The Option Investor Newsletter Wednesday 06-11-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Outside upside day Futures Wrap: Push higher Index Trader Wrap: A bull in bear's clothing? Weekly Fund Family Profile: Sit Mutual Funds Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 06-11-2003 High Low Volume Advance/Decline DJIA 9183.22 +128.33 9183.22 9038.07 1.84 bln 2315/ 982 NASDAQ 1646.02 + 18.35 1647.57 1612.22 1.89 bln 1872/1299 S&P 100 501.95 + 5.86 502.05 494.59 Totals 4187/1381 S&P 500 997.48 + 12.64 997.48 981.61 RUS 2000 455.50 + 4.54 454.50 447.76 DJ TRANS 2483.17 + 24.74 2485.49 2444.56 VIX 22.12 - 0.01 22.97 21.79 VXN 33.74 - 0.26 34.97 33.58 TRIN 0.75 PUT/CALL 0.66 ******************************************************************* Outside upside day Jonathan Levinson The indices ate up bad news today, rallying off the Beige Book at 2PM. They broke northward out of yesterday's inside day on moderately higher volume after a mostly indecisive session, with advancing volume nearly triple declining volume on the NYSE and more than double on the Nasdaq. Daily Chart of the INDU The close at the session highs printed bullish hammers on the daily candles for the Dow and the Nasdaq. Note the stronger showing from the Dow today. The rally highs are the bulls' next target. The internals were strong today, though the oscillators and bullish percent readings are toppy. Daily Chart of the COMPX Weekly chart of the Ten Year Treasury Yield Not that we needed them to confirm it, but the Mortgage Bankers Association of America announced that the average interest rate on 30-year fixed-rate mortgages dropped to 5.06 percent in the latest reporting week, erasing the previous week's alltime record low rate of 5.13 percent. Nevertheless, seasonally-adjusted demand for mortgage requests fell to 1,684.6 for the week ended June 6, down 9.3% from the record level set last week, the first down week in 5 weeks. The refi index, measuring demand for loans to refinance was also down 9.3% over the previous week, though it's still up 400% over its level from this time last year. Demand for home loans fell by 9%. MZM chart MZM is a measure compiled by the St. Louis fed, and is commonly used as measure of the money supply. There are numerous other charts which all tell the same story, but my goal is to briefly touch on the implications of the multidecade drop in interest rates. Against the backdrop of the fed's continual worries about "disinflation" and its eagerness to run its printing presses, in Governor Bernanke's words, we see the surge in money supply. This coincides well with the more than 20% drop in the US Dollar Index since January 2002, and the corresponding rally in commodities. Chart of Commercial and Industrial Loans So far, the surge in money supply has not found its way into loans to industry, but rather in loans to homeowners. Spurred by lower rates than many of us have seen in our lifetimes, consumers have bought and borrowed against their homes in record numbers. This surge in consumer borrowing has helped to buoy the economy on demand spurred by the historic availability of cheap money. Whether this is sustainable, which I don't believe it to be, and whether this is the better use of the new money added to the financial system, which I don't believe either, will have to be seen. But with this week's nearly 10% drop in mortgage activity over the previous week, we could be seeing the beginnings of a reversal to the 400% surge over the past year. This discussion is only intended to contextualize the action in treasuries, the USD, and this week's mortgage data. I realize that I cannot do the subject justice in two or three paragraphs. My own view is that economic expansion can be stimulated temporarily with borrowed money, but at some point real demand needs to take over. The devaluation of the dollar via the suppression of interest rates has resulted in a rapid jump in home prices, acceleration in auto sales and other consumer- related goods. But unemployment remains persistent, and profits remain elusive. It is my hope that the fed will be successful in its campaign and that employment, productivity and demand will pick up soon. The Federal Reserve's Beige Book was released at 2:00PM EST. The headline was that the fed sees the US economy as "sluggish" in most US areas in April and May, and that while the end of the war had provided some boost to US business and consumer sentiment, it was not enough to materially assist the US economy. The fed's next meeting on interest rates is scheduled for June 24-25. The federal funds rate is currently at 1.25, a 41 year low. In other debt-related news, the SEC upped the status of its investigation into FRE, the U.S.'s second largest mortgage-debt issuer, to "formal" from "informal," and can now issue subpoenas for witnesses and documents. The US attorney's office also announced an investigation. Without mentioning FRE, Fed Governor Susan Schmidt Bies, addressing the American Bankers Association's annual regulatory compliance conference, said that the status quo of corporate governance is "unacceptable and must change." Ms. Bies added that it is unclear whether it was personal or systemic failure behind the alleged improprieties at FRE. OPEC announced its decision to leave supply quotas unchanged at 25.4 million barrels per day, adding that it would push for tighter compliance with existing production limits. The cartel also decided to revisit the supply and demand situation in a special meeting on July 31 in Vienna. July crude was trading above $32 a barrel, a 3 month high. This jump was aided by a large decline in last week's U.S. inventories, with the Energy Department reporting a drop in crude inventories of 4.6 million barrels to 284.4 million barrels for the week ended June 6, surprising analysts yet again. Gasoline inventories rose 2.6 million barrels to 209.9 million barrels during that week. Biotechs were strong today on bullish comments about the sector from Merrill Lynch. As well, LLY said before the bell that it expects second-quarter results to come in at the high end of the range of 59 to 61 cents per share. The company also reaffirmed its forecast before items for a profit of $2.50 to $2.60 per share for the full year 2003. As well, LLY gave an update on FDA reinspection of its dry products and injectable facilities in Indianapolis. The stock was strong throughout the session. DELL and GTW were both higher, reaffirming guidance at the Bear Stearns Technology Conference in New York. After the bell, the Semiconductor Industry Association lowered its industry-wide growth target for 2003 to 10.1 percent from a recently reduced range of 10 to 15 percent. The Association expects growth of 16.8 percent versus its previous projection of 22 percent. The Qubes dropped all of a nickel on the news. For tomorrow, we have a full slate of economic data due before the bell: Report Briefing Market Prior Expects Expects Jun 12 8:30 AM Business Inventories Apr - 0.2% 0.2% 0.4% Jun 12 8:30 AM Export Prices ex-ag. May - NA NA -0.1% Jun 12 8:30 AM Import Prices ex-oil May - NA NA -0.9% Jun 12 8:30 AM Initial Claims 06/07 - 430K 425K 442K Jun 12 8:30 AM Retail Sales May - 0.2% 0.0% -0.1% Jun 12 8:30 AM Retail Sales ex-auto May - 0.4% 0.2% -0.9% Last Friday gave us a high volume reversal at the rally's peak. We had been observing that at then current levels, the risk- reward had become unfavorable for bulls. The pullback from Friday appears to have been a routine "backing and filling" move, but note that many indicators, such as the bullish percents, never actually eased out of overbought territory. So, for the moment, this remains a trending move. Any of the above data could set off the bomb that gets the sellers motivated. So far, it remains my belief that the simultaneous strength in equities and bonds is a function of the fed's manipulation of the money supply through open market operations and other mechanisms. Regardless of the cause, equities have shown a great imperviousness to bad news, and a flagrant disregard for resistance levels. It may come rocketing back down, but so long as these strong bad-news bounces persist, bearish plays remain risky. Given the extension of the rally, so do bullish plays. The solution is solid account management and tight stops for directional plays, and premium-based strategies such as those profiled by Ray and Mike. See you at the bell! ************ FUTURES WRAP ************ Push higher Jonathan Levinson The bad news bulls were back in town, jumping all over the Federal Reserve Beige Book at 2PM. The inside day printed yesterday resolved itself to the upside, with the YM leading the charge for a change and challenging its rally highs. Bellwether GE broke to new yearly highs during the session, with most of the action across the indices only commencing after 2PM. Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03M 1009 1003 992 986 976 YM03M 9281 9231 9136 9086 8991 NQ03M 1252 1241 1220 1208 1187 10 minute chart of the US Dollar Index The US Dollar Index began selling off from a high just above 93.60 at midnight and bounced from a low in the 92.90 area. We've been seeing increasingly violent swings in the US Dollar Index- each day seems to bring another massive swing higher or lower. Daily chart of June gold June gold performed well on the selloff, closing up 3.20 at 355.40 for an inside day. The commodity futures index (CRB) was up .37 to 237.99, led by cotton, corn, coffee, cocoa, copper, precious metals, and oil. July crude oil hit a 3 month high, closing at 32.35. Daily NQ candles The ND contract closed just below resistance at 1230. The stochastic downphase still in progress gave a hiccup, and is in danger of truncating prematurely if the bullrun that started at 2PM persist tomorrow on a closing basis. Note that unlike its previous visit to the 1230 level, there is no Bollinger band resistance for this try, and so I expect that level to be weaker than we've previously seen. As one reader wrote me today, "We don't need no stinkin resistance" [sic.] and that certainly appears to be the case tonight. 30 minute 20 day chart of the NQ Our loquacious reader was absolutely correct, as the NQ managed to cause a bear flag failure on the 30 minute candle chart. The stochastics are trending higher, maxxed out in overbought territory, and the MacD shows no sign of stopping here. 1230 again appears as resistance, after which, the rally high could be tested. Daily ES candles The S&P futures outperformed the NQ contract, taking out the equivalent of the NQ's 1230 level, closing at its high of the day and aiming for the rally highs as next resistance. There were no buy signals on the daily oscillators, but another closing high or two will change that. 20 day 30 minute chart of the ES We got the same bear flag failure on the 30 minute candles, and the stochastic is trending higher as well. The Bollinger band violation could provide some resistance at tomorrow's open, but there's little else of bearish consequence on the 30 minute chart, and bulls can sleep easy tonight. Daily YM candles The YM contract led the charge, and closed just below its spike high of the year. I expect 9050 to provide meaningful support if the high fails to get taken out during tomorrow's session. 20 day 30 minute chart of the YM The bear flag failure was most pronounced in the YM, and as the 30 minute chart shows, we are within gapping distance of a new year high. For tomorrow, there's a plethora of economic data due at 8:30AM, and any bullish surprise, or, for that matter, even a bearish surprise could provide the spark to send bulls over the top and into the airball zone. Arguably, the negative Beige Book was expected, but there was little to incentivize bulls in it, not even the promise of a rate cut, which is also expected. As Art Cashin reportedly said, not only have the markets priced in the future, they've also priced in the hereafter. Caution is advised at current heights. ******************** INDEX TRADER SUMMARY ******************** A bull in bear's clothing? I have mixed emotions as I write this evening's Index Trader wrap as I feel like a bull that was wearing bearish clothing into yesterday's close. I hate losing trades. While I take a losing trade rather hard and personal, I've learned to not dwell on it, and try and get back on trend. Just how the MARKETS were able to simply shrug off another warning from the wireless handset sector in Texas Instruments (NYSE:TXN) $18.86 -7.5%, when I would have thought market participants might have been much more eager to sell profits at these higher levels of market and sector risk, the major indexes pushed back higher and once again look to challenge yet another "top," or in this case, Friday's highs. I thought for a moment I was developing arthritis in my right index finger as the S&P 500 Index (SPX.X) 997.48 +1.28% made its way above our WEEKLY pivot of 986.35, as it was difficult to pull the trigger, or click the mouse and close a bearish trade. But when the SPX came back to test the 986 level and rebound from there to then take out the morning highs of 990, the rush was on as many bears turned bullish with Friday's highs back in play. With failure, perhaps comes success for those that were willing to take a shot at a bullish trade in the NASDAQ-100 Tracking Stock (AMEX:QQQ) $30.55 +1.12% from today's profile of $30.12. I should have stuck with my original $30.04 profile, but the ability for the QQQ to trade its WEEKLY Pivot early in the morning, had me getting a little more aggressive. Had I known some guy in Israel was going to blow himself up along with others on a bus, I might have left my entry point at $30.04. Here's a snapshot of my "mindset" and observations from this morning's market monitor. Market Monitor - 10:23 to 10:50 AM EST To save some room, I just clicked on my posts (Jeff Bailey) to look back on my mindset and observations. Here's the chart of the SPX that I was drawing up just minutes before the 10:23:26 post. S&P 500 Index Chart (SPX.X) - 5-minute bars Computers may have been "smarter than me" after reading last night's Index Trader Wrap, as the morning pull back stopped dead in its tracks at today's DAILY Pivot of 981.87. Hey! That's right where I had profiled the bearish trade on break below 982. There was still a shot at downside as long as the WEEKLY pivot held resistance. Wasn't there? Let's stay focused on the S&P 500 (SPX.X) a little bit longer tonight. Here I'm going to show a chart of the SPX on 30-minute intervals. This allows us to still focus on some of the intra- day action, see what took place, but also incorporate what took place on Friday, that we as traders might want to be alert to tomorrow. S&P 500 Index Chart - 30-minute intervals I've placed tomorrow DAILY pivot retracement (gold/brown) on the SPX 30-minute chart as there are two levels that I think traders need to be cognizant of. The first level is right at 1,002 (thinking psychological 1,000 also). My thinking here is this. Last week, we thought the SPX might be set to see a "blow off move higher" and Friday's move to 1,006 might tie in with that analysis. At some point, when I don't know, we would expect, or look for a lower high for some type of sign of more prolonged "profit taking." If so, then I still want to monitor and at least understand that such a technical pattern could be found if the SPX trades the upper-end of our regression channel, but finds resistance there and begins to weaken. This type of trade then may make sense as to the "blow off" move we looked for earlier last week. From there, the second level. On Friday's reversal, there is only ONE explanation I can come up with for the reversal Friday, when the SPX surged from 990 to roughly 1,006 and quickly reversed those gains. Remember! Program trading curbs were in that day, but SOMEBODY had the 1,006 or even 1,005 level in mind as a level they were going to sell "come heck or high water!" Yes! You are darned right I'm looking for resistance and areas where a bull could get their head handed to them. As I review the above chart, I'd put myself in the position of being long going into Friday's open. If I didn't sell strength at MONTHLY R2, then HOW COULD I AS A BULL HAVE PROTECTED MYSELF? How about a stop just under 992? Which is tomorrow's DAILY Pivot. Now, do you see that little "break" below the 975 level? Doesn't that look like a little "trap?" I still feel the SPX is closer to a top than a bottom at these higher levels of bullish %, and I'd be cognizant of a "trap" for bullish on a move above 1,008, that quickly gets reversed back below 1,001.99. Today's action saw a net gain of 0.2% for the S&P 500 Bullish % ($BPSPX), so a net gain of 1 stock to a reversing point and figure buy signal. This has the bullish % back at 82%. Now... lets back off the intra-day stuff for a minute and use the S&P 100 Index (OEX.X) 501.95 +1.18% daily interval chart to take in a bigger picture of things. One sign of trouble for my bearish trade in the SPX presented itself last night when the OEX closed above its WEEKLY pivot and was perhaps further present this morning when the OEX pullback at the open found support right near the WEEKLY pivot. Once again... when the little "intra-day" head/shoulder top pattern failed to hold at the "right shoulder" the race was on for bears to cover. Bulls will keep making bears pay on this "false pattern" until bulls see a losing trade. S&P 100 Index Chart - Daily Interval The OEX was the only index that did NOT have an "inside day" associated with its bar chart, as yesterday's high exceeded Monday's high. Still, a bullish trader could "pretend" that it was and at higher levels of bullish %, follow with a stop just below today's low, which would tie in nicely with the WEEKLY pivot. One thing I want to discuss was a question sent to me from a trader regarding my comments on the Stochastics oscillator from last night in the SPX. The question was.... "should we look for a two day move higher, then consolidation for 5-days and a break back lower?" I've said before, that I'm not a big "Stochastics trader," and will only use this oscillator as a partial weighting in my analysis (about 10%). I'm more of a supply/demand trader (60% weighting). Due to horizontal space limitations, I can show the January relative highs, but when the OEX was trading sideways around the 475 level as Stochastics were turning back up from similar levels as they are now, that 475 level was right at the January relative highs and I would imagine, that just like you and I were monitoring that as a key level of resistance on the strong rebound from the lows, other technicians and traders were doing the same thing. Two things are "different now." One is... overhead supply of stock is VERY limited (one reason we see some impressive moves on breaks higher) and this is the MAIN reason I think there's a shot at WEEKLY R2 and Stochastics to return to "oversold." However, to advise caution of over exuberance, the "second thing," which I'm concerned most about as a bullish traders is that RISK is much higher now as depicted by the bullish %, than it was in mid- May. So, do I "expect" the OEX to trade sideways based on similar Stochastics pointed to above? No! But should they reach "overbought" and the OEX has either traded WEEKLY R2 or has been trading sideways at MONTHLY R2 for several sessions, then I'll weigh risk/reward at that point. I think a bull is encouraged by the Stochastics action, but its price action and profits that put food on the table, not Stochastics! Today's trade saw a net gain of 1 stock to a new point and figure buy signal in the S&P 100 Bullish % ($BPOEX). This has the bullish % for this index rising to 79% and a new high reading for this bull cycle. Looking back at last night's wrap, I only used Stochastics as one "reason" to really focus on the WEEKLY pivot as my stopping point to manage risk and keep a loss minimal. Dow Industrials Chart - 50-point box Will the Dow ever give a PnF sell signal? Today's trade at 9,100 now gives PnF traders a new level to snug a stop up under at 8,900. With a bunch of economic data due out tomorrow, I see correlative levels at the DAILY R1 of 9,231.6 and WEEKLY R1 of 9,235. If the Dow were to break further higher and generate another PnF buy signal at 9,250, then I can't rule out another higher target of 9,400, which would tie in nicely with our "bullish resistance trend" and WEEKLY R2 of 9,407. Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull confirmed" at 80%. I showed an intra-day chart of the NASDAQ-100 Tracking Stock (QQQ) $30.52 +1.12% in today's 03:15 intra-day commentary and discussed my interpretation of volume on the break at today's highs. It is that type of action, which really wants me to COMPLETELY IGNORE tomorrow's economic data from a trading standpoints. The ONLY thing I impact I think that today's Beige Book had on trading is that BULLS pulled their offers (didn't sell as much) and made BEARS pay the price, which they were willing to do on the break to an intra-day high. Yes, volume picked up a little bit at the 02:00 PM EST release (14) on the 10-minute chart, but by golly, that VOLUME SPIKE was found on the break at the session high. Now, I will admit, that my bullish profile in the QQQ from $30.12 was simply a trade to try and TAKE ADVANTAGE OF JITTERY BEARS, when I saw the SPX trading bullish. I also profiled the QQQ trade to "get back a loss" in the SPX. For those traders that TOOK my SPX loss, my/your MAIN GOAL right now, is to set stops at a level in the QQQ, where the SPX and QQQ trade then becomes a WASH! Yes... we're here to MAKE money, not just trade break-even. However, when I see a loss taken, and get an opportunity to now get back at "break-even" I don't want that opportunity to slip by. Since I have no way of knowing what put options everyone may have traded, I'll use the SPY as an example. Let's say I shorted $9,850 of SPY (100 shares at $98.50) on Monday, and stopped out today above WEEKLY Pivot of $99.11, say at $99.25. I've suffered a $75.00 loss (plus commissions). Now, if a trader than took similar $9,850, amount and bought equal dollar in the QQQ at $30.12, say 300 shares (300 x $30.12 = $9,036) then my main GOAL is to exit the QQQ with a $75.00 gain (plus commission for both SPY and QQQ trade). Let's say my break-even including commissions right now has me needing to make back $120. That $0.40 per QQQ right? ($0.40 x 300 = $120). If so, then a trader with a MINIMUM break-even goal in mind would place a stop at "gulp" $30.52. Now... this is rather "extreme" account management, but one way to view things. As I type, the QQQ are ticking $30.59 at 07:58 PM EST). Here's a 60-minute interval chart of the QQQ, which is more of a "swing-trader's" time interval. If I'm on the lookout of some type of sharp reversal tomorrow morning after strength, then it will be at the DAILY R1 of $30.84. NASDAQ-100 Tracking Stock (QQQ) - Daily Interval I didn't "know" that a bullish profile of $30.12, would be the 61.8% retracement in tomorrows DAILY pivot analysis retracement, but gives me a good look at where some bulls might own some QQQ from today. I see "three levels" of early resistance from $30.84 to $30.80 and this would be the "first level" I'd watch for resistance/selling on morning strength. I've outlined two different levels for stops, based on a trader's tolerance for downside risk. Both are at overlapping resistance. With three earnings warnings from MOT, NOK and TXN, I won't disagree that bulls may be "playing with fire" in the QQQ, so I'm using tight stops to control risk on bullish trades, as trying to use jittery BEAR'S short-covering to my advantage when the opportunity looks to present itself. That's it! Today's trade saw a net loss of 1 stock to a new point and figure sell signal. This has the NASDAQ-100 Bullish % ($BPNDX) slipping back 1% to 90% after three-days of bull cycle high readings of 91%. I'm running late, but here's the pivot analysis matrix for tomorrow. Pivot Analysis Matrix Jeff Bailey ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************** WEEKLY FUND FAMILY PROFILE ************************** Sit Mutual Funds This week, we look at another growth-driven investment manager, Sit Investment Associates and the Sit Mutual Funds, a family of 12 no-load mutual funds. The company's equity investment style focuses on growth companies that have sustainable above-average "earnings" growth. One of the areas that Sit has traditionally found good growth stock candidates is in the health care sector, touts the Sit Funds website (www.sitfunds.com). Eugene Sit founded Sit Investment Associates (SIA) in July 1981 and is currently chairman and chief investment officer, as well as portfolio manager or co-portfolio manager of all seven stock funds offered by the Sit Mutual Funds. Before starting his own firm, Gene Sit was CEO and chief investment officer at American Express/IDS Advisory. Today his firm is described as a diverse financial asset management firm with both U.S. and international investment capabilities. Sit Investment Associates currently manages over $6.8 billion in total financial assets for institutions, families and its mutual fund clients, per company sources. According to Morningstar, in excess of $1.6 billion of total assets is represented by the Sit Mutual Funds. None of the Sit funds are currently closed to new investors. The Sit Mutual Funds are meant to be affordable, and have a minimum initial investment of $2,000 for regular accounts ($5,000 for the Sit U.S. Government Securities Fund). To obtain complete fund information or to download a prospectus, go to the Sit Mutual Funds website at www.sitfunds.com. Fund Overview The Sit Mutual Funds currently consists of twelve no-load mutual funds across four broad investment classes, as follows: Domestic Growth Stock Funds: Sit Balanced (SIBAX) Sit Large Cap Growth (SNIGX) Sit Mid Cap Growth (NBNGX) Sit Small Cap Growth (SSMGX) Sit Science & Technology Growth (SISTX) International Growth Stock Funds: Sit International Growth (SNGRX) Sit Developing Markets Growth (SDMGX) Taxable Bond & Money Market Funds: Sit Money Market (SNIXX) Sit U.S. Government Securities (SNGVX) Sit Bond (SIBOX) Tax-Free Bond & Money Market Funds: Sit Tax-Free Income (SNTIX) Sit Minnesota Tax-Free Income (SMTFX) Sit's U.S. and international stock funds seek long-term capital appreciation. Gene Sit has managed or co-managed Sit Large Cap Growth Fund and Sit Mid Cap Growth Fund since their 1982 launch. Peter Mitchelson has co-managed Sit Large Cap Growth Fund since its 1982 inception, while Erik Anderson has served as co-manager of Sit Mid Cap Growth Fund since 1993. The SIT large-cap growth product invests in common stocks of growth companies with market caps of more than $5 billion, including "blue chip" stocks. The mid-growth strategy invests in common stocks of growth companies with market caps between $2 billion and $15 billion. Gene Sit has managed or co-managed Sit International Growth Fund since its 1991 inception. It invests in common stocks of large- and mid-sized companies outside the United States. Roger J. Sit has co-managed the international growth portfolio since July '98. The Sit Developing Markets Growth and Sit Small Cap Growth funds started operations on July 1, 1994. The developing markets fund invests in common stocks of companies located in rapidly growing emerging international markets. The small growth strategy holds common stocks of rapidly growing U.S. companies with market caps of $2.5 billion or less. Sit Science & Technology Growth Fund, also managed by Eugene Sit, invests in common stocks of growth companies expected to benefit from the development, improvement, advancement and use of science and technology. Holdings may include large-, mid- and small-cap issuers. Michael Brilley, another seasoned veteran at Sit, has managed or co-managed the four Sit bond funds since their inception. Sit's U.S. Government Securities Fund dates back to 1987. It seeks to provide stable return and income, and invests in high-grade U.S. government bonds. Sit Bond Fund started about 10 years ago and seeks to provide high total return through investments primarily in investment-grade bonds. Bryce Doty has co-managed both funds since November 1995. Sit Balanced Fund combines the firm's growth equity and general bond fund strategies. It invests in large and medium companies, including blue chip stocks, for the equity portion, and invests in principally investment-grade bonds for the income allocation. Our Favorite Funds If you have a long-term horizon and can tolerate the risks that go along with growth equity investing, you may want to consider Sit Science and Technology Growth Fund and Sit Small Cap Growth Fund, for which Eugene Sit serves as the sole portfolio manager. Sit Science & Technology Growth Fund (SISTX) has exhibited less than average risk compared to its tech fund peers over the past three to five years. Though it got its fair share of bumps and bruises during the tech-led market correction, Sit has shown in the past and in this current year-to-date period that he'll put up strong numbers in growth-led markets. On a year-to-date basis through June 10, the Science & Technology Growth Fund has a 22.5% total return, outperforming the broad S&P 500 index by 9.7%. While its 58th percentile ranking in category suggests mediocre performance, we don't mind giving up some total return for the below average relative risk level. Sit has put up competitive returns this year by tech fund standards and in doing so, this fund has outperformed most diversified U.S. equity funds in 2003. In 1998, Sit Science & Technology Fund returned 38.4% and in 1999 it produced an annual total return of 86.0%. Sit's style may not always rank highly in the category, but he's done a good job over the years of capturing much of the return available in growth-led (tech-led) markets. So is the case for the Sit Small Cap Growth Fund (SSMGX). There, Eugene Sit sports a trailing 5-year average annual return of 6.8% as of June 10, 2003, ranking in the 11th percentile of the small- cap growth category per Morningstar. That compares to an average annual loss of 1.0% from the S&P 500 large-cap index. The fund's strong trailing 5-year return is partially due to the banner year Eugene Sit had in 1999, when he put up a 108.6% annual return for investors. On a year-to-date basis through June 10, the Sit Small Cap Growth Fund is up 16.5%, ranking in the top 40% of the Morningstar small growth category. That is 3.7% better than the S&P 500 index this year. Sit's large-cap growth and mid-cap growth products are also ahead of the S&P 500 large-cap index in 2003. Sit Large Cap Growth has a 13.6% YTD total return, while Sit Mid Cap Growth has gone up by 19.2% this year. The S&P 500 index has risen 12.8% so far this year, using Morningstar's figures. Sit Developing Markets Growth Fund has produced a YTD return of 11.95% through June 10, while Sit Balanced Fund sports a 10.33% YTD total return. So, all in all, six equity funds with double digit percentage returns thus far in 2003, not bad. Conclusion Since there is no free lunch in investing, we know that greater returns are generally associated with greater risks. The "pro" growth style/strategy used to manage the Sit equity funds makes them more volatile than other stock styles/strategies, but also gives them more long-term appreciation potential, especially in periods like now (i.e. 2003) when growth/technology stocks lead the market advance. Like Alger, Janus and other pro-growth managers, Sit was beaten up too in 2001 and 2002. It's hard not to look at Sit's losses those years, but the firm has done well in tech-led, growth-led market advances. If you believe we're in the early stages of a bull market advance, Sit's stock fund lineup has several growth offerings that can go capture return for you. We profiled them this week, not because of how much they may have lost from 2000 to 2002 but because of their potential strength in a growth-led market advance. For more information, go to the www.sitfunds.com website. Steve Wagner Editor, Mutual Investor firstname.lastname@example.org ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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The Option Investor Newsletter Wednesday 06-11-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: DISH, IGT Dropped Calls: OHP Dropped Puts: ATH, NOC Play of the Day: Call - GENZ Spreads, Combinations & Premium-Selling Plays: New 2003 Highs! Watch List: Four More: Health, Oil, Defense, Food Updated on the site tonight: Market Posture: Broad Market Rally ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ***************** STOP-LOSS UPDATES ***************** EchoStar Comm. - DISH - cls: 35.34 chg: +2.04 stop: 35.00 *new* Run! Runaway! That's what our mind is telling us. Shares of DISH added more than six percent today and came within 6 cents of our official exit price of $36.00. 6-cents! Volume was very strong at 8.5 million shares. The move was powered by a court ruling in Florida. While both DISH and its opposing broadcasters claim victory in the case, Wall Street is clearly in favor of the news. We STRONGLY recommend taking profits if you have not done so already. Yet it may be worthwhile to keep a VERY small speculative position as the stock closed over the $35.00 level and with this bullish market environment, who knows how high it could go. So far it has not violated its upper trend line and we could easily see more profit taking. Therefore to at least maintain the lion's share of this gain, we're raising our stop loss to $35.00. If DISH trades at or below $35.00 we're out! Picked on May 21st at $31.10 Change since picked: +4.24 Earnings Date 05/06/03 (confirmed) Average Daily Volume = 3.3 million Chart link: --- Intl Game Tech, - IGT - cls: 94.37 chg: +2.50 stop: 90.00 *new* Our play-of-the-day for Wednesday performed very well, adding 2.72 percent today. We're raising our stop loss from $89.00 to $90.00. Shares closed near their high for the day and look ready for another bullish session tomorrow. Picked on June 10th at $91.87 Change since picked: +2.50 Earnings Date 07/22/03 (unconfirmed) Average Daily Volume = 1.22 million Chart link: ************* DROPPED CALLS ************* Oxford Health - OHP - cls: 40.66 chg: +1.88 stop: 37.65 Wow! We don't know what the occasion was, as there was no new news for OHP, but the 4.8 percent gain on big volume of 1.5 million shares was welcomed by us. We had an official exit price of $39.75 and that's where we're closing the play. If you're still long, we highly recommend you consider taking profits and upping your stop loss. Picked on May 20th at $36.51 Change since picked: +3.85 Earnings Date 05/05/03 (confirmed) Average Daily Volume = 857 thousand Chart link: ************ DROPPED PUTS ************ Anthem, Inc. - ATH - close: 76.92 change: +2.54 stop: 75.50 Try as we might the bulls are just too much for any bearish positions these days. We tried to short ATH when it was breaking out of its rising channel but the strength of the market lifted it right back into that channel and now it's at new relative highs. We've been cautious on it for days but alas, today's move stopped us out at 75.50. Picked on June 3rd at $72.38 Change since picked: +4.54 Earnings Date 07/30/03 (unconfirmed) Average Daily Volume = 1.17 mln Chart link: --- Northrop Gruman - NOC - cls: 87.06 chg: +1.94 stop: 87.05 Wouldn't you know it...a 10-year, nearly $2 billion deal for one of NOC's competitors (General Dynamic, NYSE:GD) launches the entire defense sector back into a bullish move. This has the DFI and DFX making new relative highs and shares of NOC followed the pack and gained 2.27 percent to close us out at $87.05. NOC has been a huge under performer relative to the markets in general and the DFI defense index. Traders should be careful. Make sure you don't get caught when it chooses to play catch up with the pack. Picked on June 6th at $85.74 Change since picked: +1.32 Earnings Date 07/29/03 (unconfirmed) Average Daily Volume = 1.6 million Chart link: ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** Genzyme Corp. - GENZ - close: 48.00 change: +1.72 stop: 44.00*new* -Company Description- Genzyme General, a division of Genzyme Corporation, is focused on developing innovative products and services to solve major unmet medical needs. GENZ has nearly 600 products and services on the market and a strong pipeline of therapeutic products for the treatment of rare genetic diseases. The Diagnostics business unit develops, markets and distributes in vitro diagnostic products and genetic testing services. With a solid, profitable revenue base, this research is intended to maintain the company_s high rate of earnings growth. - Most Recent Update (Tuesday, June 10, 2003)- Just as expected, the confluence of those two ascending channels near $45 provided solid support on Monday, and GENZ caught a solid rebound from that level today. In actuality, the rebound got started midday on Monday, but the action didn't really turn bullish until Tuesday's open when GENZ gapped higher at the open and then spent the remainder of the day crawling through and then consolidating above $46. Yesterday's rebound from just below $45 produced a nice double-bottom formation along with the dip on June 3rd and a rally and close above $48 will confirm the validity of that formation. For now, the best approach for initiating new positions seems to be entering on rebounds from support near $45. Given the way Friday's early rally above $48 was summarily squashed, traders entering on another breakout above that level need to understand the inherent risk that comes with such an entry in an extended market. If entering this play on strength, look for the BTK index to confirm that strength with a rally back over $470. - Play of the Day Comments - Shares of GENZ have rebounded strongly from the $44 level and are trading at highs not seen in over a year. The best part is many analyst just released their opinions that the biotechs still have more room to run. With several key product announcements expected in the next few weeks, the BTK and hopefully stocks like GENZ will continue to see more new highs. - Suggested Options - Shorter Term: The July 45 and 50 call options look like our best bet. June options don't have much time left so we don't recommend them for the average trader. June's will expire one week from Friday. BUY CALL JUL-45 GZQ-GI OI=2137 at $4.80 SL=2.75 BUY CALL JUL-47 GZQ-GS OI= 868 at $3.10 SL=1.60 BUY CALL JUL-50 GZQ-GJ OI=3255 at $1.95 SL=1.00 BUY CALL OCT-50 GZQ-JJ OI=1738 at $4.00 SL=2.00 Annotated Chart of GENZ Picked on June 8th at $46.61 Change since picked: +1.39 Earnings Date 07/16/03 (unconfirmed) Average Daily Volume = 3.61 mln Chart link: ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* New 2003 Highs! By Ray Cummins The major equity averages soared today after the Federal Reserve said the U.S. economy is showing some new "signs of life." Bullish activity in the blue-chip group came from stalwarts AT&T (NYSE:T) and International Business Machines (NYSE:IBM) with the Dow Jones Industrial Average adding 128 points to finish at 9,183. The NASDAQ Composite climbed 18 points to 1,646, despite a slump in semiconductor issues. The broader S&P 500-stock index rose 12 points to 997. Almost 3 stocks climbed for each 1 that declined on the New York Stock Exchange and the ratio was better than 3 to 2 in favor of gainers on the technology exchange. Trade was very active with 1.49 billion shares swapped on the Big Board and 1.92 billion shares changing hands on the NASDAQ. Long-dated Treasury issues saw limited buying, brought on by news that the Securities and Exchange Commission launched an investigation into accounting practices at Freddie Mac (NYSE:FRE). However, prices of the long bond shed 6/32 to 117-30/32, nudging its yield up to 4.27%, while the benchmark 10-year note also slipped 6/32 to yield 3.21%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 6/10/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield APPX JUN 17 16.85 36.06 $0.65 8.35% 3.86% AVID JUN 22 22.10 33.96 $0.40 4.47% 1.81% BBY JUN 32 31.60 42.28 $0.90 5.14% 2.85% COF JUN 37 37.80 50.68 $0.70 4.58% 1.85% IMCLE JUN 15 14.65 36.30 $0.35 5.04% 2.39% MRVL JUN 20 19.50 31.55 $0.50 6.28% 2.56% SFNT JUN 20 19.65 28.20 $0.35 4.36% 1.78% OVTI JUN 20 19.45 33.89 $0.55 6.28% 2.83% APPX JUN 25 24.55 36.06 $0.45 6.54% 1.83% ANPI JUN 22 22.25 31.40 $0.25 4.20% 1.12% JCOM JUN 25 24.55 33.90 $0.45 6.55% 1.83% MO JUN 37 36.60 43.80 $0.90 5.92% 2.46% MRVL JUN 22 22.10 31.55 $0.40 6.03% 1.81% OVTI JUN 22 22.05 33.89 $0.45 7.31% 2.04% SHFL JUN 20 19.70 27.89 $0.30 4.90% 1.52% SNDK JUN 27 26.90 36.15 $0.60 6.56% 2.23% ANPI JUN 22 22.00 31.40 $0.50 10.25% 2.27% CELG JUN 25 24.45 33.62 $0.55 10.38% 2.25% CREE JUN 20 19.65 23.21 $0.35 7.05% 1.78% IMCLE JUN 17 17.15 36.30 $0.35 8.95% 2.04% JCOM JUN 30 29.25 33.90 $0.75 10.18% 2.56% MERQ JUN 35 34.60 42.53 $0.40 4.45% 1.16% OVTI JUN 25 24.65 33.89 $0.35 6.44% 1.42% SEPR JUN 20 19.40 23.83 $0.60 11.67% 3.09% TTWO JUN 22 22.15 27.37 $0.35 6.52% 1.58% MIK JUN 32 32.05 37.20 $0.45 5.31% 1.40% ANPI JUN 25 24.55 31.40 $0.45 12.55% 1.83% BSX JUN 42 42.15 54.99 $0.35 5.84% 0.83% CELG JUN 25 24.75 33.62 $0.25 7.13% 1.01% COF JUN 45 44.55 50.68 $0.45 6.00% 1.01% CYMI JUN 30 29.65 32.64 $0.35 7.20% 1.18% JCOM JUN 30 29.65 33.90 $0.35 7.35% 1.18% KLAC JUN 43 42.05 48.13 $0.45 6.34% 1.07% MERQ JUN 37 37.10 42.53 $0.40 5.87% 1.08% NVLS JUN 32 32.20 37.34 $0.30 5.56% 0.93% SEPR JUN 20 19.60 23.83 $0.40 12.65% 2.04% Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield DPMI JUN 22 22.85 21.10 $0.35 5.35% 1.53% PPDI JUN 30 30.60 27.85 $0.60 4.82% 1.96% BSTE JUN 50 50.60 42.74 $0.60 5.13% 1.19% DCX JUN 32 32.95 31.41 $0.45 4.46% 1.37% * IGEN JUN 42 43.25 34.68 $0.75 9.75% 1.73% IGEN JUN 42 43.25 34.68 $0.40 6.60% 0.92% GM JUN 37 37.80 36.30 $0.30 4.39% 0.79% DCX JUN 32 32.75 31.41 $0.25 4.40% 0.76% * FCN JUN 26 26.95 24.61 $0.29 9.00% 1.08% Integrated Circuit Systems (NASDAQ:ICST) was closed for a loss during last week's rally DaimlerChrysler (NYSE:DCX) is on the "watch" list and conservative traders should consider closing the (bearish) position on any further upside activity. Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status BJS 38.63 39.72 JUN 32 35 0.25 34.75 $0.25 Open LEH 65.32 72.66 JUN 55 60 0.55 59.45 $0.55 Open DNA 56.09 70.60 JUN 50 55 0.50 54.50 $0.50 Open BIO 56.70 59.30 JUN 50 55 0.45 54.55 $0.45 Open BZH 76.70 89.05 JUN 65 70 0.45 69.55 $0.45 Open PLMD 37.08 36.09 JUN 30 35 0.65 34.35 $0.65 Open CHIR 44.12 46.01 JUN 40 42 0.30 42.10 $0.30 Open UNH 95.46 98.83 JUN 85 90 0.55 89.45 $0.55 Open BBY 40.47 42.28 JUN 40 37 0.30 37.20 $0.30 Open BGEN 45.99 44.00 JUN 40 42 0.25 42.25 $0.25 Open GILD 51.10 50.58 JUN 45 47 0.30 47.20 $0.30 Open Polymedica (NASDAQ:PLMD) continues to be an active issue and traders are encouraged to monitor the stock for indications of downside activity. Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status FRX 51.18 54.98 JUN 60 55 0.50 55.50 $0.50 Open? ATK 51.65 50.33 JUN 60 55 0.45 55.45 $0.45 Open FNM 71.60 69.87 JUN 80 75 0.45 75.45 $0.45 Open IP 36.13 38.19 JUN 40 37 0.30 37.80 ($0.39) Closed AZO 83.74 81.04 JUN 95 90 0.45 90.45 $0.45 Open ITW 62.61 64.75 JUN 70 65 0.50 65.50 $0.50 Open? MMM 125.01 126.21 JUN 135 130 0.45 130.45 $0.45 Open MXIM 39.15 36.63 JUN 45 40 0.60 40.60 $0.60 Open NOC 86.30 85.12 JUN 95 90 0.55 90.55 $0.55 Open Illinois Tool Works (NYSE:ITW) and Forest Labs (NYSE:FRX) remain on the "early-exit" list. Conservative traders should consider closing the bearish position in International Paper (NYSE:IP). Spreads on Anadarko Petroleum (NYSE:APC) and Krispy Kreme Donuts (NYSE:KKD), which are positive, and Devon Energy (NYSE:DVN) have previously been closed to limit losses. Synthetic Positions ******************* Symbol Pick Last Month L/C S/P Credit M/V Status GYI 32.43 39.00 JUL 35 30 (0.10) 5.50 Open? Getty Images (NYSE:GYI) has performed beyond all expectations, achieving sizable profits well in advance of the July options expiration. Debit Straddles *************** Symbol Pick Last Month L/C L/P Debit M/V Status SNE 24.74 29.00 JUN 25 25 2.90 4.80 Closed Although now profitable, the "Reader's Request" straddle in Sony (NYSE:SNE) has previously been closed to limit 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 new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** BGEN - Biogen $45.59 *** Biotech Binge! *** Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human healthcare. The firm derives revenues from sales of its Avonex (Interferon beta-1a) product for the treatment of relapsing forms of multiple sclerosis (MS) and from royalties on worldwide sales by its licensees of a number of products covered under patents it controls. In addition, Biogen has a number of ongoing research programs and a pipeline of development-stage products, the furthest along of which, Amevive (alefacept), is being considered for approval by the United States Food and Drug Administration and regulatory authorities in the European Union and Canada for the treatment of moderate to severe psoriasis. BGEN - Biogen $45.59 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 42.5 BGQ RV 2,713 0.45 42.05 9.8% 1.1% SELL PUT JUL 37.5 BGQ SU 1,164 0.60 36.90 4.6% 1.6% * SELL PUT JUL 40 BGQ SH 1,018 1.05 38.95 6.3% 2.7% ************** CELG - Celgene $34.74 *** New High Coming? *** Celgene (NASDAQ:CELG) is a commercial-stage biopharmaceutical company. The company is primarily engaged in the discovery, development and commercialization of small molecule drugs that are designed to treat cancer and immunological diseases through gene and protein regulation. Small molecule drugs are man-made, chemically synthesized drugs that, because of their relatively small size, can typically be administered orally. The firm's drugs are designed to modulate multiple disease-related genes, including cytokines (which are proteins) such as Tumor Necrosis Factor alpha, or TNF(alpha), growth factor genes such as those that control angiogenesis, blood vessel formation and apoptosis genes. Because the company's drugs can be administered orally, they have the potential to advance the standard of care beyond current injectible protein drugs that inhibit TNF (alpha) and other disease-causing cytokines. CELG - Celgene $34.74 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 30 LQH RF 6,904 0.25 29.75 9.0% 0.8% * SELL PUT JUL 25 LQH SE 1,667 0.35 24.65 3.3% 1.4% SELL PUT JUL 30 LQH SF 3,768 1.30 28.70 8.6% 4.5% ************** COF - Capital One $53.18 *** The Rally Resumes! *** Capital One Financial (NYSE:COF) is a holding company whose major subsidiaries market a variety of financial products and services to consumers using its proprietary information-based strategy. The company's primary business is consumer lending, with a focus on credit cards, but including other consumer lending activities such as unsecured installment lending and automobile financing. The company's principal subsidiary, Capital One Bank, a limited purpose, state-chartered credit card bank, offers credit card products. Capital One, F.S.B., a federally chartered bank, offers consumer lending and deposit products. Capital One Services, the other major subsidiary, provides various operating, administrative and business services to the company and its subsidiaries. COF - Capital One $53.18 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 47.5 COF RW 2,551 0.35 47.15 7.4% 0.7% * SELL PUT JUL 42.5 COF SV 1,175 0.75 41.75 4.6% 1.8% SELL PUT JUL 45 COF SI 1,511 1.10 43.90 5.4% 2.5% ************** CVTX - CV Therapeutics $35.79 *** Rally Mode! *** CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. The company's New Drug Application (NDA) for Ranexa (ranolazine) for the treatment of chronic angina has been filed at the U.S. FDA. Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146, an A2A-adenosine receptor agonist, is being developed for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Adentri, an A1-adenosine receptor antagonist, is being developed by the company's partner, Biogen, for the potential treatment of acute and chronic congestive heart failure. CVTX also has several research and preclinical development programs designed to bring additional drug candidates into human clinical testing. CVTX - CV Therapeutics $35.79 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 32.5 UXC RZ 419 0.50 32.00 14.7% 1.6% SELL PUT JUL 25 UXC SE 74 0.45 24.55 4.1% 1.8% TS SELL PUT JUL 27.5 UXC SY 313 0.70 26.80 6.2% 2.6% ************** GILD - Gilead Sciences $52.25 *** AIDS Fighter! *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five products that are marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $52.25 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 47.5 GDQ RT 1,689 0.30 47.20 6.2% 0.6% * SELL PUT JUN 50 GDQ RJ 2,549 0.80 49.20 13.9% 1.6% SELL PUT JUL 45 GDQ SI 6,033 1.10 43.90 5.2% 2.5% ************** ICOS - ICOS Corporation $45.17 *** Volatile Stock! *** ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products with significant commercial potential by combining its unique capabilities in molecular, cellular and structural biology, high-throughput drug screening, medicinal chemistry and gene expression profiling. The firm applies its integrated approach to erectile dysfunction and other urologic disorders, sepsis, pulmonary arterial hypertension and cardiovascular diseases, as well as inflammatory diseases. The company has established collaborations with pharmaceutical and biotechnology companies to enhance its internal development capabilities and to offset a substantial portion of the financial risk of developing its product candidates. ICOS - ICOS Corporation $45.17 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 40 IIQ RH 1,630 0.50 39.50 12.6% 1.3% * SELL PUT JUL 30 IIQ SF 1,697 0.30 29.70 2.2% 1.0% TS SELL PUT JUL 35 IIQ SG 1,702 0.90 34.10 6.3% 2.6% ************** MEDI - MedImmune $39.39 *** FluMist Speculation! *** MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of unique products on the market and a diverse product pipeline. The firm is focused on using advances in immunology and other biological sciences to develop new products that address significantly unmet medical needs in areas of infectious disease, immune regulation and cancer. MedImmune actively markets three products, Synagis, Ethyol and CytoGam and seeks to launch a potential blockbuster product, FluMist, later this year. MEDI - MedImmune $39.39 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 35 MEQ RG 2,348 0.25 34.75 7.3% 0.7% * SELL PUT JUL 32.5 MEQ SZ 319 0.65 31.85 4.7% 2.0% SELL PUT JUL 35 MEQ SG 2,267 1.10 33.90 6.1% 3.2% ************** MERQ - Mercury Interactive $43.50 *** New 8-Month High! *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2000 companies enhance the user experience by improving the performance, availability, reliability and scalability of their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $43.50 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 40 RQB RH 1,675 0.30 39.70 7.1% 0.8% * SELL PUT JUL 35 RQB SG 1,988 0.70 34.30 5.0% 2.0% SELL PUT JUL 40 RQB SH 2,951 1.70 38.30 7.5% 4.4% ************** NVDA - Nvidia $25.84 *** On The Rebound! *** Nvidia (NASDAQ:NVDA) designs, develops and markets graphics and media communication processors and related software for personal computers (PCs), workstations and digital entertainment platforms. The company provides an architecturally compatible top-to-bottom family of unique, performance 3-D graphics processors and graphics processing units that set the standard for performance, quality and features for a broad range of desktop PCs. Nvidia's graphics processors are used for a wide variety of applications, including games, digital image editing, business productivity, the Internet and industrial design. Its graphics processors are designed to be architecturally compatible backward and forward between computer generations, giving its original equipment manufacturers (OEMs), customers and end users a low cost of ownership. NVDA - Nvidia $25.84 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 22.5 UVA RX 5,324 0.20 22.30 9.4% 0.9% SELL PUT JUL 20 UVA SD 859 0.40 19.60 5.0% 2.0% * SELL PUT JUL 22.5 UVA SX 1,976 0.90 21.60 7.9% 4.2% ************** OVTI - OmniVision $32.89 *** Entry Point? *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells high performance, high quality and cost efficient semiconductor imaging devices for computing, telecommunications, industrial, automotive and consumer electronics applications. The company's main product, an image sensing device called a CameraChip, is used to capture an image in cameras and camera-related products in a range of imaging applications such as personal computer cameras, digital still cameras, security and surveillance cameras, personal digital assistant cameras, mobile phone cameras, and cameras for automobiles and toys that incorporate both still picture and live video applications. OVTI - OmniVision $32.89 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 25 UCM RE 1,267 0.25 24.75 12.4% 1.0% * SELL PUT JUL 30 UCM RF 1,416 0.95 29.05 5.9% 3.3% SELL PUT JUL 25 UCM SE 378 0.80 24.20 7.5% 3.3% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** CMCSA - Comcast $32.85 *** New Trading Range? *** Comcast (NASDAQ:CMCSA) is a cable operator involved in three principal lines of business: cable, through the development, management and operation of broadband communications networks; commerce, through QVC, its electronic retailing subsidiary; and content, through its consolidated subsidiaries Comcast Spectacor, Comcast SportsNet, Comcast SportsNet Mid-Atlantic, Comcast Sports Southeast, E! Entertainment Television, The Golf Channel, Outdoor Life Network, G4 Media, and through other programming investments. The company has deployed digital cable applications and high-speed Internet service to most of its cable communications systems. CMCSA - Comcast $32.85 PLAY (conservative - bullish/credit spread): BUY PUT JUL-27.50 CCQ-SY OI=3906 A=$0.25 SELL PUT JUL-30.00 CCQ-SF OI=4471 B=$0.45 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$29.75 ************** IDPH - IDEC Pharmaceuticals $40.29 *** Bottom-Fishing Biotech *** IDEC Pharmaceuticals (NASDAQ:IDPH) is a biopharmaceutical company engaged primarily in the research, development, manufacture and commercialization of targeted therapies for the treatment of cancer and autoimmune and inflammatory diseases. The firm's two primary products, Rituxan and Zevalin (ibritumomab tiuxetan), are for use in the treatment of certain B-cell non-Hodgkin's lymphomas. The company is also developing products for the treatment of cancer and various autoimmune diseases such as rheumatoid arthritis, psoriasis, allergic asthma and allergic rhinitis. Rituxan, the firm's first product, and Zevalin, its second product approved for marketing in the United States, as well as its other primary products under development, address immune system disorders such as lymphomas, autoimmune and inflammatory diseases. In addition, the company has discovered other product candidates through the application of its technology platform. IDPH - IDEC Pharmaceuticals $40.29 PLAY (less conservative - bullish/credit spread): BUY PUT JUL-30.00 IDK-SF OI=6495 ASK=$0.40 SELL PUT JUL-35.00 IDK-SG OI=2049 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$34.35 ************** IGT - International Game Tech. $94.37 *** 4:1 Split Coming! *** International Game Technology (NYSE:IGT) is engaged in the development and production of computerized gaming products. The company operates in three lines of business: product sales, proprietary gaming and lottery systems. Product sales encompass the development, manufacturing, marketing, distribution and sales of computerized gaming products and systems. Proprietary gaming is comprised of IGT's wholly owned gaming operations, including activities that the company performs on behalf of its strategic marketing alliances, as well as its unconsolidated joint venture activities. The lottery systems segment consists of development, manufacturing, operation and sale of equipment for online lottery and pari-mutuel systems. IGT - International Game Technology $94.37 PLAY (less conservative - bullish/credit spread): BUY PUT JUL-80.00 IGT-SP OI=1193 ASK=$0.65 SELL PUT JUL-85.00 IGT-SQ OI=2331 BID=$1.25 INITIAL NET-CREDIT TARGET=$0.60-$0.75 POTENTIAL PROFIT(max)=14% B/E=$84.40 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** LLTC - Linear Technology $34.07 *** Range-bound? *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $34.07 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 35 LLQ FG 4,368 0.60 35.60 15.2% 1.7% SELL CALL JUL 37.5 LLQ GU 1,645 0.80 38.30 6.0% 2.1% * SELL CALL JUL 40 LLQ GH 301 0.30 40.30 3.1% 0.7% TS ************** XLNX - Xilinx $28.42 *** Consolidation In Progress? *** Xilinx (NASDAQ:XLNX) designs, develops and markets complete programmable logic solutions, including advanced integrated circuits, software design tools, predefined system functions delivered as intellectual property cores, design services, customer training, field engineering and technical support. The programmable logic devices include field programmable gate arrays and complex programmable logic devices. These devices are standard products that its customers program to perform desired logic functions. Its products are designed to provide high integration and quick time-to-market for electronic equipment manufacturers primarily in the telecommunications, networking, computing, industrial and consumer markets. XLNX - Xilinx $28.42 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 30 XLQ FF 9,018 0.35 30.35 11.7% 1.2% SELL CALL JUL 30 XLQ GF 1,740 1.25 31.25 9.3% 4.0% SELL CALL JUL 32.5 XLQ GZ 1,929 0.55 33.05 5.8% 1.7% * ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** CEPH - Cephalon $45.33 *** No Biotech Rally Here! *** Cephalon (NASDAQ:CEPH) is an international biopharmaceutical firm dedicated to the discovery, development and marketing of products to treat sleep disorders, neurological disorders, cancer and pain. In addition to conducting a very active research and development program, the company markets three products in the United States and a number of products in various countries throughout Europe. Cephalon's United States products are comprised of Provigil, for the treatment of excessive daytime sleepiness associated with narcolepsy, Actiq for cancer pain management, and Gabitril for the treatment of partial seizures associated with epilepsy. CEPH - Cephalon $45.33 PLAY (less conservative - bearish/credit spread): BUY CALL JUL-55.00 CQE-GK OI=0 ASK=$0.25 SELL CALL JUL-50.00 CQE-GJ OI=998 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$50.60 ************** CI - Cigna Corporation $49.61 *** Profit-Taking Underway! *** Cigna Corporation (NYSE:CI) and its subsidiaries are investor- owned employee benefits organizations in the United States. Its subsidiaries are major providers of employee benefits offered through the workplace, including health care products and other services, life, accident and disability insurance, retirement products and services and investment management. CIGNA's main perating divisions include Employee Health Care, Disability and Life Benefits, CIGNA Group Insurance, Employee Retirement, and Investment Services, and International Life, Health and Employee Benefits. CI - Cigna Corporation $49.61 PLAY (conservative - bearish/credit spread): BUY CALL JUL-60.00 CI-GL OI=498 ASK=$0.30 SELL CALL JUL-55.00 CI-GK OI=2737 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.70 POTENTIAL PROFIT(max)=12% B/E=$55.55 ************** MXIM - Maxim Integrated $36.51 *** Post-Earnings Slump! *** Maxim Integrated Products (NASDAQ:MXIM) designs, develops, makes and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high-frequency design processes and capabilities that can be used in custom design. Maxim's products include data converters, interface circuits, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, delay lines, real-time clocks, microcontrollers, switches, battery chargers, battery management circuits, radio frequency circuits, fiber-optic transceivers, sensors and voltage references. The firm's unique products are sold to customers in various markets including automotive, communications, consumer, industrial control, instrumentation and data processing. MXIM - Maxim Integrated Prod. $36.51 PLAY (less conservative - bearish/credit spread): BUY CALL JUL-45.00 XIQ-GI OI=1193 ASK=$0.20 SELL CALL JUL-40.00 XIQ-GH OI=2946 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$40.65 ************** SEE DISCLAIMER - SECTION 1 ************** ************ MARKET WATCH ************ Four More: Health, Oil, Defense, Food Wellpoint Health Network - WLP - close: 87.82 change: +2.40 WHAT TO WATCH: The entire health insurance sector took off today and shares of WLP added 2.8% while closing above recent resistance of $87.50. Volume was stronger than it had been recently and we think WLP can break above longer-term resistance just under $90.00. Chart= --- Apache Corp - APA - close: 68.15 change: +2.10 WHAT TO WATCH: Oil & Gas stocks have been taking off and while APA looks extended from its May run (what doesn't) the entire group looks ready for another (fresh) leg higher. This is a new all-time closing higher for APA. Chart= --- General Dynamic - GD - close: 72.02 change: +3.10 WHAT TO WATCH: Not only did Wall Street approve of GD's news to acquire VNX but now the company just announced a 10-year, $2 billion deal with the government. Shares broke out above the $70.00 level and its 200-dma while leading the defense sector to new highs. This looks like a sure winner to close the gap from last January. Chart= --- Hershey Foods - HSY - close: 71.42 change: +0.95 WHAT TO WATCH: Trying to find something that wasn't tech or financially related, we stumbled across HSY again. Shares have been able to maintain support above $70.00 and are bouncing from the bottom of its rising channel. This looks like an entry point with a stop under $70.00. Chart= ************** MARKET POSTURE ************** Broad Market Rally To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_061103.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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