The Option Investor Newsletter Sunday 08-31-2003 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: Eighty-Seven Percent Futures Market: Disinflation Index Trader Wrap: Running with the Bulls Editor's Plays: Go Long! Market Sentiment: Bulls Runneth Over Ask the Analyst: Gold and the Fed. Too loose, too tight, or just right? 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 8-29 WE 8-22 WE 8-15 WE 8-08 DOW 9415.82 + 66.95 9348.87 + 27.18 9321.69 +130.60 + 37.12 Nasdaq 1810.45 + 45.13 1765.32 + 63.31 1702.01 + 57.98 - 71.59 S&P-100 503.36 + 5.94 497.42 - 0.88 498.30 + 4.50 + 0.16 S&P-500 1008.01 + 14.95 993.06 + 2.39 990.67 + 13.08 - 2.56 W5000 9770.46 +158.03 9612.43 + 64.92 9547.51 +154.78 - 61.43 RUT 497.42 + 11.91 485.51 + 13.59 471.92 + 17.98 - 14.14 TRAN 2683.24 + 41.68 2641.56 + 17.90 2623.66 + 44.63 - 16.88 VIX 19.49 - 0.78 20.27 + 0.07 20.20 - 1.09 - 1.49 VXN 29.52 + 0.05 29.47 + 0.26 29.21 - 2.82 - 0.45 TRIN 0.78 1.36 1.01 0.87 Put/Call 1.29 0.91 0.53 0.81 Avg Highs 408 720 338 189 Avg Lows 40 58 62 86 ****************************************************************** Eighty-Seven Percent by Jim Brown That is the win/loss percentage for the day after Labor Day for the last eight years. Seven of those years have finished positive. With the market trading near its recent highs it will be a challenge to continue that streak. Greenspan did not give the markets anything to hang their hat on and the earnings warning season is just ahead. Conditions are no different than any other year except that the markets are at 52-week highs. Dow Chart Nasdaq Chart Friday was economically challenged with a mixed bag of results. The NY-NAPM fell to 221.7 from 224.9 and ninth consecutive monthly decline for business conditions in New York. The current conditions fell to 43.6 from 46.2 and future expectations fell to 57.1 from 62.5. Every material component declined. New York remains in recession the rest of the country appears to be keeping its head above water. The Chicago PMI rose to 58.9 from 55.9 and handily beat analyst estimates of 56.0. Order backlogs increased to 51.0 and the first month of expansion in over seven months. Employment also rose to 51.2 and the first expansion in seven months. Production fell to 51.6 from 58.4 but remained in positive territory over 50. Overall this is the highest reading for this index since May 2002 and the best reading for payrolls since March 2000. While output growth slowed it was attributed to the summer doldrums more than a deterioration in conditions. Personal income growth slowed in July to +0.2% and less than consensus estimates at -0.3%. However, disposable income rose strongly by +1.5% due to the tax rebate checks and the drop in the tax rate. This prompted a jump in personal consumption of +0.8%. Overall the +0.2% headline number was down from the +0.4% for May and June and would indicate the continued rise in unemployment is putting pressure on wages. With nearly nine million people out of work there is no need for employers to pay a premium for new hires. Signing bonuses have disappeared and the shrinking work week is reducing overtime pay and extra hour pay for part timers. This was the second time this year that wages did not rise. That pushed the annual growth rate for salaries down to +2.1% from 3.3% in January. The shrinking wages indicate no danger of inflation and no fear that the Fed should tighten in the near future. The Risk of Recession fell to 5.7% in August and the lowest level since the index was created. This is down from 27% in January. The impact of the yield curve and the rising stock markets continues to push the chances of an economic event into obscurity. The risk of deflation is also waning and inflation is at zero. With risks muted on all sides it would appear we are in the sweet spot and ready for a monster recovery. Unfortunately it just means the economy is flat and while all the lights are green there is no gas in the tank. The economic outlook is actually the best it has been in over a decade and the path of least resistance is up. Only the mountain states plus Texas, New Mexico and Arizona are still showing a higher risk of recession. (26,500 homes for sale in the Denver area compared to only 8,500 a couple years ago) The Michigan Sentiment came in at 89.3 and below expectations of 90.5. This was also below the initial reading for August of 90.2. While it may seem like we are splitting hairs here that drop put us right back into the lower end of the range for the last four months. This was the lowest reading since April. Both the current conditions and future expectations components fell. This is the lowest reading since the war but it is not clear if it is due to a real drop in sentiment or a result of the blackout on 54 million consumers. That makes it another throw away number. Next week we will not only be faced with a return of traders from their vacations in a house cleaning mindset but we have a flurry of serious economic reports. Tuesday begins with the ISM, Challenger Layoff Report for August, (the Mass Layoffs we had last week was for July) and the Semiconductor Billings. Wednesday has Construction Spending, Beige Book and Vehicle Sales. Thursday has Jobless Claims, Productivity, Factory Orders and ISM non-mfg. Friday closes with nonfarm Payrolls. Next week also starts the earnings-warning season for the 3Q and as yet we have not really seen any rapidly expanding recovery. Many of the earnings last quarter prefaced their guidance with "based on expectations of a 2H recovery" and that has not happened yet. Most importantly we will get another mid quarter update from Intel on Thursday. Yes, back to back updates. We will get to see if the positive guidance or numerous cautions that followed the guidance will prevail. The ISM is the most critical report on Tuesday with the reading for July at 51.8 the first sign of economic expansion since February. Traders will be very intent on seeing if that number continues to increase or falls back into negative territory under 50. With much of the July ISM a result of defense orders everyone will want to see if the trend can continue. The bottom line on the Greenspan speech was "if you want a formula, you are out of luck." Analysts were looking for some clue to the future moves by the Fed and Greenspan rejected the idea that the Fed would give anybody a roadmap to economic stability. He said external factors precluded a solely economic set of triggers. He repeatedly mentioned the Russian debt default as an instance where the Fed stepped in to increase liquidity when the US economy really did not need it. It was a protective action designed to head off any reaction to the event. He stressed that only a very few economic conditions were quantifiable and then it is based on an assumption that the future will replicate the past. He said this requires a risk-management paradigm attitude to policy making. Ok, Alan, why didn't you just say, "It is my Monopoly game and I am the bank. If you don't like it you don't have to play." The most surprising thing was the lack of a sell off on the news after all the posturing that this was the showdown at the OK Corral by the bond junkies. I assume they decided even if the rules had not changed for the better, at least they had not changed for the worse. Friday started out slow with a bounce at the open on the positive PMI but then slowly lost ground after the Greenspan speech. About 2:30 the indexes broke out of their range and wandered higher with the Nasdaq posting a new 17-month closing high at 1809. The Dow closed over 9400 and the S&P managed to add +5 points and hold well over the psychological 1000 level. In all a fitting close to a bullish rebound from the Tuesday drop. Have you seen the 1999 pattern returning? We have been opening higher, slipping intraday but then rallying into the close in the last hour. This was a cash cow in the 1999/2000 time frame as bears in denial of the bubble shorted the bounce at the open and then were forced to cover at the close, which pushed the indexes to another gap open. I could stand to see this pattern stick around until January. I am not going to dwell on this because it has been beaten to death in the press for the last couple weeks. The VIX closed on Friday at 19.49. It has traded under 20 several times over the last two weeks and is trending very close to its current historical lows. That should raise some eyebrows. Actually "the" historical lows are in the 10.0 range. The debate over when the VIX is in sell territory has taken on a new view over the last week after a prominent analyst speculated in print that we could see the historical lows soon and he was talking about the 10.0 range. I contend that the pre-Internet trading era was as different from today as horses and cars. Just because your grandfather walked barefoot in the snow seven miles to school uphill both ways before there were cars does not mean your children are going to repeat that. Times have changed. Before 1997 there were 50% fewer investors than there are now and about 80% fewer traders. To buy a stock you had to call your broker and verbally give him the order. There was no such thing as day traders. There were not 20,000 boutique hedge funds trading tens of thousands of shares of exchange traded funds at the click of a button. If you wanted a chart you got out your graph paper and plotted it yourself or waited for the Investors Business Daily to pick your stock to highlight. Futures trading was reserved for currency and commodities and you had to be wealthy to trade them. Now anybody with $2000 can daytrade them to his hearts content. This is not your fathers market. A VIX of 10 was based on stocks like IP $30, S $12, WY $25, BS $8, TX $30 and the leading tech stock was IBM at $12. It is tough to get a lot of volatility out of IBM at $12 and MSFT at $5. (split adjusted) Just my two cents on the controversy but unless hackers finally shutdown the Internet I think the only way we are going to see 10 again is after a depression crash to market levels your father would remember. Until that happens I will continue to project 17.50 as the backup the truck put signal and anything below 19 as a significant warning to observant traders. Long-term Chart of the VIX: On a purely technical basis the markets ended right at strong resistance. The Dow has strong resistance at 9450, Nasdaq 1812 and S&P 1010. The close has set up a potential gap open on Monday and a gap over these resistance levels. All the indexes are threatening to break out to new highs and Monday could be critical. If we do break out we could trigger a new wave of short covering and a new wave of pure buying if the breakout is seen as confirmation of a new up leg in the markets. As in most cases of seemingly impending breakouts the economic news on Tuesday will control our eventual fate. Chart of the S&P 500 Index: Moving into next week we have some nice historical patterns working for us. The first two post Labor Day trading sessions typically are strong with Tuesday up 7 of the last 8 years. That statistic and $4 will get you a cup of coffee at SBUX. Trends are trends until they are recognized as trends and then the institutions devise a way to capitalize on them. If you knew that a specific day was going to be bullish just before a normal period of weakness then odds are good you would target that day to unload stock in front of that weakness. That is unless you thought we were about to break out to a new high. See how confusing it gets? Bullish sentiment is almost off the scale despite analyst after analyst saying there could be some weakness ahead. It is because they say in the same breath that the target for the end of the year is +10% to +15% higher than we are now. The "potential weakness ahead" is their insurance against seeming irrational if their +15% prediction does not come to pass. How all this play into next week is unknown. The new bullish reality is faced with that ISM on Tuesday and it should control the week. If it is up again then the bears may have to head for hibernation early. We can just agree to skip the September/October crash and just move right into the November rally. I say all this in jest but with the Nasdaq setting new highs on a daily basis it may not be far from the truth. There has got to be another round of profit taking in our future, several rounds in fact but they could only be nuisance dips like we saw last week. Swing traders will be looking to short any new highs on Tuesday but they operate on a different set of rules. Buy the dips until the trend changes appears to be the current game plan for everybody else. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Disinflation Jonathan Levinson Equities and commodities rose on Friday, while treasuries and dollars fell. It was perfect market action to underline the appearance of Chairman Greenspan. Daily Pivots (generated with a pivot algorithm and unverified): 10 minute chart of the US Dollar Index The US Dollar Index continued its selloff, breaking the 98 level but spending the afternoon trying to regain it. Equities didn't quite rally but they did gain, while treasuries sold off lightly, gold advanced and the CRB added 1.85 to close at 243.63. Strength in commodities came from wheat, copper, cotton, gold, corn and heating oil futures. For the week, the US Dollar Index printed a bearish doji star. Daily chart of December gold December gold gapped up Friday morning on the US personal spending data at 8:30AM and the resilience of 370 support in overnight trading. The combination of a strong CRB and gold today looks like the markets are smelling inflation, or "disinflation" in Ben Bernanke's inimitable words. Chairman Greenspan's iteration of the artfulness of central banking and its transcendence of mere rules and guidelines did nothing to quell the demand for gold, which held the bulk of its gains through the session. For the week, December gold printed a bullish breakaway candle, breaking above the pennant we've been following for months. Friday's session closed higher by 5.10 at 376.70, with a high of 378.40. Daily chart of the ten year note yield The ten year note yield (TNX) retraced part of Thursday's decline, testing but failing to regain the ascending secondary trendline. It closed higher by 2.4 basis points at 4.454%, while the thirty year yield gained 0.3 bps and the five year yield gained 4. The gain in the yield is bearish for treasuries, but the failure to regain the trendline is not. Greenspan's speech no doubt added some distortion to Friday's trading. However, the higher yield is not inconsistent with the drop in the dollar and the rise in gold and the CRB, as they all reveal different aspects of inflation. That said, a greater supply of dollars should result in more buying for treasuries in addition to other assets. The lower dollar/higher yield could coincide with foreign selling of US treasuries. Chart of zero-maturity money supply The effect of increasing the number of dollars is to increase the price of commodities, reduce the value of savings, and lastly, increase the price of equities. We got that on Friday as well. Daily NQ candles The NQ printed a new closing high Friday, extending the up-phases on the daily candles. The NQ continues to adhere to the ascending trendline. Volume was light on Friday as traders lit out for a long holiday weekend, and the end-of-month window-dressing by fund managers was in effect. Most traders, your faithful author included, disbelieved the sustainability of Friday's move, but playing devil's advocate, it's worth noting that higher equity prices fits perfectly with the dollar weakness and commodity strength seen this week. A rally in money supply leads to a rally in the prices of all things except dollars. Whether this ultimately leads to the price of a loaf of bread equaling the price of a share of GE is not our concern. Our job is to find the bubbles being created by this tide of dollars and try to stay in front of it. This includes the NQ so far. Whether it can be sustained is another question. For the week, the NQ printed a bullish hammer within a bullish "three white soldiers" candle formation. 30 minute 20 day chart of the NQ Friday's advance has pulled the oscillators on the 30 minute charts into a trending overbought configuration. This is the low- odds scenario, and confirms that the longer daily cycles above are dominant. Thursday's pullback brought the NQ to support within the longer rising daily cycle, and this cycle drove the price back up. Often, the sharpest moves are terminal ones, and if the longer cycles are completing a blowoff top, that would coincide with the trending shorter cycles. However, oscillators are lagging indicators, and we won't know until they have rolled over, which requires price to drop. It's difficult to buy year highs, but until we know that the longer downphase has commenced, it remains a dip buyers' market on the NQ. Again, it's difficult to trust the light volume, end-of-month action this week, and I'm looking forward to Tuesday for some clarity. Daily ES candles The ES underperformed the NQ again on Friday, rising .67% for the NQ's .71%. Fresh buy signals were not generated on the oscillators, and the year highs weren't even close, let alone exceeded. This continues to look like performance-chasing or "heatmapping" by managers as discussed last night. The June highs remain 7 points away. Equities would look significantly more impressive if the ES was participating. In Friday's market wrap, Linda, Jane and I discussed the recent phenomenon of frequently failing chart patterns. There have been an increasing number of failed patterns, for whatever reason. I note this because as the ES continues to chug along the top of its range, it's printing what could be construed as a reverse head and shoulders with a neckline at 1015. Note that reverse h&s formations occur at bottoms, and not tops, and for this reason the pattern is flawed. What remains is my belief that if the ES breaks 1015, we could see fireworks to the 1050 area, which is not only implied h&s target of such a move, but also a well-broadcast e-wave target. 20 day 30 minute chart of the ES A fine example of failed chart patterns is the rising wedge on the 30 minute chart above. According to Bulkowski, there was a 75% chance of that upside break's not occurring. Stop losses, anyone? Like the NQ, the shorter cycle oscillators on the 30 minute chart are now trending as we wait for the topping phase on the daily cycle oscillators to complete. Forgetting the light volume, end of month and potentially bearish chart patterns, the ES printed a higher high and higher low on Friday, and it too remains a dip-buyers' symbol. But, as bears have learned, always use stop losses. The Thursday dip created a steady rising trendline on the ES, and its support is now at 1004. A break below that level should have bulls thinking twice and aggressive bears at ready, with confirmation on a break below 997. Daily YM candles Same picture on the YM as for the ES. 20 day 30 minute chart of the YM For the week, we are left with a bearish candle pattern for the US Dollar Index, bullish for gold, bullish for equities, and mixed for treasuries. The TNX printed an inverted hammer, which is positive for the yield but it appears to be forming a rounding top, with the daily rising trendline broken. This is the one potential fly in the ointment for our liquidity/inflation thesis, but note the flip side of the coin. An increase in money supply creates liquidity with which to buy stocks, bonds, gold and other commodities, other currencies, everything. This meshes with bonds rallying as well, as we saw earlier this year. For Tuesday, we'll see whether equities, and gold for that matter, can sustain this week's gains. Have a great holiday and see you at the bell! ******************** INDEX TRADER SUMMARY ******************** Running with the Bulls Jonathan Levinson Light volume, end-of-month pre-holiday trading gave bulls the edge Friday, as the Nasdaq and Dow transports pushed to new 12- month closing highs. The SPX lagged behind but still closed comfortably above the 1000 level. With the indices closing just below their session highs, there will be plenty to cheer on Tuesday, but whether it's by bulls or bears remains uncertain. Daily COMPX candles Friday's trading saw the COMPX consolidate Thursday's close above 1800, adding 10 points to close at 1810.45. The small move took place on light volume within the ongoing cycle up-phases on the daily cycle oscillators. This cycle has been dominant for the past several months, and while the sensitive 10 day stochastics are within topping territory, the laggier Macd is still in a strong bull run. Unless this week's overall light volume advance gets proven on Tuesday to have been a blowoff top in the daily cycle, bulls can continue to buy the dips above the steeply rising trendline currently at 1790, with tight stops of course. Bears will wait for a breakdown. 30 minute 20 day chart of the COMPX The dominance of the rising daily cycle oscillators is proven by the now-trending 30 minute cycle oscillators. The most bearish attribute of this chart, other than the double top printed on Friday, is that the up-trend is too steep. The bounce from Tuesday's pullback has created a bearish ascending wedge, which ordinarily would be a relatively high-odds short candidate, waiting for a failure of the lower trendline. However, we've been seeing these patterns fail with increasing frequency, and an upside break is easy to imagine given the recent action on the COMPX. The COMPX remains the strongest index, with the OEX and INDU actually on daily oscillator sell signals. My bearish hesitation, and my warning for dip-buyers, is that the Nasdaq leading in light volume, end-of-month trading is a sign of performance chasing and "window dressing" for monthly fund statements. In other words, there are non-technical reasons for doubting the sustainability of this week's rally. There's nothing to do but keep stops under longs, and watch for a potential failure of that lower rising trendline off last Tuesday's low. Tuesday should resolve the uncertainty one way or the other. Daily INDU candles The INDU is the weakest index, with the SPX in the middle. Again, the "bluest" of the blue chips lagging the more speculative Nasdaq does not reflect well on the current rally, but we will trade what we see in any event. The year highs were not tested in Friday's trading, and the pattern of the advance appears as a weaker rising wedge on the 30 minute candles below, taking a gentler rising angle than that on the COMPX. If there's going to be a failure, the INDU appears to be telegraphing it the clearest. The daily cycle oscillators remain on sell signals, though the decline thus far has been minor. Traders should watch the lower 30 minute support line at 9360. With an 80 point range within the wedge, there's room to scalp bounces with a tight stop underneath, while bears can wait for a failure at 9440, hopefully on a blowoff opening on Tuesday. A breakdown of this formation projects to 9240 support if the pattern fulfils. 20 day 30 minute chart of the INDU Daily OEX candles Like the INDU, the OEX continues to lag the COMPX, but not as badly. The daily cycle oscillators are still on sell signals, but another up day could change that. Descending trendline resistance at 504 has capped every advance since June, and it will take a great deal of commitment from bulls to reverse the oscillator downphase, take out that trendline and challenge the year high above 510. On the 30 minute chart, we see the steeper rising bear wedge, narrowed to a 2.5 point range between 501.50 and 504. Resolution is due, and despite the strength at Friday's close, the onus remains on the bulls within this bearish chart pattern. The VIX broke back below 20 on an intraday basis this week. During recent years, the relatively few such occurrences have lined up well with significant tops in the market. As also occurs at such tops, observers note that things are somehow different this time, that the indicator is broken, et cetera. Upgrades are fast and furious, bullish sentiment abounds, and all agree that the indices are going higher. These are all characteristics of the current market, but whether it needs to progress further or not remains to be seen. All can agree that the prevailing conditions are dangerous for bulls and bears alike. 20 day 30 minute chart of the OEX Daily QQQ candles The QQQ remains the pride and joy of bullish traders, and no wonder. What is a clear bear wedge for the INDU and OEX is a mere pullback and resumption of the steep uptrend below the middle rising trendline, with the Qubes never falling far enough away from the primary rising channel to actually break into a new wedge. The oscillators are pinned in overbought, trending higher under the influence of the rising-though-toppy daily cycle oscillator. The rising trendlines have narrowed to less than a 20 cent range, and Tuesday promises to be a significant session in determining where we go next. A break below 33.10, confirmed by a failure of 33.00, targets Fibonacci support below 32.70, with an ultimate target of 30 on a bear wedge breakdown. However, such a move could arrest the ongoing up-phase on the daily oscillators, which would have traders viewing the rising "channel" as a "bear wedge" projecting to significantly lower lows. 20 day 30 minute chart of the QQQ If I sound ambivalent, it's because I am. On the one hand, the price action has been very bullish, particularly on the COMPX and QQQ. On the other, there are chinks in the bullish armor. While these may constitute a "wall of worry," the bulls are within areas where even conservative bears will be willing to try again. Breadth, sentiment and volatility remain extreme, and next week should go a long way toward separating the wheat from the chaff. I'm hoping for a blowoff upside move at the open to permit me to join those conservative bears, but will be watching the trendlines posted above as primary decision points. And, whatever happens, whichever direction we target, tight stops and extreme caution will be the rule. ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Go Long! I am not sure what but shorts are definitely not working. Every historical trend we have seen for years has gone down in flames and the bad news bears are even learning how to buy good news. I have tried to go short for at least five straight weeks to no avail. Does that mean we should just blindly go long as the market tries to break out to new highs? Not hardly! I cannot even close my eyes and hold my nose and go long at these levels without hedging my bets. Since directional plays are not working let's strangle this bull because about the only thing we can be sure of today is the market should be more than 200 points away from 9400 by September 19th. It is just the direction we are not sure about. This is going to be a quick play tonight. It does not take a lot of explanation to say go long with insurance. Buy Sept DJX-96 CALL $0.50 (Monday est) Buy Sept DJX-93 PUT $1.00 (Monday est) The plan is simple. The put is the expected direction. This is September but then the historical August dip did not appear either so we are going to buy insurance. The $96 call should rise to $1.50 with the Dow at 9600. This is our get out of jail free card. If the Dow hits 9600 we stop out and lose a few cents. Actually, if it hits 9600 I would trail the stop, close the put and let the call run. If the Dow runs into ISM or Jobs trouble next week and the long awaited sell off appears then the $93 put should double at $92 and be close to $4 if we retest 9000 again. This plan requires a 200 point directional move over the next three weeks. Anything over that is profit. DJX Chart ******************************** Play updates: SMH Puts - August 24th. Unbelievable. The chip stocks appear to be bullet proof even after Intel went out of their way to tone down their guidance for four consecutive days. The SMH is almost back to its post guidance high of 37.80 and the stop loss at 38.00. Intel will update guidance again next Thursday. If we are still in the play I do not expect that guidance to be as positive. http://members.OptionInvestor.com/editorplays/edply_082403_1.asp Powerball Breakout! The Nasdaq new high is helping inject value into the Powerball portfolio. The CMVT call has rocketed to $4.30 and EMC $3.10. Once the little guys catch fire in the last quarter we could be rocking. 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 **************** Bulls Runneth Over - J. Brown What's wrong with this picture? The Dow Jones Industrial Average is at a new 52-week high. So is the NASDAQ Composite. Gold is near new relative highs and oil is at new multi-year highs. Has the bullish stampede gotten out of hand? Everything is running higher. You've probably heard it before. The herd (of investors) tends to be right in the middle of major trends but wrong at either end. When everything looks bullish, and it does, it's time to take a step back and re-evaluate your risk. That doesn't mean trying to pick a top and hurt your account by shorting bullish breakouts. Trying to call a top or a bottom can be equally disastrous to your financial health. I am merely urging some caution. Historically we are about to step into the weakest month of the year for the equity markets. I know, if you had a dollar for every time we've heard that in the last month; but it's true. We are quickly approaching some major mid-quarter corporate updates. Plus, we're only six weeks from the Q3 earnings season that start in early October. That means the next four weeks could be full of earnings warnings. Given that the third quarter is typically the weakest of the year, no wonder September has a bad reputation for stocks. I would like to point out that the VIX is once again under its historical "sell" signal for the markets at 20. Yet we all know that markets at extremes can continue to trade at extremes. Jim goes into more detail on his view of the VIX in the wrap this weekend. This column has been harping on it so long everyone should already know that it is a big warning sign. Another warning sign that many investors fail to follow is the bullish percent index. They remain at or near multi-year highs. I suspect we have more upside ahead of us but when everything starts to roll over as the rally runs out of steam the profit taking could be painful. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9499 52-week Low : 7197 Current : 9415 Moving Averages: (Simple) 10-dma: 9379 50-dma: 9196 200-dma: 8612 S&P 500 ($SPX) 52-week High: 1015 52-week Low : 768 Current : 1008 Moving Averages: (Simple) 10-dma: 999 50-dma: 989 200-dma: 920 Nasdaq-100 ($NDX) 52-week High: 1344 52-week Low : 795 Current : 1341 Moving Averages: (Simple) 10-dma: 1311 50-dma: 1261 200-dma: 1116 ----------------------------------------------------------------- Investors remain fearless and the volatility indices continue to sink. The VIX has dropped back below its normal "sell" signal of 20 and the VXN has just rolled back under the 30 mark and appears ready to make new lows. CBOE Market Volatility Index (VIX) = 19.49 -0.44 Nasdaq Volatility Index (VXN) = 29.52 -0.79 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.29 379,558 491,007 Equity Only 1.15 325,491 375,463 OEX 1.14 12,003 13,709 QQQ 9.81 22,750 223,233 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 70.9 + 0 Bull Confirmed NASDAQ-100 75.0 + 1 Bear Correction Dow Indust. 80.0 + 0 Bull Correction S&P 500 78.0 + 1 Bull Correction S&P 100 82.0 + 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 0.97 10-Day Arms Index 0.92 21-Day Arms Index 0.99 55-Day Arms Index 1.08 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 1804 1724 Decliners 938 1297 New Highs 214 263 New Lows 7 7 Up Volume 794M 822M Down Vol. 313M 326M Total Vol. 1142M 1194M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 08/26/03 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 There is no significant change in the long or short positions for the large S&P futures contracts. We continue to see the commercials or "smart money" inch up their short positions while retail traders inch up their long positions. Since they both tend to take the opposite sides of the market, this is normal. Commercials Long Short Net % Of OI 08/05/03 395,633 450,988 (55,353) (6.5%) 08/12/03 399,414 456,767 (57,353) (6.7%) 08/19/03 404,665 455,381 (50,716) (5.9%) 08/26/03 410,378 472,987 (62,609) (7.1%) 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 08/05/03 159,971 72,951 87,020 37.4% 08/12/03 158,821 71,040 87,781 38.2% 08/19/03 162,034 87,064 74,970 30.1% 08/26/03 170,424 76,967 93,457 37.8% 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 In contrast we're seeing the commercials add strongly to their long positions in the e-minis. The latest reading shows the most bullish position in a very long time. Just as expected the small traders has loaded up on short positions and this marks the strongest net short position for months. Commercials Long Short Net % Of OI 08/05/03 310,662 249,004 61,658 11.0% 08/12/03 306,014 217,233 88,781 17.0% 08/19/03 296,971 235,779 61,192 11.5% 08/26/03 338,766 234,841 103,925 18.1% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 103,925 - 08/26/03 Small Traders Long Short Net % of OI 08/05/03 56,663 95,919 (39,256) (25.7%) 08/12/03 62,534 106,403 (43,869) (26.0%) 08/19/03 90,428 125,980 (35,552) (16.4%) 08/26/03 52,131 120,853 (68,722) (39.3%) Most bearish reading of the year: (68,722) - 08/26/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercials remain net short on the NASDAQ 100 futures while small traders are still swinging for the fences with heavy net longs. Commercials Long Short Net % of OI 08/05/03 32,813 52,383 (19,570) (23.0%) 08/12/03 34,374 53,015 (18,641) (21.3%) 08/19/03 32,107 53,665 (21,558) (25.1%) 08/26/03 33,991 55,849 (21,858) (24.3%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 08/05/03 22,188 7,783 14,405 48.1% 08/12/03 23,957 7,871 16,086 50.5% 08/19/03 25,607 10,134 15,473 43.3% 08/26/03 26,108 8,864 17,244 49.3% 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 The flurry of short positions for the DJ Industrials two weeks ago have mostly evaporated, meanwhile the small trader has eliminated a few short positions as well. Commercials Long Short Net % of OI 08/05/03 23,981 9,264 14,717 44.3% 08/12/03 24,942 9,878 15,064 43.3% 08/19/03 21,088 18,984 2,104 5.3% 08/26/03 24,586 10,386 14,200 40.6% 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 08/05/03 5,716 10,422 (4,706) (29.2%) 08/12/03 6,933 13,248 (6,315) (31.3%) 08/19/03 15,717 9,143 6,574 26.4% 08/26/03 14,115 5,592 8,523 43.2% Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Gold and the Fed. Too loose, too tight, or just right? In some recent commentary, you have written that some economists and stock market analysts feel the Federal Open Market Committee is doing a good job with interest rate policy as long as gold stays between $300 and $400 per ounce. Where does this come from, and how might it tie in with some of the bullish vertical counts you've been coming up with for gold futures, which you said were "hinting at $418." The first that I heard of this type of rule was a couple of weeks ago when Steve Forbes was a guest on CNBC's "Squawk Box" when he mentioned that all an investor had to do was monitor gold prices and as long as gold was trading between $300/oz. and $400/oz. then gold was telling the investor that the Fed was doing a good job with interest rate policy. I'm not sure if Steve Forbes picked this up on his own, or if it has some type of historical significance. For those of you who know me, or have followed some of my writings over the past couple of years, you probably know that I always suggest back testing anything. Me being the curious one, and not accustomed to taking things for granted, just because somebody said something, I found Mr. Frobes' comments quite interesting. The most interesting part of his brief comments were very basic. His assumptions were that gold is a hedge against inflation. With that in mid, if gold were to trade above $400 per ounce, then that would be a signal from the MARKET that the Fed was too easy or accommodative to the markets and had its Fed policy on interest rates to low. If gold were to trade below $300 per ounce, that that would be a signal from the MARKET that the Fed was to tight with its interest rate policy, trying to limit inflationary pressures, which could harm an economies growth. This is too simplistic was my (Jeff Bailey) thinking. Nothing is that simple. Here, I'll disprove Mr. Forbes' comments right now! Gold Prices - Monthly Intevals (1990-current) All I did was place horizontal lines at $300 and $400 to define Mr. Forbes' range. I added a midpoint line at $350 to provide a level of equilibrium. Hmmmmm, I thought. All be darned if in the last 10-year years, gold has really tended to trade within a $300 to $400 price range. And to think I didn't vote for Mr. Forbes when he last ran for President! There have been some criticism toward Fed Chairman Alan Greenspan the past year or so. Some critics of Mr. Greenspan say he, and perhaps the FOMC were responsible for sending the U.S. economy into the recent recession, which recent economic data suggests the economy is finally recovering from. I went back as far as the Federal Reserve's web site had posting for dating back to 1996, and tried to match gold prices against what the Fed was doing with its interest rate policy. Was the Fed simply looking at gold prices to then influence its policy, or was the Fed looking at a lot of different economic data, trying to weigh the balance between economic growth and inflation? I think it fascinating what the Fed was seeing, or thought it was seeing on both the economic and inflation front at various meetings since 1996. I tried to show some various inflection points in what gold was doing, which supposedly is a good indicator of inflation. I started making these observations from the January 30-31, 1996 FOMC minutes. Ugh! That was some tough reading, but if any of us think the Fed's job is easy, you should read what they were doing with currency swaps and actually setting rules and limits on how many Austrian schillings or Netherlands guilders the Fed could buy/sell in order to maintain a fed funds rate of 5.5%. As you and I read some of the brief notes and any Fed action taken, we might try and apply the $300-$400 rule that Mr. Forbes mentioned, and test the Fed. At the same time, we could perhaps imagine that the S&P 500 Index (SPX.X) is a reflection of the economy during these periods. The thought here is that while gold prices might me a good indicator of how good/poor the Fed is doing at its job, what impact the Fed's decisions are having on the stock market, which is supposed to be a reflection of the economy. I'm going to do this (look at the SPX) in a minute, but lets study the February 2000 comments, where I make note it was at that point, when the Fed got rather aggressive with their tightening of interest rates and raised the fed funds rate by 100 basis points (1%) in the span of 4 months, that some Fed watchers say Mr. Greenspan and the FOMC maid some mistakes. When looking at the above chart of gold, if we were following the "too tight below $300 level" was it wise for the Fed to be tightening rates? The one thing I remember most about that time was wage inflation being a concern as labor markets were tight. Young students just coming out of college with an electrical engineering degree were getting $60k-$75k offers, with little or no professional job experience! A friend of mine had been with his current employer for 5-years, and new hires out of college with the same degree as he had were making $15K per year more than him. Fellow co-workers of his were leaving to work for competitors in order to get comparable new hire salaries. As it turn out, my friend may have outsmarted some of his old co- workers as he is still employed with high seniority. But I digress. Then do you see what the Fed started doing roughly 8-months later? Cut, cut, cut, cut. Suddenly the economy was showing sharp declines in multiple economic categories and the Fed was aggressively easing. One might think that by February 2002, when gold moved back above $300 that the Fed was back on track and doing a good job. Do you see how gold moved above $300 in February 2002, then advanced to $325? Then see that little pullback and kiss at that $300 level? I didn't have enough room on the chart, but that test at $300 came in August of 2002 and has been working its way higher, almost in increments of $25 ever since. Also not marked on the gold chart is when gold first jumped from that $300 level kiss to $350. That took place in December 2002, and looks as if the gold market responded to another 1/4-point cut from November. In recent comments, Fed Chairman Alan Greenspan has said the Fed is willing to keep its fed funds rate at low levels for however long it takes to see a steadily improving economic recovery take hold. If we believe the Fed is doing a good job as long as gold stays between $300 and $400, can the Fed leave its fed funds rate at the current 1% rate? While gold has been moving up, it still looks like there's some time until gold were to move above $400. I'm trying to find prior Fed action to 1996, but it is notable that despite gold trading $400 in January/February 1996 and the Fed actually easing on its fed funds rate, gold didn't make the inflationary response move higher. Did it? As promised, lets take a look at the S&P 500 Index (SPX.X) on a monthly interval chart. I can only show SPX data back to 1993, but it will match the same horizontal scale with the gold chart. I've set the moving averages to 6 months (about 120 trading days) and 12 months (240 trading days). S&P 500 Index Chart - Daily Intervals I couldn't match all the various dates with the Fed's action and comments from their meetings, but over the past 10-years, it has been rather true that as long as gold stays between $300 and $400, the Fed may indeed be doing its job to the MARKET's satisfaction when trying to provide steady economic growth with modest inflation. Everyone, even Alan Greenspan and the FOMC can make mistakes or misjudge economic signs. In May 1998 the Fed mentioned it saw signs of inflation and might have to tighten/raise interest rates. That didn't sit well with the MARKETS and maybe, just maybe, if the Fed hadn't uttered those words with gold hovering at the $300 level, the SPX might not have fallen. Here's a link to those comments and these may be worth noting and the economy and the SPX look to be improving. The difference we may be seeing today is that right now, gold is trading happily at 375 and it would appear the Fed is doing a good job. I would continue to monitor gold prices, and the technicals currently in play look to have gold holding the potential for $400 (current trend, point and figure bullish count, very low fed funds rate). Should gold near the $400, we might expect the Fed to make a tightening move. If the Fed doesn't as it sees no sign of inflation, and gold continues higher as if the MARKET is trying to tell the Fed "you'd better tighten as inflation is coming and may turn into hyper inflation if you don't act soon," and the Fed still doesn't act, then we might expect the SPX to act as it did when gold was below $300, the Fed was not doing its best job, and was tightening when the gold MARKET was trading below $300. I will admit that the last 10-years may not be enough historical information to draw some of the conclusions stated in this article. Some may think we should go back to the 1930's and study these models, or even the 1970's during the Carter Administration when inflation was running high. But we should also remember just how far technology has brought forward the speed and faster flow of information compared to the 1930's and even the 1970's during times of deflation and inflation. You can see how quickly the Fed may have realized its "mistakes" from the spring of 2000, when it aggressively began cutting rates. Eventually the Fed will raise its target on fed funds rates. What would your reaction be? Better yet, what will the MARKET's reaction be? In May of 1998, the Fed did nothing but say it saw signs of inflation and hinted at a rate increase. Where was gold? It was trading at the low end of the $300-$400 range at $300. While the Fed saw inflation, gold certainly didn't seem to be seeing it. The SPX was obviously heating up and corrected on the Feds comments and sent fed funds lower in anticipation the Fed would follow through on its observation that inflation may need to be tamed with a rate cut. For gold, press reports mention that there are still very large short positions unwinding in the commodity and this unwinding of bearishness can have price moving outside of ranges. One way I think a trader/investor can differentiate an overly bullish move or bearish move in gold is with the Treasury bond market. The bond market is much larger than the gold market and just as the gold market may be efficient at predicting inflation, so is the bond market. I can't remember the exact dates, but it was in 2000 when gold was falling lower from $300 and Treasury YIELDS started turning lower, while the Fed was raising rates, that we thought, "something's up" or down as the case would be. Should gold move above $400.00, we'll be keeping a very close eye on the Treasury market. If gold moves above the $400 level, a normal move in gold (without excessive short covering) we should expect Treasury YIELDS to follow, as their higher YIELD should also be predicting inflation and future Fed tightening. Conversely, lets say Treasury YIELDS stay where they are at, and 3-months from now, gold is trading $412. It would be my opinion at that time that we're probably seeing gold "artificially" boosted by short-covering or more extreme levels of speculation. We could also keep an eye on other commodity products, where their prices should rise under more inflationary times. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ CRHCY CRH PLC Tue, Sep 02 Before the Bell N/A MBG Mandalay Resort Group Tue, Sep 02 After the Bell 0.63 ROP Roper Industries Tue, Sep 02 After the Bell 0.53 SNY Sanofi Synthelabo Tue, Sep 02 Before the Bell N/A TI Telecom Italia Tue, Sep 02 -----N/A----- N/A ----------------------- WEDNESDAY ----------------------------- GLH Gallaher Group PLC Wed, Sep 03 Before the Bell N/A HNZ H.J. Heinz Company Wed, Sep 03 Before the Bell 0.51 HOV Hovnanian Enterprises Wed, Sep 03 After the Bell 1.90 JWa John Wiley & Sons Wed, Sep 03 Before the Bell 0.38 Q Qwest Communications Wed, Sep 03 Before the Bell -0.08 SIGY Signet Group Wed, Sep 03 Before the Bell N/A TTWO Take-2 Inter Software Wed, Sep 03 Before the Bell 0.17 COO The Cooper Companies Wed, Sep 03 After the Bell 0.54 TOT Total Wed, Sep 03 -----N/A----- 1.48 ------------------------- THURSDAY ----------------------------- ACDO Accredo Health Thu, Sep 04 Before the Bell 0.32 ABS Albertson's Thu, Sep 04 Before the Bell 0.43 DLM Del Monte Foods Thu, Sep 04 -----N/A----- 0.09 DEO Diageo PLC Thu, Sep 04 Before the Bell N/A EDP Electricidade PortugalThu, Sep 04 -----N/A----- N/A IPR International Power Thu, Sep 04 -----N/A----- N/A LR Lafarge Thu, Sep 04 -----N/A----- N/A MDZ MDS Inc. Thu, Sep 04 Before the Bell N/A NSM National SemiconductorThu, Sep 04 -----N/A----- 0.12 PLL Pall Corp. Thu, Sep 04 -----N/A----- 0.40 SZE Suez SA Thu, Sep 04 -----N/A----- N/A ------------------------- FRIDAY ------------------------------- RANKY Rank Group Plc. Fri, Sep 05 Before the Bell N/A TKP Technip Fri, Sep 05 Before the Bell 0.37 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable JBHT J.B. Hunt Transport Serv 2:1 Aug 29th Sep 1st RCII Rent A Center 5:2 Aug 29th Sep 1st AFP United Capital Corp 2:1 Aug 29th Sep 1st JCOM J2 Global Communication 2:1 Aug 29th Sep 1st CHDX Chindex International Inc 2:1 Sep 2nd Sep 3rd HOTT Hot Topic Inc 3:2 Sep 2nd Sep 3rd PFB PFF Bancorp Inc 7:5 Sep 5th Sep 8th RBKV Resource Bankshares Corp 3:2 Sep 5th Sep 8th PSUN Pacific Sunwear of CA Inc 3:2 Sep 5th Sep 8th CWTR Coldwater Water Inc 3:2 Sep 8th Sep 9th POOL SCP Pool Corporation 3:2 Sep 12th Sep 15th CBAN Colony Bankcorp Inc 5:4 Sep 15th Sep 16th HNBC Harleysville National Corp5:4 Sep 15th Sep 16th -------------------------- Economic Reports This Week -------------------------- It's a full week of economic reports to launch the back to school season. Wednesday, Thursday and Friday are all packed just as Wall Street professionals return from the Labor Day holiday ready to do some business. ============================================================== -For- ---------------- Monday, 09/01/03 ---------------- None ---------------- Tuesday, 09/02/03 ---------------- ISM Index (DM) Aug Forecast: 53.5 Previous: 51.8 ------------------- Wednesday, 09/03/03 ------------------- Auto Sales (NA) Aug Forecast: 5.8M Previous: 5.8M Truck Sales (NA) Aug Forecast: 7.8M Previous: 8.1M Construction Spnding(DM)Jul Forecast: 0.40% Previous: 0.30% Fed's Beige Book (DM) ------------------ Thursday, 09/04/03 ------------------ Initial Claims (BB) 08/30 Forecast: 395K Previous: 394K Productivity-Rev. (BB) Q2 Forecast: 6.30% Previous: 5.70% ISM Services (DM) Aug Forecast: 62 Previous: 65.1 Factory Orders (DM) Jul Forecast: 0.80% Previous: 1.50% ---------------- Friday, 09/05/03 ---------------- Nonfarm Payrolls (BB) Aug Forecast: 15K Previous: -44K Unemployment Rate (BB) Aug Forecast: 6.20% Previous: 6.20% Hourly Earnings (BB) Aug Forecast: 0.30% Previous: 0.30% Average Workweek (BB) Aug Forecast: 33.6 Previous: 33.6 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************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 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** 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 08-31-2003 Sunday 2 of 5 In Section Two: Watch List: More Bullish Breakouts Call Play of the Day: PGR Dropped Calls: BSX Dropped Puts: WLP ************************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 ************************************************************** ********** Watch List ********** More Bullish Breakouts Borg Warner - BWA - close: 71.22 change: +1.07 WHAT TO WATCH: We're not sure what it is with the auto parts group but stocks in this industry are doing very well. BWA just broke to a new 52-week high and what looks like a new all time high. Shares are bouncing strongly from the $68 level and that looks like a good place to stick a stop loss. We'd consider a target near $75 but with no overhead resistance who knows how far it can run. Chart= --- Lear Corp - LEA - close: 55.55 change: +0.79 WHAT TO WATCH: Lear is another auto-parts maker but they focus on interiors. Almost a month ago Barron's suggested that LEA might rise to the $65 level with strong growth prospects. So far so good. The pull back and bounce from the $54 level looks like a good entry point for bullish positions. Chart= --- Kimberly Clark - KMB - close: 51.11 change: +0.30 WHAT TO WATCH: Cyclical stocks have been getting a lot of attention these days and while some might argue that KMB is a consumer non-durable goods company they are rising nonetheless. The strong steady trend of higher lows from its early August low looks promising for shareholders. So too does the breakout over its simple 50-dma and the $51 mark. Short-term bulls might want to target a move to the $54-55 level. Chart= --- Abbott Labs - ABT - close: 40.30 change: +0.48 WHAT TO WATCH: We're not wild about drug stocks right now. The DRG drug index has been the big loser these last several weeks. However, showing some signs of life is ABT. The stock is fighting to breakout above its simple 200-dma. While there are plenty of congested trading levels above it, patient traders might want to watch it for a move to the $45 area. If you don't like the way ABT looks check out LLY, which is in a similar position. Chart= --- Legg Mason - LM - close: 71.83 change: +0.89 WHAT TO WATCH: The XBD broker dealer index is trying hard to hit new highs. The same can be said for shares of LM. The stock is trading close to new highs and with its trend of higher lows, a new high is not a bad bet. Bulls might want to consider bounces from the $70 level or moves above $72 as entry points. Chart= =================================== RADAR SCREEN - More stocks to watch =================================== GDW $86.27 - We're not wild about the financials right now but shares of GDW are bouncing from the $85 level and could be worth watching. ADP $39.91 - The $40 level is major resistance for this stock and a breakout could fuel a quick run to the $45 area. GTK $42.38 - Hitting all times highs is nothing new for this stock and the bounce from $40 looks buyable, just use a good stop loss. DISH $37.05 - We've had our eye on DISH for months but it continues to trade sideways between $34 and $37.50. Still watching for that upside breakout. COH $58.04 - The upcoming Q4 shopping season should be a good one for COH and investors are liable to buy the stock ahead of its best quarter. EDMC $61.16 - School and education stocks have been strong for months and the rising channel is still in place for EDMC. ITW $72.29 - Tool maker ITW is making new 52-week highs and the bounce above $70 looks tempting. Can it run to $77.50? WY $59.50 - The strength in WY is impressive but we were reluctant to go long the stock just shy of $60. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************* THE PLAY OF THE DAY ******************* Call Play of the Day: ********************* Progressive Corp. - PGR - close: 70.74 change: +0.60 stop: 68.40 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 ^^^^^ Boston Scientific - BSX - cls: 60.10 chg: -2.59 stop: 61.99 If you read our update on Thursday night you know we considered closing the play after Morgan Stanley's bearish comments on Tuesday. However, as of Thursday night the stock was still above its simple 50-dma and the $62 level where it had bounced before. Unfortunately for shareholders more concerns over BSX's next clinical study results for one of its drug-coated stents sent the stock reeling. Merrill Lynch tried to step in and defend the stock, which probably helped it close above $60. We have been stopped out at $61.99. Picked on August 21 at $66.50 Change since picked: -6.40 Earnings Date 07/22/03 (confirmed) Average Daily Volume: 2.78 million Chart = PUTS ^^^^ Wellpoint Health Ntwk - WLP - cls: 78.00 chg: +1.11 stop: 77.51 It's hard to be bearish when the whole market is moving higher. The healthcare-insurance group was a leading group to the downside just a week or two ago. We chose to open bearish plays on WLP but only if it traded below support and hit our trigger at $74.95. That happened on Monday but in the same sessions shares (and the market) rebounded from its intraday lows. It's been a steady climb since. Today's move took it right to previous support now minor resistance of $78.00 and it was enough to hit our stop at $77.51. Picked on August 25 at $74.95 Change since picked: +3.05 Earnings Date 07/22/03 (confirmed) Average Daily Volume: 1.3 million Chart = *********** 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************************* 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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** 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 08-31-2003 Sunday 3 of 5 In Section Three: Current Calls: CCMP, ERTS, GILD, LLL, OMC, SPW, UTX New Calls: PCAR, PGR Current Put Plays: ESRX, LEH, XL New Puts: None ************************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 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Cabot Microelect. - CCMP - close: 65.19 change: -0.90 stop: 62.50 Company Description: Cabot Microelectronics is a supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization (CMP). CMP is a polishing process used by IC device manufacturers to flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. Why we like it: Well apparently you can't win all the time! CCMP got off to a good start on Thursday, ramping up above $66 and seemingly well on its way towards the top of its channel. Thursday's rally above $66 seemed particularly encouraging in light of the UBS dowgrade and a relatively flat performance for the Semiconductor index (SOX.X.). But in a sort of delayed reaction, CCMP dropped back on Friday, diverging from the SOX and retracting roughly half of the gains from Thursday. On a positive note, the $64.50 level did hold as support and dips to that level still look viable for dip entries into the play. The stock is still well within the rising channel (see chart) and a deeper dip that finds willing buyers above the bottom of that channel can still be used for more aggressive entries. The SOX is still inching higher and should help to propel our play higher, especially if the bulls return in force next week to push the SOX through the $460 level. Maintain stops at $62.50. Suggested Options: Shorter Term: The September 65 Call will offer short-term traders the best return on an immediate move, as it is slightly in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 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 will want to use the October 65 Call. BUY CALL SEP-65 UKR-IM OI=1798 at $3.00 SL=1.50 BUY CALL SEP-70 UKR-IN OI= 965 at $1.05 SL=0.50 BUY CALL OCT-65 UKR-JM OI= 552 at $4.70 SL=2.75 BUY CALL OCT-70 UKR-JN OI= 819 at $2.55 SL=1.25 Annotated Chart of CCMP: Picked on August 27th at $64.45 Change since picked: +0.74 Earnings Date 10/23/03 (unconfirmed) Average Daily Volume = 883 K Chart = --- Electronic Arts - ERTS - close: 89.97 chg: +0.91 stop: 84.75 Company Description: Electronic Arts (EA), headquartered in Redwood City, California, is the world's leading interactive entertainment software company. Founded in 1982, Electronic Arts posted revenues of $2.5 billion for fiscal 2003. The company develops, publishes and distributes interactive software worldwide for video game systems, personal computers and the Internet. Electronic Arts markets its products under three brand names: EA SPORTS(TM), EA GAMES(TM), and EA SPORTS BIG(TM). (source: company press release) Why We Like It: (This is the original update from Thrusday) We've had our eyes on ERTS for a while now but the appropriate entry point seemed to elude us. Now with the GSO software index breaking out to new one-year highs we think it may be time to give ERTS another look. Not only is the stock one of the leaders in the group but the recent bounce from $86.00 was a move off old resistance. We'll certainly agree that the stock is overbought but the bears can't seem to get a strong enough grip to slow it down. Of course it could be bears trying to cover that might be boosting the stock price. As of August 8th, the latest short interest report showed 7.02 million shares held short or almost 5 percent of the float. Traders will also note that ERTS is at all time highs and way overdue for another split announcement. They last announced a stock split in August of 2000 near the $85 level. In addition to the technical strength of the share price we also like the fundamental reasons to buy ERTS. A P/E of 40 may be a little high for some investors but ERTS is a software company with rising revenues and growing net income. Looking back to the July 23rd earnings report we see that ERTS beat estimates by 10- cents. Since their earnings report Bank of America has raised its price target on ERTS from $80 to $95 and Dougherty & Co raised their price target from $85 to $100. Plus, we're quickly approaching the Q4 holiday sales season, which is a big one for ERTS now that video game sales out pace movie revenues. More conservative traders might feel better by using a trigger to go long the stock above $90.00. We'd suggest $90.05, 90.25, or whatever suits your fancy. Our play is a little aggressive as we're suggesting new bullish positions now with the stock still under resistance of $90. Plus, our initial stop loss at $84.75 is a little wide. Looking at the intraday chart one could probably get by with a stop just under $86.00. ! Friday Update: Our new call play in ERTS is off to a good start. Shares continued their bounce from the $86 level and midday the stock broke the $90 mark. Unfortunately the stock was unable to close above this psychological level. Moderate to aggressive bulls can continue to target entries at current levels. More conservative traders can either look for more momentum above $90 or maybe a dip and bounce back near the $88 mark. Suggested Options: Bullish traders can choose from September, October and December options. There are only three weeks left for the September calls so our preference is probably for the October strikes. BUY CALL SEP 85 EZQ-IQ OI=2259 at $5.80 SL=3.35 BUY CALL SEP 90 EZQ-IR OI=3334 at $2.50 SL=1.25 BUY CALL SEP 95 EZQ-IS OI=1510 at $0.80 SL= -- higher risk BUY CALL OCT 90 EZQ-JR OI= 308 at $4.40 SL=2.25 BUY CALL OCT 95 EZQ-JS OI= 140 at $2.30 SL=1.15 BUY CALL DEC 95 EZQ-LS OI= 108 at $4.80 SL=2.50 Annotated Chart: Picked on August 28 at $89.06 Change since picked: +0.91 Earnings Date 07/23/03 (confirmed) Average Daily Volume: 3.3 million Chart = --- Gilead Sciences - GILD - cls: 66.68 chg: +0.47 stop: 62.49 Company Description: Gilead Sciences is a biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases worldwide. The company has seven marketed products and focuses its research and clinical programs on anti-infectives. Headquartered in Foster City, CA, Gilead has operations in the United States, Europe and Australia. (source: company press release) Why We Like It: The biotech bounce is still alive and GILD is doing its best to participate. Investors are in a bullish mood and the last few months of positive biotech news and clinical trial results have sent shares of some of the major stocks soaring. GILD is still slowing rebounding from an early August FDA warning about some of its advertising but the stock looks ready to retest the $70 level. Technically the stock's MACD just produced a new buy signal while its momentum and stochastic oscillators are already pointing higher. We like how shares have broken back above the $66 mark and found new intraday support there. For the moment we're keeping our stop below the simple 50-dma. Keep an eye on the BTK biotech index. The group may have bounced but the index has not yet broken its trend of lower highs. Bullish investors need to see it above the 460 level. Suggested Options: There are only three weeks left for September options so short- term traders should be careful. Our preference will be for the October 65's and 70's. BUY CALL SEP 65 GDQ-IM OI=4058 at $3.20 SL=1.60 BUY CALL SEP 70 GDQ-IN OI=4685 at $1.05 SL=0.50 BUY CALL OCT 65 GDQ-JM OI= 75 at $4.90 SL=3.00 BUY CALL OCT 70 GDQ-JN OI= 147 at $2.55 SL=1.25 Annotated Chart: Picked on August 19 at $65.32 Change since picked: +1.36 Earnings Date 07/31/03 (confirmed) Average Daily Volume: 3.31 million Chart = --- L-3 Communications -LLL - cls: 51.09 chng: +0.28 stop: 49.25*new* Company Description: As a leading supplier of sophisticated secure communication systems and specialized communication products, LLL provides critical elements of virtually all major communication, command and control, intelligence gathering and space systems. The company's high data rate communication, avionics, telemetry and instrumentation systems and components are used to connect a variety of airborne, space, ground-based and sea-based communication systems. Why we like it: After just barely surviving a test of our aggressively tightened stop at $48.90 early last week, our LLL play gathered its strength and finally delivered on the expected breakout over the $50.50 level. Thursday's session delivered that breakout and with positive action in the broad market again on Friday, the stock inched higher for its first close over $51 since early October of last year. Adding emphasis to the breakout was the increasing volume, which fell just shy of the ADV on Friday - an impressive feat given the light overall market volume. Dips to the $50 level now look like favorable dip-buying entry points, especially with the 10-dma ($49.94) resting just below there to reinforce that support. Next resistance is at $51.75, so we're hesitant to advocate new entries on further strength. The momentum entry was on Thursday's breakout. Once through that level of resistance, we'll turn our attention to the $54 level, which will be stronger resistance and is our initial exit target. Based on the way LLL found support at the 20-dma ($49.30) last week, it seems safe to raise our stop to $49.25, just below that average. Suggested Options: Shorter Term: The September 50 Call will offer short-term traders the best return on an immediate move, as it is currently slightly in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 55 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 will want to use the October 50 Call. BUY CALL SEP-50 LLL-IJ OI=1438 at $2.15 SL=1.00 BUY CALL OCT-50 LLL-JJ OI=2851 at $3.00 SL=1.50 BUY CALL OCT-55 LLL-JK OI= 919 at $0.90 SL=0.40 Annotated Chart of LLL: Picked on August 3rd at $49.90 Change since picked: +1.19 Earnings Date 10/22/03 (unconfirmed) Average Daily Volume = 902 K Chart = --- Omnicom Group - OMC - close: 78.10 chg: +0.55 stop: 74.49 Company Description: Omnicom is a leading global marketing and corporate communications company. Omnicom's branded networks and numerous specialty firms provide advertising, strategic media planning and buying, direct and promotional marketing, public relations and other specialty communications services to over 5,000 clients in more than 100 countries. (source: company press release) Why We Like It: There appear to be a number of developing reasons for investors to turn bullish on advertising stocks. The general economy is improving, we're starting the fall sports/tv line up, we'll soon see ads for the 2004-2005 political season, and there is going to be a free for all among the drug giants with the new ED drugs hitting the U.S. market soon. This hasn't been lost on shares of OMC. The breakout over $75-76 from a multi-week consolidation looks like a great place to gauge new entries. Shares of OMC have been trading right on track. The pull back to retest the $75 level was a great spot to initiate new bullish positions. The stock continues to bounce and a test of $80.00 probably isn't far away. Short-term traders who took advantage of the dip might want to consider taking some profits as OMC approaches or trades at the psychological $80 level. We actually believe that OMC will eventually break out above the $80 mark and trade to the $85 level of resistance as seen on its weekly chart. Suggested Options: Currently OMC has September, October and January calls to choose from. With only three weeks left for the September options our preference for new positions would be the October 75s and 80s. BUY CALL SEP-75 OMC-IO OI= 1443 at $3.80 SL=1.80 BUY CALL SEP-80 OMC-IP OI= 1652 at $0.95 SL=0.45 BUY CALL OCT-75 OMC-JO OI= 1440 at $5.10 SL=3.00 BUY CALL OCT-80 OMC-JP OI= 1872 at $2.30 SL=1.15 Annotated Chart: Picked on August 19 at $76.67 Change since picked: +1.43 Earnings Date 07/29/03 (confirmed) Average Daily Volume: 881 thousand Chart = --- SPX Corp. - SPW - close: 49.35 change: +0.52 stop: 47.50*new* Company Description: SPX Corporation is a global provider of technical products and systems, industrial products and services, flow technology and service solutions. The company offers networking and switching products, fire detection and building life-safety products, television and radio broadcast antennas and towers, life science products and services, transformers, dock products and systems, cooling towers, air filtration products, valves, back-flow protection and fluid handling devices and metering and mixing solutions. The company also provides specialty service tools, diagnostic systems, service equipment and technical information services. SPW services a broad array of customers in a variety of industries, including chemical processing, pharmaceuticals, infrastructure, mineral processing, petrochemical, telecommunications, financial services, transportation and power generation. Why we like it: As noted on Thursday, SPW is continuing on its path of higher lows and higher highs, with the $47.60 level (backed up by the 20-dma (now at $47.60) reinforcing that support and providing the impetus for last week's rebound. Friday's volume was exceptionally light (only a third of the ADV), but that didn't stop the bulls from posting another gain and bringing the stock that much closer to a test of the key $50 resistance level. The dips last week near the 20-dma were the best shot at dip-buying entries and the next likely entry will come on a bonified breakout over $50. We'll need stronger volume to accomplish that task, but with traders starting to come back on Tuesday from a long summer, we might just see that early next week. We can now raise our stop just slightly to $47.50, just under the 20-dma, last week's intraday lows and the ascending trendline. Our initial target is still the $53 resistance level, where conservative traders may want to book some gains. Above there is our aggressive target of $56, and if achieved, we will advocate exiting any open positions with a tidy gain. Remember, the key to this play will be whether we get a surge of buying volume next week. Without it, SPW will have a hard time clearing that $50 resistance. Suggested Options: Shorter Term: The September 47 Call will offer short-term traders the best return on an immediate move, as it is slightly in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 50 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 will want to use the October 47 Call. BUY CALL SEP-47 SPW-IW OI= 663 at $2.60 SL=1.25 BUY CALL SEP-50 SPW-IJ OI=3800 at $1.00 SL=0.50 BUY CALL OCT-47 SPW-JW OI= 41 at $3.50 SL=1.75 BUY CALL OCT-50 SPW-JJ OI=2800 at $2.05 SL=1.00 Annotated Chart of SPW: Picked on August 14th at $48.14 Change since picked: +1.20 Earnings Date 10/27/03 (unconfirmed) Average Daily Volume = 908 K Chart = --- United Technologies - UTX - cls: 80.25 chg: +0.50 stop: 75.99 Company Description: United Technologies Corp., based in Hartford, Connecticut, is a diversified company that provides a broad range of high technology products and support services to the building systems and aerospace industries. It's four main business segments are Otis, Carrier, Pratt and Whitney, and Flight Systems. (source: company press release) Why We Like It: (This is the Thursday night play description) The combination of an improving economy and higher defense spending is going to translate into more business for companies like UTX. One look at the stock price and you can see that it's no secret. Shares have improved strongly and recent action put UTX at two-year highs. Giving the stock an extra boost has been the recent blackouts. A UTX spokesman said they are seeing more interest in their fuel cell and microturbines power products. We like the recent breakout above the $77 level and how shares ran up to $80 before pulling back to retest $77 as support. The stock is knocking at the $80 level again and we're going to set a TRIGGER at $80.05 to go long the stock. Conservative traders can use a tight stop under $77.00 but we're going to give it just a little extra room and put our stop at $75.99 for now. The old highs for the stock are near $87.50 from May 2001. If UTX can break $80.00 we'll aim for the old highs. ! Friday update: Sure enough with the markets drifting higher shares of UTX traded up and through the $80 mark to hit our trigger of $80.05. If by chance UTX pulls back we'd look for a bounce near $78 as another entry point. Suggested Options: There are just three weeks left for the September options on UTX so our preference would be for the October or November strikes. However, we're going to list a couple of September calls for the more aggressive traders. BUY CALL SEP 75 UTX-IO OI=1013 at $5.70 SL=3.35 BUY CALL SEP 80 UTX-IP OI=2355 at $1.65 SL=0.85 BUY CALL SEP 85 UTX-IQ OI= 35 at $0.20 SL -- higher risk BUY CALL OCT 75 UTX-JO OI= 210 at $6.50 SL=4.00 BUY CALL OCT 80 UTX-JP OI= 766 at $3.00 SL=1.65 BUY CALL OCT 85 UTX-JQ OI= 498 at $1.05 SL= -- BUY CALL NOV 80 UTX-KP OI=1186 at $4.00 SL=2.20 BUY CALL NOV 85 UTX-KQ OI= 21 at $1.75 SL=0.90 Annotated Chart: Picked on August 29 at $80.05 Change since picked: +0.15 Earnings Date 07/17/03 (confirmed) Average Daily Volume: 2.1 million Chart = ************** NEW CALL PLAYS ************** PACCAR - PCAR - close: 85.37 change: +1.13 stop: 82.45 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: It's back! PCAR was a big winner for us a week ago when we closed it for a big gain. We would have rather picked it up again on a bounce from the $80 level but $82.50 was a close as it got before dip buyers stepped in and lifted the share price. Now that the stock closed back above the $85 mark we're going to aim for a quick move to $90 and get out. The stock is extremely overbought and due for more profit taking but until the trend changes we'll play what we can get. If you remember from the previous play on PCAR the company is doing great. The company beat estimates by 8 cents with revenues up 12 percent. Net income jumped some 68 percent. Management said things were improving in the heavy-duty truck orders department and the entire sector is on fire right now. On May 29th, 2003 PCAR had a 3-for-2 stock split in the $60-65 range. Shares are significantly above that level and management could announce another split at any time. We're going to start the play with a stop at $82.45. Suggested Options: Remember there are only three weeks left for September options. Our preference will be for the October or November. However, keep in mind that we're just looking for a quick move to $90. If you're nimble enough the Septembers could work for you. BUY CALL SEP 80 PAQ-IP OI=278 at $6.20 SL=4.00 BUY CALL SEP 85 PAQ-IQ OI=465 at $2.35 SL=1.00 BUY CALL SEP 90 PAQ-IR OI=151 at $0.60 SL -- higher risk! BUY CALL OCT 85 PAQ-JQ OI= 90 at $3.90 SL=2.00 BUY CALL OCT 90 PAQ-JR OI=135 at $1.65 SL=0.85 BUY CALL NOV 85 PAQ-KQ OI= 13 at $5.00 SL=3.25 BUY CALL NOV 90 PAQ-KR OI= 7 at $2.70 SL=1.50 Annotated Chart: Picked on August 31 at $85.37 Change since picked: +0.00 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.15 million Chart = --- Progressive Corp. - PGR - close: 70.74 change: +0.60 stop: 68.40 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: Throughout the impressive rally from the March lows, PGR had one heckuva ride, vaulting from the $50 area to as high as $76 before running out of steam. Since then, the obligatory profit taking has occurred, pulling the stock back to the $64 area (an almost perfect 38% retracement of the February-June rally) before the buyers reappeared. The stock launched nearly vertically out of its $64 base a couple weeks ago, consolidated in a tight, flat coil just under $70 and then proceeded to break out on Friday. That flat coil looks an awful lot like a bullish continuation flag, and since the initial move from $64-70 spanned $6, we can look for a move of similar magnitude on this breakout from the pattern. That should have us targeting a move into the $75-76 area. Adding to the bullish picture is the way PGR broke out over the 50-dma ($69.49) and appears to be finding support at the 10-dma ($69.57). There are a couple ways to play this one. The conservative approach would be to look for a mild pullback to the $69.50-70.00 area and enter on a rebound. Those who like to enter on strength can jump aboard on a rally through $70.75 (just above Friday's intraday high), looking for a solid momentum run towards our $75 target. Look for initial resistance to be found near $73, but if the stock moves strongly like it did in early August, holding out for a move up to the $75 level looks like a good bet. Due to the fact that the stock is just starting to break out of its consolidation pattern, we can set a tight stop at $68.40, just under the top of the gap from 8/19. Suggested Options: Shorter Term: The September 70 Call will offer short-term traders the best return on an immediate move, as it is slightly in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 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 will want to use the October 70 Call. BUY CALL SEP-65 PGR-IM OI=1047 at $6.00 SL=4.00 BUY CALL SEP-70 PGR-IN OI= 209 at $1.85 SL=0.90 BUY CALL OCT-70 PGR-JN OI= 39 at $2.90 SL=1.50 BUY CALL OCT-75 PGR-JO OI= 84 at $0.80 SL=0.40 Annotated Chart of PGR: Picked on August 27th at $70.74 Change since picked: +0.00 Earnings Date 10/15/03 (unconfirmed) Average Daily Volume = 823 K Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Express Scripts - ESRX - close: 64.81 change: +0.32 stop: 65.75 Company Description: Express Scripts provides health care management and administration services on behalf of clients that include health maintenance organizations, health insurers, third-party administrators, employers and union-sponsored benefit plans. The company's fully integrated pharmacy benefit management services include network claims processing, mail pharmacy services, benefit design consultation, drug utilization review, formulary management, disease management, medical information management services and informed decision counseling services through its Express Health Line division. Why we like it: After getting off to a good start early last week and breaking solidly below support at $63, our ESRX play did an about face and came bouncing strongly back to major resistance at $65. Posting a higher low just above $61 and rallying on strong relative volume is not a good sign, and the only thing in our favor right now is the fact that ESRX was unable to close above $65. The mood of investors after the long weekend will be the key. A rollover near this level can be used for aggressive entries, while a continued bullish move will very quickly stop us out of the play at $65.75. At this point, we'd prefer to see a break back under $63 before considering new positions and we'd like to see it come on strong volume. This close to major resistance, there's little point in focusing on downside targets. Let's get back under $63 and then we can start evaluating the likelihood of a decline to $60 or below. Suggested Options: Short-term traders will want to focus on the September 65 Put, as it will provide the best return for a short-term play. Traders with a more conservative approach will want to utilize the October 65 contract, as it should not be as susceptible to time decay issues in the near term. BUY PUT SEP-65 XTQ-UM OI= 763 at $2.20 SL=1.00 BUY PUT OCT-65 XTQ-VM OI= 22 at $3.70 SL=2.25 BUY PUT OCT-60 XTQ-VL OI= 132 at $1.80 SL=0.90 Annotated Chart of ESRX: Picked on August 24th at $63.48 Change since picked: +1.33 Earnings Date 10/22/03 (unconfirmed) Average Daily Volume = 1.41 mln Chart = --- Lehman Brothers - LEH - close: 65.73 change: +0.42 stop: 67.25 Company Description: Through its subsidiaries, LEH constitutes one of the leading global investment banks, serving institutional, corporate, government and high-net-worth individuals clients. The company is engaged primarily in providing financial services, including securities writing and direct placements, corporate finance and strategic advisory services, private equity investments and securities sales and trading. Completing its array of banking, research and trading capabilities, LEH also engages in the trading of foreign exchange, derivative products and certain commodities. Why we like it: Last week was not favorable to the bears, as every seeming dip was eagerly bought, albeit on light volume. After grossly underperforming the Broker/Dealer index (XBD.X) for the past couple months, LEH is threatening to actually find some upside traction. This new buoyant behavior is being helped by the positive action in the XBD index, which appears on the cusp of a breakout attempt at major resistance at $580. If the index is successful in that breakout attempt, then it will be very difficult for the bears to keep LEH from going along for the ride, despite the concerns about potential damage to the company's bottom line from the recent bond debacle. After failing to break back under the $63 support level, LEH rebounded on throughout most of the week, and Friday's close back over the 50-dma ($65.31) is not encouraging to the bears. Aggressive traders can consider new entries on a break back under the 50- dma, but only if it comes on strengthening volume. The better approach for new entries will be to wait for a break back under the $63 level. While we're maintaining our stop at $67.25, more conservative traders may want to use a tighter stop at $66.25, just above horizontal resistance that has held for more than a month. Suggested Options: Short-term traders will want to focus on the September 65 Put, as it will provide the best return for a short-term play. Longer- term traders looking for a move down towards the $60 level or below will want to utilize the October 60 contract, which although it is currently out of the money, should provide enough time to achieve profitability before time decay has a pronounced effect. BUY PUT SEP-65 LEH-UM OI=3035 at $1.30 SL=0.60 BUY PUT OCT-65 LEH-VM OI=4745 at $2.55 SL=1.25 BUY PUT OCT-60 LEH-VL OI=6211 at $1.15 SL=0.50 Annotated Chart of LEH: Picked on August 24th at $64.41 Change since picked: +1.32 Earnings Date 09/18/03 (unconfirmed) Average Daily Volume = 2.97 mln Chart = --- XL Capital Ltd. - XL - close: 75.75 change: +0.28 stop: 77.50*new* Company Description: XL Capital Ltd. provides insurance and reinsurance coverages and financial products and services to industrial, commercial and professional service firms, insurance companies and other enterprises on a worldwide basis. Insurance business written includes general liability, other liability, professional and employment practices liability, environmental liability, property, program business, marine and energy, aviation and satellite, as well as other product lines. Reinsurance business written includes treaty and facultative reinsurance to primary insurers of casualty and property risks, as well as life reinsurance, primarily European term assurances, group life, critical illness coverage , immediate annuities in payment and disability income business. Why we like it: It seems like we can't buy a winning bearish play in this market, and XL is just the latest example. After giving us a very convincing volume-backed breakdown under the $75 level last Friday, the stock found support just above $73.50 (the top of the April gap) and quickly rebounded back to that key $75 level. It took most of the week, but XL finally managed to gain some upside traction on Friday, and this brings the stock within striking distance of the descending trendline from the June highs. That trendline currently rests at $77, and is lined up nicely with horizontal support turned resistance. A rollover in this area looks like a favorable setup for new entries into the play, as momentum entries to the downside are a bit risky due to the known support in the $72.50-73.50 area. Providing backup resistance is the 30-dma ($77.41), which hasn't been broken since late June. XL should be unable to move above resistance at the $77, and the 30-dma, so we're lowering our stop to $77.50 this weekend. If that resistance is broken, it will likely take place on increasing volume and that will have us wanting to be out of the play post haste! Suggested Options: Aggressive short-term traders will want to focus on the September 75 Put, as it will provide the best return for a short-term play. Traders with a more conservative approach will want to utilize the October 75 contract, as it should not be as susceptible to time decay issues in the near term. BUY PUT SEP-75 XL -UO OI= 325 at $1.55 SL=0.75 BUY PUT OCT-75 XL -VO OI= 789 at $2.60 SL=1.25 BUY PUT OCT-70 XL -VN OI= 96 at $1.10 SL=0.50 Annotated Chart of XL: Picked on August 21st at $75.92 Change since picked: +0.17 Earnings Date 10/30/03 (unconfirmed) Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 08-31-2003 Sunday 4 of 5 In Section Four: Leaps: Summer Is Over Traders Corner: Become A Member Of The "Chain" Gang? Futures Corner: Swing Trade Model Setup Futures Corner: The Good the Bad and the Put/Call Ratios ************************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 ************************************************************** ***** LEAPS ***** Summer Is Over By Mark Phillips mphillips@OptionInvestor.com Remember back in your youth, the dread with which you received that statement? It meant the end of playing outside until dark, no homework and doing pretty much what you wanted all day, every day -- with the brief pauses to take care of the obligatory chores of course. Oh how times have changed! Here I am testing the upper limits of my 30's, awaiting the imminent arrival of my first child and the end of summer does nothing but put an ear-to-ear smile on my face. You all know the reason why, as I've been harping on it for weeks now. This incessant, mind-numbing trading range, where the DOW and the S&Ps have to be checked for a pulse several times a day, as volume is so ridiculously low. It happens every year, but I have to say I can't ever remember seeing markets that were so choppy and untradable. But next week should bring a welcome change as all those professional traders that have been off on vacation will come back with one of two things on their mind. Either they'll be looking to dump profitable long positions into the normally bullish first week of September or they'll hold their collective noses and buy stocks in sufficient quantities to break the DOW and S&Ps out to new highs for the year. I think the latter scenario has much lower odds of actually coming to pass, but who cares what I think. At this point, I wouldn't even mind being wrong, just so long as we move. Sure we've been in a roughly 5.5% range for the past 2 1/2 months, but with the exception of the decline off the June 17th high and the rally off the early August low, there has not been enough of a trend to take a position trade and not get chopped out in the noise. That's why I'm so thrilled that we're moving out of summer and into September. Regardless of which way things go, I feel quite certain that a month from now, the DOW will not be between 9000- 9500 and the S&P 500 will not be between 960-1015. The NASDAQ is another story altogether, as both the NDX and COMPX markets pushed to fresh 52-week highs. In fact, those indices are trading at their best levels since last April. Since the October lows, the NDX is up a whopping 66% and the COMPX has staged a 62% gain. That's just pretty doggone impressive! This is one of those times where I feel the irrepressible urge to toot my own horn. Does anyone remember the comments I made back in January about the NASDAQ markets being poised to outperform the rest of the market? Well, compared to the 30% rise in the SPX and the 29% rise in the DOW, there's no question that the NASDAQ's are the clear leaders. Of course, that's what we would expect given the much more severe beating Technology stocks took during the first leg of the bear market that began in March of 2000. Truth be told, I'm actually quite surprised the NASDAQs have been able to rise this far, as I really thought COMPX 1600-1650 would be a firm ceiling. So much for my guru status! GRIN So where do we go from here? My best answer for that question is contained in my Trader's Corner article from last Monday. I expect some more bullishness early next week, possibly extending throughout the week. But that's pretty much all my bearish stance will be able to endure. You see, another full week of bullishness, beginning with the markets already extended and priced to perfection, the VIX below 20 and investor sentiment skewed much too far into the bullish camp, I can only see one scenario whereby the market can sustain another leg up. That would be a return to the insanity that got us here in the first place, the "buy every dip" momentum trading frenzy that drove the entire market to its dizzying heights in early 2000. Could it happen? Certainly. I must always concede that the extremely unlikely can happen. I mean come on -- Larry Flynt in the California governor's race? I've even heard that there's a woman in the race who has promised "a date" to any contributor that donates $5000 to her campaign! I never cease to be amazed by the lunacy of California politics, and I think living with this lunacy helps me to come to terms with the reality that the market can do anything. This week, I see no useful purpose of discussing the VIX, market sentiment, economics, bullish percents, volume or chart patterns. After the last 3 weeks of light volume action, which is just the icing on the cake of the past 10 weeks, I find it difficult to provide any meaningful analysis beyond that contained in last Monday's article and that which we've beaten to death here for the past several weeks. Any further discussion on my part would be either redundant or blind guesswork, neither of which is of any benefit to you. So let's just keep it brief this week and dive right into the plays. I suspect we'll have a lot more to talk about next week and I know I'll feel a lot better about analyzing the markets when volume swells back to more normal levels. Portfolio: DJX - I don't know if I really believed it when I first postulated that we'd have to wait until after Labor Day for an end to this trading range, but here we are with the last trading day of August behind us, and the DOW is right there at the top of its range of the past 3 months. Price continues to creep higher on weak volume and the VIX continues to decline. There's no question in my mind that we're at a critical juncture. Ever since clearing the 38% retracement of the entire bear market decline in early June, the DJX has been bouncing between the 38% and 50% retracement levels, with an inability to breach either. We're now nearing that 50% retracement again, which also happens to coincide with the descending trendline from the May-2001 and March-2002 highs. This is a very strong resistance level and either the bulls will be turned back or they will manage to breakout. If successful in the breakout attempt, then I would give high odds to their ability to continue up until reaching the 62% retracement, coincidentally right at the psychologically significant DOW 10,000. Based on the fundamentals, technicals and sentiment, I believe we are on the right side of this market with our bearish play. But if proven wrong, we have placed our stop ($95.50) at THE correct spot, just above a confirmed breakout over resistance. Weekly Chart of the DJX BBH - Much like the rest of the broad market, the Biotechnology sector appears to be stuck in limbo, unable to break out above firm resistance, yet so far unable to really break down either. Our BBH play ended the week almost exactly where it was when we initiated coverage a week ago. I could make a bullish case (continuing pattern of higher lows) or a bearish case (lower highs), or I could even point out the possibility of a H&S top over the past 2 months. The simple truth remains that we initiated the play at a good technical level (not great, but good) and I would much rather be on the bearish side of this sector right here. The key confirmation we still need though is a break of the pattern of higher lows, as well as a breakdown from the H&S pattern. The latter will require a decline under $127, while the former will need to see the BBH fall under $124. Until both of those occur, we're still in this light-volume trading range. Subsequent failed rallies below $135 still look favorable for new entries, and we'll keep our stop at $138 until it is either hit or the BBH closes below $124. GM - I'm starting to think I ought to just leave this stock alone. This is the third time we've attempted to play the downside in GM over the past year or so, and each time I play it (no matter how careful I am) I seem to enter just before a sharp move higher. We entered the Portfolio play last Thursday on the rally failure right at $40, and last week the bulls sent the stock soaring into Friday's close. Ending the day above $41 is not a good sign, as that is right at strong resistance and a new 11-month closing high. This could just be a rally into next Wednesday's release of the August sales results, but the above average volume over the past 2 days should be causing the bears some heartburn this weekend. Fundamentally, GM has more problems than the California governor's race has candidates, but that won't stop the bulls from trampling our play if they so desire. We'll keep our stop at $42, as a trade at that level would represent a new PnF Buy signal on the longer-term 2-point box size. That would be a very clear signal that I'm dead wrong about GM, at least for now. LEH - Pretty much any bearish trade got damaged to some degree last week, as the persistent bearish sentiment continued to hold firm. The Broker/Dealer index (XBD.X) is on the cusp of a breakout and we'll want to watch the $580 level carefully over the next week. Our LEH play couldn't help going along for the ride with the rest of the sector and what looked like a breakdown in progress early in the week was transformed into a pending breakout attempt by the end of the week. Friday's close placed the stock above its 50-dma for the first time in over two months, and it seems inevitable that we'll see another test of the $66 resistance level early next week. While a rollover from this area still looks like a favorable entry, more conservative traders may want to wait and see if they can get a better entry up in the $68-69 area, where the stock will find its next resistance. Should the XBD be successful in a breakout move over $580, I would recommend standing aside from new bearish entries, as it could really light a fire under LEH. Better to stand aside than to get burned. Our stop on the play remains at $70, as that is the level that would generate a new PnF Buy signal. Watch List: WMT - With the Retail index (RLX.X) still pushing to new highs for the year and WMT holding near the $59 level, I'm in no hurry to initiate a play here. Let's wait to see how next week's expected bullishness plays out in both the stock and the sector and we should be much better able to gauge the viability of a bearish trade entry near the descending trendline. Remember, we aren't looking to enter into strength buy on a reversal from resistance. QQQ - Another week and another new closing high for the NASDAQ. The QQQ is right up against strong resistance in the $33-34 area and the PnF bearish resistance line is at $33. But still the market continues to climb. This is precisely why I decided to wait for weakness before considering an entry. This is a much more aggressive play than our DJX play, primarily due to the greater relative strength of the NASDAQ over the DOW. The other side of the coin is that entries taken up here can use a much tighter stop. With weekly Stochastics having once again turned up in a short-cycle reversal, I'm content to wait for the solid entry point that I believe occurs only if the QQQ falls back through our $31.50-32.00 entry zone on a closing basis. Until then, we remain safe on the sidelines, able to marvel at the NASDAQ's amazing resilience. SMH - So you thought after that big bearish reversal a week ago Friday that there was no way the SMH could get back to those levels? Guess again! In fact, the SMH managed a very healthy rebound last week, ending Friday's session above $37 and at a new 52-week high. Sure there's the issue of the rally taking place on declining volume, but there certainly doesn't seem to be much selling interest in this area of the market. With INTC on deck for another mid-quarter update next week, there's likely to be enough of a catalyst to get the SMH up into our target area of $39-40. We want to wait for the pop and then the subsequent failure before playing. The bulls are still feeling frisky, so let's be patient. Radar Screen: HD - I'm just not sure what to make of the price action in HD, as it has been chopping in a very narrow range after the earnings related excitement 2 weeks ago. Given the fact that the stock continues to trade weakly, while competitor LOW charges to new highs, I'm still inclined to keep this one on the Radar Screen. But the lack of any real price weakness has me questioning the viability of a long-term bearish play, looking for any significant downside. FNM - Now that's more like it! While I like the bearish prospects for FNM, I had a distinct feeling there was a short-covering rally attempt lurking under the surface. The stock launched higher on Monday and after a brief mid-week rest, continued right up to the $65 resistance level. In all candor, I expect the stock to break above that resistance and move up to at least $67-68. This rebound is setting us up for a new bearish entry, but I believe we're a bit premature, especially with weekly Stochastics just now starting to turn up after a multi-month decline. I'll keep the stock on the Radar Screen, but I suspect it will take a few weeks before it is ready to transition onto the Watch List. Closing Thoughts: Next week, we ought to see volume come back into this market and I suspect by the time September options expiration rolls around we'll know for sure if the market is truly feeling bullish or bearish. I still feel very strongly that the upside is limited, but on a breakout above the critical resistance levels we've been looking at these past several weeks, I'll grudgingly admit to being on the wrong side of the market. That doesn't mean that I'll commit my own money to the long side, but I'll definitely pull it away from the short side. It reminds me of the saying, "If at first you don't succeed, try again. After that, give up. There's no use being a fool about it!" I've been looking to play the decline in this market since May, and I've been pretty disappointed with the results. The market appears to be resting at a critical juncture right now. If you want to have a position for the expected decline, then next week is probably the time to initiate it. But by all means, please use a hard stop on any positions. Remember, the market can do anything! Have a great extended weekend! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None Puts: DJX 07/31/03 '03 $ 92 DJV-XN $ 3.80 $ 3.20 -15.79% $95.50 '04 $ 92 YDK-XN $ 8.20 $ 7.80 - 4.88% $95.50 BBH 08/22/03 '05 $125 XBB-ME $14.60 $13.50 - 7.53% $138 '06 $120 YEE-MD $15.50 $14.50 - 6.45% $138 GM 08/21/03 '05 $ 35 ZGM-MG $ 4.30 $ 4.30 + 0.00% $42.00 '06 $ 35 WGM-MG $ 6.80 $ 6.60 - 2.94% $42.00 LEH 08/22/03 '05 $ 65 ZHE-MM $ 9.80 $ 9.10 - 7.14% $70.00 '06 $ 60 WHE-ML $10.00 $ 9.50 - 5.00% $70.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: WMT 08/03/03 $60 JAN-2005 $ 55 ZWT-MK JAN-2006 $ 55 WWT-MK QQQ 08/10/03 $31.50-32.00 JAN-2005 $ 30 ZWQ-MD JAN-2006 $ 30 WD -MD SMH 08/24/03 $39-40 JAN-2005 $ 35 ZTO-MG JAN-2006 $ 35 YRH-MG New Portfolio Plays None New Watchlist Plays None Drops None ************************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 ************************************************************** ************** TRADERS CORNER ************** Become A Member Of The "Chain" Gang? By Mike Parnos, Investing With Attitude Deductive reasoning is a wonderful skill. It helps us make decisions. It allows us to take the pieces of a puzzle, assemble them and hopefully come up with a finished product. The ability to reason is what sets us (at least some of us) apart from the rest of the animal kingdom. Though the skill seems to be used sparingly in how many live their lives, at the Couch Potato Trading Institute is based on the gathering of information and making logical (usually) trading decisions. The Option Chain There is a piece of information that is easy to access, but often goes used in making trading decisions. It can be found resting peacefully at www.cboe.com. There's an option chain for every stock or index that trades options. Basically, it keeps track of the daily volume of contracts traded, a current bid and ask, and the cumulative open interest of every option and strike offered. _________________________________________________________________ Where Are The Big Bets Being Placed? There are some high rollers out there. If you've ever taken the time to look at an option chain, you'll notice huge amounts of open interest. Most of the high open interest figures are in near-term months. But, if you scroll down the chain, you'll occasionally notice some large numbers that seem out of place. Paying attention to these numbers, and trying to interpret them, can often give us some insight to future market movement. Today (Friday) at about noon, I noticed that 10,000 contracts of the QQQ March 2004 $27 puts had been traded at $.95. The bid/ask led me to believe that this was a purchase of puts rather than a sale. But, there are a number of other interpretations. Let's speculate a little about possible scenarios for this situation as well as a few others you might come across during the scan of an option chain. Ten thousand contracts is a huge bet – especially by my standards. I usually feel a 20-contract position is extravagant. That size of trade ($950,000) is certainly out of my league, but is chump change for many institutions. Possibility #1: What is described above could simply be a big down bet. But, there is no guarantee. With all of the simple and complex options strategies out there, it can be very difficult to ascertain the purpose behind a trade or the method to their madness. What if an institution sees a bleak future for the market? Perhaps they own 1,000,000 shares of QQQ and they anticipate a dramatic downturn in the market sometime between now and next March. $.95 would be relatively cheap insurance to protect those million shares from a drop below $27. The cost of the insurance would work out to $.135 per month. Possibility #2: What if the purchase of the 10,000 contracts was the second leg of a bull put spread? The institution could have sold the $32 puts yesterday or last week. We never really know. Maybe they are selling at-the-money near term puts on a monthly basis – using the $27 put as protection for each month's ATM sale. If that is the strategy, their protective put only costs them $.135 per month. Possibility #3: What if was a sale of 10,000 puts -- naked? When institutions place large trades, they can deal directly with the market makers. Maybe they worked out a deal. Perhaps this is actually a bullish scenario. If we were talking about a stock, as opposed to an index, a naked trade may be a way of fulfilling a buyback announcement of its own stock. Buyback announcements rarely have deadlines. Companies will continue to sell naked puts, and generate investment profits, until the stock dips and closes below the strike and the shares are actually assigned. Possibility #4: In past columns we discussed “strangles” where both puts and calls are purchased or sold, but at different strike prices. This trade may be a “sell strangle” where puts and calls are sold at different strike prices. If this was a sale of 10,000 contracts, it may be the first leg of a "sell strangle." In that case, a similar sale of 10,000 March $37 calls may show up in the near future – or may already have been made earlier. That would mean the big bettor believes that the QQQs will stay above $27 and below $37. That wouldn't be a bad trade either. As part of a good related strategy, as aggressive traders they can make trades within the context of the sell strangle as the QQQs fluctuate up and down between now and March expiration. As the QQQs move up to potential resistance near $37 they could lock in profits by buying back the $27 puts, etc. Then they could move up their strike and sell the $31 puts and take in more premium. The same can be done on the call side if the market heads back down. It takes an alert and somewhat nimble trader, but can be exceptionally profitable. It's challenging to try and figure out what's going through the minds of the big bettors. We'll never know for sure, but speculation is fun and it stimulates thought. The open interest, and corresponding changes in open interest, in an option chain is but one clue. It may help you select a strategy, or it may suggest you avoid a strategy you were considering. Keep in mind that option chain clues are but one indicator. Look at the trading range and see if it is consistent with the option chain. Check to see if there are any distinguishable chart patterns. Check the trading volume. Where are the short and long term moving averages? In Thursday's column, we'll continue our discussion of option chains and the interpretation of the information they provide. _________________________________________________________________ SEPTEMBER POSITIONS – Remember that September is a FIVE- WEEK option cycle. Expiration is Friday, September 19th. September Position #1 – SPX Iron Condor – SPX @ 1008.01 S & P 500 Index = SPX We sold 10 contracts of SPX 1040 Sept. calls and bought 10 contracts of SPX 1050 Sept. calls for a net credit. Then we sold 10 contracts of the SPX 950 Sept. puts and bought 10 contracts of the SPX Sept. 940 puts. Our net credit was $2.70 (a total credit of $2,700). We have a huge maximum profit range of 950 to 1040. More aggressive investors may have narrowed the range a bit and take in more money. At 1008.01, we're in good shape – for now. September Position #2 – COF Sell Straddle – COF @ $53.40 Capitol One Financial = COF We sold 10 contracts of COF Sept. $50 calls @ $2.35 and also sold 10 contracts of COT Sept. $50 puts @ $2.50 for a total credit of $4.85 ($4,850). We will make some profit if COF finishes anywhere between $45.15 and $54.85. The closer COF finishes to $50, the more money we'll make. Our bailout points are the parameters of our profit range. Maximum potential profit is, again, $4,850. COF moved up a bit, but at $53.40 we're still comfortably in profit territory. September Position #3 – HPQ (Hewlett Packard) Bear Put Spread – (Replacement) – HPQ at $19.93 . HPQ is weak and may return to the $15 range. So, we sold 10 contracts of the HPQ Feb. 2004 $20 puts @ $2.25 and we sold 10 contracts of the HPQ Feb. 2004 $15 puts @ $.40. Total debit of $1.85. Potential max profit of $3.15. In reality, if HWP makes the move down, it will probably happen on the coattails of a market move down. It shouldn't take until February. I'd gladly accept a profit of $800-900 and close the position early if the opportunity presented itself. September Position #4 (Replacement) – OEX – Bearish Calendar Spread – OEX @ $503.36 Maybe Friday was a reversal day. The market has run up pretty fast and perhaps it's time to give some gains back. Let's see if we can take advantage of this with a calendar spread. Buy 8 contracts of OEX November 470 puts @ 10.60 Sell 8 contracts of OEX September 470 puts @ 2.20 Total debit of $8.40. As the market retreats, we will sell near term puts against the November long 470 puts to further lower our cost basis. This position may take a few months to come to fruition. ______________________________________________________________ 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 ************** FUTURES CORNER ************** Swing Trade Model Setup By Jim Brown I have procrastinated in posting this model because of the very low volume we have been seeing lately. The indicator setups have been very unreliable when the ES trades in a 2-3 point range for hours. Hopefully that is behind us and beginning in September we will see some volatility or at least some directionality creep back into the market. The Swing Trade Model is very simple but also must be very flexible. It is not a system. It is a set of chart indicators that when taken with known support, resistance, current events and news will add to our trading decisions. This set of indicators is not to be followed blindly. It is dependent on volume and directionality. Without either it, like any other system it is worthless. The Setup: I am using a 500-tick chart as the main chart. This tends to take out some of the volatility on those days where it is choppy. The concept behind a 500 tick chart is that 500 trades must take place for each candle. Unlike a time chart where the candle paints every five minutes whether a trade occurs or not the tick chart applies equal weighting to each candle. Do you really want to risk the same money on a candle with 10-20 trades as you would one with 500 trades? No, that is a thin candle and may not represent the real market. On the 500-tick chart I am using four indicators. CCI (30,1) MACD (8,18,6) SAR (0.02,0.2) Keltner Channel (21,3.5) The primary indicators are the MACD and the Parabolic SAR. The MACD everyone should be familiar with but the SAR, which stands for "Stop and Reverse" is rare. The SAR calculates a trailing reversal point based on the high/low of the previous candles. The SAR will give false readings on a slowly trending market due to the lack of range in the prior candles. For this reason we use the other two indicators to confirm. A cross on the MACD and a reversal on the SAR will give us direction but the CCI must confirm by printing a second candle on the opposite side of the zero line. Because I want a strong confirm I want that second candle to be touching the red 45 line on the chart. The reason for the second candle on the 45 line is called the CCI dance. Because the CCI paints with every tick it can cross the center line and even touch the 45 line but close completely back on the other side of zero if the price direction changes. Essentially the confirmation can disappear completely any time before the final tick. By waiting for the second candle to touch the 45 line we normally have a good confirm. The problem with getting all three indicators to confirm is the CCI is usually late by about two points. If honored it will keep you out of a lot of choppy trades as it normally only reverses 3-4 times a day. The other indicators can reverse multiple times each day and in each move. No indicator by itself is foolproof. No combination of known indicators is foolproof. That is why we will still have to use judgment when entering and exiting with any setup. The CCI comes into play as an excellent exit tool. In the example chart below the MACD crossed and recrossed several times (but did not move back above zero) during this long down day. The SAR reversed numerous times because the rate of decline was so slow. However, the CCI never reversed above the zero line until the next morning. This makes the CCI an excellent indicator for exiting the trade. Recap: We will enter a trade when the MACD crosses, preferably from an extreme swing away from the center line. In addition the SAR must reverse and the CCI must paint the second candle across the center line and touching 45. In some instances, like the chart below, where there was a serious spike or dip to support/resistance we will enter the trade on the MACD and SAR alone if the CCI appears to be moving to cross the center line quickly. We will stay in the trade until the CCI recrosses the center line. Keltner Channel: The channel is more of a guideline for continuous support and resistance. If we had a spike/dip from one side to the other then we could expect a reversal signal soon. It is a comfort indicator for me as it normally encompasses about 10 points and that is about all the ES can correct intraday without a corresponding reversal. In the example chart if the ES bounced off the bottom of the channel and quickly touched the top then I would expect that bounce to retrace before continuing up. Also, a casual move across the center blue line could indicate a change in direction and should be an alert. Timing: Many readers cannot trade in pre/post market and therefore most signals will only be during regular market hours unless there is a seriously compelling reason for the rest of us. Most volatility occurs at and within 15 min of the open. It is dangerous to enter a position before the open unless there is a clear trend in place. 25% of the day's volume occurs in the first hour and this creates serious spikes in price in the first 30 min. Caution should be observed. Stops: On the initial entry the stop loss should be in the 1.25 to 1.75 point range away from the entry price. This will be determined on a case by case basis depending on the support and resistance levels in place at the time and the speed of the market. After the initial exit we will trail the stop around 2.5 points behind the price depending on support and resistance both in our path and behind us. If there is a significant level passed then we could linger the stop behind that level for a slightly longer period for additional safety. Exits: Once in a trade I will take a 1/4 position exit at +2 points. I will set the stop at 50 cents away from the entry price. From that point we have a free trade. There is no way we can lose money on the rest of the position. On a normal signal I will plan on exiting 1/2 of the position in the +4 to +5 range. After reviewing several months of trades there are very few swing trades that went for more than +5 points. Whether that was because I pulled the trigger early to exit or the move just ran out of steam the results appeared to be the same. IF THE MARKET IS MOVING QUICKLY IN OUR DIRECTION I may only take 1/4 at +4 and let the remaining 1/2 position run. On the last 1/4 the plan is to stay in the trade with a trailing stop until the CCI reverses. Once we are out of the 3/4 position the stop should trail about -2.50 points from the price unless significant support/resistance is approaching. The ideal exit would be: 1/4 at +2.00 1/2 at +4.00 1/4 at +6.00 or greater. Average +4.00 or greater. The concept on the last trailing 1/4 is to recover the points missed on the first 1/4 by exiting early for insurance and also to profit from any major runner. Signals: When an entry/exit is known in advance it will be posted in the monitor like this: Swing Trade Entry Point Alert Go SHORT with an ES trade at 1010.00, stop 1012.00 When an entry is not known in advance and is based on rapidly changing market conditions the entry will be posted like this to save time: Swing Trade Entry Point Alert Go SHORT now Once the entry is posted I will go back and correct it to the actual price and add the stop. Normally it is done within the next 15-20 seconds. Sometimes it could be later depending on market conditions. SPECIAL NOTE: When I go back and add the price to the signal it is not the price at the time I initiated the signal but the price at the time the signal appeared on the monitor. If the ES was 1000.00 and I rushed an entry with a "go SHORT now" message and the ES was trading at 999.50 when the message appeared then the post would be corrected to say "go SHORT at 999.50, stop 1001.00". It would not say 1000.00 because there was no way you could have executed at 1000.00. Where the price was when I was typing the initial message is immaterial to the monitor. The price when it appears is the price that matters. Position Size: I think the best position size for monitor trades is something in a four contract increment because of the 1/4 position exits. This does not mean you cannot trade the signals with fewer contracts. This creates a problem for the exits. This is my suggestion: If you are trading 1 contract take the second exit. If you are trading 2 contracts take the first and second exit. If you are trading 3 contracts take the first and second exit with two contracts on the second exit. Momentum Model Preference: Because the Momentum Model has far more traders than the swing model the preference for attention will always be given to the Momentum Model. In a critical entry environment like an opening spike the initial plan will be to establish a momentum position first then establish a swing trade position. Depending on market conditions the entire initial move may be missed by the swing model as managing the initial entry and stop loss can cover 4-6 points in a fast market. The same will be true on exiting a momentum position. If we are nearing a critical level which demands decisions and rapid evaluation the swing signals will be ignored until the exit for the momentum model passes. The Momentum Model is auto traded by many readers by their broker and without their daily input. It is incumbent on us to manage their positions first because they are not able to do so. How would you want us to trade your money? General considerations: Since this is not primarily an indicator driven "system" trade there will always be decisions made in the heat of battle to enter/exit based on prevailing market conditions, news events and program trades. I will try to maintain a running commentary on what I see in our path and where I see the next entry/exit but the nature of day trading futures prevents a complete and perfect scenario in every case. When possible the exits will be posted in advance but traders should learn from the model and be prepared to enter/exit on their own when they feel prudent to do so if no signal is issued. Traders should also evaluate every situation according to their own market bias and only enter trades that match their bias. We will never agree on everything and I will always enter too early or too late for somebody. The Futures Monitor is not meant to be a trading vehicle. It is a training tool for new traders and a window on the markets for those with experience. If you enter trades suggested on the monitor then you take full responsibility for those trades and accept our complete disclaimer. Futures trading is not for everyone. If you decide it is not for you then by all means do not trade the signals. The Futures Monitor depends on thousands of interconnecting pieces of Internet technology working together flawlessly for about eight hours a day. While Bill Gates would like to think this is possible we all know that there will be challenges with ISPs, cable routers, dial up connections, sunspots, server errors, viruses, hackers and just plain operator error. We will strive to eliminate as many of these on a daily basis as possible but perfection will never be achieved. We will all need to deal with the challenges as they arise. By using the monitor you accept that periodic errors may occur. If you experience an error the fastest way to get it resolved is to send an email to it@OptionInvestor.com. Do NOT send it to me because I cannot fix it. ************** FUTURES CORNER ************** The Good the Bad and the Put/Call Ratios Put/Call ratios are funny animals. They tell us the degree of buying or selling pressure by monitoring the volume of puts and calls, then we flip the numbers around and interpret them opposite to what they are telling us. In this way Put/Call ratios are used as gauges of market sentiment, as they measure bullishness or bearishness by comparing the number of puts and calls traded. We interpret them upside down because when put volume becomes excessive in relation to call volume, it is an indication of excessive bearishness in the market, which can telegraph a market bottom and is usually bullish. But on the other side, when call volume becomes excessive in relation to put volume, it is an indication of excessive optimism and bullishness in the market, which is usually bearish. This is why the Put/Call ratio is called a contrarian indicator. What I would like to examine here is the theory that in order to get a good feel for market sentiment you should not look at only one ratio but examine different Put/Call ratios. The Chicago Board Options Exchange (CBOE) trades two types of options, equity options (options on individual stocks) and index options (options on indexes). The CBOE reports volume for the combined total of the two categories, reports volume for Equity options only and reports volume for the OEX only. A Put/Call Ratio is then computed by dividing daily put volume by call volume in each of the three categories. We will be looking at the three Put/Call ratios: the OEX Put/Call ratio, the Equity only Put/Call ratio and the total ratio, commonly referred to as the CBOE Put/Call ratio. Equity option volume accounts for approximately 85% of CBOE volume whereas the OEX option volume represents about 3.5% of total volume and about 22% of total index volume. The equity and CBOE Put/Call ratios usually look the same but the OEX ratio marches to a different drummer. The theory I would like to explore goes like this. The majority of put volume represents bets against individual stocks by the small ndividual investors - the so-called "dumb money" that is usually wrong. On the other hand, since many institutions and professional traders (the "smart money") use the OEX options for hedging, when the OEX Put/Call ratio diverges from the OEX cash index, the CBOE Put/Call ratio and the equity only Put/Call ratio, it can be a sign that "smart money" is moving counter to the trend. This makes the OEX ratio a non-contrarian indicator Here is a chart of the OEX and the 10MA of all three Put/Call ratios: the CBOE (index and equity), equity only and OEX only, from January 2000 to December 2001. Daily volatility in the ratios necessitates smoothing with the 10MA. Please take note that since mainstream technical analysis uses the ratios as a contrarian indicator, (the Put/Call ratios have low readings at market tops and high readings at market bottoms) the ratio charts are displayed upside down, higher readings on the bottom and lower readings on the top. The theory I am testing here can be summed up as follows: CBOE and Equity ratios (Contrarian) high ratio = bullish/market bottoms low ratio = bearish/market tops OEX ratio (Non-contrarian) high ratio = bearish/market tops low ratio = bullish/market bottoms On September 1, 2000 OEX reached a high of 843 only 3 points short of the all time high of 846 reached back in March. The OEX Put/Call was at an extreme high (first red circle), almost 2.00. The contrarian interpretation of a reading of 2.00 is bullish and a market bottom. Did the OEX option traders know something the retail trader didn't? Looks like it because the OEX subsequently shaved off 300 points from September 1 to March of 2001. The drop was devastating and dramatic. If you had been reading the OEX ratio with the contrarian formula you would have positioned yourself for a market bottom instead of a top. The next example came in January 2002. The OEX made a double top at 600 in December 2001 and subsequently confirmed this formation in January 2002 but there seemed to be bid under the market and prices retraced back up to 595. Was this a false double top signal? Looking at the CBOE or equity Put/Call ratio would not have given you a clue because they were in normal ranges. One look at the OEX Put/Call ratio, but NOT as a contrarian indicator, you would have realized that a market top was in the making. This drop shaved off 220 OEX points. Now let's examine the CBOE and Equity Put/Call ratio and see how well they worked to predict market reversals. The first extreme I found on the chart is marked with yellow circles. Using the ratios as a contrarian indicator, these two extreme highs should have preceded a market bottom. And that is exactly what it did. In September 2001 the OEX hit a low of 480 then traded at 600 two months later. The next extreme highs of both the CBOE and equity Put/Call ratios (I don't have it marked) were found in October 2002. OEX traded a low of 384 and one month later it hit 487. Let's take a look at more recent examples. Here is the same set of charts but from 2001 to August 2003. In January 2001 OEX reached a bottom of 664, the OEX ratio was at an extreme low. Normal Put/Call theory would have a trader reading this as bearish and looking for a market top. But the opposite happened and by February OEX had gained 61 points. In July 2002 OEX reached a low of 384 when the OEX ratio was at an extreme low. By late August OEX had gained 103 points. The next extreme high I have marked on the chart is August 2003. Does this mean we are at market bottom? Time will tell. You may have noticed that the market bottoms marked by the OEX ratio we have discussed have not given the same kind of gains as did the market tops but this is understandable in the context of the bear market we have just experienced. One last point I would like to highlight is the yellow circle I have drawn around the September 2000 CBOE and Equity Put/Call ratio extreme lows. This extreme low took place at the same time as the OEX Put/Call ratio was making an extreme high. The CBOE and Equity ratios were showing an abundance of call buying and the OEX ratio was showing an abundance of put buying. Who was right? From this analysis my first thought is that the Put/Call ratios extremes are darn good predictors of market turning points. But beware of which ratio you are looking at. If using the CBOE or Equity Put/Call ratio use them as a contrarian indicator but if you are using the OEX ratio use it as a non-contrarian indicator. Remember plan your trade and trade your plan Jane Fox ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: ************************************************************** 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 08-31-2003 Sunday 5 of 5 In Section Five: Covered Calls: Success With Covered-Calls Naked Puts: Q&A With The Editor Spreads/Straddles/Combos: Optimism Prevails In U.S. Equity Markets Updated In The Site Tonight: Market Posture: Less Than 1% ************************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 ************************************************************** ************* COVERED CALLS ************* Trading Basics: Success With Covered-Calls By Mark Wnetrzak One of our readers submitted some great questions on our unique approach to writing covered-calls. Attn: questions@OptionInvestor.com Subject: Selling Covered-Calls Hello OIN, I just started a trial subscription and one of the first areas I looked through was covered-calls. I must admit I was confused by your approach to selling calls against long stock positions, which appears to recommend options below the price of the stock. The most obvious question is why??? Your time frame is a bit strange as well; all of the plays are very short term, and some of the stocks were not in up-trends, which is what I look for in bullish plays. The ones that were would likely be called away the first month, so I wouldn't make much money on what could be a large move. Also, I didn't see any recommendations for exiting the plays, so how would I know when to get out of a particular stock when it turned south? I do like your product overall and I'll be able look through the other sections this week. Please comment on my questions so far. PW Regarding "In-The-Money" Covered-Calls: With the covered-call strategy, we favor a short-term approach, based on the "total return" concept originated by option guru Larry McMillan, which isn't predicated on forecasting a stock's (or the market's) directional movement. With this conservative style, an investor considers the covered write combination as a single entity and is not interested so much in stock ownership or bullish movement in the underlying, but in obtaining a consistent (monthly) return on investment. In evaluating plays, we are only interested in the stock price remaining above our cost basis for the duration of the play; we are not concerned about the issue's upside potential. Since we use "in-the-money" call options, the maximum gain is established upon entry. Any additional upside movement, beyond the sold option's strike price, is meaningless. That does not mean, however, that selling covered-calls is always a favorable technique. Whether the covered write strategy is applied short-term or long term, or even with LEAPS, it requires a neutral to slightly bullish outlook on the underlying equity and the overall market. And, it is good advice to only purchase stocks you wouldn't mind owning, as that is always a possibility with this strategy. Regarding the length of time necessary to be in the trade, you can buy back the calls (American style options) any time you want as long as your stock hasn't been assigned (called away), and then sell the stock or even write new calls against it. If you aren't worried about keeping the stock, then having it called away early is not a problem as it will actually increase your target yield by providing the maximum return in a shorter time frame. Generally, professionals will vary the length of the sold calls and use different strike prices to balance their portfolio risk with the potential return on investment. The approach you take will depend on your personal preference and risk-reward tolerance. "New Insights on Covered Call Writing," by Lawrence McMillan, is an excellent resource for traders who utilize this technique and it explains all aspects of the covered write. The book is available in the OIN bookstore. As far as position adjustments, technical analysis is used by many traders to identify areas of recent buying support, which can assist in establishing the correct exit points. There are various stop-loss methods an investor can employ in position management: a fixed percentage of one’s overall portfolio, a specific dollar amount, a violation of a technical trend-line, etc. Whether it is automatic or mental doesn't really matter, the key is that the system is adhered to because the ability to limit losses is paramount to generating profits in the long run. In all cases, remember that the issues offered in this section are provided to supplement your search for profitable trading opportunities. It is imperative that you perform your own due diligence and, as with any investment, you must decide if the published selections meet your personal risk-reward tolerance and individual criteria for profitable covered-call plays. Trade Wisely! 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 PLXT 5.25 5.50 SEP 5.00 0.60 0.35* 8.2% WAVX 3.46 2.95 SEP 2.50 1.20 0.24* 7.7% XOMA 8.09 9.37 SEP 7.50 1.30 0.71* 7.6% PLUG 5.13 5.11 SEP 5.00 0.45 0.32* 7.4% ENER 10.39 11.98 SEP 10.00 1.10 0.71* 6.6% NWAC 8.30 8.97 SEP 7.50 1.40 0.60* 6.3% EPNY 5.07 5.29 SEP 5.00 0.40 0.33* 6.1% NEOF 12.45 13.03 SEP 12.50 0.90 0.95* 6.0% WAVX 3.20 2.95 SEP 2.50 0.85 0.15* 5.5% MCRL 12.60 13.58 SEP 12.50 0.65 0.55* 5.0% USG 14.11 16.66 SEP 12.50 2.35 0.74* 4.6% XOMA 9.45 9.37 SEP 7.50 2.25 0.30* 4.5% VSAT 15.09 15.85 SEP 15.00 0.80 0.71* 4.3% TKLC 15.46 17.48 SEP 15.00 1.15 0.69* 4.2% ISIS 5.33 6.61 SEP 5.00 0.60 0.27* 4.1% RFMD 8.07 8.83 SEP 7.50 0.90 0.33* 4.0% SNIC 11.18 13.67 SEP 10.00 1.70 0.52* 4.0% ADLR 13.96 14.24 SEP 12.50 1.90 0.44* 4.0% GSIC 11.52 12.00 SEP 10.00 1.95 0.43* 3.9% CREE 16.30 15.82 SEP 15.00 1.75 0.45* 3.4% * Stock price is above the sold striking price. Comments: The bullish action in the major averages continues though there is some worry over the lack of volume. Probably the biggest threat is for one to abandon a disciplined approach and strive for higher profit potential (read greater risk). Even McData (NASDAQ:MCDTA) did us a favor and reported earnings before the open on Monday. Though they did beat analysts' expectations, investors were not thrilled with their forecast for the third quarter. The stock opened well below its previous close on Friday, thus there was no play available. As we move into September, closely monitor any positions that are not acting as expected and act accordingly. 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 EMBT 10.25 SEP 10.00 MBQ IB 0.65 20 9.60 20 6.3% CERS 7.62 SEP 7.50 CEQ IU 0.40 175 7.22 20 5.9% FLML 28.49 SEP 25.00 FLU IE 4.40 591 24.09 20 5.8% IBIS 10.70 SEP 10.00 UIB IB 1.00 187 9.70 20 4.7% ITMN 19.01 SEP 17.50 IQY IW 2.00 1713 17.01 20 4.4% CCRN 15.60 SEP 15.00 QCK IC 1.00 403 14.60 20 4.2% 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). ***** EMBT - Embarcadero $10.25 *** Breaking Out! *** Embarcadero Technologies (NASDAQ:EMBT) provides software products that enable organizations to effectively manage their database infrastructure and manage the underlying data housed within that infrastructure. The company's database administration, enterprise data architecture, enterprise data integration and performance management products offer customers comprehensive solutions for managing the database life cycle, which is the process of creating, optimizing and managing the databases that support critical business applications. By simplifying management of the database life cycle, Embarcadero's products allow their customers to ensure the availability, performance and reliability of their critical business applications and extract maximum value from their corporate data. Shares of Embarcadero rallied strongly on heavy volume after the company announced an OEM agreement with Insurity on Tuesday. We simply favor the bullish move out of a year-long base and investors who believe the rally will continue can profit from that outcome with this position. SEP-10.00 MBQ IB LB=0.65 OI=20 CB=9.60 DE=20 TY=6.3% ***** CERS - Cerus $7.62 *** Bottom-Fishing: Part I *** Cerus (NASDAQ:CERS) is developing medical systems and therapeutics based on their proprietary Helinx technology for controlling biological replication. The company's most advanced programs are focused on systems to enhance the safety of blood products used for transfusion. The Intercept Blood System is designed to inactivate viruses, bacteria, other pathogens and white blood cells. Cerus also is pursuing therapeutic applications of Helinx to treat and prevent serious diseases. The company is developing the Intercept Blood System for platelets, plasma and red blood cells with Baxter Healthcare Corporation, its development and commercialization partner. The Intercept Blood System targets and inactivates blood-borne pathogens, such as HIV and hepatitis B and C, as well as harmful white blood cells, while leaving intact the therapeutic properties of the blood components. Cerus has been forming a Stage I base since February and recent technical signals suggest an accumulation phase has begun. This position offers a reasonable way to profit from the current lateral trend at the risk of owning Cerus near $7.20. Due diligence is a must! SEP-7.50 CEQ IU LB=0.40 OI=175 CB=7.22 DE=20 TY=5.9% ***** FLML - Flamel Technologies $28.49 *** Bristol-Meyers Deal! *** Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company engaged mainly in the development of two polymer-based delivery technologies for medical applications. The company's Micro-pump technology is a multi-particulate technology for oral ingestion of small molecule drugs with applications in controlled release, tastemasking and bioavailability enhancement. The company has three major products based on its Micropump technology: Asacard, a controlled-release formulation of aspirin for the treatment of cardiovascular disease; Metformin XL, a controlled-release form of Metformin that is in development for use for the treatment of Type II diabetes, and Genvir, a controlled-release acyclovir for the treatment of genital herpes. In addition, FLML has developed new herbicide delivery systems and has patented a biomaterial, ColCys. FLML shares have been in "rally mode" since the company entered a licensing agreement with Bristol-Meyers (NYSE:BMY) for Flamel's Basulin, a controlled-release form of insulin that is about to enter phase II clinical trials. The agreement calls for Bristol-Myers to assume the cost of development and manufacturing of the drug, in return for exclusive worldwide rights to it. The recent activity bodes well for FLML in the near-term and traders who think the rally will continue should consider this position. SEP-25.00 FLU IE LB=4.40 OI=591 CB=24.09 DE=20 TY=5.8% ***** IBIS - Ibis Technology $10.70 *** On The Move! *** Ibis Technology (NASDAQ:IBIS) develops, manufactures and markets SIMOX-SOI implantation equipment and wafers for the worldwide semiconductor industry. SIMOX, or Separation by IMplantation of Oxygen, is a form of silicon-on-insulator (SOI) technology that creates an insulating barrier below the top surface of a silicon wafer. SIMOX-SOI products are well suited for many commercial applications, including servers and workstations, portable and desktop computers, wireless communications and battery-powered devices such as laptop computers, personal digital assistants (PDAs) and mobile telephones, integrated optical components and harsh-environment electronics. Sales of 300-millimeter wafers accounted for approximately 44% of the company's total wafer product sales in 2002. Shares of Ibis Technology have rallied above the July high on heavy volume, which suggests further upside potential in the near-term. Investors with a bullish outlook for the stock can use this position to establish a favorable cost basis in the issue. SEP-10.00 UIB IB LB=1.00 OI=187 CB=9.70 DE=20 TY=4.7% ***** ITMN - InterMune $19.01 *** Bottom-Fishing: Part II *** InterMune (NASDAQ:ITMN) is a biopharmaceutical company focused on developing and commercializing products for the treatment of serious pulmonary, infectious and hepatic diseases. ITMN has 3 marketed products, growing product revenues and advanced-stage clinical programs addressing a range of diseases with attractive markets. They are Actimmune, Infergen and Amphotec. Actimmune is approved in the U.S. for two rare congenital disorders: chronic granulomatous disease and severe malignant osteopetrosis. The company markets Infergen in the U.S. and Canada for the treatment of chronic hepatitis C infections. It markets Amphotec worldwide for the treatment of invasive aspergillosis. Here is another stock that has been forming a Stage I base since February. This play offers a reasonable way to profit from the current lateral trend at the risk of owning InterMune. Alas, due-diligence is still required. SEP-17.50 IQY IW LB=2.00 OI=1713 CB=17.01 DE=20 TY=4.4% ***** CCRN - Cross Country $15.60 *** Rally Mode? *** Cross Country Healthcare (NASDAQ:CCRN) is a provider of healthcare staffing services in the United States. Approximately 80% of the company's revenue is derived from travel nurse staffing services. Other staffing services include the placement of clinical research professionals and allied healthcare professionals such as radiology technicians, rehabilitation therapists and respiratory therapists. Cross Country also provides other human capital management services, including search and recruitment, consulting, education and training and resource management services. Its active client base includes over 3,000 hospitals, pharmaceutical companies and other healthcare providers across all 50 states. On Friday, shares of Cross Country rallied above their July high on heavy volume which suggest a test of resistance near $16.50 is forthcoming. The stock appears poised to move higher in the coming sessions and traders who believe the issue is destined for a future rally can profit from upside movement with this position. SEP-15.00 QCK IC LB=1.00 OI=403 CB=14.60 DE=20 TY=4.2% ***** ***************** 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 XOMA 9.37 SEP 7.50 MBU IU 2.20 1296 7.17 20 7.0% GSPN 7.61 SEP 7.50 GLQ IU 0.40 982 7.21 20 6.1% ATYT 15.10 SEP 15.00 QFY IC 0.65 1339 14.45 20 5.8% AFCI 23.18 SEP 22.50 AQF IX 1.50 1200 21.68 20 5.8% HEPH 21.26 SEP 20.00 QGQ ID 1.95 1123 19.31 20 5.4% PLCE 20.76 SEP 20.00 TUY ID 1.45 1400 19.31 20 5.4% AEIS 24.06 SEP 22.50 OEQ IX 2.20 149 21.86 20 4.5% CBST 13.24 SEP 12.50 UTU IV 1.10 1105 12.14 20 4.5% MENT 20.23 SEP 20.00 MGQ ID 0.75 188 19.48 20 4.1% JNPR 17.21 SEP 16.00 JUX IQ 1.60 2535 15.61 20 3.8% SNIC 13.67 SEP 12.50 QNI IV 1.45 230 12.22 20 3.5% ***************** NAKED PUT SECTION ***************** Options 101: Q&A With The Editor By Ray Cummins One of our readers asked for some guidance with premium-selling strategies and information on my favorite trading techniques. Attn: Contact Support Subject: Selling Premium in Options Hi Ray, I've been an OIN reader for more than a year and done pretty well with mostly call and put buying. Now I want to expand my trading portfolio with some short options and spreads. Any suggestions on how I should identify good "premium selling" stocks would be much appreciated. I'll still be reading the newsletter plays but would also like to be able to pick my own stuff from the lists in my charting scans. Also, you never mention how you like to trade...what do you think are the best option strategies? Thanks for your help and comments! VB Hello VB, The first thing I must say is "congratulations," because anyone who has traded options for more than a year and still has money in his (or her) brokerage account must be doing something right! As far as choosing a viable premium-selling candidate, there are a number of steps you can take, not directly related to technical analysis, that will help ensure a high probability of a profitable trade. The first step is to identify expensive premiums using the composite implied volatility of all equity options. You should also identify those situations when options are priced at levels above where they have historically been known to trade in the past. Then you can use probability analysis to establish the potential for the underlying market to move the required distance to make the position unprofitable. Since that potential almost always exists, it is also necessary to determine if the stock has displayed a level of historical volatility that suggests it is likely to move the required distance (to make the position unprofitable) in the target time-frame. The final step is to review the fundamentals of the company to find out if there are any obvious reasons for the option premiums to be inflated. Since a large part of an option's extrinsic value is based on a projection of the future volatility of the underlying stock, there are very few instances where excess premium exists without a fundamental basis. From a theoretical standpoint, the easiest way to profit with derivatives is to find those few instances where the actual movement of the issue may differ substantially from that which is forecast by the market and then construct a strategy to profit from the incorrect pricing of the options. As far as the best strategy, that's a tough decision with lots of different factors to consider. No strategy is immune to losses and even the most conservative approaches to option trading will not guarantee consistent profits without diligent position management. In addition, there are different types of investors and no single approach to the market can work for everyone. Suitability, which involves matching an investors' risk-reward attitude and experience level with the appropriate technique, is the key to determining how well a strategy may fit a specific individual. The most important thing to remember is the investment objectives are more crucial than the merits of the technique itself. If the strategy is not suitable for the investor then it shouldn't be used, no matter how attractive it appears. Concerning my favored techniques, I like premium-selling plays with a high probability of success and limited risk such as OTM credit spreads on broad indexes (OEX/SPX) and occasionally, on individual issues. I also sometimes speculate with synthetic positions if the risk-reward outlook is attractive. At the same time, I don't want to limit my options portfolio to directional trading and in that respect, debit straddles are attractive when the implied volatility in options is near historical lows (as they are now). In addition, straddles are easily managed without continually monitoring the underlying issue and its option prices, thus they are generally appropriate for most traders. When the underlying stock is in a long-term bullish trend, I favor diagonal/calendar spreads (and covered-calls on LEAPS) as well as selling cash-secured puts on quality issues. Regardless of what strategy you choose, the old adage "never put all your eggs in one basket" holds true in all financial markets and that's why professional traders usually limit their portfolio exposure to no more than 15% in any one position. This ratio is also appropriate for most premium-selling and spread techniques and diversity is a very important component of success for any type of trading. I hope that helps you narrow the search for favorable strategies and when you find something that works, send me a note so I can share your approach with other traders who read the OIN. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield AMSC 13.20 12.19 SEP 10.00 0.70 0.70* 6.5% 18.2% CBST 12.72 13.24 SEP 10.00 0.50 0.50* 4.6% 14.3% RIMM 24.61 28.48 SEP 20.00 0.75 0.75* 2.8% 9.1% TIVO 10.91 10.90 SEP 10.00 0.30 0.30* 3.4% 8.7% OVTI 43.77 44.26 SEP 35.00 0.95 0.95* 2.4% 8.5% THER 13.93 14.25 SEP 12.50 0.55 0.55* 3.3% 8.5% RIMM 28.74 28.48 SEP 25.00 0.60 0.60* 2.7% 7.8% IDTI 13.10 13.95 SEP 12.50 0.35 0.35* 3.1% 7.6% BLUD 23.12 25.00 SEP 22.50 1.00 1.00* 3.4% 7.5% SEPR 21.76 26.92 SEP 17.50 0.50 0.50* 2.1% 7.3% NFLX 28.80 33.33 SEP 25.00 0.55 0.55* 2.4% 7.2% TKLC 13.73 17.48 SEP 12.50 0.45 0.45* 2.7% 6.9% PHTN 28.90 32.57 SEP 25.00 0.65 0.65* 2.3% 6.8% SRNA 18.77 19.40 SEP 17.50 0.40 0.40* 2.5% 6.5% JDAS 13.90 16.70 SEP 12.50 0.40 0.40* 2.4% 6.4% UTEK 25.75 29.32 SEP 22.50 0.55 0.55* 2.2% 6.3% SEPR 23.49 26.92 SEP 20.00 0.45 0.45* 2.0% 6.2% PDII 24.25 25.83 SEP 20.00 0.50 0.50* 1.9% 6.1% BRCM 25.80 27.27 SEP 22.50 0.35 0.35* 1.7% 5.2% AEIS 21.02 24.06 SEP 17.50 0.30 0.30* 1.5% 5.0% PHTN 29.57 32.57 SEP 25.00 0.35 0.35* 1.5% 5.0% * Stock price is above the sold striking price. Comments: Stocks ended on a decidedly bullish note Friday with all of the major equity averages closing higher for the session, the week, and the month of August. Despite the anemic trading volume, the activity suggests a positive bias in September, when most institutional traders return to the market. Although many of the popular technical indications are favorable, we will remain cautious until a new (primary) up-trend is well established and we also suggest continued attentiveness to portfolio management. American Superconductor (NASDAQ:AMSC) is the only issue on the "watch" list. 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 GNTA 16.00 SEP 10.00 GJU UB 0.30 12425 9.70 20 4.7% 13.0% RIMM 28.48 SEP 25.00 RUL UE 0.50 5135 24.50 20 3.1% 9.0% NTAP 22.36 SEP 20.00 NUL UD 0.35 5121 19.65 20 2.7% 7.7% FLML 28.49 SEP 22.50 FLU UX 0.30 362 22.20 20 2.1% 7.6% BOBJ 27.05 SEP 25.00 BBQ UE 0.45 520 24.55 20 2.8% 7.4% NFLX 33.33 SEP 27.50 QNQ UY 0.30 507 27.20 20 1.7% 5.8% PSUN 33.55 SEP 30.00 PVQ UF 0.35 642 29.65 20 1.8% 5.2% 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). ***** GNTA - Genta $16.00 *** Genasense Speculation! *** Genta Incorporated (NASDAQ:GNTA) is a biopharmaceutical company with a diversified product portfolio that is focused on delivering innovative products for the treatment of patients with cancer. The company's research platform is anchored by two major programs that center on oligonucleotides (RNA/DNA-based medicines) and small molecules. Genasense (oblimersen sodium), the firm's lead compound from its oligonucleotide program, is being developed with Aventis and is currently undergoing late-stage, Phase 3 clinical testing. The leading drug product in Genta's small molecule program is Ganite (gallium nitrate injection), which the company intends to launch this year for treatment of cancer-related hypercalcemia that is resistant to hydration. Genta has Phase III trials coming up, which, if successful, could unlock a new market in chemotherapy sensitizing agents. Investors are speculating on the report and the option premiums are inflated, suggesting the potential for excessive volatility when the results are announced. This is a very speculative play and traders should perform due diligence in the company and the upcoming events before opening a position. SEP-10.00 GJU UB LB=0.30 OI=12425 CB=9.70 DE=20 TY=4.7% MY=13.0% ***** RIMM - Research In Motion $28.48 *** Next Leg Up? *** 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. Shares of RIMM consolidated this week after reaching a 2-year high on 8/22, amid a rally in the wireless group. Traders who like the outlook for the issue can profit from continued upside activity in its share price with this position. SEP-25.00 RUL UE LB=0.50 OI=5135 CB=24.50 DE=20 TY=3.1% MY=9.0% ***** NTAP - Network Appliance $22.36 *** Entry Point? *** Network Appliance (NASDAQ:NTAP) is a provider of enterprise network storage and data management solutions. NetApp network storage solutions and service offerings provide data-intensive enterprises with consolidated storage, improved data center operations, economical business continuance and efficient remote data access. The company's solutions meet the needs of archive, reference, departmental/remote office, business internal and business operations, and business-critical data with a common product architecture and data management methodology. Network Appliance shares rallied in mid-August after the firm reported better-than-expected fiscal first-quarter earnings and forecast more growth in the current quarter. The upside activity in the stock was fueled by a quarterly net profit that was 67% above the year ago results, due to better operating margins and new business products. Investors who wouldn't mind owning the issue at a cost basis near $20 should consider this position. SEP-20.00 NUL UD LB=0.35 OI=5121 CB=19.65 DE=20 TY=2.7% MY=7.7% ***** FLML - Flamel Technologies $28.49 *** Bristol-Meyers Deal! *** Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company engaged mainly in the development of two polymer-based delivery technologies for medical applications. The company's Micro-pump technology is a multi-particulate technology for oral ingestion of small molecule drugs with applications in controlled release, tastemasking and bioavailability enhancement. The company has three major products based on its Micropump technology: Asacard, a controlled-release formulation of aspirin for the treatment of cardiovascular disease; Metformin XL, a controlled-release form of Metformin that is in development for use for the treatment of Type II diabetes, and Genvir, a controlled-release acyclovir for the treatment of genital herpes. In addition, FLML has developed new herbicide delivery systems and has patented a biomaterial, ColCys. FLML shares have been in "rally mode" since the company entered a licensing agreement with Bristol-Meyers (NYSE:BMY) for Flamel's Basulin, a controlled-release form of insulin that is about to enter phase II clinical trials. The agreement calls for Bristol-Myers to assume the cost of development and manufacturing of the drug, in return for exclusive worldwide rights to it. The recent activity bodes well for FLML in the near-term and traders who think the rally will continue should consider this position. SEP-22.50 FLU UX LB=0.30 OI=362 CB=22.20 DE=20 TY=2.1% MY=7.6% ***** BOBJ - Business Objects $27.05 *** New 52-Week High! *** Business Objects S.A. (NASDAQ:BOBJ) develops, sells and supports business intelligence software for client/server environments, intranets, extranets and the Internet. The three main markets for BI are enterprise, extranet and analytic applications. For enterprise, Business Objects products provide employees with information to make better business decisions. Deployments can range from small workgroups to enterprise deployments exceeding 50,000 users. For extranet, products allow organizations to build stronger relationships by linking customers, partners and suppliers via the world-wide web, and for analytic applications, products offer packaged practice analytics, alerts driven by business rules and workflow for specific business users, such as sales managers or supply chain managers. BOBJ's stock soared Friday with the issue reaching a new 52-week high amid a rally in the business software group. Traders who agree with a bullish outlook for the company can establish a relatively conservative basis in the issue with this position. SEP-25.00 BBQ UE LB=0.45 OI=520 CB=24.55 DE=20 TY=2.8% MY=7.4% ***** NFLX - Netflix $33.33 *** New All-Time High! *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. Shares of NFLX reached a new "all-time" high Friday and there is no indication of a trend reversal in the near-term. Traders who share a bullish outlook for the stock can profit from continued upside activity in the issue with this position. SEP-27.50 QNQ UY LB=0.30 OI=507 CB=27.20 DE=20 TY=1.7% MY=5.8% ***** PSUN - Pacific Sunwear $33.55 *** 3-For-2 Split Coming! *** Pacific Sunwear of California (NASDAQ:PSUN) is a retailer of everyday casual apparel, accessories and footwear designed to meet the needs of active teens and young adults. The company operates three nationwide, primarily mall-based chains of retail stores under the names Pacific Sunwear (also known as PacSun), Pacific Sunwear (PacSun) Outlet and d.e.m.o. PacSun and PacSun Outlet stores specialize in board-sport-inspired casual apparel, footwear and related accessories catering to teenagers and young adults. d.e.m.o. specializes in hip-hop music-inspired casual apparel and related accessories catering to teenagers and young adults. In addition, the company operates a Website that sells PacSun merchandise online, provides content and community for its target customers and provides information about the firm's products. In mid-August, PSUN reported that quarterly profits surged 83% as sales jumped 23% on improved operating margins and strong same-store sales. The firm also declared a three-for-two stock split with a record date of 8/25/03. Investors seem to be pleased with the news as the stock has continued a steady uptrend which began in March. Traders can speculate conservatively on the future movement of the issue with this position. SEP-30.00 PVQ UF LB=0.35 OI=642 CB=29.65 DE=20 TY=1.8% MY=5.2% ***** ***************** 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 IPXL 13.00 SEP 12.50 UPR UV 0.40 206 12.10 20 5.0% 11.9% OSIP 38.01 SEP 35.00 GHU UG 0.95 386 34.05 20 4.2% 11.0% PHTN 32.57 SEP 30.00 PDU UF 0.55 81 29.45 20 2.8% 7.6% QCOM 41.33 SEP 40.00 AAW UH 0.80 6354 39.20 20 3.1% 7.6% SEPR 26.92 SEP 25.00 ERQ UE 0.40 337 24.60 20 2.5% 6.6% OTEX 37.12 SEP 35.00 QFT UG 0.55 20 34.45 20 2.4% 6.3% INTC 28.59 SEP 27.50 INQ UY 0.45 20383 27.05 20 2.5% 6.3% CNCT 18.74 SEP 17.50 UXU UW 0.25 53 17.25 20 2.2% 5.8% SINA 31.02 SEP 25.00 NOQ UE 0.25 3100 24.75 20 1.5% 5.7% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Optimism Prevails In U.S. Equity Markets By Ray Cummins Stocks closed higher Friday, buoyed by positive data from the manufacturing sector, which suggested an economic recovery is finally underway. The Dow Jones Industrial Average added 41 points to finish at 9,415 on strength in AT&T (NYSE:T), General Motors (NYSE:GM) and Caterpillar (NYSE:CAT). The NASDAQ Composite climbed 10 points to 1,810 with wireless shares among the best performers. The broad Standard & Poor's 500 Index closed up 5 points at 1,008 with airline and biotechnology issues advancing, while selling pressure emerged in oil service, retail and utility stocks. Volume was light with 950 million shares traded on the NYSE and 1.19 billion shares swapped on the technology exchange. Winners doubled losers on the Big Board, however the positive breadth was slightly less on the NASDAQ with advancing issues outpacing declining shares 3 to 2. Treasury prices fell in the holiday-shortened session. The 10-year note was off 12/32 to yield 4.46%, while the 30-year government bond slumped 1/8 to yield 5.22%. Equity funds continued to receive new cash with estimates of inflows near $1.7 billion during the week ending August 28, compared with inflows of $2.6 billion in the prior week. Portfolios that invest mainly in U.S. stocks had inflows of $1.5 billion versus inflows of $2.6 billion the prior week. ***************** 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 ADI 39.51 41.00 SEP 30 35 0.65 34.35 $0.65 Open BOW 38.57 43.31 SEP 30 35 0.60 34.40 $0.60 Open MXIM 39.11 44.96 SEP 30 35 0.65 34.35 $0.65 Open BBY 47.90 52.01 SEP 40 42 0.30 42.20 $0.30 Open JCI 96.49 99.00 SEP 85 90 0.65 89.35 $0.65 Open MBI 53.13 56.46 SEP 45 50 0.65 49.35 $0.65 Open WMT 57.77 59.17 SEP 50 55 0.50 54.50 $0.50 Open BSX 63.25 60.10 SEP 50 55 0.40 54.60 $0.40 Open SNPS 66.53 68.21 SEP 55 60 0.50 59.50 $0.50 Open ISIL 27.58 28.97 SEP 22 25 0.30 24.70 $0.30 Open POWI 32.08 32.24 SEP 25 30 0.55 29.45 $0.55 Open VIA 44.64 44.99 SEP 40 42 0.30 42.20 $0.30 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss The new position in Lowe's (NYSE:LOWE) was not available near the target credit, due to last Monday's "gap-up" at the open. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status INTU 42.86 45.51 SEP 50 47 0.30 47.80 $0.30 Open ESRX 62.23 64.81 SEP 75 70 0.60 70.60 $0.60 Open DB 59.64 58.24 SEP 70 65 0.60 65.60 $0.60 Open IFIN 28.42 29.89 SEP 32 30 0.50 30.50 $0.50 Open? SAP 27.56 29.94 SEP 32 30 0.25 30.25 $0.25 Open? AMGN 66.48 65.94 SEP 75 70 0.35 70.35 $0.35 Open MEDI 34.58 34.70 SEP 40 37 0.25 37.75 $0.25 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Investors Financial Services (NASDAQ:IFIN) and SAP AG (NYSE:SAP) are now on the "watch" list and both positions should be closed on further upside activity. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status MWD 48.54 48.79 SEP 40 45 4.45 44.45 0.55 Open MGAM 24.97 27.12 SEP 20 22 2.30 22.30 0.20 Open MUR 52.94 57.73 SEP 45 50 4.45 49.45 0.55 Open CTSH 31.90 34.83 SEP 25 30 4.40 29.40 0.60 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss Multimedia Games (NASDAQ:MGAM) was not available at the target debit, however the risk/reward outlook (potential profit of 8%) at a basis of $22.30 was acceptable for conservative traders. PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status HSY 69.64 69.90 SEP 75 70 4.10 70.90 0.90 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss Hershey Foods (NYSE:HSY) is at a "key" moment and the next few sessions will likely determine its trend for the near future. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status SHPGY 22.77 23.31 JAN 30 17 0.00 0.15 Open AVCT 27.83 29.32 SEP 30 25 (0.10) 1.30 Open? Avocent (NASDQ:AVCT) has been a solid performer with a potential profit of up to $1300 on $950 initially invested in less than one month. There was no opportunity to trade the synthetic position in Devry (NYSE:DV) during the "gap-up" rally, and the subsequent sell-off on news of lower quarterly profits was not conducive to a new entry in a bullish play. SYNTHETIC (BEARISH) ******************* No Open Positions CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status GP 19.25 23.17 OCT-20C SEP-22C 1.90 2.20 Open MSFT 27.31 26.52 JAN-27C SEP-27C 1.20 1.20 Open NE 34.86 36.18 DEC-37C SEP-37C 1.15 1.50 Open ING 19.07 19.73 JAN-20C SEP-20C 0.75 1.00 Open NSM 22.77 29.14 JAN-20C SEP-25C 3.90 5.30 Open MDCO 26.17 28.50 JAN-30C SEP-30C 1.50 1.90 Open GNTA 13.95 16.00 OCT-12C SEP-15C 2.00 2.40 Open? Genta (NASDAQ:GNTA) has been a pleasant surprise, offering a nice profit in less than one week. National Semiconductor (NYSE:NSM) has also exceeded our expectations, offering a potential gain of up to $1.40 on $3.90 invested in less than one month. The spread in SPX Corporation (NYSE:SPW) was closed early for a profit. The recent position in Brady Pharmaceuticals (NYSE:BDY) was far more bullish than we expected, but the brisk upside activity on the day after the spread was offered left little opportunity to enter the play at the target debit and required close attention to achieve a profit before issue continued its sharp rally. The position is no longer being tracked in the summary. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status SNE 30.74 32.95 OCT 30 30 3.75 4.35 Open AMTD 10.00 10.85 OCT 10 10 1.45 1.25 Open TRI 30.50 32.40 NOV 30 30 4.90 4.75 Open ADBE 34.36 38.83 SEP 35 35 2.80 4.50 Open BBY 50.08 52.01 SEP 50 50 4.05 4.90 Open Adobe Systems (NASDAQ:ADBE) has performed better than expected, offering up to $1.70 gain on $2.80 invested in only two weeks. Straddles in Best Buy (NYSE:BBY) and Sony (NYSE:SNE) have also achieved small profits, however the Overture (NASDAQ:OVER) play has previously been closed to preserve trading capital. CREDIT STRANGLES **************** 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 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. ***** AMZN - Amazon.com $46.32 *** Another Multi-Year High! *** Amazon.com (NASDAQ:AMZN) is a website where customers can find and discover anything they may want to buy online. The company lists millions of items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, PC software, computer and video games, tools and hardware, outdoor living items, kitchen and house-wares products, toys, baby and baby registry, travel services and magazine subscriptions. At its Amazon Marketplace, Auctions and zShops services, businesses and individuals can sell virtually any product to millions of customers, and with Amazon.com Payments, sellers are able to accept credit card transactions in addition to other methods of payment. The company operates a U.S.-based Website: amazon.com, and four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. AMZN - Amazon.com $46.32 PLAY (conservative - bullish/credit spread): BUY PUT SEP-40.00 ZQN-UH OI=10614 ASK=$0.25 SELL PUT SEP-42.50 ZQN-UV OI=11891 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$42.25 ***** GS - Goldman Sachs $88.49 *** Trading Range? *** The Goldman Sachs Group (NYSE:GS) is a global investment banking and securities firm that provides a range of services worldwide to a substantial and diversified client base. The firm operates offices in over 20 countries with activities are divided into two primary segments: Global Capital Markets, and Asset Management and Securities Services. The Global Capital Markets segment, which represented 64% of the firm's 2001 net revenues, consists of Investment Banking, and Trading and Principal Investments. Goldman's Asset Management segment offers investment strategies and advice across all major asset classes: global equity; fixed income, including money market instruments; currency, as well as alternative investment products. The firm's Securities Services activities include brokerage, financing services and securities lending. GS - Goldman Sachs $88.49 PLAY (conservative - bullish/credit spread): BUY PUT SEP-80.00 GS-UP OI=3849 ASK=$0.25 SELL PUT SEP-85.00 GS-UQ OI=7315 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$84.45 ***** TTWO - Take-Two Int. Software $29.81 *** On The Move! *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Int. Software $29.81 PLAY (less conservative - bullish/credit spread): BUY PUT SEP-25.00 TUO-UE OI=4161 ASK=$0.25 SELL PUT SEP-27.50 TUO-UY OI=308 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$27.20 ***** CTX - Centex $75.42 *** Homebuilding Sector Slump? *** 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 $75.42 PLAY (conservative - bearish/credit spread): BUY CALL SEP-85.00 CTX-IQ OI=758 ASK=$0.15 SELL CALL SEP-80.00 CTX-IP OI=1885 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$80.45 ***** DNA - Genetech $79.40 *** Premium-Selling Only! *** Genentech (NYSE:DNA) is a biotechnology firm using human genetic information to discover, develop, manufacture and commercialize biotherapeutics for significant unmet medical needs. The company manufactures and commercializes 10 biotechnology products directly in the United States. These include Herceptin, Rituxan, TNKase, Activase, Cathflo Activase, Nutropin Depot, Nutropin AQ, Nutropin human growth hormone, Protropin and Pulmozyme. The company also licenses several additional products to other companies and its product development efforts, including those of its collaborative partners, cover a wide range of medical conditions, including cancer, respiratory disorders, cardiovascular diseases, endocrine disorders and inflammatory and immune problems. DNA - Genetech $79.40 PLAY (conservative - bearish/credit spread): BUY CALL SEP-90.00 DNA-IR OI=2720 ASK=$0.20 SELL CALL SEP-85.00 DNA-IQ OI=5588 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$85.45 ************* 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. ***** AVII - AVI BioPharma $5.54 *** A Reader's Request! *** AVI BioPharma (NASDAQ:AVII) is a unique biopharmaceutical firm developing therapeutic products based on two major technologies, its Neugene antisense and its Avicine cancer vaccine. The firm's principal products will target life-threatening diseases, with initial applications in cardiovascular disease, pancreatic cancer, polycystic kidney disease, drug metabolism and viruses. A patent estate, including 74 issued patents and 110 applications pending, protects the company's technologies. Each of its primary product candidates, Resten-NG and Avicine, will address a large worldwide market. AVII - AVI BioPharma $5.54 PLAY (very speculative - bullish/debit spread): BUY CALL DEC-5.00 QVI-LA OI=1916 ASK=$1.50 SELL CALL DEC-7.50 QVI-LU OI=3053 BID=$0.50 INITIAL NET-DEBIT TARGET=$0.85-$0.95 POTENTIAL PROFIT(max)=150% B/E=$5.95 ***** ERTS - Electronic Arts $89.97 *** Master Of Video Games! *** Electronic Arts (NASDAQ:ERTS) develops, markets, publishes and distributes interactive software games that are playable by consumers on platforms such as home videogame machines, personal computers (PCs), hand-held game machines (Game Boy Advance) and online platforms over the Internet. Its products for playing on consoles and handhelds are published under license from the makers of these platforms and EA pays a fee to these console manufacturers for the right to publish products on their platforms. The company has published games for over 42 different platforms. The company operates in two primary business segments: its EA Core business that creates, markets and distributes interactive entertainment software and its EA.com business that creates and distributes interactive entertainment software that can be played or sold online, ongoing management of subscriptions of online games and Website advertising. ERTS - Electronic Arts $89.97 PLAY (conservative - bullish/debit spread): BUY CALL SEP-80.00 EZQ-IP OI=1338 ASK=$10.10 SELL CALL SEP-85.00 EZQ-IQ OI=2259 BID=$5.70 INITIAL NET-DEBIT TARGET=$4.40-$4.45 POTENTIAL PROFIT(max)=12% B/E=$84.45 **************** CALENDAR SPREADS **************** A calendar spread (or time spread) consists of the sale of one option and the simultaneous purchase of an option of the same type and strike price, but with a future expiration date. The premise in a calendar spread is simple: time erodes the value of the near-term option at a faster rate than the far-term option. The positions in this section are speculative (out-of-the-money) spreads with low initial cost and large potential profit. ***** PRU - Prudential Financial $36.41 *** Technicals Only! *** Prudential Financial (NYSE:PRU) is a major financial services institution. Through its subsidiaries and affiliates, the firm provides a range of insurance, investment management, securities and other financial products and services to individual and institutional customers in the United States and over 30 other countries. The businesses of Prudential Financial are separated into two groups: the Financial Services Businesses and the Closed Block Business. The Financial Services Businesses is comprised of the company's Insurance division, Investment division, and International Insurance and Investments division, as well as the firm's Corporate and Other operations. The Closed Block Business is comprised of the assets and related liabilities of the Closed Block and other assets and liabilities. PRU - Prudential Financial $36.41 PLAY (conservative - bullish/calendar spread): BUY CALL DEC-37.50 PRU-LU OI=3859 ASK=$1.45 SELL CALL SEP-37.50 PRU-IU OI=2114 BID=$0.30 INITIAL NET DEBIT TARGET=$1.00-$1.10 INITIAL TARGET PROFIT=$0.45-$0.70 *********************** 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. ***** CLS - Celestica $17.55 *** Probability Play! *** Celestica (NYSE:CLS) specializes in providing a full range of electronics manufacturing services, including design, assembly, prototyping, testing, product assurance, supply chain management, worldwide distribution and after-sales service, to its customers in the information technology and communications industries. The company operates a global manufacturing network, with operations in Asia, Europe and the Americas, providing a range of services to original equipment manufacturers. In 2002, the firm acquired certain manufacturing assets of NEC Corporation in Miyagi and Yamanashi, Japan. It also acquired certain assets from Corvis Corporation in the United States. CLS - Celestica $17.55 PLAY (speculative - neutral/debit straddle): BUY CALL OCT-17.50 CLS-JW OI=1284 ASK=$1.25 BUY PUT OCT-17.50 CLS-VW OI=84 ASK=$1.20 INITIAL NET-DEBIT TARGET=$2.25-$2.35 INITIAL TARGET PROFIT=$0.90-$1.25 ***** NVDA - Nvidia $18.17 *** A Big Move Coming? *** Nvidia (NASDAQ:NVDA) designs, develops and markets graphics and media communication processors and related software for personal computers (PCs), workstations and digital entertainment platforms. The company provides an architecturally compatible top-to-bottom family of unique, performance 3-D graphics processors and graphics processing units that set the standard for performance, quality and features for a broad range of desktop PCs. Nvidia's graphics processors are used for a wide variety of applications, including games, digital image editing, business productivity, the Internet and industrial design. Its graphics processors are designed to be architecturally compatible backward and forward between computer generations, giving its original equipment manufacturers (OEMs), customers and end users a low cost of ownership. NVDA - Nvidia $18.17 PLAY (speculative - neutral/debit straddle): BUY CALL OCT-17.50 UVA-JW OI=764 ASK=$1.85 BUY PUT OCT-17.50 UVA-VW OI=681 ASK=$1.15 INITIAL NET-DEBIT TARGET=$2.80-$2.90 INITIAL TARGET PROFIT=$1.35-$1.60 ***** ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... 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