rise substantially while others failed for a loss of a few cents. No change here but I am still cussing RFMD. It would cost you about $760 to buy one contract of each today. Any one contract could repay that $760 by 12/31/03 leaving the rest as profit. It is a high risk "LOTTERY" play but then $760 is not much risk. It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 http://members.OptionInvestor.com/editorplays/edply_122902_1.asp ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Still Stuck by Steven Price The markets continued to trade in a range bound fashion ahead of the weekend. With U.S. troops approaching Baghdad and an uncertain result ahead, it appears traders were weary of committing a large amount of capital ahead of two days in which they could not adjust positions. We have essentially traded in a 200-point Dow range for the past couple of weeks, with the exception of the big breakout last Friday and reversal on Monday. Looking for directional signals has not been easy this week, as each dip is bought and each rally is sold. The economic data released this morning showed the first back-to- back decline in consumer spending since the recession of two years ago and the drop of 0.4% in February was the biggest drop in five months. Prices also rose 0.4%, mostly due to the rise in energy costs. However, nominal consumer incomes did rise 0.3% in spite of contracting payrolls and provide some beacon of hope for consumer spending in the future. Also on the plus side was a consumer sentiment index that came in higher than expected and reflected a jump in confidence as soon as the war started. The preliminary reading two weeks ago was 75.0, but the revised reading for the entire month was 77.6. The index stood in contrast to the Conference Board's Consumer Confidence number that came out earlier in the week, but reflected data only up to two days before the start of the war. The bond market continues to see buying, driving yields lower in a bearish indication for stocks in the near term. February saw an outflow of $11 billion from stock funds and an inflow of $19 billion for bond funds, as investors fled to safety ahead of the start of war. The reverse flow once the war started now appears to be slowing, as the timeframe for the invasion has been far more extended than many in the financial markets expected. It was just a week ago that we saw a round of buying (and possibly short-covering) on Friday ahead of what looked like a probable U.S. victory last weekend. Now that oil prices have ticked higher, reflecting oil fires in the large Iraqi oil fields of Rumalia and a longer conflict, the equity market has maintained its inverse relationship to those prices with a pullback. A number of sectors did show strength on Friday, with defensive dollars flowing into oil and gas, gold stocks and defense. The Defense Index (DFI), which had been sold off for the past few months in anticipation of a short war, has rebounded from a low of 410 on March 12, to a current reading of 459.79, for a percentage gain of 12%. Gold futures, which have dropped precipitously the past couple of months, seem to have found at least a temporary bottom. They have crept higher the past few days, as well. These defensive plays will likely resume their earlier drops once the war comes to an end, but until that happens, they continue to find buyers. The consolidation we have seen over the past couple of weeks has also dropped the Market Volatility Index (VIX) below recent support at 34%, however if remains above the 30% level and will likely do so until there is a resolution in Iraq. One indication that there are still plenty of institutional put buyers is the 11.73 put/call ratio today in the QQQ. We have now given back 34% of the gain from the March 12 lows to the highs of a week ago. Is that simply a pullback? The bullish percents, which are still rising, would say yes. However, we have continuously tested support at a previous area of resistance in the Dow and OEX, which coincides with the 50% retracement of the August-October hi-lo range. A move below those levels may indicate another test of Dow 8000, if accompanied by a similar breakdown in the bond yield. The ten-year yield is sitting on top of its 50-dma and also the 61.8% retracement of lo-hi range. Traders may want to start nibbling at a pullback entry in the 8000-8050 range if we stop there and find some support. After the weekend passes we should get a better picture on Monday of which direction traders are leaning, based on how things shake out in Iraq over the weekend. If there is no more progress, we may bleed lower. If we begin to take control of Baghdad, jumping on an opening rally early on may yield profits up to the relative highs. However, with an explosion in an upscale mall in Kuwait City possibly due to a SCUD missile launched from an area previously thought to be under U.S. control, we got a reminder that Iraq is fighting back and the market reaction on Monday may reflect that fact. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10673 52-week Low : 7197 Current : 8146 Moving Averages: (Simple) 10-dma: 8248 50-dma: 8014 200-dma: 8406 S&P 500 ($SPX) 52-week High: 1176 52-week Low : 768 Current : 864 Moving Averages: (Simple) 10-dma: 872 50-dma: 849 200-dma: 889 Nasdaq-100 ($NDX) 52-week High: 1573 52-week Low : 795 Current : 1047 Moving Averages: (Simple) 10-dma: 1070 50-dma: 1008 200-dma: 991 ----------------------------------------------------------------- The Semiconductor Index (SOX): After finding a ceiling at the exponential 200-dma, the SOX has pulled back and drifted lower on four of the last five trading sessions. It bounced at its simple 200-dma on 3 of the last four sessions, but couldn't quite hold onto that level today. It broke down intraday to a low of 308 and finished the day a point below that 200-dma (311) at 310. While it may not be a big move through that average, it may signal another drop to support at the 300 level. 52-week High: 600 52-week Low : 214 Current : 310 Moving Averages: (Simple) 21-dma: 305 50-dma: 291 200-dma: 311 ----------------------------------------------------------------- The VIX finished slightly higher today, in spite of the continued range bound activity of the broader indices. It has clustered between 32% and 34% since falling below 34% on Tuesday on a closing basis for only the third time since January. The VIX has continued to slide lower as the market has held 2/3 of recent gains, but ahead of a weekend that could bring bearish or bullish news from the war front, it has maintained itself over 30%. We may see a drop below 30% after the war ends, or if we get some positive economic data, but for the moment, premiums seem to have found a comfort zone. CBOE Market Volatility Index (VIX) = 32.18 +0.03 Nasdaq-100 Volatility Index (VXN) = 43.09 -0.78 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.31 407,555 533,427 Equity Only 1.32 318,321 418,899 OEX 1.31 13,466 17,590 QQQ 11.73 21,093 247,332 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 40.7 + 0 Bull Correction NASDAQ-100 49.0 + 0 Bull Alert Dow Indust. 40.0 + 0 Bull Alert S&P 500 41.6 + 0 Bull Confirmed S&P 100 43.0 + 0 Bear Alert Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.96 10-Day Arms Index 1.27 21-Day Arms Index 1.51 55-Day Arms Index 1.37 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 1450 1342 NASDAQ 1394 1577 New Highs New Lows NYSE 50 37 NASDAQ 71 26 Volume (in millions) NYSE 1,449 NASDAQ 1,321 ----------------------------------------------------------------- Commitments Of Traders Report: 03/25/02 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercials reduced both sides of the position, but continued to reduce the short side far enough to shift the net position from short to long. Small traders also reduced both positions, but reduced the net long position overall by 11,000 contracts. Commercials Long Short Net % Of OI 03/04/03 426,053 472,492 (46,439) (5.2%) 03/11/03 440,688 485,938 (45,250) (4.9%) 03/18/03 483,224 490,582 ( 7,358) (0.1%) 03/25/03 424,781 415,258 9,523 0.1% Most bearish reading of the year: (111,956) - 3/6/02 Most bullish reading of the year: 9,523 - 3/25/03 Small Traders Long Short Net % of OI 03/04/03 164,759 98,636 66,123 25.1% 03/11/03 169,450 102,631 66,819 24.6% 03/18/03 184,907 153,400 31,507 9.3% 03/25/03 143,402 123,178 20,224 7.6% Most bearish reading of the year: 20,224 - 3/25/03 Most bullish reading of the year: 114,510 - 3/26/02 NASDAQ-100 Commercials in the NDX also mirrored their S&P counterparts, reducing overall positions and turning a net short to a net long. Small traders took the opposite approach, changing their net position from long to short, reducing the long side by nearly 4 times as much as the short side. Commercials Long Short Net % of OI 03/04/03 39,934 52,978 (13,044) (14.0%) 03/11/03 43,641 56,020 (12,379) (12.4%) 03/18/03 58,877 64,302 ( 5,425) ( 4.4%) 03/25/03 44,403 36,436 7,967 9.9% Most bearish reading of the year: (15,521) - 3/13/02 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 03/04/03 24,240 8,038 16,202 50.2% 03/11/03 27,196 9,674 17,522 47.5% 03/18/03 37,097 26,951 10,146 15.8% 03/25/03 10,313 20,080 ( 9,767) (32.1%) Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercials reduced long and short positions, leaning slightly to the long side. Small traders also reduced but ended up with a larger net short position. Commercials Long Short Net % of OI 03/04/03 21,326 12,724 8,602 25.3% 03/11/03 21,726 14,370 7,356 20.4% 03/18/03 26,880 18,853 8,027 17.6% 03/25/03 19,752 10,212 9,540 31.8% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 03/04/03 5,233 8,075 (2,842) (21.4%) 03/11/03 5,549 7,727 (2,178) (16.4%) 03/18/03 6,589 8,343 (1,754) (11.7%) 03/25/03 5,076 7,721 (2,645) (20.7%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ *************** ASK THE ANALYST *************** Sticking with their favorites Can you explain why many DOW stocks (MMM) were not even close to their October lows (and others, like BAC), yet the DOW was close to October low? No wonder VIX was not super high. Why should it be if many stocks are not so low??? I would not be so fearful if MMM is 120-130 range compared to what it was at October low. I'll try and explain why 3M (NYSE:MMM) $130.51 didn't come close to its October lows, but most will be disappointed with my answer. Answer: The stock has been and continues to be a MARKET and institutional favorite for the better part of a year, the company hasn't "disappointed" investors, and its stock price has handily been outperforming the major averages for over a year. What mutual fund manager wouldn't want shares of MMM to be in their portfolio? Suffice it to say, stocks that aren't/weren't near their "October lows" when the major indexes were near their October lows earlier this month (March) are/were stocks that were in favor! Stocks that were/are at or below their October lows when some of the major indexes were at/near their October lows, are/were stocks that were out of favor, or just simply weren't attracting bullish dollars. This is so darned simplistic, that many investor and traders will brush it aside, but it is the truth. Over the years, I've "learned" that sometimes, no matter what my "opinion" of a stock (valuation, management, etc.) is or where it should be trading (much higher or much lower) I've consigned myself to the belief that as long as a stock is in favor among institutions or MARKET participants, there is really nothing I can say, nor do to change that opinion. There are stocks that no matter how "in favor" or "out of favor," if my true belief system has me disagreeing with the market, then I'll just avoid the stock altogether, until it finally appears (the stock's chart) that the MARKET now agrees with my thoughts. In the trader's question above, he says.... "I would not be so fearful if MMM is 120-130 range compared to what it was at October low." We've talked about this type of thinking in the past and if the trader is uncomfortable with a stocks "valuation" or level of trade based on one of OI's or PI's play profiles, then the trade should be avoided. However, take note of your thoughts in your trader's logbook and review them from time to time. Here's a bar chart of MMM with retracement overlaid. I've anchored base retracement at the July and October lows, but have extended the upper-end of retracement to the MMM's p/f chart bullish vertical count of 172. 3M (MMM) Bar Chart - Daily Interval It is interesting to say the least how the "fitted" retracement of anchoring to the July/October lows and dragging the upper-end of retracement to the bullish vertical count of 172 seems to "reflect" how MMM has been traded over the past several months. One thing I would ask the trader that would "feel more comfortable" with MMM having traded near its October lows of $110 in March, when MMM was trading $120 is ... "why would you want to buy just another market performer?" My thoughts here are that at $120, MMM was about $10 stronger that it was in October. That's RELATIVE STRENGTH. It's every bullish trader's rule to trade long/call/bullish in strong stocks. If you or I wanted to trade bullish in a stock that was trading just like the Dow, then why take on "stock specific risk" in just one stock? If I wanted to buy a stock that was "just like the Dow Industrials," then I should just buy the Dow Industrials, spread my money over 30- different stocks, some weak, some strong, and go from there. I'm not sure of exact probabilities, but think of this when trading a specific stock. There are three types of stocks you can trade. One trade is to trade strong stocks that are outperforming the market. Another trade is to trade stocks that mimic the market's strength/weakness. The last alternative is to trade stocks that are weaker than the market. Bulls will find better probabilities of success when trading strong stocks, while bears will find higher probability of success when trading weak stocks. Once you've separated the week from the strong, then all you have to really worry about is the MARKET itself. The worst trade you can be in is to be bullish a weak/out of favor stock when the market continues to decline, or be bears a strong/in favor stock when the markets strengthen. I've seen MMM profiled as bullish and bearish at various times on OptionInvestor.com and PremierInvestor.com in recent months. I personally can't say that I've "agreed" with bearish profiles, as I characterize MMM as probably the "strongest" and "most in favor" stock among institutions and the MARKET for quite some time (relative strength charts are strong). Yes, it has "pulled back" from time to time, but generally the pullbacks have come under more extreme weakening market conditions as depicted by the S&P 500 Bullish % ($BPSPX) and even the very narrow Dow Industrials Bullish % ($BPINDU), which would be used as a "market risk" indicator for MMM, which is a Dow component. Divergence: 3M (MMM) has also been "one of those stocks" that has diverged or traded "against" other measurements. When Dorsey/Wright and Associates sector bullish % for chemicals (BPCHEM) has reversed into a weakening type of reversal, MMM has been one of those stocks that just hasn't appeared to see the type of distribution that other "chemical-related" stocks has witnessed. These kinds of DIVERGENCE hint that the stock is in favor. Institutions are a funny bunch. And for the most part, they won't sell a stock unless they find consecutive quarters of "bad news." Fund managers that latch onto a favorite, and they have their favorites (stocks that perform well for them), won't sell the stock unless they're forced to sell in order to raise cash as their mutual fund shareholders pull money out of the fund. I'm not sure if MMM or BAC for that matter have all that much impact on the Market Volatility Index (VIX.X) by themselves, but the subscriber makes an interesting observation in this regard. While the VIX.X didn't spike to levels seen the past October, it did achieve the 40.00 mark, which is a level I tend to view as level that has tended to historically show a greater degree of "fear" and put buying. I've shown the bar chart that I like to use with a retracement bracket overlaid from 40.00 to 16.78, which has tended to define a broad range for the VIX.X in years past. Just before the recent recovery from the lows in the major indexes, the VIX.X did trade the 40.00 (March 12, 2003) and quickly reversed from that level to today's reading of 32.18. I was monitoring the VIX.X on March 12 in the Market Monitor at 10:22:52 that day http://members.OptionInvestor.com/itrader/archive/marketmonitor/mm_031203.asp and beat Steve Price to the "punch" by 90-seconds as he too noted the VIX.X had traded 40.00. This is a level where we had been seeing "put premium" sellers, which I view as somewhat bullish or contrarian and many institutions will sell naked puts on stocks they view as bullish, and are willing and ABLE to take possession of if assigned. I don't want to get into a discussion of the VIX.X, but as noted in past commentary, I prefer to use the VIX.X in combination with the various major index bullish %. It is "nice to know" how "fearful" or "complacent" market participants are, but I personally car more about how risky the actual stock market is. Let's get back on track and tie in "complacency" and "fear" that the VIX.X portends to tell us about, but also bring back the terms "in favor" and "out of favor" and then use a stock like 3M (MMM) in the discussion. If the seas parted one day, and a voice bellowed out that MARKET was going to be gleefully "complacent," which tends to mean bullish, for the next 3 years, would you only trade short/put for the next 3 years? Probably not. If that same voice said that 3M (MMM) would be a stock that would garnish bullishness for the next 3 years and be one of the MARKET's favorites, but that fellow Dow Industrials component McDonalds (MCD) would be a stock that traded out of favor for the next 3 years, what might you do? I'd probably at least look at a chart or two and then see if the voice was giving me accurate guidance. I always play "devil's advocate" when trading/investing and I've learned that stocks can stay in favor for years and stay out of favor for years. Like I said, institutions, which handle the bulk of the money in the marketplace, are a funny bunch. Some have strict fundamental criteria that they won't buy a stock that doesn't have at least three-consecutive quarters of earning's growth, or some type of fundamental category of improvement. I know, and you know, that stocks will go in and out of favor from time to time. For me, its been my thought that I would stand a greater probability of profiting by keeping my bullish trading focus on stocks that were in favor, and focus by bearish attention on stocks that were out of favor. Hedge funds have grown in popularity in recent years as they allow for the fund manager to short stocks on a more heavily weighted and frequent basis. For the most part, these funds will short the BULK of their capital on stocks that are out of favor, and lack MARKET sponsorship. The problem that EVERY traders has with stocks being in favor and out of favor for what seems to be an extended period of time, is that we NEVER know for sure just how long a stock or sector will remain in favor or out of favor. I've seen stocks stay "in favor" for years! Here's the relative strength chart of MMM versus the Dow Industrials. How much longer will it stay in favor? Relative strength chart of MMM vs. $INDU One never knows for certain when a stock will eventually fall out of favor or begin UNDERPERFORMING the market. A strong stock like MMM tends to LEAD a market advance and UNDERPERFORMS, or doesn't fall as much, when a market declines, simply because the stock is in favor. Still, it amazes me sometimes how a trader will attempt to buy a weak stock that has been out of favor and "pick a bottom" or sell a stock short and try and "pick a top" in a stock that has been and continues to be in favor. Even more amazing, or should I say troubling, is that traders will try and pick bottoms and tops with large positions. I do wish I had the real "fundamental" answer as to why 3M (MMM) and Banc of America (BAC) didn't trade their October lows when the Dow Industrials were close to the October lows earlier this March. My best answer is that they are in greater favor and appear to find few sellers and more buyers than many other stocks in the market. Note: According to Dorsey/Wright and Associates, 3M (MMM) is classified as being a "chemical" stock. This week (March 28), the Chemical Sector Bullish % (BPCHEM) reversed up into "bull confirmed" status at 38% bullish. Banc of America (BAC) is classified as being a "banking" stock. This sector bullish % (BPBANK) remains "bear confirmed" status at 57.57% and would take a reversing upward reading of 64% to achieve "bull confirmed" status. Hmmmm.... MMM trading an all-time high, and the "rest of the fish" in the sector starting to generate some supply/demand buy signals from a low level of bullish % or risk. In January this sector bullish % reached 52% bullish before its reversal lower to 32% and Friday's reversal back up to 38%. Can the sector achieve the 70% bullish level like the 78% found in April of last year? Time will tell, but the sector bellwethers tends to lead and lead they will when the rest of the fish help provide a lift. Jeff Bailey ************* COMING EVENTS ************* ========================================== Market Watch for the week of March 31st ========================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- BNG Benetton Group Mon, Mar 31 -----N/A----- N/A KMX CarMax, Inc Mon, Mar 31 Before the Bell 0.17 CIG Comp Energ Minas Ger Mon, Mar 31 Before the Bell N/A EP El Paso Corp. Mon, Mar 31 Before the Bell 0.15 GMSTE Gemstar-TV Guide Intl Mon, Mar 31 After the Bell -0.04 NTLI NTL INC Mon, Mar 31 Before the Bell N/A TLK P.T. Telkom Mon, Mar 31 -----N/A----- N/A SCS Steelcase Inc. Mon, Mar 31 -----N/A----- -0.09 UCOMA UnitedGlobalCom, Inc. Mon, Mar 31 -----N/A----- -0.77 ------------------------- TUESDAY ------------------------------ BBY Best Buy Co., Inc. Tue, Apr 1 Before the Bell 1.08 DCX DaimlerChrysler Tue, Apr 1 After the Bell 0.86 ----------------------- WEDNESDAY ----------------------------- BBBY Bed Bath & Beyond Inc Wed, Apr 2 After the Bell 0.33 CC Circuit City Stores Wed, Apr 2 Before the Bell 0.36 COGN Cognos Wed, Apr 2 After the Bell 0.27 ------------------------- THURSDAY ----------------------------- MSM MSC Industrial Direct Thu, Apr 3 -----N/A----- 0.17 RIMM Res In Motion Limited Thu, Apr 3 After the Bell -0.12 ------------------------- FRIDAY ------------------------------- AA ALCOA Fri, Apr 4 -----N/A----- 0.21 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable UGI UGI Corp. 3:2 Apr. 1st Apr. 2nd CTSH Cognizant Technology 3:1 Apr. 1st Apr. 2nd FSCR Fed Screw Works 5:4 Apr. 1st Apr. 2nd UCBH UCBH Holdings 2:1 Apr. 8th Apr. 9th AVD American Vanguard Corp. 3:2 Apr. 11th Apr. 14th -------------------------- Economic Reports This Week -------------------------- Without a doubt the U.S. and the world will be watching the next installment of the war on Iraq. This will overshadow any market moving economic reports. This week the PMI, truck and auto sales numbers come out. Also look for the construction spending report. Don't forget next week Wall Street should be gearing up for Q1 earnings. Have you heard any warnings lately? ============================================================== -For- Monday, 03/31/02 ---------------- Chicago PMI (DM) Mar Forecast: 51.0 Previous: 54.9 Tuesday, 04/01/02 ----------------- Auto Sales (NA) Mar Forecast: 5.2M Previous: 5.2M Truck Sales (NA) Mar Forecast: 6.8M Previous: 6.9M ISM Index (DM) Mar Forecast: 48.9 Previous: 50.5 Construction Spndng(DM) Feb Forecast: -0.4% Previous: 1.7% Wednesday, 04/02/02 ------------------- Factory Orders (DM) Feb Forecast: -1.0% Previous: 1.5% Thursday, 04/03/02 ------------------ Initial Claims (BB) 03/29 Forecast: N/A Previous: 402K ISM Service (DM) Mar Forecast: 53.0 Previous: 53.9 Friday, 04/04/02 ---------------- Nonfarm Payrolls (BB) Mar Forecast: -50K Previous: -308K Unemployment Rate (BB) Mar Forecast: 5.9% Previous: 5.8% Hourly Earnings (BB) Mar Forecast: 0.3% Previous: 0.7% Average Workweek (BB) Mar Forecast: 34.2 Previous: 34.1 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ------------------------------------------------------------ We got trailing stops! 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The Option Investor Newsletter Sunday 03-30-2003 Sunday 2 of 5 In Section Two: Daily Results Call Play of the Day: BLL Put Play of the Day: ROOM Dropped Calls: MXIM Dropped Puts: None ------------------------------------------------------------ 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 ------------------------------------------------------------ *********************************************************** DAILY RESULTS *********************************************************** For Best Alignment view in Courier Ten Font ******************************************* CALLS Mon Tue Wed Thu Week BCR 63.15 -1.19 -0.39 0.40 1.00 -0.30 Nice bounce BLL 56.57 -0.08 0.36 -0.44 0.49 0.70 Building BRL 56.32 -2.23 2.47 1.50 0.38 0.64 Higher support BVF 40.40 -0.97 1.57 0.35 -0.23 0.65 Holding $40 MMM 130.51 -0.44 0.86 -0.27 -0.03 0.60 Support $130 MXIM 37.90 -0.89 0.25 0.03 -0.39 -1.71 Drop, SOX drop STN 21.43 -0.73 0.41 -0.46 0.24 0.03 $20 bounce UNH 92.14 -0.61 1.36 -1.05 0.12 2.23 Relative high PUTS CB 44.82 -1.56 -1.62 -0.09 -0.39 -4.10 Broke $45 OTEX 28.08 -0.78 1.39 0.24 -0.39 0.03 Double top ROOM 58.58 -2.57 2.94 1.83 0.90 0.00 New, Rolling WHR 49.58 -1.39 0.95 -1.10 0.36 -2.97 New, $50 break ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* Ball Corporation - BLL - close: 56.57 change: +0.37 stop: 54.50 See details in play list Put Play of the Day: ******************** Hotels.com - ROOM - close 58.58 change: -2.48 stop: 62.50 See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Maxim Int. Prod. - MXIM - close: 37.90 change since picked: -1.66 After surging through the $40 resistance level a week ago, MXIM just hasn't been able to hold its ground, continuously pressured by the deterioration in the SOX. While the stock did manage to hold above our $37.50 stop again on Friday, the fact that the SOX broke under its 200-dma at $311 does not bode well for the play. Should the sector weaken further next week, it will be very difficult for MXIM to hold support. Rather than wait and hope, we're pulling the plug this weekend. Traders willing to give the play one more chance will want to keep that tight stop at $37.50, but now that MXIM is back under its descending trendline, we would look at any bounce that falls short of the $39 level as an opportunity to exit the play at a more favorable level and move on. PUTS ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 03-30-2003 Sunday 3 of 5 In Section Three: New Calls: None Current Calls: BCR, BLL, BRL, BVF, MMM, STN, UNH New Puts: ROOM, WHR ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** NEW CALL PLAYS ************** None ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ****************** CURRENT CALL PLAYS ****************** C. R. Bard, Inc. - BCR close: 63.15 change: -0.12 stop: 61.40 Company Summary: C. R. Bard, Inc. is engaged in the design, manufacture, packaging, distribution and sale of medical, surgical, diagnostic and patient are devices. Hospitals, physicians and nursing homes purchase approximately 90% of the company's products, most of which are used once and discarded. BCR's major product group categories are: vascular diagnosis and intervention, urological diagnosis and intervention, and oncological diagnosis and intervention. In addition, the company maintains a fourth product group, surgical specialties. Why We Like It: After charging to a new 52-week high a week ago, BCR gave back a large chunk of its recent gains last week, falling as low as the $61 level by mid-week. But proving that the breakout was for real, buyers stepped up to the plate and kept the stock above support. That buying conviction gained a bit of strength on Thursday and Friday, with BCR ending back above the $63 level at the end of the week. The clue that last week's dip was providing an entry point was the fact that the 10-dma (now $62.09) acted as support, allowing for a string of higher intraday lows before Thursday's surge back over $63. Another dip and bounce from above that level can be used to initiate new positions, with an eye towards a breakout over last week's highs. Momentum traders will want to wait for a break above the $63.75 level before committing to new positions, but need to be aware of the $65 resistance level. This is the site of the stock's all-time highs from last year, and is likely to produce at least a mild pullback before breaking out. We're leaving our stop in place at $61.40 until BCR can close over $63.75. Suggested Options: Shorter Term: The April 65 Call will offer short-term traders a solid return on an immediate move, with manageable risk. The April 60 Call offers more profit on a move higher, given the fact it is currently in the money, but also offers more downside risk if the stock pulls back. Longer Term: Traders looking to capitalize on a move above $65 may want to look to the May 65 Call. This provides more time for the stock to move higher without time decay becoming a dominant factor over the short run. BUY CALL APR-60 BCR-DL OI=2260 at $3.80 SL=2.25 BUY CALL APR-65 BCR-DM OI= 346 at $0.80 SL=0.40 BUY CALL MAY-60 BCR-EL OI= 5 at $4.20 SL=2.50 BUY CALL MAY-65 BCR-EM OI= 12 at $1.25 SL=0.50 Annotated Chart of BCR: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-30/BCR033003.gif Picked on March 18th at $61.05 Gain since picked: +2.10 Earnings Date 04/16/03 (unconfirmed) Average Daily Volume = 301 K --- Ball Corporation - BLL - close: 56.57 change: +0.37 stop: 54.50 Ball Corp. is a manufacturer of metal and plastic packaging, primarily for beverages and foods, and a supplier of aerospace and other technologies and services to commercial and governmental customers. Ball's principal business is the manufacture and sale of rigid packaging products, primarily for beverages and foods. Polyethylene terephthalate packaging is the company's newest product line. The aerospace and technologies segment includes civil space systems, defense operations and commercial space operations. The defense operations business unit includes defense systems, systems engineering services and advanced antenna and video systems, as well as electro-optics and cryogenic systems and components. Why We Like It: Given the weakness throughout the broad market last week, our BLL play came through like a champ. The stock really demonstrated some relative strength by posting a series of higher intraday lows throughout the week, pushing to close at a new high on Friday. Buying volume hasn't been particularly impressive, but the price action is certainly indicating more upside to come. Buying the dips last week certainly proved to be a winning strategy, and support is firming up near the $55 level ahead of an expected breakout through the recent intraday high of $56.85. With the recent PnF Buy signal, BLL looks like it has room to run, with a bullish price target of $69. Note how the 10-dma has now risen to above $55, which should solidify that support level on any pullbacks. Bargain hunters will want to continue buying the dips, so long as buyers support the stock above the 10-dma. If looking to enter on strength, wait for BLL to clear the $57 level (preferably on increasing volume) before entry. Stops should be set at $54.50. Suggested Options: Shorter Term: The April 60 Call will offer short-term traders a solid return on an immediate move, but this is a higher risk approach due to the stock's slow-moving nature. The April 55 Call offers more profit on a move higher, and given the fact it is currently in the money, looks to be the better option for a short- term move. Longer Term: Traders looking to capitalize on a move towards the PnF target of $69 may want to look to the May 60 Call. This provides more time for the stock to move higher without time decay becoming a dominant factor over the short run. BUY CALL APR-55 BLL-DK OI= 481 at $2.70 SL=1.25 BUY CALL APR-60 BLL-DL OI= 127 at $0.65 SL=0.25 BUY CALL MAY-55 BLL-EK OI=5152 at $3.90 SL=2.50 BUY CALL MAY-60 BLL-EL OI= 266 at $1.45 SL=0.75 Annotated Chart of BLL: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-30/BLL033003.gif Picked on March 21st at $55.87 Gain since picked: +0.70 Earnings Date 04/24/03 (confirmed) Average Daily Volume = 420 K --- BRL - Barr Labs - $53.81 +1.00 (+3.18 for the week) Company Summary: Barr Laboratories, Inc. is a specialty pharmaceutical company engaged in the development, manufacture and marketing of generic and proprietary pharmaceuticals. Why We Like It: Barr Labs gave back some of its recent gains this morning, following a downgrade from Merrill Lynch. Merrill dropped its rating to neutral based only on valuation. After the recent extension, some pullback could have been expected even without the downgrade and the bounce from $56 actually appears as though the stock's recent breakout level has now become support. As long as the stock remains above $55, it appears that it has reached a new plateau and traders can target the pullback for new entries. A point and figure reversal would also come at $55, so we will leave our stop at $55.25 to use a possible PnF reversal as our signal to take a small gain and get out. BUY CALL APR-50 *IOB-DJ OI=48 at $6.70 SL=3.35 BUY CALL APR-53 IOB-DY OI=352 at $3.90 SL=1.95 BUY CALL MAY-53 IOB-EY OI=1032 at $4.70 SL=2.35 BUY CALL MAY-55 IOB-EK OI=15 at $3.50 SL=1.75 Average Daily Volume = 965 K --- Biovail Corporation - BVF - close: 40.40 change: -0.07 stop: 39.25 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: Following Monday's big drop back from the $40 level, we were obviously concerned about the longevity of our BVF play. Fortunately, there were buyers waiting in the wings, and they propelled the stock back over the $40 level on Tuesday, where it spent the rest of the week consolidating in a very tight range. The 10-dma ($39.94) is continuing to rise and seeing how it has been supporting the stock for these past several weeks, we're betting that it will continue to do so. BVF hasn't generated a PnF Sell signal since the July lows, as it has continued along its path of higher lows and higher highs. The stock is at the top of its broad ascending channel, so will need some sort of catalyst to break through the $41 resistance level. However, a break over that level will put the stock into the fast-move area left behind after last April's sharp plunge. Wednesday's intraday high of $41.00 is the line in the sand, so we're looking at a trade above $41.10 as the trigger for new momentum entries. Should the broad market continue to be weak, then the dip buyers will likely get another chance, entering on a dip and rebound from above the $39.50 level. Due to the potential for a reversal from the top of the channel, we're getting a bit more aggressive with our stop this weekend, raising it to $39.25, just below the ascending trendline ($39.60) that has been in play for the past 6 weeks. Suggested Options: Shorter Term: Due to the slow-moving nature of BVF, we're recommending that short-term traders focus on the $40 April option, which is currently at the money. Longer Term: Even those traders with a longer-term horizon should focus on the at the money option. The premium is reasonable due to the lack of volatility, and should provide a solid return on a breakout move. BUY CALL APR-40 BVF-DH OI=6884 at $1.85 SL=1.00 BUY CALL APR-45 BVF-DI OI= 852 at $0.35 SL=0.00 BUY CALL MAY-40 BVF-EH OI= 175 at $2.80 SL=1.50 BUY CALL MAY-45 BVF-EI OI= 103 at $0.85 SL=0.40 Annotated Chart of BVF: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-30/BVF033003.gif Picked on March 14th at $39.06 Gain since picked: +1.34 Earnings Date 04/25/03 (unconfirmed) Average Daily Volume = 1.09 mln --- 3M Company - MMM - close: 130.51 change: -1.15 stop: 128.00 Company Description: Commonly known as the maker of the ubiquitous, adhesive-backed Post-It Notes, MMM is also a leading manufacturer of a variety of industrial, consumer, and medical products. Reflective sheeting on highway signs, respirators, spill-control sorbents, and Thinsulate brand insulations are just some of the company's industrial products. MMM also makes microbiology products, making it easier for food processors to test for the microbiological quality of food. Why we like it: Despite a distinct lack of bullish enthusiasm in the broad markets heading into the weekend, our MMM play once again held the $130 support level. The -$1.15 loss on Friday isn't exactly encouraging, especially with the stock closing below the 10-dma ($131.10) for the first time since March 12th. But we still really like the strength of the recent breakout over the $130 level. This was an important resistance level for close to a year and the fact that MMM blasted through it on such strong volume on March 21st indicates that there is more bullish conviction here than in the past several months. The pattern of declining volume throughout last week's consolidation adds to our conviction that the pullback from the $135 level is simply profit-taking ahead of a renewed bullish move. Not only did that surge to new all-time highs look convincing, but in terms of relative strength, MMM is clearly the leading bullish candidate in the DOW -- the only component to trade anywhere near its 52-week high over the past few weeks. Our preference is still to use a dip and bounce from the vicinity of $130 for establishing new positions, although more aggressive traders might get lucky and nab a brief dip below that level for a better entry. Just be careful not to catch a falling knife. A break below $128 would have us pulling the plug on our MMM play, as that would indicate that something is very wrong. Momentum traders can enter on a renewed push through the $132.75 level, but need to understand that it is a higher risk approach unless the broad market is going along for the ride. Suggested Options: Shorter Term: The April 135 Call will offer short-term traders a solid return on an immediate move, with manageable risk. The April 130 Call offers more profit on a move higher, given the fact it is currently in the money, but also offers more downside risk if the stock pulls back. Longer Term: Traders looking to capitalize on a move towards the PnF target of $172 may want to look to the May 135 Call. This provides more time for the stock to move higher without time decay becoming a dominant factor over the short run. BUY CALL APR-130 MMM-DF OI=9178 at $3.70 SL=2.00 BUY CALL APR-135 MMM-DG OI=7842 at $1.40 SL=0.75 BUY CALL MAY-130 MMM-EF OI= 106 at $5.70 SL=3.75 BUY CALL MAY-135 MMM-EG OI= 206 at $3.20 SL=1.50 Annotated Chart of MMM: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-30/MMM033003.gif Picked on March 27th at $131.66 Gain since picked: -1.15 Earnings Date 04/21/03 (confirmed) Average Daily Volume = 2.22 mln --- STN - Station Casinos- $19.86 +0.38 (+0.46 for the week) Company Summary: Station Casinos, Inc. is the leading provider of gaming and entertainment to the residents of Las Vegas, Nevada. Station's properties are regional entertainment destinations and include various amenities, including numerous restaurants, entertainment venues, movie theaters, bowling and convention/banquet space, as well as traditional casino gaming offerings such as video poker, slot machines, table games, bingo and race and sports wagering. Station owns and operates Palace Station Hotel & Casino, Boulder Station Hotel & Casino, Santa Fe Station Hotel & Casino and Wild Wild West Gambling Hall & Hotel in Las Vegas, Nevada, Texas Station Gambling Hall & Hotel and Fiesta Rancho Casino Hotel in North Las Vegas, Nevada, and Sunset Station Hotel & Casino and Fiesta Henderson Casino Hotel in Henderson, Nevada. Station also owns a 50 percent interest in both Barley's Casino & Brewing Company and Green Valley Ranch Station Casino in Henderson, Nevada. (source: company release) Why We Like It: STN has pretty much traded in a range since breaking into higher ground over $21. It pulled back to a test of its breakout level at $20, bounced and headed back toward its recent highs. The oscillators which had begun to turn over from overbought territory took a bullish turn higher today on an increase in volume. The next challenge for STN will be the resistance at $22 it encountered on March 21, but if the bounce from $20 was any indication, it could be testing that level early next week. We'll continue to target $25 on the play, even though traders looking for a 10% gain can set an exit at $22. BUY CALL APR-17.50 STN-DW OI=105 at $4.20 SL=2.10 BUY CALL APR-20.00 STN-DD OI=302 at $1.90 SL=0.95 BUY CALL JUL-17.50 STN-GW OI=926 at $4.80 SL=2.40 BUY CALL JUL-20.00 STN-GD OI=326 at $2.90 SL=1.05 Average Daily Volume = 381 K --- United Health - UNH - close: 92.14 change: +2.44 stop: 87.48 Company Description: UnitedHealth Group is a diversified health and well-being enterprise that provides a full spectrum of resources and services to help people achieve improved health and well-being through all stages of life. UnitedHealth Group is organized into five businesses: UnitedHealthcare, Uniprise, Ovations, Specialized Care Services, and Ingenix (source: company press release) Why we like it: UNH has given traders a couple of shots at buying the dip to the 200-dma since we first put it on our watch list and outlined that strategy last weekend. However, those traders who entered on the break above $90 also were rewarded, as the stock took off today, gaining $2.44 in spite of a sinking broader market. The health sector in general was strong, with the HMO Index (HMO.X) gaining almost 2% and testing its 200-dma. It actually fell just shy of that mark and if it has trouble getting through, we could see a sector pullback on Monday. However, even if we do see a pullback, traders looking for new entries in UNH can look for support at $90 to enter on a pullback. If the HMO.X (533.87) is able to crack its 200-dma (534.92), it's a good bet that UNH will make a run at resistance in the $94-$96 range. Once past that resistance, $100 would be the next target, which is our eventual goal. The best entries in the play will come on a pullback to $90-$91 support, in order to maximize the run into the $94-$96 area if the stock does get trapped in that range. We have raised our stop to $87.48 - just below the 200-dma, where the stock has now bounced twice. BUY CALL APR-85 UHB-DQ OI=3998 at $7.80 SL=4.00 BUY CALL APR-90 *UHB-DR OI=3414 at $3.70 SL=1.85 BUY CALL JUN-90 UHB-FR OI=4642 at $6.20 SL=3.10 BUY CALL JUN-95 UHB-FS OI=1465 at $3.40 SL=1.70 Average Daily Volume = 1.98 MIL ************* NEW PUT PLAYS ************* Hotels.com - ROOM - close 58.58 change: -2.48 stop: 62.50 Company Description: Hotels.com is a provider of discount hotel rooms and other lodging accommodations, allowing customers to select and book hotel rooms in major cities through the company's websites and its toll-free call centers. ROOM 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 hotel supply relationships often allow the company to offer its customers hotel accommodation alternatives for otherwise unavailable dates. At the end of 2001, ROOM had room supply agreements with over 4500 lodging properties in 178 major markets in North America, the Caribbean, Western Europe and Asia. Why we like it: While it was already recovering smartly off the February lows by the time the news broke, the announcement that USAI would be acquiring the remainder of the open shares of EXPE, sent that entire group of stocks soaring. ROOM went along for the ride, on the thoughts that perhaps it was ripe for a juicy buyout offer too. Not so fast! According to comments out of Legg Mason on Wednesday, the firm has little confidence that any such offer is in the wings. The firm reiterated their view that the stock is fairly valued in the $50s and noted that the stock was currently trading at the high end of the firm's estimate of their valuation. After charging quickly to major resistance at $62, ROOM has been starting to struggle at that level over the past few days. But this isn't just a play on expectations for price weakness after such a strong move. We're looking at the fundamental picture too and it doesn't look good. Business travel has been cut way back and consumers don't seem to be in an overly generous spending mood either. Couple that with the international tensions, and growth prospects for the online travel companies seems suspect. With earnings season rapidly approaching, investors are going to be confronted with a big dose of reality over the next few weeks. Technically, ROOM does look ripe for a decent reversal, after being turned back from the $62 resistance level, which is also the site of the bearish resistance line on the PnF chart. Friday's sharp reversal was enough to tip the daily Stochastics bearish, but we still have the 10-dma ($57.34) as a potential area of support. Aggressive traders can use another failed bounce in the $61-62 area for initiating new positions. Those looking for confirmation of weakness will want to see a trade below $55 (which would create a new PnF Sell signal) as the trigger for momentum entries. Our initial target will be the $53 support area, with an ideal exit point near $50, which is very close to the 200-dma ($49.84). Initial stops are set at $62.50, just above the recent intraday highs. Keep in mind that this is a higher-risk play, as we're looking to fade what has been a particularly strong bullish move, even though it looks ripe for a strong reversal. Suggested Options: Short-term traders will want to focus on the April 60 Put, as it will provide the best return for a short-term play. Those looking for additional staying power to hold through the recent (and expected future) volatility will want to use the May strike, with the understanding that ROOM will need to break the $55 level for that choice to pay off. BUY PUT APR-60 URD-PL OI=1310 at $4.50 SL=2.75 BUY PUT APR-55 URD-PK OI=2168 at $2.50 SL=1.25 BUY PUT MAY-55 URD-QK OI= 107 at $4.20 SL=2.50 Annotated Chart of ROOM: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-30/ROOM033003.gif Picked on March 30th at $58.58 Gain since picked: +0.00 Earnings Date 04/24/03 (unconfirmed) Average Daily Volume = 1.32 mln --- Whirlpool - WHR - close: 49.58 change: -0.98 stop: 52.76 Company Description: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances. Headquartered in Benton Harbor, Michigan, the company manufactures in 13 countries and markets products under 11 major brand names in more than 170 countries. (source: company press release) Why we like it: Whirlpool made quite a run with the broader markets in recent weeks, even testing its 200-dma at one point. However, since achieving that level on a closing basis, it has rolled over convincingly, briefly finding support at its 50-dma, which sat just above $50. It has broken both levels now on a closing basis and appears on the verge of another drop to its recent lows below $45. In spite of the big bounce from $43, the stock remains on a point and figure sell signal with a bearish vertical count of $28. While we are a long way from that count, it certainly underscores the technical damage that was done to this stock on the last drop. Recent economic data has not been favorable for the types of products that Whirlpool sells, either. The torrid pace of home refinancing that supported existing home upgrades has slowed considerably the past could of months and if Alan Greenspan is right, it should continue to slowdown throughout the year. New and existing home sales have also dropped, cutting into a percentage of WHR's customer base. Add to that data the recent decline in durable goods - high ticket items including appliances and there seems little to be excited about in the near future for this company. A look at WHR's chart shows not only the break below the 50-dma and below support at $50, but also a stochastic oscillator (14(1),3) in full rollover from overbought territory on a sell signal. Parallels can certainly be drawn between WHR and the Dow, as the charts look similar. However, WHR has already broken its 50-dma, while the Dow is still 130 points way. There is heavy congestion in WHR between $50 and %$52.50 that should keep a lid on any bounce attempts and in the case of a broad market bounce coming out of the weekend, a failed rally at that congestion level may provide a decent short entry opportunity. If the stock does break back above the 200-dma, however, we'd recommend moving to the sidelines on this one. If the current slide continues we already like the break under $50 for new entries. Set stops at $52.76, just above the 200-dma. Suggested Options: Shorter Term: The April 50 put at $2.00 will provide a trader a chance to capitalize on a quick drop on the breakdown, however has $1.40 in extrinsic value and may be a better percentage play for the trader who wants to risk less in overall premium than a deeper option. The April 55 put will require more initial investment and also carry more risk if the play moves against us, but will also turn a higher profit if the stock continues south. Longer Term: Traders looking to capitalize on broad market weakness and a struggling economy can look to the June 50 put at $3.70 to give the stock more time to drop, possibly through its relative low at $42.80 and begin on its way to the above referenced point and figure bearish vertical count at $28.00. Chart of WHR http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-30/WHR033003.gif BUY PUT APR-50 WHR-PJ OI=89 at $2.00 SL=1.00 BUY PUT JUN-50 WHR-RJ OI=89 at $3.70 SL=1.50 Average Daily Volume = 661 K ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. 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The Option Investor Newsletter Sunday 03-30-2003 Sunday 4 of 5 In Section Four: Current Put Plays: CB, OTEX Leaps: What A Difference A Week Makes Traders Corner: It Ain’t Over Till The Fat Lady Sings Traders Corner: More on Divergences and Data Traders Corner: Three Drives Pattern ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** CURRENT PUT PLAYS ***************** Chubb Corporation - CB - close 44.82 change: -0.52 stop: 47.50 Company Description: Chubb Corporation, incorporated in June 1967, is a holding company with subsidiaries principally engaged in the property and casualty insurance business. The Company presently underwrites most forms of property and casualty insurance. The Company's Property and Casualty Insurance Group writes non-participating policies. Several members of the Property and Casualty Insurance Group also write participating policies, particularly in the workers' compensation class of business, under which dividends are paid to the policyholders. Why we like it: Exciting it isn't, but we'll take the consistency of CB's price action any day. Especially in such a nervous and volatile market environment as we currently find ourselves, the stock's relentless deterioration is refreshing. Insurance stocks have certainly not been at the top of anyone's Buy list lately, and with the poor action in the Insurance sector (IUX.X), it's no great surprise. The mid-March rebound didn't get the index anywhere near its 200- dma (currently up at $258), and last week's deterioration has the IUX back under its still-declining 50-dma ($234). CB got off to a negative start last week with the S&P debt downgrade and the aftermath of that news release drove the stock first under the late February low of $45.75, and then $45. Looking at the daily chart and the lack of buying interest (as demonstrated by the new lows in On Balance Volume), it certainly looks like CB is headed back to test its March 12th low just below $42. That remains our initial target for the play. At this point, a failed bounce below the $46 level looks like our best bet for new entries into the play. But given the lack of buying interest, we may have to settle for entries on further weakness below $44.25 (just below Friday's intraday low). With the break below $45 last week, we're now looking for the 20-dma ($46.11) to provide moderate resistance, backed up by the rolling lower 10-dma at $46.81 and recent support (now turned resistance) just over $47. Lower stops to $47.50 this weekend. Suggested Options: Short-term traders will want to focus on the April option, as it will provide the best return for a short-term play. Those looking for additional staying power to hold through the recent (and expected future) volatility will want to use the May strike. BUY PUT APR-45 CB-PI OI=868 at $1.95 SL=1.00 BUY PUT MAY-45 CB-QI OI=139 at $2.70 SL=1.40 Annotated Chart of CB: http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-03-30/CB033003.gif Picked on March 25th at $45.73 Gain since picked: +0.91 Earnings Date 04/30/03 (unconfirmed) Average Daily Volume = 1.40 mln --- OTEX - Open Text Corp - $28.21 -0.45 (+0.96 for the week) Company Summary: Since 1991, Open Text Corporation has delivered innovative software that brings people together to share knowledge, achieve excellence, deliver innovation, and enhance processes. Its legacy of innovation began with the successful deployment of the world's first search engine technology for the Internet. Today, as the leading global supplier of collaboration and knowledge management software for the enterprise, Open Text supports six million seats across 4,500 corporations in 31 countries and 12 languages throughout the world. As a publicly traded company, Open Text manages and maximizes its resources and relationships to ensure the success of great minds working together. (source: company release) Why We Like It: OTEX triggered our entry and promptly got a bounce with the sector index (GSO.X). Since that time, however, OTEX has rolled over in what looks like a double-top formation, or even a sloppy right shoulder in a head and shoulders formation. Let's not get too far ahead of ourselves, since there are a few roadblocks before completing a H&S, but if the stock does break a neckline in the $24-$24.50 range, it could be a much bigger drop than our target of the 200-dma at $23.41. That pattern would place the stock around $18, but before we start dreaming of a double-digit gain, we'll have to contend with the converging 21-dma and 50-dma at $27.38 and $27.50. The 50-dma gave the stock its last bounce and if it were to bounce again from that level, we might consider letting it go, as we'd have consecutive higher lows and a bounce from a rising support line. However, if it continues through that 50-dma, we'd expect a quick drop to our target at the 200- dma. The GSO actually found resistance at its 50-dma and the current rollover has it headed toward a test of its 200-dma at 101.25 and horizontal support at 100. We would suggest new entries wait for a test of that 50-dma in OTEX before entering and target a move below it for momentum plays. BUY PUT APR-30 QFT-PF OI=72 at $2.65 SL=1.30 BUY PUT MAY-30*QFT-QF OI=25 at $3.40 SL=1.70 Average Daily Volume = 304 K ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***** LEAPS ***** What A Difference A Week Makes By Mark Phillips mphillips@OptionInvestor.com Just a week ago, the broad markets looked to be full bull ahead, as investors had aggressively bought everything with a ticker symbol in anticipation that the war in Iraq would be over in less than a week. Such was obviously not the case, and when that reality sank in over the weekend, it sent the bulls scurrying for cover early in the week. Given the severity of Monday's drop, it was actually impressive that the broad market didn't slip further over the next four days. I still think investors are operating on the 1991 model, looking for a sharp rally in the wake of the coalition victory. But I also believe that model is severely flawed, as it fails to take into account the myriad problems that exist in our economy now, that didn't exist then. From the still overvalued level of the market, to the looming debt bubble, currency concerns, trade imbalance, unemployment and my expectation that Recession - Part II is just around the corner, this market has severe problems to contend with that a timely end to the Iraq conflict cannot fix. And don't even get me started on the twin problems of corporate pension underfunding, and sharp increases to employee health benefits, both of which are going to exact a painful price from corporate profits in the years to come. Against a backdrop of elevated stock valuations, and anemic dividend yields, companies are also at a disadvantage due to the glut of supply vs. demand for the products and services they provide. This is the legacy of the bubble that burst in early 2000, and although we've seen sharp declines across the market since then, the excess isn't close to being worked off yet. With that gloomy prognostication, why in the world am I just looking bullish with our current Portfolio and Watch List? Markets fluctuate! It isn't pithy or profound, but it effectively describes the situation in which we find ourselves. A little over 2 weeks ago, the markets had reached their 3rd severe oversold condition in just 8 months. We're currently in the process of working off that excessively bearish condition, with all of the bullish percent readings charging higher out of oversold territory and moving into Bull Alert. It isn't the strongest of bullish conditions, but it certainly isn't the environment in which to be aggressively bearish either. We have a nice cross section of bullish positions, established at solid entry points and we now move into a cycle of waiting to see if this rally is going to continue or if it has already run its course. In case you missed it, I went into excruciating detail on my prognostications for the next several months in my March 19th Options 101 article, which can be accessed at the link below. So, You Want To Know The Future? http://members.OptionInvestor.com/options101/opt_031903_1.asp Over the short-term, I'd be lying (and you'd be a fool to believe me) if I said anything other than I really have no idea where this market is going. I believe the secondary trend of the market has turned bullish, due to a variety of factors that just begins with the improved picture in the world of Bullish Percents. Lowry's buying pressure has started to pick up again, with Selling pressure falling off significantly. The Commercials have backed way off on their short positions, and I get the vague impression that the market "wants" to go up here. Is there a rational reason for it? Heck, no! But tell me the last time the market was behaving rationally! I actually think the consolidation pattern pointed out by Linda Piazza last Monday (and expanded on in my 3/26 Options 101 article) is the clearest roadmap we can use for gaming this market over the next few months. Buying support and selling resistance is the most prudent course of action. The real challenge is in determining where that support and resistance actually exists, right? If you missed that article, take a minute to at least look at the charts of the VIX and OEX that I showed there. The article can be accessed at the following link. Consolidation http://members.OptionInvestor.com/options101/opt_032603_1.asp Note how both the VIX and the OEX are right smack in the middle of those consolidation patterns? What that tells me is this is the WORST possible place to be initiating new longer-term positions. This market has the POTENTIAL to move big in either direction and war news seems to be the largest catalyst right now. I don't know about you, but I view the present situation as little more than a gamble on which way the next major war-related new story breaks. Based on the way fear has been draining out of the market (as demonstrated by the VIX dropping to the 32 level on Friday), I would have to say that odds favor the bulls pushing towards that upper trend line on the OEX and the lower trendline on the VIX. But that eventual direction is likely to be a volatile one, with the continuous war influence combined with the approach of the April earnings cycle. Because of the lack of clarity, and the muddled chart patterns, I decided to take a break from new plays this week. Instead of rushing headlong into new plays, I feel much more comfortable taking a wait and see attitude. Besides that, with my bullish bias, I think we have plenty of plays in the Portfolio and Watch List to represent that view. Looks like I was off a bit last week with my view of short-term up, intermediate-term down and a long-term feast for the bears. At least in terms of the short-term, that is. Monday's slide took the fight out of the bulls and they spent the remainder of the weeks on the ropes. They held their ground but that's about it. That's pretty much what happened with our Portfolio, as it took a severe body blow on Monday and then spent the rest of the week trying to remain on its feet. We managed to dodge the spectre of any drops last week, but some of those plays are looking a little wobbly. Let's take a look! Portfolio: QCOM - As it turns out, QCOM's inability to break the $40 level on that euphoric ramp a week ago was indicative of what to expect this past week. The stock fell back with the rest of the market, finally cracking below that ascending trendline on Thursday. But all things considered, it held up pretty well, getting a decent bounce off the 20-dma ($36.94) on Friday. I like the stock's ability to hold that $37 level last week, but that doesn't mean there isn't more weakness ahead. We've still got several levels of support that ought to hold the price up, including the 50-dma ($36.51) and the top of the gap at $35.80. While conservative, our $35.50 stop should effectively keep us in the play unless the broad market really falls apart. Should our stop be violated, we'll want to be out of the play and our stop is high enough that it ought to prevent us from seeing a loss on the play. But with the weekly Stochastics nearing overbought and starting to weaken a bit, I wouldn't advocate new entries at this point. DJX - Literally, our DJX play was saved by the bell on several occasions last week. With our stop set at $81, and intraday lows of $81.04 and $81.06 on Thursday and Friday, I think the argument can be made that our stop is set at the right spot. I don't like the lack of strength in the broad market as the week wound down and I think it is entirely possible that we'll be stopped out early next week. We're in the play and the position is currently in the green. Now it is just about waiting for the market to either takes out of the play for a small gain, or take another upward move. I don't favor new entries in this highly news-driven environment, unless we can get a strong bounce off the $81 level next week. The play either works to our advantage or not. And our stop should prevent us from seeing a loss. MSFT - There's no question that last week was not kind to our MSFT play, as it deteriorated throughout the week along with the rest of the broad market. Friday's close was just above the low of the day and less than 20 cents above our $24.50 stop. I know it sounds like a broken record, but this one is up to the market at this point. Either it holds above our stop and embarks on another upward leg, or we get stopped out on the next bout of selling. I don't have enough confidence to advocate new positions at this point, especially with weekly Stochastics nearing overbought and starting to weaken. We've just got to hold our breath and let our money management rules take over from here. ADBE - After screaming higher up to the $34 level, ADBE got slammed a week ago by the WR Hambrecht downgrade. Adding insult to injury, Deutsche Bank reiterated their Sell rating and target of $24 on Monday and the stock slid all the way to an intraday low of $30.05. Fortunately, there were buyers waiting to grab the stock at the perceived bargain and we saw ADBE outperform the broad market for the rest of the week by consolidating in the $31- 32 area. Can ADBE mount another bullish move from here? I honestly don't know and conservative traders that don't want to take the risk can certainly consider closing the play for a modest gain right here. But I'm going to stick with the plan, keeping our stop at $30, forcing the market to prove to us that the play is over. BEAS - There's no way to describe last week's action in BEAS than painful. After the initial dip on Monday, the stock found some support near $11 and attempted a weak rebound. But the sellers leaned on BEAS (along with the rest of the Software group) pretty hard going into the weekend, and by the end of the day on Friday the stock found itself resting a mere 25 cents above our $10.25 stop. Whether the stock rebounds from here or continues to deteriorate will be dependent on the broad market action, which in turn will likely depend on the action on the war front. Earnings season may be approaching, but focus has not yet shifted to that arena. AA - I hope some of you took advantage of the huge gain in our AA play to harvest some of those gains early last week. As I mentioned last weekend, that certainly would have been a prudent course of action for more conservative traders. Now that the euphoria in the broad market has faded, the stock is back to testing the $20 level as support. A break below there will likely trigger our $19.75 stop, while buyers could just as easily step up to defend that level. As with most of our other plays, I don't favor new plays at current levels, but I'm not in a rush to exit either. We'll take a wait and see approach, with our stop set such as to keep us from feeling the disappointment of a loss. EMC - All things considered, it wasn't a bad week for our EMC play. After the initial drop on Monday, which was related to the weakness in the rest of the market, EMC stubbornly clung to the $7.00 support level. While unable to advance, I really liked the fact that it didn't weaken any further. This is one of the few plays in our Portfolio in which I still favor new entries in the $6.50-7.00 area. EMC won't be a screamer, but I still see significant upside if the economy can get moving in anything approaching an upward direction. For now, everything is all about the war, but that should start to shift over the next couple weeks. We're maintaining a fairly wide stop at $5.50 to give the play room to move. Watch List: NEM - How does that saying go about "a day late, and a dollar short"? It was all I could do to not advocate taking a position in NEM on Thursday, with the stock once again testing the top of our entry zone. Aside from the fact that it closed near the low of the day, I knew that earnings were looming the next day. So I opted to wait for the news before making a decision. I guess that was the wrong decision, as the company handily beat estimates on both revenues and earnings. That was good for an 8% surge in the stock, as it made up a month's worth of losses and closed right back at the 200-dma. Aahhh, a missed opportunity, but I think it was the right decision from a trading discipline standpoint. I'm not changing the action plan at all, as I expect we could see Friday's gains dissipate in the weeks ahead, especially if we see another downdraft in the price of gold on any significantly positive war news. I will increase our entry target ever so slightly to $24.00-24.50, but that's as much of a chase mode as I'm willing to entertain. Note that $24 is currently the site of that long-term ascending trendline. QQQ - Well, we certainly haven't gotten an opportunity to enter our QQQ play, with it stubbornly holding onto support near the $26 level. But I suspect that is going to change in the not-too- distant future. We're still targeting a dip into the $25.00-25.50 area to allow entry into the play and that range seems highly likely to be visited if the $26 support gives way. Then it will be a matter of whether or not the NASDAQ can continue to exhibit the relative strength I've been talking about. To be sure, the weekly Stochastics are not in favor of the play, as they are starting to show some weakness as they enter overbought territory. But I've still got my eye on the 50-dma ($25.05) and the 200-dma ($24.66), with the expectation that they will define a floor on the next pullback, ahead of a more bullish move. Seasonality is not in my favor either, but I'm leaning heavily on the combination of the PnF chart (which is still bullish) and the bullish percent of the NASDAQ-100 which has now risen to 48%. Certainly there is risk to the $24 level on a gap fill, but I feel strongly that bulls will defend the QQQ above that level. We don't want to chase this play, but on a risk to reward basis, I continue to believe our current entry strategy makes sense. After entry, our stop will be set at $23, as a trade at that level would finally turn the PnF chart bearish. GD - With the intensification of the conflict in Iraq, the Defense sector has actually seen a bit of a resurgence over the past week, inching closer to that $460 level. In spite of that strengthening, our GD play has continued to languish, although it is holding fairly steady near the $56 level. Keep in mind that this play is partially based on the stock (and sector) recovering from a deeply oversold condition, but also on a recovery not really getting underway until after the Iraq situation begins to calm down. So I'm in no hurry to chase stock here or raise the entry target. We've set our own line in the sand, and we'll take action only if that line is crossed. Entries on a retest of the $50-52 area are the way to go. More aggressive traders might consider entering on a successful bounce from the $54 level, but in either case, our stop will be set initially at $48.50. Despite the uncertainties in the global arena, the still dismal economic picture and the distinct possibility for earnings disappointments in the weeks ahead, my bias it still to the upside. The dominant factors in that thesis are the still climbing bullish percent readings, the sharp reduction in the Commercial short positions, increasing Buying pressure according to Lowry's and the recent series of 90% down days. Over the intermediate term, I believe this market wants to go up, whether that inclination is supported by the fundamentals or not. For that reason, I will continue to keep our play list tilted to the bullish side. At the same time, the uncertainty in the market (as demonstrated by the rangebound action in both the VIX and the broad market) has me erring on the side of caution. I've attempted to set the stops on most of our open Portfolio plays so that the worst case scenario we can see is a breakeven to slight gain. Clarity will once again return, but it will have to wait for things to stabilize in the Middle East first. For that reason, I will continue to caution that this IS a HIG RISK environment and I think that trading it should be reserved for more aggressive investors. And even those should be trading smaller position sizes than normal. Excessive caution will certainly keep us from hitting the "Big Score", but it will also keep our accounts intact so that we can trade more aggressively when rational market action once again returns. Trade Smart! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None QCOM 02/14/03 '04 $ 40 LLU-AH $ 4.60 $ 5.40 +17.39% $35.50 '05 $ 40 ZLU-AH $ 7.90 $ 8.60 + 8.86% $35.50 DJX 02/25/03 '03 $ 80 DJX-LB $ 6.40 $ 7.10 +10.94% $81 '04 $ 80 YDJ-LB $ 9.30 $10.30 +10.75% $81 MSFT 02/27/03 '04 $ 25 LMF-AE $ 3.20 $ 3.60 +12.50% $24.50 '05 $ 25 ZMF-AE $ 5.10 $ 5.70 +11.76% $24.50 ADBE 02/28/03 '04 $ 30 LAE-AF $ 4.70 $ 6.90 +46.81% $30 '05 $ 30 ZAE-AF $ 7.50 $10.10 +34.67% $30 AA 03/12/03 '04 $ 22 KJP-AX $ 1.15 $ 2.05 +78.26% $19.75 '05 $ 25 XAP-AE $ 1.50 $ 2.80 +86.67% $19.75 BEAS 03/12/03 '04 $ 12 LZP-AV $ 1.55 $ 1.95 +25.81% $10.25 '05 $ 12 ZWP-AV $ 2.75 $ 3.40 +23.64% $10.25 EMC 03/12/03 '04 $ 7 LUE-AU $ 1.40 $ 1.50 + 7.14% $5.50 '05 $ 7 ZUE-AU $ 2.15 $ 2.40 +11.63% $5.50 Puts: None LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: NEM 03/09/03 $24.00-24.50 JAN-2004 $ 25 LIE-AE CC JAN-2004 $ 20 LIE-AD JAN-2005 $ 25 ZIE-AE CC JAN-2005 $ 20 ZIE-AD QQQ 03/16/03 $25.00-25.50 JAN-2004 $ 26 KLF-AZ CC JAN-2004 $ 22 LKF-AU JAN-2005 $ 26 ZWQ-AZ CC JAN-2005 $ 22 ZWQ-AU GD 03/23/03 $50-52 JAN-2004 $ 60 KJD-AL CC JAN-2004 $ 50 KJD-AJ JAN-2005 $ 60 ZZJ-AL CC JAN-2005 $ 50 ZZJ-AJ PUTS: None New Portfolio Plays None New Watchlist Plays None Drops NVDA - $13.43 We just never managed to get a favorable entry into the NVDA play, even though it has been on our Watch List for 2 months now. On Friday, UBS reiterated their reduce rating on the stock, and it shed more than 4% on rather heavy volume (25% over the ADV). Normally, I might look at this as a gift, as we're finally getting some of the weakness we've been looking for. Unfortunately, in the intervening time, the weekly Stochastics have gone fully overbought and are just now tipping bearish. Not only that, but I'm starting to see some bearish divergence on other oscillators, and I think the odds are slanted against the bulls at this point, especially with the SOX not acting healthy. I still like the prospects for this stock over the longer term, but no longer want to advocate new entries until I can see a more advantageous setup on the charts. Look for NVDA to return to our Watch List when the time is right. ************** TRADERS CORNER ************** It Ain’t Over Till The Fat Lady Sings By Mike Parnos, Investing With Attitude Let the fat lady sing – as long as it’s not in my shower! It’s enough that I have to listen to them at karaoke bars, but I’m sure not going to bring one home. When an option expires, there is no fat lady singing. But it’s over nonetheless. There is no fanfare – usually. The obituary might read: The CBOE announces the passing of the March OEX 400 and 390 put options on March 21st. It came as no surprise. They had been in poor health and deteriorating for many months prior to their passing. They are survived by the entire family of April OEX options. Following the services there will be a small celebration for option sellers and close family. ______________________________________________________________ Wake Me When It’s Over If you’re an option buyer, and you haven’t taken profits early, you’re probably mourning the loss of your money. If you’re an option seller, this is what it’s all about. The last of the option buyer’s money has made the trip from their pocket to yours. The life of an option can end in two ways. It can expire worthless or it can be closed out. If you own an option, you can sell it. If you’ve sold the option, you can buy it back. It’s not quite as simple as that. There is a right way and a lot of wrong ways. When You Need Closure When closing out a position on expiration Friday, you will rarely, if ever, be able to buy it back for only the intrinsic value. There will always be a little time value involved – how much is what we’re trying to control. For example: What do you do if you’re short a $15 call and, at 3:50 p.m. the stock is trading at $15.30? There is $.30 of intrinsic value. The bid/ask spread may be $.30 bid by $.40 ask or $.25 bid by $.35 ask. Often, in the last few minutes before closing, the stock and options will be moving quickly. It’s chaos. Short call holders are hoping the stock price dips below $15 so their call will expire worthless. Short put holders are rooting for the stock to remain above $15 so their put will expire worthless. Meanwhile, the marketmakers are often trying to manipulate the stock towards the strike price with the highest open interest. Why? Because they want to generate as many transactions as possible. For marketmakers it’s like Christmas every month except they keep all the presents for themselves – all the nickels and dimes of time value that you’re payingfor peace of mind when you close a position early. So, in those last few minutes, brokerage firms are going nuts trying to send orders and get them filled. They would like you to close your position earlier in the day to make their job easier. This is another instance where the ability to send your orders electronically to a specific exchange is a distinct advantage. Imagine how it would work with a broker you have to call to place your orders. You own a short $15 call and the stock is trading at $15.30. You are willing to pay the $.35 to close out your position. In 10 minutes the market will close. 1. You call your broker. The phone is picked up on the third ring (if you’re lucky). 2. You give him your account number and ask him for a price quote on the stock and the option. He responds that the stock is trading at $15.30. Then, you recite your order. “I’d like to buy to close 10 contracts of the BRCM April $15 calls at a limit price of $.35 for the day.” 3. He recites your order back to you. You acknowledge that it’s correct and he sends it off to an exchange (but you don’t know which one). Then he hangs up the phone. As little as a minute-and-a-half have may have elapsed during the phone call. The price of an even somewhat liquid stock can easily go up or down as little as $.25 or as much as $1.00 in that length of time. If the stock moves up even a nickel, your order can die on the vine. There’s an excellent chance that, come Monday, you’re shares would have been called away or you’ll be short the 1,000 shares in your account. If you’re short an ITM put, you may end up with shares in your account. Do you want to take that risk? Not me. Now, it’s possible the market could move in your favor. Does that ever happen? Sure, every time there’s an eclipse or that an ex-wife returns an alimony check. Then, you may actually get a better fill. What To Do If you have direct online trading (all conscientious CPTI students do), you have to decide on a price that you’re comfortable with. Don’t get greedy. You’ll need to be at the computer and ready to act. Watch the intraday charts as the stock moves toward your target price. This may happen with four hours to go or four minutes to go in the trading session. You’ll need to have your limit price in place -- already typed in. When the stock gets there – CLICK! You’ll be filled and it will be over in an instant. Your fill confirmation will appear on the screen in a few seconds. If you don’t have direct online trading, you can put in a limit order and wait. If the stock doesn’t hit your price, you may have to adjust the order – possibly pay a little more. During the day, the stock will have fluctuations. Exit opportunities will be there – and you will have to be too. If you have to call a broker to place your order, lotsa’ luck! I hope it’s a good one. Start early in the day, put in your limit order and hope for the best. Market Orders Do you want to place a market order? -- About as much as you’d want to drop the soap in a prison shower. “Buy On Close” Orders The “Buy on Close” order is a first cousin to the market order. Remember, you want to keep a tight hold on that soap. The new friends you make you’ll want to make on your terms – not the marketmaker’s. Expiration Day Change The April option cycle will close on Thursday, April 17th, as opposed to Friday. It’s will be Good Friday and the markets will be closed. CPTI Portfolio Update Position #1 – OEX Iron Condor – closed Thursday at $437.94. We’re created an Iron Condor with a 70-point range of 420 to 490 for April. The objective is for the OEX, at April expiration, to finish anywhere within the spread. We sold 10 contracts of the April 420 puts and bought 10 contracts of the April 410 puts for a credit of $.90. Then we sold 10 contracts of the April 490 calls and bought 10 contracts of the April 500 calls for a credit of $1.45. The total credit for the Iron Condor position is $2.35. Our profit target is $2,350 for 10 contracts. Our safety range is 417.65 to 492.35. Position #2 – BRCM Short Straddle – Trading at $12.82 Broadcom has had a tough few days – and so has our position. About three points ago we sold 10 contracts of BRCM April $15 calls and sold 10 contracts of BRCM April $15 puts for a total credit of $2.60. Our safety range is from $12.40 to $17.60. Some CPTI students are getting nervous. If you can’t take the heat while we wait for BRCM to bounce, you can buy the April $12.50 put for about $.75 (probably less on Monday). That will protect you from $12.50 down to zero. It means that BRCM has to finish above $13.15 to make a profit. Your maximum potential loss would be the cost of the $12.50 put ($.75). ONGOING POSITIONS Ongoing Position #1 – MMM Iron Condor – Trading at $130.51. We created an Iron Condor with a 15-point range $115 to $130 for April. We were able to take in $1,550 for our 10-contract position. The objective is for the underlying, at expiration, to finish anywhere within the spread. The market has gone up much too far and much to fast. We have a month for calmer heads to hopefully prevail and return MMM, among many other stocks, to a more reasonable level. Ongoing Position #2 -- QQQ ITM Strangle – Trading at $26.03. This is a long-term position we created four months ago. We own the January 2005 $21 LEAPS calls and the January 2005 $29 LEAPS puts. We sold 10 contracts of the QQQ April $28 the QQQ April $22. We moved our short sells in by one point to generate some extra premium. Our new cost basis for the position is $5.30. Ongoing Position #3 -- OIHDiagonal Calendar Spread – Trading at $56.15. We thought that there was a great deal of uncertainty built into the price of a barrel of oil. When, and if, the war is resolved, the price of oil should work its way down, along with the price of oil stocks. We bought 10 contracts of the July OIH $55 puts and sold 10 contracts of the March OIH $50 put at a debit of $3.85. According to plan, the March $50 put expired worthless. We then sold the April $50 put for $.70 to bring our cost basis down to $3.15. Happy trading! Remember the CPTI credo: May our remote batteries and self-discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Instructor ************** TRADERS CORNER ************** More on Divergences and Data By Leigh Stevens lstevens@OptionInvestor.com Maybe I'm running out of good titles, but this Trader's Corner is also part of my "putting it together" series on making profitable trading decisions by having a complete view of all the relevant technical patterns and indicators that predict trend direction (including reversals of trend). This is not to say that we can or would ignore, as part of what goes into our trading decisions, the fact that the U.S. is in a major armed conflict in Iraq. I found that most of my bad (i.e., losing) trades were the result of overlooking some pattern, time frame or indicator reading. My concentration however is on what shows up in the indexes in the "technicals" alone - understanding of course that technical considerations stem from the sum total of market fundamentals impacting buying and selling. Which includes the shifting view on how a war might impact the economy and earnings, etc. You can find my entire list of OIN articles on the site listed by technical analysis topics and components (all my prior Trader's Corner articles), with titles in alphabetical order, at http://www.OptionInvestor.com/traderscorner/tc_022703_2.asp To go back to my prior Trader's Corner before this one: http://www.OptionInvestor.com/traderscorner/tc_032003_2.asp - in this piece I discussed how bearish indicator divergences were showing up on the hourly index charts, warning of an approaching top. With such HOURLY chart divergences, I expect a top but not necessarily a major top and that's what we got this past week per the examples below - The most pronounced price/oscillator (here, the RSI) divergence was seen on the S&P 500 (SPX) above. By "pronounced", I mean that the line of the price peaks goes UP and the line of the RSI peaks slopes down or vice versa - the lines slope in OPPOSITE directions. The correction was sharp and deep one day but was not a huge overall retreat or major reversal so far at least. Note that SPX as seen above is still trading above its broad downtrend channel and the correction is more sideways than hugely down. That said, I think we'll see still lower prices before the current correction runs its course; e.g., a move down to 850 at least. Sometimes the price peaks make a "flat" line such as on the left on the SPX chart above, but the oscillator line slopes down. This is still a divergence or differing trend of price from indicator and indicator from price. Sometimes the trendline drawn through higher upswing highs is sloping up and the line through the oscillator type indicator tops is a horizontal or flat line, which is the case in the S&P 100 chart (OEX) BELOW - All the examples are divergences and suggest upcoming trend reversals. However, the "classic" divergence is where the lines slope in opposite directions. Divergences also show up in the stochastic model or indicator, as in the Nasdaq 100 (NDX) chart BELOW with the 5 and 21-hour stochastic variations. If you do not check BOTH the RSI and Stochastic by applying them to the same chart, you WILL miss some divergences that show up. And, sometimes you have to do your put (or call) buys on the close, ahead of a weekend even, to realize the best profit potential. In this example, the question was partly assessing the risk of buying puts or "fading" the short-covering rally on the Friday in question? Was (Iraqi) surrender going to be immediate!? Here is where analysis of world events does come into play - in assessing RISK, which is a separate issue from the probability considerations of straight technical analysis. The other thing in my technical "checklist" relating to the trend and where it's going, is to look both at other timeframes and other indicators - Joe Granville used to talk about the "tree" of indicators; e.g., oscillators and momentum indicators, volume, On Balance Volume, moving averages, etc. Look at them all - I do not myself use MACD much, but I use it some, especially on weekly charts - sometimes divergences show up with this indicator. I don't use CCI (Commodity Channel Index) at all, which attempts to measure the direction and magnitude of the trend, as I find that all I need to do is look at the chart pattern. However, this is not to say that others won't make quite effective use of it. In the DAILY chart below, we see other indicators that I do use, that were also suggesting that the market had gotten "extended" or vulnerable to a correction. 1. The 200-day moving average will typically act as strong resistance in an overall bear trend. 2. SPX had reached the upper moving average envelope line that often marks the high end of its trading range relative to a 21- day moving average. 3. "Sentiment" indicators like my Call to Put daily volume ratio for equities options (CBOE only) hit the "overbought" area, where total call volume was 2.2 times daily put volume showing an excess of bullish sentiment. 4. The market was simply overbought in terms of the RSI, which on a 14-day basis (length setting = 14) is typically at a reading of 65 to 70 or higher. SOME DATA CONSIDERATIONS - Many technically oriented traders use hourly charts as the primary INTRADAY chart timeframe. This is not to say that they don't ALSO use 5, 15 and 30-minute charts - but, an hourly timeframe is the king chart so to speak in what you can know in intraday chart analysis. However, be aware that sometimes you may see an hourly chart displayed somewhere that "looks" different than what you see on Q-charts or TradeStation, etc. Why? There are TWO conventions on how to measure hourly trading: 1. The first and all subsequent bars are 60 minutes long BUT the 2. "Natural hour" bars - for example, you can display hourly bars this way in TradeStation but the "default" setting is method #1. I noticed that in BigCharts, a data/chart provider used by many major web sites, the display of hourly charts is natural hour bars. An example will explain: an index or other contract that trades from 8:30 to 4:15. Usually, most chart providers have their software set so that the first hourly bar is the Open, High, Low and Close from the open until 1 hour later; e.g., from 8:30 to 9:30 - a full hour. Each subsequent "bar" is also 60 minutes UNTIL the last - in this example, the bar from 3:30 until 4:15, which is 45 minutes of trading. Where an item trades from 9 to 4:15, the last "hourly" bar is only 15 minutes, which is why that bar usually looks quite short between high and low (i.e., it's "truncated"). Contrast this method, with the "natural hour" method, which was the historical means of looking at hourly trading. The idea involved was that the price at the TOP of the hour was considered to be THE key price. So, if a market traded beginning at 8:30 or 8:45, the FIRST "hourly" bar was only 30 (or 15) minutes long. And the last hourly bar, in the case of stock index options, was only 15 minutes (from 4 to 4:15). So, in this method you could have TWO truncated or shortened bars. I go into this subject because of the occasional questions from readers as to why THEIR hourly chart looks different than mine or someone else's - or they got a "crossover" on a stochastic earlier or later than someone else. Sometimes, the "look" of the chart or the signal is different because you have a bad tick or an incorrect high or low in what is being displayed. But it can sometimes be that you are looking at a bar chart or candlestick where the first bar ALWAYS ends at the even hour, rather than after a full hour of trading (such as from 8:30 to 9:30) - at least until the last bar typically. There is another quirk in Index trading related to the Dow. Sometimes I have been tripped up in looking at the Dow (Industrials) by focusing in the moment only the what I think was the actual prior high or low - whereas I would get a better picture on the hourly chart. The daily Dow low or high (e.g., symbol "DJIA" or "INDU") is usually charted as the "theoretical" high or low - where the Average would have traded if ALL the 30 Dow component stocks were at THEIR individual daily low or high at the same time, which is rarely the case. For example, on one day last week my Dow daily chart indicated a low at 8065 - this was the theoretical low. Looking at an hourly chart, reflecting where the Dow was actually trading at any moment that day I saw that the actual lowest traded low was 8105. Only the DJ.X Index Daily and Hourly charts reflect the same High or Low on any given day. It can be easy to get mislead on what looks like a good trade if making a snap decision on DJX options. I try to get traders to be aware of data issues like these so they don't make a bad decision based on a bad tick in a chart that changes the pattern or trips an indicator early - OR, because they are unaware that there are different ways to display hourly charts. If a chart looks "funny", one of these data display issues may be the cause. ************** TRADERS CORNER ************** Three Drives Pattern I'm going to continue with last weeks theme of patterns based on fibonacci numbers. The more I work with these patterns, the more comfortable I become with them. I'm also quite impressed with how often even the creation of a partial pattern can be of use in trading. Last week I mentioned that even though a completed Gartley pattern can often predict the length and direction of the next move, a partial fulfillment (creation) of the C wave can often be useful as a trade entry either short (bullish Gartley) or long (bearish Gartley). Before I get to the three drives pattern, let's take a look at a nice Gartley pattern from this past week on the ES. Bullish Gartley Pattern ES 5 Minute Chart: As you can see, the Gartley pattern can be present on any time frame, and here it is on the 5 minute chart, a nearly perfect setup long on the completion of the pattern at D = 864.75. Let's do a quick revisit on how this was built. - The move from X to A is retraced .618 to form B. - Then the move from A to B is retraced .618 to form C. Perfect symmetry there. At this point, even though the Gartley is not finished, one can take a short position based on the unfolding of the pattern. The expectation is that the next move down to form D will be below B. So you check the next retracement of the move from X to A and find that the .716 is in the 864.75 area. Here is where the math part comes in. 1. You calculate C - B = 7.75 2. You multiply this by a couple of standard fibonacci extensions like 1.27, 1.41, 1.618 etc, and then subtract the results from the C high. Multiplying 7.75 times 1.27 give you 9.84, which subtracted from C gives you 864.91, almost exactly the .786 retrace of X to A. Therefore, you make the assumption that the pullback below B will stop in the 865 area, and you look to close out shorts if you're short, and look to go long if you see a reversal there. The EXPECTATION of the bounce from D is a MINIMUM of .618 of the move from C to D, but in the above example that area was met and exceeded. Three Drives Pattern The strict interpretation of this pattern is that we have three waves of equal magnitude with specific, and equal fibonacci retracements and expansions at each wave. However I will show an example later which I believe refutes the necessity of such a strict interpretation. People familiar with E-wave analysis will see some similarities, looking at this as a 5 wave pattern with the first and fifth waves being of equal length. Here is how they look. Bullish and Bearish Three Drives Pattern Diagram: This pattern, like all patterns, gives you the potential capability of predicting future price movement. Also note that if wave 3 completes either at strong horizontal support/resistance, or at a key fibonacci retrace for a given move, then the strength of the pattern is greatly enhanced. The concept is quite simple, and has some similarities to the Gartley pattern. A move in price is retraced, and if you notice that the retrace is close to the standard .618 fibonacci number, then you have the start of the pattern. The following chart shows the start of such a pattern, with the ES reaching 830.50, a .618 retrace of the initial move up. Wave 1 of a Bearish Three Drives Pattern Chart: The next chart shows how you continue to do the same thing as above for the next two waves up. You can see how Wave 2 is corrected .618 just like Wave 1. Finished Bearish Three Drives Pattern Chart: Note that each of the waves up are also a fibonacci extension of the previous wave. You can see this by doing the same calculation as was shown above for the Gartley pattern for leg C to D. So, for the first wave, we take the value of Wave 1 and subtract the retrace value like so: Step a: 842.75 - 830.50 = 12.75 Then we multiply this amount by the Fibonacci extension of 1.27: Step b: 12.75 * 1.27 = 16.19 Then we add that value to the retrace value of Wave 1: Step c: 830.50 + 16.19 = 846.69 You can see that Wave 2 ended at a high of 847, just as predicted by the calculation. The Wave 3 high overshot a similar projection by one point, but it was close enough. Why is this called a Bearish Three Drives Pattern? Once we have our completed pattern we can now say that we should get a reversal of at LEAST .618 from the Wave 3 high. The following chart shows that we got that initially, then a bounce followed by a severe selloff. Bearish Three Drives Results Chart: When you find a perfect Three Drives Pattern, there is a high probability that you can take a trade based on the projected .618 target. I've seen a few examples of this pattern building and repeating on top of itself. Meaning that the Wave 3 pullback is 618, which leads to a Wave 4 expansion of 1.27 just like the previous waves. You can then take yet another trade off of the Wave 4 high with a target of .618 retrace. However, the perfection and symmetry of such a pattern does not present itself very often, and we have to make do with some of its ugly cousins. I have personally found that imperfect versions of these patterns are useful for speculative trades. For example, look at the following Bullish Three Drives chart which has the appropriate fibonacci retracements but doesn't have the symmetrical look of the chart above. Once Wave 3 has formed, you can take a long trade for an expected .618 retrace of the last move down which formed Wave 3. The resulting move actually gave a profit of .786 retracement from the Wave 3 low. Bullish Three Drives Pattern Chart: The resulting move actually gave a profit of .786 retracement from the Wave 3 low. Result of Bullish Three Drives Pattern Chart: If you want to be completely conservative in the usage of this pattern, then you may have to wait quite some time to find the perfect setup. However, if you allow some leeway in you view of pattern recognition, the you can benefit from this pattern quite often. Alternate Three Drives Pattern Chart: Price made created a nice Three Drives pattern, went to the estimated target of .618 retrace off of Wave 3, and then went on to create one more wave that I've marked as Wave 4. This wave should also give you yet another .618 retrace, and in fact, gave much more due to the gap down. You can also view that fourth wave as an extension that took price out to an extreme that required a larger pullback. Also, note that the first move up only had a .500 retracement, and I therefore didn't mark the top of it as a Wave 1. However, if you said to yourself, .500 is good enough for me, I'm going to mark it as Wave 1, you could have started taking trades for an expected retrace one wave earlier than the one marked Wave 3. If you were to do this, I would set a target of .500 rather than .681 until a true Three Drives Pattern formed. This is a simple pattern to SEE even without drawing lines, and therefore lends itself to real world usage for trading. ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. 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The Option Investor Newsletter Sunday 03-30-2003 Sunday 5 of 5 In Section Five: Covered Calls: Trading Basics: More Q&A With The Editor Naked Puts: Trading 101: A Different Type Of Option Spreads/Straddles/Combos: Stocks Drop As War Rages In Iraq! Updated In The Site Tonight: Market Watch: Making Another Run Market Posture: Getting Defensive ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************* COVERED CALLS ************* Trading Basics: More Q&A With The Editor By Mark Wnetrzak This week's discussion concerns the "buy-write" order: a technique that conservative traders often use to establish a covered-call position. Attn: Covered-calls editor Subject: Effective use of the "buy-write" order Mark - I've been reading your articles since Xmas and have been trying my hand @ CC's - and generating some questions for you along the way as I learn. For example, I'm curious about one aspect of the buy-write: it seems to be good practice to take one of the given positions, do a buy-write @ an "acceptable" net, then set your stop @ the break-even point. However, if one were willing to put in a little more time, one could place a buy order @ an "appropriate" support level (w/tight stop), and if correctly bullish, sell CC's upon price rising to resistance, set the stop just below the support line - pushes the cost basis below support, almost a guarantee of profit (barring abnormal events). Let's look at CBST as an example; on the daily chart, I see a bullish pennant, with rising support line going back to mid-September, resistance line ~ 8.5. Why not place a limit buy @ 6.75 (daily stochastics indicate movement down pending, various MA's are not indicative), set a tight stop, await price moving to 8.25, then sell CC's? Does this become too complex, as a practice? Your advice is appreciated. Gumby Hello Gumby, The object of any investor is to investigate any strategy they find intriguing and adjust it so it fits within their risk-reward tolerance. Many investors become discouraged with covered-call writing because it limits their upside and therefore they seek ways to increase the potential return - at the risk of increased downside exposure. In general, you describe trading a stock - trying to pick the "bottom" to buy the stock and pick the "top" to sell the calls - a "perfect" trading scenario. What happens if the stock doesn't hit your buy order or worse, does - but then continues downward? What happens if the stock remains relatively unchanged for an extended period of time with little or no option premium? What will your exposure be and does it outweigh your "potential" gains? "Legging" into a position does offer a higher potential yield but carries a greater risk and yes, it can be difficult to implement. With our total-return concept, we try to minimize risk and strive to obtain a consistent (low but adequate) yield. There are many methods an investor can use to enhance the potential yield. As you said, legging into the position; or selling partial positions using several different strikes/months; or a partial leg-in, where an investor sells covered-calls incrementally as (if!) the stock rises; or aggressively sell at-the-money or out-of-the-money calls; etc. What it all comes down to is finding or adjusting a strategy to fit your personal preference and then implementing it with disciplined money management. Some of the hardest trades to make are "selling for a loss" to preserve capital and "selling for a profit" as the little greed-gremlin whispers in your ear. Best Regards, Mark W. Editor's Note: A "buy-write" order involves buying a stock and selling its option simultaneously. When placing an order for a buy-write, you are requesting to purchase the shares and sell the (call) options for a specific "net" price, with both transactions occurring at the same time. Since the cost basis is established prior to the trade, a buy-write order can be a useful method to initiate a new covered-call position. The exact phraseology is not important but a specific "net-debit" must be given when the trade instructions are delivered to the agent. The floor broker or clearing-house will fill the order if the specified net-debit can be achieved through any combination of stock and call-option prices. One of the advantages of this technique is that it prevents the possibility of "slippage" during the position entry process when the premium in the call option declines. This problem happens frequently in the plays we list as many are opened in the first hour of trading on the Monday after the newsletter is published. If too many calls are sold without any buying pressure, the bid premium drops quickly towards intrinsic value and the (ITM) play becomes unfavorable. Traders who attempt to "leg-in" to these positions (buying the stock with plans to sell the call later) are often surprised to see the previously overvalued premiums disappear before they can write the options that complete the play. SUMMARY OF PREVIOUS CANDIDATES ***** 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. Note: Margin not used in calculations. Stock Price Last Option Price Gain Potential Symbol Picked Price Series Sold /Loss Mon. Yield EP 5.20 5.90 APR 5.00 0.70 0.50* 9.7% RSAS 8.02 7.62 APR 7.50 0.95 0.43* 6.6% MANU 2.56 2.41 APR 2.50 0.35 0.20 6.6% SONE 5.20 5.27 APR 5.00 0.55 0.35* 6.5% CPN 2.93 3.40 APR 2.50 0.60 0.17* 6.3% DCLK 7.69 8.35 APR 7.50 0.55 0.36* 5.5% OAKT 3.23 3.54 APR 2.50 0.90 0.17* 5.3% IDCC 19.99 22.69 APR 17.50 3.30 0.81* 5.3% VECO 15.91 16.08 APR 15.00 1.70 0.79* 4.8% PEGS 10.90 11.02 APR 10.00 1.40 0.50* 4.6% ILXO 8.40 9.06 APR 7.50 1.20 0.30* 4.5% BCGI 16.14 16.21 APR 15.00 1.70 0.56* 4.2% SNDK 19.11 17.49 APR 17.50 2.40 0.78 4.1% ALTR 13.84 14.11 APR 12.50 1.80 0.46* 3.3% NWAC 8.30 7.17 APR 7.50 1.30 0.17 2.6% DAL 11.25 9.13 APR 10.00 1.90 -0.22 0.0% * Stock price is above the sold striking price. Comments: What goes up must come down and the question is, at least for the major averages, how far? With the war in Iraq remaining the primary market driver, it just depends on the next story to hit the wires. With the strongly negative open on Monday, there was little chance (or incentive) to enter the airline positions listed last Sunday. The positions will be removed from the summary. As for the potential "early exit" list, Manugistics (NASDAQ: MANU) is back after it dropped on Friday due to weak profit guidance. Other issues to watch are: RSA Security (NASDAQ:RSAS), Veeco Instruments (NASDAQ:VECO), and Sandisk (NASDAQ:SNDK). NEW CANDIDATES ********* Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield VRTS 17.93 APR 17.50 VIV DW 1.20 10938 16.73 21 6.7% MSCC 10.93 APR 10.00 QMS DB 1.30 180 9.63 21 5.6% MRVL 21.91 APR 20.00 UVM DD 2.65 7819 19.26 21 5.6% FEIC 16.23 APR 15.00 FQE DC 1.75 18 14.48 21 5.2% WYNN 15.04 APR 15.00 UWY DC 0.55 116 14.49 21 5.1% SOHU 11.73 APR 10.00 UZK DB 2.05 768 9.68 21 4.8% TELK 13.37 APR 12.50 ZUL DV 1.20 256 12.17 21 3.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** VRTS - Veritas $17.93 *** Stage I Speculation *** Veritas Software (NASDAQ:VRTS) is an independent supplier of storage software products and services. Their products include storage management and data protection software, as well as clustering, replication and storage area networking software. The company offers solutions to help solve the problems of data intensive business environments by providing essential storage software and storage virtualization solutions that enables its customers to protect and access their business-critical data. The company's products operate across computing environments ranging from the desktop computer to the large enterprise data center, including storage area networks, to protect critical data, to provide high availability and to guard for disasters. The current technical outlook is recovering as Veritas forms a Stage I base and our position offers great reward potential at the risk of owning this industry-leading issue at a favorable cost basis. APR 17.50 VIV DW LB=1.20 OI=10938 CB=16.73 DE=21 TY=6.7% ***** MSCC - Microsemi $10.93 *** Military Contracts! *** Microsemi (NASDAQ:MSCC) is a designer, manufacturer and marketer of analog and mixed-signal integrated circuits (ICs) and power and signal discrete semiconductors. Microsemi's semiconductors manage and regulate power, protect against transient voltage spikes and transmit, receive and amplify signals. Microsemi operates primarily in a single industry segment as a manufacturer of semiconductors. Microsemi's products include individual components, as well as complete circuit solutions that enhance customer designs by providing battery optimization, reducing size or protecting circuits. Microsemi has received several upgrades this month as analysts see the company benefiting from military-related orders, which have been "consistently strong and should remain robust for the foreseeable future." Technically, the bullish breakout on heavy volume suggests further upside potential and this position offers favorable speculation in a bullish stock with a cost basis close to support. APR 10.00 QMS DB LB=1.30 OI=180 CB=9.63 DE=21 TY=5.6% ***** MRVL - Marvell Technology $21.91 *** Trading Range *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. In February, MRVL posted a sharply narrower 4th-quarter net loss and said revenue jumped 82%. The stock has been trading in a narrow range from $18 to $24 over the last four months and this position offers investors with a long-term bullish view, a favorable entry point in MRVL. APR 20.00 UVM DD LB=2.65 OI=7819 CB=19.26 DE=21 TY=5.6% ***** FEIC - FEI Company $16.23 *** Bottom-Fishing! *** FEI Company (NASDAQ:FEIC) is a supplier of equipment and solutions to the high-growth segments of the semiconductor, data storage and industry and institute markets. The company's solutions are based on a combination of patented and proprietary technologies that produce highly focused electron and ion beams. These solutions enable FEI's customers to view and analyze structures in three dimensions and to measure, analyze, diagnose and modify sub-micron and atomic structures below the surface in semiconductor wafers and devices, data storage components and biological and industrial materials. This enables the firm's customers to develop products faster, control manufacturing processes better and improve their production yields. FEI's Structural Process Management Solutions include focused ion beam equipment, scanning electron microscopes, transmission electron microscopes and also DualBeam systems, which combine the various microscopes on a single platform. In January, FEI and Veeco Instruments (NASDAQ:VECO) terminated their $1 billion merger due to difficult market and economic conditions and traders reacted favorably to the news. The technical outlook for the issue suggests excellent upside potential and reasonable support near the cost basis in this conservative position. APR 15.00 FQE DC LB=1.75 OI=18 CB=14.48 DE=21 TY=5.2% ***** WYNN - Wynn Resorts $15.04 *** Make A Bet! *** Wynn Resorts (NASDAQ:WYNN) is constructing and will own and operate Le Reve, a luxury hotel and destination casino resort in Las Vegas, Nevada. Le Reve will be situated on approximately 192 acres at the site of the former Desert Inn Resort & Casino on the Las Vegas Strip. The facility will feature approximately 2,700 guest rooms and suites, a casino featuring an estimated 136 table games and 2,000 slot machines, a baccarat salon and private, high-limit gaming rooms; an approximately eight-story manmade mountain enclosing an approximately three-acre lake in front of the hotel and 18 dining outlets, including six fine- dining restaurants; an 18-hole championship golf course on the premises; a water-based entertainment production; an on-site, full-service Ferrari and Maserati dealership and an art gallery. The facility is scheduled to open to the public in April 2005. We simply favor the bullish technical indications in WYNN's chart and our position offers a method to participate in the future movement of the issue at the risk of owning the stock near $14.50. APR 15.00 UWY DC LB=0.55 OI=116 CB=14.49 DE=21 TY=5.1% ***** SOHU - Sohu.com $11.73 *** Rally Mode! *** Sohu.com (NASDAQ:SOHU) is an Internet portal in China. SOHU's portal consists of sophisticated Chinese language Web navigational and search capabilities, 15 main content channels, Web-based communications and community services, and a platform for e- commerce and short messaging services. Each of Sohu.com's interest-specific main channels contains multi-level sub- channels that cover a comprehensive range of topics, including news, business, entertainment, sports and careers. The company also offers free Web-based e-mail. Sohu.com offers a universal registration system, whereby a user that has registered for its e-mail service is automatically registered for its chat, bulletin board, instant messaging and other services. The Internet sector has been "on fire" and investors who want a long-term position in the industry can use this position to establish a low risk cost basis in SOHU. APR 10.00 UZK DB LB=2.05 OI=768 CB=9.68 DE=21 TY=4.8% ***** TELK - Telik $13.37 *** TLK286 Starts Phase III Trial *** Telik (NASDAQ:TELK) is a biopharmaceutical company working to discover, develop and commercialize small-molecule drugs to treat serious diseases, including cancer and diabetes. Telik's most advanced product development programs include TLK286, which it expects to enter a Phase III registration trial beginning in the 1st-quarter 2003; TLK199, which is in a Phase I-IIa trial, and TLK19781, which is in pre-clinical safety studies. TLK286 is a small-molecule tumor-activated cancer drug that the company is evaluating initially to treat cancers that are resistant to standard chemotherapy drugs. TLK199 is a small-molecule bone marrow stimulant being developed for the treatment of blood disorders associated with low white blood cell levels. TLK19781 is a proprietary, orally active small-molecule insulin receptor activator for the potential treatment of Type II diabetes and other conditions related to insulin resistance. Shares of Telik rallied sharply Thursday after the biotech firm said that it had started a Phase III trial for TLK286. Investors who like the company's drug pipeline can speculate on the near-term performance of the issue with the potential of owning TELK at a price near technical support. APR 12.50 ZUL DV LB=1.20 OI=256 CB=12.17 DE=21 TY=3.9% ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield SANG 10.01 APR 10.00 QDY DB 0.65 15 9.36 21 9.9% IMCL 18.36 APR 17.50 QCI DW 1.85 4951 16.51 21 8.7% ADLR 12.10 APR 10.00 UAH DB 2.60 570 9.50 21 7.6% MMR 10.98 APR 10.00 MMR DB 1.45 0 9.53 21 7.1% SEPR 13.89 APR 12.50 ERQ DV 1.95 1480 11.94 21 6.8% SII 35.21 APR 35.00 SII DG 1.55 3871 33.66 21 5.8% BJS 35.08 APR 35.00 BJS DG 1.40 2040 33.68 21 5.7% STX 10.35 APR 10.00 STX DB 0.70 1303 9.65 21 5.3% IDCC 22.69 APR 20.00 DAQ DD 3.30 2108 19.39 21 4.6% ***************** NAKED PUT SECTION ***************** Trading 101: A Different Type Of Option By Ray Cummins There is a lesser known financial vehicle that offers worthwhile opportunities for investors who need current income and also want ownership in companies that will benefit from a recovery in the stock market. When I mentioned "a different type of option" in the title line of this article, I'm sure many readers started conjuring thoughts of exotic derivatives and complex instruments such swaps, warrants and other synthetic issues. However, this instrument is far more simple and it is available to the average investor. I referring, of course, to convertible securities, which are similar to options in that they give the holder a right to convert a given issue to a specified number or quantity of an alternative financial instrument. Although this category of financial issues is not well known, it can offer favorable returns along with potentially high rewards for those that choose to learn the fundamentals of the strategy. Bonds and preferred stock that can be exchanged for common stock are the most conventional types of convertible securities. These instruments provide the necessary means for companies to raise capital for growth and ongoing operations. Most corporations fund their future activities through bank loans or the sale of bonds or common stock. Bondholders are reimbursed for their investment with interest added but inflation will often erode their profits. Shareholders can benefit from appreciation of a company’s share value but they have no guaranteed income from the investment. Convertible bondholders enjoy the best of both worlds as they receive a fixed rate of interest, are virtually assured a return of their principal, and also have the right to exchange or convert the bond into a fixed number of shares of common stock. Convertible preferred stock is a similar financial instrument. In this case however, the investor receives a regular distribution or dividend premium rather than a periodic interest payment. Unlike convertible bonds, the distribution is usually not guaranteed. This type of issue can be exchanged or converted into a fixed number of shares of common stock but it will not be redeemed at the end of a specific term; it simply exists as preferred stock until physically converted. When a company's stock grows in value, the convertible bondholder can exchange his holdings and participate in the appreciation of the issue. It the company fails to perform in the short-term, at least the investor gets paid a good rate of interest for waiting. It's a well-known fact that most of the technology companies pay little or no dividend, however convertible instruments on the same issues generally offer attractive yields, plus the opportunity for future profit at a substantially lower risk. Many preferred stocks and bonds, including convertibles, carry a callable or redeemable feature. "Callable" means the issuer can buy back the instrument at a specified price prior to maturity. The price is known as the "call" price and it may change (decline) as the security gets closer to maturity. Call prices are fixed and since the callable feature is an option owned by the issuer, these securities priced to yield more than a similar non-callable instrument. The "redeemable" feature gives the holder the right to redeem the security at a specific price prior to original date of maturity. However, since the redeemable feature is an option for the buyer or holder, securities with a redeemable feature are priced to yield less than similar non-redeemable securities. Convertible instruments are ideal investments for IRA's and other qualified plans. The distribution income can often be deferred or sheltered and the growth of the common stock will protect against losses from inflation and higher interest rates in other vehicles. Regular premium bonds have only a small yield advantage over most convertibles and the risk-reward ratio favors the profit potential inherent in the future growth of the underlying equity. In most cases, convertible instruments will provide a conservative and yet competitive method to participate in the growth of the current bull market. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** 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. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield IMCL 15.70 18.36 APR 12.50 0.50 0.50* 3.0% 9.9% CREE 20.54 19.28 APR 17.50 0.50 0.50* 3.2% 9.6% MOGN 10.96 12.55 APR 10.00 0.50 0.50* 3.8% 9.2% XLNX 25.38 24.30 APR 22.50 0.75 0.75* 3.0% 8.1% AMZN 24.71 27.18 APR 22.50 0.65 0.65* 2.6% 6.8% IRF 23.26 20.56 APR 20.00 0.40 0.40* 2.2% 6.7% NVLS 30.87 29.00 APR 25.00 0.40 0.40* 1.8% 6.3% AMZN 27.93 27.18 APR 22.50 0.35 0.35* 1.7% 6.2% MATK 25.32 27.58 APR 22.50 0.55 0.55* 2.2% 6.1% CYBX 19.15 21.26 APR 17.50 0.45 0.45* 2.3% 6.1% CVC 20.30 19.30 APR 17.50 0.30 0.30* 1.9% 5.8% OVTI 21.18 21.17 APR 15.00 0.30 0.30* 1.8% 5.7% CMCSA 30.80 29.17 APR 27.50 0.50 0.50* 2.0% 5.7% LLTC 32.58 32.45 APR 27.50 0.55 0.55* 1.8% 5.6% YHOO 23.97 24.38 APR 20.00 0.30 0.30* 1.7% 5.5% EXPE 37.14 54.86 APR 30.00 0.50 0.50* 1.5% 5.3% JCOM 27.54 30.05 APR 22.50 0.30 0.30* 1.5% 5.2% PSUN 19.73 20.25 APR 17.50 0.35 0.35* 1.8% 5.1% MEDI 30.68 33.57 APR 27.50 0.65 0.65* 1.8% 4.8% * Stock price is above the sold striking price. Comments: The tragedy of war has become all too apparent as 21st century media technology broadcasts the carnage and death in Iraq to the world on a real-time basis. Investors are among those paying the price for this display as stocks decline under the relentless siege of war-related news and global opposition to U.S. foreign policy in the Middle-East. Our model portfolio has weathered the storm so far but it is starting to show signs of weakness, particularly in the semiconductor segment. Issues on the "early exit" watch-list include International Rectifier (NYSE:IRF), Xylinx (NASDAQ:XLNX) and Cree Inc. (NASDAQ:CREE). WARNING: THE RISK IN SELLING NAKED 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. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) 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 Monthly 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 position. NEW CANDIDATES ********* Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield NFLX 21.06 APR 17.50 QNQ PW 0.40 612 17.10 21 3.4% 11.0% IMCL 18.36 APR 15.00 QCI PC 0.25 2822 14.75 21 2.5% 8.6% MVK 18.71 APR 17.50 MVK PW 0.35 18 17.15 21 3.0% 7.7% IDCC 22.69 APR 17.50 DAQ PW 0.25 1197 17.25 21 2.1% 7.6% ADTN 37.10 APR 30.00 RQA PF 0.35 723 29.65 21 1.7% 6.3% CYBX 21.26 APR 20.00 QAJ PD 0.30 100 19.70 21 2.2% 5.8% JCOM 30.05 APR 25.00 JQF PE 0.25 282 24.75 21 1.5% 5.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). ***** NFLX - Netflix $21.06 *** Own This One! *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. Netflix is "all the rage" among home-movie watchers and the firm's subscription base in growing exponentially. The solid fundamental outlook has translated into higher share values and investors who wouldn't mind owning the issue near a cost basis of $17 can profit from future upside activity with this position. APR 17.50 QNQ PW LB=0.40 OI=612 CB=17.10 DE=21 TY=3.4% MY=11.0% ***** IMCL - ImClone $18.36 *** Erbitux Optimism! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. IMCL's shares rallied in early March amid optimism that new data about the firm's experimental cancer drug Erbitux will be released shortly and prove positive. The rally continued recently after the biotech firm said it received a $60 million cash payment from Bristol-Myers Squibb under the companies' amended March 2002 agreement to develop Erbitux. Last week, IMCL jumped higher on the prospect that its cancer drug could be on the market in Europe by next year. Investors who wouldn't mind owning IMCL at a cost basis near $15 should consider this position. APR 15.00 QCI PC LB=0.25 OI=2822 CB=14.75 DE=21 TY=2.5% MY=8.6% ***** MVK - Maverick Tube $18.71 *** Oil Service Sector *** Maverick Tube (NYSE:MVK) is a producer of tubular steel products used in energy and industrial applications. The firm makes oil country tubular goods, which are steel tubular products used in the completion and production of oil and natural gas wells, and line pipe products for use in newly drilled oil and gas wells and for transporting oil and gas. The company also serves the energy industry by manufacturing line pipe, which is used primarily in the transportation of oil and natural gas. For various industrial applications, Maverick manufactures structural tubing and standard pipe. The war in Iraq has spurred speculation in a number of oil service issues and MVK was one of the best performing stocks during Friday's session, trading up almost 8% on heavy volume. Investors who believe the rally in the sector will continue can speculate conservatively on that outcome with this position. APR 17.50 MVK PW LB=0.35 OI=18 CB=17.15 DE=21 TY=3.0% MY=7.7% ***** IDCC - InterDigital $22.69 *** Patent Suit Settlement! *** InterDigital Communications (NASDAQ:IDCC) specializes in the architecture, design and delivery of wireless technology and product platforms. Over the course of its corporate history, the company has amassed a substantial and significant library of digital wireless systems experience and know-how, and holds an extensive worldwide portfolio of patents in the wireless systems field. InterDigital markets its technologies and solutions primarily to wireless communications equipment producers and related suppliers. In addition, the company licenses its Time Division Multiple Access and Code Division Multiple Access patents to equipment manufacturers worldwide. Last week, shares of InterDigital soared after the company said it reached a patent and royalty settlement with Ericsson. The agreement calls for Ericsson and Sony Ericsson Mobile Communications AB to pay IDCC approximately $34 million through the end of 2002. In addition, Sony Ericsson will pay a royalty on each licensed product sold through 2006. The recent price history of IDCC reveals one of the more bullish charts we've seen in the current market and the spike to a 2-year high on extremely heavy volume suggests further upside potential. APR 17.50 DAQ PW LB=0.25 OI=1197 CB=17.25 DE=21 TY=2.1% MY=7.6% ***** ADTN - Adtran $37.10 *** Earnings Speculation! *** Adtran designs, develops, manufactures, markets and services a broad range of high-speed network access products utilized by providers of telecommunications services and corporate end users to implement advanced digital data services over both public and private networks. The company's business is arranged with two divisions, the Carrier Networks Division (CN) and the Enterprise Networks Division (EN), to enable it to quickly respond to the needs of the two important market segments that its products address. These two market segments are CN products for use in the service provider's Local Loop, including central office, remote terminal and customer premises, and EN products for use at enterprise headquarters, remote offices and telecommuting locations. Adtran offers more than 500 products built around a set of core technologies, and developed to address high-speed digital communications over the last mile of the Local Loop. The company's quarterly earnings are due on 4/15 and investors are speculating on the outcome of the report. Option traders can use the inflated premiums to establish a bullish, low-risk position in the issue. APR 30.00 RQA PF LB=0.35 OI=723 CB=29.65 DE=21 TY=1.7% MY=6.3% ***** CYBX - Cyberonics $21.26 *** New 14-Month High! *** Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and markets the NeuroCybernetic Prosthesis, an implantable medical device that delivers a novel therapy, Vagus Nerve Stimulation, for treating epilepsy and debilitating neurological, psychiatric diseases and other disorders. In July 1997, the NCP System was approved by the United States Food and Drug Administration for commercial distribution in the United States for the treatment of epilepsy, which the firm sells using its own employee-based direct marketing organization. In addition, the NCP System is marketed internationally for the treatment of epilepsy (mainly in Europe) using a combination of Cyberonics' own direct sales organization and independent distributors. During fiscal 2001, the firm obtained approval for commercial distribution of the NCP System for the treatment of depression in Europe and Canada. CYBX is in a bullish sector and the company has a product that is proven and well known for treating epilepsy. In addition, the firm's fundamentals are improving with sales up 50% to $27 million in the last quarter in a sixth straight quarter of 20% or better revenue growth. Investors can establish a cost basis near $20 in the issue with this position. APR 20.00 QAJ PD LB=0.30 OI=100 CB=19.70 DE=21 TY=2.2% MY=5.8% ***** JCOM - j2 Global Communications $30.05 *** All-Time High! *** j2 Global Communications (NASDAQ:JCOM) provides outsourced value added messaging and communications services to individuals and businesses throughout the world. The company offers faxing and voicemail solutions, Web initiated conference calling, document management solutions and unified messaging services. j2 Global markets its services principally under the brand names eFax and jConnect. The company delivers its services through its global telephony/Internet protocol network, which spans more than 600 cities in 18 countries across five continents, including four capital cities in Latin America where j2 Global is in the process of launching its unique service. In February, j2 Global set new annual and quarterly records for revenue, net income and earnings per share as it announced its 23rd consecutive quarter of growth. For the full year 2002, revenue increased 45% to $48.2 million compared to $33.3 million in fiscal 2001. Investors were elated with the news and the buying activity has pushed the issue to new "all-time" highs near $30. Traders who believe the rally will continue can profit from that outcome with this position. APR 25.00 JQF PE LB=0.25 OI=282 CB=24.75 DE=21 TY=1.5% MY=5.0% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield TELK 13.37 APR 12.50 ZUL PV 0.35 44 12.15 21 4.2% 10.5% ALTR 14.11 APR 12.50 KKT PV 0.25 1534 12.25 21 3.0% 8.5% SONO 15.69 APR 15.00 UZS PC 0.30 0 14.70 21 3.0% 7.4% ANSI 42.08 APR 40.00 UAI PH 0.70 0 39.30 21 2.6% 6.6% CKFR 22.51 APR 20.00 FCQ PD 0.30 116 19.70 21 2.2% 6.4% UNT 20.65 APR 20.00 UNT PD 0.35 12 19.65 21 2.6% 6.4% BJS 35.08 APR 32.50 BJS PZ 0.50 1223 32.00 21 2.3% 6.1% SII 35.21 APR 32.50 SII PZ 0.50 1372 32.00 21 2.3% 6.1% PRX 42.80 APR 40.00 PRX PH 0.60 241 39.40 21 2.2% 5.8% KROL 20.98 APR 20.00 KRQ PD 0.30 0 19.70 21 2.2% 5.6% TTI 23.70 APR 22.50 TTI PX 0.30 0 22.20 21 2.0% 5.1% FLO 27.20 APR 25.00 FLO PE 0.25 152 24.75 21 1.5% 4.1% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Stocks Drop As War Rages In Iraq! By Ray Cummins The major equity averages slumped Friday amid austere economic reports and speculation of a prolonged conflict in Iraq. The Dow Jones Industrials closed down 55 points at 8,145 with a slew of blue-chip companies enduring renewed selling pressure. Altria Group (NYSE:MO), SBC Communications (NYSE:SBC), United Technologies (NYSE:UTX), Home Depot (NYSE:HD), Boeing (NYSE:BA), and General Electric (NYSE:GE) were among the worst performers. The tech-laden NASDAQ index fell 14 points to 1,369 as investors unloaded semiconductor, software, and telecom shares. The broad S&P 500-stock index slid 5 points to close at 863 with airline, retail, tobacco and consumer services shares leading the market lower. Oil service, natural gas, gold and healthcare issues saw limited upside activity. Volume was light as traders drifted to the sidelines and the safety of bonds. Only 1.2 billion shares traded on the Big Board while 1.3 billion shares changed hands on the NASDAQ. Despite the gloomy outlook among most investors, advancing stocks edged past declining issues 6 to 5 on the New York Stock Exchange. On the technology exchange, losers paced winners by a ratio of 8 to 7. In the government bond market, treasury prices ended higher, marking six straight sessions of gains. The yield on the benchmark 10-year note fell to 3.90%. ***************** PORTFOLIO SUMMARY ***************** 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. PUT CREDIT SPREADS ****************** Symbol Pick Last Month LP SP Credit CB G/L Status AMGN 55.70 58.56 APR 47 50 0.25 49.75 $0.25 Open EXPE 35.19 54.86 APR 27 30 0.30 29.70 $0.30 Open APOL 47.44 50.01 APR 40 45 0.50 44.50 $0.50 Open MMM 125.55 130.51 APR 110 115 0.50 114.50 $0.50 Open FLR 32.11 34.26 APR 25 30 0.50 29.50 $0.50 Open OEX 424.07 437.94 APR 375 380 0.45 379.55 $0.45 Open CAT 52.55 50.24 APR 45 47 0.30 47.20 $0.30 Open EXPD 37.68 36.92 APR 30 35 0.60 34.40 $0.60 Open GILD 41.53 42.00 APR 35 37 0.35 37.15 $0.35 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status TOT 65.30 64.15 APR 75 70 0.60 70.60 $0.60 Open XAU 67.44 66.74 APR 80 75 0.50 75.50 $0.50 Open ACS 44.26 45.44 APR 55 50 0.55 50.55 $0.55 Open NOC 82.35 86.46 APR 95 90 0.60 90.60 $0.60 Open SII 34.10 35.21 APR 40 38 0.25 37.75 $0.25 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Previously closed positions include: International Paper (NYSE:IP) and Chiron (NASDAQ:CHIR), both of which are positive, and United Health (NYSE:UNH). CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status STN 19.40 21.43 APR 17 20 1.60 19.10 0.90 Open EBAY 83.91 89.29 APR 70 75 4.50 74.50 0.50 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status QLGC 39.98 38.22 APR 47 45 2.30 45.20 0.20 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss The bearish position in Federal Express (NYSE:FDX) has been closed to limit potential losses. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status MEDI 32.65 33.57 APR 35 30 0.10 0.70 Open ADTN 38.14 37.10 APR 45 30 0.10 0.10 Open MGAM 21.85 19.12 JUL 25 20 0.30 0.00 Closed Medimmune (NASDAQ:MEDI) has achieved the target exit profit. The speculative position in Multimedia Games (NASDAQ:MGAM) has been closed to limit losses (and there was no public news to account for the sharp sell-off). CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max Play Symbol Price Price Option Option Debit Value Status BMET 28.52 31.30 JUL-30C APR-30C 0.80 1.00 Open OTEX 29.29 28.08 MAY-25C APR-30C 3.60 3.50 Open ESI 29.11 28.45 OCT-30C APR-30C 2.40 2.25 Open Integrated Circuit Systems (NASDAQ:ICST) has been closed to limit potential losses. 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. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** ANSI - Advanced Nueromodulation $42.08 *** Rally Mode! *** Advanced Nueromodulation Systems (NASDAQ:ANSI) designs, develops, manufactures and markets advanced implantable neuromodulation devices that deliver electrical current or drugs directly to targeted areas of the body to manage chronic pain. The category of Neuromodulation devices include implantable neurostimulation devices, which deliver electric current directly to targeted nerves, and implantable infusion pumps, which deliver small, precisely controlled doses of drugs directly to targeted sites within the body. The company's products include the Renew radio frequency spinal cord stimulation device and the Genesis totally implantable pulse generator spinal cord stimulation device. The company also sells the AccuRx fully implantable constant rate drug infusion pump in international markets, and is conducting clinical trials of AccuRx in the United States. ANSI - Advanced Nueromodulation Systems $42.08 PLAY (conservative - bullish/credit spread): BUY PUT APR-35.00 UAI-PG OI=50 A=$0.30 SELL PUT APR-40.00 UAI-PH OI=0 B=$0.70 INITIAL NET-CREDIT TARGET=$0.45-$0.60 POTENTIAL PROFIT(max)=9% B/E=$39.55 ***** BJS - BJ Services $35.08 *** Oil Service Rebound! *** BJ Services (NYSE:BJS) is a provider of pressure pumping and other oilfield services serving the petroleum industry worldwide. The company's pressure pumping services consist primarily of cementing and stimulation services used in the completion of oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. BJ's other oilfield services include completion tools, completion fluids and tubular services for the oil and natural gas exploration and production industry, commissioning and inspection services provided to refineries, pipelines and offshore platforms, as well as specialty chemical services. Last year, the company acquired OSCA, a completion services (pressure pumping), tools and fluids company with operations primarily in the United States Gulf of Mexico, Brazil and Venezuela. BJS - BJ Services $35.08 PLAY (conservative - bullish/credit spread): BUY PUT APR-30.00 BJS-PF OI=412 A=$0.25 SELL PUT APR-32.50 BJS-PZ OI=1223 B=$0.50 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$32.25 ***** IBM - International Business Machines $80.85 ** Trading Range? ** International Business Machines (NYSE:IBM) manufactures and sells computer services, hardware and software. The company provides financing services in support of its computer business. The firm's major operations comprise a Global Services segment; three hardware product segments (Enterprise Systems, Personal and Printing Systems, and Technology); a Software segment; a Global Financing segment; and an Enterprise Investments segment. IBM offers its products through its global sales and distribution organizations. The firm operates in more than 150 countries worldwide and derives more than half of its revenues from sales outside the United States. The company's quarterly earnings are due 4/14/03. IBM - International Business Machines $80.85 PLAY (less conservative - bullish/credit spread): BUY PUT APR-70.00 IBM-PN OI=29744 A=$0.40 SELL PUT APR-75.00 IBM-PO OI=45270 B=$0.90 INITIAL NET-CREDIT TARGET=$0.55-$0.70 POTENTIAL PROFIT(max)=12% B/E=$74.45 ***** FNM - Federal National Mortgage $66.70 ** Interest Rate Play ** Federal National Mortgage Association (NYSE:FNM), commonly known as Fannie Mae, is a company that works to assure that mortgage money is readily available for existing and potential homeowners in the United States. Fannie Mae does not directly lend money to homebuyers, but works with lenders to ensure that there is no shortage of funds available for mortgage loans. The method in which Fannie Mae accomplishes this is by purchasing mortgages from a variety of institutions that make up the primary mortgage market. Primary market lenders include mortgage companies, savings and loans, commercial banks, credit unions and state and local housing finance agencies. These are the businesses where the mortgages are originated and the funds are loaned directly to the borrower. Fannie Mae then purchases the mortgage, thus allowing the primary market lender to replenish their funds and lend more money to homebuyers. FNM - Federal National Mortgage $66.70 PLAY (less conservative - bearish/credit spread): BUY CALL APR-75.00 FNM-DO OI=340 A=$0.15 SELL CALL APR-70.00 FNM-DN OI=6318 B=$0.65 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$70.50 ***** QLGC - QLogic $38.22 *** Storage Sector Slump! *** QLogic Corporation (NASDAQ:QLGC) designs and supplies storage network infrastructure components and software for server and storage subsystem manufacturers. The company's products are based on SCSI, iSCSI, Fibre Channel and Infiniband standards. The company is the only end-to-end supplier of Fibre Channel network infrastructure components that aid in the transfer and acquisition of data within the SAN. Their products include its SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool Kit management software. QLogic is the only HBA vendor that supports SCSI, Internet Protocol, Virtual Interface and FICON protocols with the same Fibre Channel HBA. In addition, the company designs and supplies controller chips used in a variety of hard drives and tape drives as well as enclosure management and baseboard management chip solutions that monitor the health of the physical environment within a server or storage enclosure. QLGC - QLogic $38.22 PLAY (conservative - bearish/credit spread): BUY CALL APR-45.00 QLC-DI OI=3089 A=$0.20 SELL CALL APR-42.50 QLC-DV OI=5837 B=$0.45 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$42.75 ************* SYMC - Symantec $40.25 *** Downtrend Underway! *** Symantec (NASDAQ:SYMC) provides a broad range of content and network security solutions to individuals and enterprises. The company is a provider of virus protection, firewall, virtual private network, vulnerability management, intrusion detection, remote management technologies and security services to various consumer groups and enterprises around the world. The company currently views its business in five primary operating segments: Consumer Products, Enterprise Security, Administration, Services and Other. SYMC - Symantec $40.25 PLAY (conservative - bearish/credit spread): BUY CALL APR-50.00 SYQ-DJ OI=6720 A=$0.20 SELL CALL APR-45.00 SYQ-DI OI=12024 B=$0.55 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$45.40 ************* DEBIT SPREADS ************* These candidates offer a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. ***** LXK - Lexmark Intl. $67.80 *** The Rally Continues! *** Lexmark International (NYSE:LXK) is a developer, manufacturer and supplier of printing solutions, including laser and inkjet printers, multifunction products and associated supplies and services for offices and homes. The company also markets dot matrix printers for printing single and multi-part forms for business users and develops, manufactures and markets a broad line of other office imaging products. LXK - Lexmark Intl. $67.80 PLAY (less conservative - bullish/debit spread): BUY CALL APR-60.00 LXK-DL OI=1029 A=$8.40 SELL CALL APR-65.00 LXK-DM OI=2878 B=$3.90 INITIAL NET-DEBIT TARGET=$4.35-$4.45 POTENTIAL PROFIT(max)=12% B/E=$64.45 **************** CALENDAR SPREADS **************** A calendar spread (or time spread) consists of the sale of one option and the simultaneous purchase of an option of the same type and strike price, but with a future expiration date. The premise in a calendar spread is simple: time erodes the value of the near-term option at a faster rate than the far-term option. The positions in this section are speculative (out-of-the-money) spreads with low initial costs and large potential profits. ***** OCR - Omnicare $27.07 *** Bullish Sector! *** Omnicare (NYSE:OCR) is a provider of pharmacy-related services to long-term care institutions, such as skilled nursing facilities, assisted living facilities and other institutional healthcare facilities. The company also provides comprehensive clinical research for the pharmaceutical and biotechnology industries. Omnicare operates in five business segments: Pharmacy Services, which provides distribution of pharmaceuticals, related pharmacy consulting, data management services and medical supplies to care facilities; Consultant Pharmacist Services, which offers consultant pharmacist services; Pharmaceutical Case Management Services, which are for seniors living independently who receive drug benefits under employer-sponsored retirement programs; Ancillary Services, which provides infusion therapy support services for hospice and home care patients, and Contract Research Organization Services, which provides product development services. OCR - Omnicare $27.07 PLAY (speculative - bullish/calendar spread): BUY CALL JUN-27.50 OCR-FY OI=281 A=$1.35 SELL CALL APR-27.50 OCR-DY OI=60 B=$0.50 INITIAL NET DEBIT TARGET=$0.75-$0.80 INITIAL TARGET PROFIT=$0.40-$0.75 ***** MO - Altria Group $32.13 *** Credit Rating = Junk? *** Altria Group (NYSE:MO) formerly Philip Morris Companies, through its wholly owned subsidiaries, Philip Morris Incorporated and Philip Morris International Inc., and its majority-owned (83.9%) subsidiary, Kraft Foods, is engaged in the manufacture and sale of various consumer products, including cigarettes, foods and beverages. Philip Morris Capital Corporation, another wholly owned subsidiary, is primarily engaged in leasing activities. In July 2002, the company merged Miller Brewing Company into South African Breweries plc to form SABMiller plc, in which it holds a 36% economic interest. MO - Altria Group $32.13 PLAY (very speculative - bearish/calendar spread): BUY PUT JUN-27.50 MO-RY OI=2596 A=$1.15 SELL PUT APR-27.50 MO-PY OI=1442 B=$0.30 INITIAL NET DEBIT TARGET=$0.75-$0.80 INITIAL TARGET PROFIT=$0.40-$0.75 ********************* STRADDLES & STRANGLES ********************* Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. ***** REGN - Regeneron $17.31 *** Pure Premium Selling! *** Regeneron Pharmaceuticals (NASDAQ:REGN) is a biopharmaceutical company that discovers, develops and intends to commercialize therapeutic drugs for the treatment of serious medical conditions. The company's product pipeline includes product candidates for the treatment of obesity, rheumatoid arthritis and other inflammatory conditions, cancer and related disorders, allergies, asthma and other diseases and disorders. Note: REGN is expected to issue a progress update concerning the development program for its obesity drug Axokine in the next two weeks. The stock will likely be very volatile, thus traders who initiate this neutral-outlook position should expect a large move in the underlying prior to the April options expiration. REGN - Regeneron $17.31 PLAY (aggressive - neutral/credit strangle): SELL CALL APR-25.00 RQP-DE OI=2179 B=$0.40 SELL PUT APR-10.00 RQP-PB OI=184 B=$0.40 INITIAL NET-CREDIT TARGET=$0.80-$0.90 PROFIT(max)=18% UPSIDE B/E=$25.80 DOWNSIDE B/E=$9.20 ***** ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. 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