The Option Investor Newsletter Sunday 09-07-2003 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: Got Lipstick? Futures Market: Gold and Treasuries Rally, Equities Pull Back Index Trader Wrap: Just a Shake? Editor's Plays: New VIX Market Sentiment: September score: Bulls 3, Bears 1 Ask the Analyst: See Note 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 9-05 WE 8-29 WE 8-22 WE 8-15 DOW 9503.34 + 87.52 9415.82 + 66.95 9348.87 + 27.18 +130.60 Nasdaq 1858.24 + 47.79 1810.45 + 45.13 1765.32 + 63.31 + 57.98 S&P-100 512.49 + 9.13 503.36 + 5.94 497.42 - 0.88 + 4.50 S&P-500 1021.39 + 13.38 1008.01 + 14.95 993.06 + 2.39 + 13.08 W5000 9906.69 +136.23 9770.46 +158.03 9612.43 + 64.92 +154.78 RUT 508.87 + 11.45 497.42 + 11.91 485.51 + 13.59 + 17.98 TRAN 2747.29 + 64.05 2683.24 + 41.68 2641.56 + 17.90 + 44.63 VIX 19.37 - 0.12 19.49 - 0.78 20.27 + 0.07 - 1.09 VXN 30.70 + 1.18 29.52 + 0.05 29.47 + 0.26 - 2.82 TRIN 1.04 0.78 1.36 1.01 Put/Call 0.72 1.29 0.91 0.53 Avg Highs 949 408 720 338 Avg Lows 20 40 58 62 ****************************************************************** Got Lipstick? by Jim Brown It would take a lot of lipstick to turn the Jobs Report from Friday into anything but a pig but analysts tried to spin it from every angle. If it looks like a pig, walks like a pig and smells like a pig it is probably a pig. That oinking noise coming out of the Labor Dept on Friday did not prevent the bulls from buying the dip and running the Nasdaq back into positive territory before the morning coffee had turned cold. There were a couple economic reports on Friday but only one mattered. The August employment report showed a drop of -93,000 jobs and it was broad based and far worse than expected. The consensus estimates had been around +10,000 with bearish whisper numbers as low as -50,000. Nobody expected the disaster we received. The unemployment survey showed the rate dropped to 6.1% from 6.2% and the administration (Elaine Chao) kept pounding the table that the administration's jobs program was working. Excuse me? When questioned about how the economy could lose -93,000 jobs with the continuing unemployment claims rising and result in a lower rate she was unable to answer. Actually the unemployment rate is a different survey than the jobs number. Unemployment is determined by phone calls to individual households asking if they have job. The job loss number is done by surveying businesses on recent hiring and firing action. The calling list for households last month must have covered Beverley Hills. Job losses were spread across all major sectors including services, manufacturing, civilian and government. Only the construction, education, health care and hospitality sectors showed slight gains in jobs. This was the 7th consecutive month of job losses and the biggest drop since the -151,000 in March. Manufacturing lost -44,000 jobs and the workweek remained at 40.1 hours. Normally a leading indicator of an increase in jobs is a growth in the hours worked. It has been flat to down since March except for a slight bounce in June that was quickly retraced. Workers are finding it harder to get work with 22% of unemployed workers jobless for more than six months and 12% unemployed for more than a year. Temp workers did rise by +7,000 in August and this could be vacation hires or employers testing the water as signs of a recovery grow. Monster.com said they had 24 million resumes online and they were seeing an increase in hiring in the consulting, customer service, healthcare, food services and real estate sectors. Food service was up +38% and real estate +36%. Manufacturing was down -18% on Monster. An analyst speculated that layoffs in high tech, financial management, brokerages and small business management were probably not going to be strong future consumers with new jobs in the food service arena. The tone of the conversation was that we were seeing a trend into any area hiring and not necessarily that it was their chosen field. One of the remaining economic reports was the Future Inflation Gauge which rose +1.7% in August to 117.6 and the highest level since March. It was the sharpest jump in a year. Suddenly the Bernanke comments from Thursday seem at risk. They will not be cutting rates again if the FIG continues to move up sharply. This was the second monthly increase but a real recovery will produce inflation pressures so it was not a real surprise. It is not close to any critical levels but simply an indicator of the rising trend. The second report was the Composite Leading Indicators which rose to 123.4 in July from 122.1 in June. I don't know why they call it leading indicators when they are just now reporting July numbers but this was the fourth consecutive monthly rise for the global economy. The recovery appears to be spreading with the Euro Zone up +2.1 and NAFTA +7.7. It also appears the U.S. at +7.8 is behind only Mexico at +9.1. JPM joined the rapid growth club on Friday with an upgrade to their GDP estimates for the 3Q to +5.0% to +5.25%. GS also changed their estimates by lowering their Q1 outlook. They feel the recovery will slow in the 4Q and not pick up again until late 2004. All bets are for a strong Q3 and Merrill Lynch said on Friday that earnings estimates for the 3Q were up +4% in August. The gain was probably related to the job losses as that is the primary cost reduction tool. The very high productivity we saw reported this week is a poison pill for labor because higher productivity means less need for more workers. The +4% earnings growth in August is a very strong gain and so far we have not had any real warnings although the season is young. Merrill also said after the 3Q market momentum could slow because the easy money has been made. Tech stocks are selling for an average PE of 66 and twice the S&P PE of 33. Both are very high historically and when this happened last in Nov-2002 it was followed by six months of flat to down markets. We are also reaching that period in the market where valuation downgrades are accelerating. Last week we saw several that included blue chips MMM and WMT as well as some tech stocks like BEAS. The markets took a well deserved breather on Friday after the Jobs Report reminded the bulls that the recovery game is not over until the whistle blows. With the Jobless Claims expected to be higher next week the bloom may be fading. In fact it should not be fading just maturing. We have known for months that jobs were dropping and while a negative jobs number should not have been a surprise it was the severity that really fired up the sellers. While the bulls bought the dip early, especially in techs, they could not hold the party line any longer. It was not because the economy or the market had changed but simply a case of a buyer boycott. The bulls ran out of investors willing to buy the top. Not the top in the market, but the top for this cycle. Once normal profit taking eases we can take another run at it. The problems for next week will be earnings warnings with IBM already a leading candidate. With CSCO, DELL and INTC already saying positive things about the quarter we would not expect many tech warnings but the PC sector is not a strong profit center for IBM. They are also dependent on a currency hedge for overseas sales. They received a major bump in the 2Q from currency translation profits. The dollar has reversed and is causing a drain for Q3. ODP has already warned for Q3 because of that weaker dollar. That could hurt IBM and other multinationals. Another problem will be the continuing valuation downgrades. With many tech stocks up +50% or more this year and some up +100% from last year there is the potential for analysts to book downgrades so they can say they recommended them at $XX and downgraded at $YY. It is all about bragging rights when trying to attract new clients. This is not a very strong week economically and the biggest focus will probably be the 9/11 anniversary. We could see some market weakness prior to Thursday as traders book profits in case of an anniversary attack. I am surprised we have not seen a raised terror alert but that could come next week. Economic reports for the week include the Kansas Fed Survey and Consumer Credit on Monday, Richmond Fed and Wholesale Trade on Tuesday. Wednesday is almost a blank with only the Mortgage Applications Survey. Thursday, the anniversary of 9/11, has Jobless Claims, Import/Export Prices and International Trade. Friday is the strongest day of the week with PPI and Michigan Sentiment for September. For the week the Dow managed to crack 9600 but was unable to hold it. This is the upper end of resistance from the January uptrend bearish wedge. The wedge has already been violated on the downside twice but recovered after only a short dip. The current support is around 9450 with congestion all the way to 9000. As long as it stays above 9000 the rally is intact. This does not appear to be a problem after the performance the index managed this week. 9475 is the 50% retracement level from the all time high to the October lows. Now trading over that level it could be tough to break on the downside. The next target for the bulls has got to be 10000 and next week will be pivotal in that quest. If we do trade below 9450 then old resistance levels could come back into play and this late in the quarter we could languish there for some time. Dow Chart - Daily Dow Chart - Monthly The Nasdaq spurted off to touch a new range on Wednesday and never looked back. It touched a new high at 1880 and just below monthly resistance. The Nasdaq held 1850 on Friday and traded in positive territory despite the Jobs Report and the seven day string of positive closes but in the end the profit taking held it to a loss. This is actually a positive. Support held and the string is broken. It is poised start a new run next week if the bulls can attract some new money. While we are well below any retracement levels the monthly Bollinger Bands are suggesting that 1930 could be serious resistance. Several other analysts are suggesting 2000 is the ultimate goal and one that mutual funds have set as their exit point. With the strength of the techs and the weakness in the blue chips it is possible the Nasdaq could approach 2000 about the same time the Dow hits 10,000. That would be a major profit taking event. It still will be regardless of which hits their target level first only the combination of the two would make it even worse. Nasdaq Chart - 30 min Nasdaq Chart - Monthly The S&P came to a dead stop just below 1030 but that is a major improvement over the 1010 resistance level we had seen for two months. The S&P has support in the 1000 range and that should give us plenty of room to wander next week. I posted potential targets for the S&P on Thursday night and in the interest of continuity I am posting them again below. Most analysts agree that 1140 is the likely cooling off point. S&P Chart - 60 min S&P Chart - Monthly Even if you never read the header of this commentary you should take notice of a couple items. The daily average of new 52-week highs was nearly 1000 for the week while the average new lows was only 20. This is astronomical sentiment numbers. Also, The Dow dropped -120 points at the low for the day on Friday but the VIX closed only a few ticks away from the 52-week closing low at 19.23. Despite the Jobs Report and the profit taking the bullishness is still growing and reaching extreme levels. Check out the Editors Plays today for important changes to the VIX by the CBOE. Would you believe futures and options are going to be offered on the new VIX? No kidding. I mentioned earlier that I was surprised we had not seen any hikes in the Terrorist Alert level and recent events make that more of a possibility next week. The FBI announced late Friday that it is looking for four terrorist suspects who according to the release are still trying to organize some more "aerial suicide attacks" against the United States. Whether these men are real threats or not this follows a similar pattern of the prior 9/11 anniversaries and major events like the NY New Years Eve party. First warn about individuals, then quote specific and credible intelligence, then raise the alert level until the date passes. Not that I think the government would manage our expectations and reactions to their alerts but stranger things have happened. Keep your eyes open for this scenario and see if it comes to pass. If this becomes a bigger news item over the weekend the markets are likely to resist any urge to move higher until after the 11th. This could also prompt some profit taking in advance just in case something happens. Next week could either go into hibernation while waiting or move down on profit taking but I would be surprised to see any new highs before Friday. But, I have been surprised a lot lately. Keep those stops in place and it would not hurt to own a few out of the money index puts as well. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Gold and Treasuries Rally, Equities Pull Back Jonathan Levinson Anticipation and frustration amongst equity bears was only slightly relieved by a sharp decline within the range we've been following all week. Treasuries rallied strongly and gold reached a new 7 month closing high. Daily Pivots (generated with a pivot algorithm and unverified): 10 minute chart of the US Dollar Index The US Dollar Index Friday morning advancing cautiously until getting slammed on the employment data at 8:30AM. The Index dropped from 98.30 to 97.50, and spent the rest of the day sinking to 97 support. Gold rallied, and the CRB jumped 1.19 to 242.99. For the week, the US Dollar Index printed a bearish gravestone doji, closing near the bottom of its range. Daily chart of December gold December gold printed its highest closing price in 7 months on the NYMEX on Friday, up 4.70 to 378.70, with an intraday GLOBEX high of 381.50. The precious metals indices were very strong, with the HUI adding 2.40 to close at 198.35, and the XAU up 1.50 to close at 93.45. Despite my overwhelmingly bullish feelings about gold, I have noted the possibility of a bearish ascending wedge formed on the daily chart. The apex of this wedge is not far above its current price, and projects to a low of 345. For the week, gold printed a bullish harami, completing its fifth consecutive week of gains. Daily chart of the ten year note yield Treasuries rallied right out of the gate and never looked back, with the ten year note yield gapping below the secondary rising support line and closing at its lows of the day, dropping 15.9 basis points to 4.354%. This drop in the yield occurred despite an impressive $9B net drain from the Fed via its open market operations.The TNX is now on clear sell signals on the oscillators, with the stochastic printing a lower high that diverged from the rising trend on the yield before today's collapse. The ten year treasury note looks like a buy here. For the week, the TNX printed a bearish engulfing candle. Daily NQ candles We spent the week waiting for a correction, and at noon on Friday it arrived with a steep bout of selling. The NQ was drilled to a low of 1354, traded weakly off that low but nevertheless managed to close 12.5 points above it. The action did little to change the picture on the daily chart, other than breaking what was setting up to be an 8 day winning streak. The oscillators continue to show signs of wanting to end the ongoing up-phase, but it will take more than what amounted to a small correction with today's selling. 30 minute 20 day chart of the NQ The selloff no doubt trapped a number of bears watching for a break of the lower trendline on the 30 minute chart. The bounce of the low remains a return-to-the-scene of the crime, and the bearish divergences I've highlighted on the stochastic and Macd lend some support to that interpretation. Any recovery above the lower trendline will constitute yet another in this season's seemingly endless string of false signals and pattern failures. Bears are not out of the woods, but on a trading basis, shorts below the trendline with stops just above it seem reasonable, particularly given the bearish orientation of the oscillators on the 30 minute chart and the toppiness on the 10 day stochastic above. Daily ES candles The ES engulfed Thursday's gains but closed at 1022.50, close enough to bring the ES tentatively back within range. Whether this is an insignificant end-of-session tape painting operation or a confirmation of higher support, we have no way of knowing. As appears in the 30 minute candle chart below, there are two interpretations possible, neither of which requires excessive lenience in chart interpretation. Under the one, there was a bear wedge failure and a return-to-the-scene-of-the-crime rally, and under the other, a mere test of the lower trendline. Monday will have to tell. 20 day 30 minute chart of the ES The cyclic picture is the same on the ES as for the NQ. The bearish divergences on the oscillators appear all over the index charts this weekend, and cause me to doubt whether we'll be seeing the week's range broken to the upside at all. A bounce from the lower trendline to test the upper wedge trendline without violating it would not impede the bear case at all, as long as the pattern remains intact. Its projected target is 982 on a full completion. Daily YM candles There's nothing to add on the YM, which appears to be rolling over on the daily, but well within the bounds of its rising daily trendline. Any weakness on Monday could embolden the bears eyeing that lower trendline at 9515. 20 day 30 minute chart of the YM All of the equity contacts finished the week on a bearish "Meeting Lines" formation, which is a type of exhaustion top. The printed higher highs but could not hold them, closing near the middle of the range but above the prior week's range. Whether this is distribution or consolidation remains an unanswered question. Treasuries gave us a bullish week, gold a bullish week, and the US Dollar Index a bearish week. This is the same market configuration that brought us the spring 2003 rally, and my way of understanding it is to think of Ben Bernanke holding the pedal to the metal on his printing presses, creating ever-less valuable money to chase all other assets, including stocks, bonds, foreign currencies and commodities. Whether that is what we are seeing, or whether the markets are adopting a defensive posture ahead of a stock collapse remains my principal question, and it appears that we'll have to look to next week to hopefully provide the answer. ******************** INDEX TRADER SUMMARY ******************** Just a Shake? Jonathan Levinson The indices were long overdue for a pullback, and Friday finally brought it. A bounce from the day lows restored part of the day's losses, and left traders wondering whether the move was more than just a simple, overdue, widely expected correction. Daily Pivots (generated with a pivot algorithm and unverified): Daily COMPX candles Buy the time the dust settled, the COMPX was down just 10 points on the day following a better than 70 point gain since Tuesday. The move was quick and violent, and felt "impulsive", just as the bounce off the intraday low felt corrective. However, when viewed on the daily chart, it's simply premature to read more into the 10 point decline than that. The daily uptrend remains intact, not even threatened by the day's decline, and the move respected the ascending channel within which the COMPX has been trading since its August lows. That said, the oscillators on the daily chart are in overbought territory and appear ripe for a rollover, and the rising "channel" looks like a possible bear flag. On the 30 minute candles below, the move appears to have broken the bottom of the bear wedge, following a bearish divergence on the stochastic and Macd oscillators, both of which are on sell signals. I'm not trying to sound as ambiguous as it may appear. Friday was a corrective day that could well be the start of something more. The session finished on a bounce, however, and we'll need to see how next week begins to determine whether what is so far corrective on the daily chart will extend into more meaningful selling. 30 minute 20 day chart of the COMPX Daily INDU candles Again, the context of today's selling is well-illustrated on the Dow, which finished lower by 84 points after having been down triple digits. The oscillators remain aimless on this timeframe following over two months of chop above 9000. 9600 remains important resistance, having been tested numerous times this week. On the 30 minute chart, the "impulsive-corrective" dilemma is clearer as well, as we have two possible interpretations of the chart patterns. Both patterns play out as bearish ascending wedges, which, as we've discussed, tend to break to the downside. We have no way of knowing whether today's break was the beginning of the end for this wedge, or whether it's just another pullback to lower support. The oscillators are still bearish but approaching bottoming territory, and the outlook for next week remains murky. If Friday's close was anything more than a quick round of tape-painting, we could see a bounce to reverse these sell signals on Monday. 20 day 30 minute chart of the INDU Daily OEX candles The OEX is set up similarly to the INDU, with Friday's decline merely a correction of a small portion of the week's significant gains. The oscillators remain ambiguous, but they do not look bearish to me yet. The 30 minute wedge is still intact on the OEX, despite the bearish divergences and strong sell signals on the oscillators. Until 510 gets taken out, bulls will remain unruffled. Below that level, there's risk to 504 fib support, followed by 493 as the bear wedge target. 20 day 30 minute chart of the OEX Daily QQQ candles QQQ 34 was a significant level all week, and Friday did not disappoint. Like the Nasdaq, the Qubes appear ripe for the correction that bears have been so eagerly awaiting. The steeply ascending channel on the daily chart remains intact, with the oscillators toppy and suggesting just the first hint of a possible rollover. The 30 minute chart has that same bear wedge, but the bounce looks more like a return to the scene of the crime than a true continuation of the wedge. A move below 33.60 will have bears targeting 33.20, below which I'd expect the selling to intensify. Above 34, and it will look like a most unwelcome continuation of this week's range. 20 day 30 minute chart of the QQQ This week completed a fourth consecutive week of gains for the COMPX, a fifth for the INDU. It's difficult to say anything bearish about a setup comprised entirely of gains, other than "what goes up must (should?) go down". In all seriousness, this year has been rich with important lessons, the most important of which is to trade what we see. I believe that a deeper correction is forthcoming, but the charts aren't confirming it just yet. We need to watch the levels outlined, using the trendlines as decision points and the oscillators to highlight our direction bias at those points. Add stops into the mix and we have a way to remove the lion's share of the risk from what have been proving to be very difficult markets. See you at the bell! ************************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 ************** New VIX Rather than suggest a trade today I have something earthshaking to tell you. The VIX is being replaced. Yep, for those option traders that have lived with this indicator of market volatility for years you are about to lose an old friend and market timer. Actually you will not lose it but it will begin trading under the alias of VXO as of September 22nd. The VIX is currently calculated based on near the money options on the OEX. The OEX is the top 100 blue chip companies. The CBOE thought that the growth in SPX option volume to 141,000 contracts a day average in 2003 warranted a new look at market volatility. Instead of the OEX options they are now going to use SPX options as the basis for the VIX. The symbol will stay the same (VIX) but it will be based on the SPX instead of the OEX. You will not really be losing the VIX you have grown to love but getting a new and improved version. Does that bring up images of the scene from the Six Million Dollar Man? "We have the technology, we can rebuild him and make him better than before." There will be a broader range of strike prices and each strike price will be weighted depending on its closeness to the money. Those closest to the actual price will have the highest weight. They are dropping the Black Scholes option pricing model and are using an entirely new formula to derive volatility from the option price. Not only are they changing the index but they are going to start listing futures and options on the VIX. Yes, futures and options on the volatility index. Scary thought but I can't wait. According to the CBOE the change to the broader S&P and the broader range of strike prices as well as the strike price weighting will more accurately provide an indicator of future market volatility and allow portfolio managers to hedge that volatility. They are also going to provide the script to calculate your own VIX based on an S&P portfolio. The CBOE has created a historical model dating from 1986 to the present of how the new VIX would have performed in relation to known market conditions and the old VIX. Basically, we can see how the old VIX in 1987 compares to the new VIX in 1987. We can see what the July 2002 high of 56.74 on the old VIX will equate to on the new VIX. How did the Russian debt crisis impact both? Based on the comparison charts available at the CBOE the new VIX will be less volatile than the old VIX. I assume it makes it more predictive and therefore easier to write futures and options against it. To view the CBOE white paper on the VIX/VXO changes go here: http://www.cboe.com/micro/vix/vixwhite.pdf ******************************** Play updates: DJX strangle - Aug-31st. I made a mistake last week in the play write up and did not adequately tell you how to exit the trade at Dow 9600 other than just closing both sides. I said if the Dow hit our stop loss at 9600 either close the play or close the puts and trail the stop on the calls. That was kind of vague in retrospect. We did hit the stop at 9600 but only by six points and not really enough to trail the stop. If you closed the play as scripted you would have received about $1.70 for options that cost $1.50. Not a whopping risk/reward move there but as a stop loss it worked perfectly. The problem on trailing the calls was the lack of a serious penetration of 9600. It was there for a minute several times but there was no momentum. Since the exit at 9600 was a STOP LOSS exit and not meant to be a profit target I am going to consider the play dead. The actual target on the play was to the downside and that did not occur. Because I failed to cover the exit specifically I do not know how to suggest an exit now if you are still in it. The ideal exit would have been to sell the calls and the puts and just close the play as scripted. If you are holding either side now then you have to play the hand you are dealt next week. http://members.OptionInvestor.com/editorplays/edply_083103_1.asp SMH Puts - August 24th. The chip stocks are not bullet proof but they are also armor plated. The SMH puts finally stopped out at $38 on Friday after Intel raised guidance once again. The jobs report did nothing to depress the chip sector and we are out. The entry was $1.50 on 8/25 and the Oct-35 SMH put was trading for $1.00 when the SMH hit $38 on Friday. http://members.OptionInvestor.com/editorplays/edply_082403_1.asp Powerball On fire! The Nasdaq new high is continuing to inject value into the Powerball leaps portfolio. Even the laggards are starting to move. Once the recovery really takes off in the last quarter we could be rocking. Assuming of course we have a recovery. The portfolio is up over 50% and we still have nearly five months to go. 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 **************** September score: Bulls 3, Bears 1 - J. Brown It's been a big week for the bulls. Traditionally, the markets see a strong day after Labor Day rally and then institutional traders clean house making September one of the worst months of the year. Not so this September - at least the first week. Positive analyst comments and upgrades set the tone Tuesday- Thursday and their enthusiasm was bolstered by improving economic reports. To top it off, CSCO came out with unexpected good news about its August sales numbers. One market commentator reflected on the week and said it was nice to see the improving economic numbers actually show up in corporate sales and guidance. But it wasn't just John Chamber's comments that influenced investor sentiment. Intel had a positive mid-quarter update on Thursday night, Wal-Mart came out with strong same-store sales numbers and software was the favored sector of the week by analysts. It almost felt like the go-go momentum days of the late 90's. Alas, the Friday morning August employment report was much worse than expected and the rally stalled ending a 7-day winning streak for the NASDAQ Composite, the Russell 2000 and the Wilshire 5000. Bulls stepped in to buy the dip for many equities but it wasn't enough to reverse some much needed profit taking ahead of the weekend. Investors feel empowered that the economy has finally moved from a "might improve" to a "definitely improving" status and economists are raising their forecasts for the Q3 GDP growth numbers. Fueling the fire even more is an "I don't want to miss the train" mentality among many investors. I'm encouraged by the Industrials ability to close above the 9500 level and stay there. The same can be said for the NASDAQ composite and the 1850 level and the S&P 500 and the 1020 level. Yet, the markets are so overbought I don't expect them to stay there. A multi-day consolidation (a.k.a. round of selling) would be healthy and help set up for the next move higher. This coming week is the September 11th anniversary and it could be the perfect excuse to spark such a consolidation of recent gains. Many investors may not want to initiate new long positions ahead of Thursday for fear of some sort of anniversary attack. The same psychological affect will probably provoke many investors to lock in some gains. If we don't see a dip, I'd be surprised. It's possible that traders will merely buy more puts to protect their current investments. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9609 52-week Low : 7197 Current : 9503 Moving Averages: (Simple) 10-dma: 9431 50-dma: 9232 200-dma: 8633 S&P 500 ($SPX) 52-week High: 1029 52-week Low : 768 Current : 1021 Moving Averages: (Simple) 10-dma: 1008 50-dma: 993 200-dma: 922 Nasdaq-100 ($NDX) 52-week High: 1380 52-week Low : 795 Current : 1361 Moving Averages: (Simple) 10-dma: 1336 50-dma: 1274 200-dma: 1123 ----------------------------------------------------------------- The VIX is still trading near lows not seen since the market top in March 2002. Meanwhile, check out Jim's editor's plays for more info on changes in the VIX from the CBOE. CBOE Market Volatility Index (VIX) = 19.37 -0.52 Nasdaq Volatility Index (VXN) = 30.70 -0.21 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.72 564,609 408,748 Equity Only 0.55 477,672 263,298 OEX 1.28 20,967 26,496 QQQ 1.26 34,504 43,546 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.3 + 1 Bull Confirmed NASDAQ-100 79.0 + 1 Bear Correction Dow Indust. 86.6 + 7 Bull Confirmed S&P 500 81.0 + 1 Bull Confirmed S&P 100 89.0 + 2 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.29 10-Day Arms Index 1.37 21-Day Arms Index 1.52 55-Day Arms Index 1.30 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 1160 1356 Decliners 1647 1727 New Highs 145 293 New Lows 13 10 Up Volume 795M 923M Down Vol. 989M 984M Total Vol. 1812M 1926M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 09/02/03 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 More of the same for commercial traders in the large S&P futures contracts, but we do see a slight bump in short positions. There is barely any change between longs and shorts for the small traders. Commercials Long Short Net % Of OI 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%) 09/02/03 417,973 482,392 (64,419) (7.2%) 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 08/12/03 158,821 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% 09/02/03 169,030 75,748 93,282 38.1% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 The bullish trend of growing long positions for the commercials in the e-minis has continued. The latest report shows drop of 10K short positions and 9K new long positions. Locksteppening in the opposite direction are the small traders with a big jump in short positions to the most bearish we've seen them in a long time. Commercials Long Short Net % Of OI 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% 09/02/03 347,724 224,011 123,713 21.6% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 123,713 - 09/02/03 Small Traders Long Short Net % of OI 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%) 09/02/03 56,709 134,094 (77,385) (40.6%) Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercials caught part of the stampede fever and added some long positions to their NDX futures. Meanwhile small traders rotated some money out of longs and into shorts but no big change. Commercials Long Short Net % of OI 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%) 09/02/03 37,002 55,379 (18,377) (19.9%) 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 08/12/03 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% 09/02/03 23,168 10,561 12,607 37.4% 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 No serious changes among the commercial traders while small traders have grown fur and drastically reduced their bullish positions. The spike in shorts have them looking for a INDU drop. Commercials Long Short Net % of OI 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% 09/02/03 25,462 10,447 15,015 41.8% 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 08/12/03 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% 09/02/03 6,629 13,402 (6,773) (33.8%) 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 *************** Jeff Baily, our regular contributor to the "Ask the Analyst" column, is currently on vacation. Look for his column to return next weekend. ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- CMVT Comverse Technology Mon, Sep 08 After the Bell -0.04 SSL Sasol Ltd ADR Mon, Sep 08 Before the Bell N/A ------------------------- TUESDAY ------------------------------ MATK Martek Biosci Corp Tue, Sep 09 After the Bell 0.15 NMGa Neiman Marcus Group Tue, Sep 09 Before the Bell 0.12 ----------------------- WEDNESDAY ----------------------------- ADBE Adobe Systems Wed, Sep 10 After the Bell 0.25 EN Enel S.p.A. Wed, Sep 10 -----N/A----- N/A PUB PUBLICIS Groupe SA Wed, Sep 10 -----N/A----- N/A UTIW UTI Worldwide Wed, Sep 10 Before the Bell 0.34 ------------------------- THURSDAY ----------------------------- BNG Benetton Group Thu, Sep 11 -----N/A----- N/A CPB Campbell Soup Thu, Sep 11 Before the Bell 0.17 CBRL CBRL Group Thu, Sep 11 Before the Bell 0.70 ------------------------- FRIDAY ------------------------------- FCEa Forest City Ent, Inc. Fri, Sep 12 -----N/A----- N/A GTK GTECH Holdings Corp. Fri, Sep 12 Before the Bell 0.68 ORCL Oracle Fri, Sep 12 Before the Bell 0.08 IMI SanPaolo IMI SpA Fri, Sep 12 -----N/A----- N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable 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 COH Coach Inc 2:1 Sep 17th Sep 18th URBN Urban Outfitters Inc 2:1 Sep 19th Sep 22nd -------------------------- Economic Reports This Week -------------------------- It's another busy week with several investor conferences. There are also several economic reports hitting late in the week. Traders also need to be on the lookout for more earnings warnings. ============================================================== -For- ---------------- Monday, 09/08/03 ---------------- Consumer Credit (DM) Jul Forecast: $5.0B Previous: -$0.4B Bear Stearns Healthcare conference Lehman Brothers Financial Services Conference ---------------- Tuesday, 09/09/03 ---------------- Wholesale Invntories(DM)Jul Forecast: 0.0% Previous: 0.0% Bear Stearns Healthcare conference Lehman Brothers Financial Services Conference Merrill Lynch Media & Entertainment Conf. ------------------- Wednesday, 09/10/03 ------------------- Lehman Brothers Financial Services Conference Merrill Lynch Media & Entertainment Conf. ------------------ Thursday, 09/11/03 ------------------ Initial Claims (BB) 09/06 Forecast: N/A Previous: N/A Export Prices es-ag (BB)Aug Forecast: N/A Previous: -0.1% Import Prices ex-ag.(BB)Aug Forecast: N/A Previous: 0.1% Trade Balance (BB) Jul Forecast: -$40.5B Previous: -$39.5B Merrill Lynch Media & Entertainment Conf. ---------------- Friday, 09/12/03 ---------------- PPI (BB) Aug Forecast: 0.3% Previous: 0.1% Core PPI (BB) Aug Forecast: 0.1% Previous: 0.2% Retail Sales (BB) Aug Forecast: 0.9% Previous: 1.4% Retail Sales ex-auto(BB)Aug Forecast: 0.7% Previous: 0.8% Mich Sentiment-Prel.(DM)Sep Forecast: 92.0 Previous: 89.3 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. 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The Option Investor Newsletter Sunday 09-07-2003 Sunday 2 of 5 In Section Two: Watch List: Another Mixed Bag Call Play of the Day: AU Dropped Calls: None Dropped Puts: 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 ************************************************************** ********** Watch List ********** Another Mixed Bag General Dynamics - GD - close: 85.85 change: -1.14 WHAT TO WATCH: The DFI defense index has been a big winner the last several months and it owes a lot of that strength to shares of GD. The stock has broken out strongly above the $80 level and almost made it to $88 before the recent weakness. The intraday chart suggests the late day bounce on Friday might be an entry point for short-term traders targeting $90. Chart= --- Education Mmgt Corp - EDMC - close: 58.80 change: -2.17 WHAT TO WATCH: The education sector has also been a big winner for investors this year. Unfortunately for the bulls they have come under some weakness these last two or three sessions. One stock in the bunch is EDMC, which has a strong rising channel. However, profit taking has brought it back toward the bottom of its channel and the simple 50-dma. A breakdown under $58 and bears might want to evaluate new positions. A bounce from $58 and bulls might want to reconsider new positions. Chart= --- Donaldson Co - DCI - close: 55.83 change: -1.42 WHAT TO WATCH: Shares of DCI have almost doubled from their February lows near $32. The stock has traded in a rising channel since mid-February that was until mid-August when shares took off. The stock broke out through the top of its rising channel and the trajectory got steeper in late August as buyers flooded into the DCI with rising volume. It is possible DCI has run out of steam after trading near $58 on Wednesday. Very aggressive bears could target a consolidation back to the $50 area while bulls may want to wait and see where it bounces. Chart= --- Inamed Corp - IMDC - close: 70.24 change: -1.57 WHAT TO WATCH: Medical supply stock IMDC has been a stellar performer. While the stock looks extremely overbought it is likely attracting the attention of both bulls and bears. We'd rather play the trend, which is obviously up. Look for a pull back to the 65.00-67.00 level. A bounce there might be a good entry point for the next leg higher. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- MMM $138.68 - Bad news for MMM. The breakdown under $140 doesn't look good but shares bounced off their simple 50-dma and the $137.50 level. GDT $51.02 - The breakout for GDT over the $50 level survived Friday's profit taking. Volume is rising on the rallies. It could make a good bullish candidate. LEH $67.46 - The XBD broker/dealer index has been out performing the other financial lately. Meanwhile shares of LEH have broken above resistance at $66. It might try and trade towards its old highs. JNJ $50.50 - JNJ has been stuck in a descending channel for months. Shares continue to roll over near their 50-dma. The failed rally happened again on Thursday-Friday. ************************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: ********************* Anglogold Ltd. - AU - close: 39.51 change: +0.96 stop: 37.00 See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ None *********** 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 09-07-2003 Sunday 3 of 5 In Section Three: Current Calls: CCMP, ERTS, GILD, GS, OMC, PCAR, PGR, RYL, SPW, UTX New Calls: AU, MRVL Current Put Plays: ESRX, KKD, XL New Puts: ANPI ************************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 - cls: 66.92 chng: +0.77 stop: 64.00*new* 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: Early on Friday, it certainly looked like the Semiconductor sector (SOX.X) was going to finally break out over the $460 level, with an early surge to the $468 level. But just as quickly, the bears sent the SOX back under the $460 level, where it remained into the close. Despite the inability of the SOX to hold its gains, the index did close at a new 52-week high, and our CCMP benefited, gaining just over 1% to close just a hair below $67 and looking like it really wants to break out. The ascending channel is continuing to provide support, with the early dip on Friday tagging both the bottom of the channel and the 20-dma ($64.53) before rebounding higher. We'll continue to use the channel to gauge the health of the play and as long as the stock continues to find support above the bottom of that pattern, the bullish prospects look good. Obviously the next challenge will be to see if the SOX can truly break out over resistance, which ought to be able to propel CCMP through the $67.50 resistance for a test of the $69 intraday high from late August. Until that breakout occurs, buying the dips to support remains the preferred entry strategy. Our initial target remains the $71 level, with our stop now rising to $64, which is just below last week's intraday lows. 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. Note that September contracts expire in two weeks. 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. ! Warning, September options EXPIRE in 2 weeks! BUY CALL SEP-65 UKR-IM OI=1671 at $3.50 SL=1.75 BUY CALL SEP-70 UKR-IN OI=1103 at $1.05 SL=0.50 BUY CALL OCT-65 UKR-JM OI= 583 at $5.50 SL=3.50 BUY CALL OCT-70 UKR-JN OI= 771 at $2.90 SL=1.50 Annotated Chart of CCMP: Picked on August 27th at $64.45 Change since picked: +2.47 Earnings Date 10/23/03 (unconfirmed) Average Daily Volume = 792 K Chart = --- Electronic Arts - ERTS - close: 88.75 chg: -1.40 stop: 85.75 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: Try as they might the bulls couldn't push their winning stretch to eight consecutive days. The NASDAQ, the GSO software index and shares of ERTS all pulled back on Friday. Now this isn't necessarily negative as it offers traders patiently waiting for a dip a chance to look for new entries. This last week has been a very positive one for the software sector. Nearly every morning was greeted with more upgrades and positive analyst comments for the industry as a whole. The GSO.X has certainly been a leader in the rally but itself and the markets are in need of some consolidation of the gains. ERTS is a great way to play the enthusiasm for the software group. Not only did they beat earnings by 10 cents back in July but it is one of the few software companies that has been consistently growing revenues. We'll be nearing the all- important Q4 holiday sales season soon and with video game sales out numbering movie box office sales it is always big business. ERTS is the biggest publisher in the industry and we could see the bullish trend continue into Christmas. Some headlines for ERTS came out on Friday. They just became the official sponsor for the NFL Matchup Show, which normally airs pre-game. The commentators will actually use the EA Sports Madden 2004 video game to illustrate their points. Just another coup for the hottest selling sports game. There was a broke downgrade for ERTS this week but shares didn't really react to it. The pull back on Friday was market related. Traders can watch for a bounce from its 21-dma or the $87.50 level. If this falls, then the next minor support is $86.50 from Aug. 26-27. Suggested Options: Bullish traders can choose from October and December options. There are only two weeks left for the September calls so our preference is the October strikes. ! Warning, September options EXPIRE in 2 weeks! BUY CALL OCT 85 EZQ-JQ OI= 636 at $6.40 SL=4.00 BUY CALL OCT 90 EZQ-JR OI= 332 at $3.60 SL=1.85 BUY CALL OCT 95 EZQ-JS OI= 613 at $1.85 SL=0.95 BUY CALL DEC 90 EZQ-LR OI=1358 at $6.40 SL=4.00 BUY CALL DEC 95 EZQ-LS OI= 131 at $4.40 SL=2.25 Annotated Chart: Picked on August 28 at $89.06 Change since picked: -0.31 Earnings Date 07/23/03 (confirmed) Average Daily Volume: 3.3 million Chart = --- Gilead Sciences - GILD - cls: 66.86 chg: -0.47 stop: 62.99 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: This last week was also very positive for the biotech sector. The BTK.X biotech index saw strong follow through on its breakout above the simple 50-dma. More importantly the BTK was able to break out of its descending trendline of lower highs. This was followed with a move above resistance at 470 and the BTK was one of the few sectors that ended positive on Friday. All of this strength in the BTK hasn't directly translated to gains in GILD yet but we're still seeing a trend of higher lows as investors slowly bid the stock higher again. We do note that the oscillators on GILD are mixed with the MACD showing a bullish signal from oversold and the stochastics rolling over from overbought. Yet we suspect the stock itself will continue to drift higher and finally hit the $70 level, which is resistance from July. Short-term traders can look to take profits as the stock approaches our initial target. At the moment out stop loss is just under $63 but more conservative traders might be able to getaway with a stop near $64.00 or 64.50. FYI: to the point-and-figure chart fans out there, the recent strength in GILD has produced a new double-top breakout bullish buy signal. Suggested Options: Our preference to capitalize on the current trend in GILD is the October 65's and 70's. ! Warning, September options EXPIRE in 2 weeks! BUY CALL OCT 65 GDQ-JM OI= 210 at $4.80 SL=3.00 BUY CALL OCT 70 GDQ-JN OI= 271 at $2.50 SL=1.25 BUY CALL NOV 65 GDQ-KM OI= 908 at $6.20 SL=4.00 BUY CALL NOV 70 GDQ-KN OI=1353 at $3.80 SL=2.00 Annotated Chart: Picked on August 19 at $65.32 Change since picked: +1.54 Earnings Date 07/31/03 (confirmed) Average Daily Volume: 3.31 million Chart = --- Goldman Sachs Grp. - GS - close: 90.96 change: -0.30 stop: 87.50 Company Description: The Goldman Sachs Group is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net- worth individuals. The company provides investment banking, which includes financial advisory and underwriting, and trading and principal investments, which includes fixed income, currency and commodities, equities and principal investments. GS recently completed the acquisition of Spear, Leeds & Kellog, which is engaged in securities clearing, execution and market making, both floor-based and off-floor. Why we like it: Compared to the powerful breakout in shares of GS on Tuesday that got our attention, the remainder of the week was pretty boring. Sure the stock managed to inch a bit higher, but for all practical purposes, it spent the remainder of the week pinned between the $90 breakout level and the $92 resistance. It's actually no great surprise to see GS unable to advance significantly just yet, as the upper Bollinger band is still being pressed higher by price. The stock looks destined for higher levels, especially if the Broker/Dealer index (XBD.X) can continue higher. The XBD was really looking bullish on Thursday, with the close over $600 (for the first time since 2001), but profit taking on Friday pushed both the index and GS back under resistance. Look for the XBD to now find support in the $580-585 area, in conjunction with GS finding support above $88, as price dips back to test old resistance as new support. Note that this support should be reinforced by both the 10-dma ($88.50) and the 20-dma ($88.03). Our stop remains just below there at $87.50, as a break of that level would call into question the validity of last week's breakout. Suggested Options: Shorter Term: The September 90 Call will offer short-term traders the best return on an immediate move, as it is slightly in the money. Note that September contracts expire in two weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 95 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 90 Call. ! Warning, September options EXPIRE in 2 weeks! BUY CALL SEP-90 GS-IR OI= 5373 at $2.45 SL=1.25 BUY CALL SEP-95 GS-IS OI= 1519 at $0.50 SL=0.25 BUY CALL OCT-90 GS-JR OI=21713 at $4.20 SL=2.50 BUY CALL OCT-95 GS-JS OI= 8386 at $1.85 SL=0.90 Annotated Chart of GS: Picked on September 2nd at $90.45 Change since picked: +0.51 Earnings Date 9/24/03 (unconfirmed) Average Daily Volume = 3.78 mln Chart = --- Omnicom Group - OMC - close: 80.30 chg: -0.06 stop: 75.75 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. New headlines have been few for Omnicom lately but that didn't stop the share price from hitting our initial target of $80.00. We're also impressed that after touching and closing near potential resistance of $80 that the stock has managed to trade there the rest of the week. OMC could be benefiting from a lack of willing sellers but buyers seem to be exhausted with the stock trading in a very narrow range the last three sessions. Traders have multiple options. First, we still suggest that short-term traders who took advantage of the dip to $75 can sell some of their position to lock in profits. Second, if they'd rather tighten their stop, one could really try and lock in profits with a stop near $79.50. Third, if you were looking for a new entry we'd prefer a dip back to $79-78 and then jump on a bounce. However, if the momentum of this market continues then a move above $81 might work (with a stop tighter than our 75.75). Our next target is $85. FYI: point-and-figure chart fans will notice that the move above $80 has produced a new spread-triple- top buy signal. Suggested Options: Currently OMC has September, October and January calls to choose from. With only two weeks left for the September options our preference for new positions would be the October 80s. ! Warning, September options EXPIRE in 2 weeks! BUY CALL OCT-75 OMC-JO OI= 1413 at $6.70 SL=4.00 BUY CALL OCT-80 OMC-JP OI= 2304 at $3.30 SL=1.75 BUY CALL OCT-85 OMC-JQ OI= 107 at $1.30 SL=0.65 Annotated Chart: Picked on August 19 at $76.67 Change since picked: +3.63 Earnings Date 07/29/03 (confirmed) Average Daily Volume: 881 thousand Chart = --- PACCAR - PCAR - close: 84.00 change: -2.54 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: Is PCAR beginning to run out of gas? The steady advance for shares of this truck builder finally began to falter as the fervor for technology stocks stole the wind in PCAR's sails. Most of the previous month's winners suffered a similar fate. We were patient and willing to hold onto PCAR because the stock was able to maintain its price above $85.00. This support failed on Friday as the markets slipped backward in profit taking. Shares of PCAR still have some support near $82.50, hence our stop at $82.45. However, per out comments a few weeks ago when we last played PCAR, we would actually prefer to make new entries on a bounce from the $80 level. This would coincide better with the bottom of its rising weekly channel and the 40-dma, where shares have bounced in the past. A bounce from $82.50 would be great but we're not suggesting new entries at this time except for the more aggressive traders. Cautious investors may want to actually close their positions and wait to see if the markets slip even further next week. Suggested Options: We are not suggesting new positions at this time. Annotated Chart: Picked on August 31 at $85.37 Change since picked: -1.37 Earnings Date 07/24/03 (confirmed) Average Daily Volume: 1.15 million Chart = --- Progressive Corp. - PGR - close: 72.76 change: -0.12 stop: 70.00 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: Don't you just love it when Technical Analysis works? First PGR broke from its horizontal consolidation and then continued up until reaching the $73.50 resistance level (actually $73.49) on Friday, which was the point we identified as likely resistance and a good point for conservative traders to harvest some gains. PGR pulled back a bit, but nothing that we're overly concerned about. This just looks like the bulls regrouping for another run at that resistance enroute to our target (also the target from the break of the consolidation pattern) in the $75-76 area. Look for a pullback to the $72 or even $71 (near the 10-dma) price levels as an opportunity to initiate new positions for that next push up the chart. We're sticking with our initial recommendation to close the play for a tidy gain if price trades into that $75-76 area, which is the site of the June/July highs. Maintain stops at $70, as a break back inside that consolidation pattern would be a clear sign that the breakout move has failed. Suggested Options: Shorter Term: The September 70 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Note that September contracts expire in two weeks. 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. ! Warning, September options EXPIRE in 2 weeks! BUY CALL SEP-70 PGR-IN OI= 217 at $3.30 SL=1.75 BUY CALL OCT-70 PGR-JN OI= 56 at $4.20 SL=2.50 BUY CALL OCT-75 PGR-JO OI= 163 at $1.35 SL=0.75 Annotated Chart of PGR: Picked on August 27th at $70.74 Change since picked: +2.02 Earnings Date 10/15/03 (unconfirmed) Average Daily Volume = 785 K Chart = --- The Ryland Group - RYL - close: 70.65 change: -1.53 stop: 66.75 Company Description: The Ryland Group is a homebuilder and mortgage-finance company that has built more than 175,000 homes. Additionally, the Ryland Mortgage Company (RMC) has provided mortgage financing and related services for more than 155,000 homebuyers. Currently, Ryland homes are available in more than 260 communities in 21 markets across the United States. Why we like it: Ask and you shall receive! When we initiated coverage of RYL on Thursday, we voiced concerns about chasing the stock higher due to the fact that price was looking a bit extended in the near term, pressing well above the upper Bollinger band. That caution was well placed, as the profit taking appeared first thing on Friday and RYL pulled back right along with the pullback in the overall Home Construction sector ($DJUSHB). This is exactly what we wanted to see, as a dip back near the $69-70 area should provide an excellent entry into the play. The 50-dma ($68.79) and 10-dma ($68.05) should provide solid support for a bounce, backed up by the top of the bullish triangle pattern (near $68) RYL broke out of on Wednesday. Traders preferring to enter on strength now have a defined resistance level to monitor near $72.15. A breakout over that level can be used for new momentum entries. Note that our stop remains at $66.75 for now, as that is just below the 20-dma ($67.01), which should provide very strong support after holding up price for the last two weeks of August. 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. Note that September contracts expire in two weeks. 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. ! Warning, September options EXPIRE in 2 weeks! BUY CALL SEP-70 RYL-IN OI= 913 at $2.55 SL=1.25 BUY CALL SEP-75 RYL-IO OI= 267 at $0.60 SL=0.25 BUY CALL OCT-70 RYL-JN OI= 981 at $4.20 SL=2.50 BUY CALL OCT-75 RYL-JO OI=1446 at $1.95 SL=1.00 Annotated Chart of RYL: Picked on September 4th at $72.18 Change since picked: -1.53 Earnings Date 10/21/03 (unconfirmed) Average Daily Volume = 998 K Chart = --- SPX Corp. - SPW - close: 49.34 change: -0.56 stop: 48.00*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: After finally closing over the $50 level on Tuesday, it looked like SPW was finally going to make a run at higher levels, but that stubborn resistance held and by the end of the week it became clear that if the bulls are going to manage that breakout, they're going to have to do so after one more test of support. The ascending trendline from the mid-July bottom is still holding and has now risen to $49, just below both the 10-dma ($49.12) and Friday's $49.34 close. A rebound from that level of support early next week can be used for aggressive entries, but the problem is that the daily Stochastics have once again turned south and from a lower high that the last time. In conjunction with the higher high in price, that sets up bearish Stochastics divergence, which certainly isn't a good sign. With that negative development, we'd certainly feel better about new positions if price can reverse back higher and take out last week's intraday highs. If the bulls can manage that feat, then we'll look for a move to the $53 resistance level as an opportunity to harvest gains and then evaluate whether the stock appears to have the necessary strength to push up towards our eventual target of $56. Note that as a precautionary measure due to the bearish Stochastics picture, we've raised our stop to $48.00 this weekend. Suggested Options: Shorter Term: The September 47 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Note that September contracts expire in two weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 50 Call. This option is slightly 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. ! Warning, September options EXPIRE in 2 weeks! BUY CALL SEP-47 SPW-IW OI= 649 at $2.30 SL=1.25 BUY CALL SEP-50 SPW-IJ OI=3584 at $0.70 SL=0.35 BUY CALL OCT-47 SPW-JW OI= 41 at $3.20 SL=1.50 BUY CALL OCT-50 SPW-JJ OI=2946 at $1.75 SL=0.85 Annotated Chart of SPW: Picked on August 14th at $48.14 Change since picked: +1.19 Earnings Date 10/27/03 (unconfirmed) Average Daily Volume = 888 K Chart = --- United Technologies - UTX - cls: 78.05 chg: -1.43 stop: 77.20*new* 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: 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. This most recent week of economic reports was good news for UTX. The stronger ISM manufacturing data should give investors more confidence in companies like United Technologies. The Dow Industrials were down more than 125 points midday on Friday so it was no surprise to see profit taking hit shares of UTX, one of the Industrials better performers for August. The good news is that support at $77.50 held up. The bad news is the decline came on strong volume of 2.9 million shares and the MACD has rolled over into a new bearish signal. Previously we suggested that if the markets see a pull back then a bounce from $78 would be a decent entry point for new bullish positions. This is it. If we see a bounce on Monday, then traders can jump in at current levels. Conservative traders can even use a tighter stop just under $77.50. We're going to raise our stop from 75.99 to 77.20. Momentum traders might want to wait for a move back over $80.00-80.50 to open new plays. Suggested Options: There are just two weeks left for the September options on UTX so our preference would be the October or November strikes. ! Warning, September options EXPIRE in 2 weeks! BUY CALL OCT 75 UTX-JO OI= 214 at $4.70 SL=2.50 BUY CALL OCT 80 UTX-JP OI= 933 at $1.75 SL=0.95 BUY CALL NOV 75 UTX-KO OI=2055 at $5.50 SL=3.25 BUY CALL NOV 80 UTX-KP OI=1228 at $2.65 SL=1.35 BUY CALL NOV 85 UTX-KQ OI= 108 at $0.95 SL= -- Annotated Chart: Picked on August 29 at $80.05 Change since picked: -2.00 Earnings Date 07/17/03 (confirmed) Average Daily Volume: 2.1 million Chart = ************** NEW CALL PLAYS ************** Anglogold Ltd. - AU - close: 39.51 change: +0.96 stop: 37.00 Company Description: Anglogold Limited produces approximately six million ounces of gold each year. The company has a global presence with 20 operations comprised of open-pit and underground mines and surface reclamation plants in eight countries (Argentina, Australia, Brazil, Mali, Namibia, South Africa, Tanzania and the United States). The company's mining activities are supported by extensive and focused exploration activities in 10 countries. Why we like it: It really isn't that common (at least in recent memory) to see the stock market and precious metals rallying together. When it does happen (like now) it is usually the product of increased money creation, as stocks rise due to the increased liquidity, and gold (and gold related stocks) rise due to investors seeing the reality of higher inflation in the future. That inflation will devalue paper assets like currencies, while at the same time hard assets like gold will become more valuable. We've been seeing some pretty impressive action from the Gold and Silver index (XAU.X) lately as it has solidified its breakout over $90 and continues to charge to new multi-year highs. AU is one stock in the sector that is certainly shining brightly. Over the past 2 weeks, the stock has been resolutely banging against its January highs near $38.50. With the price of gold cresting the $375 level again on Friday, AU surged through that resistance on above average volume and now that it is trading at all-time highs, it looks like the bulls could really have some fun. Stocks trading at all-time highs are problematical, as it is difficult to ascertain possible resistance points. So we're just going to jump aboard and look for a move up to the $45 level, figuring that $5 increments will continue to be significant in terms of resistance. Note how the stock paused just below the $40 level on Friday? A breakout over that level should be a good momentum entry trigger, while traders looking for a pullback entry will want to enter on a rebound from the $38.00-38.50 area, as that old resistance is tested as new support. We're initially setting our stop at $37, which is just below last week's intraday lows, as well as the converged 10-dma ($37.63) and 20-dma ($37.32). If entering on a breakout move, make sure the XAU is continuing to trade in a bullish mode as well. Suggested Options: Shorter Term: The September 40 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Note that September contracts expire in two weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 40 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 January 40 Call. ! Warning, September options EXPIRE in 2 weeks! BUY CALL SEP-35 AU-IG OI= 946 at $4.80 SL=2.75 BUY CALL SEP-40 AU-IH OI= 647 at $0.95 SL=0.50 BUY CALL OCT-40 AU-JH OI= 3272 at $1.90 SL=1.00 BUY CALL JAN-40 AU-AH OI= 1062 at $3.50 SL=1.75 Annotated Chart of AU: Picked on September 2nd at $39.51 Change since picked: +0.00 Earnings Date 10/30/03 (unconfirmed) Average Daily Volume = 840 K Chart = --- Marvell Tech. - MRVL - close: 42.53 change: +2.42 stop: 39.00 Company Description: Marvell Technology Group is a global semiconductor provider of broadband communications and storage solutions. The company's product portfolio consists of switching, transceiver, wireless, PC connectivity, gateways, communications controller and storage solutions that power the entire communications infrastructure. Its core technologies were initially focused on the storage market, where it provided products to disk drive manufacturers such as Fujitsu, Hitachi, Samsung, Seagate and Toshiba. The company subsequently applied its technology to the high-speed communications market, where it provides physical layer transceivers to manufacturers of high-speed networking equipment, including Cisco, 3Com Corp, Foundry Networks, Dell and Intel. Why we like it: It's the perfect storm for shares of MRVL, as the stock is benefiting from the continued bullish run in the Semiconductor sector (SOX.X), which closed at a new 52-week high on Friday, just a hair below $460. On the other side is the bullish action in the Networking index (NWX.X), which got another boost on Thursday from positive comments from CSCO, the biggest company in the industry, along with one of MRVL's primary customers. MRVL broke out to new 52-week highs in late August, and after consolidating above that breakout for the past couple weeks, it looks like the bulls want to go for an encore performance. While a breakout over the recent intraday high ($43.50) can certainly be used for new momentum entries, we need to keep in mind the ride may be a bit bumpy at first. The reason why is that just overhead is resistance from March/April of 2002 at $44.35 and then there's the January 2002 high of $46.24. With volume on the rise and the PnF chart on a strong Buy signal, MRVL looks like it will be able to scale both of those resistance levels and move up towards strong resistance (and our exit target) at $50. Entries are the real challenge though. Aggressive traders can use a breakout over the recent highs to initiate new positions, while those with a more conservative style will want to target a pullback and rebound from the vicinity of $41. The $40 level should be very strong support on a steeper dip, with additional support being provided by the rising 20-dma ($39.02). That gives us the $39 level as an eminently logical level for our stop. Conservative traders may want to only target a move to the $46 level, but we're going to go for the gusto and target the psychological level of $50, which is also a significant level from the middle of 2000. Remember to monitor the action in both the NWX and SOX indices before playing. Suggested Options: Shorter Term: The September 42 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Note that September contracts expire in two weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 45 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 42 Call. ! Warning, September options EXPIRE in 2 weeks! BUY CALL SEP-40 UVM-IH OI=4976 at $3.10 SL=1.50 BUY CALL SEP-42 UVM-IT OI=1880 at $1.40 SL=0.75 BUY CALL OCT-42 UVM-JT OI= 824 at $2.60 SL=1.25 BUY CALL OCT-45 UVM-JI OI= 104 at $1.55 SL=0.75 Annotated Chart of MRVL: Picked on September 4th at $42.53 Change since picked: +0.00 Earnings Date 11/20/03 (unconfirmed) Average Daily Volume = 3.15 mln 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 - cls: 58.99 chng: -1.84 stop: 62.00*new* 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: Now, that's more like it! Last week at this time, we were contemplating the very real likelihood that our ESRX play was going to break above the $65 resistance level and stop us out. My how things have changed. The stock finally caved in on Wednesday, crashed through the late August lows and came to rest just above $60. After one day of consolidation, the bears piled on again on Friday, knocking the stock lower by more than 3% and it is now sitting just above the 200-dma ($58.68), its lowest level since the end of April. Confirming the strength of the decline has been the very heavy volume over the past 3 days, which has been running roughly double the ADV. While there's the possibility of a bounce from the 200-dma, it should be short- lived and with the bearish look of the PnF chart (price target $52), our $54 profit target on this play is looking more and more likely by the day. While things are certainly looking favorable right now, with ESRX having moved more than $4 in our favor, there's no sense in risking all of those paper gains. So we've lowered our stop to $62. Realistically, if the downtrend is going to continue (as we expect) any rebound from the 200-dma should run into trouble near $61 (near the top of Thursday's consolidation) and then again in the $61.50-61.75 area, which is the site of the late August low. A bounce and subsequent rollover from one of these resistance levels can be used for new entries, although those traders looking for entries on further weakness will need to wait for a break of the 200-dma before entering. There's more potential support in the $56-57 area, but as long as selling volume remains robust, we'll go for the gusto and look for our $54 target to be reached. Suggested Options: Short-term traders will want to focus on the September 60 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 60 contract, as it should not be as susceptible to time decay issues in the near term. Note that September contracts expire in two weeks. ! Warning, September options EXPIRE in 2 weeks! BUY PUT SEP-60 XTQ-UL OI=2617 at $2.25 SL=1.00 BUY PUT OCT-60 XTQ-VL OI= 316 at $3.90 SL=2.50 BUY PUT OCT-55 XTQ-VK OI= 182 at $1.65 SL=0.75 Annotated Chart of ESRX: Picked on August 24th at $63.48 Change since picked: -4.49 Earnings Date 10/22/03 (unconfirmed) Average Daily Volume = 1.41 mln Chart = --- Krispy Kreme Doughnut - KKD - cls: 42.06 chg: -0.70 stop:44.01 Company Description: Founded in 1937 in Winston-Salem, North Carolina, Krispy Kreme is a leading branded specialty retailer of premium quality doughnuts, including the Company's signature Hot Original Glazed. Krispy Kreme currently operates more than 305 stores in 41 states, Canada and Australia. An estimated 7.5 million Krispy Kreme doughnuts are made every day and more than 2.7 billion are produced each year. (source: company press release) Why We Like It: (Original Play Description from Thursday) Has the sweet spot for Krispy Kream already soured? Shares had a tremendous run up from its May 2003 lows right up into its August 21st earnings announcement. Then the share price deflated. The company beat estimates of 20 cents a share by a penny and turned in tremendous revenue growth but Wall Street was not happy with the earnings quality. Average sales per week were flat. Both RBC Capital Markets and JP Morgan quickly downgraded the stock. JPM felt that at almost 53x and 42x fiscal year '03 and '04 estimates the stock was already priced for perfection. Analysts became concerned that the only way KKD would meet its aggressive targets was through massive store openings, which weren't necessarily turning out the same opening bang they used to. Now that the market is in rally mode we see absolutely zero participation by KKD. Shares have dropped strongly on big volume and closed below their simple 50-dma. However, while the stock looks bad it still has support at $41.70. We are going to use a TRIGGER to go short at $41.69. Until then we're just spectators. More aggressive traders can target bearish entries on failed rallies under $44. Our target range is the $37.50 to $36 area near its 200-dma. If we are triggered at $41.69 we'll open the play with a stop loss at $44.01. ! Friday Update: Good news for the bears, shares of KKD continue to slip lower on Friday and look even closer to breaking support at $42.00-41.70. KKD could hit our trigger soon. Suggested Options: There are only two weeks left for September options so our preference will be the October and November 40's. -- Remember, we are using a trigger to open the play. ! Warning, September options EXPIRE in 2 weeks! BUY PUT OCT 35 KKD-VG OI= 620 at $0.40 SL= -- higher risk BUY PUT OCT 40 KKD-VH OI= 758 at $1.40 SL=0.70 BUY PUT OCT 45 KKD-VI OI= 646 at $4.00 SL=2.25 BUY PUT NOV 35 KKD-WG OI=2461 at $0.80 SL= -- BUY PUT NOV 40 KKD-WH OI=2032 at $2.55 SL=1.00 BUY PUT NOV 45 KKD-WI OI=1340 at $4.60 SL=2.30 Annotated Chart: Picked on September 4 at $xx.xx Change since picked: - 0.00 Earnings Date 08/21/03 (confirmed) Average Daily Volume: 1.0 million Chart = --- XL Capital Ltd. - XL - close: 76.05 change: -0.10 stop: 77.10 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's make or break time for our XL play. For over a week now, the stock has been gradually (and we mean excruciatingly slowly) creeping up to the $76 level, which is the confluence of horizontal resistance and the descending trendline from the June highs. The stock tested the $76 level every day last week, but the best the bulls could manage was two consecutive closes at $76.15. But at the same time, the bears have been unable to make any progress either. A rollover from current levels is essential to the success of this play. Look for additional resistance just above the descending trendline, first at the 20-dma ($76.67) and then at the 30-dma ($77.06), which is just above our $77.10 stop. We've aggressively tightened our stop over the past week, as we want to limit our risk in a play that as of yet has failed to perform. The good news is that Friday's sideways action was enough to cause the stock to fall below the bottom of the bear flag pattern that has been building over the past 2 weeks. This could be an early sign we're going to get that rollover we've been waiting for. Only aggressive traders should consider new positions here unless we get a sharp rollover. The more conservative traders will need to see a break at least back under $75 before playing. 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. Note that September contracts expire in two weeks. ! Warning, September options EXPIRE in 2 weeks! BUY PUT SEP-75 XL -UO OI= 345 at $0.90 SL=0.45 BUY PUT OCT-75 XL -VO OI=1299 at $2.15 SL=1.00 BUY PUT OCT-70 XL -VN OI= 96 at $0.85 SL=0.40 Annotated Chart of XL: Picked on August 21st at $75.92 Change since picked: +0.13 Earnings Date 10/30/03 (unconfirmed) Average Daily Volume = 820 K Chart = ************* NEW PUT PLAYS ************* Angiotech Pharma - ANPI - cls: 38.95 chg: -0.61 stop: 41.01 Company Description: Angiotech Pharmaceuticals, Inc. (www.angiotech.com) is dedicated to enhancing the performance of medical devices and biomaterials through the innovative use of pharmacotherapeutics. (source: company press release) Why We Like It: The story for ANPI is an interesting one. It was the middle of June and shares of ANPI, which had already risen substantially from their January lows, surged higher on good news from partner Boston Scientific (BSX). BSX had just filed what was to be there one of their last approval applications to the U.S. FDA for its drug-eluting stent. ANPI owns the rights to paclitaxel, which is used on BSX's stents. Investors who were paying attention had been bidding up shares of ANPI from January to June for two reasons. Number one was news that BSX's stent was outselling rival Johnson and Johnson's stent in Europe. Number two was the expectation for a U.S. FDA approval some time later this year. The good news in June prompted several weeks of analyst comments, upgrades and rising price targets ranging from $51 to $71. The problem for ANPI is Johnson and Johnson (JNJ). Boston Scientific is set to announce the results of another test for its stents on September 15th, which will probably come out very positive and would normally drive share prices for both stocks (ANPI and BSX) higher. Unfortunately, JNJ has filed a patent infringement lawsuit against BSX and asked Federal court to order BSX to stop its stent development. BSX quickly counter sued with their own patent infringement case. A Barron's article recently suggested that a recent appellate court ruling may give JNJ the upper hand in this patent dispute. This is obviously devastating news for ANPI who's shares have soared on the expected approval by the FDA of BSX's stent. News of the JNJ lawsuit and the possible edge to JNJ have seen shares of ANPI fallen rapidly and on very strong volume. The close under $40.00 looks very bad and the stock's point-and-figure chart looks even worse. Aggressive traders can probably pick new positions at current levels. We are going to suggest a TRIGGER at $37.69 since ANPI has already bounced three times at 37.70, 37.75 and 37.95. Our play will begin when ANPI trades at or below $37.69. When that occurs we'll use a stop loss at $41.01. Looking at the daily and P&F chart bears can probably target a move to $30 or $27.50 near its 200-dma. There is significant HEADLINE RISK as the court process develops and news from the latest round of tests from BSX are revealed. Use caution and only play with risk capital. Suggested Options: Option traders in ANPI can choose September, October and December options. However, there is not enough time left to safely play September strikes. Our preference is the October 40s and 35s. ! Warning, September options EXPIRE in 2 weeks! BUY PUT OCT 40 AUJ-VH OI= 525 at $4.60 SL=2.25 BUY PUT OCT 35 AUJ-VG OI= 0 at $2.15 SL=1.00 BUY PUT DEC 40 AUJ-XH OI= 646 at $6.00 SL=4.00 BUY PUT DEC 35 AUJ-XG OI=1998 at $3.50 SL=1.85 Annotated Chart: Picked on September x at $xx.xx Change since picked: - 0.00 Earnings Date 08/12/03 (confirmed) Average Daily Volume: 538 thousand Chart = ************************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 09-07-2003 Sunday 4 of 5 In Section Four: Leaps: If At First You Don't Succeed... Traders Corner: Getting Out On Bail – Or Bailing Out Traders Corner: Not morning breath - Morning Reversal Brokers Corner: Readers Write ************************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 ***** If At First You Don't Succeed... By Mark Phillips mphillips@OptionInvestor.com Try, try again, is the way the saying goes. The next line of the saying is "Then give up. There's no sense being an idiot about it." I've been trying to judiciously pick tops in various stocks at technically significant levels for the past two months and quite honestly it hasn't worked out in the least. Does that mean that my bearish premise for the market is wrong? Yes, at least for the time being. As the saying goes, Wall Street is littered with the bodies of investors that were right too soon. I believe that is at the core of our problems in this column recently. As I've written on several occasions of late, this market feels eerily reminiscent of the heady bullish action last witnessed in late 1999 and early 2000. The market is floating higher on a sea of liquidity generated by the Fed and the net result over the long term is inflation. Right now, we're seeing it in inflation of paper assets, most notably stocks. I've frequently touched on the fact that the market is ridiculously overvalued at current levels. There's nothing wrong with that assessment -- it is correct. The issue that keeps biting me is the fact that overvalued can always become more so. The NASDAQ was quite overvalued in the fall of 1999 when it was banging against the 2900 resistance level. But with the ballooning liquidity the Fed was providing ahead of the Y2K problems. That was all it took for the bulls to charge forward and by the end of the bullish run in March of 2000, the NASDAQ had gained more than 70% from that overvalued level of just 6 months prior. Does that mean we should throw caution to the wind and pursue a bullish strategy? To be entirely honest, I don't know. But I can tell you with absolute certainty that I will not be chasing the upside in this market with any of the recommendations in this column. Conditions are quite different now than in 1999, as we are now in a secular bear market vs. a secular bull at that time. Certainly, this has been a powerful cyclical bull market since the October lows and in hindsight, I've badly misplayed it. But looking back at the newsflow, the technicals and the fundamentals, I just can't see how I would have done things any differently. Perhaps more importantly, I am acutely aware of my responsibility to you in my capacity running this column. My recommendations are used by many of you as the basis of trade decisions. That is the primary reason that I am frequently so hesitant about adding new plays either to the Watch List or the Portfolio. If I wouldn't be willing to place the trade myself, how can I, in good conscience recommend that you do so? I can't. I cannot justify new bullish trades for any of my long-term money, so there's no way that I can recommend new bullish long-term plays here. I've actually seen reports that show the valuation of both the NASDAQ and the S&P 500 (based on P/E ratios) are more stretched now than at the top of the bubble in early 2000. Does that seem like an advisable place to be looking for long-term bullish positions? It doesn't seem that way to me either. I've seen numerous reports that have shown how the current action in the major indices are tracking along the bullish trajectories of several different bullish years prior to the popping of the bubble. At the same time, I've seen an equal number of reports showing similarities between this year and several other bearish years, both from the recent past and further back in history. And of course we have the repeated comparisons back to 1929 on the DOW and to the Nikkei for the NASDAQ. Each of these reports make a very compelling argument for their respective cases. In reality, they're all probably a little bit right and a little bit wrong. Something I'm being forced to rediscover is that the market rarely presents the same appearance twice. It is a living, breathing monster that is exceedingly stubborn about allowing us to understand it. Do I sound confused and ambivalent about market direction? Good, because I am. Based on the recent action, I expect to see near- term strength and long-term weakness. I don't believe we have come anywhere near the lows for this bear market, but at the same time I'm not seeing ANYTHING that would suggest we'll come anywhere near testing the 2002 lows anytime this year. As long as the bulls continue to feast on easy money being created by the Fed and the convenient lie of a robust economic recovery "just around the corner", pullbacks will likely continue to just be fresh bullish entry points. Therein lies our problem, as the action in the market these past few months has not been conducive to providing technically advisable bullish long-term entries, but those technical setups for long-term bearish plays have all been mirages. That leaves me with a choice. Either I retool what I've been using for the past several years and look to apply a revised strategy for play selection and setting entry and exit points OR I acknowledge that the basic premises I've been following are not working because of an aberration in the market. The latter choice is fraught with peril, as it is very close to stating "I know I'm right and the market is wrong." Remember, the market is never wrong. If we are in disagreement with the market, then we are incorrect either in terms of direction or timing. If my errors are the result of being off in terms of timing, then it is appropriate to wait for the market to confirm my views, but I must wait for confirmation from the market before continuing to apply a trading strategy that has obviously not been working recently. On the other hand, if the source of my errors is rooted in my being out of sync with the actual direction of the market over the long-term, then perhaps it would be prudent to look for new tools or modifications to existing tools that can perhaps put my trade selection process more in sync with the market. Obviously we don't have time to delve into that process of discovery here today, but I think it will make an interesting topic for discussion in Monday's Trader's Corner article. The crux of the issue is not whether there are good bullish trades or bearish trades to be had in the market right now. A big part of the problem we're currently facing is the nature of the LEAPS column and the types of plays we target here. We're looking for long-term trends we can ride that last for months. When the broad market is chopping sideways for nearly 3 months, clearly it is a first order challenge to find favorable entries into viable trends. That process is made all the more challenging by the fact that we can't select just any stock for our plays, as we must first confirm that LEAPS are available for the stock. I'm going to be very brief with my actual market commentary this weekend. My perception of what to expect in terms of market direction are still contained within the Trader's Corner article I wrote on August 25th. All of the major indices broke out to new 52-week highs last week and held those breakouts into the end of the week. That certainly looks bullish. To me, the action in the DOW is the most significant, as the move through 9500 breaks the 50% retracement of the 2000-2002 bear market decline. It now seems very likely to me that the bulls will make a serious assault on the 10,000 level before we see any meaningful decline. We got more of the same from the VIX last week, as it once again fell under 20 and at 19.37, is very close to a new 52-week low. I think it is a safe bet that if the DOW goes up from here, the VIX is heading lower. But that isn't the real excitement for the week. The CBOE is shaking things up big time! The VIX will no longer be calculated on the OEX, but is being moved to the SPX due to the greater option volume on the SPX. The Volatility index for the OEX is getting a new symbol, VXO. As if that wasn't enough to rock your world, the CBOE is going to start listing options and futures on the VIX. Wow! I actually had written quite a bit more on this topic, but just noticed that Jim Brown has done an excellent writeup on the topic in his Editor's Plays column this weekend. There's no need to make you read about it twice, so if you're interested in all the gory details, be sure to check out Jim's column this weekend. In my opinion, it is currently a waste of our time to continue looking at the bullish percent readings on a weekly basis. This tool has not provided the clarity provided over the past few years on this latest up cycle. While they are all at or above overbought territory (showing the bulls carrying the majority of the risk), that has not yet produced any meaningful price weakness. At some point, the bullish percents will once again give us some useful data, but right now all we're seeing is that they are overbought, but not willing to reverse back down. Based on the very strong action in the markets again last week, I seriously considered pulling the plug on every play in both the Portfolio and the Watch List. The trend is up and as long as that continues to be the case, each of those plays are fighting the trend in the market. But just pulling the plug seems a bit too much like overkill. The DJX and GM plays got stopped out early in the week, and our only two other active Portfolio plays are LEH and BBH, both of which are slightly underwater. We'll stick with those two positions, keeping our stops in place. As for the Watch List, I am placing all of those plays on Hold this weekend. I expect to either reactivate them or drop them in the next week or two, but in the meantime, I don't want anyone entering new bearish positions, when that seems inadvisable based on the action in the rest of the market. We've got further details on a play by play basis below. Portfolio: DJX - So long and farewell! We took our shot at a bearish play on the DOW and it never worked in our favor. Last week's breakout triggered our stop and we're currently flat any further attempts to pick a top in this market. BBH - Despite an encouraging drop at the end of August, the BBH is looking bullish again, and is building a trend of higher lows and higher highs from the early August low. With the bullish sentiment in the overall market still looking strong, my expectation is that this play will likely be stopped out on a break above the July highs. Conservative traders may just want to pull the plug here and keep their losses small. Traders still willing to stick with the initial premise of the play should keep their stop in place and honor it if hit. Obviously, we're not recommending new entries at this time. GM - My sentiment from last weekend's update was right on target, as GM soared with the rest of the market, triggering our stop on Tuesday. Never mind the bearish fundamentals, with sales numbers for the company continuing to drop. Like the rest of the market, GM is rising on the sea of liquidity. After three failed bearish plays on this symbol in the past year, it's going to take a very compelling technical setup to prompt me to go to this well again. LEH - LEH may still be underperforming the Broker/Dealer index (XBD.X), but with that index breaking out last week, the stock couldn't help but go along for the ride. LEH has now moved back over the 50-dma, $67 resistance and is threatening to move through stronger resistance near $69. We're sticking with our technical stop at $70, but more conservative traders may just want to exit the play at current levels or on a pullback near that 50-dma. As with the BBH play, we are not recommending new positions at this time. Watch List: WMT - For those that have been watching, WMT perfectly fulfilled our entry target on Wednesday and Thursday, tagging the $60 descending trendline resistance and then dropping back sharply on Friday following an analyst downgrade. So why didn't we take a Portfolio entry? Quite simply because I have no faith in the downside right now. While off of its high early in the week, the Retail index (RLX.X) is still very much in the ascending channel that has been in force since late March. I'm done trying to pick a top in this market until we can see at least the beginning of a trend of lower highs and lower lows in both WMT and the RLX. I'm leaving WMT on the Watch List, but putting the play on hold this weekend. If you entered the play on the failure at the $60 level last week, then my recommendation is to exit the play on any sign of renewed strength next week. We'll look for a more favorable entry after there are some concrete signs of a real top being in place. QQQ - The picture certainly hasn't changed in the NASDAQ over the past week, with the index pushing to new highs again. The QQQ followed suit, setting another new closing high above $34 on Thursday and entering the play up here is simply fishing for a top in a market that continues to rise. Like everything else on the Watch List, I'm placing the QQQ play on hold until there is some sign that a top has been reached. SMH - You certainly can't make a bearish case for the Semiconductor index (SOX.X) here, as it logged another new closing high on Friday, with the SMH following suit. This sector looks poised to break out again next week, and I just can't justify trying to pick a top in this sector that so far has failed to show any real signs of weakness. It looks extended, it's components are overbought and it looks like it should tip over. But at this point the bulls seem intent on driving price higher and I see no merit in trying to stand in their way. Eventually the group will come crashing back down and we'll look to play that move when it sets up. But right now is not the time. SMH is likewise on hold. Radar Screen: HD - Quick! Is the price action in HD a pending breakout or another opportunity to enter near major resistance for the eventual breakdown? For the life of me, I can't decide, so the stock remains one to watch, but not to take action on. Based on what's happening in the rest of the market and with the resurgence in the Housing sector, I'd expect to see a breakout. But I have a hard time seeing significant upside to that move. At the same time, we could be seeing a reverse H&S pattern on the daily chart, and that would point to a breakout that could extend up to the $39 area. It's growing increasingly difficult to make a bearish case though, so clearly HD just remains one to watch. FNM - Apparently the interest rate scare is over, as FNM has been surging higher over the past couple weeks, helped along by some strong upgrades. The stock found strong support near $60 and is now back near the $70 level, looking like it wants to continue higher. I still have a very negative view of this stock and will continue to watch for a topping formation, possibly in the vicinity of $74-75, which is both the site of historical resistance, as well as the descending trendline connecting the 4/02 and 6/03 highs. I know it is getting old, but wait and watch is still the operative phrase. Better to be on the sidelines than in a losing trade. Closing Thoughts: As expected, volume came back into the market and with a bullish bias. But that bullish action was stronger than I was prepared for. Even with the dismal employment report on Friday, the downside action was minimal. I'm still expecting to see a top in the market during the first part of next week, but I've seen estimates for the top in the DOW from 9600-10,200, a top for the SPX anywhere in the 1040-1080 range and the NASDAQ from 1900-2050. New bearish positions taken anywhere near the bottom of those respective ranges should be stopped out long before reaching the tops of those ranges and therein lies my reluctance about initiating new plays. Bulls have been carrying the majority of the risk in this market since early June, but still all the indices continue to bleed higher in very ugly fashion. As I mentioned above, I think it is absolute suicide to initiate new bullish positions at these lofty levels. But at the same time, carefully considered bearish trades are not working either. My choice is to err on the side of caution and look for some sign from the market that it is ready to move in line with my views before any more attempts at picking a top. Nobody is more frustrated than I am about the past several trades that have not worked out in the least. Tune in on Monday, as I will be trying to address that shortcoming in my Trader's Corner article. Regardless of what changes we find may be necessary, it should be an educational process for all, and that is rarely a unproductive use of time. See you next week! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None Puts: BBH 08/22/03 '05 $125 XBB-ME $14.60 $13.20 - 9.59% $138 '06 $120 YEE-MD $15.50 $14.30 - 7.74% $138 LEH 08/22/03 '05 $ 65 ZHE-MM $ 9.80 $ 8.10 -17.34% $70.00 '06 $ 60 WHE-ML $10.00 $ 8.90 -11.00% $70.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: WMT 08/03/03 HOLD JAN-2005 $ 55 ZWT-MK JAN-2006 $ 55 WWT-MK QQQ 08/10/03 HOLD JAN-2005 $ 30 ZWQ-MD JAN-2006 $ 30 WD -MD SMH 08/24/03 HOLD JAN-2005 $ 35 ZTO-MG JAN-2006 $ 35 YRH-MG New Portfolio Plays None New Watchlist Plays None Drops DJX - $95.68 Well, it's nice to know I'm still able to pick a top in the market. Unfortunately, I did so by placing my stop just below the high! We took our shot at picking a top in the DOW and it just plain didn't work. I thought we exercised the appropriate amount of patience, picked our entry near the top of the summer's range and setting our stop just above what should have been very strong resistance. Obviously the market disagreed and the DJX moved through the $95 level, triggering our $95.50 stop on Wednesday. While the market rolled over a bit on Friday, it came too late to keep us in the play. And quite honestly, with Friday's close still coming above $95, I'm glad to be out of the play. I wouldn't take a long position here on a bet, but obviously we're still premature in trying to pick a top. I'll continue to look for a favorable entry to the short side, but not until we see more definitive signs of weakness. For traders still holding bearish long-term positions, my recommendation is to use any further weakness next week to exit the play and then look for a new entry further down the road. GM - $42.48 Fundamentals may matter over the long term, but clearly using them to game a top in GM has not been productive over the past year. There's nothing on the fundamental front that would justify the bullishness seen over the past 2 weeks, but there it is nonetheless. This is the third time I've attempted to pick a top in GM over the past year and each time, the stock has surged higher to just barely stop us out before heading lower. I truly have no idea if GM is going to head lower from here, but I can no longer make a technical case for that happening. With last week's trade above $42, GM is now on a solid PnF Buy signal on the 2-point box size chart, with a bullish price target of $68. Chalk up another failed play for the LEAPS Portfolio. ************************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 ************** Getting Out On Bail – Or Bailing Out By Mike Parnos, Investing With Attitude It has come to my attention that many of us may be in the wrong business. Here we are, trying to figure out what's going to happen tomorrow, next week, or next month in a world over which we have literally no control. We're at the mercy of gamblers, wishful thinkers, professional traders, day traders, institutional traders and, let's not forget, those loveable marketmakers. It’s a helpless feeling. What chance do we have? What's The Alternative? I just read where a California woman named Annie Lever makes over $200,000 a year walking dogs for the stars (Mike Meyers, Steven Spielberg, etc.). Think about it. Low overhead -- a few leashes, plastic bags, plastic gloves and a substantial olfactory tolerance. But then, life stinks sometimes – and we might as well get paid for it. For those of us whose aspirations go beyond a walk in the park with a pooper-scooper, let's take a look at the markets. We know what to do when things go well. What do we do when things go badly? _____________________________________________________________ Bailing Out A Sinking Ship With A Teaspoon Actually, “bailing out” is a rather negative term. When you have to exit a position, it should be part of your trading plan. It should fall under the category of “wise money management.” It’s a more delicate term and makes you feel like you do have some control of the situation. If you follow your plan, you ARE in control. It may be a little painful, but it could be a lot worse. What Happens If . . . The underlying begins to move against you. Now what? Well, because you have a plan you won’t be caught with your Fruit Of The Looms around your ankles. There are a few choices. Stocks: When a stock hits the short strike price of your spread position, you can buy the stock (or short the stock if you have a put spread) to cover the short option. You monitor the underlying and continue to buy and sell it if it fluctuates above and below the short strike. You may incur some additional commissions along the way, but it’s a small price to pay. This strategy may take a substantial trading account – depending on the price of the stock. But, if the stock has, indeed, established a new trend, it can be a useful solution. This is a solution for those who can monitor their position throughout the day and have the ability to also place trades during the day, if necessary. Indexes: As the underlying breaks support (or resistance), it’s time to “Hit The Road, Jack!” or GTFO. In layman’s terms – it’s important that you close your position immediately. This enables a trader to preserve one’s trading capital. Your risk was defined when you put on the trade. You knew the possibility of a loss. No crying in your beer or over spilled milk or bitching at the trading gods. As in life, and especially in relationships, you need to know when to cut your losses and move on. You may have to swallow a small frog, but it’s a lot better than swallowing a huge frog -- and you’ll live to trade another day. Are You A Believer? There aren’t always repairs for trades that don’t go the way we want. Sometimes, you just have to bite the bullet. Like Baretta used to say, “if you can’t do the time, don’t do the crime.” Robert Blake should know that very well. There is a strategy, one that we’ve discussed at length before, to pare your potential losses – or even eliminate them. If, when the stock or index has broken through a support or resistance level, you believe that it has established a trend, here’s what you can do. You can sell an appropriate number of credit spreads going in the opposite direction – enough spreads to cover what it cost you to close out the initial position. If you originally traded 10 contracts, it may be necessary for you to trade 20-25 to replace the spent credit. The risk here is that, if the stock/index reverses again, you’re now exposed for twice as many contracts and potential loss. It will also require a lot more maintenance. If you have a substantial account size, you can repeat the process by closing the current 20-25 and establish even more credit spreads going in the opposite direction. If you’re vigilant, eventually the spreads will expire worthless. You may have incurred some additional commissions, but the bulk of the profit will have been preserved. It’s like the Indian rain dance. Why do you suppose it always worked when the Indians performed their famous rain dance? Simple. They just kept dancing until it rained. _________________________________________________________________ In Summation Establish your plan, do your charting, check the sectors, check the volatilities, use self-discipline and some common sense. You should be fine and you’ll make money on the vast majority of your trades. However, if one aspect of your research doesn’t line up, don’t do the trade. Always hedge your positions and define your risk before you put on the trade. If you get into a bad position and don’t know how to handle it, painful things can happen. How painful? A lot more than two Tylenol painful! ________________________________________________________________ As The Terminator Says, “I’ll Be Back” I’m currently away and cannot access my email from this location. I will return this coming Friday and will do my best to catch up on your emailed questions as soon as possible. Keep the faith and use common sense. ______________________________________________________________ SEPTEMBER POSITIONS – Remember that September is a FIVE- WEEK option cycle. Expiration is Friday, September 19th. September Position #1 – SPX Iron Condor – SPX @ 1021.39 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 1021.39, the SPX has moved up. We still have a bit of a cushion and it's time for a pullback, so we'll keep the faith – at least for now. Position Activity! September Position #2 – COF Sell Straddle – COF @ $ 53.92 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. A lot can happen in five weeks of exposure to market movement. On Tuesday (Sept. 2), COF continued its uptrend – through our bailout point of $54.85. When COF hit out exit point, we bought back the short September $50 calls for $5.40 ($5,400). Since we had taken in premium of $4,850, we incurred a loss of only $550. This is a necessary money management move to make sure we live to trade another day. COF backed off and is now back in the profit range (for those who still hold the position). However, we had to adhere to our plan. It's the only way to survive. September Position #3 – HPQ (Hewlett Packard) Bear Put Spread – HPQ at $20.23. HPQ is weak and may return to the $15 range. So, we bought 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. This is a long-term position. September Position #4 – OEX – Bearish Calendar Spread – OEX @ $512.49 Maybe it's time for the market to return to reality. Let's see if we can take advantage of this with a calendar spread. We bought 8 contracts of OEX November 470 puts @ $10.60 and sold 8 contracts of OEX September 470 puts @ $2.20 for a 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. It's a directional bet, but with a limited risk as we get paid while we wait. Still EBAY-ING At The Moon There are some CPTI readers who entered the EBAY position discussed at the beginning of the month when EBY was trading at about $103. Since then, a lot has happened. EBAY, as you know, gapped up enough to discourage our participation in the position. Then, the stock split two-for-one. Ten contracts of the $110/$115 bear call spread became 20 contracts of the $55/$57.50 bear call spread. As I suspected, EBAY got well ahead of itself. Despite the market moving up, EBAY has pulled back and finished today at $53.63 – within our max profit range. We still have two weeks remaining, but those still in this trade are not in a bad place. ______________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational 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" on the OI home page and click on "Traders Corner." They're waiting for you 24/7. ______________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP ************** TRADERS CORNER ************** Not morning breath - Morning Reversal Each morning the major indexes gap up or down. Overnight economic reports released, scandals revealed or reports of Osama bin Laden found, all put upward or downward pressure on prices so the morning's open almost never match the previous day's close. You can take advantage of this. It has been proven statistically that price has a very high tendency to fill 50 to 100% of the gap during the first hour of trading. This tendency is found in bear markets, bull markets, gap ups or gap downs. Brian Babcock and Arthur Agnelle backtested three years of DOW, S&P and NDX prices to verify the statistical reliability of the basis for the strategy I am about to introduce you to called the Morning Reversal Strategy. The analysis is broken into three parts: First the size of the morning gap was broken three groups: gaps smaller than 1%, gaps ranging in size from 1% to 2% or gaps ranging in size from 2% to 3%. Then the retracement was broken into Fibonannci levels; 0-39%, 50%, 63% and 100%. The following table shows what percentage of gaps fell into each category. GAP SIZE % Retracement 1% 1-2% 2-3% Averages 39% 14% 20% 35% 23% 50% 1% 2% 5% 2.66% 63% 3% 10% 5% 6% 100% 82% 68% 55% 68.33% In explaining the table I will use some of the data. Looking in the first cell of data where you see 14%, of the gaps tested that were 1% or less is size, 14% of them retraced up to 39% of the gap. The cell that contains the 82% is telling us that of all the gaps tested that were 1% or less, 82% retraced up to 100%. Of the gaps that were 1%-2% in size, 68% retraced 100% of the gap and of the gaps that were 2-3% in size 55% of them retraced up to 100% of the gap. On average 68.33% of all gaps were filled up 100% . The second part of the study looked at the time factor and how quickly the gaps retraced. The gaps typically closed 50% by 9:55ET. Of the gaps that closed completely, 67% of them did so in the first 30 minutes of the trading session and 86% of them closed by the end of the first hour of trading (10:30ET). Interestingly, the chance of a gap retracing declined substantially after the first hour. Another interest point is the success rate of this strategy declined on the days economic news was released at 10:00ET. This would be due to the unpredictable and volatile nature of the market's reaction to some of the reports released at 10:00ET. The third part of the study identified the time "markers" during the gap reversal period. What the study found was the reversal began, on average, six minutes after the open, at 9:36ET and was, on average, completed 23 minutes after the open, at 9:53ET. There is also a time when the market looked to be heading back in the direction from which it came and gives a head fake. This happens, on average, around 9:42ET and lasts for 5 minutes until, on average, 9:47ET. Suggested rules for trading this strategy are as follows: 1. It is suggested the best vehicle for this strategy is the QQQ but use the pre-market futures as a way to anticipate the gap direction before it happens, which is very easily done. 2. Make note of how the pre-market futures are affected by the economic reports released at 8:30ET. You are looking for all three index futures, S&P, NASDAQ and Dow, trading in the same direction, if one is up and another down, you stand aside. 3. Since very narrow gaps reduce the profit potential, the gap in the S&P futures needs to be excess of 5 points, the gap in the Nasdaq futures needs to be in excess of 10 points and the gap in the DOW futures needs to be in excess of 20 points. 4. No trade is taken if a position has not been entered by 9:42ET. 5. Use the 1-minute chart because entry has to be very precise. Suggested ways to enter a trade: 1. Since the average start time is 9:36ET enter at 9:36ET regardless of what the market is doing. This entry rule is easy to execute but could easily put you on the wrong side of the market. 2. Use a price pattern to telegraph a reversal. This could be a swing high or low or something as simple as two 1 minute bars trading in the direction of the anticipated trade. For example if you are looking to go long (gap down) and the market is trading in the direction of the gap (down) and two 1 minute bars close higher than the close of the previous bar. 3. Break your trade into two and stagger the entries. For the first 1/2, use rule #1 and enter at 9:36ET no matter what the market is doing. For the 2nd 1/2 use rule #2 and enter when you see a reversal pattern. This rule will have you in the market if it reverses quickly on you and if the reversal does not happen you will have only exposed 1/2 your trade to the stop loss. Suggested rules for placing a Stop Loss 1. Place a stop at 15 cents above the high of the morning for shorts and below the low of the morning for longs. This should keep you in most trades that have a head fake. 2. Once the trade is 25 cents into profit, place your stop at breakeven. Once the trade is 35 cents into profit place your stop at 25 cents and move it up (or down if in a short trade) by 1 cent each time profit increases by 1 cent. For example if you enter a long at 32.00 and the Qs move up to 32.25 place your stop at 32.00. If the Qs move up to 32.30 place your stop at 32.05. If the Qs move to 32.50 your stop will be set at 32.25. Never move your stop back and away from your profit. 3. Exit the trade at 10:30 or when the gap is filled whichever comes first. Here's an example. On 8/22 the S&P futures gapped up 9.5 points, the NASDAQ futures gapped 24 points and the DOW futures gapped 67 points. On 8/21 the Qs close at 32.65 and open on 8/22 at 33.67, an almost 2% gap. A price reversal forms right on schedule at 9:36 and we take a short at 33.26 with a stop placed at 15 cents above the daily highs of 33.35 at 33.50. The head fake happens right on schedule also at 9:42 but does not stop us out. When the Qs reach 33.01 the stop is placed at breakeven. Profits are taken at 10:30 when the Qs are 32.99 and we pocket a 27-cent profit. Not bad for a morning's work. To put this trade in perspective for us futures traders, I applied the same criteria to the NASDAQ futures using a 4-point stop loss. We would have entered the trade at 1339 and taken profits at 10:30 at 1327. Isn't that a nice way to start the day? I was about to send this article in for posting but I decided to wait and see if we could apply this strategy to Friday mornings trading. Checking the futures, the S&P futures gapped down 5 points, the Nasdaq gapped down 10 and the DOW gapped 60 points. Looks like it would have worked here also: The morning reversal uses the statistically relevant tendency for price to reverse back to the previous day close and incorporates a risk management plan to build a trading strategy that even novice traders can use. Remember plan your trade and trade you plan. Jane Fox ************** BROKERS CORNER ************** Readers Write: This week's questions concern the use of credit spreads as a primary strategy for option portfolios. Subject: Credit Spread Fundamentals (Questions/Comments Condensed) I have been trading credit spreads on broad-based indices with fairly good success over the past couple of years and have a number of follow up question regarding credit spreads to round out my understanding. I know there are a lot of questions, but I would be most grateful if you could share your perspective regarding the following topics. JA Regarding Credit Spreads on Broad-Based Indices: If the option spreads on equity options involve gaps, why not stick to just index spreading? If you want to look at Equity options and compare them to Indexes, it may be comparing apples to oranges. An index is a broad picture or collage of the market. An individual stock is a single picture. The Index may be smoother but it certainly can make large moves and gap higher or lower. If you are in a spread, then the leg you bought should hedge the option you sold. Gaps are not bad by themselves. A trader without a good plan to deal with the gaps is one that will sooner or later find them in a large amount of financial trouble. A credit spread and a debit spread both have defined risk-reward worst and best case scenarios. If the worst case is too much risk, then you could do fewer contracts and lower your exposure. You must always be careful of selling options on a cash-settled American style index (OEX). I will discuss some of the pitfalls in a future article. Regarding NASDAQ Indices: Now that QQQ options are becoming more popular, do you prefer the QQQ over the OEX options? I believe that they are both American options? The QQQ and the OEX are different indexes. The QQQ is based on the Nasdaq-100 and the OEX is the S&P 100 index. They have some common stocks, but the QQQ are more weighted to the more volatile NASDAQ index. One very important aspect of the OEX is that it is a cash-settled index. This may lead to a complicated situation. If a client is short an OEX option and the option is exercised, the cash is taken-out of the clients account. The client is not notified until the next day. If the client is short puts, and the options are exercised the cash difference between the strike and the closing index price of the day is debited from the client's account. If the Market has a large rally and gaps higher the next day, the client will not realize the decrease in value of the puts sold because they were already exercised. The QQQ options deliver stock to fulfill assignment. If the market rebounds, the client will see the gain in the long stock position. Therefore, the OEX should be handled very carefully. The CBOE offers a very similar product; the XEO, that is European exercisable and could easily be substituted for the OEX. If the implied volatility of the NDX/MNX indexes are higher than the SPX, would you prefer trading spreads on the NASDAQ indices over the S&P 500? The first thing to remember is that you are comparing different indexes. Since volatility is a measure of the amount of risk or movement one should expect in the stock, index, etc., the higher the volatility, the greater the amount of movement one could expect in the future. If one is very bullish on the NASDAQ, it would not make sense to take a bullish position in the SPX because of the implied volatility is lower. If the volatility is higher, a credit spread should give a larger credit than if the volatility is lower and vice-versa. Regarding American vs. European Indices: There is a preference for American over European options because of richer premiums. For example: OEX over the SPX -- I know that the implied volatility is usually the same for the OEX and SPX. But what if the implied volatility is actually higher on the SPX? Does that make the credit spread more attractive for the SPX if this case? Better yet, I know that that the implied volatility is always higher on the NASDAQ indices. Why not just trade the NDX or MNX (European) or QQQ (American)? The situation where a client needs to be careful of American-style options is if the options are settled in cash. A cash-settled option requires lots of money to trade effectively. If the market makes a large swing and the option is exercised against a client, the cash is debited out of the account. Unfortunately, the client does not realize this until the next morning. At which time, the market or index could make a large swing the opposite way and the client would not participate in the market movement. One should be careful in devising a trading strategy based solely on the implied volatility. The higher the volatility, the more one would expect an index or stock to fluctuate. Spreads can become more expensive and outright options may also increase in value, thus affecting the characteristics of the position. Regarding the Price Decay Model: An ATM option decays at the square root of time. What is the price decay model for OTM options (+/- 1 std dev) and Deep OTM (+/- 2 std dev). When, therefore, is the best time to initiate OTM or Deep OTM options? All option time-value is based upon the square root of time. As far as the best time’ to initiate OTM or Deep OTM options, I do not think there is a simple answer to that question, nor would it be practical to base positions on such small differences in value when other components have so much more impact on a trade. If you are interested in a complete knowledge of the subject, a thorough study of Sheldon Natenburg's book, Option Pricing and Volatility, would be a good start. More questions and answers next week... Andrew Aronson V.P. Investments OneStopOption Division of Man Financial 141 W. Jackson Blvd Ste 1800-A Chicago, IL 60604 Andrew Aronson and Alan Knuckman are skilled option principles, as well as long-time OIN associates, and they recently started a specialty brokerage for derivatives traders. Their personalized service will enable traders to be more confident, comfortable and successful with options. They will also help new market players learn the "right" way to trade options with education and coaching for maximum portfolio performance. Alan and Andrew's expertise is a valuable resource that will easily pay for itself through timely executions and the piece of mind that comes from someone watching your trades throughout the day. The commissions are comparable to those of discount brokers but you get to speak directly with option professionals, not customer service clerks. Clients can call them directly to review positions and update orders and they also offer "auto-trading" for many of the plays in the newsletter. 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The Option Investor Newsletter Sunday 09-07-2003 Sunday 5 of 5 In Section Five: Covered Calls: Stock Stages Explained Naked Puts: Careful Planning And Execution Leads To Success Spreads/Straddles/Combos: Optimism Prevails Despite Market Retreat Updated In The Site Tonight: Market Posture: Nearing Resistance ************************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: Stock Stages Explained By Mark Wnetrzak New readers are always asking about the things we look for in our technical analysis of stocks. There is no form of analysis that will guarantee your success in the market, but having a basic understanding of the different phases of stock price activity can help you trade with greater confidence and make the task of position management much easier. The four primary stages of a stocks' movement cycle are described at length in "Secrets for Profiting in Bull and Bear Markets," by Stan Weinstein. Here is a brief description of the first two categories and a simple explanation of how they can help identify favorable issues for bullish positions, as well as some hints for timing the entry transactions. Stage I is the basing stage that can last for months or sometimes years. The condition is usually defined by little or no vertical activity with a long-term moving average that is basically flat. A common axiom suggests that, "the longer the base, the stronger the case" and issues with this type of pattern have relatively low capital risk as there is little downside potential remaining. Stage I Chart: Stage II is when the issue begins to exhibit signs of a new upward trend. The stock price closes above a long-term moving average (150-200 dma) with the average turning up, and that is the ideal time to enter a bullish play. Investors should look for the next resistance level to identify the potential profit target or range of movement. You should focus on stocks that have "room to run," picking only those issues that are in stage II climbs and buying on pullbacks to technical support; trend-lines, moving averages, previous resistance, etc. Stage II Chart: Some Hints... 1. Stage II is the "ideal" time to enter for a bullish play. For trend trading, pick stocks that are in stage II rallies and buy on the pullbacks to technical support or major trend-lines. 2. Look for volume -- this is vital! Most big movers climb on substantially larger volume than that which occurs at any time during the basing stage. 3. Look for strong Relative Strength. When a stock breaks out of a base, the relative strength should cross up above the zero line into positive territory. The higher the climb to cross above the zero line, the more upside potential in the movement. 4. Look for the "Runner's Crouch" pattern before the stock breaks out of a long-term base. In many cases, stocks will go through a short period of "building steam." It's usually a small dip to gather strength for the upward push above the moving average. Once the stock crosses above the top of the base (resistance) it should also continue through the moving average. 5. As the rally begins in earnest, the long-term moving average should start to turn upward and after the stock corrects back to a technical support area, the next run-up, which must be supported by heavier-than-average volume, should continue until a new (near-term) high is achieved. It is important for new traders to become familiar with the common methods used to determine the overall movement of the market and apply this knowledge as a practical element of a proven trading strategy. After you are comfortable with the popular indicators, combine them with proven timing strategies and practice using the various systems until your "paper" portfolio is profitable on a regular basis. 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 5.45 SEP 5.00 0.60 0.35* 8.2% WAVX 3.46 3.19 SEP 2.50 1.20 0.24* 7.7% XOMA 8.09 8.40 SEP 7.50 1.30 0.71* 7.6% PLUG 5.13 5.15 SEP 5.00 0.45 0.32* 7.4% ENER 10.39 12.35 SEP 10.00 1.10 0.71* 6.6% NWAC 8.30 10.51 SEP 7.50 1.40 0.60* 6.3% EPNY 5.07 5.83 SEP 5.00 0.40 0.33* 6.1% NEOF 12.45 16.40 SEP 12.50 0.90 0.95* 6.0% FLML 28.49 33.19 SEP 25.00 4.40 0.92* 5.8% WAVX 3.20 3.19 SEP 2.50 0.85 0.15* 5.5% MCRL 12.60 14.07 SEP 12.50 0.65 0.55* 5.0% IBIS 10.70 11.85 SEP 10.00 1.00 0.30* 4.7% USG 14.11 16.51 SEP 12.50 2.35 0.74* 4.6% XOMA 9.45 8.40 SEP 7.50 2.25 0.30* 4.5% ITMN 19.01 19.19 SEP 17.50 2.00 0.49* 4.4% VSAT 15.09 16.45 SEP 15.00 0.80 0.71* 4.3% TKLC 15.46 16.93 SEP 15.00 1.15 0.69* 4.2% CCRN 15.60 15.35 SEP 15.00 1.00 0.40* 4.2% ISIS 5.33 6.51 SEP 5.00 0.60 0.27* 4.1% EMBT 10.25 9.86 SEP 10.00 0.65 0.26 4.1% RFMD 8.07 9.01 SEP 7.50 0.90 0.33* 4.0% SNIC 11.18 13.77 SEP 10.00 1.70 0.52* 4.0% ADLR 13.96 15.20 SEP 12.50 1.90 0.44* 4.0% GSIC 11.52 11.66 SEP 10.00 1.95 0.43* 3.9% CREE 16.30 16.73 SEP 15.00 1.75 0.45* 3.4% CERS 7.62 5.27 SEP 7.50 0.40 -1.95 0.0% * Stock price is above the sold striking price. Comments: What a way to end a bullish week -- with selling. Just profit taking or a sign of something more worrisome? As always, time will tell. Overall, the covered-call portfolio has done fairly well though Cerus (NASDAQ:CERS) took a severe dive after the company halted its Phase III testing of a red blood cell system because of an immune reaction seen in two patients. The play will be closed in the interest of capital management. Other stocks to monitor for an early-exit include: XOMA (NASDAQ:XOMA), Embarcadero Tech. (NASDAQ:EMBT), and GSI Commerce (NASDAQ:GSIC). 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 CBST 13.51 SEP 12.50 UTU IV 1.50 1455 12.01 14 8.9% IPXL 15.16 SEP 15.00 UPR IC 0.70 148 14.46 14 8.1% SIB 22.60 SEP 22.50 SIB IX 0.90 1916 21.70 14 8.0% FWHT 25.56 SEP 25.00 HFQ IE 1.40 372 24.16 14 7.6% TER 20.11 SEP 20.00 TER ID 0.75 2443 19.36 14 7.2% TALK 15.34 SEP 15.00 QQK IC 0.80 10 14.54 14 6.9% KVHI 30.99 SEP 30.00 VJU IF 1.85 344 29.14 14 6.4% 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). ***** CBST - Cubist Pharmaceuticals $13.51 *** Pending Breakout? *** Cubist Pharmaceuticals (NASDAQ:CBST) is focused on becoming a global leader in the research, development and commercialization of novel pharmaceuticals to combat serious and life-threatening infections. Cubist has submitted a New Drug Application with the FDA for Cidecin (daptomycin for injection) for the treatment of complicated skin and skin structure infections (cSSSI) and is conducting additional Phase 3 studies under the FDA's priority review status. Cubist's pipeline includes multiple pre-clinical candidates, including CAB-175, a next generation cephalosporin antibiotic that has demonstrated unique in-vitro activity against methicillin-resistant Staphylococcus aureus (MRSA), and an oral version of ceftriaxone (OCTX), a broad-spectrum cephalosporin antibiotic. Cubist is a solid biotechnology stock with excellent upside potential and traders can speculate on its future share value with this position. SEP-12.50 UTU IV LB=1.50 OI=1455 CB=12.01 DE=14 TY=8.9% ***** IPXL - IMPAX Laboratories $15.16 *** FDA Approval! *** IMPAX (NASDAQ:IPXL)) is a technology-based specialty pharmaceutical company focused on the development and commercialization of generic and brand name pharmaceuticals, utilizing its controlled-release and other in-house development and formulation expertise. In the generic pharmaceuticals market, IMPAX is primarily focusing its efforts on selected controlled-release generic versions of brand name pharmaceuticals. The company is also developing other generic pharmaceuticals that present one or more competitive barriers to entry, such as difficulty in raw materials sourcing, complex formulation or development characteristics, or special handling requirements. In the brand-name pharmaceuticals market, IMPAX is developing products for the treatment of central nervous system disorders. On Friday, IMPAX said it received tentative approval from the FDA to market a generic form of Oxycontin, a powerful prescription pain killer. We simple favor the "break-out" above the recent consolidation phase and investors can use this position to target an entry point closer to support. SEP-15.00 UPR IC LB=0.70 OI=148 CB=14.46 DE=14 TY=8.1% ***** SIB - Staten Island Bancorp $22.60 *** New All Time High? *** Staten Island Bancorp (NYSE:SIB) serves as the unitary holding company for SI Bank & Trust. The business and management of the company consists primarily of the business and management of the Bank. The Bank is a community savings bank providing retail and commercial banking services along with trust services and life insurance sales. Through its subsidiary, SIB Mortgage Corp., the Bank originates residential mortgage loans in 42 states and sells them into the secondary market. It also provides a full range of trust and investment services, and acts as executor or administrator of estates and as trustee for various types of trusts. Services offered include fiduciary services for trusts and estates, money management, custodial services and pension and employee benefits consulting. SIB has rallied to a new 52-week on heavy volume, which suggests further upside potential. Investors who want to diversify their portfolio should consider this position. SEP-22.50 SIB IX LB=0.90 OI=1916 CB=21.70 DE=14 TY=8.0% ***** FWHT - FindWhat.com $25.56 *** The Rally Continues! *** FindWhat.com (NASDAQ:FWHT) operates online marketplaces that connect the consumers and businesses that are most likely to purchase specific goods and services with the advertisers that provide those goods and services. Online advertisers determine the per-click fee they will pay for their advertisements, which FindWhat.com and its private-label partners such as Terra Lycos's Lycos.com and HotBot distribute to millions of Internet users. Their network includes hundreds of distribution partners, such as CNET's Search.com, Excite, Webcrawler, NBCi, MetaCrawler, Dogpile, Go2Net and Microsoft Internet Explorer Autosearch. Traders who like the outlook for this unique company can profit from future upside activity in the issue with this position. SEP-25.00 HFQ IE LB=1.40 OI=372 CB=24.16 DE=14 TY=7.6% ***** TER - Teradyne $20.11 *** On The Move! *** Teradyne (NYSE:TER) is a supplier of automatic test equipment, high- performance interconnection systems and electronic manufacturing services. The company's automatic test equipment products include Semiconductor Test Systems, Circuit Board Test and Inspection Systems and Broadband Test Systems. Teradyne's interconnection systems products and services (Connection Systems) include high- bandwidth backplane assemblies and associated connectors used in electronic systems, and electronic manufacturing services of assemblies that include Teradyne backplanes and connectors. The technical outlook continues to improve for Teradyne and traders can speculate on the near-term performance of the issue with this short-term position. SEP-20.00 TER ID LB=0.75 OI=2443 CB=19.36 DE=14 TY=7.2% ***** TALK - Talk America $15.34 *** New 52-week High! *** Talk America Holdings (NASDAQ:TALK) through its subsidiaries, provides local and long distance telecommunication services to residential and small business customers in the U.S. TALK offers both local and long distance telecommunication services that are billed to customers in one combined invoice. Local phone services include local dial tone, various local calling plans that include free member-to-member calling and a variety of features such as caller ID, call waiting and 3-way calling. Long distance phone services also includes international and calling cards. The company uses the unbundled network element platform of the regional bell operating companies network to provide local services, and its nationwide network to provide long distance services. Another stock exhibiting bullish technical signals and this position offers a method to participate in the future movement of the issue with a cost basis closer to technical support. SEP-15.00 QQK IC LB=0.80 OI=10 CB=14.54 DE=14 TY=6.9% ***** KVHI - KVH Industries $30.99 *** Milestone C Status! *** KVH Industries (NASDAQ:KVHI) designs and manufactures systems and solutions using its proprietary satellite antenna and fiber-optic technologies for two principal markets: satellite communications, and defense-related navigation and guidance. Its mobile satellite communications products connect people on the move to satellite television, telephone and high-speed Internet services worldwide. In the defense-related navigation and guidance market, the company uses its core magnetic, fiber-optic sensing, navigation systems integration and display technology to develop and manufacture products that address a variety of systems requirements for military and commercial customers. KVH announced this week that the U.S. Army Special Operations Command (SOCOM) has formally certified that KVH's TACNAV Light vehicle navigation system has achieved Milestone C, authorizing the system for full rate production and fielding aboard U.S. Army SOCOM vehicles. Investors obviously cheered the news and the stock continues to power higher in its Stage II run. Investors who wouldn't mind owning KVH near $29 can use this position to speculate on the near-term performance of the issue. SEP-30.00 VJU IF LB=1.85 OI=344 CB=29.14 DE=14 TY=6.4% ***** ***************** 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 42 ELN 5.67 OCT 5.00 ELN JA 1.20 14456 4.47 42 8.6% SGMS 10.10 SEP 10.00 TUJ IB 0.45 105 9.65 14 7.9% ADLR 15.20 OCT 12.50 UAH JV 3.90 1587 11.30 42 7.7% AMR 12.90 SEP 12.00 AMR IN 1.30 6144 11.60 14 7.5% VXGN 5.46 OCT 5.00 UWG JA 0.90 771 4.56 42 7.0% TXN 25.13 SEP 25.00 TXN IE 0.90 5104 24.23 14 6.9% HMY 15.26 SEP 15.00 HMY IC 0.70 2184 14.56 14 6.6% CAL 18.27 SEP 17.50 CAL IW 1.25 21552 17.02 14 6.1% ISIS 6.51 OCT 5.00 QIS JA 1.85 1359 4.66 42 5.3% IIJI 7.12 OCT 5.00 IQD JA 2.45 551 4.67 42 5.1% TIBX 5.78 OCT 5.00 PAV JA 1.10 81 4.68 42 5.0% NWAC 10.51 OCT 10.00 NAQ JB 1.15 117 9.36 42 5.0% DNDN 8.95 OCT 7.50 UKO JU 1.90 369 7.05 42 4.6% EXTR 7.95 OCT 7.50 EXJ JU 0.90 634 7.05 42 4.6% OXGN 11.91 OCT 10.00 QYO JB 2.50 433 9.41 42 4.5% ***************** NAKED PUT SECTION ***************** Options 101: Careful Planning And Execution Leads To Success By Ray Cummins Traders who follow sensible and prudent wealth-building strategies can achieve their goals in any market environment. Most people invest for a reason: they want to achieve specific goals such as a higher standard of living, early retirement, or providing a college education for their children. But, investing is just one part of the financial planning process and in many cases, the fundamental steps in building a profitable portfolio are ignored due to an overwhelming desire to "get rich quick" in the stock market. Rather than focus on picking the next "winner" in the "hot" sector, today we are going to discuss some concepts that can help you achieve success with any financial instruments. The first step to long-term capital appreciation is to establish tangible goals based on specific dollar amounts and time frames. Vague and imprecise targets are difficult to achieve because they require no distinct commitment with regard to attaining necessary returns and adhering to loss limits. Goals that are well defined in monetary terms and include target completion dates create an obligation to identify and implement strategies for realizing the objectives. At the same time, all goals must be realistic and achievable, and the strategy selection process should strive for a balance between acceptable capital risk and potential reward. If a suitable balance cannot be achieved, the investor should consider whether the potential gain is worth the risk, or if the primary portfolio goals need to be altered or adjusted. The second step is to examine your current portfolio holdings and cash reserves, to determine how they can best be used to achieve the established objectives. You should consider existing assets as well as future inflows when making this assessment but do not include financial resources that have been allocated for other purposes such as short-term saving accounts and emergency funds, or money from previously established retirement investments such as company stock-options, pensions and cash-value life insurance. After you have calculated the total available capital and income for investing, a critical determination will have to be made: Do the existing resources provide an adequate asset base to achieve your long-term goals? If the answer is yes, no further action is necessary. If not, your assets may require repositioning before the plan is initiated or you may need to adjust the time frame or portfolio risk tolerance to attain the portfolio goals. After the monetary resources are established and the objectives are clearly defined, the next step is to consider the possible strategies and financial products for achieving your goals. The vast array of investing vehicles offers ample tools for tailoring the plan to the purpose, thus the most important task is to find a combination of methods and instruments that will accomplish the desired results. The basic differences among investments are the required time period, the risk-reward outlook, and the capital and liquidity requirements. All of these components should be carefully evaluated when selecting a particular strategy and in addition, any method used to help achieve portfolio goals must be clearly understood (including loss-limiting techniques) before new positions are initiated. The final phase of the investing process includes implementing the plan and monitoring the results so that future adjustments can be made in a timely manner. Because circumstances change, the portfolio must be reviewed on a regular basis to determine if its performance is on pace to achieve the original goals. A periodic evaluation of each individual position is necessary to determine if the issue or instrument is yielding the estimated earnings. If the investment is not performing as expected, an adjustment can be made to remedy the situation before it has a substantial (negative) effect on the overall portfolio value. There are a number of proven investing strategies than can be used to achieve your personal financial goals and in the next segment, we will discuss some of the most popular techniques among successful stock and option traders. Good Luck! Editors Note: Ray is on a brief market hiatus with his family, so we are reprinting some of his more popular articles until he returns in mid-September. 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 13.30 SEP 10.00 0.70 0.70* 6.5% 18.2% CBST 12.72 13.51 SEP 10.00 0.50 0.50* 4.6% 14.3% GNTA 16.00 16.20 SEP 10.00 0.30 0.30* 4.7% 13.0% RIMM 24.61 27.85 SEP 20.00 0.75 0.75* 2.8% 9.1% RIMM 28.48 27.85 SEP 25.00 0.50 0.50* 3.1% 9.0% TIVO 10.91 10.63 SEP 10.00 0.30 0.30* 3.4% 8.7% OVTI 43.77 45.19 SEP 35.00 0.95 0.95* 2.4% 8.5% THER 13.93 15.32 SEP 12.50 0.55 0.55* 3.3% 8.5% RIMM 28.74 27.85 SEP 25.00 0.60 0.60* 2.7% 7.8% NTAP 22.36 23.31 SEP 20.00 0.35 0.35* 2.7% 7.7% IDTI 13.10 14.96 SEP 12.50 0.35 0.35* 3.1% 7.6% FLML 28.49 33.19 SEP 22.50 0.30 0.30* 2.1% 7.6% BLUD 23.12 25.96 SEP 22.50 1.00 1.00* 3.4% 7.5% BOBJ 27.05 28.33 SEP 25.00 0.45 0.45* 2.8% 7.4% SEPR 21.76 28.86 SEP 17.50 0.50 0.50* 2.1% 7.3% NFLX 28.80 34.55 SEP 25.00 0.55 0.55* 2.4% 7.2% TKLC 13.73 16.93 SEP 12.50 0.45 0.45* 2.7% 6.9% PHTN 28.90 32.77 SEP 25.00 0.65 0.65* 2.3% 6.8% SRNA 18.77 19.81 SEP 17.50 0.40 0.40* 2.5% 6.5% JDAS 13.90 16.80 SEP 12.50 0.40 0.40* 2.4% 6.4% UTEK 25.75 30.02 SEP 22.50 0.55 0.55* 2.2% 6.3% SEPR 23.49 28.86 SEP 20.00 0.45 0.45* 2.0% 6.2% PDII 24.25 24.19 SEP 20.00 0.50 0.50* 1.9% 6.1% NFLX 33.33 34.55 SEP 27.50 0.30 0.30* 1.7% 5.8% PSUN 33.55 31.85 SEP 30.00 0.35 0.35* 1.8% 5.2% BRCM 25.80 27.74 SEP 22.50 0.35 0.35* 1.7% 5.2% AEIS 21.02 24.02 SEP 17.50 0.30 0.30* 1.5% 5.0% PHTN 29.57 32.77 SEP 25.00 0.35 0.35* 1.5% 5.0% * Stock price is above the sold striking price. Comments: Stocks endured a necessary consolidation Friday as traders took profits after a week of bullish activity. The outlook remains positive, however, in the wake of favorable economic data and renewed institutional interest in equities. Positions on the "watch" list include Pacific Sunwear (NASDAQ:PSUN) and Research In Motion (NASDAQ:RIMM). 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 16.20 SEP 12.50 GJU UV 0.45 10394 12.05 14 8.1% 26.5% NEOF 16.40 SEP 15.00 QZX UC 0.35 31 14.65 14 5.2% 13.8% SINA 34.32 SEP 30.00 NOQ UF 0.40 4235 29.60 14 2.9% 8.9% CVTX 27.33 SEP 25.00 UXC UE 0.35 1810 24.65 14 3.1% 8.5% DRIV 28.75 SEP 25.00 DQI UE 0.30 259 24.70 14 2.6% 8.1% NFLX 34.55 SEP 30.00 QNQ UF 0.35 2047 29.65 14 2.6% 7.9% IMCL 46.56 SEP 40.00 QCI UH 0.30 2433 39.70 14 1.6% 5.3% 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 $16.20 *** 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. Traders continue to speculate 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 any position. SEP-12.50 GJU UV LB=0.45 OI=10394 CB=12.05 DE=14 TY=8.1% MY=26.5% ***** NEOF - Neoforma $16.40 *** Rally Mode! *** Neoforma (NASDAQ:NEOF) is a provider of supply chain management solutions for the healthcare industry. Through a combination of technology, information and services, Neoforma's web-based supply chain management solutions enable effective collaboration among hospitals and their suppliers, helping them to reduce operational inefficiencies and lower costs. Through its Healthcare Products Information Services business unit, the firm also offers market intelligence services and through its Med-ecom business unit, it provides contract management and administration services. Shares of NEOF were in "rally mode" this week, despite a lack of public news to explain the activity. The heavy-volume trading suggests that "something" is up, and traders who believe the bullish trend will continue should consider this position. SEP-15.00 QZX UC LB=0.35 OI=31 CB=14.65 DE=14 TY=5.2% MY=13.8% ***** SINA - SINA Corporation $34.32 *** Consolidation Complete? *** SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an online media company and value-added information service provider for China and the global Chinese communities. With a branded network of localized Websites targeting China and overseas Chinese, the company provides an array of services to its users including region-focused online portals, search, directory, interest-based and community-building channels, free and premium e-mail, wireless short messaging, online games, virtual Internet service provider, classified listings, e-commerce, e-learning, and enterprise e-solutions. In turn, SINA generates revenue through advertising, fee-based services, e-commerce and enterprise services. Shares of SINA appear to be finding renewed buying interest near the current price range and with recent technical support at $30, this position offers a favorable risk/reward outlook for speculative traders. SEP-30.00 NOQ UF LB=0.40 OI=4235 CB=29.60 DE=14 TY=2.9% MY=8.9% ***** CVTX - CV Therapeutics $27.33 *** On The Rebound? *** CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. The company's New Drug Application (NDA) for Ranexa (ranolazine) for the treatment of chronic angina has been filed at the U.S. FDA. Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146, an A2A-adenosine receptor agonist, is being developed for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Adentri, an A1-adenosine receptor antagonist, is being developed by the company's partner, Biogen, for the potential treatment of acute and chronic congestive heart failure. CVTX also has several research and preclinical development programs designed to bring additional drug candidates into human clinical testing. Shares of CVTX appear to be "on the rebound" after a recent slump and the technical indications suggest continued upside potential in the near-term. SEP-25.00 UXC UE LB=0.35 OI=1810 CB=24.65 DE=14 TY=3.1% MY=8.5% ***** DRIV - Digital River $28.75 *** Multi-Year High! *** Digital River (NASDAQ:DRIV) is a provider of electronic commerce outsourcing solutions. As an application service provider, the firm enables its clients to access its proprietary electronic commerce system over the Internet. The firm's unique technology platform allows it to offer various electronic commerce services, including Internet commerce development and hosting, transaction processing, fraud screening, digital delivery, integration as well as physical fulfillment and customer service. Digital River also provides analytical marketing and merchandising services to assist clients in increasing Web page view traffic to, and sales through, their Web commerce systems. Digital River's stock reached a new "multi-year" high this week and investors who believe the bullish trend will continue for the next two weeks can speculate on that outcome with this position. SEP-25.00 DQI UE LB=0.30 OI=259 CB=24.70 DE=14 TY=2.6% MY=8.1% ***** NFLX - Netflix $34.55 *** Another 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 another "all-time" high Friday and there is little indication of a trend reversal in the near-term. Traders who have a bullish outlook for the company can profit from further upside activity in the issue with this position. SEP-30.00 QNQ UF LB=0.35 OI=2047 CB=29.65 DE=14 TY=2.6% MY=7.9% ***** IMCL - ImClone $46.56 *** A Big Day! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. Imclone was among the major players at a recent biotech conference and investors were apparently pleased with the company's outlook as its stock price was up over 10% during the past week. Traders can speculate conservatively on the near-term performance of the issue with this position. SEP-40.00 QCI UH LB=0.30 OI=2433 CB=39.70 DE=14 TY=1.6% MY=5.3% ***** ***************** 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 CBST 13.51 SEP 12.50 UTU UV 0.45 408 12.05 14 8.1% 20.2% KVHI 30.99 SEP 30.00 VJU UF 0.95 0 29.05 14 7.1% 16.7% FWHT 25.56 SEP 25.00 HFQ UE 0.80 50 24.20 14 7.2% 16.6% ADRX 20.79 SEP 20.00 QAX UD 0.50 2948 19.50 14 5.6% 13.5% AMR 12.90 SEP 12.00 AMR UN 0.25 3141 11.75 14 4.6% 12.0% TALK 15.34 SEP 15.00 QQK UC 0.30 0 14.70 14 4.4% 10.7% AVID 52.43 SEP 50.00 AQI UJ 0.90 143 49.10 14 4.0% 10.1% RIMM 27.85 SEP 25.00 RUL UE 0.40 5624 24.60 14 3.5% 10.0% INTC 28.71 SEP 27.50 INQ UY 0.30 37257 27.20 14 2.4% 6.2% ABS 22.92 SEP 22.50 ABS UX 0.25 1537 22.25 14 2.4% 6.0% NSM 33.32 SEP 30.00 NSM UF 0.25 4216 29.75 14 1.8% 5.3% ADVP 48.95 SEP 47.50 QVD UW 0.45 117 47.05 14 2.1% 5.3% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Optimism Prevails Despite Market Retreat By Ray Cummins Stocks slumped Friday after a disappointing jobs report, but analysts remained upbeat about the outlook for share values in light of recent favorable economic data. The Dow Jones industrial average dipped 84 points to 9,503 with Caterpillar (NYSE:CAT) and United Technologies (NYSE:UTX) among the worst performers. The NASDAQ slid 10 points lower to 1,858 as gains won earlier in the session on a bullish forecast from chip stalwart Intel (NASDAQ:INTC) were unable to offset a late bout of profit-taking. The broader Standard & Poor's 500 Index dropped 6 points to 1,021 with mild selling pressure emerging in almost every major sector. Trading volume was active with 1.44 billion shares crossed on the New York Stock Exchange and 1.94 billion changing hands on the NASDAQ. Declining stocks outpaced advancing issues by a small margin on both the Big Board and the technology exchange. Treasury prices rebounded in the wake of equity losses, sinking the yield on the benchmark 10-year note to 4.34% from the previous close of 4.51%. ***************** 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 41.78 SEP 30 35 0.65 34.35 $0.65 Open BOW 38.57 44.61 SEP 30 35 0.60 34.40 $0.60 Open MXIM 39.11 42.70 SEP 30 35 0.65 34.35 $0.65 Open BBY 47.90 52.52 SEP 40 42 0.30 42.20 $0.30 Open JCI 96.49 99.18 SEP 85 90 0.65 89.35 $0.65 Open MBI 53.13 56.68 SEP 45 50 0.65 49.35 $0.65 Open WMT 57.77 58.89 SEP 50 55 0.50 54.50 $0.50 Open BSX 63.25 58.97 SEP 50 55 0.40 54.60 $0.40 Open SNPS 66.53 67.75 SEP 55 60 0.50 59.50 $0.50 Open ISIL 27.58 29.14 SEP 22 25 0.30 24.70 $0.30 Open POWI 32.08 34.60 SEP 25 30 0.55 29.45 $0.55 Open VIA 44.64 46.48 SEP 40 42 0.30 42.20 $0.30 Open AMZN 46.32 46.52 SEP 40 42 0.25 42.25 $0.25 Open GS 88.48 90.96 SEP 80 85 0.40 84.60 $0.40 Open TTWO 29.81 36.37 SEP 25 27 0.30 27.20 $0.30 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss The suggested position in Lowe's (NYSE:LOWE) was not available near the target credit. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status INTU 42.86 47.36 SEP 50 47 0.30 47.80 ($0.70) Closed ESRX 62.23 58.99 SEP 75 70 0.60 70.60 $0.60 Open DB 59.64 62.36 SEP 70 65 0.60 65.60 $0.60 Open IFIN 28.42 31.12 SEP 32 30 0.50 30.50 ($0.62) Closed SAP 27.56 34.01 SEP 32 30 0.25 30.25 ($1.05) Closed AMGN 66.48 67.28 SEP 75 70 0.35 70.35 $0.35 Open MEDI 34.58 33.83 SEP 40 37 0.25 37.75 $0.25 Open CTX 75.42 76.00 SEP 85 80 0.40 80.40 $0.40 Open DNA 79.40 80.75 SEP 90 85 0.50 85.50 $0.50 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss The position in Intuit (NASDAQ:INTU), although profitable now, should have been exited during the rally earlier in the week. The watch-list position in SAP AG (NYSE:SAP) was closed during Tuesday's upside activity and the summary reflect the losses as of 9/2/03. Investors Financial Services (NASDAQ:IFIN) became an early-exit candidate during Friday's session. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status MWD 48.54 48.31 SEP 40 45 4.45 44.45 0.55 Open MGAM 24.97 27.40 SEP 20 22 2.30 22.30 0.20 Open MUR 52.94 57.45 SEP 45 50 4.45 49.45 0.55 Open CTSH 31.90 38.77 SEP 25 30 4.40 29.40 0.60 Open ERTS 89.97 88.75 SEP 80 85 4.50 84.50 0.50 Open AVII 5.54 5.31 DEC 5 7 0.90 5.90 (0.59) 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 70.93 SEP 75 70 4.10 70.90 (0.03) Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss Traders in the speculative Hershey Foods (NYSE:HSY) position will have use their personal risk-reward outlook to determine when to exit the spread. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status SHPGY 22.77 24.27 JAN 30 17 0.00 0.20 Open AVCT 27.83 30.31 SEP 30 25 (0.10) 1.30 Open? Avocent (NASDQ:AVCT) has been a solid performer with a potential credit 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 24.10 OCT-20C SEP-22C 1.90 2.25 Open MSFT 27.31 28.38 JAN-27C SEP-27C 1.20 1.50 Open NE 34.86 35.40 DEC-37C SEP-37C 1.15 1.50 Open ING 19.07 20.81 JAN-20C SEP-20C 0.75 1.00 Open NSM 22.77 33.32 JAN-20C SEP-25C 3.90 5.30 Open? MDCO 26.17 29.81 JAN-30C SEP-30C 1.50 2.00 Open GNTA 13.95 16.00 OCT-12C SEP-15C 2.00 2.40 Open? PRU 36.41 36.46 DEC-37C SEP-37C 1.10 1.10 Open Genta (NASDAQ:GNTA) was a pleasant surprise, offering a favorable 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) is not 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 33.75 OCT 30 30 3.75 5.00 Open AMTD 10.00 11.71 OCT 10 10 1.45 2.30 Open TRI 30.50 31.98 NOV 30 30 4.90 5.00 Open ADBE 34.36 37.91 SEP 35 35 2.80 4.80 Open? BBY 50.08 52.52 SEP 50 50 4.05 4.90 Open CLS 17.55 19.73 OCT 17 17 2.35 3.00 Open NVDA 18.17 18.68 OCT 17 17 2.90 2.95 Open Ameritrade (NASDAQ:AMTD) was the big winner this week, offering up to a $850 profit on $1450 invested in less than one month. Adobe Systems (NASDAQ:ADBE) has performed better than expected and straddles in Best Buy (NYSE:BBY), Sony (NYSE:SNE), Celestica (NYSE:CLS) and Overture (NASDAQ:OVER), which was closed early for a loss, have achieved small profits. 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. ***** AMLN - Amylin Pharmaceuticals $29.04 *** Bullish Biotech! *** Amylin Pharmaceuticals (NASDAQ:AMLN) is a biopharmaceutical firm engaged in the discovery, development and commercialization of drug candidates for the treatment of diabetes and other metabolic diseases. The company has two lead drug candidates in late-stage development for the treatment of diabetes, SYMLIN (pramlintide acetate) and exenatide, formerly referred to as AC2993 (synthetic exendin-4). Amylin has received a letter from the FDA indicating that SYMLIN is approvable for marketing in the United States as an adjunctive therapy with insulin, subject to satisfactory results from additional clinical trials. The company's second candidate, exenatide, is in pivotal Phase III clinical trials and continues to show to show promise for people with Type 2 Diabetes. AMLN - Amylin Pharmaceuticals $29.04 PLAY (conservative - bullish/credit spread): BUY PUT OCT-22.50 AQM-VX OI=1228 ASK=$0.55 SELL PUT OCT-25.00 AQM-VE OI=1408 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$24.70 ***** MERQ - Mercury Interactive $49.41 *** Multi-Year High! *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2000 companies enhance the user experience by improving the performance, availability, reliability and scalability of their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $49.41 PLAY (conservative - bullish/credit spread): BUY PUT OCT-40.00 RQB-VH OI=1208 ASK=$0.30 SELL PUT OCT-42.50 RQB-VS OI=447 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$42.20 ***** SYMC - Symantec $59.45 *** The Rally Continues! *** Symantec (NASDAQ:SYMC) provides content and network security software and appliance solutions to enterprises, individuals and service providers. The company provides client, gateway and server security solutions for virus protection, firewall and virtual private network (VPN), security management, intrusion detection, Internet content and e-mail filtering, remote management technologies and security services to enterprises and service providers worldwide. Symantec has offices in 36 countries worldwide. The company views its business in five operating segments: enterprise security, enterprise administration, consumer products, services and other activities. SYMC - Symantec $59.45 PLAY (less conservative - bullish/credit spread): BUY PUT SEP-50.00 SYQ-UJ OI=1569 ASK=$0.15 SELL PUT SEP-55.00 SYQ-UK OI=1817 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.40-$0.45 POTENTIAL PROFIT(max)=9% B/E=$54.60 ***** CAH - Cardinal Health $56.36 *** Still In A Slump! *** Cardinal Health (NYSE:CAH) is a provider of products and services to healthcare providers and manufacturers, helping them improve the efficiency and quality of healthcare. The company has four segments: Pharmaceutical Distribution and Provider Services, which offers pharmaceutical and other healthcare products, as well as pharmacy management services; Medical-Surgical Products and Services, which includes medical products and services; Pharmaceutical Technologies and Services, which provides a broad range of technologies and services, and Automation and Information Services, which focuses on meeting the needs of customers through proprietary automation and information products and services. CAH - Cardinal Health $56.36 PLAY (conservative - bearish/credit spread): BUY CALL OCT-65.00 CAH-JM OI=254 ASK=$0.20 SELL CALL OCT-60.00 CAH-JL OI=1274 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$60.65 ***** PFE - Pfizer $30.51 *** Trading Range? *** Pfizer (NYSE:PFE) is a research-based pharmaceutical firm. The firm discovers, develops, manufactures and markets prescription medicines for humans and animals, as well as consumer products. The company operates in two business segments: Pharmaceuticals and Consumer Products. The Pharmaceuticals segment includes prescription pharmaceuticals for cardiovascular and infectious diseases, central nervous system disorders, diabetes, urogenital conditions, allergies, arthritis and other disorders; products for livestock and companion animals, and the manufacture of empty soft-gelatin capsules. The Consumer Products segment includes self-medications for oral care, upper respiratory health, eye care, skin care, gastrointestinal health and other products. PFE - Pfizer $30.51 PLAY (conservative - bearish/credit spread): BUY CALL OCT-35.00 PFE-JG OI=3740 ASK=$0.15 SELL CALL OCT-32.50 PFE-JB OI=26454 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$32.75 ***** XL - XL Capital Ltd $76.05 *** Downtrend Intact! *** XL Capital Ltd (NYSE:XL), through its operating subsidiaries, is a leading provider of insurance and reinsurance coverages and financial products 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. XL Re is the global brand used for XL Capital Ltd's reinsurance operations. XL - XL Capital Ltd $76.05 PLAY (conservative - bearish/credit spread): BUY CALL OCT-85.00 XL-JQ OI=985 ASK=$0.30 SELL CALL OCT-80.00 XL-JP OI=251 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$80.60 ************* DEBIT SPREADS ************* These candidates offer a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. ***** HTCH - Hutchinson Technology $33.22 *** Hot Sector! *** Hutchinson Technology (NASDAQ:HTCH) is a supplier of suspension assemblies for hard disk drives. The company categorizes its products as either suspension assemblies or other products, which consist primarily of etched and stamped components used in connection with or related to suspension assemblies. The firm manufactures its suspension assemblies with proprietary technology and processes to precise specifications with very low, part-to-part variation. These specifications are critical to maintaining the necessary microscopic clearance between the head and disk and the electrical connectivity between the head and the drive circuitry. HTCH - Hutchinson Technology $33.22 PLAY (conservative - bullish/debit spread): BUY CALL OCT-25.00 UTQ-JE OI=25 ASK=$8.60 SELL CALL OCT-30.00 UTQ-JF OI=83 BID=$4.10 INITIAL NET-DEBIT TARGET=$4.40-$4.45 POTENTIAL PROFIT(max)=12% B/E=$29.45 ******************* SYNTHETIC POSITIONS ******************* These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. ***** ADRX - Andryx $20.79 *** Settlement = Upgrade! *** Andrx Corporation (NASDAQ:ADRX) is a specialty pharmaceutical company engaged in the formulation and commercialization of oral controlled-release generic and brand pharmaceuticals utilizing its proprietary drug delivery technologies. Andrx also markets and distributes pharmaceutical products manufactured by third parties. ADRX - Andryx $20.79 PLAY (speculative - bullish/synthetic position): BUY CALL DEC-25.00 QAX-LE OI=641 ASK=$1.25 SELL PUT DEC-17.50 QAX-XW OI=653 BID=$1.05 INITIAL NET-DEBIT TARGET=$0.05-$0.10 INITIAL TARGET PROFIT=$0.85-$1.25 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $615 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($17.50). ***** CVTX - CV Therapeutics $27.55 *** On The Rebound? *** CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. The company's New Drug Application (NDA) for Ranexa (ranolazine) for the treatment of chronic angina has been filed at the U.S. FDA. Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146, an A2A-adenosine receptor agonist, is being developed for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Adentri, an A1-adenosine receptor antagonist, is being developed by the company's partner, Biogen, for the potential treatment of acute and chronic congestive heart failure. CVTX also has several research and preclinical development programs designed to bring additional drug candidates into human clinical testing. CVTX - CV Therapeutics $27.55 PLAY (speculative - bullish/synthetic position): BUY CALL OCT-35.00 UXC-JG OI=2159 ASK=$0.65 SELL PUT OCT-20.00 UXC-VD OI=551 BID=$0.45 INITIAL NET-DEBIT TARGET=$0.10-$0.15 INITIAL TARGET PROFIT=$0.55-$0.80 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $600 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($20.00). *********************** 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. ***** PDCO - Patterson Dental $54.42 *** A Reader's Request! *** Patterson Dental (NASDAQ:PDCO) is a value-added distributor serving the North American dental supply and companion-pet (dogs, cats and other common household pets) veterinary supply markets. The company has two operating segments, dental supply and veterinary supply. As the firm's largest segment, dental supply provides a virtually complete range of consumable dental products, clinical and laboratory equipment, and value-added services to dentists, dental laboratories, institutions and other healthcare providers throughout North America. Patterson's veterinary supply segment distributes consumable supplies, equipment, diagnostic products, biologicals (vaccines) and pharmaceuticals to companion pet veterinary clinics principally in the eastern, mid-Atlantic and southeastern regions of the United States. PDCO - Patterson Dental $54.42 PLAY (very speculative - neutral/debit straddle): BUY CALL SEP-55.00 DOU-IK OI=584 ASK=$1.00 BUY PUT SEP-55.00 DOU-UK OI=102 ASK=$1.50 INITIAL NET-DEBIT TARGET=$2.35-$2.45 INITIAL TARGET PROFIT=$0.70-$1.25 ***** ************************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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