The Option Investor Newsletter Sunday 07-06-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Fat Finger Fireworks Futures Market: Not for the faint of heart! Index Trader Wrap: Some fireworks of their own! Editor's Plays: So Far So Good Market Sentiment: The Weekly View Ask the Analyst: Fibonacci retracement. Fit it or stack it! Weekly Manager Microscope: Heidi Soumerai & Bill Apfel: The Women's Equity Fund (FEMMX) Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 7-04 WE 6-27 WE 6-13 WE 6-06 DOW 9070.21 + 81.16 8989.05 -211.70 9200.75 + 83.63 + 54.33 Nasdaq 1663.45 + 38.19 1625.26 - 19.46 1644.72 + 18.23 - 0.93 S&P-100 496.08 + 4.47 491.61 - 10.78 502.39 + 4.57 + 2.15 S&P-500 985.70 + 9.48 976.22 - 19.47 995.69 + 7.08 + 0.85 W5000 9462.51 +104.02 9358.49 -153.14 9511.63 + 57.47 + 1.72 RUT 456.35 + 7.60 448.75 - 0.81 449.56 - 0.15 - 4.23 TRAN 2415.31 - 1.72 2417.03 - 25.25 2442.28 - 13.28 - 25.98 VIX 21.61 - 0.10 21.71 + 0.62 21.09 - 1.79 - 0.55 VXN 32.47 + 1.54 30.93 - 1.41 32.34 - 2.12 - 1.67 TRIN 1.98 1.93 1.00 1.23 Put/Call 1.07 0.99 0.51 0.73 ****************************************************************** Fat Finger Fireworks by Jim Brown The Jobs data was not that bad! At least not bad enough to prompt a drop in the Dow futures to 8478 at 10:40 AM on Thursday. It was a fat finger order error that shocked the markets and killed any hope of a patriotic rally to end the week. Although the error occurred at 10:38 the market never recovered from the blow and traded very tentatively the rest of the day. Dow Chart - Daily Nasdaq Chart - Daily The leading economic disaster for the day was the Jobs Report, which painted a much bleaker picture than the last report for May. In May numbers were revised up for the past couple months and led investors to believe the economy was improving. In June the country lost -30,000 jobs which was below the consensus estimates of zero. As if this was not bad enough the numbers for May were revised downward to -70,000 from -17,000 and April numbers were revised down to -22,000 from zero. Essentially we went from a -17,000 job loss over the last 90 days to -129,000. This was a significant change in the employment picture and emphasized the point that the governments numbers are not to be trusted. What would June's numbers be revised to in July? The unemployment number soared to 6.4% and the highest level in nine years. This was also the fifth consecutive month of job losses. The shock to the markets was substantial. The current jobs data continued to decline with the current Jobless Claims rising to 430,000, an increase of +21,000 from the prior weeks numbers. This reversal of the four week down trend also sent shivers through traders and worries that the economic recovery was slowing or even declining. This was the 20th week over 400,000. Helping offset the negative employment numbers was a huge increase in the ISM Services number to 60.6 from last months 54.5% This was the best month since Sept-2000 and the markets quickly pulled out of their nose dive and rallied back to break Wednesday's high on the Dow by one point. The new orders and employment components rose substantially. This was seen as a leading indicator for the general economy as services tend to improve before manufacturing. The substantial amount of the increase surprised traders and replaced some bullish sentiment lost by the jobs data. All this conflicting economic data and up and down moves in the market were making traders motion sick by 10:30AM but the worst was yet to come. About 10:40 the CBOT received an order to sell 10,000 contracts of Dow Emini futures contracts. With the average daily volume of 48,000 in June this was a huge order that sent the Dow futures plunging to a low of 8474. This triggered buy and sell stops across all the futures products including the S&P, NDX, ES and NQ contracts. The cash markets dropped from Dow 9105 to 9035 in just a few seconds as traders pulled the plug on buys and stop losses were triggered across the board. The problem was a fat finger order which according to the CBOT was supposed to be for a sell of 100 Dow contracts instead of 10,000. Amazing what a couple extra zeros can do to the market. The rebound from the depths was almost instantaneous but the after effects were still lingering at the close. When errors like this are entered they are quickly cancelled and the exchanges try to right the wrongs by busting the real orders that were triggered by the error. Busting the trades is not always instant and not always fun. First the exchange has to research the problem and then decide what to do. In the case of the Dow futures do they bust the trades or not? Where do they bust them from? At what point do they decide a triggered trade was too far away from the market to be material or close enough to the market to be considered fair game? Do they bust trades in just the Dow futures or in the S&P and NDX as well? Considering the very interdependent markets an error in the Dow futures creates instant errors in the others as well. Where do you draw the line? The markets wandered all morning while they waited on the decision. Traders were unsure if the gains or losses in their accounts would be reversed or not. If you were short when the error occurred and sold at the bottom you could have made thousands on the move. If you reversed your position and went long on the dip you could be holding longs worth thousands. Even if you sold the longs the outcome was still in doubt. If they busted the trades you could be put back into your short at 9100 as though nothing happened. All the gains, losses and positions simply cancelled. If you are a trader what do you do? You can't spend the money on new trades. That money could disappear in an instant and put you into a serious margin bind. Traders were handcuffed to the clock and were forced to wait for the decision. The CBOT finally announced just before 1:PM that all YM03U trades (September Dow Futures) below 9017 were in error and would be busted. The December YM contract would be busted on any trade at 8985 and below. They limited the bust to trades between 10:38 and 10:40:04. S&P and NDX trades were left on the books. With only minutes to go before the close the indexes dived on the news as traders raced to square positions in reaction to what was about to happen to their morning trades. Confusion was rampant. My inbox is full of Futures Monitor reader emails with horror stories and relief messages from the implosion. Readers who were long with stops in place were filled handfuls of points below their stops. Traders without stops could not enter orders because their broker platform crash under the weight of the order flow. Anyone long or short any futures contract was immediately impacted and had to wait until the close to see where they stood. I have readers with $10,000 paper gains cussing the bust of their trades and readers with thousands in losses gushing relief that the trades were busted. The broader market wandered about dazed between 11:00 and 1:PM while the cobwebs from the sucker punch cleared. Adding to the confusion was what seemed like a constant stream of news relating to potential terrorist events. A car with a potential bomb was rumored to be found at LaGuardia and the entrances to the airport shutdown. Explosions later attributed to natural gas leaks were reported as potential terrorist events. Warnings about a potential Internet shutdown by hackers over the weekend were also making the rounds. The early close at 1:pm was a blessing in disguise. Despite all the confusion above AND the negative employment numbers the Dow still managed to close near 9100. The Nasdaq dropped -15 but still closed well above 1650 at 1664 after bouncing off strong resistance at 1685 for the third time in a month. We are well above the 8871 Dow low set on Tuesday and the best five days of July are still ahead of us. If today was next Friday my outlook would be entirely different. Not only did the market shake off the economic news to set a new high for the week but it did so on a flurry of high profile earnings warnings. The end of week rush to confess included BSX, PMTC, MCRL, BAX, ADPT, SEBL, WEBM, TWTR, DCTM, SOI and ECIL among others. DAL warned that passenger traffic fell -5.5% in June. Traders did not seem to care that the warnings are increasing. They are looking forward to the beginning of major earnings next week. This is what it all boils down to and with the economic pot barely simmering it could be a cold meal ahead. The gains for the week were fueled by the retirement cash flowing into funds and by the movement of funds out of money markets. ICI reported that money market funds saw outflows of -$8.56 billion for the week ended July-2nd. Also, despite the worst jobs numbers in nine years bonds continued to sell off and that money is finding its way into the equity markets. Yields closed at levels not seen since May-9th. What is a bond junkie to do? The bonds are dropping from 45-year highs despite a Fed commitment to keep interest rates low. The problem is appears is the stock market. With 37 million retirees hitting the rolls in the next five years all basing their retirement income on 10% annual returns a 3.5% bond is losing ground. They are seeing the stock market back over 9000 and thinking the worst is over and double digit returns in stocks are here to stay. I am not going to get into that argument this week but this is what is powering the markets. It is purely sentiment based on feeling not on facts. That brings us back to next week. Despite the morning bombshell on Thursday and the flood of earnings warnings the markets only pulled back to support. Despite the worst jobs news in nine years they set a new weekly high. The sentiment and cash flow is rampant. That means the historical July trend appears to be intact and we still have a week of upside left. That assumes of course the retirement cash that piles up in mail boxes over the weekend is put to work and the mutual funds don't front run the historical July decline before next Friday. I would bet on the funds hitting the market and I would bet on the front running. The only question for me is when will the selling start? The SPX hit 995 on Thursday and well above the 962 dip low on Tuesday. Without the order implosion on Thursday I was projecting 1010-1015 as the high for next week. I am not as convinced today that we will see those numbers. It all depends on the spin. There are no major economic reports early next week and that could be good or bad. The last time we had no economic news the market tanked. Next week I would hope for a different result. With the bullish sentiment running high and cash flowing from bonds and retirement funds we should see several more days of gains. The earnings accelerate from five on Monday to 32 on Thursday and include such notables as AA, first Dow component to report on Tuesday, to YHOO on Wed and GE on Friday. The following week we get the big three, INTC on Tue, IBM Wed, MSFT Thr. It would stretch my belief system to think the market will hang around over 9000 until Microsoft announces on Thursday the 17th. That means I am expecting a top somewhere between 7/10 and 7/17. It is not that I think the fundamentals have changed. It does not mean I think the market will crash. It only means the normal second half of July dip should start in the next 5-7 trading days. I know this is going out on a limb by suggesting a turning point in the market, especially when the market is so bullish. However that is what the charts tell us if you take the time to research the last few years. You can see my past analysis here: http://members.OptionInvestor.com/MarketWrap/mw_062403_1.ASP As traders you do not have to believe me. I do not have to believe what I see. We only have to trade with an eye on the possibility of it coming true. Currently in the Editors Play section we are accumulating an August put position on the DJX. We are hedging that position with calls we bought on the dip below 8950. If everything continues to play out as expected we will be selling those calls next week as we near the potential sell on the news earnings events. If you are long the market I strongly suggest you prepare for that chance as well. The bullish news is strong. There is every indication the market is poised to go up. Cash is flowing and the term "new bull market" is becoming more popular than "new economy" was a couple years ago. That alone should cause some conservative thought. At the risk of sounding too clichid I was waiting for somebody at the airport last week and two people who did not know me, a shoe shine boy and an airport worker, both brought up the stock market rally in normal conversation. That made the hairs on my neck stand up. While I do not believe their interest is relative it does show that the market is coming back around again into investor consciousness. Perennial bears would say this was just in time for the retail investor to get clipped again. I would rather not make any market calls and just trade what the market gives us but that is even more clichid than the pervious statement. I do not believe you can trade without having a bias and that bias had better include an exit plan in case you are wrong. Do you have a plan for the eventual end of this rally? Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Not for the faint of heart! Jonathan Levinson On Wednesday, I opined that Thursday would be an action-packed session, but I was still shocked by the market's action during the abbreviated holiday session. Terrible employment data was followed by a positive ISM report, the indices hit new highs, pulled back, and then the bottom dropped out, allegedly on an erroneous futures trade. The indices bounced back up, put in lower highs, and faded for the remainder of the session. Toward the end of the session, the following was put out by Interactive Brokers: "To ACE traders Thu Jul 3 12:49:24 2003 EST We have been contacted by A/C/E regarding a number of out of range executions in the YM SEP 03 and the YM DEC 03 futures contracts A/C/E compliance department has stated that all executed trades in the YM SEP 03 which executed at 9017 and below during the time beginning 10:38:00 EST through 10:40:04 EST, has been ruled as erroneous and has been busted. Additionally, all trades in the YM DEC 03 contract which executed at 8985 and below during the time beginning 10:38:00 EST through 10:40:04 EST, has been ruled as erroneous and has been busted." 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 1003 993 984 973 964 YM03U 9534 9279 8877 8622 8220 NQ03U 1262 1245 1237 1220 1212 ***WARNING: The data for ES and YM are skewed by the stray sell orders noted above, and for this reason, the reported lows of 974.50 ES and 8474 YM are unreliable. The pivot matrix for these contracts is based on those lows. 10 minute chart of the US Dollar Index The strongest selling on the US Dollar Index came from the dismal employment data, with a brief ramp on the ISM data before it sold off again, closing at 94.39. Daily chart of August gold August gold managed to eke out another 60 cent gain to close at 352.20, but the precious metals equities weren't so lucky, HUI losing .03 to close at 154.65, XAU -.89 to 79.81. The CRB dropped 40 cents to close at 234.99. Daily chart of the ten year note yield Treasuries got bashed again, with yields rallying strongly. While the Fed drained a net 2.75B in liquidity via its open market operations, the selling was deeper than that would imply. The five year note yield gained 8.3 basis points to close at 2.487%, TNX +11.4 bps to close at 3.65%, and TYX gained 11.1 bps to close at 4.687%. Daily NQ candles The NQ had a bad day Thursday, closing lower by 19.50,1 point above its low of the day at 1228. It printed a marginally higher high, but not a lower low, and so the daily trend remains up. However, as the shorter cycle oscillators on the 30 minute candle chart indicate below, the downphase that brought this low close are still in effect, possibly portending follow-through downside on Monday. 30 minute 20 day chart of the NQ The oscillators are in clear downphases, but the real test will come in the 1211 area, where Fibonacci support and trendline support coincide. Daily ES candles The midmorning spike to the downside stopped dead at the ascending trendline on the daily. I find it fascinating that the chart could predict that reversal point, but it's not particularly mysterious considering the number of trading robots and charts with that trendline on their radar. The daily stochastic is trying to turn up, while the slower macd remains in a downphase, though the histogram is showing a bullish divergence below the zero line. 20 day 30 minute chart of the ES As with the NQ, the short cycle oscillators tell us that there's further downside to come. Daily YM candles Ignoring that stray downside spike, the YM daily candles show a lower higher today and a higher low, and the oscillators are sending the same message as for the ES and NQ: short term downside to come, with the longer oscillators on the daily candles giving preliminary bullish signals. 20 day 30 minute chart of the YM For the week, we've seen treasuries get sold, and equities and gold get modestly bought. There has been no strong trend evident, with dojis printing on the weekly candles, indicating indecision for the most part. The US Dollar Index treaded water following the previous week's rally, which was unsurprising as the Fed hit us with some large repos this week, adding dollars to the system and depressing their price in consequence. The indecision in the overall price trends this week leads me to follow the oscillators posted above as we wait for the various markets to show us a more discernable pattern. All my best wishes for a happy and safe holiday weekend! ******************** INDEX TRADER SUMMARY ******************** Some fireworks of their own! By Leigh Stevens lstevens@OptionInvestor.com An apparent mistaken sell order in Chicago Board of Trade (CBOT) e-mini Dow futures created pre-4th firework havoc and wild price swings at both the CBOT and the Chicago Mercantile Exchange (CME) Index futures pits in a short session Thursday. There is no news about what the CBOE might do, if anything, relating to traders who (because of the sharp down swing in futures) were forced out or hit the panic button in the DJX options or in the S&P index options contracts. I would not assume that the CBOE would do anything as it was not something they had any control over. CBOT traders reported the exchange announced all trades below 9018 in the Dow futures market would be canceled, although CBOT officials told the business press they were still investigating the situation and didn't have an official comment yet. Well, there is one spoiled long weekend for a bunch of exchange officials! Floor traders said an apparent order to sell about 10,000 contracts instead of 100 was put in by a member firm by mistake in the e-mini Dow futures market. Some mistake! The e-mini Dow futures trades electronically alongside the open- outcry market, and are half the size of the standard contract. The minis are priced at $5 times the index per contract, representing approximately $45,000 in value with the Dow at 9000. The CME also offers trading in e-mini stock index futures products of course, such as in the S&P 500 and Nasdaq 100 indices. At the time of the massive CBOT Dow futures sell order, stock index markets at both the CBOT and CME futures exchanges were in an upswing, after a stronger-than expected Institute of Supply Management's (ISM) non-manufacturing index. Very suddenly, the market took a sharp down turn as the heavy selling in the e- mini futures hit over on the CBOT. This selling threw participants in trading pits at both the CBOT and CME into major confusion and caused them to cancel bids and, of course, turning to the sell side in some cases. Trader's speculated for example, that there could have been a terrorist incident that wasn't on the newswires yet. The sell mistake created a ripple effect in the CME's S&P 500 and S&P e-mini contracts as well, as many of the same traders are active in both markets and also arbitrage between S&P and Dow futures markets. Fast markets were briefly posted at the CME during the chaos, and even interest-rate markets reacted by pulling off their lows when the equity-futures markets started to melt down at both exchanges. Needless to say, traders long, with stops in which is common, were highly upset to get stopped out for no real reason. CME officials said they aren't going to cancel any trades in their markets, saying the market made some erratic moves but not enough to create a widespread impact on traders. Well, you can probably count on the CBOE not doing anything to help bail out trader losses as stops are not "build in" to trading in options the way they are in the futures markets. THE BOTTOM LINE - With the final downdraft in the NDX, all the indexes have met my short-term downside objectives, but I am not ready to suggest buying much ahead of earnings season and in the typical summer doldrums. I think this recent whip saw action suggests that stocks are more or less where they have at least temporary equilibrium. Buyers don't appear ready to bid aggressively in the face of weak economic news, but neither are sellers coming in heavily as pricing reflects a better second half and the reality of this is still a ways off. OEX and SPX dipped briefly below their uptrend channels, but this seemed due the Thursday gyrations only. DJX held above the low end of its channel by holding the 89 (Dow 8900) area. The Composite (COMPX) held its 1600 support. If anything these lows were areas to do some buying, but only for quick short-term intraday trades. I envision more of an overall sideways drift. The charts below will tell more of a story as far as support and resistance areas. MORE ON THURSDAY'S TRADING - The S&P 500-stock index fell 8 points to 985.70, the Dow was off 72.6 points to close at 9070.2, while the Nasdaq (COMPX) Composite dropped 15.3 points to close at 1663. Those hoping to see improvement in the economy received discouraging news as the unemployment rate ran up to a 9 year high. Improvement was seen in service-sector activity however. Total U.S. Unemployment stood at 6.4% in June, up substantially from 6.1% in May according to the Labor Department. Non-farm payrolls declined by 30,000, bigger than anticipated, after falling by a revised 70,000 jobs in May. The May figure had originally been reported as a decline of 17,000. Dismal. The economists consensus had forecasted an increase to 6.2% in the unemployment rate and no change in the payrolls figure. This all calls into serious question that the anticipated economic acceleration in the second half may not happen. The 5th consecutive month of declining job total cuts suggests that tax and interest-rate cuts have yet to revive the struggling economy. Moreover, the numbers highlight and justify businesses' tendency to continue to reduce costs in order to deal with disappointing economic growth. Meanwhile, 1st-time claims for unemployment insurance in the week ended June 28 rose by 21,000 to 430,000, after falling 22,000 a week earlier to a three-month low versus expectations for an increase of 6,000 claims. The only positive seemed to be that the 4-week average, which smoothes out weekly fluctuations, declined to a 3-month low of 425,000. The latest report non-manufacturing sector activity gave the market some hope - the ISM's latest non-manufacturing index, which measures service-sector activity, increased to 60.7 in June, the best reading since September 2000. These results were way above estimates of an increase to 55 (from 54.5 in May). OTHER MARKETS - The 10-year Treasury note lost about 1 point to end up yielding 3.656%. The dollar was stronger again the Yen, trading at 118.26, up from 118.04 on Wednesday in New York, while the euro also fell against the dollar to $1.1489 from $1.1542. INDEX OUTLOOKS – S&P 500 (SPX) - Hourly chart: As I said last week, I thought SPX would get to or near 960, if the low end of the channel got pierced - I'm not sure about the whole thing looking like a complex Head and Shoulder's top however, as this last rally hasn't carried high enough. There was completion of a 50% retracement, another thing I was looking for as technically significant. The way retracements tend to work, if 950 (a 62% retracement) gives way I think we're then seeing a reversal of the current uptrend. My expectations are for another decline in the early part of the week. I suggested buying calls in at 950-960 area and we got to the 960 area. After this, the rally was into the 990-1000 resistance zone. I'm basically buying into the support and selling into resistance - expecting a trading range for a while. The market only trends about a third of the time, and trades in more of range bound fashion for the other half to two thirds of the time. That's the situation this index seems to be in for now. I mentioned to look at put buys on rally failures to the 990 area and if you're in em, exit on a close above 1000. It would take the ability to trade and stay above 1000 to resume the bull trend. S&P 100 Index (OEX) – Daily & hourly charts: While the OEX is holding on to its uptrend on the daily chart and is staying above the 50-day average so far, momentum is slipping on balance. My sentiment indicator is showing a build up in put volume in individual stocks, which, in a contrarian fashion, is becoming mildly bullish. However, the chart suggests more downside and the price pattern is my primary focus when the market seems to be in a consolidation or correction. 490, then 485 are the near technical supports. A close under 485 would suggest the short-trend was turning down - confirmed by OEX then piercing 480. The typical correction is a down move, a rally, then another decline to a lower low - that's more my expectation than any other, especially as the S&P has already had a good run to the upside. Without more bullish fundamental news on the earnings and economic front, there's limited room for stocks to go much higher. If long puts on the move to the 500 resistance area, stay with em per my comments last week about 500 looking to be an area to buy OEX puts if they got this area but couldn't climb above it. I continue to keep an eye on the RSI as to when it shows an oversold reading again - and that's some way to go - so no green light on getting back into calls except for very short-term trading. I'm trading lightly, if at all - I'll wait for the market to start trending again for doing very much. Dow Industrials (INDU) Daily & Hourly (DJX.X) charts: 88-89 was seen as first chart support in DJX and 89 at least is right where DJX got before rebounding - right to the low end of the channels more or less. What do we go from here is the next question. If 89 gives way, look out below or at least for a test of 8800-8750 support in the Dow. I anticipate a decline early in the week as the economic news sinks in to more traders and per the longer hourly stochastic. The daily oscillator is getting into an oversold area, but it should dig into it more. Nasdaq Composite Index (COMPX) – Hourly: I'm finding lately that the hourly charts on the Nasdaq are showing the most. Note the triple top in the Composite. You actually don't see triple tops all that often in the indexes - sometimes it turns out to an area that is the top of a trading range for a while. A trading range was my thought for how price action was going to unfold last week and a pullback looked to be the most likely next move. After that and since 1600 was a "line" of support, it was also the place to look for a rebound. Since the hourly stochastic is showing downward momentum and given the top again in the same area - down we should go again and I'm playing NDX and QQQ that way. I would not be surprised to see 1550 get tested based on what looks to be a broadening top in COMPX. Nasdaq 100 Tracking Stock (QQQ) - Hourly: Looking at the hourly closing chart of the Q's, a similar pattern of an index making a top or forming the top end of trading range is what looks to be the pattern. My target in the Q's has been for a move down to the 29 area which I've thought was the key near support. I still see a chance of QQQ falling to more major support around 27.50-28. What would get me bullish again is a close above 31- 31.25 for more than one day. More likely is that a new low for the current correction is made - to below 29.5 on an hourly closing basis. If short on the last rally, stay with it, with exiting stops at 31.30. While use of stop loss protection probably drove some CBOT and CME index futures traders mad last week, such crazy mistakes are rare. I can imagine that the responsible parties are not having a great Independence Day weekend, but hope yours was/is pleasant. Good Trading Success! ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ************** Editor's Plays ************** So Far So Good So far the laddered DJX put play has gone exactly like we scripted it. Well almost like we scripted it. The Dow did not hit the 8950 downside target on Monday but blew right by it on Tuesday to a low of 8871. That enabled us to fill on the July-91 calls for the 75-cent target price with room to spare. They actually traded as low as 50 cents but we will use our target of 75 cents for record purposes. That is also where I filled on my order. They have traded as high as $1.50 since but we are not trying to sell them yet. On the put side we were scheduled to buy the Aug-88 puts at 90.50, 91.00, 91.50, 92.00 etc, using a stair step approach. We were filled at 90.50 for $1.50, 91.00 for 1.30 and 91.50 at 1.20. I know, we did not hit 91.50, we only hit 91.48 on Wednesday. I cheated on the entry by two cents due to the Jobs report on Thursday. We were so close to the trigger and if disaster struck I wanted that extra few put contracts in my inventory. Here is the link to the complete play description from last week. http://members.OptionInvestor.com/editorplays/edply_062903_1.asp Technically we only have two more levels to trigger, 91.50 and 92.00. (I already cheated on the 91.50 entry but you may have not) I also said in the chart comments that aggressive traders could continue buying at 92.50 and 93.00 as long as you had the call insurance but evidently there were some readers who missed that as I got some email on comments I made in the Market Monitor about future trigger points. At the close the Aug-88 puts were $1.30x$1.45 and my average cost is $1.28.(*note-1) You still have plenty of time to enter this trade if you missed it last week. The only thing you can't do today is buy the calls for 75 cents at Dow 8950. You can still buy them at $1.05 as of the close on Thursday. With the order error implosion on Thursday the market lost some of its steam. Whether that drive will come back on Monday is anybody's guess. I still think we will hit 9200 and maybe 9250 but the excitement seemed to be gone at the close. It could have been just fear of the weekend and traders taking profits ahead of any potential terrorist event. Continue with the plan and use 89.50 as the stop loss on the calls and 92.50 as the profit stop unless you are going to try and stretch to a 93.00 or higher entry on additional puts. If so then keep the calls as long as you are expecting the market to move up. Our profit target on the puts is 86.00. My soft target for the top is Tuesday the 15th and Intel's earnings. Funds could start front running that date and trying to take profits by Friday the 10th. The latest I could see a top would be Friday the 18th. These are just speculation and everybody needs to recognize it is a moving target. Trying to call a market top has made fools out of everyone who ever tried including me. This is just speculation based on prior years chart patterns. Trader beware! Do your own analysis before entering and exiting this play. DJX Chart - 30 min Note-1: I went with a plan to buy 2, 4, 6, 8, 10 put contracts beginning with the 90.50 strike. My 92.00 purchase will be for 8 contracts and 92.50 for 10 contracts. This may make my average share price different than yours. ******************************** Play updates: I am only listing the current recommendations with a link to the initial write up and unless the play changed substantially. MANU Call from June-8th $4.69 ($4.75 when triggered) http://members.OptionInvestor.com/editorplays/edply_060803_1.asp EMC Call from Feb-2nd $10.93 ($7.70 when recommended) http://members.OptionInvestor.com/editorplays/edply_020203_1.asp Powerball Still holding up but still barely profitable. Without RFMD at -$1.70 it would still look significantly better. It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** The Weekly View This week saw a number of developments in the various indicators we follow. As we spend our days obsessing over the minutia of the subatomic intraday charts, each fresh weekly close is a fresh source of perspective. The VIX, VXN and QQV all put in positive closes, the first in three weeks and indicating a possible bullish reversal in volatility. There is generally an inverse relationship between volatility and market prices, although there is often a lag at major market turning points. The INDU, COMPX and SPX all were positive on the week, the COMPX the most bullish, with the SPX and INDU printing a lower highs and lower low than the previous week. There is therefore a divergence between the volatility indices and equities, and while it's uncertain as to which will prevail, one might assume that an increase in premiums in the options market will lead a move in broader equity markets. On this basis, we should see equities moving lower next week, barring some reversal. The put to call ratio moved lower this week, coinciding with the moves higher in equities this week. The bullish percents remain toppy, as do most of the breadth indicators. While nothing precludes a push to new highs, particularly given the solid uptrends on the daily charts, the doji prints this week indicates that the bulls are having to work a little harder for their upside than we've seen at other points this year. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9410 52-week Low : 7197 Current : 9070 Moving Averages: (Simple) 10-dma: 9070 50-dma: 8832 200-dma: 8389 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 986 Moving Averages: (Simple) 10-dma: 983 50-dma: 958 200-dma: 894 Nasdaq-100 ($NDX) 52-week High: 1266 52-week Low : 795 Current : 1231 Moving Averages: (Simple) 10-dma: 1212 50-dma: 1175 200-dma: 1047 ----------------------------------------------------------------- The VXN has broken out to the upside of its recent two-week descending channel. Meanwhile the VIX remains stuck in its horizontal channel between 21 and 25. CBOE Market Volatility Index (VIX) = 21.61 +0.47 Nasdaq-100 Volatility Index (VXN) = 32.47 +1.42 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.08 274,362 297,451 Equity Only 0.85 220,566 187,652 OEX 2.83 8,706 24,642 QQQ 9.38 6,291 59,036 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 71.7 + 1 Bull Confirmed NASDAQ-100 76.0 + 2 Bull Correction Dow Indust. 83.3 + 0 Bull Confirmed S&P 500 78.0 + 0 Bull Confirmed S&P 100 81.0 + 0 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.40 10-Day Arms Index 1.38 21-Day Arms Index 1.25 55-Day Arms Index 1.16 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals -NYSE- -NASDAQ- Advancers 1063 1227 Decliners 1658 1635 New Highs 213 202 New Lows 13 9 Up Volume 208M 328M Down Vol. 656M 602M Total Vol. 884M 944M M = millions ----------------------------------------------------------------- ***No New COT Data due to the holiday. Check for updated COT data in the Market Sentiment on Tuesday.*** Commitments Of Traders Report: 06/24/03 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 After last week's quadruple witching Friday rolled around, we witnessed a HUGE collapse in outstanding positions in both longs and shorts almost across the board. For the full S&P 500 contacts, the commercial long positions dropped 114 thousand to 405K and the shorts dropped 52 thousand to 447 K. This produced the first bearish net negative (more shorts than longs) in quite a while. Small traders saw significant drops of 42K in longs to just 159 thousand and 98K short positions evaporated to leave 85K. This produced a very strong net long position. Which is exactly how these COT reports are traditionally read. The Small Traders always tend to do the opposite of the "smart money" or Commercials. Unfortunately, it is the commercials who tend to be correct most of the time, and they're newly bearish on the S&P. Commercials Long Short Net % Of OI 06/03/03 438,228 422,722 15,506 1.8% 06/10/03 456,967 455,024 1,943 0.2% 06/17/03 519,887 501,401 18,486 1.8% 06/24/03 405,382 447,526 (42,144) (4.9%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 18,486 - 6/17/03 Small Traders Long Short Net % of OI 06/03/03 169,650 167,172 2,478 0.7% 06/10/03 199,356 185,403 13,953 3.6% 06/17/03 202,040 184,028 18,012 4.6% 06/24/03 159,405 85,182 74,223 30.3% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 The same scenario took place in the S&P 500 e-mini contracts. There were massive drops in outstanding positions. Commercial traders dropped 156 thousand long positions and 459 thousand short positions. This drastic reduction has produced the most bullish reading of the year for the e-minis. As expected, the small traders took the opposite role and produced the most bearish reading. This was due to a massive reduction in outstanding long positions of 382K versus a drop of just 26K in small traders' aggregate shorts. Commercials Long Short Net % Of OI 06/03/03 267,680 512,648 (244,968) (31.4%) 06/10/03 270,359 543,221 (272,862) (33.5%) 06/17/03 306,279 661,114 (354,835) (36.6%) 06/24/03 150,208 201,724 (51,516) (14.6%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: (222,875) - 04/01/03 Small Traders Long Short Net % of OI 06/03/03 470,655 58,420 412,235 77.9% 06/10/03 498,999 49,689 449,310 81.9% 06/17/03 466,837 70,609 396,228 73.7% 06/24/03 84,081 44,347 39,734 30.9% Most bearish reading of the year: 39,734 - 06/24/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 The same disappearing act of outstanding positions occurred in the NDX 100 futures as well. Commercials dropped some 32K in long positions and 18K in short positions but this left them with their most bearish position in quite some time. Small traders, reacting in lock step mirror image, produced their most bullish net long position with a major drop in outstanding shorts. Commercials Long Short Net % of OI 06/03/03 42,232 43,217 (985) (1.2%) 06/10/03 42,877 45,793 (2,916) (3.3%) 06/17/03 60,964 65,561 (4,597) (3.6%) 06/24/03 28,780 47,425 (18,645) (24.4%) Most bearish reading of the year: (18,645) - 6/24/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 06/03/03 11,407 9,092 2,315 11.3% 06/10/03 14,759 7,761 6,998 31.1% 06/17/03 29,400 23,232 6,168 11.7% 06/24/03 24,519 7,064 17,455 55.2% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Small traders of the DJIA futures didn't do much other than reduce a good number of outstanding positions but it was the commercials who cut a number of shorts that produced a new relative high in outstanding longs. Commercials Long Short Net % of OI 06/03/03 19,480 15,282 4,198 12.1% 06/10/03 17,368 15,263 2,105 6.5% 06/17/03 20,625 18,593 2,032 5.1% 06/24/03 19,373 11,565 7,808 25.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 06/03/03 7,948 9,353 (1,405) ( 8.1%) 06/10/03 7,968 8,316 ( 348) ( 2.1%) 06/17/03 9,092 9,398 ( 306) ( 1.6%) 06/24/03 5,950 7,442 (1.492) (11.1%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** *************** ASK THE ANALYST *************** Fibonacci retracement. Fit it or stack it! I'm familiar with fibonacci retracement where you take retracement from a high and low to then define levels within a range, but in Thursday evening market monitor, you showed the S&P 500 futures contract with a fibonacci retracement like I haven't seen used before. Can you explain where this technique come from? Give a trader a tool and some time to experiment with things are its surprising what you can come up with. About a week ago, I was talking with a buddy of mine (John Seckinger) on the phone about the markets. He trades S&P futures and we were talking about "key level" where the markets might "tip there hand" as to future price direction. He kept saying "974, 974. If they take out 974 then we're going lower." Now, I've discussed a technique "I developed," several years ago (I'm not sure I developed it, but I figured this out on my own) called stacked retracement. When stocks were breaking to multi- year lows, I was always trying to figure out where a next level of trading support was going to be found and I think I figured out what traders and computers were doing. This was prior to learning about the pivot matrix levels. Anyway, I'm going to start things out with what my buddy John was doing. In its basic form, what he was doing, and what I've shown on two occasions is based more on "pattern recognition" than anything, and then snapping or fitting a retracement bracket to the pattern. Before I begin, I will confess to never having read a book on fibonacci retracement, or fully understand why the levels (61.8%, 50% and 38.2%) seem to be traded like they appear to be traded. All I do know is that price action tends to "follow" or gravitate toward the levels. It was a couple of years ago that I began using an 80.9% and 19.1% retracement level as I was noting that for whatever reason, some stocks that were falling from 50% to 61.8% retracement and continuing lower, didn't just fall to 100% retracement. Some were falling halfway in-between, and bouncing back to higher before they eventually fell to 100% retracement. I'm going to start with a chart of the September S&P futures contract (sp03u) that dates back to the October lows, and place a "conventionally" used fibonacci retracement on the chart so you can see where/how a trader has to become "creative" with there use of retracement to try and uncover what levels are now being traded. It all starts with one question. Why did the futures/stock/index trade that level? Is there anything in my toolbox that helps "explain" that type of trade. If so, then perhaps I can figure out where the next level of trade should then be expected. September S&P futures (sp03u) - Daily Intervals Conventional retracement could have been used to "explain" why the sp03u traded the way it did after the October 10, 2002 low was found. When asking "why" the futures traded a certain level at an inflection point, some levels make sense, while others "don't make sense." It's the stuff that doesn't make sense is where a trader has his/her work cut out for them. When a futures contract/stock/index breaks out of a range like the sp03u did in early June, is where a trader really needs to get creative! So lets start with two levels that "don't make sense." Why did the sp03u not trade all the way down to 772.00 in March? I ask this question as it RELATES TO RETRACEMENT. And with retracement, I want to then see if I can make sense of things. September S&P futures (sp03u) - Daily Intervals I could "jump forward" and simply place a new retracement from the March lows to recent highs, but I'm going to show a process whereby, in the future, a trader might look to utilize the retracement tool. Sometime, when a trader sees some trades that "didn't make sense" he/she will try and make sense of those levels and set retracement at the inflection points that don't make sense, but for whatever reason, those inflection points were determined important levels of trade. I've tried to do this by now setting retracement from the March 12, 2003 low to April 7, 2003 relative high. Both of these levels may not have made sense in the first chat we looked at. Now, the first thing that I have always thought about retracement is that it is a tool that does little good if all I'm doing is marking ranges where the market has already traded and all it does is explain "what happened," but not what will happen or how to trade it. This is where I believe the "fitted" retracement technique is used. What if a trader had simply anchored retracement at the March low and "fit" the 50% retracement at the inflection pullback near 844.85? Wouldn't that have given an upper end target of 903.70? Another question I get a lot is "why is your 0% retracement at the top and not the bottom?" Or "why is your 100% retracement at the top and not the bottom?" In the above chart, I show some equations so those that are not all that familiar with fibonacci retracement see how the levels "add up" to 100% of a range. You see, it doesn't really matter if your 100% or 0% is at a bottom or top as the offsetting percentages will always add up to 100%. Now here is what my buddy John Seckinger is doing with his retracement. I can't say I'm "overly thrilled" with this retracement, but it sets the foundation for why a trader might use the "fitting" technique, which I'll show a little later. September S&P futures (sp03u) - Daily Intervals My buddy John took a retracement from the 05/20/03 lows to the recent highs (red retracement), and there is some correlation that makes sense starting to develop. John was correct too when he thought if the sp03u traded 974 that it would fall and this Tuesday, the sp03u did fall to 962.65. Once again I've labeled the levels 1, 2,3,4,5,6 and 7. Here's why. Lets go back in time and pretend we were trading the sp03u bullish after the low was made in March. In the blue retracement, if you bought at level "6" and 19.1% retracement of 881.21, you might have had to take some heat to 844.85, level 4 and 50% retracement right? But it held and a rebound was see to make new highs. The MAIN OBSERVATION here is that the sp03u did violate that level, as if that was an important "buy level" the market was determined to buy at. When level "5" was cleared back to the upside, it was never re-tested. Now lets take that observation forward to our red retracement, where we've used similar technique of anchoring a relative low and attaching to a high. What's a little different right now, is after a trade at "7" we have seen a test of "4" haven't we? This is slight divergence from the lower retracement isn't it? Go back and look at both retracement and you can see that once an upper level was traded, if you count down three levels from there, the third level lower was never traded. For instance, in lower blue retracement, the first time level "6" would have been traded, then three levels lower, level "3" was never then again traded. When level "4" was traded, do you see how level "6" did serve some near-term resistance? This may make sense as futures/stock/index bought at "4" was probably distributed for profit at "6." If thinking/trading like a bear at that time, then when level "7" was trade, buy golly two levels lower at "5" while close to being tested was not, and a trader might think there were just too many bulls and bears more eager to buy that level for a real test. Now we see in upper (red) retracement how "7" might be an important distribution level of late, and a trade three levels lower at "4" may be finding sellers at level "6" as they perhaps sense DIVERGENCE from the past. Now I'm going to fine tune the upper retracement a bit. I still think the recent trade is a little sloppy, but I'm really going to keep the observation of 994.87 as resistance, especially for those traders that are BEARS right now. Let's use the "fitting" technique and edge the 50% retracement, level "4" right at this recent low of 960.50. September S&P futures (sp03u) - Daily Intervals Using the "fitted" retracement technique of fitting the 50% retracement, or level "4" just under the recent relative low, I can answer the question "why" the sp03u stopped its decline at that level, and I also get a "perfect explanation" as to why the sp03u rose to 948.70, or level "3" in mid-May. The RESULT is 0% retracement at 1,010.51, which would only tie in with sp03u on a closing, or settlement basis. Traders have "argued" for years that the closing levels of trade are more important that intra- day levels of trade, but that's a different topic of conversation in itself. I like just about everything in the "fitted" chart, except Wednesday's trade above 991.40, which my buddy John's chart does a better job of presenting some resistance above that level. Still the "fitted" chart seems to show a more accurate representation of support levels in play. What continues to make me "jittery" from the bullish side is what we noted in the point and figure chart last week, and the "bull trap" pattern that has been identified in the S&P 500 cash (SPX.X) when it traded the 1,010 box, a triple-top buy signal that was quickly reversed lower and then found a double-bottom sell signal follow at 980. I don't trade the futures contracts right now, as I'm pretty busy with other work-related activities during the day, and I can better trade the cash markets or options where I don't have to monitor things more closely. However, I've been using the futures contracts recently to monitor things in after-cash close trading hours. I sense a lot of pressure building between bulls and bears right now and this is why I've been doing some of the work shown above to kind of keep track of things after the close. Still, the techniques of retracement used above and observation of systematic trading of levels can be used with stocks and indexes. An article similar to this one that is stock oriented can be found in the Bailey's Basics section of the OptionInvestor.com and premierinvestor.net site, which was written on February 20, 2001, titled "Retracement Levels." It wasn't long after I wrote that article that I started using 19.1% retracement and 80.9% retracement levels as I found myself missing some good swing trade profit levels on the JDS Uniphase (NASDAQ:JDSU) $3.55 -2.73% declines, when rebounds from 0% to 38.2% seemed to "come from nowhere." It was the 19.1% retracement that helped "explain" those bounces that came out of nowhere! I think reading that article, and perhaps taking the mentality of a market maker will help traders better apply the use of the fibonacci retracement. The use of retracement to try and uncover levels the market may be trading is really more of an art than an exact science. I think that we trader/investors should try and use to tool to identify "why" a security has traded the way it has based on the levels, and can then back test a trade discipline of how things traded in the past, to the look for SIMILARITY in the future, but more IMPORTANTLY to sniff out any DIVERGENCE. It is when a trader observes DIVERGENCE from the past, the he/she senses change and must then make the proper adjustments for that change. Jeff Bailey ************************* WEEKLY MANAGER MICROSCOPE ************************* Heidi Soumerai & Bill Apfel: The Women's Equity Fund (FEMMX) This week's manager microscope looks at Heidi Soumerai, CFA, and Bill Apfel, CFA, co-portfolio managers of The Women's Equity Fund (FEMMX), a unique large-cap core portfolio that satisfies certain social responsibility criteria, while also being proactive toward women's social and economic equality. The firm invests in public companies that advance the social and economic status of women in the workplace, representing the only pro-women's equity fund that we know of in the retail market. Ms. Soumerai and Mr. Apfel are portfolio managers at Boston Trust Investment Management, the fund's sub-advisor since January 1999. Boston Trust Investment Management ("BTIM") is a division of U.S. Trust Company, Boston, which is responsible for constructing and managing a portfolio that seeks high potential long-term capital appreciation for investors consistent with a "moderate" level of risk, the Women's Equity Fund included. Soumerai joined BTIM in 1985, and currently serves as the firm's director of social research and shareholder advocacy. Apfel has been employed by BTIM since 1989, and today chairs the company's securities research committee and serves as the firm's director of securities research. Morningstar's report shows that the co- managers' tenure began on January 1, 1999. Other key members of the BTIM management team are Linda C.Y. Pei and Leslie Christian. Ms. Pei is president and director of Pro- Conscience Funds, Inc. (fund's investment advisor). Previously, Ms. Christian was a director with Salomon Brothers, NYC (9 years) and a consultant with Mercer Investment Consulting, Seattle. The Women's Equity Fund requires a low minimum initial investment of $1,000 to open a regular account ($500 for initial IRAs). The fund is 100% no-load and carries an annual expense ratio of 1.50% (appears to be capped at that level). The fund is distributed by Quasar Distributors, LLC of Milwaukee, Wisconsin and is available for purchase on a no-load, NTF basis through Fidelity, Schwab, TD Waterhouse and other leading NTF networks. For more information, or to download a prospectus, go to the Womens Equity Fund website at www.womens-equity.com. Investment Style/Strategy As stated earlier, Ms. Soumerai and Mr. Apfel seek to achieve the fund's long-term capital growth objective by investing primarily in companies that meet the advisor's financial standards and meet criteria for the advancement of women in the workplace. In terms of investment strategy, the co-portfolio managers favor companies that are well managed and growth oriented, and financially sound. First, the co-managers analyze macroeconomic indicators, such as inflation, interest rates, corporate profits, market trends, etc. After that, they examine the long-term earnings growth potential of promising companies, favoring those that have strong policies with regard to the hiring, support and promotion of women in the workforce. The co-portfolio managers of the Women's Equity Fund look at some 350 companies as part of their initial screen universe. The list is maintained by U.S. Trust Company (Boston) and includes stocks of companies that meet their financial/social criteria, including larger, established companies and smaller, newer firms. Holdings are diversified across various sectors, industries and individual securities to spread portfolio risk. The Women's Equity Fund website states that the majority of their shareholders are women, who range in age from their early 20's to late 70's. The site indicates that more "men" are also investing in the fund. Note that June 30 portfolio information is not yet available, but as of March 31, the Women's Equity Fund had roughly 94% of assets invested in stocks, with the remaining 6% of assets held in short term investment funds (cash). At that time, the portfolio had an average market capitalization of $21.7 billion, landing it in the large-cap range. Yet, it wouldn't be unfair to describe the fund as multi-cap either, with 38.7% of stock assets invested in giant capitalization stocks, 38.7% in large-cap stocks and 21.2% in mid size companies. According to Morningstar, this conservatively managed equity fund has consistently landed in the large-blend style box. As of Mar. 31, the Women's Equity Fund was moderately overweighted to health care, consumer services and industrial materials relative to both the S&P 500 index and category peers and moderately underweighted to media and telecommunications, energy, and utilities. The fund had 64 stock holdings at the end of the first quarter, with 30.4% of assets in the fund's top 10 holdings. BP plc ADR and Johnson & Johnson were the fund's top two holdings, each 3.5% of assets. Investment Performance Morningstar says the Women's Equity Fund has produced competitive returns under current management (Soumerai/Apfel), but allegiance to certain companies has caused the portfolio to lag in healthier (rising) markets. Such is the case this year, with the portfolio up just 9.2% through July 2, compared to the 14% total return for the S&P 500 index. The co-managers' YTD performance ranks in the bottom decile of the Morningstar large-cap blend category. While it can lag in up markets, the Women's Equity Fund can also hold up better in down markets. Over the trailing 3-year period through July 2, 2003, Soumerai and Apfel lost an average of 3.1% a year, significantly less than the S&P 500's annualized decline of 10.6%, per Morningstar. The co-managers' 3-year returns rank in the category's top decile (5th percentile). For the trailing 5-year period through July 2, the fund sports a positive 1.5% annualized total return compared to a negative 1.4% annual-equivalent return by the S&P 500 index benchmark, ranking in the category's top 13%, per Morningstar. In terms of Morningstar ratings, the Women's Equity Fund receives a 4-star rating (above average) overall for risk-adjusted returns relative to category peers. Much of that is based on how well it performed through the market downswing. This fund's risk adverse style is reflected in its 3-year Morningstar rating of five stars (highest). Over the trailing 3-year period, the co-managers have produced "low" risk and "high" return in relation to its category peer group. Still, if you are looking for something that can keep up with the pack in market upswings, this fund may not be right for you. The co-managers 95th percentile rank in 2003 is very similar to their 90th percentile rank in calendar year 1999, their first full year as sub-investment advisors of the Women's Equity Fund. Conclusion While I admire this mutual fund for its investment philosophy and style/strategy, it has potential to lag other equity funds in the long term because the co-managers stick with solid earners and at times can get left behind. If you believe that the economy grows more than it shrinks over time, and there are more rising markets than declining markets over time, then over long horizons such as 10 years or more, the Women's Equity Fund may lag more aggressive equity fund styles/strategies. If you believe the markets will continue to be volatile over time and are looking for a fairly conservative equity investment which promotes women's rights in the workplace, then this fund may be a suitable core equity investment. For more information or to view a prospectus online, go to the www.womens-equity.com website. Steve Wagner Editor, Mutual Investor email@example.com ************* COMING EVENTS ************* ========================================== Market Watch for the week of July 7th ========================================== ------------------------ Major Earnings This Week ------------------------ Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ AA ALCOA Tue, Jul 08 After the Bell 0.24 AMB AMB Property Corp Tue, Jul 08 After the Bell 0.48 PBG Pepsi Bottling Group Tue, Jul 08 Before the Bell 0.46 ----------------------- WEDNESDAY ----------------------------- BRO Brown & Brown Wed, Jul 09 After the Bell 0.39 DNA Genentech, Inc. Wed, Jul 09 After the Bell 0.26 ISCA Intl Speedway Wed, Jul 09 -----N/A----- 0.26 RI Ruby Tuesday Wed, Jul 09 -----N/A----- 0.37 SDX Sodexho Alliance S.A. Wed, Jul 09 Before the Bell N/A YHOO Yahoo, Inc. Wed, Jul 09 After the Bell 0.08 ------------------------- THURSDAY ----------------------------- ABT Abbott Laboratories Thu, Jul 10 Before the Bell 0.52 ARA ARACRUZ CELULOSE S A Thu, Jul 10 -----N/A----- 0.56 INFY Infosys Tech LTD Thu, Jul 10 -----N/A----- 0.40 JNPR Juniper Networks Thu, Jul 10 After the Bell 0.02 PEP Pepsico Thu, Jul 10 Before the Bell 0.58 SONS Sonus Networks Thu, Jul 10 After the Bell -0.02 STI SunTrust Thu, Jul 10 Before the Bell 1.18 SVU Supervalu Inc. Thu, Jul 10 -----N/A----- 0.57 ------------------------- FRIDAY ------------------------------- GE General Electric Fri, Jul 11 Before the Bell 0.38 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable MTLG Metrologic Instruments 3:2 Jul 3rd Jul 7th NTE Nam Tai Electronics 3:1 Jul 7th Jul 8th CSS CSS Industries 3:2 Jul 10th Jul 11th NCEN New Century Financial 3:2 Jul 11th Jul 14th CNTE Centene Corp 3:2 Jul 11th Jul 14th ANSI Advanced Neuromodulation 3:2 Jul 11th Jul 14th CMTL Comtech Telecom Corp. 3:2 Jul 14th Jul 15th EXJF Exchange Natl Bancshares 3:2 Jul 15th Jul 16th -------------------------- Economic Reports This Week -------------------------- Earnings officially start on Tuesday with Dow component Alcoa. However, the real flood of earnings doesn't hit for another week. The lion's share of this week's economic reports will be served up on Thursday and Friday. ============================================================== -For- Monday, 07/07/03 ---------------- None Tuesday, 07/08/03 ----------------- Consumer Credit (AB) May Forecast: $5.0B Previous: $10.7B Wednesday, 07/09/03 ------------------- Wholesale Invntories(DM)May Forecast: 0.20% Previous: -0.10% Thursday, 07/10/03 ------------------ Initial Claims (BB) 07/07 Forecast: N/A Previous: 430K Export Prices ex-ag.(BB)Jun Forecast: N/A Previous: -0.10% Import Prices ex-oil(BB)Jun Forecast: N/A Previous: -0.20% Friday, 07/11/03 ---------------- Trade Balance (BB) May Forecast: -$41.0B Previous: -$42.0B PPI (BB) Jun Forecast: 0.40% Previous: -0.30% Core PPI (BB) Jun Forecast: 0.10% Previous: 0.10% Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* No time to follow the Market Monitor? 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The Option Investor Newsletter Sunday 07-06-2003 Sunday 2 of 5 In Section Two: Watch List: Pixels, Defense, and Zebras Play of the Day: Call - HAR Dropped Calls: None Dropped Puts: KSS ************************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 ************************************************************** ********** Watch List ********** Pixels, Defense, and Zebras Pixar - PIXR - close: 61.49 change: +0.02 WHAT TO WATCH: Just barely green on the day, shares of PIXR are fighting with 7-month old resistance at $62.00. A breakout here could have shorts running for cover, especially as the stock approaches all-time highs of $66.00 set in July of 1998. Chart= --- Zebra Technologies - ZBRA - close: 79.79 change: 0.84 WHAT TO WATCH: What market weakness? ZBRA hasn't experienced any. Shares have been very strong but we suspect bulls might be ready to start taking profits again. The $80.00 level is natural round-number psychological resistance. The question is whether or not it will merely consolidate between $80 and $77.50 or whether it will pull back to the $75 level again. Dip buyers will be watching. Earnings are expected on or around July 28th. Chart= --- General Dynamics - GD - close: 72.60 change: -0.90 WHAT TO WATCH: The DFI defense index has been inching higher this week while shares of GD have been inching lower. We suspect one is going to correct soon. A bullish move over $74 for GD could be the start of its next leg higher and we'd target $80.00, bypassing current highs at $78. Earnings are expected near July 16th. Chart= --- Renaissancere Ltd - RNR - close: 47.35 change: +0.43 WHAT TO WATCH: Three days of strong gains have put shares of RNR at a closing 52-week high. Volume has been decent the two previous sessions and the stock has been out performing the IUX insurance index. While it looks due for a small pull back the next level to watch is $50.00. Earnings are late July. Chart= --- VeriSign - VRSN - close: 14.03 change: -0.19 WHAT TO WATCH: The consolidation for VRSN looks like it's almost over. Shares appear to be in a bull flag pattern but they've found some support at the 50-dma. We'd look for a move over $15.00 as a possible trigger to consider new bullish positions. Chart= =================================== RADAR SCREEN - more stocks to watch: =================================== FITB $58.44 - The oscillators on this stock still look bearish but the rebound from its intraday low on Tuesday is starting to look convincing. A move over $60 and we'll start become even more interested. CSC $39.07 - Shares have seen some significant profit taking from their mid-June highs. The bounce off its rising 50-dma looks like an aggressive entry point for bulls. We'll watch for a confirming move over $40. CL $57.86 - Colgate has broken is rising channel and closed below its 50-dma. Furthermore, it has confirmed the breakdown by re- establishing the 50-dma as new overhead resistance. The last two sessions looked like another failed rally at this level and a move under 57.50 could be a trigger to go short. One problem, this stock moves slowly and we'd expect support at $54. ************************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 *************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* Harman Intl - HAR - close: 80.26 change: +0.77 stop: 76.50 See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ Kohl's Corp. - KSS - close: 51.85 change: +0.80 stop: 51.75 Well, it certainly can't be said that we didn't give KSS every chance to perform to our expectations. It just didn't happen this time. For awhile it looked like our downside target was going to be achieved, but the past several sessions have seen the stock buoyed higher by a rebound in the Retail index (RLX.X). While it would really be a stretch to call the stock's action bullish, it has been struggling higher in a very shallowly ascending channel for over two weeks now. The first hint of problems for our play came on Monday when the stock closed over the 20-dma, but our stop still held firm. With the RLX index looking weak again on Thursday, our expectations were that the stock would once again roll over at resistance, but it wasn't to be as KSS ignored the weakness in both the broad market and the RLX, surging to a 1.5% gain, ending just below the high of the day. Violating our stop in the process of Thursday's advance, we have no choice but to drop coverage of KSS. Traders still holding open put positions should look on a dip early on Monday as a gift and take the more favorable exit point if offered. Picked on June 15th at $49.45 Change since picked: +2.40 Earnings Date 08/14/03 (unconfirmed) Average Daily Volume = 4.39 mln Chart link: *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-06-2003 Sunday 3 of 5 In Section Three: Current Calls: ABC, AGN, AMGN, EBAY, GS, MRK, PGR, PHM, STJ New Calls: DGX, HAR Current Put Plays: COF, ICOS, SIVB, WFMI New Puts: INTU ************************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 ************************************************************** ****************** CURRENT CALL PLAYS ****************** AmerisourceBergen - ABC - cls: 71.19 change:-0.05 stop: 68.50*new* Company Description: AmerisourceBergen is a pharmaceutical services company dedicated solely to the pharmaceutical supply chain. The company markets its products and services to hospital systems (hospitals and acute care facilities), alternate care customers (mail order facilities, physicians' offices, long-term care institutions and clinics), independent community pharmacies, and regional drugstore and food merchandising chains. ABC also provides outsourced pharmacies to long-term care and workers' compensation programs. ABC perates in two segments: Pharmaceutical Distribution and PharMerica. The Pharmaceutical Distribution division is primarily the company's wholesale and specialty drug distribution business, and PharMerica is the company's institutional pharmacy business. Why we like it: It took its sweet time getting there, but ABC finally gave us the breakout over $70 that we had been waiting for. That move came on Wednesday, with the solid bullish action in the rest of the market and despite some volatility in Thursday's session, ABC held onto the bulk of its gains, only sliding lower by a nickel. The last dip before the breakout only reached $68.76 before the buyers appeared and with breakout, we have a couple more data points to add to the recent series of higher lows and higher highs. In addition to Tuesday's intraday low, the bottom of the ascending channel ($68.85) and the 20-dma ($68.79) should provide strong support on any pullback. Traders looking for entry on the next pullback will want to shoot for a rebound from the $70 level, which would confirm old resistance is now support. If looking to enter on strength, then $72 is the line in the sand, as ABC was turned back just below that level ($71.90) on Thursday when the volatility hit the broad market. Because of the strong support mentioned above, we're raising our stop to $68.50 this weekend. Suggested Options: Shorter Term: The July 70 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the August 75 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 70 call. BUY CALL JUL-70 ABC-GN OI=2681 at $2.45 SL=1.25 BUY CALL JUL-75 ABC-GO OI= 238 at $0.50 SL=0.25 BUY CALL AUG-70 ABC-HN OI= 418 at $3.80 SL=2.25 BUY CALL AUG-75 ABC-HO OI= 253 at $1.40 SL=0.75 Annotated Chart of ABC: Picked on June 26th at $70.00 Change since picked: +1.19 Earnings Date 07/24/03 (unconfirmed) Average Daily Volume = 1.49 mln Chart link: --- Allergan, Inc. - AGN - close: 78.36 change: -0.14 stop: 76.00*new* Company Description: Allergan is a technology-driven, global healthcare company that develops and commercializes specialty pharmaceutical products for the ophthalmic neurological, dermatological and other specialty markets, as well as ophthalmic surgical devices and contact lens care solutions. Its revenues are principally generated by prescription and non-prescription pharmaceutical products in the areas of ophthalmology and skin care, neurotoxins, intra-ocular lenses and contact lens care products. The company's are sold to drug wholesalers, independent and chain drug stores, pharmacies, commercial optical chains, commercial optical chains, food stores, hospitals and individual medical practitioners. Why we like it: A bit of schizophrenia hit the broad market an hour into Thursday's session and that wasn't what AGN bulls wanted to see. The convincing rebound from the $76 level that began early on Tuesday had extended up near the $79.40 level by midday on Wednesday and the pullback into the close looked like some normal profit taking in preparation for more bullish action heading into the weekend. Such wasn't the case though, as the early bullish tone in the broad markets was waylaid by some wacky action in the futures pits, and that kept AGN on the defensive right into the end of the day. That dropped the stock back to close right on the 20-dma ($78.35), which it broke through on Wednesday, and now we're looking to see whether support will be found near $78.00, which is the top of the bull flag pattern that also saw a bullish breakout on Wednesday. There still seems to be a fair amount of support in the $77.50-78.00 area and a successful rebound from there on Monday looks like a favorable bullish entry point. Should the bulls charge out of the gate first thing next week, then momentum entries can be considered on a rally through $79.40, just above Wednesday's intraday high. Tuesday's intraday low was $76.01, and if that rebound was the bullish reversal we think it was, that level should not be broken on a successive pullback. For that reason, we've raised our stop to $76, slightly reducing our risk exposure in the play. Suggested Options: Shorter Term: The July 75 Call will offer short-term traders the best return on an immediate move, as it is currently in 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. Note that open interest is still thin in the August contracts. BUY CALL JUL-75 AGN-GO OI=1756 at $4.30 SL=2.75 BUY CALL JUL-80 AGN-GP OI=1236 at $1.05 SL=0.50 BUY CALL AUG-75 AGN-HO OI= 12 at $5.60 SL=3.50 BUY CALL AUG-80 AGN-HP OI= 116 at $2.75 SL=1.25 Annotated Chart of AGN: Picked on June 26th at $78.74 Change since picked: -0.38 Earnings Date 07/28/03 (unconfirmed) Average Daily Volume = 1.13 mln Chart link: --- Amgen, Inc. - AMGN - close: 66.06 change: -1.15 stop: 63.50*new* Company Description: The biggest of the Biotech big guns, AMGN makes and markets therapeutic products for hematology, oncology, bone and inflammatory disorders, as well as neuroendocrine and neurodegenerative diseases. Anti-anemia drug Epogen and immune system stimulator Neupogen account for about 95% of sales. Its Infergen has been commercialized as a treatment for hepatitis C, and Stemgen is approved for stem cell therapy in Australia, Canada, and New Zealand. The company has a strong pipeline of new drugs in various stages of development as well as research and marketing alliances with Hoffman-La-Roche and Johnson & Johnson. Why we like it: While it would have been nice to see our AMGN play end the week at a new high, we certainly won't complain about the stock's consistency. Each dip near the 30-dma (currently $64.56), which is also near both the long-term ascending trendline and the bottom of the 2-month channel. Seems like pretty strong support, don't you think? Unfortunately, resistance was just as strong last week, as AMGN challenged the $67.50 resistance level (6/16 high) on 3 out of 4 days and each time the bears turned the stock back. A successful breakout over $67.50 next week may make for a decent momentum entry enroute to the $70 level, but remember this is a very aggressive strategy with AMGN. The stock doesn't tend to have good follow-through on the breakouts, with the better entries coming on the pullback to support following the breakout. While it was disappointing to see AMGN fall back near the $66.50 level at the close (note the closing price of $66.06 took place after hours), this just looks like more of the back and forth tango that we've become familiar with when trading AMGN. It doesn't tend to trend very well on a day-to-day basis, but over the longer-term it continues to build a consistent pattern of higher lows and higher highs. Posting a lower high last week could be a precursor of more weakness in the week ahead, as we could be setting up for a repeat of the bearish pattern that developed in late April and early May. In that time period, the stock traded two significant lower highs and lower lows before once again finding strong support at the 50-dma. So while we're looking for new entries near the $64.50-64.75 area, we need to keep in mind that it is possible for AMGN to trade down to the area of the 50-dma ($63.52) and still retain its longer-term uptrend. Aggressive traders looking for a bargain and willing to try to catch the bottom of the next sharp selloff may do well to target a rebound from the $63.75-64.00 area. We'll continue to follow the 50-dma higher with our trailing stop, which now moves to $63.50. Suggested Options: Shorter Term: The July 65 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 70 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 65 call. BUY CALL JUL-65 YAA-GM OI=31466 at $2.30 SL=1.25 BUY CALL JUL-70 YAA-GN OI=17727 at $0.25 SL=0.00 BUY CALL AUG-65 YAA-HM OI= 4622 at $3.50 SL=1.75 BUY CALL AUG-70 YAA-HN OI=10368 at $1.15 SL=0.50 Annotated Chart of AMGN: Picked on June 24th at $65.05 Change since picked: +1.01 Earnings Date 07/22/03 (confirmed) Average Daily Volume = 10.3 mln Chart link: --- eBay Inc - EBAY - close: 110.05 change: +0.79 stop: 104.00 Company Description: eBay is the world's online marketplace(TM). Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. (source: company press release) Why We Like It: Ding! Shares of EBAY hit our short-term profit target of $110.00 after rebounding from some early morning weakness. The high- flying Internet stock almost reached the $111 mark before shares pulled back into the early close. Yesterday we suggested that short-term traders get ready to close their play or at least take some profit off the table. The stock has moved a lot faster than we expected but we're not complaining. Should there be any market weakness next week with the onset of Q2 earnings announcements, then traders can look for new bullish entries on a pull back in EBAY. Something to watch out for is YHOO's earnings next Wednesday after the closing bell. The two Internet stocks have completely different business models but reaction to one Internet stock's earnings results could affect the other. No one has ever blamed Wall Street for being logical. YHOO is expected to announce 8 cents a share and hit revenue of $314.8 million for the quarter. Our most recent update for EBAY mentioned Prudential's upgrade of the stock and their new $120 price target. OptionInvestor had suggested that $120 was not out of reach and it's certainly possible that EBAY could mount an old-fashioned earnings run before its own announcement in mid-July. Plus, First Albany's EBAY analyst believes the stock will beat consensus estimates of 35 cents a share and potentially beat Albany's estimates of 37 cents a share this quarter. Meanwhile, we raised our stop loss to $104.00 on Wednesday and plan to keep it there (at breakeven) for the moment until we see whether bulls will push the stock higher or let is slip back a couple of points due to profit taking. Suggested Options: Given that there could be a pre-earnings run, our suggestion would be to play the July options but the August strikes are not a bad play either. *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY CALL JUL-100 QXB-GT OI= 8074 at $10.60 SL=6.00 BUY CALL JUL-105 QXB-GA OI=13790 at $ 6.10 SL=3.25 BUY CALL JUL-110 QXB-GB OI=10177 at $ 2.80 SL=1.40 BUY CALL JUL-115 QXB-GC OI= 6991 at $ 1.00 SL= -- BUY CALL AUG-105 QXB-HA OI= 1726 at $ 8.00 SL=4.25 BUY CALL AUG-110 QXB-HB OI= 1061 at $ 4.90 SL=2.45 BUY CALL AUG-115 QXB-HC OI= 3842 at $ 2.75 SL=1.30 Annotated Chart: Picked on June 27th at $104.05 Change since picked: +6.00 Earnings Date 07/18/03 (unconfirmed) Average Daily Volume = 6.76 million Chart link: --- Goldman Sachs Grp. - GS - close: 84.70 change: -0.70 stop: 81.95 Company Description: The Goldman Sachs Group is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net- worth individuals. The company provides investment banking, which includes financial advisory and underwriting, and trading and principal investments, which includes fixed income, currency and commodities, equities and principal investments. GS recently completed the acquisition of Spear, Leeds & Kellog, which is engaged in securities clearing, execution and market making, both floor-based and off-floor. Why we like it: There's nothing like a bit of volatility to get the adrenaline pumping and despite solid gains from the Brokerage sector (XBD.X) over the past 3 days, GS has really had a hard time getting it in gear. Tuesday's breakout above the 2-week descending trendline certainly looked convincing, but yesterday's session provided a bit of an anomaly, as GS posted an indecisive Doji candle and a fractional loss, in contrast to a solid gain by the XBD. Thursday's session produced more of the same, with another 1.18% gain from XBD and GS remaining rather weak throughout the day, ending with another fractional loss. Throwing out the opening dip to just above $83, the stock spent the entire session consolidating between $84.50-85.00. Not enough strength to move through Wednesday's lows (mild resistance), but insufficient weakness to cause any great concern either. Even the early dip found eager buying interest above the recent lows in the $82.00- 82.50 area, so for now Tuesday's breakout appears intact. Rebounds from above the $83.50 area look good for new entry points, although more conservative traders may want to wait for a breakout over $86.25 (just above Tuesday's intraday high) before playing. Unless there is something unknown bubbling under the surface, GS ought to play catch up with the XBD index next week and breaking Tuesday's highs will go a long ways towards convincing us that a run at the June highs near $91.50 is still a viable target. Suggested Options: Shorter Term: The July 85 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 90 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 85 call. BUY CALL JUL-80 GS-GP OI=27724 at $5.20 SL=3.25 BUY CALL JUL-85 GS-GQ OI=15824 at $1.70 SL=0.75 BUY CALL AUG-85 GS-HQ OI= 2084 at $3.20 SL=1.50 BUY CALL AUG-90 GS-HR OI= 1475 at $1.30 SL=0.75 Annotated Chart of GS: Picked on July 1st at $85.85 Change since picked: -1.15 Earnings Date 09/24/03 (unconfirmed) Average Daily Volume = 4.50 mln Chart link: --- Merck & Company - MRK - close: 61.14 change: -0.58 stop: 59.75 Company Description: MRK is a global, research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures. Additionally, the company provides pharmaceutical benefit services through Merck-Medco Managed Care, LLC. The company's operations are managed principally on a products and services basis and are comprised of two business segments. Merck Pharmaceutical is involved in marketing products, while Merck Pharmaceuticals is focused on therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. The pharmaceutical benefit services provided by Merck-Medco include sales of prescription drugs through managed prescription drug programs as well as services through programs to manage patient health and drug utilization. Why we like it: If you like roller-coasters, then you probably loved the action in MRK last week. But for those of us trying to discern the trend, the week's trading was rather maddening. MRK just managed to hold support on Tuesday, rebounding from just below the $60 level and moving right to the top of the bull flag pattern shown in the chart below. The next day produced the bullish breakout from the pattern we had been expecting, with the stock trading as high as $62.50. Up to that point, the bulls were quite happy. But the afternoon fade back under $62 was somewhat disconcerting, as was Thursday's drop back into the bull flag. While the weakness heading into the weekend may have been related to the futures- related volatility, the fact that MRK broke back inside the flag hints that the breakout on Wednesday may have been a false breakout or bull trap. It is now critical that the stock hold support above the $60 level and rebound back through the top of the flag (now at $61.40) and hold that breakout. Aggressive traders can still look to enter new positions on a rebound from the $60.50 area (the site of Thursday's intraday lows), but make sure to keep those stops in place at $59.75, just in case the rebound fails. A more conservative entry strategy would be to wait for a rally back above the $62.50 level, which provided resistance on Wednesday. Suggested Options: Shorter Term: The July 60 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the August 65 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. BUY CALL JUL-60 MRK-GL OI=38966 at $1.85 SL=1.00 BUY CALL JUL-65 MRK-GM OI=18051 at $0.20 SL=0.00 BUY CALL AUG-60 MRK-HL OI= 3019 at $2.75 SL=1.25 BUY CALL AUG-65 MRK-HM OI= 2509 at $0.55 SL=0.25 Annotated Chart of MRK: Picked on June 17th at $62.37 Change since picked: -1.23 Earnings Date 07/21/03 (unconfirmed) Average Daily Volume = 6.21 mln Chart link: --- Progressive Corp. - PGR - close: 74.13 change: -0.52 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. Why we like it: Our patience was rewarded last week, as PGR finally gave us the bounce we had been expecting. After topping out just over $76 more than 2 weeks ago, the stock had been drifting ever so slowly lower, consolidating its recent gains. On Monday, it finally reached the bottom of that channel near $72.50, tested that support again on Tuesday and then rebounded strongly, ending just below the bottom of a shorter-term bull flag pattern. The bulls placed their vote the next day, breaking the stock to the upside, ending back over the 10-dma and very near the high of the day. Thursday's session started out on a bullish note as well, with PGR pushing briefly above $75 before the fireworks began. Following a better than expected ISM Services report, an apparent erroneous sell program got launched in the DOW futures, bleeding over into the other futures contracts and by the time it was all sorted out, any bullish tone to the day had been successfully squashed. PGR ended fractionally lower on the day, just over $74 and any weakness early next week could set up a nice secondary entry point on a rebound from the $73.50-73.75 area. A rebound from that vicinity would be a confirmation of support at the top of the bull flag pattern and should set up a renewed rally towards the recent highs. More conservative traders may want to wait for bullish confirmation with a rally over $75.30 before adding new positions, keeping in mind that resistance just above $76 will likely present at least a temporary obstacle. Another point of reference is the Insurance index (IUX.X) and we'd like to see it push back over $270 before adding momentum-based positions. Keep stops at $72.50. Suggested Options: Shorter Term: The July 75 Call will offer short-term traders the best return on an immediate move, as it is currently just slightly out of 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=216 at $4.60 SL=2.75 BUY CALL JUL-75 PGR-GO OI=486 at $1.10 SL=0.50 BUY CALL AUG-75 PGR-HO OI=278 at $2.10 SL=1.00 BUY CALL AUG-80 PGR-HP OI= 47 at $0.50 SL=0.25 Annotated Chart of PGR: Picked on June 15th a $73.27 Change since picked: +0.86 Earnings Date 07/16/03 (confirmed) Average Daily Volume = 925 K Chart link: --- Pulte Homes - PHM - close: 63.45 change: -0.74 stop: 59.99 Company Description: Pulte Homes, Inc., (www.pulte.com) based in Bloomfield Hills, Michigan, has operations in 44 markets across the United States. Under its Del Webb brand, the Company is also the nation's leading builder of active adult communities for people age 55 and older. Over its history, the Company has constructed more than 330,000 homes and has been named Builder of the Year for 2002 by Professional Builder magazine. Pulte Mortgage LLC is a nationwide lender committed to meeting the financing needs of Pulte Homes' customers by offering a wide variety of loan products and superior customer service. (source: company press release) Why We Like It: We recently added PHM to the call list as both a hedge for our RYL put play (now closed) and as a chance to speculate on a bounce in the homebuilders. The group has been on an incredible run from mid-March, which isn't surprising giving the record lows in mortgage rates this year. Investor expectation is pretty high for this industry's earnings performance and could keep some shareholders from taking additional profits off the table. So far PHM has retraced 38.2% (a Fibonacci retracement) of its March to June highs. A bounce at this retracement level is traditionally seen as a technical traders' bullish entry point, especially for a potential run back to the recent highs. So far PHM hasn't disappointed and has reclaimed its simple 50-dma. Likewise, the DJUSHB homebuilders index has bounced from its recent low but has stalled just under the 450 level, which appears to coincide somewhat with the $64.00 level on PHM's chart. (News note: PHM just announced the all cash acquisition of privately held Sivage-Thomas Homes, a New Mexico-based builder. Sivage-Thomas had revenues of $149 million in 2002.) Traders might want to consider a bounce in the $62.00-63.00 area or a move above the $64.25 mark as a trigger to evaluate new bullish entries. Suggested Options: Our broad market view is not very bullish through the second half of July and into August through September. This bias has us looking more favorably at the July call options but August options will certainly work. Note: the July 70s are cheap for a reason! *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY CALL JUL 60 PHM-GL OI= 961 at $4.40 SL=2.20 BUY CALL JUL 65 PHM-GM OI=1126 at $1.40 SL=0.70 BUY CALL JUL 70 PHM-GN OI=1290 at $0.30 SL= -- *riskier* BUY CALL AUG 60 PHM-HL OI= 115 at $5.70 SL=3.90 BUY CALL AUG 65 PHM-HM OI= 934 at $2.95 SL=1.50 BUY CALL AUG 70 PHM-HN OI= 108 at $1.15 SL=0.65 BUY CALL OCT 65 PHM-JM OI= 666 at $4.70 SL=2.40 Annotated Chart: Picked on July 01 at $63.52 Change since picked: -0.07 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 767 thousand Chart = --- St. Jude Medical - STJ - close: 56.50 change: -0.38 stop: 54.95 Company Description: St. Jude Medical, Inc. (www.sjm.com) is dedicated to the design, manufacture and distribution of innovative medical devices of the highest quality, offering physicians, patients and payers unmatched clinical performance and demonstrated economic value. (source: company press release) Why We Like It: Warning! Warning! Like a plane that's climbed too high into the atmosphere, shares of STJ may be struggling for lack of oxygen. We added the stock to our play list due to the incredible strength of its trend and the opportunity to buy the bounce from its rising 50-dma. The medical equipment sector has been a very hot group for months but negative earnings comments from BSX this morning didn't help us any. Some sector analysts tried to put a positive spin on the BSX news and the stock actually closed higher. Unfortunately, STJ didn't participate and instead followed the markets lower, albeit slowly. So far the stock has not yet violated its simple 50-dma, currently at 55.91, but the short-term five-day trend doesn't look like a positive one. The stock failed at the $60 level late last week and bears may have seen that as an entry point to short the stock. We've also noticed that the last three days has keep shares in a very narrow range with a clear top. Tuesday and Wednesday the range was 57.20 to 56.60 but today it dipped to 56.40. This could be a very profitable entry point to buy so close to its 50-dma, which hasn't been violated in months HOWEVER it would take a lot of guts to do so in the face of this weakness. We have our stop loss at $54.95 so the stock would have to penetrate natural psychological support at $55.00 to stop us out. Should that occur, a look at the weekly chart suggest STJ would have plenty of room to retrace its stellar gains. We are not suggesting new long positions until STJ can reclaim the $58.00 level. More conservative traders may want to see a move over $60 first. More aggressive traders might want to consider a bounce from $56.00 (its simple 50-dma). Suggested Options: Given the entry point that STJ is offering we like the July options. The July 60 looks very tempting. August options are brand new and don't have much volume or open interest yet. *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY CALL JUL-55 STJ-GK OI=1766 at $2.55 SL=1.25 BUY CALL JUL-60 STJ-GL OI=2867 at $0.50 SL= -- BUY CALL AUG-55 STJ-HK OI= 11 at $3.70 SL=1.65 BUY CALL AUG-60 STJ-HL OI= 103 at $1.40 SL=0.75 BUY CALL OCT-60 STJ-JL OI= 555 at $2.70 SL=1.50 Annotated Chart: Picked on June 24th at $57.62 Change since picked: -1.12 Earnings Date 07/16/03 (unconfirmed) Average Daily Volume = 1.56 million Chart link: ************** NEW CALL PLAYS ************** Quest Diagnostics - DGX - close: 65.78 change: +0.71 stop: 63.50 Company Description: Quest Diagnostics was the result of a 1996 Corning spinoff, and currently holds the title of the world's #1 clinical laboratory. DGX performs more than 100 million routine tests annually, including cholesterol, HIV, pregnancy, alcohol, and pap smear tests. Operating laboratories throughout the US and in Brazil, Mexico, and the UK, DGX also performs esoteric testing (complex, low-volume tests) and clinical trials. The company serves doctors, hospitals, HMOs, and other labs as well as corporations, government agencies, and prisons. Why we like it: Despite all the talk of the current rally in the broad market being unsustainable, it is amazing how many really solid chart patterns can be found with a bit of digging. DGX is no stranger to our playlist, but to be entirely honest, this is the best chart pattern the stock has presented since its major breakdown a year ago. Since bottoming near $47.50 back in February, the stock has been building an impressive upward trend of higher lows in the process of climbing above all of its moving averages. The trendline connecting those lows currently rests at $63.25, just slightly above last Tuesday's low of $62.83 and the 30-dma at $63.04. Taken together, that $62.80-63.00 area looks like strong support. This rising support has been squeezing the stock against formidable horizontal resistance in the $66-67 area, which has consistently held back each bullish advance since October. Looking at the more recent data, $66.30 looks like the critical resistance level to clear, but taking a wider view shows the top of this resistance band is actually defined by the 10/18/02 intraday high of $66.99. That makes for a pretty clear trigger point for new entries, as a trade at $67 should generate some strong bullish follow through. Thursday's trade at $66 did generate a new PnF Buy signal, but looking back over the past year of data, we can see just how many times DGX has been turned back before trading $67. Trading $67 will be our trigger for making the play active, and once triggered, the stock looks like it could easily rise to the next level of historical resistance near $72. The past several quarters have seen the company continue to beat earnings estimates on revenues that continue to grow as well. With the company set to release its quarterly results on July 22nd, we're looking for traders to bid the stock higher in anticipation of another positive report. Entering the play is a matter of personal preference, as momentum traders can enter on the breakout over $67, while more conservative traders may want to wait for a subsequent pullback to confirm higher support in the $65-66 area. We're initiating coverage with our stop set at $62.50, as a close below that level would represent a clear failure of the bullish wedge pattern. Suggested Options: Shorter Term: The July 65 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 70 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 65 call. BUY CALL JUL-65 DGX-GM OI=2301 at $2.40 SL=1.25 BUY CALL JUL-70 DGX-GN OI=1389 at $0.55 SL=0.25 BUY CALL AUG-65 DGX-HM OI=1594 at $3.80 SL=2.25 BUY CALL AUG-70 DGX-HN OI= 975 at $1.45 SL=0.75 Annotated Chart of DGX: Picked on July 1st at $65.78 Change since picked: +0.00 Earnings Date 07/22/03 (unconfirmed) Average Daily Volume = 928 K Chart link: --- Harman Intl - HAR - close: 80.26 change: +0.77 stop: 76.50 Company Description: Harman International Industries, Incorporated (www.harman.com) is a leading manufacturer of high-quality, high fidelity audio products and electronic systems for the consumer and professional markets. (source: company press release) Why We Like It: Sometimes the adage of "buy high, sell higher" really does work. The fourth-month trend in shares of HAR has been nearly unstoppable (those words are the kiss of death, right?). This maker of high-end stereo equipment has become part of the growth stock crowd. That sorts of makes one scratch their heads if a purveyor of expensive stereo equipment can do well in an economic downturn. The growth stock fans claim that it's not HAR's P/E ratio that counts but its PEG ratio or price to earnings growth. Forbes recently did an article on HAR and PEG stocks. The article stated that stocks with PEG ratios of less than 1.0 are considered undervalued by growth stock proponents. Given HAR's extremely strong earnings this year, which ends in June, the stock should have a PEG of 0.4. Adding to shareholder value and strengthening the company's balance sheet was a recent announcement from HAR's management. Last month HAR increased its share buyback program by 1 million shares authorizing management to buy back up to 1.54 million shares. The company has 28.7 million shares in the "float" or on the open market. Furthermore, the company is set to buy back up to $100 million in outstanding debt. We really like the breakout over resistance at $80.00 today, especially in light of the broader market weakness. This certainly looks like an entry point for bulls and we're going to suggest it as one. However, the more patient trader may want to wait and see if shares pull back to their simple 21-dma. The 21- dma has been the buy-point for the last few months and shares have quickly ricocheted higher each time they pulled back to touch this moving average. Currently that moving average is near 76.95. This has been such stead support we're going to stick our stop loss just below it at 76.50, which is relatively tight given HAR's lofty dollar value. Something else that could be driving shares of HAR are dreams of a split announcement. The company last split 2-for-1 on September 20th, 2000 near $80.00. We suspect they actually announced in the $60-65 dollar range. It is more traditional to have the company announce any split with its earnings, which appear to be August 19th, but they don't have to wait. Suggested Options: Given that HAR's earnings are expected in August, we'd prefer to play the August options. Unfortunately, after the recent quadruple witching in June and the new issuance of the August options, there haven't been any takers. Even though there is no open interest, small traders who use market orders of 10 contracts or less should have them executed automatically at the current bid or ask. We're going to list July's, August's and an October. *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY CALL JUL 75 HAR-GO OI=1539 at $6.00 SL=3.50 BUY CALL JUL 80 HAR-GP OI= 6 at $2.00 SL=1.00 BUY CALL JUL 85 HAR-GQ OI= 0 at $0.50 SL -- BUY CALL AUG 75 HAR-HO OI= 0 at $6.90 SL=3.75 BUY CALL AUG 80 HAR-HP OI= 0 at $3.40 SL=1.70 BUY CALL AUG 85 HAR-HQ OI= 0 at $1.15 SL= -- BUY CALL OCT 80 HAR-JP OI= 16 at $5.20 SL=3.00 BUY CALL OCT 85 HAR-JQ OI 138 at $2.70 SL=1.35 Annotated Chart: Picked on July 6th at $80.26 Change since picked: +0.00 Earnings Date 08/19/03 (unconfirmed) Average Daily Volume = 321 thousand Chart link: ************************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 ************************************************************** ***************** CURRENT PUT PLAYS ***************** Capital One Financial - COF - cls: 49.25 chg: -0.01 stop: 50.51 Company Description: Headquartered in McLean, Virginia, Capital One Financial Corporation (www.capitalone.com) is a holding company whose principal subsidiaries, Capital One Bank and Capital One, F.S.B., offering consumer lending products. Capital One's subsidiaries collectively had 46.4 million managed accounts and $59.2 billion in managed loans outstanding as of March 31, 2003. Capital One, a Fortune 500 company, is one of the largest providers of MasterCard and Visa credit cards in the world. Why We Like It: There is not much new to add for our bearish play on COF. We initially added it on the breakdown under the $50.00 level. Shares had more than doubled from its March low near $25.00 and we were expecting a serious round of profit taking to ensue. Thus far the strength, or more correctly a lack of weakness, has been mirrored in COF. The stock has churned sideways under the $50.00 mark with support at $48.00. The stock's simple 50-dma is quickly rising up to meet it and was support three days ago on the Tuesday weakness. We recently lowered our stop to 50.51 so our risk is limited but we would not suggest new bearish plays until we see a close under $48.00 or under its 50-dma (take your pick). Fortunately, the sideways consolidation has not changed COF's bearish sell signal on the point-and-figure chart. Suggested Options: The options available to us are July's and September's. We're going to list both but our preference will be for July 50s and 47.50s. We're starting to see a pick up in premium decay for the out of money puts. *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY PUT JUL 50.00 COF-SJ OI= 9088 at $2.30 SL=1.25 BUY PUT JUL 47.50 COF-SW OI= 9624 at $1.10 SL=0.55 BUY PUT AUG 50.00 COF-TJ OI= 145 at $3.60 SL=1.75 BUY PUT AUG 47.50 COF-TW OI= 172 at $2.50 SL=1.25 BUY PUT SEP 47.50 COF-UW OI= 1033 at $3.60 SL=1.75 BUY PUT SEP 45.00 COF-UI OI= 818 at $2.75 SL=1.35 Annotated Chart of COF Picked on June 22 at $49.64 Change since picked: -0.39 Earnings Date 07/16/03 (unconfirmed) Average Daily Volume: 4.3 million Chart = ---- ICOS Corp - ICOS - close: 38.50 change: -1.06 stop: 40.01 Company Description: ICOS is a product-driven company that has expertise in both protein-based and small molecule therapeutics. ICOS combines its capabilities in molecular, cellular and structural biology, high throughput drug screening, medicinal chemistry and gene expression profiling to develop highly innovative products expected to have significant commercial potential. ICOS applies its integrated approach to erectile dysfunction and other urologic disorders, sepsis and inflammatory diseases. ICOS' strategy targets multiple therapeutic areas with drugs that act through distinct molecular mechanisms, increasing ICOS' opportunities to market breakthrough products. Why We Like It: We initially added ICOS to the put play list as a hedge against our other biotech longs. The stock appeared to take the profit taking in the biotech sector pretty hard and had failed to rally past the $40.00 multiple times in the last several days. Unfortunately, the day after we added it ICOS and its partner Eli Lilly (LLY) announced that they had resubmitted their Cialis drug, a competitor to Viagra, to the FDA and the FDA had accepted the application as complete. Last time the FDA required additional information and set back the entire process months. Now ICOS and LLY expect the FDA to approve Cialis for the U.S. market by the end of the year. This is great news for the two companies as their data from foreign markets have shown Cialis to quickly acquire a good chunk of the market share in just 90 days of being introduced. The following session witnessed shares of ICOS rally straight to the 40.00 level and stop. With our stop loss at 40.01, we held our breath. Since then the stock has slipped but remains in danger of moving higher due to investor expectation for the FDA approval some three to six months from now. If you believe the BTK and the sector have more weakness ahead of them, then an entry this close to $40 may be a low-risk play. Otherwise, it may be smarter to step back and wait for ICOS to break down through the $35 level. We're not suggesting new bearish positions for any but the aggressive trader. Suggested Options: The July and October options appear to have the most open interest as the August options probably just became available this week. We're prefer July and August because our time frame is three to four weeks. *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY PUT JUL 40 IIQ-SH OI=1632 at $2.80 SL=1.60 BUY PUT JUL 35 IIQ-SG OI=2542 at $0.70 SL= -- BUY PUT AUG 40 IIQ-TH OI= 404 at $4.50 SL=2.75 BUY PUT AUG 35 IIQ-TG OI= 335 at $2.15 SL=1.25 BUY PUT OCT 35 IIQ-VG OI= 556 at $3.90 SL=2.45 Annotated Chart: Picked on June 29th at $37.62 Change since picked: +0.88 Earnings Date 08/05/03 (unconfirmed) Average Daily Volume = 2.63 million Chart link: --- Silicon Valley Bancshares - SIVB - close: 23.63 change: -0.18 stop: 24.90*new* Company Description: Silicon Valley Bancshares is a bank holding company and a financial holding company. The company's principal subsidiary is Silicon Valley Bank. SIVB serves more than 9500 clients across the country through 27 regional offices. The company has 11 offices throughout California and operates regional offices in Arizona, Colorado, Florida, Georgia, Illinois, Massachusetts, Minnesota, New York, North Carolina, Oregon, Pennsylvania, Texas, Virginia and Washington. The company serves emerging-growth and mature companies in the technology and life sciences markets, as well as wineries. The company is organized along five lines of banking and financial services: commercial banking, investment banking, private banking, merchant banking and other business services. Why we like it: Last week was definitely the source of some consternation for bears in SIVB, at least in the early going. Continuing with last Friday's rebound, the stock rose through $24 and then on Tuesday actually trading briefly above the 50-dma and hitting an intraday high of $24.82. Fortunately, that altitude proved to be unsustainable, and the stock weakened considerably into the close, ending back under $24, where we were initially looking for new entries on a rollover. The rest of the week went much better for us, as SIVB traced out a pattern of lower highs, finding consistent resistance at the 10-dma (currently $23.66). By the end of the week, SIVB was back to testing intermediate support near $23.45, and a break below there can be used for new entries next week with an eye towards an initial target of the prior week's lows near $22.30. We're still expecting that support level to fail, and traders wanting more confirmation before playing may want to wait for a break below $22.25 before playing. With the 50-dma ($24.80) starting to roll over and the 20-dma falling as well, another failed rebound below $24.50 would present a lower risk entry, as our stop has now been trailed to $24.90, just above the 20-dma. Look for more weakness from the Banking indices (BKX.X and BIX.X) to confirm the prudence of new entries before playing. Suggested Options: Short-term traders will want to focus on the July 25 Put, as it will provide the best return for a short-term play. Those looking for a larger move down towards the $20 level will want to utilize the July 22 contract or even the August strike, the latter of which provides greater insulation from the spectre of time decay. Note that Open Interest is highest for the August strike, so entry and exit will likely be the easiest with these contracts. BUY PUT JUL-25 SQU-SE OI= 35 at $1.80 SL=1.00 BUY PUT JUL-22 SQU-SX OI= 5 at $0.45 SL=0.25 BUY PUT AUG-22 SQU-TX OI= 82 at $0.95 SL=0.50 Annotated Chart of SIVB: Picked on June 24th at $22.82 Change since picked: +0.81 Earnings Date 07/17/03 (unconfirmed) Average Daily Volume = 713 K Chart link: --- Whole Foods - WFMI - cls: 46.32 chg: -0.60 stop: 48.51*new* Company Description: Founded in 1980 in Austin, Texas, Whole Foods Market is the world's largest natural and organic foods supermarket with $2.7 billion in sales in fiscal year 2002. The company currently has 143 stores and employs more than 27,000 Team Members in the United States and Canada. The motto, "Whole Foods, Whole People, Whole Planet"(TM) captures the company's mission to find success in customer satisfaction and wellness, Team Member excellence and happiness, enhanced shareholder value, community support, and environmental improvement. For six consecutive years, Whole Foods Market has ranked on Fortune's annual list as one of the "100 Best Companies to Work For." Whole Foods Market, Bread & Circus. and Harry's Farmers Market. are all registered trademarks owned by Whole Foods Market IP, LP. (Source: company press release) Why We Like It: Grocery stocks had a fire sale Thursday, and WFMI was no exception. Closest competitor Wild Oats (OATS) and big grocers Safeway (SWY), Kroger (KR), and Albertson's (ABS) all traded down, as did the retail index, the $RLX. Today's high unemployment figure may have impacted the grocers. Although the assumption remains that people will always buy groceries no matter what their employment status, ABS's CEO spoke on CNBC a few weeks ago, commenting that people in fact changed their grocery-buying habits under economic duress. They might buy ground round instead of steak. They buy generic-brand paper towels instead of high-margin products. We suspect they also buy less of the nice but pricey goods sold at OATS and WFMI. Today, WFMI plunged tantalizingly close to our 45.00 target, dropping as low as 45.78 before rebounding and closing near the bottom of February's gap. Now that the play has proven so profitable, we're lowering our stop to 48.51 to ensure that we capture some of those gains. Conservative traders might even consider a stop at 48.01, near the bottom of the violated bear flag. Stochastics, RSI, and MACD do not yet warn of an impending bounce, but conservative traders who entered the play when it was first initiated and are sitting on 3.00 gains may want to consider taking partial profits. Because we're so close to achieving our target, we would not suggest new entries at this time. Suggested Options: We have plenty of options to choose from. WFMI has Julys, August and November options already available. The stock is approaching our short-term target of $45.00 so we're not suggesting new plays at this time. *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY PUT JUL 50 FMQ-SJ OI= 715 at $4.10 SL=2.15 BUY PUT JUL 45 FMQ-SI OI=2047 at $1.05 SL=0.55 BUY PUT AUG 50 FMQ-TJ OI=1222 at $4.70 SL=2.35 BUY PUT AUG 45 FMQ-TI OI=1979 at $2.00 SL=1.25 Annotated Chart for WFMI: Chart link: Picked on June 13 at $49.44 Change since picked: -3.12 Earnings Date 07/30/03 (unconfirmed) Average Daily Volume: 1.6 million Chart = ************* NEW PUT PLAYS ************* Intuit Inc - INTU - close: 43.79 change: -1.36 stop: 45.55 Company Description: Intuit Inc. is a leading provider of business and financial management solutions for small businesses, consumers and accounting professionals. Its flagship products and services, including QuickBooks®, Quicken® and TurboTax® software, simplify small business management and payroll processing, personal finance, and tax preparation and filing. ProSeries® and Lacerte® are Intuit's leading tax preparation software suites for professional accountants. (source: company press release) Why We Like It: Whether you call it a seasonal play or technical weakness it just looks like a bearish candidate. Last earnings season the stock was hammered on INTU's earnings and revenue warning for the second half of this year. The company blamed a sluggish economy and lower consumer spending across all the product lines. Since that announcement and corresponding $12 drop Prudential cut the stock from a "buy" to a "hold". Shares eventually traded below the $35 level before rebounding with the broader markets. INTU almost "filled the gap" with its mid-June high near $49.00 but soon thereafter traders started taking profits. The breakdown under its 200-dma and the $45.00 level are rather negative. Not helping the share price were negative comments just recently from Prudential. The research firm is concerned about INTU's 2004 earnings and competition from Microsoft into the small business accounting market. Shares appear to be trading in a bear flag pattern and a move through the bottom trendline should herald the beginning of its next leg down. We're going to use the simple 50-dma as an easy trigger point to gauge an entry. Currently, the 50-dma is at $43.36. Therefore our TRIGGER to open bearish positions will be $43.35. If you prefer, the recent low was $43.30 on June 27th. Once triggered our initial stop loss will be $45.55, which is a nickel above the recent highs in the last few sessions. Suggested Options: Stocks tend to move lower much faster than they climb. Thus, our preference is for short-term options like July's but these expire in two weeks. We're going to suggest the August contracts We're going to list some Julys, August and October options. *TWO WEEKS LEFT BEFORE JULY OPTIONS EXPIRE* BUY PUT JUL 45 IQU-SI OI=4359 at $2.20 SL=1.10 BUY PUT JUL 40 IQU-SH OI=5121 at $0.45 SL= -- BUY PUT AUG 45 IQU-TI OI= 69 at $3.30 SL=1.65 BUY PUT AUG 40 IQU-TH OI= 244 at $1.25 SL=0.60 BUY PUT OCT 40 IQU-VH OI=1555 at $2.60 SL=1.30 Annotated Chart: Picked on July xxth at $xx.xx Change since picked: -0.00 Earnings Date 08/13/03 (unconfirmed) Average Daily Volume = 4.1 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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-06-2003 Sunday 4 of 5 In Section Four: Leaps: There's The Bounce -- Now What? Traders Corner: We're Already Naked, Why Waste The Opportunity? Traders Corner: Elliott Wave Play Updates Traders Corner: Where is the Dow Going? ************************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 ************************************************************** ***** LEAPS ***** There's The Bounce -- Now What? By Mark Phillips mphillips@OptionInvestor.com Remember last week's title of "One More Bounce"? Well, sure enough, that's what the bulls had in store. They couldn't quite manage it on Monday, but after a drop down to the DOW 8900/SPX 962 area, the bulls came charging back. In recent weeks, Jeff Bailey has talked about the finite points that would denote real weakness in the market and the one that stuck in my head was the SPX 972 level. Isn't it interesting how that index traded within a couple points of that level, gave one head-fake intraday move below it and then surged back as high as 995 on Thursday? My simple-minded interpretation is that buying interest in the market is still strong, and selling interest (when it exists at all) is fleeting. Despite the closing numbers, I think Thursday's session was more bullish than it would appear. After the disappointing employment report, the bulls took the ball and ran when the better-than- expected ISM Services report came out and I think we would have been looking at a close above DOW 9200/SPX 1000 if not for the rather suspicious selling that appeared in the Futures pits near 10:30am ET. I can't say that I have a clear understanding of exactly what caused it -- whether driven by an intentional sell program or if it was an order entry error -- but by the time the dust settled, any bullish tone for the day had been successfully squashed. Holiday-shortened sessions are frequently fertile ground for anomalous trading and I'm inclined to ignore Thursday's trading action and wait for clarity to prevail once again on Monday. Just so nobody is confused, I think this rally off the March lows is way overdone and the market should be trading sharply lower, especially following Thursday's dismal employment report that showed the unemployment rate rising to 6.4%. Last week I encouraged you to take the time to look at a recent Market Wrap by Jonathan Levinson and I have to repeat that advice again this weekend. He did an excellent job of painting a picture both of what has been sustaining this rally and of the unlikelihood of the fabled second half rally. His Wednesday night Market Wrap is an excellent read and if you're listening Jonathan, WELL DONE! As we've discussed recently, this has been a liquidity-driven rally, but it isn't exactly what one would call healthy. The Fed has been trying to stimulate business growth through its inflation of the money supply and continued lowering of interest rates. As Jonathan showed in his Wrap, that money hasn't found its way anywhere near its intended target, as it has instead stimulated the refinancing boom, consumer debt and more speculation in the equity market. It just goes to show, you don't always get what you want, but you usually get what you deserve. I share Jonathan's concerns that this saga will not end well. But that is neither here nor there, as investors are still very much in a buying mood leading into the July earnings cycle. It is my opinion that this earnings cycle is particularly important, as it should provide a clear picture of the post-Iraq war economy and whether there is really any hope of a second half recovery. Based on the continual declining trend in business investment, I have serious doubts as to the plausibility of the rebound. I do a fair amount of reading throughout the week and a trend I've found interesting is the way some analysts have already started back-pedaling and saying that the July earnings cycle doesn't really count, as the real proof will be the reports that focus on Q4 -- which means we'll be looking at the January 2004 earnings cycle before we'll be able to see the earnings growth that the market seems to have been pricing in over the past 3 months. The reasoning goes that the market is a discounting mechanism, looking forward by 6-9 months and we just have to go on faith that things are getting better because that is what the market is telling us. Call me a cynic, but it sounds like another version of the 'hype and hope' story that has been foisted on investors for the past 3 years and it is becoming rather ripe and starting to draw flies. It reminds me of one of the other great lies -- "Trust me, I'm from the government and I'm here to help you." My personal biases an opinions aside, all the internals are still pointing to a full retest of the recent highs in the broad market. At the risk of boring you to tears, I'm going to keep focusing on the two metrics that have kept us out of trouble these past many weeks, the Bullish Percents and the VIX. It was a rather uneventful week on the Bullish Percent front, as the only index that has shown any meaningful weakness is the NDX, and it stabilized at 76% by the end of the week. NASDAQ-100 - 76% Now in Bull Correction, down from the 91% high NASDAQ Composite - 70.48% (just off the 71.75% all-time high) DOW - 83.33% (Highest reading since 1/99 -- highs in 1998 = 92%) S&P 500 - 78.00% (Cycle high of 82.80% - Still Bull Confirmed) S&P 100 - 81% (Just below cycle high, 11/98 all-time high = 84%) Other than the NDX, I see very little sign of internal weakening in the broad market, and I suspect the first couple weeks of July will deliver that retest of the recent highs across the major market averages. Turning to the VIX, one could almost make the argument that this measure of market volatility has become unplugged from the action in the major indices as it continues to troll along near 21 in a clear indication (to me, at least) that there is no fear of the downside. I think what I find most interesting though is that despite this lack of fear, there's been just enough fear to keep the VIX from dipping into the danger zone below 20. I expect it to happen eventually, but trying to gauge when that might happen has become an exercise in futility. It will arrive when it is ready and that is about the best estimate I can provide. We've been talking in recent weeks about the bullish percent SharpCharts for the major indices and I think it is worth mentioning again here. In the interest of getting this turned in at a decent time tonight, I won't duplicate the charts here, but you should have gotten adept at pulling them up yourselves by now. Here is the link and BP symbols for easy reference. Here are the pertinent Bullish Percent symbols. DOW - $BPINDU SPX - $BPSPX OEX - $BPOEX NDX - $BPNDX COMPX - $BPCOMPQ Both the NDX and the SPX saw enough internal weakening to have the bullish percent lines cross under their respective 10-dmas, with the CCI oscillators falling below the -100 lines. By my reckoning, that is the bearish signal that we want to see to give us some conviction to the downside. But look at how we're starting to see a rebound in these bullish percent lines, which are now threatening to cross back above the 10-dmas. We're also starting to see the CCI oscillator creep back over the -100 line and head back towards zero. What does that mean? I think we are likely watching a variant of the pattern of last December and January play out. We got the primary bearish cross in mid-June (early December) and then after a brief rebound following the initial dip, we ought to get a second bearish cross at a lower level of bullish percent sometime in July, leading to a similar pattern to that seen in January. For now, it is all speculation and we need to see how things play out. As I said above, I think the guidance provided in the July earnings cycle will be pivotal in determining if we are at near the end of the latest bear market rally, or if the market is just taking a breather before continuing in its cyclical bullish trend. So without further ado, let's take a look at our current list of plays and see what, if anything transpired in the holiday- shortened week. Portfolio: AIG - That pesky $54.50 support level certainly proved its validity last week, didn't it? Just when it looked like AIG might really break down (finally) the bulls arrived to support the stock at Tuesday's morning low, which happened to be $54.20. Close, but no cigar, as we needed a print at $54 to generate a new PnF Sell signal. Wednesday's strong rebound ran out of steam just below the intersection of the 50-dma and 200-dma, but I'm afraid we won't be able to rejoice until that support at $54 is broken. I suspect AIG is going to need to see more internal weakening in the broad market before it is going to be able to break lower as I believe it should. In the meantime, it is a waiting game, where we watch to see whether that internal weakening will arrive in time to head off the Buy program that is destined to break the stock above resistance. I still favor new entries on failed rallies below $59, but would advise caution until we start to see that internal weakness in the broad market or more weakness in the IUX index. AMGN - As we said early on, AMGN isn't going to tear up the charts, but it ought to be a consistent gainer. That it has been, with the stock ever so gradually continuing to paint its trend of higher lows. At this point, it is all about managing the position, as we shouldn't be able to suffer a loss unless there is a catastrophic news event overnight. You see, AMGN has been riding higher along its 50-dma for 6 months now and not once has the stock violated that average on a closing basis. I still expect AMGN to reach at least $70 and quite possibly the $72 PnF bullish price target before the trend changes perceptibly. We got a favorable entry just above $60 and now it is just a matter of steadily advancing our stop higher, keeping it just below the 50- dma. This weekend, that stop rises to $63.50. Traders still interested in taking a position can consider a rebound from above the $64 level as a viable entry point. One other point I'll make is that AMGN is currently on the regular OI Call list and the play is being managed in a similar manner there. If looking for intra- week commentary on this particular play, may I suggest following the updates in the regular play section. QQQ - Is anyone else tired of this incessant back and forth range? A breakdown isn't a breakdown and a breakout never quite materializes, as QQQ has been trapped between $29.50-31.00 for a month now and I see little sign of the range breaking anytime soon. In order for this play to perform, we'll need to see the NDX internals weaken sufficiently for the bullish percent chart to issue a bear confirmed condition and there's more work to be done on that front. I still think failed rallies below the $31 level look attractive for new entries into the play. Entries near that level provide a quite favorable risk/reward ratio with our stop at $32.25 and a minimum downside objective of $27.50 and a solid possibility of a test of $26. Watch List: DJX - If I had known it would require the patience of Job in waiting for a viable entry in this DJX play, I would have waited a couple more months before adding it to the Watch List. That's right, the DJX has now been sitting dormant on that list for two whole months, but I think the time for action is drawing near. I've continued to hear the DOW 10,000 number bandied about in recent weeks, but I really don't know that it is achievable. We're looking for a return to the recent highs to give us a favorable entry in the $93.50-94.00 area. We'll initially set our stop rather wide at $96.25 and will look for a pullback into the $85-86 area as an initial target for harvesting partial gains. Note that we would still really like to see the VIX under 20 before that entry materializes -- we'll just have to see how things shake out as we head into the July earnings season. HD - It is almost as though last week didn't happen, as the price pattern on HD certainly didn't. Oh there was a failed rally attempt on Monday and a failed selloff on Tuesday, but the stock ended the week less than a dollar from where it ended the week before, as the trend of riding up along the bottom of the ascending channel continues. We're looking for this pattern to change with a rejection from the vicinity of strong resistance at $35 and that just might coincide with the start of earnings season, which really kicks off the week of July 14th. HD doesn't report until the third week of August, so there is plenty of time for weakness to take hold in the meantime. SMH - Contrary to what you might think, I'm relieved to see the rebound in the Semiconductor index (SOX.X) and the SMH. In fact, it is exactly the kind of price action we want to see to provide a favorable entry. The $400 resistance level should be a solid obstacle for the bulls, and that coincided nicely with the $31 level in the SMH. This is an aggressive play, but there's no reason to rush into it. We want to see evidence of price weakness AFTER trading near the top of that entry zone before playing. In fact, I'm going to shift that zone slightly upwards this weekend to $30.50-31.50 area, giving us a more favorable risk/reward with a stop set at $33. My initial target will be for a drop to the $26 level, although a test of the 200-dma by the September-October timeframe is not out of the question. Radar Screen: GS - We're catching a bit of a bid here off the recent lows, but not enough that I want to add GS to the Watch List just yet. I'm really only interested in it if we can get the stock back up above $90. Perhaps another week will give us an indication of our odds of getting that lucky. LEH - Here's another Brokerage stock that is really showing some relative weakness over the past couple weeks. I think it would be foolish to chase it lower right now with a fair amount of congestion just below current levels. But if the bulls can manage to prop it up over the next couple weeks, then we just might be able to gain a favorable entry, ideally in the $71-72 area on a rollover from the bottom of the recently broken ascending channel. WMT - Something about WMT is bothering me, but I just can't put my finger on it. The stock is underperforming the Retail index (RLX.X), but not enough to give us any bearish conviction. I'm left wondering this weekend whether WMT has become like MSFT in that it is so large that it neither moves enough up or down to make it a viable trading vehicle. I'll continue to watch it, but wanted to note that I'm losing interest. ADBE - Finally a real rebound! It's been weeks that I've been wondering if ADBE would ever lift off the mat, but I had a strong feeling that chasing it lower would be a fool's errand. As I've mentioned before, there are some real ugly skeletons in the company's closet on the fundamental side and now the technicals are starting to become more favorable to the bears. A continuation of this rebound should have ADBE moving to our bearish Watch List next week. LEN - With bond yields on the rise over the past couple weeks, it is no great surprise that we're starting to finally see some real weakness in the Housing stocks. But we're still quite premature to be jumping into new bearish long-term trades in the sector. LEN is one of the few stocks in the sector that has LEAPS available, so our choices are rather limited. I'm going to be watching the next attempt on new highs in LEN for an indication as to whether the bullish enthusiasm is truly waning or if there's another bullish leg in store. When it does weaken, it could be abrupt and sharp, but hopefully we'll get a favorable opportunity to enter up near the recent highs. Last week LEN hardly budged at least between last Friday and this Thursday's close. I suspect we have a bounce in our future, and the quality of that bounce will determine whether there is a viable play here. BBH - As strong as the temptation is to short into the recent rally in the Biotech sector, I can't justify it, especially when we're already leaning bullish with our AMGN play. I'm going to keep BBH here though, because if the uptrend in AMGN fails, then I think that will be a strong indication that it is time to shift BBH to the Watch List. Eager and aggressive traders might consider an early play on another failure below the $135 level, looking for a return back to the $100-110 area. RIMM - With the strength in the Wireless and Internet space, RIMM has had quite a run off of its March lows, consistently working higher in a neat little ascending channel. But that channel is fast approaching some formidable resistance near $24. I don't yet see any signs of weakness on the chart, but the first indication of such will be a break below the bottom of the channel. The strategy will be to wait for the breakdown and then look to enter bearish positions on a failure to then get back into the channel. This will still take a few weeks (I expect) to set up, but once it does, RIMM could give us a very nice ride back to the $16-17 area, which the most recent breakout took place. GM - I really didn't expect GM to spend the week languishing lower, but I'm certainly not going to be suckered into chasing it lower. Either another irrational rally arrives to give us a favorable entry point in the $39 area, or I'll be content to look elsewhere. SNDK - Alright, I know you're going to think I've taken leave of my senses, but I really like SNDK and to the long side. The stock has been on an absolute tear in recent months and the PnF chart has a bullish price target above $70. This is the kind of trend I'd like to get aboard, but entering chase mode is a loser's game, especially with a long-term position in a toppy market. But if we can get some healthy consolidation, SNDK might make a strong candidate for hedging our bets and looking for that fabled end-of- year recovery. Fortunately, this play isn't predicated on hype and hope, but on the strong earnings growth the company appears to have revived in the past few quarters. I want to see a pullback into the $38-40 area before considering it a play though. Closing Thoughts: I must admit that I'm still in a state of indecision with respect to the market. I really have no interest in trying to game new bullish long-term trades in such an overextended market, but at the same time, we can see by the performance of the few plays currently in the Portfolio that it doesn't pay to get overly bearish until the market gives us some indication of real weakness. We haven't seen that yet. I fell the top of this rally is close at hand and expect the July earnings cycle to help it along. But that is little more than an educated guess and until I have more to go on than that, I'll continue to be shy about adding more plays onto the Watch List and then the Portfolio. I like the new plays we added last week and I think I'm going to leave the Watch List alone this week. Take advantage of the long weekend and rest up. I suspect that the summer of 2003 is not going to be dull! Have a safe and (mostly) sane weekend! For those of you that are stateside, may I suggest taking a few moments to reflect on the significance of the holiday and what it means to us in this dynamic profession we have chosen. Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: AMGN 05/21/03 '04 $ 60 YAA-AL $ 7.00 $10.00 +42.86% $63.50 '05 $ 60 ZAM-AL $10.90 $14.10 +29.36% $63.50 Puts: AIG 04/24/03 '04 $ 55 AIG-MK $ 5.60 $ 4.30 -23.21% $61.00 '05 $ 55 ZAF-MK $ 8.50 $ 7.50 -11.76% $61.00 QQQ 05/27/03 '04 $ 27 KLF-MA $ 1.70 $ 1.25 -26.47% $32.25 '05 $ 27 ZWQ-MA $ 3.10 $ 2.40 -22.58% $32.25 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: DJX 05/04/03 $93.50-94.00 DEC-2003 $ 92 DJV-XN DEC-2004 $ 92 YDK-XN HD 06/29/03 $34-35 JAN-2004 $ 32 HD -MZ JAN-2005 $ 30 ZHD-MF SMH 06/29/03 $30.50-31.50 JAN-2004 $ 30 SMH-MF JAN-2005 $ 30 ZTO-MF New Portfolio Plays None New Watchlist Plays None Drops None ************************Advertisement************************* "If you haven't traded options online – you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success – Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** TRADERS CORNER ************** We're Already Naked, Why Waste The Opportunity? By Mike Parnos, Investing With Attitude Independence Day! What a concept! What a great day for our country. Freedom is a beautiful thing. I've had a few "independence days" of my own – two divorces and the day they invented cable TV. All good reasons to celebrate. Hey, it's the American (and CPTI) way. If you happen to be going to Barcelona this week, you can run with the bulls for five days. It's a little like the risk of trading naked. You can run in front and risk your life, or run in back. Either way, you'd better watch your step or pay a steep price. ______________________________________________________________ Trading In The Buff – Is It Ever Enough? Last Sunday we discussed the "Nekked Strangle." It consisted of selling a naked put and a naked call 3-4 months out. Time was working for us. If the underlying stock finished in between the two sold strike prices, the premium was kept and we went to play bingo with the profits. Since we're already "nekked," here is another trading strategy using uncovered options for your consideration. Introducing "CC & Friends" This week's strategy we'll call "CC & Friends." It's another neutral strategy. That means we don't have to pick a direction. It's perfect for those who don't have the time to watch their positions all day. Basically, it consists of a covered call with two additional short (naked) calls. I suppose if you're going to be naked, it's more fun to do it with friends. At this writing KLAC is trading at about $47.50. Buy 100 shares of KLAC @ $47.50 Sell 3 contracts of KLAC September $47.50 calls @ $3.90 = $11.70 Let's look at the range we've created by taking in the $11.90. We'll create a chart showing profit and loss figures for each finishing price within the range. 55 – ($310) 54 – ($110) – Bail Out Point 53 -- $90 52 -- $290 51 -- $490 50 -- $690 49 -- $890 48 -- $1,090 47.50 -- $1,190 46 -- $1,040 45 -- $940 44 -- $840 43 -- $740 42 -- $640 41 -- $540 40 -- $440 39 -- $340 38 -- $240 37 -- $140 36 -- $40 35 – ($60) - Bail Out Point 34 – ($160) Notice how the profit figures go down in $100 increments. That's because the $1,190 ($11.90 x 100) acts as a cushion for the 100 shares of stock. For every point the stock goes down, another $100 of the cushion is used up. When it's finally down between $35 and $36, the cushion is exhausted (I'd be tired, too) and it's time to GTFO. On the upside, we have two short options working against us. That means that when KLAC increases by $1.00, each of the two short options uses up $100 of the premium credit. So it amounts to $200 per point. That's why the upside bail out parameter is closer to the trading strike ($47.50) than the downside bail out parameter – which is going down at only $1.00 per point. Calculating Our Profit If, at September expiration, KLAC finishes anywhere between $36 and $54, we will make money. The $1,190 we took in as credit is the maximum profit – which we would make if KLAC finished right at $47.50. We will make "some" profit if KLAC finishes within the range. Check it out on the chart above. Covering Our Assets We have to establish exit points at which we bid farewell to CC & Friends. We have to ADHERE STRICTLY to these exit points to protect ourselves. No hoping. No praying. No begging. Just getting out when you're supposed to. Our exit points should be the short strike plus/minus the total premium taken in. In our example: a) upside exit point = $54 b) downside exit point = $35 If one of the outside parameters (exit points) is hit, you must close out (buy back) ALL the option positions AND sell the stock position. This is an opportunity to take advantage of the ability to place a GTC (Good Till Cancel) contingency trade to protect yourself. You could give instructions that, when KLAC trades at $35 or $54, you will buy back the short options and sell the stock. There's your discipline – already built in. Picking Your Stock & Your Friends Here, ideally, we're trying to find stocks that have overpriced options. At the same time, we would like to use a stock with a history of staying within a range. We've created a nice big range. You'll want to use either out-of-the-money or at-the- money options in this strategy. Note: The prices of KLAC and the options in this strategy are approximate and not based on Thursday's closing prices. Margin Calculations How do we calculate the margin requirement for our straddle? According to the CBOE Margin Manual (which is commonly used among brokers), the formula is: a) 20% of the underlying, plus b) the total amount of premium taken in, less c) the amount the option is out of the money Let's apply our position to this formula -- the $47.50 call: a) 20% of $47.50 = $9.50 x 100 shares = $950, plus b) $3.90 x 100 shares = $390 c) sold at-the-money options, so OTM credit is not applicable Maintenance for one uncovered $47.50 call is $1,340 Total maintenance for the two $47.50 calls is $2,680 The maintenance for these two uncovered calls will fluctuate as KLAC moves up and down. Make sure you have sufficient money or marginable securities in your account to cover the requirement. ____________________________________________________________ JULY CPTI PORTFOLIO POSITIONS July Position #1 – LLTC Baby Condor – Closed at $33.15 Sell 10 contracts of LLTC July $35 calls @ $1.05 Buy 10 contracts of LLTC July $37.50 calls @ $.45 Net credit is $.60 Sell 10 contracts of LLTC July $30 puts @ $.75 Buy 10 contracts of LLTC July $27.50 puts @ $.40 Net credit is $.35 Total credit of $.95. Risk is $1.55 ($2.50 - $.95) Linear Technology (LLTC) was one of our profitable quickies. We now want to try to establish a slightly longer relationship. We've created a maximum profit range of $30 to $35 and a safety range of $29.05 to $35.95. Maximum profit is $950. So far, so good. _____________________________________________________________ July Position #2 – SPX Iron Condor – Closed at $985.70 Sell 4 contracts of SPX July 940 puts Buy 4 contracts of SPX July 925 puts Net credit: $1.50 Sell 4 contracts of SPX July 1025 calls Buy 4 contracts of SPX July 1040 calls Net credit: $2.55 Total credit: $4.05. Risk is $10.95 ($15 - $4.05) Here we go again. The range is 940 to 1025. I'm still anticipating (what do I know?) that pullback we never really got in June. I've reduced the number of contracts to four to reduce our exposure. This still may be a bit aggressive for some of you. Be careful and stay within your risk tolerance. Maximum profit is $1,620. Also, so far, so good. ______________________________________________________________ July Position #3 – DJX – Bear Call Spread – Plus - $90.70 We're due to experience the summer doldrums – and why shouldn't the DOW participate? We're going to establish a bear call spread and use that money to buy some puts. Here we go. Sell 15 contracts of DJX July $90 calls @ $1.90 Buy 15 contracts of DJX July $92 calls @ $1.00 Net credit of $.90 X 15 contracts = $1,350 Now, you can just leave that position alone and, if the DOW finishes below 9000 at July expiration, you keep the $1,350. Your exposure would be $1.20 (9200 – 9000) X $1,800. Your maximum profit would be $1,350. _____________________________________________________________ Position #4 – Ongoing QQQ ITM Baby Strangle – Currently at $30.58 In May we bought 10 contracts of the July QQQ $30 puts @ $2.05 and bought 10 contracts of the July QQQ $28 calls @ $1.80 Total debit of $3.85. The QQQs have made a big move up. It's either going to break through resistance or bounce off and head back down. Our objective is for a $3-4 move in the next month. One of our long options will hopefully pay for almost the entire position. That will leave our other long option, which is now practically free, poised for the bounce back as the QQQs reverse. Our exposure is only $1.85 because we have $2.00 of intrinsic value. ______________________________________________________________ July Position #3 – RUT Iron Condor – Aborted. We were going to put on an Iron Condor with a 420/480 range. Either I was drunk when I came up with the numbers, or the premiums changed dramatically on Monday morning. Regardless, with premium gone, the proposed position was aborted. ______________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our plays or our strategies? Feel free to email me your questions. An excellent source for new students is the OptionInvestor archives where we've been discussing strategies and answering questions since last July. To find past CPTI (Mike Parnos) articles, look under "Education" and click on "Traders Corner." They're waiting for you 24/7 ______________________________________________________________ Happy trading! Remember the CPTI credo: May our remote batteries and self-discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP ************** TRADERS CORNER ************** Elliott Wave Play Updates By Steve Gould DJX Chart: DJX update 7/3/2003 The net position of the Dow in relation to when we bought the spread is the same. We are losing time value. I suspect that the play is going to move one way or the other after the holiday weekend. If nothing happens here shortly, we may have to roll this over to January. Option The original option values on 6/6/2003 were DJX – 90.62 Pos Qty Sym Strike Type Bid Ask Delta IV Buy DJVIN SEP 92 Call 2.80 3.00 0.51 15 Buy DJVUJ SEP 88 Put 2.70 2.90 -0.33 23 ---- ---- ----- 5.50 5.90 0.18 Current values on 7/3/2003 are DJX – 90.70 Pos Qty Sym Strike Type Bid Ask Delta IV Buy DJVIN SEP 92 Call 2.10 2.35 0.45 16 Buy DJVUJ SEP 88 Put 2.10 2.30 -0.35 21 ---- ---- ------ 4.20 4.65 0.10 QQQ Chart: QQQ update 7/32003 The QQQs have actually moved up in value which by all rights should not have affected the overall spread price. However, because of the increase in volatility on Friday, the play is now profitable. I suspect there will be more increases in volatility over the coming weeks. If you had bought multiple contracts of this play (i.e. say you bought 10 positions), sell 10-20% of them. (I am looking at two quotes here and am getting different values. My broker (real time) quotes 4.00/4.20 and the CBOE quotes 2.70/2.80. I am not sure which is correct. Obviously, if you can get 4.00/4.20 and liquidate a few contracts, do so otherwise, we are still holding as the above analysis used faulty data.) Option The original option values on 6/13/2003 were QQQ – 29.96 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 3.00 3.20 -0.44 32 Sell 1 QQQSK Jul 03 37 Put 6.90 7.10 0.99 41 Credit: .50 Current values on 7/32003 are QQQ – 30.58 Pos Qty Sym Strike Type Bid Ask Delta IV Buy 2 KLFME Jan 04 31 Put 4.00 4.20 -0.45 43 Buy 2 KLFME Jan 04 31 Put 2.70 2.80 -0.45 43 Sell 1 QQQSK Jul 03 37 Put 6.40 6.60 0.94 58 Liquidation 1: 1.60 + .50 = 2.10 or Liquidation 2: -1.20 + .50 = -0.70 (see notes above) BA Chart: BA update 7/32003 BA is continuing its wave 4 correction. The minimum retracement level of 25% has been reached, but the oscillator indicates more of a correction is forthcoming. Stochastics still indicate we are due for an upward bounce. This is normal and should not affect the wave count. Option The original option values on 6/17/2003 were BA – 36.15 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAGF Jul 03 30 Call 6.10 6.40 -99.5 29 Buy 2 BAAU Jan 04 37.5 Call 2.70 2.85 52.6 25 Credit: 0.40 Current values on 7/3/2003 are BA – 34.58 Pos Qty Sym Strike Type Bid Ask Delta IV Sell 1 BAGF Jul 03 30 Call 4.80 5.00 -98 35 Buy 2 BAAU Jan 04 37.5 Call 1.75 1.85 42 24 Liquidation value: -1.50 + .40 = -1.10 T Chart: T update 7/3/2003 T has retraced 38% so far. The short term oscillator indicates a more extensive retracement forthcoming, so it is best to wait before entering this play. Stick with the plan which is to wait until T reaches 20.50- 20.60 before initiating the spread. We are now using the August call otherwise we are at too high a risk of assignment. The new play is now. Option T: $19.42 Pos Num Sym Strike Type Bid Ask Delta Vol OI Sell 1 TGC Aug 15 Call 4.50 4.70 90 0 70 Buy 2 TJX Oct 22.5 Call 0.70 0.80 29 103 10143 Credit: $290 ************** TRADERS CORNER ************** Where is the Dow Going? By Steve Gould There is a story of two older men who were sitting at a park bench discussing their inevitable funerals. The first man said to the second, "What do you want them to say about you at your funeral?" The second man thought for a moment and then said, "When people look at me in my casket, I want them to say that I was a faithful husband, a loving father, and a shrewd businessman." The second man then asks the first man, "What do you want them to say about you?" The first man responded instantly, "When they pass by my casket, I want them to say, 'Look! He's alive!'" Just when you thought it was safe to declare the bull dead, the Dow rallies 300 points. I can't help but think that the market read my article last week and decided that I had not truly capitulated. Since a bear was still alive and kicking, the market felt it had to teach me a lesson. I don't think so. I think we are experiencing a head fake and that this is going to be a short lived bounce. The charts should explain why. Chart: Dow Daily 7/3/2003 A daily chart of the Dow since January 2000 shows a blip in the downtrend of the last two weeks. From looking at this chart, it does not look as though this blip is anything more than a corrective wave of the larger downtrend. The Bear Case Chart: Dow Daily Close Up 7/3/2003 Looking at a close up of the daily chart shows that most likely a wave 1 is complete and that the wave 2 is now printing out. The retracement has reached the 62% mark and should be complete or nearly so. This chart does not show the 1 wave or the retracement very well so let's look at an hourly chart to see if this is indeed the case. Chart: Dow Hourly Alternative 1 The hourly chart is a bit ambiguous and the wave count can be labeled in two different ways. In the first alternative, the 5 wave basic pattern is not yet complete and should end somewhere around 8720 by Monday or Tuesday. The subsequent A-B-C corrective wave could take the Dow back up to 9100. Following that the Dow will continue down. This alternative has several things going for it. 1. The oscillator is consistent with the count. Although it is best that the oscillator retrace no more than 138%, up to 162% could be acceptable if other factors fall in line. 2. The Dow came right up to the resistance lines at slightly greater than the 62% retracement and around the level of the last wave 4. A few factors against this alternative are 1. The 4 wave does not trace out a nice A-B-C correction. This does not mean that the count is wrong, just that the correction may not be complete. We may see a decline (wave B) then a rally (wave C) and then the completion of the 5 wave. 2. If the 4 wave goes much higher, the oscillator is in danger of surpassing the 162% retracement level. At that point, the probability that this wave count is accurate starts decreasing rapidly. Chart: Dow Hourly Alternative 2 In this alternative, the 5 wave basic pattern is complete and the Dow is now undergoing the A-B-C corrective wave (even though it is labeled 1, 2, 3). If this is the path the Dow is tracing out, the Dow will drop (wave B) and then rally (wave C) to complete the 2 wave. The Dow will then continue down as it starts the 3 wave. The retracement of the A-B-C correction is so far at 55%. Depending on what kind of retracement it turns out to be (zigzag, flat, etc) this could be as high as it goes. The Dow could still move up to 9300 with a valid wave count. It all depends on the form the correction takes. We will know more as the pattern unfolds. This alternative has several things going for it. 1. The oscillator did retrace although it did so to the absolute bare minimum at 90%. 2. The oscillator maps out an oscillator divergence. 3. The Dow came right up to the resistance lines at the 5 wave and bounced off them. 4. If the pattern following the 5 wave is indeed an A-B-C correction, the peak so far did hit the resistance level from the previous 4 wave. It is still too soon to tell which on of these alternatives will play out although I think the second alternative is the more likely. In either case, it portends the Dow as continuing the downward trend. Unless of course it doesn't. The Bull Case Chart: Dow Daily Bull In this bullish scenario the Dow is in a wave 4 retracement. It does not appear to be complete. Although the Dow has fulfilled the requirement for retracement levels when it passed the 25% level, the oscillator has not as of yet retraced at least 90%. The Dow could still retrace down to the 8523 level and still fulfill this wave count. Anything lower than that and the 4 wave would overlap the 1 wave, violating an Elliott Wave rule and pretty much invalidate this scenario. Should the Dow follow this path, it will most likely rally a bit to finish out the B wave and then head down toward (but not penetrating) the 8523 level. The Dow will then rally again to complete the 5 wave. Should it stay below 10400, the bear scenario would still be in effect. Above 10400 and the bearish scenario would pretty much be dead. Bottom line, I am more encouraged by the wave count that we are indeed headed back down and the bull is either dead or very much dieing. However I am not ready to make fully direction plays just yet. The scenario I wrote about last week with the retirement money still hitting the market is not yet out of the question although both bearish scenarios accommodate a small rally. We may have a small rally next week, but I think the ultimate direction of the Dow is down. ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-06-2003 Sunday 5 of 5 In Section Five: Covered Calls: A Much-Needed Holiday! Naked Puts: A Great Time For A Holiday! Spreads/Straddles/Combos: Independence Day Rally Fizzles! Updated In The Site Tonight: Market Posture: Extended Weekend - Overextended Market ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************* COVERED CALLS ************* Trading Basics: A Much-Needed Holiday! By Mark Wnetrzak We all need to "take a break" once in a while and traders are no different. History suggests that July is the best month of the third quarter. The start of the second half of the year always brings an inflow of cash from retirement funds and gains are usually seen during the first few weeks of the pre-earnings season. At the same time, the market has been rather difficult to predict in recent sessions and the deluge of conflicting outlooks and forecasts demonstrates why each of us must work hard to overcome our emotions and think independently. It also important to take a break and reflect on our past failures and use that knowledge to help avoid the same mistakes in the future. Here are some of the most important axioms I have learned in my trading experiences: 1. Trading demands foresight, flexibility, patience, common sense and above all, sound judgment in a timely manner. 2. Trade with a plan, and know your limits before you open any position! Predetermine each potential entry and exit target. 3. Manage your losses successfully, and profits will soon follow! 4. Buy on weakness, and add to your position as the rebound above a trend-line (or moving average) confirms the upside potential. 5. Sell on strength, and close out winning positions at the first sign of hesitation. Protect your profits with trailing stops. 6. Distribute risk with portfolio diversity, and avoid financial uncertainty with hedged positions. 7. Don't be influenced by outside forces, including friendly advice. Ignore the crowd and think for yourself! 8. When hope becomes a major part of your outlook, it's time for a break. Fall back, take inventory, define your motives and try again. 9. Don't over-trade! In addition, be careful not to increase your trading after a string of winners - savor your success! 10. Whenever you expect something to occur, remember that the market is famous for doing the unexpected. Have A Great Holiday! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Note: Margin not used in calculations. Stock Price Last Option Price Gain Potential Symbol Picked Price Series Sold /Loss Mon. Yield MIR 2.78 2.76 JUL 2.50 0.65 0.37* 15.1% IBIS 7.95 8.23 JUL 7.50 0.85 0.40* 8.2% SUPG 5.86 5.12 JUL 5.00 1.20 0.34* 7.9% Q 5.23 5.00 JUL 5.00 0.50 0.27 6.2% BEAV 2.69 3.22 JUL 2.50 0.35 0.16* 5.9% CNET 5.71 6.43 JUL 5.00 0.90 0.19* 5.7% AMR 11.32 10.13 JUL 10.00 1.70 0.38* 5.7% WEBX 13.90 14.18 JUL 12.50 2.10 0.70* 5.2% GP 18.96 19.15 JUL 17.50 2.05 0.59* 5.1% SGR 12.62 12.26 JUL 12.50 0.90 0.54 5.0% RSYS 13.00 14.10 JUL 12.50 1.05 0.55* 5.0% BLUD 22.02 22.25 JUL 20.00 2.85 0.83* 4.7% OVRL 20.68 20.00 JUL 20.00 1.50 0.82 4.6% MTON 5.60 5.37 JUL 5.00 0.90 0.30* 4.6% ASIA 5.75 8.87 JUL 5.00 1.00 0.25* 4.6% WEBX 14.45 14.18 JUL 12.50 2.45 0.50* 4.5% USG 19.95 19.57 JUL 15.00 5.40 0.45* 4.5% RHAT 8.27 7.78 JUL 7.50 1.20 0.43* 4.4% MHR 8.11 7.95 JUL 7.50 0.95 0.34* 4.1% OI 13.91 13.36 JUL 12.50 1.75 0.34* 4.0% BCGI 17.70 17.27 JUL 15.00 3.10 0.40* 4.0% EDS 21.99 21.69 JUL 20.00 3.00 1.01* 3.9% IMMU 6.91 6.18 JUL 5.00 2.15 0.24* 3.7% SEBL 10.98 9.72 JUL 10.00 1.65 0.39 3.0% ASIA 5.97 8.87 JUL 5.00 1.15 0.18* 2.7% SEBL 10.85 9.72 JUL 10.00 1.40 0.27 2.5% QSFT 12.58 11.63 JUL 12.50 1.00 0.05 0.3% DNDN 7.66 6.44 JUL 7.50 1.05 -0.17 0.0% * Stock price is above the sold striking price. Comments: So far, so good -- Jim's thesis about a bullish beginning in July appears on track. Interesting that it also coincided with a test of the 30-day MA of the major indices. So the question is, will history repeat itself? Next week surely will offer some clues. If we do move a bit higher and then fail (double tops anyone?), it could get ugly. As always, monitor closely any positions that you do not want to own. Two positions that will be shown closed next week will be Quest Software (NASDAQ:QSFT) and Dendreon (NASDAQ:DNDN) -- in the name of capital preservation. We will also show Siebel Systems (NASDAQ:SEBL) closed in light of their earning's warning on Thursday. Better safe than sorry, especially if a weaker second half in July is expected. Other issues to consider for an early exit include: SUPG, Q, AMR (key moment), SGR, RHAT, and MHR. Positions Previously Closed: None NEW CANDIDATES ********* Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield SVNT 5.30 JUL 5.00 QTG GA 0.60 2047 4.70 14 13.9% USG 19.57 JUL 15.00 USG GC 4.90 6631 14.67 14 4.9% CYBX 24.04 JUL 22.50 QAJ GX 2.00 1551 22.04 14 4.5% LEXR 10.85 JUL 10.00 EQG GB 1.05 1013 9.80 14 4.4% RFMD 5.89 AUG 5.00 RFZ HA 1.15 3586 4.74 42 4.0% THOR 16.36 JUL 15.00 TQU GC 1.60 689 14.76 14 3.5% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** SVNT - Savient $5.30 *** What's Up Doc? *** Savient Pharmaceuticals (NASDAQ:SVNT) is engaged in the research, development, manufacture and marketing of pharmaceutical products that address unmet medical needs in both niche and larger market segments. The company distributes its products on a worldwide basis primarily through a direct sales force in the U.S., the United Kingdom (oral liquid products) and Israel, and through 3rd-party license and distribution relationships elsewhere. Through a combination of internal research and development, acquisitions, collaborative relationships and licensing, the company has assembled a diverse drug pipeline. SVNT, formerly Bio-Technology General, rallied sharply Thursday on no news, though there is some speculation that clinical trial results will be released shortly. We simply favor the bullish breakout on heavy volume above near-term resistance and investors can use this position to establish a bullish, low-risk cost basis in the issue. Target shooting a lower net-debit should be a viable way to increase downside protection, as well as the potential yield in the position. JUL-5.00 QTG GA LB=0.60 OI=2047 CB=4.70 DE=14 TY=13.9% ***** USG - USG Corp. $19.57 *** Asbestos Speculation *** USG Corporation (NYSE;USG) produces a range of products for use in new residential, new non-residential and repair and remodel construction, as well as products used in certain industrial processes. Its operations are organized into three operating segments: North American Gypsum, which manufactures Sheetrock brand gypsum wallboard and related products in the United States, Canada and Mexico; Worldwide Ceilings, which manufactures ceiling tile in the United States and ceiling grid in the United States, Canada, Europe and the Asia-Pacific region, and Building Products Distribution, which distributes gypsum wallboard, drywall metal, ceiling products, joint compound and other building products throughout the United States. Shares of companies with asbestos liabilities have rallied sharply recently after legislative progress raised the probability of a national fund to pay asbestos injury claims. Traders can use this position to speculate on the outcome with a cost basis closer to near-term technical support. JUL-15.00 USG GC LB=4.90 OI=6631 CB=14.67 DE=14 TY=4.9% ***** CYBX - Cyberonics $24.04 *** On The Rebound *** Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and markets the NeuroCybernetic Prosthesis, an implantable medical device that delivers a novel therapy, Vagus Nerve Stimulation, for treating epilepsy and debilitating neurological, psychiatric diseases and other disorders. In July 1997, the NCP System was approved by the United States Food and Drug Administration for commercial distribution in the United States for the treatment of epilepsy, which the firm sells using its own employee-based direct marketing organization. In addition, the NCP System is marketed internationally for the treatment of epilepsy (mainly in Europe) using a combination of Cyberonics' own direct sales organization and independent distributors. During fiscal 2001, the firm obtained approval for commercial distribution of the NCP System for the treatment of depression in Europe and Canada. After disappointing earnings in May, Cyberonics rallied in June on news that Boston Scientific (NYSE:BSX) had purchased about a 15% stake in the company. This week, CYBX rallied after the company said it had received European approval to sell its vagus nerve stimulation device for treating epilepsy and depression in patients resistant to standard therapies. The stock is once again testing near-term resistance and traders can speculate on the performance of the issue with this short-term position. JUL-22.50 QAJ GX LB=2.00 OI=1551 CB=22.04 DE=14 TY=4.5% ***** LEXR - Lexar Media $10.85 *** Rally Mode! *** Lexar Media (NASDAQ:LEXR) designs, develops and markets high- performance flash cards and connectivity products marketed as "digital film" to the digital photography market, as well as to other markets utilizing portable digital storage media for the capture and retrieval of digital content. The company's digital film products enable customers to capture digital images and download them to a personal computer for editing, distributing and printing. Lexar Media offers flash cards in the 5 primary formats used by digital cameras and other electronic devices: CompactFlash, Memory Stick, SmartMedia, Secure Digital Card and MultiMedia Card. Lexar continues to rally higher, reaching a new 2-year high on heavy volume, which suggest further upside potential. With earnings due on July 17, traders can speculate on the company's future with this position. Try target shooting a lower net-debit to improve both the cost basis and potential yield. JUL-10.00 EQG GB LB=1.05 OI=1013 CB=9.80 DE=14 TY=4.4% ***** RFMD - RF Micro Devices $5.89 *** Bottom Fishing! *** RF Micro Devices (NASDAQ:RFMD) is a designer, developer, producer and marketer of proprietary radio frequency integrated circuits (RFICs), primarily for wireless communications products and applications. The company's products are included in cellular and personal communications service (PCS) phones, base stations, wireless local area networks (WLANs) and cable television modems. The company offers a broad array of products, including amps, mixers, modulators/demodulators and single chip transmitters, receivers and transceivers that represent a substantial majority of the RFICs required in wireless subscriber equipment. These ICs perform the transmit and receive functions that are critical to the performance of wireless and PCS phones. Rf Micro has been forging a Stage I base for almost a year with strong support around $5. Regardless of the recent slump in share value, RFMD is one of the top companies in its sector and is a core holding for many institutional investors. The current technical outlook is recovering and this position offers a favorable reward potential at the risk of owning this industry-leading issue at a reasonable cost basis. This August position should offer target-shooters a fair chance at a lower net-debit entry point than shown here. AUG-5.00 RFZ HA LB=1.15 OI=3586 CB=4.74 DE=42 TY=4.0% ***** THOR - Thoratec $16.36 *** Rally On No News! *** Thoratec (NASDAQ:THOR) offers 2 complementary circulatory support product lines, the Thoratec Ventricular Assist Device system (VAD system), an external device for short- to mid-term cardiac support, and the HeartMate Left Ventricular Assist system (HeartMate), an internal device for longer-term cardiac support. In addition to its cardiac assist products, the company offers vascular access grafts used in hemodialysis for patients with end-stage renal disease. The company is also developing a small-diameter access graft for use in coronary artery bypass graft surgery. Thoratec also sells whole-blood coagulation testing equipment for use in bedside anticoagulation management, coagulation screening and skin incision devices for the drawing of blood from adult, children and infant patients. There's not much news on Thoratec to explain Thursday's continued rally but the technical indications suggest the issue has successfully completed a recent consolidation and is poised for future gains. In addition, the fundamental outlook for the company is excellent and the drug sector is performing very well; both factors that lead to a bullish position in the issue. Target shooting a lower net-debit will offer a higher potential yield and increase the downside protection in the position. JUL-15.00 TQU GC LB=1.60 OI=689 CB=14.76 DE=14 TY=3.5% ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield FLE 10.45 JUL 10.00 FLE GB 1.00 0 9.45 14 12.6% SCSS 18.94 JUL 17.50 QSL GW 2.00 1054 16.94 14 7.2% LENS 7.57 JUL 7.50 DVU GU 0.30 0 7.27 14 6.9% ATYT 10.40 JUL 10.00 QFY GB 0.70 2201 9.70 14 6.7% WDC 12.70 JUL 12.50 WDC GV 0.55 6740 12.15 14 6.3% PLXT 5.35 AUG 5.00 PIU HA 0.75 0 4.60 42 6.3% IBIS 8.25 AUG 7.50 UIB HU 1.25 20 7.00 42 5.2% FLSH 13.12 JUL 12.50 FFU GV 0.90 485 12.22 14 5.0% FWHT 19.91 JUL 17.50 HFQ GW 2.80 192 17.11 14 5.0% IGEN 33.76 JUL 30.00 GQ GF 4.40 7983 29.36 14 4.7% CIEN 5.51 AUG 5.00 EUQ HA 0.80 1033 4.71 42 4.5% VICL 5.51 AUG 5.00 VAQ HA 0.80 96 4.71 42 4.5% LWSN 7.71 AUG 7.50 QPA HU 0.65 226 7.06 42 4.5% PKTR 18.00 JUL 17.50 XOU GW 0.85 220 17.15 14 4.4% NXTL 18.38 JUL 17.50 FQC GS 1.20 20880 17.18 14 4.1% ASKJ 14.19 JUL 12.50 AUK GV 1.90 707 12.29 14 3.7% ***************** NAKED PUT SECTION ***************** Options 101: A Great Time For A Holiday! By Ray Cummins Each year on July 4, Americans celebrate freedom and independence with fireworks and family gatherings. Most people know the story behind the Fourth of July holiday, but relatively few take time to consider how important this date is to the heritage of the United States. Our country is a diverse nation made up of unique and dynamic people, however our freedom should not be taken for granted because it came at a price. In the early 1700s, the colonies that made up England's eastern empire in the "New World" were becoming unhappy with the dictatorship imposed by a king who lived on the other side of the planet. They were also unhappy with the excessive taxes imposed upon their labor. At the same time, the colonists could not ignore the fact that they were British citizens and that they owed allegiance to their homeland. One of the staples of colonial life in that era was tea and yet despite the apparent demand, the tea industry was struggling. To help compensate the losses among prominent English companies, King George III levied a tax on tea sold in the colonies. This did not go over well with the colonists and in show of rebellion, Samuel Adams and a group of Boston citizens dressed up as Native Americans and dumped a cargo of the tea into Massachusetts Bay. Of course, the British government did not welcome this show of "patriotism" and soldiers were posted to guard the port for future shipments. Eventually, a small skirmish broke-out at the customs house and the soldiers killed some of the colonists -- 5 to be exact. The actual number of people who died was exaggerated in the community and one of the patriots popularizing the tragic event was none other than Paul Revere. His activities in the wake of the "Boston Massacre" highlighted the current tyranny and stir up anti-British sentiment among fellow colonists. Along with general unrest, these events became the catalysts that led America down the road to independence. A group of politicians in Virginia took the first step by voting to set up a committee to represent the colonies. In the Fall of 1774, the First Continental Congress met to draw up a list of grievances against the crown, which became the first draft of a document that would formally separate the colonies from England. A planter from Virginia, George Washington, was elected Commander in Chief of the Continental Army and he began fighting the British in Massachusetts. For the next few years, colonists fought fervently in a revolution that would become known as America's War for Independence. At the same time, a war of words was being waged in Philadelphia and in 1776, the Second Continental Congress produced another draft of the list of grievances against the crown, which John Hancock was first to sign. The document, called the Declaration of Independence, was officially adopted on July 4, 1776, and over the next few weeks it was read publicly throughout the colonies. Although the war dragged on until 1783, the Fourth of July holiday is based on the date the final draft was recorded. John Adams, the second President of the United States, is often credited with starting the tradition of celebration. In a note to his wife he wrote, "I believe that it will be celebrated by succeeding generations as the great anniversary festival... it ought to be celebrated by pomp and parade, with shows, games, sports, guns, bells, bonfires and illuminations from one end of this continent to the other..." So, on July 4, 1776, we claimed our independence from England and Democracy was born. Now on this day every year, Americans take a holiday from work and people attend picnics, parades and fireworks shows. The activities surrounding the Fourth of July are the true foundation of the American dream and I am glad our forefathers were self-motivated people willing to give their lives so we could enjoy this day of independence in the "land of the free and the home of the brave." SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield GNTA 14.21 13.74 JUL 10.00 0.50 0.50* 4.6% 13.0% CBST 12.95 11.39 JUL 10.00 0.40 0.40* 3.6% 11.6% FWHT 20.33 19.91 JUL 17.50 0.45 0.45* 3.8% 11.3% FWHT 19.14 19.91 JUL 15.00 0.40 0.40* 3.0% 10.3% ADVS 17.74 17.60 JUL 15.00 0.45 0.45* 3.4% 10.2% KMRT 25.20 25.73 JUL 20.00 0.50 0.50* 2.8% 9.8% OIIM 16.49 16.62 JUL 15.00 0.30 0.30* 3.0% 8.0% AVCT 31.21 30.97 JUL 27.50 0.70 0.70* 2.8% 8.0% CHKP 19.94 19.69 JUL 17.50 0.40 0.40* 2.5% 7.3% ISIL 26.48 26.76 JUL 22.50 0.35 0.35* 2.3% 7.3% AMLN 25.45 22.02 JUL 20.00 0.45 0.45* 2.0% 7.1% SNDK 41.20 43.05 JUL 32.50 0.40 0.40* 1.8% 6.7% MEDI 37.71 36.82 JUL 30.00 0.60 0.60* 1.8% 6.4% MCHP 24.86 25.68 JUL 22.50 0.35 0.35* 2.3% 6.4% AAII 20.10 19.95 JUL 17.50 0.25 0.25* 2.1% 6.4% SOHU 32.45 33.84 JUL 22.50 0.50 0.50* 2.0% 6.2% CTSH 24.25 26.57 JUL 20.00 0.40 0.40* 1.8% 5.9% PLMD 42.59 39.07 JUL 35.00 0.50 0.50* 1.6% 5.5% NTES 33.70 37.63 JUL 25.00 0.45 0.45* 1.6% 5.4% CVTX 34.43 31.50 JUL 25.00 0.45 0.45* 1.6% 5.3% YHOO 32.14 34.85 JUL 27.50 0.40 0.40* 1.6% 5.0% JCOM 45.95 47.66 JUL 37.50 0.35 0.35* 1.4% 4.9% * Stock price is above the sold striking price. Comments: The holiday-shortened week ended with little fanfare - there were no fireworks or "rockets red glare." Analysts blamed the bearish activity on soft data in the job market and low trading volume likely exacerbated the downward momentum. Quarterly earnings will soon be upon us and those reports will set the trend for the coming months. Until then, monitor the positions on the "watch" list: Cubist (NASDAQ:CBST), Amylin (NASDAQ:AMLN), Core Therapeutics (NASDAQ:CVTX) and Genta (NASDAQ:GNTA). Previously Closed Positions: None WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL! ***** The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The Simple Monthly Yield is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the position. NEW CANDIDATES ********* Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield SINA 23.53 JUL 20.00 NOQ SD 0.30 1446 19.70 14 3.3% 10.5% CDWC 48.30 JUL 45.00 DWQ SI 0.80 3299 44.20 14 3.9% 10.3% AVCT 30.97 JUL 27.50 QVX SY 0.40 211 27.10 14 3.2% 9.3% MERQ 41.34 JUL 37.50 RQB ST 0.50 2451 37.00 14 2.9% 8.2% AVID 38.99 JUL 35.00 AQI SG 0.45 65 34.55 14 2.8% 8.1% NTE 41.99 JUL 35.00 NTE SG 0.30 115 34.70 14 1.9% 6.4% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). ***** SINA - SINA Corporation $23.53 *** Another China-dot-com! *** SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an online media company and value-added information service provider for China and the global Chinese communities. With a branded network of localized Websites targeting China and overseas Chinese, the company provides an array of services to its users including region-focused online portals, search, directory, interest-based and community-building channels, free and premium e-mail, wireless short messaging, online games, virtual Internet service provider, classified listings, e-commerce, e-learning, and enterprise e-solutions. In turn, SINA generates revenue through advertising, fee-based services, e-commerce and enterprise services. Stocks in the "China-dot-com" group are soaring and traders who think the recent trend will continue can speculate on that outcome with this position. JUL-20.00 NOQ SD LB=0.30 OI=1446 CB=19.70 DE=14 TY=3.3% MY=10.5% ***** CDWC - CDW Computers $48.30 *** On The Rebound! *** CDW Computer Centers (NASDAQ:CDWC) is a direct marketer of various brands of computers and related technology products and services. CDW's extensive offering of products, including hardware, software and accessories, combined with its service offerings, provide comprehensive solutions for its customers' technology needs. The company offers more than 80,000 products, which include a wide range of product types from manufacturers such as Cisco, Compaq, Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba, among others. The company's value-added services include its ability to custom-configure multi-branded solutions for its many customers and offer technical support 24 hours a day, seven days a week. The company has two main operating segments, corporate, which is comprised of business customers, but also includes consumers, and public sector, which is comprised of federal, state and local government and educational institutions who are served by CDW Government, a wholly owned subsidiary. There's little news to explain the rally in this stock; it couldn't be the distribution deal signed with VRTS right?!? Regardless of the reason, someone is buying CDW shares and traders can profit from continued upside activity in the issue with this position. JUL-45.00 DWQ SI LB=0.80 OI=3299 CB=44.20 DE=14 TY=3.9% MY=10.3% ***** AVCT - Avocent $30.97 *** Trading Range? *** 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 has struggled in recent sessions but the trading-range support near $29, and then again at $27.50 provides a reasonable expectation of a profitable outcome in this position. The company is due to announce quarterly earnings on July 14, 2003. JUL-27.50 QVX SY LB=0.40 OI=211 CB=27.10 DE=14 TY=3.2% MY=9.3% ***** MERQ - Mercury Interactive $41.34 *** 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 has recovered from a recent consolidation phase and the move above near-term resistance at $40 bodes well for its future share value. JUL-37.50 RQB ST LB=0.50 OI=2451 CB=37.00 DE=14 TY=2.9% MY=8.2% ***** AVID - Avid Technology $38.99 *** Break-Out! *** 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. Shares of AVID broke-out to a new "all-time" high last week and the recent buying support near $36 provides an excellent margin of downside protection for this speculative position. JUL-35.00 AQI SG LB=0.45 OI=65 CB=34.55 DE=14 TY=2.8% MY=8.1% ***** NTE - Nam Tai Electronics $41.99 *** 3-for-1 Stock Split! *** 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. Nam Tai recently announced that its board of directors has approved a three-for-one split of its outstanding common stock and investors who want to own a part of this unique company can establish a conservative cost basis in the issue with this position. JUL-35.00 NTE SG LB=0.30 OI=115 CB=34.70 DE=14 TY=1.9% MY=6.4% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield AMR 10.13 JUL 9.00 AMR SL 0.25 3042 8.75 14 6.2% 17.1% NFLX 27.75 JUL 25.00 QNQ SE 0.60 2096 24.40 14 5.3% 14.6% OI 13.36 JUL 12.50 OI SV 0.30 491 12.20 14 5.3% 13.6% SNDK 43.18 JUL 37.50 SWQ ST 0.50 4460 37.00 14 2.9% 9.0% MRVL 37.51 JUL 35.00 UVM SG 0.50 1760 34.50 14 3.1% 8.4% PRX 49.70 JUL 45.00 PRX SI 0.55 612 44.45 14 2.7% 7.6% IGEN 33.76 JUL 27.50 GQ SY 0.25 1745 27.25 14 2.0% 7.2% JBLU 42.76 JUL 40.00 JGQ SH 0.45 936 39.55 14 2.5% 6.6% KKD 43.61 JUL 40.00 KKD SH 0.35 1551 39.65 14 1.9% 5.4% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Independence Day Rally Fizzles! By Ray Cummins Stocks closed the holiday week on bearish note as soft employment data dampened investor's hopes for a recovery in the U.S. economy. The Dow Jones Industrial Average retreated 72 points to 9,070, led downward by sharp losses in AT&T (NYSE:T), which was hit by a debt rating downgrade. The NASDAQ Composite slumped 15 points to 1,663 with a sell-off in networking companies driving the departure from technology shares. The Standard & Poor's 500 Index slid 8 points to 985 despite gains in brokerage and oil service issues. Volume was light at 738 million shares on the NYSE and at 946 million on the NASDAQ. Decliners outpaced advancers 3 to 2 on the Big Board and 6 to 5 on the technology exchange. U.S. treasury prices fell sharply after a surprisingly strong report on the service sector eliminated earlier gains from the weak jobs report. The 10-year note slid 29/32, driving its yield higher to 3.64%. ***************** PORTFOLIO SUMMARY ***************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position or to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. PUT CREDIT SPREADS ****************** Symbol Pick Last Month LP SP Credit CB G/L Status AGN 77.24 78.36 JUL 65 70 0.50 69.50 $0.50 Open ERTS 72.35 75.17 JUL 60 65 0.55 64.45 $0.55 Open UNH 48.93 50.91 JUL 42 45 0.60 44.40 $0.60 Open BGEN 46.25 39.99 JUL 37 40 0.30 39.70 $0.29 Closed PRX 49.16 49.70 JUL 40 45 0.60 44.40 $0.60 Open WLP 86.87 83.69 JUL 75 80 0.60 79.40 $0.60 Open GILD 53.75 57.96 JUL 45 47 0.30 47.20 $0.30 Open JCOM 44.35 47.66 JUL 30 35 0.60 34.40 $0.60 Open MRK 62.59 61.14 JUL 55 60 0.50 59.50 $0.50 Open EBAY 102.36 110.02 JUL 90 95 0.35 94.65 $0.35 Open UNH 50.22 50.91 JUL 45 47 0.30 47.20 $0.30 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss The position in Biogen (NASDAQ:BGEN) should have been closed when the issue moved below the sold (put) strike at $40. Watch-list issues include Merck (NYSE:MRK) and Wellpoint Health (NYSE:WLP). CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status APC 44.46 43.86 JUL 50 47 0.40 47.90 $0.40 Open FNM 68.55 70.12 JUL 80 75 0.60 75.60 $0.60 Open GDT 39.95 44.26 JUL 50 45 0.60 45.60 $0.60 Open KSS 49.45 51.85 JUL 60 55 0.60 55.60 $0.60 Open LOW 44.15 42.12 JUL 50 47 0.30 47.80 $0.30 Open BZH 87.00 83.45 JUL 100 95 0.75 95.75 $0.75 Open HOV 62.12 60.76 JUL 75 70 0.65 70.65 $0.65 Open IBM 84.92 83.95 JUL 95 90 0.45 90.45 $0.45 Open IGEN 31.60 33.76 JUL 37 35 0.35 35.35 $0.35 Open MHK 56.56 57.15 JUL 65 60 0.45 60.45 $0.45 Open OEX 491.61 496.08 JUL 520 515 0.40 515.40 $0.40 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Guidant (NYSE:GDT) shares soared last week after the company said it expects to meet or exceed the upper end of its previous outlook for second quarter sales and earnings. The issue was also raised to a "Buy" at AG Edwards and with the up-trend resuming, traders should consider closing the position to limit potential losses. Issues on the watch-list include Igen International (NASDAQ:IGEN) and Kohl's (NYSE:KSS). CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status NBIX 56.84 55.20 JUL 45 50 4.25 49.25 0.75 Open GILD 53.81 57.96 JUL 45 47 2.20 47.20 0.30 Open BSTE 48.96 49.35 JUL 40 45 4.50 44.50 0.50 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status INTU 46.13 43.79 JUL 55 50 4.50 50.50 0.50 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status QCOM 33.55 37.36 JUL 37 30 0.10 1.00 Open SGR 12.62 12.26 OCT 15 10 (0.10) 0.00 Open ESI 29.63 30.05 OCT 35 25 0.15 0.30 Open Qualcomm (NASDAQ:QCOM) has already offered a favorable profit for short-term traders. SYNTHETIC (BEARISH) ******************* No Open Positions CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status CHKP 18.05 19.69 OCT-20C JUL-20C 0.10 1.30 Open GDT 39.98 44.26 OCT-45C JUL-45C 0.80 1.75 Open BRCM 21.40 26.59 JAN-25C JUL-25C 1.70 2.75 Open SRNA 19.71 21.02 AUG-22C JUL-22C 0.45 0.90 Open VIA 44.95 43.08 AUG-47C JUL-47C 0.70 0.40 Closed MCDT 13.47 14.36 OCT-15C JUL-15C 0.70 1.00 Open BEAS 11.08 11.00 SEP-12C JUL-12C 0.65 0.55 Open IR 47.95 47.64 SEP-50C JUL-50C 1.20 1.10 Open OVER 18.24 19.25 NOV-20C JUL-20C 1.90 2.00 Open Closed positions in Electronic Data (NYSE:EDS), National Semi (NYSE:NSM), Verity (NASDAQ:VRTY), and Viacom (NYSE:VIA) have previously achieved profitability. CREDIT STRANGLES **************** No Open Positions DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status TYC 17.27 18.81 JUL 17.5 17.5 1.80 2.70 Open? RJR 36.19 36.84 AUG 37.5 35.0 3.15 3.70 Open DG 18.64 18.66 AUG 20 17.5 1.20 1.30 Open BSX 60.00 62.56 AUG 60 60 7.00 7.30 Open MBI 50.24 49.25 AUG 50 50 5.20 5.00 Open AIG 55.69 56.48 AUG 55 55 4.90 4.90 Open FRE 50.00 53.50 AUG 50 50 5.10 5.70 Open Tyco (NYSE:TYC) has achieved a favorable "early-exit" profit. Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS ************* This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** IRF - International Rectifier $28.00 *** Recovery Mode! *** International Rectifier (NYSE:IRF) is a designer, manufacturer and marketer of power management products and a global supplier of a type of power semiconductor, MOSFET, which stands for metal oxide semiconductor field effect transistor. Power semiconductors process electricity into a form more usable by electrical products. The company's products are divided among three main categories: analog integrated circuits, and advanced circuit devices, power systems and power components. Its products are used in a range of end markets, including consumer electronics, information technology), automotive, aerospace and defense, communications and industrial. IRF - International Rectifier $28.00 PLAY (conservative - bullish/credit spread): BUY PUT AUG-22.50 IRF-TX OI=23 ASK=$0.40 SELL PUT AUG-25.00 IRF-TE OI=118 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$24.70 ***** MER - Merrill Lynch $49.25 *** Strong Sector! *** Merrill Lynch & Company (NYSE:MER) is a holding company that, through its subsidiaries and affiliates, provides broker-dealer, financing, advisory, wealth and asset management, insurance, lending and related products and services. The Global Markets and Investment Banking (GMI) segment provides equity and debt trading, capital markets services, investment banking and also trategic merger and acquisition advisory services to its clients worldwide. The Company's Global Private Client segment provides wealth management products and services to assist clients in building financial assets and maximizing returns relative to risk tolerance and investment objectives. The principal subsidiaries engaged in asset management activities conducted through the Merrill Lynch Investment Managers brand-name include: Merrill Lynch Investment Managers, L.P., and Merrill Lynch Investment Managers Limited. MER - Merrill Lynch $49.25 PLAY (conservative - bullish/credit spread): BUY PUT AUG-42.50 MER-TV OI=4208 ASK=$0.35 SELL PUT AUG-45.00 MER-TI OI=2314 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$44.70 ***** YHOO - Yahoo! $34.85 *** Global Internet Leader! *** Yahoo! (NASDAQ:YHOO) is a worldwide Internet business and consumer services company that offers a comprehensive branded network of properties and services to more than 200 million individuals worldwide. The company offers an online navigational guide to the Internet via its www.yahoo.com Website, which is a guide in terms of traffic, advertising and household and business user reach. Through Yahoo! Enterprise Solutions, the firm also provides many business services designed to enhance the productivity and Web presence of its clients. Yahoo! has offices in the United States, Europe, Asia, Latin America, Australia and Canada. YHOO - Yahoo! $34.85 PLAY (conservative - bullish/credit spread): BUY PUT AUG-27.50 YHQ-TY OI=1810 ASK=$0.40 SELL PUT AUG-30.00 YHQ-TF OI=670 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.45 POTENTIAL PROFIT(max)=17% B/E=$29.60 ***** ACS - Affiliated Computer $45.06 *** No Rally Here! *** Affiliated Computer Services (NYSE:ACS) is a global company delivering comprehensive business process outsourcing and information technology outsourcing solutions, as well as system integration services. The company operates in three business segments: commercial, federal government and state and local governments. Affiliated provides state and local governments technology-based services with a focus on transaction processing and program management services, such as child support payment processing, electronic toll collection, welfare to workforce services and traffic violations processing. Within the commercial sector, it provides its clients with business process outsourcing, technology outsourcing and systems integration services. The firm also serves the federal government market by providing business process outsourcing services, which consist primarily of loan processing services and human resources services, as well as systems integration services. ACS - Affiliated Computer $45.06 PLAY (conservative - bearish/credit spread): BUY CALL AUG-55.00 ACS-HK OI=129 ASK=$0.35 SELL CALL AUG-50.00 ACS-HJ OI=660 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$50.60 ***** BBBY - Bed Bath & Beyond $38.59 *** Rolling Over? *** Bed Bath & Beyond (NASDAQ:BBBY) is an operator of stores selling predominantly better quality domestics merchandise and other home furnishings typically found in better department stores. The company operates over 400 Bed Bath & Beyond stores in 44 states and one territory. Domestics merchandise includes bed linens and related items, bath items and kitchen textiles. Home Furnishings include kitchen and tabletop items, fine tabletop and giftware, basic house-wares and general home furnishings. BBBY - Bed Bath & Beyond $38.59 PLAY (conservative - bearish/credit spread): BUY CALL AUG-45.00 BHQ-HI OI=1085 ASK=$0.20 SELL CALL AUG-42.50 BHQ-HV OI=2107 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=17% B/E=$42.85 ***** MMM - 3M Corporation $128.38 *** Range-Bound? *** 3M Company (NYSE:MMM), formerly known as Minnesota Mining and Manufacturing Company, is an integrated enterprise characterized by intercompany cooperation in research, manufacturing and sale of products. 3M's business has developed from its research and technology in coating and bonding for coated abrasives, the company's original product. Coating and bonding is the process of applying one material to another, such as abrasive granules to paper or cloth (coated abrasives), adhesives to a backing (pressure-sensitive tapes), ceramic coating to granular mineral (roofing granules), glass beads to plastic backing (reflective sheeting) and low-tack adhesives to paper (repositionable notes). The company conducts business through six operating segments: Industrial Markets; Transportation, Graphics and Safety Markets; Health Care Markets; Consumer and Office Markets; Electro and Communications Markets, and Specialty Material Markets. The company's quarterly earnings are due on July 21, 2003. MMM - 3M Corporation $128.38 PLAY (conservative - bearish/credit spread): BUY CALL AUG-140 MMM-HH OI=439 A=$0.30 SELL CALL AUG-135 MMM-HG OI=1816 B=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$135.60 ************* DEBIT SPREADS ************* These candidates offer a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. ***** EBAY - eBay Inc. $110.02 *** New All-Time High! *** eBay (NASDAQ:EBAY) is a web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and miscellaneous items. The eBay trading platform is a fully automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. EBAY - eBay Inc. $110.02 PLAY (conservative - bullish/debit spread): BUY CALL AUG-95.00 QXB-HS OI=54 A=$16.20 SELL CALL AUG-100.00 QXB-HT OI=630 B=$11.50 INITIAL NET-DEBIT TARGET=$4.45-$4.50 POTENTIAL PROFIT(max)=11% B/E=$99.50 **************** CALENDAR SPREADS **************** A calendar spread (or time spread) consists of the sale of one option and the simultaneous purchase of an option of the same type and strike price, but with a future expiration date. The premise in a calendar spread is simple: time erodes the value of the near-term option at a faster rate than the far-term option. The positions in this section are speculative (out-of-the-money) spreads with low initial cost and large potential profit. ***** ADTN - Adtran $55.69 *** Multi-Year High! *** Adtran (NASDAQ:ADTN) designs, develops, makes and markets a wide range of high-speed network access products utilized by providers of telecommunications services and corporate end users to implement advanced digital data services over both public and private networks. The company's business is arranged with two divisions, the Carrier Networks Division (CN) and the Enterprise Networks Division (EN), to enable it to quickly respond to the needs of the two important market segments that its products address. These two market segments are CN products for use in the service provider's Local Loop, including central office, remote terminal and customer premises, and EN products for use at enterprise headquarters, remote offices and telecommuting locations. Adtran offers more than 500 products built around a set of core technologies, and developed to address high-speed digital communications over the last mile of the Local Loop. ADTN - Adtran $55.69 PLAY (very speculative - bullish/calendar spread): BUY CALL AUG-60.00 RQA-HL OI=53 ASK=$1.85 SELL CALL JUL-60.00 RQA-GL OI=70 BID=$0.50 INITIAL NET DEBIT TARGET=$1.25-$1.30 INITIAL TARGET PROFIT=$0.35-$0.55 ***** ARTI - Artisan Components $23.42 *** Earnings Speculation! *** Artisan Components (NASDAQ:ARTI) is a maker of high-performance, high-density and low-power embedded memory, standard cell and input/output intellectual property components for the design and manufacture of complex integrated circuits or semiconductors. The firm's products are used for the design of integrated circuits used in complex, volume applications, such as portable computing devices, cellular phones, consumer multimedia products, automotive electronics, personal computers, workstations and servers. Artisan focuses on licensing its products and providing related services to semiconductor manufacturers and integrated circuit design companies. The company's quarterly earnings are due July 17, 2003. ARTI - Artisan Components $23.42 PLAY (speculative - bullish/calendar spread): BUY CALL SEP-25.00 UAR-IE OI=77 ASK=$2.00 SELL CALL JUL-25.00 UAR-GE OI=250 BID=$0.45 INITIAL NET DEBIT TARGET=$1.40-$1.50 INITIAL TARGET PROFIT=$0.60-$0.85 ***** NSCN - NetScreen Technologies $24.18 *** Testing Recent Highs! *** NetScreen Technologies (NASDAQ:NSCN) develops, markets and sells a broad family of integrated network security solutions. The firm's security solutions provide key security technologies, such as virtual private networking (VPN), denial of service protection, firewall and intrusion detection and prevention (IDP), in a line of easy-to-manage security systems and appliances. NetScreen's firewall and VPN systems and appliances deliver integrated firewall, VPN and denial of service protection capabilities in a single device using its proprietary application-specific integrated circuits, the GigaScreen and GigaScreen-II ASICs, and its proprietary security operating system and applications, ScreenOS. NSCN - NetScreen Technologies $24.18 PLAY (speculative - bullish/calendar spread): BUY CALL SEP-25.00 QKN-IE OI=301 ASK=$2.10 SELL CALL JUL-20.00 QKN-GE OI=213 BID=$0.55 INITIAL NET DEBIT TARGET=$1.40-$1.50 INITIAL TARGET PROFIT=$0.60-$0.85 *********************** STRADDLES AND STRANGLES *********************** Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. ***** BAC - Bank of America $80.01 *** Reader's Request! *** Bank of America (NYSE:BAC) is a bank holding firm and a financial holding company that provides a diversified range of banking and non-banking financial services and products. The company operates in four primary segments: consumer and commercial banking, asset management, global corporate and investment banking and equity investments. Its operations are conducted primarily throughout the mid-Atlantic (Maryland, Virginia and the District of Columbia), the midwest (Illinois, Iowa, Kansas and Missouri), the southeast (Florida, Georgia, North Carolina, South Carolina and Tennessee), the southwest (Arizona, Arkansas, New Mexico, Oklahoma and Texas), the northwest (Oregon and Washington) and the west (California, Idaho and Nevada) regions of the United States and in selected international markets. The company's quarterly earnings are due July 14, 2003. BAC - Bank of America $80.01 PLAY (very speculative - neutral/debit straddle): BUY CALL JUL-80.00 BAC-GP OI=12133 ASK=$1.30 BUY PUT JUL-80.00 BAC-SP OI=2274 ASK=$1.25 INITIAL NET-DEBIT TARGET=$2.35-$2.45 INITIAL TARGET PROFIT=$0.75-$1.05 ***** ************************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”. 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