The Option Investor Newsletter Wednesday 07-02-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Gap Up Futures Wrap: Higher Still Index Trader Wrap: See Note Weekly Fund Family Profile: Rainier Funds Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 07-02-2003 High Low Volume Advance/Decline DJIA 9142.84 +101.89 9148.30 9043.54 1.75 bln 2497/ 720 NASDAQ 1678.73 + 38.60 1678.77 1648.13 1.87 bln 2354/ 874 S&P 100 500.74 + 5.84 500.86 494.90 Totals 4851/1594 S&P 500 993.75 + 11.43 993.78 982.32 RUS 2000 458.89 + 9.72 458.90 449.17 DJ TRANS 2433.27 + 16.97 2435.24 2414.41 VIX 21.14 - 0.15 21.74 16.38 VXN 31.05 + 0.83 31.21 30.25 Total Volume 7,245M Total UpVol 5,424M Total DnVol 1,821M 52wk Highs 586 52wk Lows 27 TRIN 0.79 PUT/CALL 0.77 ******************************************************************* Gap Up Jonathan Levinson Today was a very bullish day for stocks, with the Nasdaq well on its way to challenging its year highs, the indices truncating their downphases with yesterdays bounces off their ascending trendlines and today's breakaway gaps to follow through. The Nasdaq is often said to be the "leading" index, and quick comparison between the oscillators on the Nasdaq below and those on the Dow above looks quite bullish for the Dow. Daily Chart of the INDU Daily Chart of the COMPX It was reported today that factory orders rose 0.4 percent in May, exceeding analysts expectations for no change over the April number of a revised 3.0 percent drop. Non-defense capital goods fell 0.8 percent, the second consecutive monthly decline. Excluding transportation, new orders for factory goods rose 0.8 percent in the month, up from a 2.7 percent decline in April. Excluding defense, new orders for factory goods rose 0.8 percent in May, up from a 2.7 percent decline in April. The Energy Department reported an unexpected 2.1 million barrel drop in U.S. crude reserves for the week ended June 27. I have yet to see analysts not surprised by the week's data. Total inventories are 282.1 million barrels, 11.5 percent lower than for this week in 2002. Gasoline inventories dropped by 3.2 million barrels to 205 million barrels, while distillate supplies stood rose 300,000 barrels to 109.7 million barrels total. Surprisingly, August crude closed lower by $.25 at $30.15. The Mortgage Bankers Association (MBA) announced this morning that seasonally-adjusted demand for mortgage refinancings, the MBA refinancing index, rose 4.8 percent to 8,599.1 in the week ended June 27. Demand for loans with which to buy homes, the Purchase index, rose 6.6 percent to 438.4. The MBA's market index, an overall measure of mortgage activity, rose 5.2 percent to 1,635.5. The average contract interest rate for a 30-year fixed rate mortgage rose to 5.23%. The MBA estimates that banks will make $3.3T worth of mortgage loans this year, blowing out last year's $2.5T record. New construction dropped .9% in May, however, the third consecutive month of decline. After our discussion during weeks past concerning the mortgage data and the sources of liquidity for this year's simultaneous rallies in real estate, stocks, bonds, gold and other commodities, I've generated a series of charts to put the current economic environment in perspective. I've relied on data published by the St-Louis Fed. The first chart, which we’ve been following for several weeks, is the MZM, and is one measure commonly used to gauge the money supply. MZM chart This 13 year chart speaks for itself- the supply of money has tripled during this period. Chart of Fed Funds Rate During the same time, the Fed Funds rate has dropped precipitously to its currenty 45 year low at 1.0%. In other words, the cost of money to banks is at its lowest level in nearly half a century. It was reported today that U.S. money market funds are now yielding a record low 0.58 percent on average. Chart of Commercial and Industrial Loans Despite the aggressive devaluation of money by Chairman Greenspan's Fed commencing in year 2000, loans to business and industry have decreased in tandem with the Federal Funds rate during that time. Where, then, has the money reflected in the skyrocketing MZM chart gone? Chart of Real Estate Loans Chart of Total Consumer Credit It has been loaned to consumers in the form of home equity loans. For the sake of brevity, I have not reproduced a chart of the current account deficit, but we've been tracking its increases to record level after record level. It appears that consumers have been borrowing in order to purchase homes and foreign goods in ever-increasing amounts. Chart of Unemployement Rate: Lastly, the effect of the lack of participation of business and industry in the Fed's tidal wave of liquidity is reflected in the climbing unemployment rate. I've attached the foregoing charts because I find the current economic context fascinating. I also find the widespread predictions of a "second half recovery" difficult to reconcile with the picture that the above charts paint, though it does help us to understand what the Fed has been trying to accomplish, and its concerns with what it calls "dis-inflation". An uptick in treasury yields increasing the effective interest rates applicable to borrowed money, could be disastrous, and for this reason I expect the Fed to do what's necessary to keep yields down, as Governor Bernanke has said it would. By the same token, I am not recommending running out and shorting everything with a bid. Fundamentals and technicals are two different worlds as this spring has taught us, and as leveraged speculators and investors, we must choose our time and our price judiciously. The markets are littered with bears who had great ideas and poor timing. As Keynes said, "The markets can remain irrational longer than you can remain solvent." It's much easier to trade with the trend of your choice. If you're bullish on the markets, then the above is the famed "wall of worry". Furthermore, the current situation is nothing new for the past several years since the beginning of this secular bear market, and arguably, it is always darkest before the dawn. In other news, it was announced on CNBC that the State of California has been placed on negative credit watch by Standard & Poors, but I was unable to find a link to the story anywhere on my wire or in the newsfeeds. The newsday was mostly dominated by upgrades and downgrades, with relatively little hard news. GLD announced that it was granted Food and Drug Administration approval for its new anti-HIV drug, Emtriva. The International Olympic Committee announced that Vancouver, B.C. would be the host city of the 2010 Winter Olympics, beating Pyeongchang, South Korea. Much of the competition will take place at the nearby ski areas around Whistler and Blackcomb, and Intrawest, the developer and operator of Whistler, was up strongly on the news. For tomorrow, we have the following economic data due before the bell: Report Briefing Market Prior Expects Expects Jul 03 8:30 AM Average Workweek Jun - 33.8 33.8 33.7 Jul 03 8:30 AM Hourly Earnings Jun - 0.3% 0.2% 0.3% Jul 03 8:30 AM Initial Claims 06/28 - 415K 412K 404K Jul 03 8:30 AM Nonfarm Payrolls Jun - -15K Unch -17K Jul 03 8:30 AM Unemployment Rate Jun - 6.2% 6.2% 6.1% Jul 03 10:00 AM Factory Orders May - 0.3% 0.0% -2.9% Jul 03 10:00 AM ISM Services Jun - 55.0 55.0 54.5 With a shortened trading session ahead of the 4th of July weekend, I expect to see thin trading and the consequent wild volatility that such can cause, helped along by the above full slate of economic reports. I expect any good news to be taken very bullishly by equities, on the heels of today's very strong session. See you at the bell! ************ FUTURES WRAP ************ Higher Still Jonathan Levinson Equities had a perfect day, opening at their lows and closing at their highs. 3 minute chart of ES Daily Pivots (generated with a pivot algorithm and unverified): Figures rounded to the nearest point: R2 R1 Pivot S1 S2 ES03U 1002 998 990 986 978 YM03U 9198 9164 9095 9061 8992 NQ03U 1268 1258 1240 1231 1214 10 minute chart of the US Dollar Index The US Dollar Index printed a lower high at 94.50 and then spent the remainder of the session marching lower. The action was bullish for gold and the commodities index, with the CRB adding 0.89 to close at 235.39. Daily chart of August gold August gold printed a high just after 10AM and then sold off until just after 2PM EST, after which it resumed its move higher before being sold in the final minutes before 4PM. The 351 level was never breached, and 354 resistance on the daily chart above is clearly the next hurdle, with an intraday high at 353.30. HUI closed higher by .54 to 154.76, XAU lower by .45 to 80.62. Daily chart of the ten year note yield Treasuries had a tumultuous day, gapping down at the open, climbing throughout the session before reversing at 2:15 EST. Yields closed lower, FVX down 1.3 bps to 2.409%, TNX –1.3 bps to 3.536% and TYX –1.8 bps to 4.578%. Daily NQ candles The NQ had a perfect day, printing its low of the day at yesterday's closing price and closing at its exact high of the day. On the COMPX and INDU, it was an unfilled upside gap. The oscillator downphases on the daily candles got cut short yesterday, and today's action brings them a breath away from fresh buy signals. 30 minute 20 day chart of the NQ Yesterday's trendline breakout now looks like "the real thing", and the upside bull wedge target is actually very near at 1260. The shorter cycle oscillators on the 30 minute candles and below are all buried in overbought, and downside is a very reasonable short term bias, given the almost vertical climb of the past two sessions. Daily ES candles The ES looks exactly like the NQ, but it's lagging, as the SPX- based indices are so often wont to do. The oscillators have not given buy signals on the daily candles, and they're not as close to doing so as they are on the NQ. 20 day 30 minute chart of the ES The ES is looking quite toppy on its shorter cycle oscillators, but the bull wedge target at 1016 remains within view, albeit with more resistance above than for the NQ. It will be interesting to see what happens if the NQ tops ahead of the ES, and whether the ensuing pullback will drag the ES down with it. Daily YM candles Same picture for the YM as for the ES. 20 day 30 minute chart of the YM Today's session saw treasuries close nearly unchanged after a large selloff at the open. The Fed drained a whopping 9.75B, 1.75B more than it added yesterday, and I suspect that the quick selloff in bonds was to free up cash to make payment. The source of the funds with which to buy treasuries and stocks throughout the remainder of the session remains a mystery to me, but we saw buying of stocks and bonds and selling of gold happening in tandem throughout the day. We've got an abbreviated session tomorrow, and a slew of potentially market moving reports due at 8:30 and 10AM, as listed in the Market Wrap. I expect lots of action tomorrow, ahead of the long holiday weekend. Equities have just finished two very strong days with barely the suggestion of a pullback, and both bulls and bears alike are expecting at least a corrective move lower. This is, of course, the perfect recipe for a surprise blast higher, and caution remains key. If you're long, as Jim is in the Futures Monitor, watch your stop and enjoy the ride. If short, watch your stop and be prepared to bail in the event of a continuation of the rally tomorrow. ******************** INDEX TRADER SUMMARY ******************** Check the Site Later Tonight For Jeff's Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_070203_1.asp ************************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 ************************** Rainier Funds Rainier Funds is a family of five no-load mutual funds managed by Seattle-based Rainier Investment Management, Inc., a leading U.S. investment advisor with $1 billion in mutual fund assets and $3.2 billion in institutional accounts, per company sources. The firm serves the investment needs of over 100 institutional clients and more than 20,000 mutual fund shareholders. Rainier Investment Management Inc. is an independently owned firm with six principals. Patricia L. Frost is the firm's chairman of the board and director of fixed income, a post she has held since joining Rainier ("RIM") in 1981. James R. Margard, CFA, is chief investment officer and director of equity management. Margard is supported by Dave Veterane CFA, Peter Musser CFA, and Mark Dawson CFA, three senior equity portfolio managers. Veterane joined RIM in 1973 as director of equity research. The Rainier Funds require a minimum initial investment of $25,000 to open a regular account. However, the initial AIP or automatic investment program is $0 per Morningstar's report. Rainier Funds are available directly (1-800-248-6314) or through leading online brokerage networks on a no-load NTF basis, such as Charles Schwab OneSource and Fidelity Retail FundsNetwork. For more information on the Rainier Funds or Rainier Investment Management, Inc. go to www.rainierfunds.com. Fund Overview RIM currently offers a family of five mutual funds that mimic the styles/strategies used to manage institutional accounts. There's a small/mid cap equity fund that seeks maximum, long-term capital appreciation through investments in common stocks of smaller U.S. companies with strong earnings growth prospects (that are selling at attractive valuations at time of investment). Here, RIM seeks to avoid extreme overweighting and underweighting relative to the Russell 2500 index of small- and mid-size U.S. companies. Before joining RIM in 1985, James Margard served as a senior analyst and portfolio manager with Value Line Inc., specializing in small-cap stocks. Margard, a successful GARP equity strategist, is Rainier's chief investment officer and director of equity management, so growth- at-reasonable prices is a philosophy that pervades the RIM stock fund portfolios. Dave Veterane adds his 30 plus years of equity research and portfolio management wisdom. Likewise, RIM's fixed income portfolios reflect Patricia Frost's investment philosophy, described as defensive-intermediate. RIM's balanced fund uses a team approach with gradual asset allocation changes, per company sources. Below is a summary of the five funds in the Rainier Funds family. Rainier Small/Mid Cap Equity (RIMSX) Rainier Core Equity (RIMEX) Rainier Growth Equity (RGROX) Rainier Intermediate Fixed Income (RIMFX) Rainier Balanced (RIMBX) The $173 million Rainier Small/Mid Cap Equity Fund (RIMSX) seeks maximum capital appreciation over time, and invests at least 65% of total assets in equity securities of companies with small-to- medium sized capitalizations. Morningstar puts this fund in the mid-cap growth category; Lipper says it is a mid-cap core equity fund. So, overall the portfolio maintains a bias to the mid-cap range, and to reasonably priced growth stocks, consistent with a GARP investment approach. Rainier Core Equity Fund (RIMEX) applies the firm's GARP approach to the large-cap sector. It invests at least 65% of total assets in equity securities of "core equity" companies and may invest in companies of any size (market cap). It avoids extreme overweight and underweight positions relative to the economic sector weights in the S&P 500 index. Morningstar rates this $369.6 million fund against other large-cap blend funds; Lipper shows it has a multi- cap core equity objective. So, the fund stays a little closer to center (blend/core) in terms of equity style, but can still drift into the large-cap growth style box from time to time, consistent with a GARP strategy. The tiny $5 million Rainier Growth Equity Fund (RGROX) is growth- oriented in its equity style and holds 50 to 75 U.S. companies in various stages of growth, with the majority of holdings having a market cap over $5 billion. Here, RIM compares the fund's sector weightings to a growth index (such as Russell 1000 Growth Index). Morningstar classifies the fund as a large-cap growth fund. Note that the fund's average market cap, average P/E ratio and average earnings growth rate is higher than its core equity fund sibling. Rainier Intermediate Fixed Income Portfolio (RIMFX) a $46 million fund, seeks to provide investors with current income by investing primarily in government securities and investment-grade corporate bonds with intermediate-term maturities averaging up to 10 years. Just as the equity portfolios avoid extreme over and underweights to the economic sector weights of appropriate equity indices, RIM avoids extreme duration bets, keeping the portfolio duration near the LB Government/Credit Intermediate Bond Index. Its defensive The Rainier Balanced Portfolio (RIMBX) has $117.2 million in fund assets and seeks to provide investors with a balance of long-term capital appreciation and current income. Equity holdings (around 60% of total assets) are similar to those in the core equity fund while fixed income holdings (roughly 40% of total assets) are the same type and duration as those in the intermediate, fixed income portfolio. Aggressive market timing is avoided. Instead, shifts from one asset class to another are made in 5% or 10% increments, according to the website. In the next section, we see how well the Rainier Funds have fared versus similar mutual funds based on returns, risk, risk-adjusted returns, and expenses. Fund Performance Rainier Intermediate Fixed Income (RIMFX) receives Morningstar's highest 5-star rating for risk-adjusted performance (relative to category peers). Interestingly, Frost's defensive, intermediate fixed income philosophy translates into a less risky, short-term bond portfolio (where Morningstar categorizes this fund for star rating purposes). Compared to the short-term bond fund category, RIMFX would appear to have higher risk, but in reality, it has a lower risk level than the average investment-grade, intermediate- term bond fund. Trailing returns for Rainier Intermediate Fixed Income Portfolio are high relative to the average short-term bond fund and around that of the intermediate-term bond fund average (with less risk). Below is a total return performance summary through July 1, 2003, per Morningstar. + 4.4% YTD 2003 Rainier Intermediate Fixed Income (RIMFX) + 2.1% YTD 2003 Morningstar Short-Term Bond Fund Average + 4.6% YTD 2003 Morningstar Interm-Term Bond Fund Average +10.4% 1-Year Rainier Intermediate Fixed Income (RIMFX) + 5.5% 1-Year Morningstar Short-Term Bond Fund Average +10.2% 1-Year Morningstar Interm-Term Bond Fund Average + 9.3% 3-Year Avg Rainier Intermediate Fixed Income (RIMFX) + 6.6% 3-Year Avg Morningstar Short-Term Bond Fund Average + 8.9% 3-Year Avg Morningstar Interm-Term Bond Fund Average + 7.1% 5-Year Avg Rainier Intermediate Fixed Income (RIMFX) + 5.7% 5-Year Avg Morningstar Short-Term Bond Fund Average + 6.3% 5-Year Avg Morningstar Interm-Term Bond Fund Average You can see that over longer periods, Rainier Fixed Income has a sizeable return advantage over both Morningstar category indices. The result, a Morningstar risk-adjusted performance rating of "5" stars (highest). Rainier Balanced (RIMBX) sports a Morningstar 3-star (or average) rating from Morningstar, as does its pure equity sibling, Rainier Core Equity Portfolio (RIMEX). Since the core equity fund uses a GARP approach, it'll look riskier compared to the average "blend" fund and more conservative relative to the average "growth" fund. Such is the case here. Morningstar rates the Rainier Core Equity Portfolio as having above average risk overall in relation to the average large-blend fund, resulting in only an average rating for risk-adjusted performance. The risk-adjusted rating would likely be better (says 4 stars) compared to the average large-cap growth fund. Because the RIM equity portfolios have GARP like characteristics, you may want to ease your performance analysis by seeing how well the various stock portfolios have performed relative to the broad S&P 500 index. For the trailing 5-year period as of July 1, 2003 the Rainier equity portfolios produced the following "annualized" total returns: +2.4% 5-Year Avg Rainier Balanced (RIMBX) -0.6% 5-Year Avg Rainier Core Equity (RIMEX) +2.1% 5-Year Avg Rainier Small/Mid Cap Equity (RIMSX) -1.7% 5-Year Avg S&P 500 Index You can see that over longer periods, the RIM equity management team has generated excess returns (over the broad S&P 500 index). The firm's GARP investment style is also working in its favor on a YTD 2003 basis as of July 1, 2003. The balanced portfolio has a 9.6% YTD total return (38th percentile), while the core equity portfolio's 13.3% YTD return ranks in the 17th percentile of the Morningstar large-blend category. The growth equity fund sports 15.7% YTD total return (20th percentile) while the small/mid cap product is up 19.4%, also ranking in the category's top quartile for performance. So, it would appear that the RIM stock funds made it through the market correction in better shape than a lot of growth funds due to its emphasis on reasonable price valuations. Rainier's stock funds may not rise as fast as some funds, namely pro-growth type funds in rising markets, but they may provide a return advantage over blend (core) style funds. Conclusion Rainier Investment Management is a leading money manager, which pays attention to the price it pays for earnings growth. While managers know that earnings growth drives "growth stock" prices, many are willing to pay up for that earnings growth. This firm tries hard not to do that. Accordingly, it holds up better than pro-growth funds in down markets and holds its own during market advances since as we've seen in 2003. The result, a nice return- risk tradeoff for long-term equity investors. RIM's fixed income management team has produced superior returns over time using a defensive, intermediate-term strategy. It too offers investors a strong return-risk tradeoff relative to other intermediate fixed income funds. For more information on Rainier Investment Management, Inc. and Rainier Funds, go to the family's website at www.rainierfunds.com. Steve Wagner Editor, Mutual Investor email@example.com ************************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 ************************************************************** ******************* 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. 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The Option Investor Newsletter Wednesday 07-02-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: EBAY, MRK, PGR - ICOS, WFMI Dropped Calls: None Dropped Puts: None Play of the Day: Call - PGR Spreads, Combinations & Premium-Selling Plays: Stocks Rally On Positive Economic News Watch List: A Day Of Bullish Breakouts! Updated on the site tonight: Market Posture: Bulls Stampede Towards The Fourth ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************** STOP-LOSS UPDATES ***************** ***** CALLS ***** eBay Inc - EBAY - close: 109.25 change: +2.66 stop: 104.00*new* Whether it was due to over excited bulls or panicked short- sellers trying to cover, the rally in EBAY has been strong for two days. By the looks of its intraday chart, the moment EBAY broke $104.20 it was long gone. The buying has been fast and furious. Technicians will note that rising volume on the rallies is exactly what bullish traders want to see. The stock came within 21 cents of our initial target of $110.00. Short-term traders should already be considering how they plan to take some money off the table. It's never a bad idea to put some profits away. Right now the stock is sort of in no-man's land. Traditionally one might expect the 110 level to act as some psychological resistance but given the buying frenzy it may not stop the bulls. This makes it hard to judge new entries. We'd obviously prefer a dip, maybe to $106. OptionInvestor.com is raising its stop loss to $104.00. More conservative traders should adjust theirs to their own risk tolerance. Some investors can't stand leaving more than $5.00 on the table, not to mention how far their options may have moved. Prudential's price target of $120 doesn't look so far away now does it? Picked on June 27th at $104.05 Change since picked: +5.20 Earnings Date 07/18/03 (unconfirmed) Average Daily Volume = 6.76 million Chart link: ---- Merck & Company - MRK - close: 61.72 change: +0.25 stop: 59.75*new* Shares of this drug giant have broken out of its short-term bullish flag pattern. This is good news for the bulls. While we'd expect shares to confirm the move with further upside tomorrow a pull back to the $61.00 mark is not a bad place to look for a new entry point. We're raising our stop loss by a quarter to $59.75. Picked on June 17th at $62.37 Change since picked: -0.65 Earnings Date 07/21/03 (unconfirmed) Average Daily Volume = 6.22 mln Chart link: --- Progressive Corp. - PGR - cls: 74.65 chng: +0.89 stop: 72.50*new* This isn't so much a new stop loss as it is a chance to mark PGR's breakout of its short-term bullish flag pattern. Like MRK above, this is good news for the bulls. We would look for further upside as confirmation tomorrow but a dip to $74.00 isn't a bad spot to look for new entries either. Next stop should be near $76.00 on its way to our short-term target of $80.00. We're making PGR the play-of-the-day for Thursday based on its bounce and the corresponding bounce in the IUX insurance index. We're raising our stop by a dime to $72.50. Picked on June 15th a $73.27 Change since picked: +1.38 Earnings Date 07/16/03 (confirmed) Average Daily Volume = 943 K Chart link: **** PUTS **** ICOS Corp - ICOS - close: 39.56 change: +1.89 stop: 40.01 We're not issuing a new stop on ICOS but we are suggesting additional caution. We knew shares were trading higher after hours yesterday after ICOS and Eli Lilly released news that the FDA had accepted the two companies' application for their Cialis drug as complete. We did not expect the stock to reach $40 so quickly and shares came within one cent of our stop loss. A failure from here might be okay, but investors may be too enthusiastic for the expected FDA approval for the drug that should show up in the next three to six months. Picked on June 29th at $37.62 Change since picked: +1.94 Earnings Date 08/05/03 (unconfirmed) Average Daily Volume = 2.63 million Chart link: --- Whole Foods Market - WFMI - cls: 46.92 chg: -0.83 stop: 49.00*new* The trend of lower highs and relative weakness today despite the market's bullishness is good news for WFMI bears. Volume was pretty strong at 2.2 million shares while there was no discernable news to attribute the weakness. Shares did reach a new relative low intraday but $46.50 appears to be the new hurdle for short traders. Our short-term target remains $45.00 and readers might need to prepare themselves to exit or at least take some profits off the table. We are lowering our stop loss to $49.00. Picked on June 13 at $49.44 Change since picked: -2.52 Earnings Date 07/30/03 (unconfirmed) Average Daily Volume: 1.6 million Chart = ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ************************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 ********************** Progressive Corp. - PGR - cls: 74.65 chg: +0.89 stop: 72.50 - Company Description - Traditionally a leader in non-standard, high-risk personal auto insurance, PGR has moved into standard-risk and preferred auto insurance, as well as other personal use vehicle coverage, such as motorcycles and recreational vehicles. The company's property-casualty insurance products protect its customers against collision and physical damage to their vehicles and liability to others for personal injury or property damage. - Most Recent Update (Tuesday, July 1, 2003)- The corrective move in the broad markets over the past couple weeks has produced a preponderance of bull flag consolidation patterns. Our PGR play appears to be delivering just that, while remaining in its overall ascending channel that began in mid- March. The bottom of that channel at $73 got a solid test over the past couple days, but the bulls successfully defended that level and PGR rebounded into the close of trading on Tuesday. While that looks good, the stock hasn't yet been able to break free from the gently descending flag pattern that has been building over the past couple weeks. In order to accomplish that bullish feat (and provide a solid bullish entry point), PGR needs to rally through the $74 level, which interestingly enough is just a nickel above Tuesday's intraday high. While more aggressive traders can still look at rebounds from the $72.50- 73.00 area as viable bullish entry points, we'd prefer to wait for the breakout above that flag before committing fresh cash to the play. Once again, we're raising our stop tonight, this time to $72.40, which is just below both today's intraday lows and the supportive 30-dma ($72.44). - Play of the Day Comments - Shares of PGR have finally broken out of its two-week old bullish flag pattern. This is great news for the bulls. We'd like to have seen strong volume on the move but the corresponding bounce in the IUX insurance index looks encouraging. The next stop should be $76.00 (current resistance). This should be the beginning of its next leg up towards our target near $80.00. Suggested Options: Shorter Term: The July 75 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the August 80 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders should utilize the August 75 call. BUY CALL JUL-70 PGR-GN OI=196 at $5.10 SL=3.00 BUY CALL JUL-75 PGR-GO OI=420 at $1.35 SL=0.65 BUY CALL JUL-80 PGR-GP OI=341 at $0.20 SL= -- look risky BUY CALL AUG-70 PGR-HN OI=396 at $5.80 SL=3.25 BUY CALL AUG-75 PGR-HO OI=268 at $2.40 SL=1.20 BUY CALL AUG-80 PGR-HP OI= 37 at $0.60 SL=0.30 Annotated Chart of PGR: Picked on June 15th a $73.27 Change since picked: +1.38 Earnings Date 07/16/03 (unconfirmed) Average Daily Volume = 951 K Chart = ************************Advertisement************************* "If you haven't traded options online – you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success – Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* Stocks Rally On Positive Economic News By Ray Cummins The major equity averages soared higher Wednesday as favorable data from the manufacturing segment boosted investor's hopes of an economic recovery. The Dow Jones Industrial Average added 106 points to 9,147 with technology giant Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) among the best performers. The NASDAQ Composite index was also bolstered by software and hardware issues, closing up 35 points at 1,675. Biotechnology shares took a leadership role in the broader market with the S&P 500-stock index closing up 11 points at 993. Trading activity was moderate with 1.5 billion shares swapped on the New York Stock Exchange while 1.9 billion shares changed hands on the NASDAQ. Breadth was outstanding at almost 4 to 1 on the Big Board and better than 2 to 1 on the technology exchange. Government bonds fell with the 10-year Treasury note down 2/32 to yield 3.55% while the 30-year government bond slid 5/32 to yield 4.60%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 7/1/03 *************** 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 BGEN JUL 37 36.90 39.79 $0.60 4.59% 1.63% CVTX JUL 25 24.45 29.65 $0.55 4.93% 2.25% MERQ JUL 40 38.30 40.12 $1.70 7.53% 4.44% NVDA JUL 20 19.60 23.85 $0.40 4.97% 2.04% AMHC JUL 25 24.65 34.87 $0.35 4.99% 1.42% ARTI JUL 20 19.70 22.49 $0.30 5.63% 1.52% AVCT JUL 27 27.05 30.25 $0.45 5.32% 1.66% GILD JUL 42 42.00 55.00 $0.50 4.49% 1.19% MERQ JUL 35 34.50 40.12 $0.50 5.25% 1.45% MVSN JUL 17 17.25 20.86 $0.25 5.11% 1.45% NVDA JUL 20 19.60 23.85 $0.40 7.38% 2.04% OVTI JUL 25 24.45 31.39 $0.55 7.88% 2.25% YHOO JUL 27 24.80 33.64 $0.45 5.32% 1.81% QCOM JUL 32 32.00 36.04 $0.50 4.38% 1.56% ARTI JUL 20 19.75 22.49 $0.25 5.45% 1.27% AVCT JUL 27 26.90 30.25 $0.60 8.19% 2.23% GILD JUL 47 46.90 55.00 $0.60 4.96% 1.28% ICST JUL 25 24.75 32.05 $0.25 4.42% 1.01% IMCLE JUL 25 24.65 31.95 $0.35 6.83% 1.42% JCOM JUL 37 37.05 46.56 $0.45 5.97% 1.21% OVTI JUL 25 24.70 31.39 $0.30 5.93% 1.21% RIMM JUL 20 19.50 21.88 $0.50 9.72% 2.56% SNDK JUL 30 29.65 41.62 $0.35 5.51% 1.18% YHOO JUL 27 27.10 33.64 $0.40 5.82% 1.48% Conservative traders should probably have closed the Biogen (NASDAQ:BGEN) position, and possibly a few other suspect issues, during the recent market slump. Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield LLTC JUL 37 38.30 33.04 $0.80 5.98% 2.09% XLNX JUL 32 33.05 26.21 $0.55 5.77% 1.66% IGEN JUL 45 45.90 31.24 $0.40 5.71% 0.87% CNF JUL 30 30.45 25.56 $0.45 5.02% 1.48% TRMS JUL 55 55.75 46.00 $0.75 5.65% 1.35% AFFX JUL 22 22.85 19.08 $0.35 7.97% 1.53% DCTM JUL 22 23.05 19.47 $0.55 12.14% 2.39% HCA JUL 35 35.45 31.95 $0.45 5.89% 1.27% Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status CMCSA 32.85 30.48 JUL 27 30 0.20 29.80 $0.20 Open IDPH 40.29 35.32 JUL 30 35 0.65 34.35 $0.65 Open? IGT 94.37 102.42 JUL 80 85 0.60 84.40 $0.60 Open CCMP 52.60 51.86 JUL 40 45 0.50 44.50 $0.50 Open CECO 69.32 71.45 JUL 55 60 0.50 59.50 $0.50 Open LXK 76.99 70.90 JUL 65 70 0.50 69.50 $0.50 Open BVF 46.00 46.10 JUL 35 40 0.30 39.70 $0.30 No Play IGT 99.84 102.42 JUL 85 90 0.40 89.60 $0.40 Open NKE 56.90 53.88 JUL 50 55 0.60 54.40 ($0.52) Closed Nike (NYSE:NKE) was an early-exit candidate after it reported weak U.S. orders and Merrill Lynch downgraded the stock. Also in that category is Idec Pharmaceuticals (NASDAQ:IDPH) after announcing a merger pact with Biogen (NASDAQ:BGEN). Comcast (NASDAQ:CMCSA) and Lexmark (NYSE:LXK) remain on the "watch" list. Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status CEPH 45.33 41.79 JUL 55 50 0.60 50.60 $0.60 Open CI 49.61 46.89 JUL 60 55 0.55 55.55 $0.55 Open MXIM 36.51 34.65 JUL 45 40 0.60 40.60 $0.60 Open ADBE 32.07 32.82 JUL 40 35 0.50 35.50 $0.50 Open CEPH 44.59 41.79 JUL 55 50 0.60 50.60 $0.60 Open HDI 40.19 39.44 JUL 45 42 0.30 42.80 $0.30 Open MDC 46.94 49.17 JUL 55 50 0.50 50.50 $0.50 Open TIN 43.56 43.00 JUL 50 45 0.50 45.50 $0.50 Open MDC Holdings (NYSE:MDC) is testing resistance near $50 (and our sold call strike) and any close above that price on heavy volume would signal our exit in the position. Synthetic Positions ******************* No Open Positions Debit Straddles *************** No Open Positions Questions & comments on spreads/combos to Contact Support ************** NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** AVCT - Avocent $31.12 *** Next Leg Up? *** Avocent Corporation (NASDAQ:AVCT), together with its wholly owned subsidiaries, designs, manufactures and sells analog and digital KVM (keyboard, video and mouse) switching systems, as well as serial connectivity devices, extension and remote access products and also display products for the computer industry. The firm's switching and connectivity solutions provide information technology managers with access and control of multiple servers and network data centers from any location. AVCT - Avocent $31.12 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 27.5 QVX SY 211 0.35 27.15 7.2% 1.3% * SELL PUT JUL 30 QVX SF 461 1.00 29.00 15.4% 3.4% ************** AVID - Avid Technology $39.50 *** New "All-Time" High! *** Avid Technology (NASDAQ:AVID) develops, markets, and supports a wide range of software, and hardware and software systems, for digital media production, management and distribution. Avid Technology participates in two principal markets transitioning from well-established analog content-creation processes to digital content-creation tools. Both of these markets, video and film editing and effects and professional audio, are using the worldwide web to collaborate and distribute video and audio content. The company's products, which are categorized into the two principal markets in which they are sold, are used worldwide in production and post-production facilities, film studios, network, affiliate, independent and cable television stations, recording studios, advertising agencies, government and also educational institutions, corporate communication departments, and by game developers and Internet professionals. AVID - Avid Technology $39.50 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 35 AQI SG 62 0.35 34.65 5.9% 1.0% * SELL PUT AUG 30 AQI TF 0 0.40 29.60 2.8% 1.4% SELL PUT AUG 35 AQI TG 2 1.35 33.65 6.5% 4.0% ************** IVGN - Invitrogen $45.09 *** A Big Day! *** Invitrogen (NASDAQ:IVGN) develops, manufactures and sells research tools in kit form and provides other research products, including informatics software to customers engaged in life sciences research and the commercial manufacture of genetically engineered products. The company supplies research kits and reagents that simplify and improve gene cloning, gene expression and gene analysis techniques. In addition, Invitrogen sells sera, cell and tissue culture media and reagents used in life sciences research, as well as in other processes for growing cells in the laboratory and producing major pharmaceuticals and other materials. IVGN - Invitrogen $45.09 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 40 IUV SH 431 0.30 39.70 4.3% 0.8% * SELL PUT JUL 45 IUV SI 4 1.70 43.30 16.5% 3.9% ************** JCOM - j2 Global Comm. $47.71 *** Rate Hike = Rally! *** 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. JCOM - j2 Global Comm. $47.71 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 40 JQF SH 1,237 0.40 39.60 6.5% 1.0% * SELL PUT JUL 45 JQF SI 307 1.25 43.75 13.5% 2.9% ************** MATK - Martek Biosciences $45.04 *** The Rally Resumes! *** Martek Biosciences (NASDAQ:MATK) develops and sells products made from microalgae. Microalgae are microplants. The firm is engaged in the commercial development of microalgae into a portfolio of high value products and new product candidates consisting of Nutritional Products, Advanced Detection Systems and Other Products, primarily Algal Genomics. Their nutritional products include nutritional oils for infant formula, dietary supplementation and other products. Advanced Detection Systems products include fluorescent dyes from various algae for use in scientific applications for detection of certain biological processes. MATK - Martek Biosciences $45.04 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 40 KQT SH 397 0.40 39.60 5.7% 1.0% * SELL PUT JUL 45 KQT SI 89 1.55 43.45 15.1% 3.6% ************** MERQ - Mercury Interactive $41.77 *** Testing Recent Highs! *** 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 $41.77 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 37.5 RQB ST 2,420 0.45 37.05 6.6% 1.2% * SELL PUT JUL 40 RQB SH 3,247 1.10 38.90 13.0% 2.8% ************** NFLX - Netflix $27.16 *** Move Over Blockbuster! *** 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. NFLX - Netflix $27.16 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 22.5 QNQ SX 703 0.25 22.25 7.4% 1.1% * SELL PUT JUL 25 QNQ SE 1,735 0.65 24.35 13.2% 2.7% ************** NTE - Nam Tai Electronics $42.14 *** Rally Mode! *** Nam Tai Electronics (NYSE:NTE) is a electronics manufacturing and design services provider to original equipment manufacturers of telecommunication and consumer electronic products. Through its electronics manufacturing services operations, the company makes electronic components and subassemblies, including liquid crystal display panels, transformers, LCD modules, and radio frequency modules. The firm also manufactures finished products, including cordless phones, palm-sized personal computers, personal digital assistants, electronic dictionaries, calculators and digital camera accessories for use with cellular phones. In addition, the company assists its OEM customers in the design and development of their products and furnishes full turnkey manufacturing services. Its services include hardware and software design, component purchasing, assembly into finished products or electronic subassemblies and post-assembly testing. NTE - Nam Tai Electronics $42.14 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 35 NTE SG 115 0.30 34.70 5.7% 0.9% * SELL PUT JUL 40 NTE SH 89 0.85 39.15 10.4% 2.2% ************** OSIP - OSI Pharmaceuticals $32.99 *** Up-Trend Intact! *** OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on the discovery, development and commercialization of oncology products that both extend life and improve the quality of life for cancer patients worldwide. The company has established a balanced pipeline of oncology drug candidates that includes both next-generation cytotoxic chemotherapy agents and novel mechanism based, gene-targeted therapies. The company's most advanced drug candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor of the epidermal growth factor receptor (HER1/EGFR). The protein product of the HER1/EGFR gene is a receptor tyrosine kinase that is over-expressed or mutated in many major solid tumors. OSIP - OSI Pharmaceuticals $32.99 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 25 GHU SE 414 0.25 24.75 6.9% 1.0% * SELL PUT JUL 30 GHU SF 1,209 0.80 29.20 13.8% 2.7% ************** OVTI - OmniVision $33.41 *** Consolidation Complete? *** 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 $33.41 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 30 UCM SF 2,516 0.40 29.60 7.3% 1.4% * SELL PUT AUG 25 UCM TE 218 0.50 24.50 4.2% 2.0% SELL PUT AUG 30 UCM TF 192 1.55 28.45 8.0% 5.4% ************** 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. *************** PRX - Pharmaceutical Resources $49.21 *** A "Key" Moment! *** Pharmaceutical Resources (NYSE:PRX) is a holding company that, through its subsidiaries, is in the business of developing, manufacturing and distributing a broad line of generic drugs in the United States. PRX operates primarily through its wholly owned subsidiary, Par Pharmaceutical, Inc., a manufacturer and distributor of generic drugs. PRX's product line consists of prescription and, to a lesser extent, over-the-counter generic drugs consisting of approximately 119 products representing various dosage strengths for 51 drugs. The company also has strategic alliances with several pharmaceutical and chemical companies. PRX markets its products primarily to wholesalers, retail drug store chains, drug distributors and repackagers. PRX - Pharmaceutical Resources $49.21 PLAY (less conservative - bullish/credit spread): BUY PUT JUL-40.00 PRX-SH OI=152 ASK=$0.25 SELL PUT JUL-45.00 PRX-SI OI=584 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$44.50 ************** QLGC - QLogic $50.25 *** Testing Recent Highs! *** 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 $50.25 PLAY (less conservative - bullish/credit spread): BUY PUT JUL-45.00 QLC-SI OI=6052 ASK=$0.30 SELL PUT JUL-47.50 QLC-SW OI=2953 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$47.25 ************** SNDK - SanDisk $42.75 *** Two-Year High! *** SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash memory storage products that are used in a wide variety of electronic systems. The company has designed its flash memory storage solutions for applications in the consumer electronics and industrial/communications markets. The company's products are used in a number of rapidly growing consumer electronics applications, such as digital cameras, PDAs, portable digital music players, digital video recorders and smart phones, as well as in industrial and communications applications. The company's products include removable CompactFlash cards, MultiMediaCards, FlashDisk cards and Secure Digital Cards and embedded FlashDrives and Flash ChipSets with storage capacities ranging from eight megabytes to 1.2 gigabytes. SNDK - Sandisk $42.75 PLAY (less conservative - bullish/credit spread): BUY PUT JUL-35.00 SWQ-SG OI=2540 ASK=$0.30 SELL PUT JUL-37.50 SWQ-ST OI=4455 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$37.25 ************** 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. *************** CERN - Cerner $20.08 *** Sell-Off In Progress! *** Cerner Corporation (NASDAQ:CERN) designs, develops, markets, installs, hosts and supports software information technology and content solutions for healthcare organizations and consumers. The company's solutions give end users secure access to clinical, administrative and financial data in real-time. Consumers retrieve appropriate care information and educational resources via the Internet. The company implements these solutions as stand-alone, combined or enterprise-wide systems. Cerner solutions can be managed by the firm's clients or via an application outsourcing or hosting model. Cerner provides hosted solutions from its data center in Lee's Summit, Missouri. CERN - Cerner $20.08 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 22.5 CQN GX 382 0.50 23.00 15.6% 2.2% * SELL CALL JUL 20 CQN GD 37 1.35 21.35 27.1% 6.3% ************** CUM - Cummins $36.71 *** A Necessary Consolidation! *** Cummins (NYSE:CUM) designs, manufactures, distributes and services electric power generation systems, engines and related products, including fuel systems, controls, air handling, filtration, and emissions solutions. Cummins sells its products to original equipment manufacturers (OEMs) distributors and other customers worldwide. The company has manufacturing facilities worldwide, including operations in Europe, India, Mexico, China and Brazil. Parts distribution centers in Brazil, Mexico, Australia, Singapore, China, India and Belgium are strategically located to supply service parts to Cummins extensive customer base. Cummins also supports its customer base with a significant global distribution system of more than 500 independent distributors and nearly 5,000 dealers in 131 countries. CUM - Cummins $36.71 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 40 CUM GH 1,589 0.25 40.25 3.9% 0.6% "TS" SELL CALL JUL 37.5 CUM GU 78 1.00 38.50 12.4% 2.6% ************** GM - General Motors $35.94 *** Mediocre Sector Outlook! *** General Motors (NYSE:GM) is a diversified automotive business with interests in communications services, locomotives, finance and insurance. GM's automotive business designs, manufactures, and/or markets vehicles primarily in North America under the Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn and Hummer nameplates, and outside North America under the Vauxhall, Opel, Holden, Isuzu, Saab, Buick, Chevrolet, GMC, and Cadillac nameplates. GM's communications services relate to its Hughes Electronics Corporation subsidiary, which includes its digital entertainment, information and communications services, and satellite-based private business networks. GM also is engaged in the design, manufacturing and marketing of locomotives and heavy-duty transmissions. The firm's financing and insurance operations are conducted through the General Motors Acceptance Corporation, which provides a broad range of financial services. GM - General Motors $35.94 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 37.5 GM GU 13,432 0.30 37.80 4.3% 0.8% * SELL CALL JUL 35 GM GG 9,411 1.40 36.40 15.9% 3.8% ************** 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. ************** DNA - Genetech $73.52 *** Premium Selling Only! *** Genentech (NYSE:DNA) is a biotechnology firm using human genetic information to discover, develop, manufacture and commercialize biotherapeutics for significant unmet medical needs. The company manufactures and commercializes 10 biotechnology products directly in the United States. These include Herceptin, Rituxan, TNKase, Activase, Cathflo Activase, Nutropin Depot, Nutropin AQ, Nutropin human growth hormone, Protropin and Pulmozyme. The company also licenses several additional products to other companies and its product development efforts, including those of its collaborative partners, cover a wide range of medical conditions, including cancer, respiratory disorders, cardiovascular diseases, endocrine disorders and inflammatory and immune problems. DNA - Genetech $73.52 PLAY (conservative - bearish/credit spread): BUY CALL JUL-85.00 DNA-GQ OI=2878 ASK=$0.20 SELL CALL JUL-80.00 DNA-GP OI=5126 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$80.40 ************** NOC - Northrop Grumman $88.00 *** Trading Range? *** Northrop Grumman (NYSE:NOC) is a global defense firm that provides unique technologically advanced products, services and solutions in defense and commercial electronics, defense systems integration, information technology and nuclear and non-nuclear shipbuilding and systems. Northrop Grumman has operations in 44 states and 25 countries, serving U.S. and international military, government and commercial customers. Northrop Grumman is aligned into six main business sectors: Electronic Systems, Information Technology, Integrated Systems, Ship Systems, Newport News and Component Technologies. NOC - Northrop Grumman $88.00 PLAY (less conservative - bearish/credit spread): BUY CALL JUL-95.00 NOC-GS OI=413 ASK=$0.15 SELL CALL JUL-90.00 NOC-GR OI=1212 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$90.60 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** A Day Of Bullish Breakouts! Greenpoint Financial - GPT - close: 52.97 change: +1.30 WHAT TO WATCH: Options on this savings & loan are thinly traded but the breakout to new highs looks pretty tempting. Shares had been consolidating sideways between $50 and $52. The move today came on stronger than average volume of 833 thousand shares. The next stop is probably $55. Chart= --- QUALCOMM - QCOM - close: 37.74 change: +1.70 WHAT TO WATCH: Shares of QCOM continue to stair step their way higher. The rebound from the $35 level and its 200-dma looks convincing. Aggressive traders could target a move to $40.00. However, its P&F chart is still showing plenty of resistance between $39 and $40. Use caution. Chart= --- PACCAR Inc - PCAR - close: 70.80 change: +3.21 WHAT TO WATCH: It was a day for breakouts and PCAR was not left behind. Shares broke out above resistance at $70.00 on top of bouncing strongly from its 30-dma and the $66.00 level yesterday. Volume has been growing the last two sessions. Current resistance is $72.00 but we suspect PCAR will be hitting new highs soon. Chart= --- Juniper Networks - JNPR - close: 13.32 change: +0.69 WHAT TO WATCH: Tech stocks continue to hog the spotlight and JNPR was no different. Adding 5.4 percent today, shares are trying hard to break out through the top of its bull flag pattern. We'd use a trigger at $13.51 to leg us into an aggressive long play. First target would be $15.00 but the upside could be stronger. JNPR's MACD is about to produce a fresh buy signal from being oversold. Chart= --- Foundry Networks - FDRY - close: 16.48 change: +1.23 WHAT TO WATCH: Yet another networking stock, this one out performed its rival JNPR with an 8% gain today. Shares have been churning sideways in a channel between $14.00 and $16.25. This looks like a breakout through the top of the channel but it's just a tad unclear. FDRY's MACD is about to produce a new buy signal. What is clear is FDRY's point-and-figure chart is showing a fresh triple-top breakout. Chart= --- E M C Corp - EMC - close: 10.89 change: +0.33 WHAT TO WATCH: This one is still a little cheap to play options on but the rebound from its simple 50-dma and the $10 level looks tempting. Current resistance is at $11.00 and again at $11.50 but we wouldn't be surprised to see a run to the $12.50 mark. Chart= --- Sony Corp - SNE - close: 31.41 change: +2.18 WHAT TO WATCH: A very strong day for the Japanese Nikkei Index (+313 points or 3.38 percent) had ADR shares of SNE trading higher today. The stock gapped up above resistance at $30.00 when the U.S. markets opened. SNE stopped right at its 100-dma. We would suspect that tomorrow could see short sellers seeking to cover on the big move. Next resistance is $33 and again at $35. Chart= --- Digital River - DRIV - close: 21.93 change: +3.07 WHAT TO WATCH: We can't find the news on it but something is driving shares of Digital River today. Volume was a massive 3.3 million shares and the stock added 16 percent today. This is a breakout over resistance at $20.00 but the equity stalled at its previous highs from January 2002. MACD is now showing a fresh buy signal and its P&F chart is showing a fresh bullish-triangle breakout. Chart= =================================== RADAR SCREEN - more stocks to watch: =================================== KIND $21.34 - It doesn't have options but shares of this healthcare facilities company jumped strongly on a recent upgrade. The move put it above long time resistance of $20.00 and now gives it room to fill the gap toward $27.00. NFLX $27.16 - The steady string of new highs doesn't end for NetFlix. The recent pop is believed to have been fed by short covering. We'd watch for a pull back to $25 before considering bullish positions. UOPX $53.20 - More new highs for the adult higher education college of University of Phoenix. The rising volume looks pretty encouraging for the bulls. LU $2.09 - This one too cheap to play options on any more but the rebound from its $1.85 level looks strong. Aggressive traders could use a move over its simple 50-dma as a trigger to target a run back to $2.50-2.60. BAC $80.40 - Shares of BAC have been leaders in the financial sectors strength. Today the stock broke above resistance at $80.00 on strong volume of 9.7 million shares. ************** MARKET POSTURE ************** Bulls Stampede Towards The Fourth To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_070203.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. 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