The Option Investor Newsletter Wednesday 08-13-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Perspective Futures Wrap: At the brink Index Trader Wrap: See Note Weekly Fund Family Profile: Cooke & Bieler (C&B) Funds Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 08-13-2003 High Low Volume Advance/Decline DJIA 9271.76 – 38.30 9322.11 9233.94 1.48 bln 608/ 849 NASDAQ 1686.61 – 0.40 1695.83 1681.31 1.44 bln 738/ 677 S&P 100 495.29 - 4.45 500.95 493.55 Totals 1346/1526 S&P 500 984.03 - 6.32 992.50 980.85 RUS 2000 467.47 + 0.52 468.37 466.01 DJ TRANS 2598.88 - 8.59 2610.04 2592.52 VIX 20.62 + 0.41 21.69 20.17 VXN 30.27 + 0.06 31.24 29.79 Total Volume 3,144M Total UpVol 1,490M Total DnVol 1,598M 52wk Highs 367 52wk Lows 59 TRIN 0.12 PUT/CALL 0.78 ******************************************************************* Perspective Jonathan Levinson The indices flirted with significant upside and downside levels today, finishing the day nearly unchanged, with the Nasdaq losing less than one point and the Dow 38 points. 5 year weekly COMPX Cyclically, the Dow and Nasdaq both appear to have just completed up-phases from the March lows. Note that on both indices, the March bottom was a higher low on the 10 week stochastic, and the top of the ensuing up-phase occurred at a higher high. While lower prices appear to be in the cards, the onus will be on the bears for the down-phase just commencing. 5 year weekly INDU 6 month daily COMPX The daily candles paint a picture of bifurcated markets with the Dow vastly outperforming the Nasdaq on the correction off the March rally's high. The Dow is on buy signals, with the Nasdaq on sells. 6 month daily INDU 20 day 30 minute COMPX On the 30 minute candles, we see both indices in the early stages of downphases within bear flag formations, projecting to lower lows. 20 day 30 minute INDU What does the foregoing tell us? The bulk of the long-term (weekly timeframe) energy of the Spring rally has been expended, and the cycles are beginning a down-phase. Countertrend to that are the daily candles, which have paused in their ongoing downphases. The short term up-phase which caused that pause has terminated on the 30 minute candles, with the oscillators in that timeframe topped out and pointing south. While the outlook appears weighted to the downside, note that significant bounces can occur within downphases without disturbing their course, such as we see on the daily candles. For me, the best trades occur when the short cycles max-out countertrend to their longer cycles before resuming their runs in gear with the longer trend. On the economic front, the Mortgage Bankers Association (MBA) announced this morning that seasonally-adjusted demand for mortgage refinancings, the MBA refi index, declined 16.1% for the past week following the previous week's 2.4% drop. Demand for loans with which to buy homes, the Purchase index, fell 10%. The Application index fell 10.3% for the week. The average interest rate for a 30-year fixed rate mortgage fell to 6% from 6.37%. The drop in mortgage and refi activity for the week is indicating either the beginning of the end of the mortgage and credit bubble, a very significant development, or merely a lag between rates and mortgage/refi demand. While it's entirely possible that demand has been satisfied at and near current rates, I find the latter case the more likely scenario, and we'll see next Wednesday whether demand perks up for this current week. The Philadelphia Housing Index (HGX) was lower today, while treasuries got sold aggressively throughout the session sending yields sharply higher, the thirty year yield (TYX) finishing higher by 15.3 basis points at 5.441%. One year daily chart of the HGX The HGX sold off, dropping 5.44 to 286.14. It seems obvious that higher rates should slam the brakes on the homebuilders, but strong yield rally (see TYX below) has yet to have any serious impact on the index. Nevertheless, today saw the TYX add 15.5 basis points to the HGX' 5.44 point loss. If yields post new year highs, one might expect to see a downward trend in the HGX assert itself. One year daily chart of the TYX Equity futures took a jump at 8:30 when The Commerce Department reported that U.S. retail sales increased by 1.4% in July, exceeding estimates of 0.8%, led by purchases of gasoline, autos, electronics and household goods. The June figure was revised up to 0.9% from the 0.5% previously reported. Auto sales were up 3.2% in July. Excluding autos, retail sales were up 0.8% compared with estimates for a 0.5% increase. Retail sales were higher by 5.6% from July 2002, and this month's figures represent the largest increase since March of this year. It was reported that sporting goods stores and non-store retailers were the only retail categories to see a decline in sales for July. The financial press reported that this data is evidence of the sharp economic recovery that some are seeing. This may well be the case, but I find the water excessively muddied by the recent sharp moves in interest rates, the ongoing new highs in consumer credit, and the aggressive inflation of money supply by the Fed. The combination of increased sales with the recent declines in initial claims paints a potentially bullish picture for the economy, but ongoing price inflation, continuing unemployment claims and duration of that unemployment remain worrisome. On that point, President G.W. Bush, following a meeting with his top economic advisors, told reporters that in his opinion, the current round of tax cuts and incentives should be sufficiently robust to create jobs, and that his administration is upbeat on the employment outlook. In a separate statement, U.S. Treasury Secretary John Snow said that, "When an economy is recovering, it is normal to see interest rates rise some. So I would point to the rising interest rates as an indication that the economy is coming back." While Mr. Snow is not the only observer to share that opinion, I do not. Unless a significant uptick in employment and domestic corporate spending occurs (ie spending at home, and not foreign direct investment), the rise in yields looks purely negative to me, particularly in light of the alltime record levels of personal indebtedness and bankruptcies already occurring in this year's "as good as it gets" credit environment. The increase in yields will only exacerbate these problems, putting additional pressure on the straining consumer, as well as corporate and government borrowers. As a purely technical aside, a better than 130 basis point jump in yields within a 2 month period looks like more than interest rates merely "rising some", as Secretary Snow puts it, but the matter is open to interpretation. The Labor Department reported that the price of imported goods rose 0.5% in July following a rise of 0.7% in June, exceeding estimates of a 0.3% increase. Prices for exported goods fell 0.1%. Prices rose in nearly all major sectors, with petroleum import prices rising 3.7% in the month while non-fuel import prices rose 0.1%. The Energy Department reported a 200,000 barrel increase in crude oil supplies for the week ended August 8, while the American Petroleum Institute reported a 3.2 million barrel increase to 281.3 million barrels. Gasoline supplies fell 1.85 million barrels to 200 million barrels and distillate inventories lost 836,000 barrels to 117 million barrels according to the API. Unsurprisingly, analysts were caught flatfooted again, expecting a drop in crude oil supplies for the week. Crude oil futures led the Commodities Index to the downside, dropping 1.14 or 3.57% to $30.78 per barrel. Notwithstanding today's drop, crude remains above the widely-regarded 30 per barrel level and continues to pressure the economy. We have the following economic data due tomorrow: Report Briefing Market Prior Expects Expects Aug 14 8:30 AM Core PPI Jul - 0.1% 0.1% -0.1% Aug 14 8:30 AM Initial Claims 08/09 - 385K 393K 390K Aug 14 8:30 AM PPI Jul - 0.1% 0.1% 0.5% Aug 14 8:30 AM Trade Balance Jun - -$42.0B -$42.0B -$41.8B Aug 14 2:00 PM FOMC Minutes With bonds selling off aggressively today and gold rallying, the markets should be particularly sensitive to the 8:30 news. The initial claims data is expected to be low, and any upside surprise could be the straw that breaks the camel's back on the bear flags we've been watching. Nevertheless, it is options expiration week, and price has a habit of misbehaving during this period. We'll trade what the markets give us and exercise caution in either direction. ************ FUTURES WRAP ************ At the brink Jonathan Levinson The markets traded at the brink of breakouts and breakdowns today, with equities finishing the day slightly within negative territory, while treasuries and crude oil saw more serious selloffs. Gold finished higher. Daily Pivots (generated with a pivot algorithm and unverified): 10 minute chart of the US Dollar Index The US Dollar Index was sold off throughout the session, finding support at the 96 level at noon, from which it began a weak bounce. Gold and silver had been weak overnight but jumped strongly on the dollar decline, with silver leading the CRB higher, adding 3.46% to close at 5.03. Daily chart of December gold December gold printed a bullish engulfing candle, adding 4 to 364 and building on the buy signals that have been tentatively printing for the past week. The descending upper trendline on the pennant commencing in February looms overhead at 368, and 365.40 held back the advance today. HUI was higher by 3.07 to 180.53, reversing its morning losses, and XAU added 1.16 to close at 87.37. Daily chart of the ten year note yield Treasury yields gapped higher and the ten year yield traded for the entire session above the trendline, completing a whipsaw commenced last week. The TNX closed higher by 20.3 basis points at 4.56%. Note that everyone who bought the record 60B treasury auction last week is now significantly under water. I do not share Secretary Snow's view that this rise in yield is either healthy for or indicative of a healthy economy, as discussed more fully in the Market Wrap. On the ten year yield chart, the sell signals are aborting very early in their downphases, and given today's breakaway gap above the trendline, the outlook for treasuries looks quite bearish. Note, however, that the rally high in the ten year yield remains untested so far, though the 4.6% level looms a mere 4 basis points away. Daily NQ candles The NQ closed lower by one point on the day, clearing the 22 day EMA and again finding support above the 50 day EMA. The flat close left the oscillators unchanged in their ambious state, still within downphases but on the cusp of reversing to buys. 30 minute 20 day chart of the NQ The lower ascending trendline on our steep bear flag held today, despite a near-breakdown from the ES near the end of the day. If not for a strong showing in the last 20 minutes from the MOC orders, today's outcome might have been very different. The oscillators on the 30 minute chart are on sell signals, and given the listless bounces from the lower trendline within this bear flag, I am not seeing much hope for an upside breakout on the daily bull flag in the chart above. Daily ES candles ES was the weaker index today, failing at its upper descending trendline and printing a pattern of lower highs throughout the day. Nevertheless, the tentative buy signals on the daily oscillators remain, and the MOC rally at the end of the cash session left the outlook entirely ambiguous, as appears more fully from the 30 minute chart below. 20 day 30 minute chart of the ES The afternoon break below 984 was on solid volume and felt impulsive. Lined up with the oscillators pointed south, it felt like a bear flag breakout. 979.75 held as support, however, and after a moment of indecision, a nearly-vertical rally brought the ES back above the lower trendline, closing at 984.75. Whether the end-of-session buying was a mere tape- painting job or whether it signals another leg up is anybody's guess- if you don't believe me, compare the stochastic with the Macd on the 30 minute candles, with the "earlier" oscillator on an early buy signal and the lagging Macd still on a sell. I would be inclined to be patient and wait for the trendline to get broken before shorting at current levels. Daily YM candles YM traded both sides of the ascending trendline on the daily candles, closing right on it. Despite its 21 point loss on the session, the buy signals on the daily did not reverse, but nor did they gain any headway. Near term direction for the YM remains up for grabs at current levels. 20 day 30 minute chart of the YM Like the ES, the YM broke below the trendline on its bear flag but closed above it at 9267. My analysis for the YM is the same as for the ES, but note that the buy signal on the stochastic has barely printed. My bias is bearish, but it's more of a bias than an objective conclusion at this point, and I will try to exercise patience. We have a number of economic reports due tomorrow morning, and I expect them to give us our cue before the cash open. The failure at the morning highs erased the bearish fears/bullish hopes of a retest of the rally highs, and so while prices did not change dramatically today, the victory must go to the bears. Tomorrow will be an important day for equities, and moreso for treasuries and gold, both of which are kissing distance from major trendlines. See you at the bell! ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ******************** INDEX TRADER SUMMARY ******************** Check the Site Later Tonight For Jeff's Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_081303_1.asp ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ************************** WEEKLY FUND FAMILY PROFILE ************************** Cooke & Bieler (C&B) Funds Long-term investors looking for a high quality, low risk approach to equity investing will like what they see at Cooke & Bieler, an investment firm based in Philadelphia that has been building (and preserving) capital for more than half a century. In 1949, Louis Bieler, a former Philadelphia banker with considerable investment experience, founded an investment firm to focus on the management of accounts for wealthy individuals. Two years later, Bieler was joined by Jay Cooke, a prominent Philadelphian, forming Cooke and Bieler. The story goes that the two investment entrepreneurs proved to be a successful combination. By the time that Jay Cooke passed away in 1963, the firm had its first pension fund account and over 100 million dollars in assets under management. The firm grew during the 60s and 70s, adding new professionals to serve a growing list of institutional clients. When Louis Bieler retired in 1973, six partners bought the firm. At that time, the firm's total managed assets were approximately $350 million, over half of which was in institutional accounts. The firm's assets under management reached $2 billion by 1986 and that year, Cooke & Bieler (C&B) became a subsidiary of the United Asset Management Group (UAM). By 1999, the firm's assets managed were over $5.5 billion. Then in 2001, eight partners completed a successful buy-back of the firm from UAM/Old Mutual (successor to UAM). Cooke & Bieler (C&B) has been independently owned/operated since 2001. According to Cooke & Bieler's website at www.cookebieler.com, the company's investment team has an "average industry experience" of 16 years, referring to them as seasoned decision makers who share the firm's investment philosophy. The firm's investment team is also distinguished by its stability and continuity. The average tenure of the C&B investment team is 13 years, with a systematic hiring process in place to ensure continuity and the firm's long- term success. The firm's website provides bio's for each of the firm's key professionals. Mutual Fund Overview The Cooke & Bieler (C&B) mutual funds were first offered in 1990 with the launch of the C&B Equity Fund (CBEQX), now known as C&B Large-Cap Value Fund. The fund seeks long-term total return with minimal risk to principal by investing primarily in common stocks of companies with solid financial positions and strong management capabilities. It focuses on stocks of companies with consistency and predictability in earnings and growth, and whose common stock is "undervalued" at the time of investment. In 1997, a tax-managed equity fund was launched, known as the C&B Tax-Managed Value Portfolio (CBTAX). It seeks maximum long-term and "after-tax" total return, consistent with minimizing risk to principal. Morningstar classifies both CBEQX and CBTAX as large- cap value funds; Lipper reflects them as "multi-cap" value funds in their system. So, they are large-cap bias overall, but invest across all market capitalization ranges. The firm's third mutual fund, C&B Mid-Cap Value Fund (CBMDX), got its start in 1998. It has a similar investment philosophy as its two equity siblings, seeking long-term growth by investing mainly in common stock of companies that have consistency/predictability in their earning growth. Both Morningstar and Lipper classify it as a mid-cap value fund. Although these are really institutional mutual funds as their "I" designation indicates, the C&B mutual funds are available through leading brokerage networks. The Cooke & Bieler funds are offered on a no-load, no-transaction fee basis through Schwab's OneSource program, Fidelity's Funds Network, and TD Waterhouse's Retail NTF network, to name a few of the bigger NTF programs. The funds are designed to be affordable and have minimum initial investments of $2,500 ($2,000 for IRAs). Expense ratios are reasonable, ranging from 1.25% to 1.40% of assets per annum. Each of the C&B fund portfolios are team managed. All portfolios seek to achieve a superior rate of return over the long run, with minimal risk. Each strategy is implemented primarily by internal research, involving investing in high quality, low risk companies with strong financial positions and management capabilities. The Investment Philosophy section of the firm's website details their approach to equity investing. Typically, portfolio holdings will consist of undervalued or reasonably priced stocks with desirable characteristics: above average yields, above average earnings, above average dividend growth potential, and below average risk. According to Morningstar's latest reports, the average P/E ratios of the C&B funds range from 20.6x to 23.2x, below the 24.5x ratio for the S&P 500 index. Those values would suggest that the funds are not deep-discount oriented. Further, the annual turnover for each portfolio is 44% or less, so it's possible that a fund could temporarily drift up into the "core" style box from time to time, but that doesn't mean the funds stray from their value investment discipline. They invest in companies when the value of the stock is underpriced in the market and then hold them for a while until they reach their fair market value (or no longer show the desired characteristics). C&B Large-Cap Value Fund and C&B Tax-Managed Large-Cap Value Fund have average market capitalizations of roughly $12 billion. That is large enough to put the funds in Morningstar's large-cap style box, but Lipper's "multi-cap" designation is a better description of these two funds' styles in our opinion. The C&B Mid-Cap Value Fund recently sported an average market cap of roughly $2 billion (i.e. mid-cap). The large-cap portfolios invest primarily in the large-cap and mid-cap ranges, while the mid-cap portfolio invests primarily in the mid-cap and small-cap ranges. In the next section, we see how the C&B funds have performed over time relative to similar funds. Mutual Fund Performance C&B Equity Fund (CBEQX), now called C&B Large-Cap Value Fund, has the longest history so we start there. The flagship fund product over the trailing 10-year period (through July 31, 2003) produced an annualized total return of 12.3 percent for investors, beating the S&P 500 index benchmark by an average of 2.0% a year. It was also good enough to rank the fund in the top quartile of the mid- cap value category where Morningstar puts the fund for comparison purposes (based on its average investment style of the past three years). Over the same trailing 10-year period, the average domestic stock fund produced an average annual total return of 8.6 percent. So, over the long run, the firm has succeeded in producing a superior rate of return for investors when compared to broad peer group of U.S. stock funds. Below is a summary of 10-year annualized total returns through July 31, 2003 for the fund and various stock fund categories, using Morningstar data. Average Annual Total Return (Jul-31-03): +12.3% C&B Large-Cap Value (CBEQX) +10.3% S&P 500 Large-Cap Index +8.6% All U.S. Stock Funds Average +9.0% Large-Cap Value Fund Average +10.8% Mid-Cap Value Fund Average As you can see, the C&B Large-Cap Value Fund has beaten its index and fund-peer benchmarks by considerable margins over the past 10 years following a conservative equity style. Though investing in value stocks can cause it to trail other types of funds in rising market environments, the C&B investment team excels at preserving capital in market downswings. Some investors feel it is not what you make in up markets, but rather what you "don't lose" in stock downturns that matters most. C&B's style is best suited to long- term investors who do not mind giving up some upside potential in return for better downside protection over the long run. Turning now to 5-year performance, below is an investment summary through August 12, 2003 for the three Cooke & Bieler mutual funds versus comparable benchmarks. 5-Year Annualized Total Returns (Aug-12-03): +7.9% C&B Tax-Managed Large-Cap Value (CBTAX), 3rd percentile +7.9% C&B Large-Cap Value (CBEQX), 32nd percentile +15.1% C&B Mid-Cap Value (CBMDX), 5th percentile Note that if C&B Large-Cap Value Fund was categorized as a large- cap value fund by Morningstar (not as mid-cap value), it would be ranked in the 3rd percentile of that category. C&B's Tax-Managed Large-Cap Value Fund, which also produced a 7.9% annualized total return over the past five years, ranks in the top 3% of the large value category. So, we're talking really about top 5% returns in the past five years. On a year-to-date basis through August 12, the C&B funds continue to be a source of strong investment results. All three funds are ahead of the S&P 500 index this year and all three funds continue to rank highly within their respective category peer groups. For the YTD period, C&B Large-Cap Value Fund has returned 16.4%, C&B Tax-Managed Large-Cap Value Fund has returned 12.7%, and C&B Mid- Cap Value Fund is up 18.4%. For comparison purposes, the S&P 500 index has gone up 12.5% since December 31, 2002. The C&B funds are also continuing to perform well versus category peers. For the YTD period, the average large-cap value fund has risen 12.6% while the average mid-cap value fund has increased by 14.5%. So, with the market's ups and downs in 2003, C&B's equity funds have remained competitive, maybe a little better than that. Conclusion A conservative equity approach, reasonable cost and expenses, and low turnover characterize the Cooke & Bieler mutual funds. Stock funds are managed similarly to the way the firm has managed large money for institutions and high net worth individuals for over 50 years. Although the C&B funds lagged more aggressive fund styles during the go-go growth years (1997-1999), they have come through the market correction (2000-2002) in much better shape than other fund types. If you have a long-term investment horizon and seek a stock fund that follows a high-quality low-risk path to capital growth, the Cooke & Bieler funds are worth a closer look. For further detail or to download a prospectus, go to www.cookebieler.com. You can find more information on C&B as an investment firm there as well. Steve Wagner Editor, Mutual Investor email@example.com ------------------------------------------------------------ We got trailing stops! 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The Option Investor Newsletter Wednesday 08-13-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: None Dropped Calls: KSS Dropped Puts: FITB, KLAC Play of the Day: Call - PCAR Spreads, Combinations & Premium-Selling Plays: Rally Fades Amid Bond Market Woes! Watch List: Bonds Get Slammed Updated on the site tonight: Market Posture: Traders Hit Snooze ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* Kohl's Corp. - KSS - close: 61.50 change: +0.01 stop: 59.75 Despite a mighty effort, the bulls just couldn't sustain the early gains in KSS and while it was encouraging to see the stock still hold onto positive territory (just barely) at the close, we're out of time. We've finally gotten the solid breakout we were looking for, but it has been a bit disappointing that the stock couldn't build on its breakout ahead of earnings. KSS is set to report earnings on Thursday after the closing bell, so we're closing it out for a small gain tonight. Use any bullish follow through in the morning to exit at a more favorable price point. Picked on July 31st at $59.35 Change since picked: +2.15 Earnings Date 08/14/03 (confirmed) Average Daily Volume = 4.27 mln ************ DROPPED PUTS ************ Fifth Third Bancorp - FITB - cls: 55.00 chg: +0.61 stop: 55.01 While the Banking sectors were weak on Wednesday, sadly, the same cannot be said about our FITB play, which continued its rebound from the recent lows near $52.50. Gapping higher at the open, the stock pushed through our $55.01 stop on several occasions, but in each case was unable to hold above $55. But the strength of the short-covering bounce at the close was too much for us, and the close right at $55.00, a penny below our stop does not bode well for the bears. Rather than hope for a reversal tomorrow, the prudent course is to cut it loose tonight just below our picked price and let the chips fall where they may. If still holding open positions, look to exit on any early weakness tomorrow morning. Picked on July 17th at $55.26 Change since picked: -0.26 Earnings Date 07/15/03 (confirmed) Average Daily Volume = 2.22 mln --- KLA-Tencor - KLAC - close: 52.21 change: +2.61 stop: 50.05 So much for that breakdown in the Semiconductor sector! The SOX has come roaring back to life this week, breaking back inside its broken ascending channel and looks to be threatening the $400 level again. KLAC led that charge on Wednesday, vaulting higher by more than 5% on huge volume. In the process, the stock broke above the 10-dma, the 20-dma and ended right back at strong resistance near $52.50. With our stop tripped in the first 30 minutes of trade, there is no question about dropping the play tonight. This is yet another reminder of the utility of live stops. Picked on August 10 at $48.04 Change since picked: +3.08 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 9.62 mln ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ********************* PLAY OF THE DAY - PUT ********************* PACCAR - PCAR - close: 79.73 change: +0.34 stop: 75.50*new* Company Description: PACCAR is a global technology leader in the design, manufacture and customer support of high-quality light-, medium- and heavy- duty trucks under the Kenworth, Peterbilt, DAF and Foden nameplates. It also provides financial services and distributes truck parts related to its principal business. In addition, the Bellevue, Washington-based company manufactures winches under the Braden, Gearmatic and Carco nameplates. (source: company press release) Why we like it: Our relative strength play in shares of truck and truck parts manufacturer PCAR is working out well. The stock appears to have finished consolidating above old resistance of $75 and we're now seeing a short series of higher lows. PCAR is setting up for a new breakout over current resistance of $80.00. Momentum traders might want to wait for the move over $80 before initiating new positions. Chart readers will also note that the 10-dma appears to be offering some support. It would be nice to see a little more volume on the climb higher but given the late summer trading sessions low volume is expected. Stronger volume on any breakout to the upside would certainly be confidence building for the bulls. We are going to raise our stop by $1.00 to $73.99. More conservative traders might want to consider upping their stop towards the $76 mark, a level not seen for several sessions. Why This is our Play of the Day It may have been a mildly negative day in the broad market, but somebody forgot to tell PCAR shareholders, as they once again bid the stock to new all-time closing highs, just below $80. The stock has been methodically marching higher to the tune of higher highs and higher lows for the past week, and it feels like a breakout over the $80 level could be just around the corner. Note how the stock has consistently found support above the 10-dma over the past couple weeks. That indicates that intraday dips that find support above this moving average are likely solid entry points. Momentum traders will want to wait for the elusive breakout over $80.00 (today's intraday high) before playing. Our stop is moving up to $75.50 tonight, just below the 20-dma ($75.59). Clearly a drop below that level would not be a good sign and would indicate at least a temporary end to this bullish run. Suggested Options: PCAR currently has August, September, November and January options available. We're going to list September and November strikes with a preference for September 75s and 80s. BUY CALL SEP 75 PAQ-IO OI= 66 at $5.40 SL=3.50 BUY CALL SEP 80 PAQ-IP OI= 159 at $3.30 SL=1.75 BUY CALL NOV 75 PAQ-KO OI= 354 at $8.40 SL=6.00 BUY CALL NOV 80 PAQ-KP OI= 76 at $5.30 SL=3.25 Annotated Chart of PCAR: Picked on July 31 at $77.24 Change since picked: +2.49 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.16 mln ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: ------------------------------------------------------------ ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* Rally Fades Amid Bond Market Woes! By Ray Cummins Concerns over the future direction of interest rates pushed the major equity averages lower today, despite a surge in retail sales and renewed strength in semiconductor shares. The Dow Jones Industrial Average retreated 38 points to 9,271 as losses in McDonald's (NYSE:MCD), Merck (NYSE:MRK), General Motors (NYSE:GM) and SBC Communications (NYSE:SBC) kept the blue-chip group in the red. The NASDAQ Composite finished 3 points higher at 1,690 after upbeat comments from Applied Materials (NASDAQ:AMAT) spurred a buying spree in chip shares. The Standard & Poor's 500 Index slid 6 points to 984 with gold issues among the few bullish sectors. Trading was active as 1.21 billion shares changed hands on the New York Stock Exchange and about 1.45 billion were swapped on the NASDAQ. Decliners beat advancers 9 to 7 on the Big Board while winners edged past losers by a slim margin on the technology exchange. Treasury issues moved lower, though shorter maturities fared better relative to longer securities in response to the Fed's pledge to keep monetary policy accommodative for the foreseeable future. The yield on the benchmark 10-year Treasury note rose to 4.57% as its price sank more than a full point. *************** SUMMARY OF CURRENT POSITIONS - AS OF 8/12/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield AMLN AUG 20 19.30 23.81 $0.70 8.47% 3.63% ELBO AUG 22 22.10 25.65 $0.40 4.23% 1.81% IVGN AUG 40 39.40 50.02 $0.60 3.97% 1.52% JCOM AUG 40 39.30 49.82 $0.70 5.19% 1.78% NFLX AUG 20 19.65 24.87 $0.35 4.91% 1.78% POWI AUG 22 22.20 28.91 $0.30 4.15% 1.35% ELBO AUG 22 22.20 25.65 $0.30 3.99% 1.35% FWHT AUG 17 17.00 19.70 $0.50 9.85% 2.94% GENZ AUG 42 41.85 46.65 $0.65 5.42% 1.55% MATK AUG 40 39.45 47.22 $0.55 4.50% 1.39% MEDI AUG 35 34.45 36.45 $0.55 4.76% 1.60% MOGN AUG 22 21.90 36.86 $0.60 9.51% 2.74% NFLX AUG 20 19.55 24.87 $0.45 8.23% 2.30% OVTI AUG 30 29.50 41.90 $0.50 6.01% 1.69% POWI AUG 22 22.15 28.91 $0.35 5.32% 1.58% SNDK AUG 40 39.45 50.28 $0.55 4.92% 1.39% UTSI AUG 30 29.50 40.24 $0.50 5.97% 1.69% ACDO AUG 22 21.50 23.50 $0.50 8.82% 2.33% CECO AUG 75 74.40 86.10 $0.60 3.01% 0.81% CYMI AUG 35 34.55 38.39 $0.45 5.27% 1.30% MEDI AUG 37 36.80 36.45 ($0.35) 0.00% 1.90% MOGN AUG 22 21.75 36.86 $0.75 13.72% 3.45% MNST AUG 20 19.65 24.03 $0.35 7.11% 1.78% OSIP AUG 25 24.60 32.90 $0.40 7.63% 1.63% UNTD AUG 25 24.40 32.40 $0.60 9.79% 2.46% UTSI AUG 35 34.65 40.24 $0.35 4.89% 1.01% ZRAN AUG 20 19.60 22.86 $0.40 8.71% 2.04% CCMP AUG 55 54.45 62.14 $0.55 5.54% 1.01% CYMI AUG 35 34.60 38.39 $0.40 6.58% 1.16% IMCL AUG 35 34.35 40.39 $0.65 12.05% 1.89% IVGN AUG 47 46.95 50.02 $0.55 6.16% 1.17% MATK AUG 45 44.50 47.22 $0.50 6.08% 1.12% MNST AUG 20 19.65 24.03 $0.35 10.64% 1.78% MSTR AUG 35 34.60 35.45 $0.40 7.54% 1.16% OVTI AUG 35 34.50 41.90 $0.50 8.91% 1.45% SNDK AUG 50 49.50 50.28 $0.50 5.78% 1.01% UNTD AUG 25 24.70 32.40 $0.30 7.94% 1.21% ADI AUG 35 34.75 36.48 $0.25 6.87% 0.72% DIGE AUG 30 29.75 31.38 $0.25 8.31% 0.84% MRVL AUG 32 32.25 35.98 $0.25 7.20% 0.78% OSIP AUG 25 24.60 32.90 $0.40 19.64% 1.63% DRIV SEP 17 17.15 21.41 $0.35 4.88% 2.04% IMCL SEP 30 28.85 40.39 $1.15 8.88% 3.99% LLTC SEP 32 31.75 36.56 $0.75 4.40% 2.36% OVTI SEP 30 29.15 41.90 $0.85 6.18% 2.92% SINA SEP 22 21.90 30.57 $0.60 5.80% 2.74% ZRAN SEP 20 19.60 22.86 $0.40 4.92% 2.04% Conservative traders should have closed a number of issues in the portfolio during last week's sell-off in technology stocks. Those positions, most of which are profitable now, include: Sandisk (NASDAQ:SNDK), Microstrategy (NASDAQ:MSTR), Invitrogen (NASDAQ:IVGN); $47.50 Put, MedImmune (NASDAQ:MEDI); $37.50 Put, Monster Worldwide (NASDAQ:MNST), Accredo Health (NASDAQ:ACDO), and Martek Biosciences (NASDAQ:MATK); $45 Put. ICOS Corp. (NASDAQ:ICOS) and Interdigital (NASDAQ:IDCC) have previously been closed to limit potential losses. Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield PPD AUG 27 28.10 21.23 $0.60 6.82% 2.14% INTU AUG 45 46.05 43.42 $1.05 6.80% 2.28% PHTN AUG 32 32.85 26.25 $0.35 6.22% 1.07% PPD AUG 27 27.85 21.23 $0.35 5.69% 1.26% BRCM AUG 27 27.80 22.12 $0.30 6.91% 1.08% QCOM AUG 40 40.40 36.76 $0.40 4.74% 0.99% QLGC AUG 50 50.70 44.48 $0.70 6.32% 1.38% FRX AUG 52 52.95 43.70 $0.45 5.91% 0.85% NVLS AUG 37 37.85 34.18 $0.35 5.79% 0.92% QLGC AUG 47 47.85 44.48 $0.35 5.00% 0.73% APC AUG 45 45.25 42.65 $0.25 6.91% 0.55% CVTX AUG 27 27.25 23.40 $0.25 14.98% 0.92% ELX AUG 22 22.80 22.70 $0.10 5.26% 1.32% The speculative position in Emulex (NYSE:ELX) did not perform as expected after the company posted a quarterly profit versus a year-ago loss on revenue that rose 16%. Although currently profitable, conservative traders should consider closing the play to limit potential losses. Anadarko Petroleum (NYSE:APC) is on the "watch" list in the wake of rumor that the company may be searching for a potential buyer. Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status AGN 80.83 77.19 AUG 70 75 0.60 74.40 $0.60 Open CDWC 50.04 49.01 AUG 40 45 0.60 44.40 $0.60 Open IVGN 49.48 50.02 AUG 40 45 0.65 44.35 $0.65 Open MSTR 42.05 35.45 AUG 30 35 0.60 34.40 $0.60 Open? CB 61.90 65.49 AUG 55 60 0.25 59.75 $0.25 No Play KSS 60.64 61.49 SEP 50 55 0.60 54.40 $0.60 Open WHR 66.05 68.28 SEP 55 60 0.60 59.40 $0.60 Open XAU 82.67 86.21 SEP 70 75 0.55 74.45 $0.55 Open This has been a difficult month for the put-credit portfolio with previously closed (unprofitable) positions in Integrated Circuit Systems (NASDAQ:ICST), eBay (NASDAQ:EBAY), Expedia (NASDAQ:EXPE), InterActive (NASDAQ:IACI), Genzyme (NASDAQ:GENZ), and Cephalon (NASDAQ:CEPH). Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status ATK 51.37 52.85 AUG 60 55 0.50 55.50 $0.50 Open AVE 52.20 51.48 AUG 60 55 0.65 55.65 $0.65 Open ATH 75.35 72.98 AUG 85 80 0.60 80.60 $0.60 Open JNJ 52.60 51.26 AUG 60 55 0.40 55.40 $0.40 Open CTX 74.29 76.22 AUG 85 80 0.55 80.55 $0.55 Open OEX 497.54 499.74 AUG 520 515 0.60 515.60 $0.60 Open APC 42.70 42.65 AUG 47 45 0.30 45.30 $0.30 Open CHIR 45.50 44.79 AUG 50 47 0.25 47.75 $0.25 Open PG 87.75 89.41 AUG 95 90 0.40 90.40 $0.40 Open UNH 48.79 51.16 SEP 57 55 0.30 55.30 $0.30 Open WLP 76.49 79.32 SEP 90 85 0.50 85.50 $0.50 Open Anadarko Petroleum (NYSE:APC) is on the "watch" list in the wake of rumor that the company may be searching for a potential buyer. Positions in Igen (NASDAQ:IGEN) and Lockheed Martin (NYSE:LMT) have previously been closed to limit potential losses. Synthetic Positions ******************* No Open Positions Debit Straddles *************** No Open Positions Questions & comments on spreads/combos to Contact Support ************** NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** AEIS - Advanced Energy $20.89 *** Rally Underway! *** Advanced Energy (NASDAQ:AEIS) is a leader in the development and support of technologies for critical high-technology manufacturing processes used in the production of semiconductors, flat panel displays, data storage products, compact discs, digital video discs, architectural glass, and other advanced product applications. Leveraging a diverse product portfolio and technology leadership, the firm creates solutions that maximize process impact, improve productivity and lower cost of ownership for its customers. This portfolio includes a comprehensive line of technology solutions in power, flow, thermal management, plasma and ion beam sources, and integrated process monitoring and control for original equipment manufacturers and end-users around the world. AEIS - Advanced Energy $20.89 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 17.5 OEQ UW 0 0.40 17.10 6.0% 2.3% * SELL PUT SEP 20 OEQ UD 15 1.20 18.80 11.1% 6.4% ************** CBK - Christopher & Banks $41.35 *** New 52-Week High! *** Christopher & Banks (NYSE:CBK) is a Minneapolis-based specialty retailer of women's clothing providing exclusive fashions under the Christopher & Banks and C.J. Banks labels. Currently, the company operates 482 stores in 41 states, located primarily in the northern half of the United States. CBK recently declared a three-for-two split of its common stock. New shares will be distributed on August 27 to shareholders of record on August 13. CBK will have approximately 38 million shares outstanding after the stock split. CBK - Christopher & Banks $41.35 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 35 CBK UG 140 0.45 34.55 3.4% 1.3% * SELL PUT SEP 40 CBK UH 20 1.65 38.35 7.8% 4.3% ************** IMCL - ImClone $39.77 *** Own This One! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. IMCL - ImClone $39.77 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 30 QCI UF 840 0.55 29.45 5.2% 1.9% * SELL PUT SEP 35 QCI UG 1,003 1.75 33.25 10.9% 5.3% ************** LLTC - Linear Technology $36.67 *** Range-Bound? *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $36.67 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 32.5 LLQ UZ 1,158 0.50 32.00 3.6% 1.6% * SELL PUT SEP 35 LLQ UG 1,094 1.10 33.90 6.2% 3.2% ************** NVLS - Novellus Systems $35.43 *** Back In A Comfort Zone? *** Novellus Systems (NASDAQ:NVLS) manufactures, sells and services semiconductor processing equipment. The company's products are comprised primarily of advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface prior to these deposition processes. Novellus is a supplier of high productivity deposition and surface preparation systems used in the fabrication of integrated circuits. Chemical Vapor Deposition systems employ a chemical plasma to deposit all of the dielectric (insulating) layers and certain of the metal (conductive) layers on the surface of a semiconductor wafer. Physical Vapor Deposition systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an aqueous solution. NVLS - Novellus Systems $35.43 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 30 NLQ UF 2,754 0.45 29.55 3.9% 1.5% * SELL PUT SEP 32.5 NLQ UZ 2,986 0.95 31.55 6.2% 3.0% SELL PUT SEP 35 NLQ UG 1,829 1.80 33.20 9.3% 5.4% ************** OVTI - OmniVision $41.39 *** Near All-Time Highs! *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells high performance, high quality and cost efficient semiconductor imaging devices for computing, telecommunications, industrial, automotive and consumer electronics applications. The company's main product, an image sensing device called a CameraChip, is used to capture an image in cameras and camera-related products in a range of imaging applications such as personal computer cameras, digital still cameras, security and surveillance cameras, personal digital assistant cameras, mobile phone cameras, and cameras for automobiles and toys that incorporate both still picture and live video applications. OVTI - OmniVision $41.39 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 30 UCM UF 2,670 0.65 29.35 5.8% 2.2% * SELL PUT SEP 35 UCM UG 1,216 1.60 33.40 10.9% 4.8% ************** PCLN - Priceline.com $33.00 *** Internet Travel Retailer! *** Priceline.com (NASDAQ:PCLN) offers products for sale in two major categories: a travel service that offers leisure airline tickets, hotel rooms, rental cars, packaged vacations and cruises; and a personal finance service that offers home mortgages, refinancing and home equity loans through an independent licensee. PCLN also owns travel Web sites Lowestfare.com and Rentalcars.com. The firm is part-owner of Internet travel service Travelweb. Priceline.com licenses its business model to independent licensees, including pricelinemortgage and certain international licensees. PCLN - Priceline.com $33.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 25 PUZ UE 65 0.35 24.65 4.0% 1.4% * SELL PUT SEP 30 PUZ UF 187 1.60 28.40 10.9% 5.6% ************** PHTN - Photon $28.54 *** On The Rebound! *** Photon Dynamics (NASDAQ:PHTN) is a provider of yield management solutions to the flat panel display (FPD) industry. The company also offers yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industries and the cathode ray tube display and CRT glass and auto glass industries. The firm's test, repair and inspection systems are used by manufacturers to collect data, analyze product quality and identify and repair product defects at critical steps in the manufacturing. PHTN - Photon $28.54 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 22.5 PDU UX 29 0.40 22.10 5.2% 1.8% * SELL PUT SEP 25 PDU UE 13 0.80 24.20 7.4% 3.3% SELL PUT SEP 27.5 PDU UY 38 1.65 25.85 11.0% 6.4% ************** RIMM - Research In Motion $25.71 *** Up-Trend Intact! *** Research In Motion Limited (NASDAQ:RIMM) is a designer, builder, and marketer of wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, the firm provides solutions for seamless access to time-sensitive information and communications, including e-mail, telephone, messaging and Internet- and intranet-based applications. The company's technology also enables a broad array of third-party developers and manufacturers around the world to enhance their own products and services with wireless connectivity. RIM's portfolio of products includes a family of wireless handhelds, the BlackBerry wireless e-mail solution, embedded radio modems and a suite of software development tools. RIMM - Research In Motion $25.71 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 20 RUL UD 3,576 0.40 19.60 5.8% 2.0% * SELL PUT SEP 22.5 RUL UX 843 0.95 21.55 9.5% 4.4% ************** URBN - Urban Outfitters $46.50 *** New All-Time High! *** Urban Outfitters (NASDAQ:URBN) is a merchandising company that operates specialty retail stores under two distinct brands, Urban Outfitters and Anthropologie, as well as the Free People wholesale division. The company creates and manages retail stores that offer highly differentiated collections of fashion apparel, accessories and home goods in dynamic store settings. In addition to its retail stores, the company offers its many products and markets its many brands directly to the consumer through the urbn.com and anthropologie.com Websites, as well as the Anthropologie catalog. URBN - Urban Outfitters $46.50 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT SEP 40 URQ UH 131 0.60 39.40 3.8% 1.5% * SELL PUT SEP 45 URQ UI 50 2.00 43.00 8.4% 4.7% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** APPX - American Pharmaceutical $43.86 *** Premium Selling! *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty pharmaceutical company that develops, manufactures and markets injectable pharmaceutical products. The firm produces over 100 generic injectable pharmaceutical products in more than 300 dosages and formulations. Its primary focus is in the oncology, anti-infective and critical care markets. The company makes products in all of the three basic forms in which injectable drugs are sold: liquid, powder and lyophilized (freeze-dried). APPX - American Pharmaceutical $43.86 PLAY (speculative - bullish/credit spread): BUY PUT SEP-30.00 AQO-UF OI=397 ASK=$0.40 SELL PUT SEP-35.00 AQO-UG OI=1808 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$34.40 ************** CHIR - Chiron $46.33 *** J.P. Morgan Upgrade! *** Chiron Corporation (NASDAQ:CHIR) is a global pharmaceutical firm that is focused on developing products for cancer and infectious disease. Chiron continues to build upon its cancer franchise, which has three dimensions, including immune system modulators, monoclonal antibodies and novel anti-cancer agents. In the area of infectious diseases, the company has a range of products. The company commercializes its products through three business units, which include biopharmaceuticals, vaccines and blood testing. Chiron Biopharmaceuticals discovers, develops, manufactures and markets a range of therapeutic products. The company's products include Betaseron, TOBI, Proleukin, PDGF for Regranex products and Procleix HIV-1/HCV Assay. CHIR - Chiron $46.33 PLAY (conservative - bullish/credit spread): BUY PUT SEP-40.00 CIQ-UH OI=87 ASK=$0.35 SELL PUT SEP-42.50 CIQ-UV OI=292 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$42.25 ************** TIF - Tiffany & Co. $37.41 *** A Reader's Request! *** Tiffany & Co. (NYSE:TIF) is the internationally renowned jeweler and specialty retailer. The company's sales are made primarily through Tiffany stores and boutiques in the Americas, Asia-Pacific and Europe. Direct Marketing includes Tiffany's Business Sales division, Internet and catalog sales. Specialty Retail primarily includes the retail sales made in Little Switzerland stores, and also includes consolidated results from other ventures operated, or to be operated, under non-TIFFANY & CO. trademarks or trade names. TIF - Tiffany & Co. $37.41 PLAY (conservative - bullish/credit spread): BUY PUT SEP-30.00 TIF-UF OI=295 ASK=$0.15 SELL PUT SEP-35.00 TIF-UG OI=250 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$34.50 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** CVTX - CV Therapeutics $23.03 *** Still In A Slump! *** CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. The company's New Drug Application (NDA) for Ranexa (ranolazine) for the treatment of chronic angina has been filed at the U.S. FDA. Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146, an A2A-adenosine receptor agonist, is being developed for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Adentri, an A1-adenosine receptor antagonist, is being developed by the company's partner, Biogen, for the potential treatment of acute and chronic congestive heart failure. CVTX also has several research and preclinical development programs designed to bring additional drug candidates into human clinical testing. CVTX - CV Therapeutics $23.03 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 32.5 UXC IZ 2,391 0.35 32.85 5.7% 1.1% * SELL CALL SEP 30 UXC IF 2,054 0.55 30.55 8.5% 1.8% SELL CALL SEP 27.5 UXC IY 933 0.85 28.35 12.2% 3.0% ************** MEDI - MedImmune $36.04 *** Revenge Play! *** MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of unique products on the market and a diverse product pipeline. The firm is focused on using advances in immunology and other biological sciences to develop new products that address significantly unmet medical needs in areas of infectious disease, immune regulation and cancer. MedImmune actively markets three products, Synagis, Ethyol and CytoGam and MEDI's Chief Executive David Mott expects the FDA to approve its inhaled influenza vaccine FluMist sometime this quarter. MedImmune will co-market the vaccine with Wyeth and the companies expect to provide the vaccine initially to healthy people between 5 and 49 years old, which will mean a potential market of 160 million people a year in the United States. MEDI - MedImmune $36.04 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 40 MEQ IH 9,278 0.65 40.65 4.7% 1.6% * SELL CALL SEP 37.5 MEQ IU 5,363 1.35 38.85 7.6% 3.5% ************** RJR - R.J. Reynolds $32.19 *** S&P Outlook = NEGATIVE! *** R.J. Reynolds Tobacco Holdings (NYSE:RJR) is the parent company of R.J. Reynolds Tobacco Company and Santa Fe Natural Tobacco Company. R.J. Reynolds Tobacco Company is the second-largest tobacco company in the United States, manufacturing about one of every four cigarettes sold in the United States. Their product line includes four of the nation's 10 best-selling cigarette brands: Camel, Winston, Salem and Doral. Santa Fe Natural Tobacco Company manufactures Natural American Spirit cigarettes and other tobacco products, and markets them both nationally and on an international basis. RJR - R.J. Reynolds $32.19 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 35 RJR IG 1,969 0.55 35.55 4.1% 1.5% * SELL CALL SEP 32.5 RJR IZ 646 1.35 33.85 7.8% 4.0% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** CTX - Centex $73.74 *** Homebuilding Sector Consolidation! *** Centex Corporation (NYSE:CTX) is a multi-industry company with operates in six principal business segments. Conventional Homes operations involve the construction and sale of single-family homes, town homes and low-rise condominiums, and the purchase and development of land. Investment Real Estate operations involve the acquisition, development and sale of land, and the development of industrial, office, retail and mixed-use projects. Financial Services operations involve the financing of homes, home equity and sub-prime lending, and the marketing of insurance coverage. Construction Products involves cement production and distribution, and the production, distribution and sale of gypsum wallboard, concrete, aggregates and recycled paperboard. Contracting and Construction Services involves the construction of buildings. Centex HomeTeam Services is involved in pest and termite control, lawn and landscape care, electronic security, alarm monitoring and homewiring services. CTX - Centex $73.74 PLAY (speculative - bearish/credit spread): BUY CALL SEP-85.00 CTX-IQ OI=289 ASK=$0.45 SELL CALL SEP-80.00 CTX-IP OI=346 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$80.65 ************** NBIX - Neurocrine Biosciences $49.52 *** Next Leg Down? *** Neurocrine Biosciences (NASDAQ:NBIX) is a unique, product-based biopharmaceutical company focused on neurological and endocrine diseases and disorders. Their product candidates address some of the largest pharmaceutical markets in the world including insomnia, anxiety, depression, diabetes, multiple sclerosis, irritable bowel syndrome, eating disorders, pain, autoimmunity and certain female and male health disorders. The company has a large number of programs in various stages of research and clinical development. Its lead clinical development program is indiplon, a drug for the treatment of insomnia that is being evaluated in Phase III clinical trials. The company's other products under clinical development are altered peptide ligand, gonadotropin-releasing hormone antagonist, interleukin 4 fusion toxin and corticotropin-releasing factor. NBIX - Neurocrine Biosciences $49.52 PLAY (conservative - bearish/credit spread): BUY CALL SEP-60.00 UOT-IL OI=206 ASK=$0.45 SELL CALL SEP-55.00 UOT-IK OI=802 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$55.55 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** Bonds Get Slammed XL Capital - XL - close: 77.68 change: -1.54 WHAT TO WATCH: We had an all-too-brief fling with XL a couple weeks ago and had to let it go ahead of earnings. The post- earnings bounce is history and the sharp rise in yields have the sellers active again. While there's some mild support near $75, we've got our eye on a gap fill down to the $72.50 area. Chart= --- Lehman Brothers - LEH - close: 64.34 change: -1.06 WHAT TO WATCH: Despite relative strength in the Brokerage sector, LEH is back to its old pattern of relative weakness and was turned back on Wednesday from strong resistance in the $65.50-66.00 area. This looks like the beginning of a reversal that should take LEH down to at least the $60-61 area near the 200-dma. Chart= --- D R Horton - DHI - close: 28.06 change: -1.06 WHAT TO WATCH: All of the Housing stocks got hit hard on Wednesday, but shares of DHI caught our attention because of the way they reversed right at the descending trendline (just over $29) from the June highs. There's some mild support near $27, and then the stock looks destined to visit stronger support near $25.50 enroute to the $24 level. Look for continued weakness in bonds to fuel this bearish play. Chart= --- Varian Semiconductor Equip. - VSEA - close: 33.92 change: +1.08 WHAT TO WATCH: This week's abrupt turnaround in the Semiconductor sector is finally catching some follow-through, and shares of VSEA made an appearance by breaking out of its bull flag to the upside on Wednesday. Look for upside continuation to take the stock first through the $36 resistance and then target a move to $38. Chart= =================== On the RADAR Screen =================== MME $50.15 - Shares of MME finally found bottom near $45 and have been rebounding over the past week. But the bounce appears to be losing momentum. After 3 days of failing at resistance at the 10- dma near $51, it looks like it is time for the bears to have their way again. Target a drop back to the $45-46 area and then possibly $42.50. CECO $88.45 - No end in sight! After breaking out above the $80 level last month, shares of CECO have been consolidating in a very healthy manner. The bulls went on a rampage on Wednesday, launching the stock to new all time highs again. While certainly aggressive, let's go with the flow and ride the wave higher. DISH $34.27 - Apparently those earnings weren't what the bulls were hoping to have dished up today, and then sold DISH hard on nearly triple the daily average volume. We need to watch for a reflexive bounce, but with today's breakdown out of the ascending channel from the October lows, it looks like a very tasty morsel for the bears. Target entries on a failed rebound near the 50-dma and look for a fall back towards $30 support. ************** MARKET POSTURE ************** Traders Hit Snooze To Read The Rest of The OptionInvestor.com Market Watch Click Here http://www.OptionInvestor.com/marketposture/mp_081303.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. 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