The Option Investor Newsletter Sunday 09-14-2003 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: Market Trips Over Oracle Futures Market: TGIF Index Trader Wrap: Pullback and Bounce Editor's Plays: Come Fly With Me Market Sentiment: Rumble on Wall Street Ask the Analyst: Cap-weighted vs. Price Weighted Index 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 9-12 WE 9-05 WE 8-29 WE 8-22 DOW 9471.55 - 31.79 9503.34 + 87.52 9415.82 + 66.95 + 27.18 Nasdaq 1855.03 - 3.21 1858.24 + 47.79 1810.45 + 45.13 + 63.31 S&P-100 512.30 - 0.19 512.49 + 9.13 503.36 + 5.94 - 0.88 S&P-500 1018.63 - 2.76 1021.39 + 13.38 1008.01 + 14.95 + 2.39 W5000 9877.31 - 29.38 9906.69 +136.23 9770.46 +158.03 + 64.92 RUT 509.06 + 0.19 508.87 + 11.45 497.42 + 11.91 + 13.59 TRAN 2735.60 - 11.69 2747.29 + 64.05 2683.24 + 41.68 + 17.90 VIX 20.25 + 0.88 19.37 - 0.12 19.49 - 0.78 + 0.07 VXN 32.68 + 11.98 30.70 + 1.18 29.52 + 0.05 + 0.26 TRIN 1.11 1.04 0.78 1.36 Put/Call 0.90 0.72 1.29 0.91 ****************************************************************** Market Trips Over Oracle by Jim Brown Oracle said it stumbled on execution in the last quarter and it saw a -7% drop in revenue. The market tripped over the ORCL news and took a dive at the open. Helping accelerate that drop was a drop in Consumer Sentiment and weaker Retail Sales. It appears the wheels on this rally may need some serious grease soon or we could see them start falling off. Dow Chart Nasdaq Chart Friday started off negative with a weaker than expected Retail Sales report for August at +0.6%. Consensus was +1.3%. You may remember that we had many retailers announcing during the month that sales were ahead of plan, tax checks were boosting the trend, back to school was strong, etc. Unfortunately that was primarily focused on the discount retailers like Wal-Mart. The broader sectors of apparel, building supply and non-store retailers experienced declines. Auto parts, electronics, food and beverage also declined. If you were not in the back to school category you did not see the same gains. This depressed the broad economic recovery viewpoint. Sales were still up overall but only marginally and after the multiple guidance upgrades by Wal-Mart investors expected much better. The PPI came in at +0.4% and inline with estimates but only because of the increase in energy prices. Excluding food and energy the core rate was only +0.1%. While we are not seeing that "unwelcome fall in inflation" that Ben Bernanke is on guard for I am not sure that seeing prices rise due to high energy prices is actually the desired result. The weaker dollar and the higher import prices will continue to pressure producer prices but the amount of increase is still minor. This report will not give the Fed any reason to hold off on any future rate cut. The Michigan Consumer Sentiment fell slightly to 88.2 from 89.3 in August but was significantly under the 90.4 estimate. The index is only 4 points below its May high but this was the third consecutive drop. The current conditions fell to 98.8 from 99.7 and expectations fell to 81.3 fro 82.5. The jobless rate was given as the major factor. If they had a job and an income then the tax rebate checks and reduction in withholding was a plus. Unfortunately with over 9 million workers still unemployed the drag is being felt. Confidence is falling with the increased Jobless Claims and the rising energy prices. $2 gas impacts the blue-collar sector with long commutes and $40 fill ups takes discretionary funds out of the economy. This slows eating out, movies and other recreational events. The tax rebate checks helped to ease any pent up demand and a falling confidence could put the consumer led recovery at risk. Economic reports for Monday include Business Inventories, NY Empire State Survey, Industrial Production and Capacity Utilization. Tuesday has CPI and the FOMC meeting. Oracle announced earnings inline with estimates at 8 cents but new license revenue dropped -7%. Oracle said they see a modest uptick in current quarter revenues but that new license revenue could continue to drag. This is not what the market wanted to hear. Since Oracle deals with the large corporate client they are viewed as an indicator of IT spending on a broader scale. Microsoft software is broken up into hundreds of small bites of a couple hundred dollars a piece and has customers from the smallest home computer to the largest corporations. It is hard to get a true read on corporate spending from MSFT results. Oracle however deals with mostly large scale enterprises and its products are generally more expensive. If Oracle is having trouble then there is a good possibility the broad based IT recovery is not making any progress. Maybe Oracle should spend more time building its business than trying to mount a hostile takeover of PeopleSoft. There were conflicting reports of fund flows with TrimTabs claiming that all equity funds had outflows of -$400 million for the week ending Sept-10th compared to inflows of +$3.4 billion the prior week. However, if you only take funds that invest in U.S. stocks they reported a +$2.8 billion inflow. Confused? It gets worse. Fred Alger Management reported that there were $20 billion of inflows in the ten weeks covering July/Aug and there was +$2.7 billion inflow in the first week of September. They also pointed out that -$15 billion flowed out of money markets as investors started thinking about the stock market again. CNBC reported that there was only $94 million in equity inflows for the first week of September compared to +$4 billion in inflows for the prior two weeks. What this means to me is that nobody knows exactly and the numbers reported can be skewed in any direction you want to report and the timeframe you choose to use. Personally I saw a flood of buyers last week and a flood of willing sellers. If the retail customer is coming off the bench to the tune of +$15 billion flowing out of money markets then they are right on time and I think we saw evidence of that money moving into the stock market. It remains to be seen if the lure of Dow 10,000 only a couple hundred points away pulled them into the market at the top or just before the next breakout. JPM upgraded their outlook on the economy and raised their GDP estimates for the second half of the year to 5% from 4% and said they thought there was still +6% upside in the market for the year. They said they felt there was an increase in capital expenditures that would benefit the industrials and the materials sectors. They reiterated their overweight on U.S. equities. Another analyst was quoted on Friday as expecting as much as 7% growth in the 3Q with the fastest GDP growth since 1999. I want some of his drugs. The real bear market is in Iraq. We heard on Friday that a new round of firefights had claimed the lives of even more U.S. soldiers and the violence appears to be increasing with the opposition becoming more organized. I report this only because it is reaching the point where it could begin to drag on the market. If investors feel we have gotten into a Vietnam style quagmire with no foreseeable way out then they could begin to withdraw from the market. They will expect the deficit to continue to skyrocket with the $87 billion Iraq request this week as only the first installment. If the economic recovery is slowing and the government is going to be flooding the market with paper then bonds are going to suffer as well as stocks. For every $50 billion of new bonds sold that removes money from stocks. It is not even close to 1:1 basis but there is a negative drag. The 9/11 anniversary is over and the numerous TV specials and sound bites are fading. All eyes are now focused on the Fed meeting on Tuesday as though there was going to be a proclamation from on high that would soothe all fears. What they are probably going to get is a reworded release similar to the last several releases. Lately they have not even been changing the words to most of it. This has been the meat of the statement for the last two meetings. "The Committee continues to believe that an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity. The evidence shows that spending is firming, although labor market indicators are mixed. Business pricing power and increases in core consumer prices remain muted." Expect nothing but more of the same with a possible bone for the bond market. Saying anything about the "D" word will help keep bonds in check while talking up the recovery will pressure interest rates and actually slow the recovery. Sounds like to me we need to hear some more "unwelcome disinflation" comments to keep everything on track. Fund managers will be back at work on Monday after two weeks of conferences hosted by the various investment banking firms. They will have new and updated information about the stocks they own and the ones they want to own. This is normally when the hard decisions about the end of year portfolio restructuring take place. We will also get another flurry of mid quarter updates and the earnings warnings will accelerate as we near the first earnings dates in three weeks. After a serious slump at the open the markets managed to pull out of their depression and rally back to positive territory. The Dow hit a low of 9380, yes under 9400, and rallied back to close at 9468 after making a decent attempt to retest 9500 again. The Nasdaq dropped to 1822 at the open on the Oracle news but rallied back to 1853 and a close over the prior 1850 strong support. All things considered this was a bullish showing by the major indexes although volume was even lighter than Thursday's. The advancers got the nod and the new 52-week highs climbed for the second consecutive day. While I think the effort was positive, especially the close over 1850 by the Nasdaq after the Oracle news, we are far from ruling out any September weakness ahead. The wave of bullishness is building again and I would not be surprised to see another move up. The last dip in late August lasted five days and we have had four weak days in this current bout of profit taking. I said I would not be surprised but that was not exactly correct. I am surprised each day the market overcomes the distribution at these levels. I am surprised at the strength and depth of the bids. It refuses to go down despite a growing parade of analysts predicting a drop. Sounds like a new bull market. When they start predicting Dow 10,000 again we may need to worry. Next week should be critical to the bulls. They will be faced with the Fed on Tuesday but it is doubtful the Fed can or will say anything that can hurt equities. Bonds will be the target. This gives equities a free pass until Thursday when we get Jobless Claims again along with the Philly Fed and FOMC minutes for August. The Philly Fed had a blowout in Aug at 22.1 when consensus was only 10.0. If this report can just hold that line then the bulls could continue to romp. If it reverses back to the 10.0 level and proves to be a one month wonder we could see some weakness. We also get the semiconductor book-to-bill on Wednesday night. In July the number rose to 0.97 and just slightly under breakeven. If the BTB can break 1.0 then the bears could hibernate early. Look for initial resistance at Dow 9500 then much stronger resistance at 9600. Initial support is 9250. The Nasdaq has strong resistance at 1885 and support at 1820. The 50% retracement level for the Nasdaq is 1853 and exactly where it closed on Friday. 50% for the Dow is 9500. That puts both the indexes right in the middle of their recent ranges with the opportunity to wander in either direction without much effort. Keep your finger on the trigger and look for the next major move to come after the Fed meeting. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** TGIF Jonathan Levinson Friday was a day of sharp moves in treasuries, equities and precious metals, with silver and gold getting aggressively sold alongside the US Dollar Index, while treasuries and equities printed intraday reversals against their opening trends. Daily Pivots (generated with a pivot algorithm and unverified): 10 minute chart of the US Dollar Index The US Dollar Index got dropped like a bad habit upon the release of Friday's 8:30AM economic data, and spent the remained of the day twitching near the lows. Gold, however, got clocked as well, while treasuries and foreign currencies got bought. The US Dollar Index finished the week on a third bearish crow candle. Daily chart of December gold December gold sold off by 4 points to close at 376.80 despite the drop in the US Dollar Index. It engulfed Thursday's candlebody and once again respected the confines of the narrowing apex on the daily bear wedge. The daily chart oscillators are on preliminary sell signals, with the weekly candlechart printing a bearish shooting star doji. The HUI dropped and closed below 200, the XAU below 93. The CRB dropped 2.69 to 242.18 on weakness in silver, lean hogs and coffee futures. Daily chart of the ten year note yield Treasuries got bought aggressively on Friday, with the TNX closing lower by 6.5 basis points at 4.269%, but spiking well lower intraday to below 4.2%. On the daily chart, the move brought the ten year note yield below horizontal resistance but closed back on the line within the context of the ongoing cycle downphase. For the week, the TNX set a lower high and lower low, but the candle blew off its lower shadow, creating the suggestion of a possible doji low. The outlook is unclear on that basis, but the trend remains lower on the daily chart, bullish for treasuries. Daily NQ candles The NQ printed a bullish doji hammer below the failed wedge trendline, testing but not exceeding the line at 1362. The move continues the ongoing return-to-the-scene-of-the-crime rally, but until the lower trendline is successfully regained, it remains bearish. The daily oscillators progressed further into their nascent downphases, also bearish, but for the week, the spike off Friday's low was sufficient to close the NQ right at the middle of its range, for a weekly doji. We have neutral indecision on a weekly basis, as the market continues to work out whether Tuesday was the rally's high or not. 30 minute 20 day chart of the NQ The NQ bounced again off the rising bear flag support line at 1331.50 on Friday morning and truncating the 30 minute chart oscillator downphases in the process. The higher oscillator lows are bullish, as is the marginally higher price low from Thursday. A lower high on this bounce would set the bulls up for big disappointment, however, and next week should be very educational as to the future of this rally. Two weeks ago, I discussed the need to evaluate the bounce off the first pullback from the rally highs. We got a new rally high, a respectable first pullback, and an ongoing bounce. A lower high on the bounce would be bearish, while a higher high will convert a lot of bears to the bull case. Daily ES candles The ES printed a long tail doji hammer on Friday, closing marginally higher on the day but well off the intraday lows, and giving the tentative daily oscillator downphase a pause. The top of the move briefly violated the broken lower ascending trendline but could not hold it, with the body closing below. The 30 minute chart reveals the most bullish interpretation I can muster, with the decline off the Tuesday high forming a bull wedge projecting back to that high. The Macd is bottoming and would support such a move, as would the rising trend on the stochastic lows. However, the Friday price low took out Thursday's low, significant weakness compared with the NQ which did not. As with the NQ, the bounce is in progress, and the top of this bounce will add a great deal of clarity to the bull-bear debate going into the autumn. 20 day 30 minute chart of the ES Daily YM candles We see the same picture on the daily YM candles, with a bullish hammer challenging but not breaking the lower rising trendline. The cycle picture is the same, with a tentative top likely printed on the oscillators but the downphase hesitating to get itself underway. 20 day 30 minute chart of the YM The 30 minute chart of the YM reveals the same bullish divergence on the oscillators as we see on the other indices, but the same lower low printed on Friday. NQ remains the stronger of the equity futures, but the question remains the same for all, namely how far the current bounce will run. With the daily chart oscillators topped out and trying to roll over, it will take a successful assault on the Tuesday highs to undo the early sell signals and start them trending in overbought. Anything less will look like a broad top forming for equities. While any outcome is possible, as the market does what it does and not what it should, the daily chart oscillators have been dominant throughout much of the rally, and are less likely to trend than to begin a downphase once topped in overbought territory. It is for this reason that I am bearish at current levels, but while this bounce is in play, I'm more cautious than anything else. For the week, equities managed a positive close with a mostly sideways move, with wide blowoff ranges to the up- and downsides. Treasuries remains bullish, the dollar bearish, and gold bearish with a shooting star doji. On gold, it occurs to me that the bulk of the losses causing that weekly shooting star occurred on Friday afternoon, and I have yet to be convinced that it will stick. Nevertheless, that it the setup for now. The word "uncertainty" has come up a lot in the context of the different markets I follow- caution remains key until those spiky candles choose a clear direction. ******************** INDEX TRADER SUMMARY ******************** Pullback and Bounce Jonathan Levinson This week brought the markets to new 52 week highs, followed a by a sharp pullback and a bounce. While bulls and bears trade their convincing arguments, the stage is set for a resolution in the coming week. Daily COMPX candles The Nasdaq daily chart shows a failure of the lower trendline within a steep bearish ascending wedge, followed by the attempt to regain the lower trendline since Wednesday's break. Friday saw the Nasdaq eke out a 9 point gain after setting the day low shortly after the open, with moderate volume of 1.7B shares. The bear wedge trendline remains intact, but note that one could interpret the pattern of higher lows since Wednesday as respecting a secondary (undrawn) lower rising trendline. The oscillators are rolling over from overbought, but if the bounce from Wednesday regains the trendline, those sell signals could reverse. One the 30 minute chart, I've used the secondary trendline to illustrate support. In fact, that lower trendline is exactly parallel to the upper rising trendline, forming a bear wedge. Herein lies the debate between bulls and bears: support has either been broken or not, depending on how its interpreted. In any event, a move below 1825 or above the rally highs above 1880 will clarify the picture. If this bounce fails from a lower high, bears will jump on and bulls will protect profits. There's a bullish divergence on the 30 minute chart oscillators, with their steeply higher lows established Friday morning. All eyes remain on the outcome of the bounce now in progress. 30 minute 20 day chart of the COMPX Daily INDU candles The Dow is set up similarly to the COMPX, with Friday's volume moderate at 1.5B shares. The bounce from Friday morning's lows launched from a low below Thursday's low, unlike on the stronger Nasdaq. The bullish divergence on the 30 minute chart oscillators below lends credence to the bullish descending wedge projecting to just below the rally highs. Note that the bear wedge never fulfilled its downside target below 9240, and the higher low thus established is certainly not bearish. With the daily chart oscillators toppy and the 30 minute chart oscillators bouncing, the stage is set for more upside on Monday morning. If the bounce takes out 9600, bears will have a problem. In order to do so, however, 9500 will have to fail first, no small task for the bulls. 20 day 30 minute chart of the INDU Daily OEX candles The OEX did not break down to the same extent as the Nasdaq on this week's pullback, and remains clearly above trendline support on the daily chart. There has been no sell signal printed on the daily chart oscillators, and the decline on the 30 minute chart from the rally highs has been far more gradual than for either the COMPX or the INDU. This relative strength in the OEX reflects bullishly on the broader market, but the lower Friday low complicates the otherwise rosy picture. Traders found this week to be tricky in the extreme, and no wonder, given the opposing cyclicality on the daily and 30 minute chart oscillators. On Friday morning, the 30 minute and daily chart oscillators appeared to be lining up for a sharp drop, but the save at OEX 507 put in an unexpected reversal on the 30 minute chart oscillators. Whether the bull wedge projecting back to 518 plays out next week will determine whether we're in for bearish autumn or not. 20 day 30 minute chart of the OEX Daily QQQ candles The opposing cyclicality is clearest on the Qube chart, in which the daily chart is covered with bear tracks, including a bear wedge breakdown and clear oscillator sell signals, while we have a double bottom and buy signals on the 30 minute chart. Traders need to trade their timeframe and stick to it, but the safer approach is simply to watch for the results of the inevitable trendline tests from current levels. If we've learned anything during the past two weeks, it is that trading in chop is a stop- runner's paradise, and a veritable gauntlet for traders seeking viable entries. 20 day 30 minute chart of the QQQ The new highs seen this week gave traders a reference point from which to base their analysis. Bears will not want to be shot above the 52 week high, and will continue to attempt to pile onto each resistance level below it. The vertical launches off the Friday lows felt like short covering/stop running frenzies above those resistance levels, and lined up well with our intraday Fibonacci levels discussed in the Market and Futures Monitors. In theory, the markets could lurch all the way up to the rally highs fueled by such moves, an enviable goal for bulls. The short covering at the top could act as jet fuel to higher highs. However, if they fail to do so, bears will begin to press and bulls will fret. This is the setup for next week. See you at the bell! ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** Editor's Plays ************** Come Fly With Me The airline sector is flying high and after a week of pullback prior to the 9/11 anniversary they have started to firm again. Passenger traffic is up and vacancies are down. The airlines are flying fewer planes, fewer routes and passenger traffic is increasing. Costs are down after the benefits were slashed to both the passengers, get your bag lunch at the door and the employees. Employees were forced to take wage concessions in order to save their jobs in the restructuring after 9/11. While they are far from the capacity levels they saw prior to 9/11 they are far more profitable now than they were then. Many of the airlines took the slow traffic period as an opportunity to upgrade equipment and retire older more costly planes. The only negatives for the industry now are the suits against UAL and AMR for allowing 9/11 hijackers to take over the planes. The cost of jet fuel is also a drawback but once the gasoline shortage is corrected over the next couple of weeks that should get better. With the advent of fall many refineries shut down to switch to the winter blends. This can take a couple weeks and usually occurs right after Labor Day. This has heightened the current shortage. Two companies not a party to the suits and profiting from the return of the traveler are Airtran Holdings and Southwest Airlines. AAI and LUV are both cheap stocks at under $20 but they are both on a roll. Neither pulled back like the major carriers last week and both set new highs on Friday. The other major carriers like DAL, AMR and CAL all dropped off their highs from last week as we approached 9/11 and rebounded on Friday to form a bullish wedge at last weeks highs. One prominent airline analyst said this week that you better book any holiday travel now because rates were going up. Now that 9/11 has passed uneventfully travelers will begin hitting the air again. Also, now that summer is over the business travel will also increase and that will put high paying travelers in seats normally used by the discounters. That means more profits and fewer cheap seats. I am looking at January calls on LUV and AAI. Don't wrinkle your nose up at January calls as a long term play. It is only four months away. Just consider this Christmas money. Buy them now, sell in December and use the money for those holiday gifts. LUV @ $18.58 Jan-$20 Call LUV-AD $0.75 AAI @ $17.78 Jan-$20 Call AAI-AD $1.45 No, that is not a misprint. The AAI stock price is -80 cents less than LUV but the calls are +70 cents more expensive. It is a factor of how fast the AAI stock price has been rising and the volume is 50% less. I would suggest only playing one stock and I would pick LUV for obvious reasons. One way to play the high premiums in AAI would be with a covered call. Buy the stock at $17.78 and sell the Jan-$20 covered call for $1.35. If the stock hits $20 by January that is a 20% return, 40% if using margin. LUV Chart AAI Chart ******************************** Powerball The Nasdaq dip took some of the excitement out of the Powerball portfolio as investors took some profit off the table. Still five months remaining and plenty of time for that 4Q recovery. 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 **************** Rumble on Wall Street - J. Brown Let's Get Ready to RUMBLE!!!!! The markets are smack dab in the middle of September, traditionally the worst month of the year for stocks, and the fight is on between the bears and the bulls. Thus far the fight has been relatively even as the markets have pulled back from their early September gains but the edge has to be given to the bulls. Many professional investors are surprised that there is little desire to take profits off the table, thus allowing equities to maintain their gains. The potential bearish reversal we witnessed in the markets this week has been stymied by another round of dip buying Thursday and Friday. There is mixed reaction to the fact that the markets are holding up so well. Emotions run from hope and encouragement to distrust and disbelief. Looking at the market reaction on Friday we did notice that Gold futures dropped almost $4 or 1% to $376.90/ounce. This pushed the XAU lower by 2% making it the biggest sector loser on the session. Despite the move the XAU is still in a rising channel. Also contributing to bullish sentiment was Friday's drop in crude oil. The December contracts traded below $28 intraday on Friday to levels not seen since June. As we suggested earlier the biggest event was the market's lack of weakness. Many sector indices and individual stocks produced a nice bounce on Friday afternoon. The Wilshire 5000 index looks ready to make another run at the 10K mark. The Semiconductor index (SOX), which many believe leads the tech market higher (and lower), has rebounded back above the 450 level. Even the Retail Index (RLX), which has been the big loser for September, is still in its rising trend and finding support at the simple 50-dma. The volatility indices continue to show weakness and Friday's move hints at another leg higher in the broader indices, much to the bears distaste. This coming week's big event is the Tuesday FOMC meeting but Wall Street is not expecting much. Meanwhile investors will have to deal with a full week of economic reports on top of any new earnings warnings. This could really challenge the bulls fortitude as we are now about three weeks from the October earnings season and negative corporate confessions could be disheartening. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9609 52-week Low : 7197 Current : 9471 Moving Averages: (Simple) 10-dma: 9504 50-dma: 9276 200-dma: 8653 S&P 500 ($SPX) 52-week High: 1032 52-week Low : 768 Current : 1018 Moving Averages: (Simple) 10-dma: 1020 50-dma: 996 200-dma: 925 Nasdaq-100 ($NDX) 52-week High: 1387 52-week Low : 795 Current : 1357 Moving Averages: (Simple) 10-dma: 1359 50-dma: 1288 200-dma: 1129 ----------------------------------------------------------------- Just when trader might begin to see a change in trend for the volatility indices, they roll over again. This indicates that the bulls may not be finished yet. CBOE Market Volatility Index (VIX) = 20.25 -0.25 Nasdaq Volatility Index (VXN) = 32.68 -0.29 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.90 531,656 479,064 Equity Only 0.70 370,727 259,515 OEX 0.91 33,277 30,277 QQQ 2.46 20,820 51,354 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.7 + 0 Bull Confirmed NASDAQ-100 78.0 + 0 Bear Correction Dow Indust. 83.3 + 0 Bull Confirmed S&P 500 81.2 + 0 Bull Confirmed S&P 100 88.0 + 0 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.31 10-Day Arms Index 1.10 21-Day Arms Index 1.01 55-Day Arms Index 1.04 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 1629 1717 Decliners 1162 1325 New Highs 86 116 New Lows 12 6 Up Volume 856M 801M Down Vol. 576M 867M Total Vol. 1469M 1688M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 09/09/03 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 No change in sentiment for the commercial traders here. Meanwhile small traders forked out a little more cash to increase both their long and short positions. Commercials Long Short Net % Of OI 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%) 09/09/03 418,958 486,209 (67,251) (7.4%) 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 08/19/03 162,034 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% 09/09/03 176,401 81,444 94,957 36.8% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercial traders in the e-minis continue to pump up their long positions. The last numbers show the most bullish posture in quote sometime. Meanwhile the small trader has rotated a little bit of money from short back to long. Commercials Long Short Net % Of OI 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% 09/09/03 370,909 237,610 133,299 21.9% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 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%) 09/09/03 59,692 130,270 (70,578) (37.1%) Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders are increasing their bets on the NDX but they're still beating more heavily on a move lower. Small Traders are also active with larger net positions but they're still beating on the bulls. Commercials Long Short Net % of OI 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%) 09/09/03 44,677 62,369 (17,692) (16.5%) 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 08/19/03 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% 09/09/03 28,788 13,370 15,418 36.6% 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 change in investor sentiment for the professional traders here. There is little change for the small trader but they have bumped up their long positions a tad. Commercials Long Short Net % of OI 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% 09/09/03 25,807 10,756 15,051 41.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 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%) 09/09/03 7,429 13,796 (6,367) (30.0%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ *************** ASK THE ANALYST *************** Cap-weighted vs. Price Weighted Index I'm new to trading indices and was wondering if you could give me an simplistic explanation to help me better understand what, or how, a market capitalization weighted index operates versus a price weighted index like the Dow Industrials. I'm trying to learn how I can perhaps use the indices to at time hedge some individual stocks that I own, but I'm not sure if I should use the Dow or S&P 500 to do this. My general preface is that I think stocks have gotten a little bit ahead of themselves and I'm hesitant to sell my stocks and looking to hedge with some index options. I've also got a pretty good job that pays well and I'm pretty sensitive to capital gains taxes at this point. Don't get me wrong, I'm holding some losses too, but have been writing covered calls on some of these positions to work down the cost. Well, I think I can tackle the bulk of your question, but for the sake of brevity, how about we use your example of the Dow Industrials being a price weighted index, but instead of using the S&P 500, I'm going to use the S&P 100 Index for the example. I think when we do this, it will also be easier to understand how a price-weighted versus cap-weighted index can be impacted positively or negatively by just a couple of stocks. Now, I'm also under the assumption that the trader, but more likely an investor, has a relatively large sized portfolio of stocks. Sometimes a pure "tech investor" with holding in 10 stocks might well use QQQ puts/calls to hedge those positions, but I'm also under the assumption that the subscriber may also be holding a portfolio of larger capitalization stocks, most likely a mix between tech and non-tech companies. Let's start out with a price-weighted index like the Dow Industrials (INDU) 9,471. Here's the Dow 30 components, where I've sorted them by price as of their September 12, 2003 closing values. Dow Indu. components - sorted by price I've placed some pink numbers by some of the Dow components, which we will see later, is how that stock is weighted on a ranking of 1 to 100 in the OEX by its market capitalization. For instance, while 3M (MMM) is the most heavily PRICE-weighted stock in the Dow (it will split 2:1 on Sept. 29) and currently carries a 7.2% weighting, it is the 30th-largest weighted stock in the OEX, and there it carries a 1.03% weighting. When 3M splits 2:1 on September 29, it will fall from the #1 largest-weighted stock in the Dow, to approximately the 16th largest weighted stock. While 3M's split will have no impact on the price of the INDU when it splits, going forward, share PRICE fluctuation of MMM will have less near-term impact on the Dow's performance than it does today. Sticking with the same table above, General Electric (NYSE:GE) is the most heavily weighted stock in the OEX, with Microsoft (NASDAQ:MSFT) #2, but their lower share PRICE values has them carrying less WEIGHT in the Dow than 3M (MMM) or Procter & Gamble (NYSE:PG). Quiz: What current Dow component was one of the original 12 Dow components? I've added a couple of other columns of data just for informational purposes like P/E ratio, annual dividend and current annual dividend yield, along with a general sector association. Microsoft (NASDAQ:MSFT) announced today that it was raising its annual dividend to 16 cents per share, thus the asterisk (*) by dividend and dividend yield. Now we see how the Dow Industrials, a PRICE-weighted index is valued. Let's take a look at the S&P 100 Index (OEX.X), which is market cap weighted. Remember! Caterpillar (NYSE:CAT) is the only Dow component, which does not have representation in the S&P 100 Index (OEX). Due to vertical screen limitations, I have to show the OEX components in two segments of 50 each. S&P 100 (OEX.X) Components - 1-50 most heavily weighted In pink I've quickly made some cross-references to how a particular stock was PRICE-weighted in the Dow. We can really see a difference in how General Electric (GE) and Microsoft (MSFT) are weighted in the OEX versus the PRICE-weighted Dow Industrials. To the far left, I've placed each stock's 12-month net price gain/loss. In a minute I'm going to re-sort everything by sector and see if we can pick out some trends. S&P 100 (OEX.X) Components - 51-100 most heavily weighted There's not a lot to make note of as some of the Dow 30 components begin to get market cap weighted out of the S&P 100. However, one can imagine some of the impact Williams Co. (NYSE:WMB) $8.80 may have had on the OEX's decline when it plummeted from roughly $40.00 per share in the summer of 2001 to $2.50 per share in just 1-year's time, but the stocks recent 12- month gain of 206% hasn't helped all that much as the stock's market cap weighting is now more minimal. Anyway, we should now have a pretty good understanding of how a market cap-weighted index versus a price-weighted index can have certain stocks having greater impact on how an index will trade. Since I had placed some sector and 12-month gains/losses on my OEX table, I thought I'd sort the OEX by sector, and see if there hasn't been some similar percentage gains with sector association. What traders will also look for is that one stock. Just that ooooone stock in a sector, which is DIVERGING from the sector itself. That DIVERGENCE, when found early, could well be a signal from the MARKET that that stock has something wrong with it, or something very right getting ready to take place, where perhaps a new product innovation or business model is superior to the competition. Again, the sectors listed by q-charts are rather general, but we'll be able to quickly make some associations. If a trader/investor will benchmark these type of observations, then check back with a similar comparison a couple of weeks later, if not months, they should be able to generate some trends developing, perhaps some sector rotation and establish some trading scenarios. S&P 100 Index Components - Sorted by sector My right hand is cramping up from over usage of my mouse today, but after sorting by sector, I also moved some stocks around from their sort order to make some associations. A trader/investor doesn't necessarily need a platform like q-charts to do some of this data gathering and you should feel free to just quickly populate a spreadsheet during a slow market day and build a similar foundation if you think this type of sector/stock analysis might help you. I moved AA and ATI together, as they are in the non-ferrous metals industry. DD and DOW produce chemicals. BCC, IP and WY are forest/paper products stocks. You get the idea. General Electric (GE) and Tyco (TYC) have very similar business models and have their corporate fingers in many of the worlds various sectors. 12-month gains of roughly 12.5% is notable. What do you like to drink? Beer (BUD), Pepsi (PEP) or Coke (KO). I prefer some good old Rocky Mountain spring water to Mississippi mud water (that's what living in Colorado for 36 years will do to you). I'd like to take the blindfold test sometime, but think I prefer the taste of Coke (KO). Still, put a 12-pack of PEP on sale for 10-cents less and I'll put on a white glove like Michael Jackson and be on my way. Further down, I moved Bank of America (BAC) and Bank One (ONE) closer together. New York Attorney General Spitzer is evidently keeping an eye on their recently discovered mutual fund trading activities. This is a different way to keep an eye on things. Earlier we made note of Williams Co. (WMB). When Enron was about half-way to bankruptcy, I started sniffing out other company's with energy trading operations and found stocks like WMB and others as put candidates. Those that exhibited similar technicals to Enron became very good put candidates and "guild by association" found just about every energy trader, or utility with some newly created energy trading division getting whacked to the downside. Further down, I group some of the insurers. Some micro-sector work may be needed to differentiate property/casualty compared to life/annuity, etc,. Citigroup (C) and JP Morgan (JPM) are big money center banks. Like I said, my hand started cramping up and my eyes are starting to cross, but you can see some different ways of actually breaking the OEX down by sector, arranging your stocks how you like, then revisit the data once every couple of weeks. Funny. I was just thinking. I received a yellow Labrador Retriever for my 40th birthday from a buddy of mine and his dog's litter. I've seen him just about every day for the 6-months that I've had him. Looking at him day after day, I really didn't see or notice him growing. A friend of mine hadn't seen my puppy drake (now 75 pounds and still growing) in about 2 months and his eyes popped out of his head when he saw him. Sometimes I think we as traders/investors stare at a stock or set of data way too often and NEVER see the change. Take a $10 stock as an example. You can stare at it day after day, watch it go down a penny for 1,000 days and probably not think anything of it until it is worth $0.00. Here's the second part of the S&P 100 sorted by sector. S&P 100 Index Components (Part 2)- Sorted by sector One last thought before I close. See the double asterisk (**) I've placed by Texas Instruments (NYSE:TXN) $23.88. I ran a query using Dorsey/Wright and Associates point and figure search engine. Just as you and I can look at the 12-month percentage gains and see that Williams Company (WMB) has been the OEX's best performing stock for the past 12-months, I wanted to know what stock in the OEX was a stock where relative strength on a point and figure basis was showing a stock that was recently coming into favor on a longer-term basis. I first ran a query using the following sets of parameters. Price between $0.00 and $200.00 per share, Relative Strength is "buy" Relative Strength trend/column is X All Sectors Universe is OEX Without listing them it was on November 6, 2002 that WMB's relative strength chart gave its first buy signal. I went back to a bar chart and see that on November 6, 2002, WMB closed at $2.75. I missed that, and I also missed the triggering of a bullish triangle pattern in WMB on February 20, 2003 at $3.75. The reason I double-asterisk TXN is that on September 5, 2003, just last week, TXN's relative strength chart gave its first relative strength buy signal since doing so on December 11, 2000 when TXN traded $51.88. That relative strength buy signal was then reversed (negated) with a relative strength sell signal on February 7, 2001, when TXN traded $39.00. TXN's point and figure chart currently has a bullish vertical count of $42.50 associated with the chart, and the stock has successfully held tests of its bullish support trend (currently at $18.50) three times since its January lows. LEAPS options traders might look at a partial bullish position in the TXN Jan. 05 $25 calls (ZTNAE) $4.00 x $4.30. Oh! Did anyone figure out my question earlier regarding what current Dow component was one of the original 12 Dow components? On July 3, 1884, Charles Dow first published his initial market average in the "Customer's Afternoon Letter," now known as The Wall Street Journal. Mr. Dow's original list was comprised of 9 railroad stocks and 2 industrials stocks. It wasn't until May 26, 1896 that Mr. Dow first published an index comprised exclusively of industrial stocks. You should recognize at least one of these names. American Cotton Oil American Sugar American Tobacco Chicago Gas Distilling and Cattle Feeding General Electric Laclede Gas National Lead North American Tennesseee Coal & Iron U.S. Leather preferred U.S. Rubber The value of the average was 40.94, which Mr. Dow calculated using a simplistic unweighted method by simply totaling the value of each stock and dividing by the number of stocks, or observations. You should also note, that Mr. Dow constructed a chart of his then to be famous Dow Industrials using the point and figure charting system in order to track the laws of supply and demand for the index, and stocks themselves. Those were the days! I can almost here Mr. Dow telling his newsletter subscriber that the letter was cut short as his pen hand was cramping up. I never did much care for mouses/mice. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ FDS FactSet Research Sys Tue, 16 Sep Before the Bell 0.37 GIS General Mills, Inc. Tue, 16 Sep Before the Bell 0.62 KBH KB Home Tue, 16 Sep After the Bell 2.14 LEN Lennar Corporation Tue, 16 Sep After the Bell 2.23 PIR Pier 1 Imports, Inc. Tue, 16 Sep Before the Bell 0.20 KR The Kroger Co. Tue, 16 Sep Before the Bell 0.32 TIBX TIBCO Software Tue, 16 Sep After the Bell 0.02 ----------------------- WEDNESDAY ----------------------------- BBY Best Buy Co., Inc. Wed, 17 Sep Before the Bell 0.42 CC Circuit City Stores Wed, 17 Sep -----N/A----- -0.13 CLC CLARCOR Inc. Wed, 17 Sep After the Bell 0.55 ELN Elan Corporation, PLC Wed, 17 Sep Before the Bell -0.19 FDX FedEx Wed, 17 Sep -----N/A----- 0.57 GPN Global Payments Inc. Wed, 17 Sep After the Bell 0.43 HAVS Havas Advertising Wed, 17 Sep -----N/A----- N/A MLHR Herman Miller Wed, 17 Sep After the Bell 0.10 PT Portugal Telecom SGPS Wed, 17 Sep Before the Bell N/A WOR Worthington Ind Wed, 17 Sep Before the Bell 0.19 ------------------------- THURSDAY ----------------------------- COMS 3Com Thu, 18 Sep After the Bell -0.14 AGE A.G. Edwards Thu, 18 Sep Before the Bell 0.34 BSC Bear Stearns Thu, 18 Sep Before the Bell 1.65 BMET Biomet, Inc. Thu, 18 Sep Before the Bell 0.29 CCL Carnival Corp Thu, 18 Sep -----N/A----- 0.87 CTAS Cintas Corporation Thu, 18 Sep Before the Bell 0.37 CAG ConAgra Foods, Inc. Thu, 18 Sep Before the Bell 0.38 JBL Jabil Thu, 18 Sep After the Bell 0.20 NKE Nike Thu, 18 Sep After the Bell 0.88 RHAT Red Hat, Inc. Thu, 18 Sep After the Bell 0.01 TEK Tektronix Inc. Thu, 18 Sep After the Bell 0.12 ------------------------- FRIDAY ------------------------------- KMX CarMax, Inc Fri, 19 Sep Before the Bell 0.36 CM Coles Myer Fri, 19 Sep -----N/A----- N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable 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 BKST Brookstone Inc 3:2 Sep 5th Sep 8th SNPS Synopsys Inc 2:1 Sep 5th Sep 8th SAFE Invivo Corp 3:2 Sep 5th Sep 8th -------------------------- Economic Reports This Week -------------------------- The big event this week will be the FOMC meeting on Tuesday. While Wall Street isn't expecting much from the Fed we do have a very full week of economic reports. ============================================================== -For- ---------------- Monday, 09/14/03 ---------------- None ---------------- Tuesday, 09/15/03 ---------------- Business Inventories(BB)Jul Forecast: 0.0% Previous: 0.1% Current Account (BB) Q2 Forecast:-$138.0B Previous: -$136.1B NY Empire Ste Index (BB)Sep Forecast: 12.0 Previous: 10.0 Industrial Prodction(BB)Aug Forecast: 0.3% Previous: 0.5% Capacity Utilization(BB)Aug Forecast: 74.7% Previous: 74.5% ------------------- Wednesday, 09/16/03 ------------------- CPI (BB) Aug Forecast: 0.3% Previous: 0.2% Core CPI (BB) Aug Forecast: 0.2% Previous: 0.2% FOMC Meeting (DM) Aug ------------------ Thursday, 09/17/03 ------------------ Housing Starts (BB) Aug Forecast: 1.844M Previous: 1.872M Building Permits (BB) Aug Forecast: 1.800M Previous: 1.800M Treasury Budget (DM) Aug Forecast: -$78.5B Previous: -$54.7B ---------------- Friday, 09/18/03 ---------------- Initial Claims (BB) 09/13 Forecast: N/A Previous: 422K Leading Indicators(DM) Aug Forecast: 0.4% Previous: 0.4% Philadelphia Fed (DM) Sep Forecast: 15.1 Previous: 22.1 FOMC Minutes (DM) Aug Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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The Option Investor Newsletter Sunday 09-14-2003 Sunday 2 of 5 In Section Two: Watch List: Buy The Bounce or Breakout Call Play of the Day: MERQ Dropped Calls: PGR Dropped Puts: None ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** Watch List ********** Buy The Bounce or Breakout Navistar Intl Corp - NAV - close: 41.00 change: +0.67 WHAT TO WATCH: The auto-related and auto/truck manufacturers have done pretty well lately (unless you're Ford). Shares of NAV are certainly one of the winners and dip buyers are probably moving in now that shares have pulled back from short-term resistance at $45 to the psychological level at $40. Support at $40 has also been bolstered by the rising 50-dma. Bullish traders might want to use the bounce on Friday as an entry point with a tight stop. Chart= --- Ingersoll Rand - IR - close: 55.71 change: +0.71 WHAT TO WATCH: Shares of IR are producing a similar pattern to NAV's. The rising trend has produced a small double top at resistance of $60. The recent profit taking has brought it back down to the $55 level with support underpinned by the rising 50- dma. Bullish traders can use the bounce at support as an entry point for any rally back to $60. Use a tight stop. Chart= --- SanDisk Corp - SNDK - close: 63.61 change: +1.36 WHAT TO WATCH: One stock that did not succumb to the profit taking in technology stocks last week was SNDK. There was a pull back from $65 towards the $60 level but dip buyers began moving in early with a two-day bounce Thursday-Friday. Skeptical traders might look at SNDK's chart and merely see how extended and overbought it is. Optimistic traders may look at SNDK's chart and see its impressive relative strength. Aggressive traders might want to consider bullish entries on dips to $60 or a breakout over $65 (shoot, if you're aggressive then current levels look good too), but we would use a tight stop just under $60. Chart= --- Avid Technologies - AVID - close: 52.91 change: -0.02 WHAT TO WATCH: Here is a technology stock that reminds you of the go-go momentum days of the late 90's. Shares have moved higher in a strong trend from its $17 lows in March to almost $56 a few days ago. If you're yearning for a little momentum play to follow then keep AVID on your watch list. Aggressive players might like the bounce above the $50 level. $50 was previous resistance so it should now act as new support. However, if you'd like to catch a move off the bottom of its rising channel then watch for a dip to its simple 30-dma where shares have bounce continuously for months. Chart= --- Anthem Inc - ATH - close: 74.81 change: +1.33 WHAT TO WATCH: Healthcare insurance stocks like ATH and AET look ready to produce some big upside breakouts for the bulls. After a very painful round of profit taking six weeks ago both have rebounded and are just under support/resistance levels and their simple 50-dma. Use a trigger for a new long play and target the next psychological level higher. For ATH we'd look for a move to $80-82. For AET we'd look for a move to $65. Chart= ---------------------------------- RADAR SCREEN: more stocks to watch ---------------------------------- AMGN $68.52 - AMGN on our mind! The MACD is curving higher from oversold and the stock appears to be breakout of a trend of higher lows. Aggressive traders can pick new positions now but more conservative bulls might want to wait for a breakout over $69 or even $70. Target $75. PCAR $80.28 - For three weeks now we've been suggesting that bullish traders look for a bounce from the $80 area. That's exactly what PCAR is producing with is simple 50-dma directly underneath. Shares still look overbought but this momentum play could easily make another run for the sky. Use a tight stop! CECO $47.96 - The education sector took off on Friday with many of its biggest winners producing impressive rebounds. CECO is hitting new highs and traders may want to watch it for an entry point. Also take a look at EDMC and COCO. ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ******************* THE PLAY OF THE DAY ******************* Call Play of the Day: ********************* Mercury Interactive - MERQ - cls: 48.26 change: +0.82 stop: 44.75 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 ^^^^^ Progressive Corp. - PGR - close: 69.64 change: -3.19 stop: 71.25 That was definitely not what the bulls wanted to see. The breakout above $70 was firmly crammed down their throats on Friday, as PGR suffered more than a 4% loss. Most of the decline occurred right at the open, with the stock falling below $71 and violating our stop. The weakness was solidified by a midday valuation downgrade from Keefe Bruyette & Woods and the stock continued its downward slide, ending at its daily low. There's nothing left to do here, but issue the final post-mortem on the play. Sticking with the stop was the way to go, as it took us out of the play very near the high of the day and it was never touched again. Apparently we should have been more aggressive and locked in those modest gains when PGR was unable to clear the $74 level and the oscillators turned down. Picked on August 27th at $70.74 Change since picked: -1.10 Earnings Date 10/15/03 (unconfirmed) Average Daily Volume = 785 K Chart = 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. ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 09-14-2003 Sunday 3 of 5 In Section Three: Current Calls: AU, ERTS, GILD, GS, LUV, UTX New Calls: LEA, MERQ Current Put Plays: EBAY, KKD, KSS New Puts: None ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ****************** CURRENT CALL PLAYS ****************** Anglogold Ltd. - AU - close: 39.08 change: -0.90 stop: 37.50 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: Just when it looked like the Gold & Silver index (XAU.X) was going to follow through on its breakout through the $95 level, profit taking (prompted by some late-week weakness in the price of gold) took over and the index tallied up a 2% loss on Friday. Our bullish gold play on AU suffered a hit as well, falling back to the $39 level at the close. While it is disconcerting to see the $40 level acting as such strong resistance, on the other side we have the stock holding consistently above the $38.50 breakout level of the week before. Based on the way both AU and the XAU are trading, buying rebounds from support is the more prudent strategy as each breakout attempt continues to be turned back. Look for a rebound from the $38.00-38.50 area (supported by the 20-dma) as a viable entry point next week, and look for confirmation from the XAU index rebounding from its own 20-dma, which is just now climbing above $90. Maintain stops at $37.50. Suggested Options: Shorter Term: The October 40 Call will offer short-term traders the best return on an immediate move, as it is currently near the money. Note that September contracts expire next week. 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 on Friday! BUY CALL SEP-40 AU-IH OI= 681 at $0.55 SL=0.25 BUY CALL OCT-40 AU-JH OI= 3571 at $1.75 SL=0.80 BUY CALL JAN-40 AU-AH OI= 1180 at $3.40 SL=1.75 Annotated Chart of AU: Picked on September 2nd at $39.51 Change since picked: -0.43 Earnings Date 10/30/03 (unconfirmed) Average Daily Volume = 841 K Chart = --- Electronic Arts - ERTS - close: 89.27 chg: -0.65 stop: 85.99 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: We originally added ERTS to the call list as it was breaking out to new highs amidst a parade of technology and software stock upgrades from Wall Street. Investors were looking for an up tick in technology company revenues and ERTS was benefiting from excitement over improving retail sales and the upcoming Q4 holiday shopping season. Now it appears that the technology bloom has faded a bit. Suddenly analysts and investors are worried that the rally has gone too far. The August retail sales numbers weren't so hot unless you were in the discount retailer space. Putting more pressure on the software sector was the Oracle news on Thursday night where they hit their estimates but reported lower revenues. The GSO gapped down Friday on the ORCL announcement but rebounded from its lows. ERTS was under pressure after UBS downgraded three video-game related stocks (ERTS was not one of them). Despite all the recent negativity in the last few days, the relative strength in shares of ERTS is still impressive. Investors had plenty of excuses to take profits in this big winner and chose not to. The stock is still in its rising trend and the low from Friday is a bounce off its rising simple 30-dma. It almost looks like an entry point for new bullish entries. However, traders may do better to wait and see ERTS trade back above the $91 mark, which has been short-term resistance since the 4th of September. The stock's last week and a half almost looks like a small bull flag formation. Suggested Options: Bullish traders can choose from October and December options. There are only one week left for the September calls so our preference is the October strikes. ! Warning, September options EXPIRE on Friday! BUY CALL OCT 85 EZQ-JQ OI= 676 at $6.70 SL=4.00 BUY CALL OCT 90 EZQ-JR OI= 580 at $3.70 SL=1.85 BUY CALL OCT 95 EZQ-JS OI= 759 at $1.80 SL=0.95 BUY CALL DEC 85 KZQ-LQ OI= 313 at $9.30 SL=6.00 BUY CALL DEC 90 EZQ-LR OI=1365 at $6.50 SL=4.00 BUY CALL DEC 95 EZQ-LS OI= 133 at $4.40 SL=2.25 Annotated Chart: Picked on August 28 at $89.06 Change since picked: +0.21 Earnings Date 07/23/03 (confirmed) Average Daily Volume: 3.3 million Chart = --- Gilead Sciences - GILD - cls: 67.15 chg: +0.31 stop: 64.75 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: Once again, after a close scare, the biotech rally is still alive. A couple of days ago the BTK had produced a three-candle reversal pattern but bulls bought the dip and the BTK bounced back from its simple 10-dma on Friday. The BTK.X had been a big winner for the bulls the last couple of weeks and GILD has reluctantly followed along. As the BTK reached for its old closing highs, so did GILD and shares came very close to hitting our initial target of $70. Investors' unwillingness to sell the winners and eagerness to buy the dip could be enough to keep this rally alive despite overbought conditions. Meanwhile we like how GILD has continued to trade higher in its slowly ascending bullish channel. The bounce on Friday actually looks like an entry point for new bullish positions, but keep in mind the first hurdle/resistance level is $70. We're going to keep our stop loss at $64.75 after seeing the intraday low on Friday near $65.00. There were some new headlines for GILD on Friday with a California company, Chimerix, who has licensed rights from GILD to develop an oral version of GILD's antiviral cidofovir. Chimerix plans to develop a treatment for smallpox that they can sell to governments around the world. GILD will be paid a royalty based on a percentage of sales. Suggested Options: Our preference to capitalize on the current trend in GILD is the October 65's and 70's. ! Warning, September options EXPIRE on Friday! BUY CALL OCT 65 GDQ-JM OI= 225 at $4.70 SL=3.00 BUY CALL OCT 70 GDQ-JN OI= 427 at $2.20 SL=1.15 BUY CALL NOV 65 GDQ-KM OI= 915 at $6.10 SL=4.00 BUY CALL NOV 70 GDQ-KN OI=1367 at $3.60 SL=1.90 Annotated Chart: Picked on August 19 at $65.32 Change since picked: +1.83 Earnings Date 07/31/03 (confirmed) Average Daily Volume: 3.31 million Chart = --- Goldman Sachs Grp. - GS - close: 90.73 change: +0.89 stop: 88.00 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: Is this the rebound that will finally break through that pesky resistance? Ever since we initiated coverage of GS, the stock has been mired between the $89-92 levels, without the ability to move through either. Confirming our bullish premise though, the stock caught a solid rebound from the 20-dma ($88.95) over the past couple sessions and finished strongly on Friday, ending with a 1% gain. The Broker/Dealer index (XBD.X) is showing renewed signs of life as well, after finding solid support near $580 (the site of the 20-dma), as old resistance has been converted to new support. Traders that took advantage of the dip to $89 last week that turned out to be the entry point we thought it might, are now in a good position to benefit if GS is able to finally break out. Successive intraday rebounds from above the $89 level still look favorable for new entries, while momentum players will need to wait for that elusive breakout over $92.25 before going long. Once clear of that resistance, GS should make rapid progress to our first target near $95, where conservative traders may want to harvest partial gains. Our eventual target remains at $100, which ought to be an achievable level if the bulls ever get serious. Maintain stops at $88. Suggested Options: Shorter Term: The October 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 next week. 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 on Friday! BUY CALL SEP-90 GS-IR OI= 6222 at $1.85 SL=0.90 BUY CALL OCT-90 GS-JR OI=21971 at $3.90 SL=2.50 BUY CALL OCT-95 GS-JS OI= 8695 at $1.65 SL=0.75 Annotated Chart of GS: Picked on September 2nd at $90.45 Change since picked: +0.28 Earnings Date 9/24/03 (unconfirmed) Average Daily Volume = 3.80 mln Chart = --- Southwest Airlines - LUV - cls: 18.58 chng: +0.22 stop: 17.25*new* Company Description: Southwest Airlines is a domestic airline in the United States that provides predominantly short-haul, high-frequency, point-to- point, low-fare service. As of the end of 2002, LUV operated 375 Boeing 737 aircraft and provided service to 59 airports in 58 cities in 30 states throughout the country. The company focuses principally on point-to-point, rather than hub-and-spoke, service in markets with frequent, conveniently timed flights and low fares. Why we like it: After breaking out over $18.25 resistance on Thursday, shares of LUV continued their ascent into the weekend, tacking on another 1.2% on very strong volume. The overall Airline index (XAL.X) joined in the party, adding 1.5% to reach a new 52-week closing high. The XAL will have its work cut out for it as it nears strong resistance near $70, and LUV bulls will have to work hard to press the stock up towards the top of the current resistance band at $20. But with a fresh PnF Buy signal under its belt and a bullish price target of $23.50, we think it is definitely a reasonable goal. With three days of building support near $18, an intraday pullback near that level looks good for fresh entries. Aggressive traders can certainly buy further strength above $18.60, but need to be aware of the risk of a pullback due to the fact price is continuing to press against the upper Bollinger band. If buying into strength, make sure to confirm further strength in the XAL index as well. We're inching our stop up to $17.25 this weekend, keeping it below what should be strong support offered by the 20-dma ($17.42) and last Wednesday's intraday low ($17.40). Suggested Options: Shorter Term: The October 17 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Note that the September contract expires next week. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the December 20 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 December 17 Call. ! Warning, September options EXPIRE on Friday! BUY CALL SEP-17 LUV-IW OI=6488 at $1.15 SL=0.50 BUY CALL OCT-17 UVM-IT OI=1575 at $1.50 SL=0.75 BUY CALL DEC-17 LUV-LW OI=3118 at $1.90 SL=0.90 BUY CALL DEC-20 LUV-LD OI=1473 at $0.65 SL=0.30 Annotated Chart of LUV: Picked on September 11th at $18.36 Change since picked: +0.22 Earnings Date 10/20/03 (unconfirmed) Average Daily Volume = 2.45 mln Chart = --- United Technologies - UTX - cls: 78.53 chg: +0.24 stop: 77.20 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: We added UTX to the OI call list a couple of weeks ago when the markets were in rally mode and UTX broke out above the $80 resistance level. Unfortunately, since that time the rally has cooled and UTX has seen some consolidation. Despite the pause in UTX's advance we have heard plenty of positive comments the last couple of weeks regarding the outlook for the economy and the industrial sectors that UTX is apart of. It is this improving economy and higher defense spending that will eventually translate into more business and corporate profits for companies like UTX. The company's Chairman George David reaffirmed UTX's 2003 outlook on Thursday in their mid- quarter update. Given the strong gains from spring, traders have been selling stocks that only reaffirm their numbers instead of raising them but UTX has managed to maintain its share price above support near $77. While Mr. David was very encouraging in his outlook for 2004 he did not see much improvement yet for 2003. UTX still chose to raise their cash dividend by 30 percent from 27-cents to 35-cents a share. The dividend is payable on Dec. 10th for shareholders of record on Nov. 14th. If analysts like, the J.P. Morgan one who just upgraded their outlook on the economy with a higher GDP forecast are correct, then UTX should certainly benefit. However, short-term traders need to keep a sharp eye on the stock. We've seen several bounces above the $77.20 level but we're also seeing declining highs. Only aggressive traders should seek new positions at this time as we'd prefer to see a new move back above the $80 mark. We're keeping our stop at $77.20. FYI: some of the weakness in UTX may be concerns over another explosion at a UTX plant on Friday. A UTX plant was leveled in August after rocket fuel ignited in a mixing process. Suggested Options: We are not suggesting new plays in UTX until we see a move back above the $80 mark. Should that occur then our preference would be the October or November strikes. ! Warning, September options EXPIRE on Friday! BUY CALL OCT 75 UTX-JO OI= 239 at $4.90 SL=2.50 BUY CALL OCT 80 UTX-JP OI=2045 at $1.85 SL=0.95 BUY CALL NOV 75 UTX-KO OI=2041 at $5.80 SL=3.25 BUY CALL NOV 80 UTX-KP OI=1234 at $2.85 SL=1.50 BUY CALL NOV 85 UTX-KQ OI= 149 at $1.10 SL=0.50 Annotated Chart: Picked on August 29 at $80.05 Change since picked: -1.52 Earnings Date 07/17/03 (confirmed) Average Daily Volume: 2.1 million Chart = ************** NEW CALL PLAYS ************** Lear Corp - LEA - close: 53.60 change: +0.58 stop: 50.99 Company Description: Lear Corporation, a Fortune 500 company headquartered in Southfield, Mich., USA, focuses on integrating complete automotive interiors, including seat systems, interior trim and electrical systems. With annual net sales of $14.4 billion in 2002, Lear is the world's largest automotive interior systems supplier. The company's world-class products are designed, engineered and manufactured by 115,000 employees in more than 280 facilities located in 33 countries. (source: company press release) Why We Like It: The auto-related stocks have been hot this last quarter and LEA is certainly one of them. They've almost doubled from their March lows near $32.50. Not only has LEA's share price appreciated but they're earnings have actually been worthy of the gains. The company last announced earnings on July 17th and LEA beat estimates by 28 cents with $1.54 a share. On top of the blow out numbers they raised guidance for Q3. Prudential followed up the next day with a very encouraging upgrade. PRU raised their own outlook for LEA for 2003 and believes the company could have its credit rating improved soon while the stock might be added to the S&P 500 index over the next 12 months. A couple of weeks later in early August Barron's highlighted the stock in a positive light. Since then we've seen shares breakout to new all time highs. The recent pull back to the $52.50 level and its 50-dma happens to coincide with old highs, which should be new support. The recent bounce looks like a chance to buy the dip before its next leg higher. We're also seeing a reversal in the stock's technical indicators to support a turnaround. However, we would like a little bit of confirmation so we're going to use a TRIGGER at $54.05 to open the play. Only when the stock trades at or above this level will the newsletter be suggesting longs. If and when we are triggered, we'll use a stop loss at $50.99. More conservative traders might want to consider using a stop under the 50-dma. Our target range is $57.00-60.00. Suggested Options: Short-term bullish traders should probably consider the October or December calls on LEA while long-term traders can look to January and March calls. Our preference will be for the Octobers. ! Warning, September options EXPIRE on Friday! BUY CALL OCT 50 LEA-JJ OI= 0 at $4.60 SL=2.25 BUY CALL OCT 55 LEA-JK OI= 28 at $1.40 SL=0.75 BUY CALL OCT 60 LEA-JL OI= 69 at $0.35 SL= -- riskier! BUY CALL DEC 50 LEA-LJ OI=409 at $5.80 SL=3.25 BUY CALL DEC 55 LEA-LK OI=459 at $2.90 SL=1.50 BUY CALL DEC 60 LEA-LL OI= 46 at $1.20 SL=0.60 Annotated chart: Picked on September x at $00.00 Change since picked: + 0.00 Earnings Date 10/17/03 (confirmed) Average Daily Volume: 694 thousand Chart = --- Mercury Interactive - MERQ - cls: 48.26 change: +0.82 stop: 44.75 Company Description: As a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications, MERQ is looking for growing e-commerce demand to continue to fuel its business. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks and automating quality assurance testing. MERQ's client base spans a wide range of industries including Internet companies such as Amazon.com and America Online, infrastructure companies Ariba and Oracle, as well as Apple Computer, Cisco Systems and Ford Motor Company. Why we like it: Catching our attention back on September 2nd, when it broke above more than 2 years of resistance, MERQ has been taunting us for nearly 2 weeks as we have patiently been waiting for the inevitable pullback. That pullback got started in earnest on Wednesday, as the stock fell back sharply from its first attempt at the $50 level. But it still looked like it had further to fall before the rebound could commence. That view was right on, as MERQ opened quite negative on Friday, gapping down to near $45.45 before rebounding strongly throughout the day. Looking at the daily chart, the significance of the rebound point is clear, as it lines up almost perfectly with the July intraday high of $45.55. Despite its early deficit, MERQ managed to post a 1.7% gain on Friday and based on the above-average volume, looks determined to test and break above the $50 resistance level. The PnF chart is over-the-top bullish with a fairly fresh Buy signal and a bullish price target of $75. Achieving that level anytime soon is not likely, but it certainly demonstrates the fact that there is some serious upside potential. Clearly, the initial rebound in the $45-46 area would have provided an excellent entry point into the play, but it's too late for that. Instead, we'll have to settle for a milder pullback near $47 or else enter on a breakout over Friday's high. Normally, we'd want to wait for the price to exceed the recent highs, but Friday's volume certainly hints of follow through to the upside early next week. More conservative traders can wait for that breakout to new highs by setting an entry trigger above $50.25. If Friday's rebound was the turnaround we believe it was, then that session's intraday low should not be violated. We're giving it a bit of extra room though, setting our initial stop at $44.75, just below the 20-dma ($45.04). Suggested Options: Shorter Term: The October 47 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Note that September contract expires next week. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the October 50 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders will want to use the January 50 Call. ! Warning, September options EXPIRE on Friday! BUY CALL SEP-47 RQB-IR OI= 514 at $1.65 SL=2075 BUY CALL OCT-47 RQB-JR OI= 971 at $3.30 SL=1.75 BUY CALL OCT-50 RQB-JJ OI= 1343 at $2.00 SL=1.00 BUY CALL JAN-50 RQB-AJ OI= 550 at $4.40 SL=2.75 Annotated Chart of MERQ: Picked on September 14th at $48.26 Change since picked: +0.00 Earnings Date 10/15/03 (unconfirmed) Average Daily Volume = 3.14 mln Chart = ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** CURRENT PUT PLAYS ***************** eBay, Inc. - EBAY - close: 52.64 change: +0.94 stop: 54.25 Company Description: After developing a Web-based community in which buyers and sellers are brought together in an efficient format, EBAY has emerged as the dominant online auction site. The eBay dynamic pricing format permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items. Items listed on eBay include collectibles, automobiles, art objects, jewelry, consumer electronics and a host of practical and miscellaneous items. Although based in the United States, through its subsidiaries, EBAY also operates trading platforms in Germany, the United Kingdom, Australia, Japan, Canada, France, Austria, Italy and South Korea. Why we like it: EBAY has certainly confirmed the wisdom of our decision to initiate coverage with an entry trigger below strong support. Despite the weakness exhibited earlier in the week, the stock stubbornly held above $50 and then staged a pretty solid rebound on Friday, closing over $52.50. We initially set our entry trigger at $49.85 to prevent getting caught in a bearish position just before a rebound and that trigger served its function admirably. With the stock now nearing its 10-dma ($52.80) and daily Stochastics turning up from oversold territory, it just may be that this will turn out to be a failed play. We're not changing our stance just yet though, as this could turn out to be a rebound that fails below resistance, producing a subsequent breakdown under resistance. Wait for a drop through that entry trigger and only then take a position. Momentum traders will want to enter on the initial break, while more conservative players may want to game a subsequent rebound failure in the $50- 51 area. Maintain stops at $54.25, which is just above the 50- dma. Suggested Options: Aggressive short-term traders will want to focus on the October 47 Put, as it will provide the best return for a short-term play. More conservative traders will want to use the October 50 contract, which will be at the money when our entry trigger is satisfied. ! Warning, September options EXPIRE on Friday! BUY PUT OCT-50 QXB-VJ OI=30078 at $1.75 SL=0.80 BUY PUT OCT-47 QXB-VR OI=16834 at $1.10 SL=0.50 Annotated Chart of EBAY: Picked on September 9th at $50.87 Change since picked: +1.77 Earnings Date 10/23/03 (unconfirmed) Average Daily Volume = 13.1 mln Chart = --- Krispy Kreme Doughnut - KKD - cls: 42.03 chg: -0.05 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: 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. We originally added KKD to the put list with a trigger to go short at 41.69. A couple of days after we added it to the play list the stock broke support and hit our trigger. The drop continued a bit before KKD saw an oversold bounce above the $40 level. We're still bearish on the play despite the bounce. KKD's chart shows volume the strongest on down days and weakening on up days. While we're not encouraged to see shares close above the $42 level they remain below their simple 10-dma. More conservative traders may want to wait for a move back below the $41.50 before opening any new positions. KKD was not without its own headlines late this week. The store has combined with Wal-Mart in an experiment to build five KKD stores inside specific WMT outlets. It does sound like a win-win for both companies to give WMT shoppers the temptation to do so with a Krispy Kreme doughnut in hand, but these five are just experimental and will probably not play a significant role in KKD's bottom line yet. Suggested Options: As a short-term play our preference would be the October and November 40 strikes but the 45s should work well too. ! Warning, September options EXPIRE on Friday! BUY PUT OCT 40 KKD-VH OI=2807 at $1.40 SL=0.70 BUY PUT OCT 45 KKD-VI OI= 797 at $4.00 SL=2.25 BUY PUT NOV 35 KKD-WG OI=2536 at $0.80 SL= -- BUY PUT NOV 40 KKD-WH OI=2220 at $2.05 SL=1.00 BUY PUT NOV 45 KKD-WI OI=1283 at $4.60 SL=2.30 Annotated Chart: Picked on September 8 at $41.69 Change since picked: + 0.34 Earnings Date 08/21/03 (confirmed) Average Daily Volume: 1.0 million Chart = --- Kohl's Corp - KSS - close: 58.43 change: -0.87 stop: 61.01*new* Company Description: Kohl's Corporation operates family-oriented, specialty department stores, primarily in the Midwest. The company's stores sell moderately priced apparel, shoes, accessories and home products targeted to middle-income customers shopping for their families and homes. Kohl's stores have fewer departments than full-line department stores, but offer customers assortments of merchandise displayed in complete selections of styles, colors and sizes. Of the 420 stores the company operates, 116 are takeover locations, which have facilitated the entry into several new markets, including Chicago, Illinois; Detroit, Michigan; Ohio; Boston, Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri, and the New York region. (source: company press release) Why We Like It: It's been a rough week for Kohl's. One of its directors resigned on Monday to "pursue other interests". The stock gapped down below support at $60 and stayed there. Bearish comments coming from Wall Street regarding the Retail sector did not give KSS a chance to rebound and the stock remained under the $60 level all week. Friday morning KSS was hit really hard by the worse than expected August retail sales report. The stock came reasonably close to our initial target of $55 but bounced at expected support near its 200-dma. Bears can be encouraged to see KSS back under its simple 50-dma but the big intraday rebound on Friday does not make this look like an entry point for new plays. The trend in September has been down and this big one-day reversal candle could be forecasting another change in trend. The $60 level, which became new resistance this week, should hold so conservative traders can reduce their risk by adjusting their stop. We are going to lower ours to $61.01. We would probably look for new entries on another failed rally below $60 or a move back under $58.00. Suggested Options: Short-term option traders will probably want to use the October strikes. There are January and April strikes available but we're not looking that far ahead. ! Warning, September options EXPIRE on Friday! BUY PUT OCT 60 KSS-VL OI=2072 at $3.70 SL=1.75 BUY PUT OCT 55 KSS-VK OI=3079 at $1.45 SL=0.75 Annotated Chart: Picked on September 9 at $59.35 Change since picked: - 0.92 Earnings Date 08/14/03 (confirmed) Average Daily Volume: 2.9 million Chart = ************* NEW PUT PLAYS ************* None ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. 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The Option Investor Newsletter Sunday 09-14-2003 Sunday 4 of 5 In Section Four: Leaps: I Give Up! Traders Corner: The Long Term QQQ ITM Strangle Continues ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees Easy screens for spreads, collars, or covered calls! Contingent, Stop Loss, Trailing stop, or OCO 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oetics25 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***** LEAPS ***** I Give Up! By Mark Phillips mphillips@OptionInvestor.com Recall the opening to last week's commentary? "If at first you don't succeed... 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." Well, I've been trying to play the downside in this market long enough that I now capitulate. I give up! There, that ought to be the final sign the markets are waiting for in order to tip over and once again leave me with egg on my face. After a very full week of studying charts and other data and reflecting on what has been driving my continued leaning towards the bearish side these past several months, I came to the conclusion that it was an erroneous bias. I've made no secret of the fact that I think this market should go down and go down hard. But what I think doesn't matter one whit to the market. There are three factors that determine the direction of any given stock or the overall market - Fundamentals, Technicals and Sentiment. By my read, the fundamentals in the economy, the market and for most stocks is still weak. I've gone into my rationale for this view in the past, so I don't want to dwell on it here today. Suffice to say, I have yet to see the catalyst for sustained growth, any reversal to the unemployment trend, the poor capacity utilization rates, corporate debt, the huge unfunded pension liability in corporate America, and the list goes on. About the only thing going for the bulls is the record low interest rates and the unprecedented flood of liquidity being supplied by the Fed in its all-out battle against deflation. If the Fed wins, then the natural result should be inflation, which will then have to be fought with rising interest rates. If that happens before true sustained economic growth, then the picture won't be pretty -- rising inflation and interest rates with stagnant growth is the recipe for stagflation. I know many of you remember what fun that was in the 1970s. But I'm getting carried away. The bottom line is that I see the current fundamentals as negative for the economy and the stock market. Next up are the technicals. While there is always a way to make the technical picture suit one's personal bias, I think we can all agree that the overall technical view is bullish. Whether looking at individual stocks, specific sectors or the overall market, we have patterns of higher highs and higher lows, a plethora of new 52-week highs and barely a handful of new 52-week lows, long term resistance levels being broken and volume patterns tending to favor the bulls. Any attempt to paint the technical picture as bearish right now (as I have been trying to do for quite some time) is an attempt to pick at top in a rising market. Over the past 3 years, that has been a lucrative practice and I expect it to be again sometime soon. But right now, it is a losing proposition. If those two factors were all we have to work with, then we could say that perhaps there is a stalemate, with the bulls winning short-term and the bears having the ultimate victory longer term. But then we have the third factor of Sentiment. Something I am being forced to rediscover is that sentiment (how most investors feel about the market) can frequently trump both technicals and fundamentals. Think back to the summer of 2002. Sentiment was overwhelming fundamentals as everything was being sold together, whether a given stock had solid or weak fundamentals, and in many cases caused major breakdowns in technically strong stocks. Take a look at the charts of JNJ and PG in that period of time. They had been channeling steadily higher until early June and then got pummeled lower as the sentiment in the overall market changed dramatically. JNJ lost 35% between the first of May and mid-July, while PG shed more than 21% from 6/19-7/19. Both of these declines commenced from technically healthy chart patterns as sentiment changed dramatically. No matter how you look at things right now, sentiment is extremely bullish, as the financial analysts are trumpeting the rise of a new bull market, and investors that took a bath in the past 3 years are being lured by the siren's song of winning back all their losses in the new bull. I've seen reports that trumpet the call of new highs for all the major market averages by the end of 2004. Do I believe it? Not on your life! But if there are enough investors and money managers that believe it, then it becomes a self-fulfilling prophecy in the near term and the market continues to rise, whether on not it should, based on the technicals and fundamentals. I still think the CBOE Volatility index (VIX.X) is giving us a huge warning sign that downside risks are large, but that won't preclude the VIX from trolling along in the 18-22 area for a period of weeks or months with the market slowly rising until the tipping point arrives. Let me be perfectly clear here. A low VIX does not in and of itself signal a market top. What it does do is give us a reading on how heavily skewed market sentiment is to either the bullish or bearish side, based on investors' propensity to either buy puts or calls. When it falls below 20, it signals excessive complacency and that the risks are weighted to the downside - this is a clear warning that bullish traders need to be aggressive about protecting profits. Another sentiment indicator that I occasionally mention is the American Association of Individual Investors poll, which is a pretty accurate representation of the crowd's psychology. As of last week, the latest numbers came in with 71.4% bullish and 8.6% bearish. That seemed pretty extreme to me too! Anybody want to guess the last time it was that bullish? Just weeks before the 1987 crash! Does that mean that we are just weeks away from a market crash? Not on your life! But it does tell us the risk is there. I mentioned several weeks ago that I had moved all of my family's long-term investment/retirement funds to cash. One might wonder if I feel foolish about that in light of the fact the market has continued to rise. My answer is an unequivocal "NO"! I didn't make that move based on an expectation of an imminent crash but out of prudence because the risks of that happening were too high for my comfort. I'm not even going to touch on the bullish percents this weekend. Suffice to say they are still extremely overbought, showing that the bulls are carrying the bulk of the risk in the current market. You sure wouldn't know that to look at the price action, would you? Painful grin. I am going to delve into a different view on the Bullish Percents in next week's Trader's Corner article though, so if you're interested, I'll see you there. My market bias continues to be quite bearish, but in light of my study and reflection over the past week, I can no longer in good conscience present such a biased and lop-sided selection of play candidates. So starting this week, we're going to be running with the bulls until such time as they stumble and fall. Then we'll revive some of our favorite bearish play candidates. But I'm done trying to pick tops in this forum until market action demonstrates that is a prudent strategy once again. Portfolio: BBH - Did you take advantage of any of the intraday weakness in the Biotechs last week to close our your BBH position? Good! With the BBH tapping our $138 stop on several occasions last week, it seems like we're fighting the trend and I'm dropping the play this weekend. LEH - Due to an oversight of mine, I neglected to appropriately tighten the stop on LEH based on developments on the PnF chart. With the Brokers breaking out and a new PnF Buy signal on LEH, it is definitely time to pull the plug on this failed bearish play. Watch List: WMT - So, did I screw up and idle our WMT play just in time to miss the optimum entry point that I had been targeting up near $60? Perhaps, but I think it was the prudent course of action. WMT had just moved through strong resistance at $57-58, gave a new PnF Buy signal and looked more bullish than bearish. Add in the fact that the Retail index (RLX.X) has yet to break down out of its rising channel from the March lows and contrary to the initial play writeup, I think we're premature in fishing for a bearish play here. At a minimum, we need to see the RLX break and close below its 50-dma (which is right at the bottom of its channel), and at the same time get a PnF Sell signal from WMT. Right now, it looks like that will require another rally up to the $60 area and then a subsequent breakdown under $56. It's time to be patient. QQQ - I actually contemplated just pulling the plug on these bearish Technology plays, but decided that it would be prudent to keep them close at hand, just in case the sentiment truly does change in favor of the bears. QQQ has been channeling higher since the middle of March, with only a brief penetration of the lower channel line in early August. So we're going to keep the play alive, but require some proof of weakness before getting our paws wet. At this point, the critical development would be a break below the bottom of the channel ($32.00) and below the 50- dma ($32.04). Realistically though, I think we're going to need to see a break below $30 (1200 on the NDX) before we'll really be able to make a bearish case for QQQ. Watching from the sidelines is still the preferred strategy and it has the added benefit of now having us in a losing position. SMH - If anything, the picture presented by the SMH is even more bullish than that seen on the QQQ, as it has broken solidly above the top of its rising channel and is now using that upper channel line as support, rather than resistance. In order to give us a favorable bearish picture, SMH would need to break back inside the channel, then violate its 50-dma ($33.55) and then break back under $32 (currently the bottom of the channel. That's a lot of work for the bears to accomplish, especially when the PnF chart is on a strong Buy signal, with a bullish price target of $55. I'm not yet willing to pull the plug on this play, but I am quite happy to keep it on Hold, pending further price action. Radar Screen: HD - I'm still sitting on the fence as far as HD is concerned, but it does look more bearish than bullish. The $35 level is strong resistance (PnF bearish resistance line) and the $30 level is strong support. A break below $30 will be necessary to generate a PnF Sell signal, and I think we need to see that happen before casting our lot to the downside. Watch and wait is my preferred course of action. FNM - With bonds rising again, FNM investors seem to have breathed a huge collective sigh of relief. The stock quickly rose back to the $70 level and after a brief pullback looks poised for the next leg of its upward journey. I'm in no hurry to initiate a bearish play with the weekly Stochastics in full bullish ascent and a fresh PnF Buy signal that comes complete with a bullish price target of $86. FNM will have to prove its bearish intentions with price weakness to get my attention and I'm thinking seriously of removing it from the Radar Screen next week. QCOM - Let's get bullish! It's been a long time since shares of QCOM visited this column, and it looks like it might be time. The stock is breaking out of its nearly year-long consolidation between $30-43 and is looking quite bullish on the PnF view with a quadruple top breakout. That breakout is still fairly young, but a pullback to test and confirm $40 as newfound support would go a long ways towards solidifying this breakout. FRX - It certainly hasn't been a very positive summer for shares of FRX, but the picture appears to be changing for the better. Off sharply from its $62 June highs, the stock is also up significantly from its $42 August lows. Stuck in the middle and right at the 200-dma is not what I would call an advisable place to be initiating new bullish positions. But with the weekly Stochastics turning clearly bullish and a fresh PnF Buy signal (bullish target of $70), there's clearly some re-emerging strength here that deserves our attention. I'll be looking for a pullback into the $46-47 area as a viable bullish entry in the weeks ahead. Closing Thoughts: Being the astute readers you all are, I'm sure you took notice of the fact that I've abandoned my practice of predicting what I expect in terms of broad market action. This is likely a temporary shift, but I felt that our discussion above was far more important than any gesticulating over where I THINK the market is headed. Technically, the market action is bullish and will remain so until the S&P 500 breaks back under 960, the DOW breaks 8900 and the NASDAQ-100 breaks 1200. As long as those long-term levels of support hold, then bullish positions in the right sectors and stocks should be the preferred strategy. Over the next few weeks we'll endeavor to align our Watch List and Portfolio in that direction, while leaving ourselves in a position to play the downside if those support levels should give way. The other important reason from stepping back from the broad market prediction is that I feel I've been spending too much time on that activity and not enough on picking winning LEAPS plays. Our primary focus here needs to be in making money through winning trades, and prognosticating broad market action may or may not be conducive to that effort. When I think it is helpful, we'll definitely include it. But it will now only be included where appropriate, not as a matter of habit. I want our focus to be on profitable trading, not on expounding on why the market should do what we want. I know we've really made a large course change from just a couple weeks ago, but I think it is appropriate. As I stated in last week's Trader's Corner article, doing the same thing over and over and expecting different results is the definition of insanity. So we're making a big change here. I'm taking my market biases and putting them in cold storage until such time as they begin to be aligned with the action in the broad market. In the meantime, we'll put our efforts into what is important -- listening to the language of the markets, and accordingly trading in a profitable manner. See you next week! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None Puts: None LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: AGN 09/14/03 $82 JAN-2004 $ 85 ZFH-AQ CC JAN-2004 $ 80 ZFH-AP JAN-2005 $ 90 YOK-AR CC JAN-2005 $ 80 YOK-AP AMGN 09/14/03 $66 JAN-2004 $ 70 ZAM-AN CC JAN-2004 $ 65 ZAM-AM JAN-2005 $ 70 WAM-AN CC JAN-2005 $ 60 WAM-AL 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 AGN - Allergan, Inc. $81.02 **Call Play** I must confess that AGN is one stock that has always puzzled me. Try as I might, I have always been at a loss to understand how the stock can continue to move so strongly, despite being unable to turn a real profit. Sure the quarterly EBITDA (Earnings Before I Trick Dumb Accountants) has continued to grow quarter after quarter, but look at the actual real net cashflow and it is negative. But look at the price chart and AGN looks ready to bust out big time. Why the dichotomy? It's what we were discussing above -- sometimes sentiment rules and clearly AGN is expected to do great things in the future. Perhaps not quite on the success scale of the Botox treatment that fueled AGN's rise in the past, but perhaps enough to reach that elusive century mark. The stock is trading just below its July highs and prior to that, the stock hasn't seen the north side of $80 since July of 2000. Looking at the PnF chart shows a stock threatening to break out and if it can trade $82, we'll have a fresh Buy signal to work with and an accompanying tentative bullish price target of $95. If it can trade $95, then why not $100? It goes against my normal preference in the LEAPS column to buy the dips, but I think the only prudent way to play AGN is on the breakout. So we'll set an entry trigger at $82 and go long at that point, looking for a strong rally to unfold. This is a more aggressive play to be sure, and with it comes a much wider stop as well. The stock has been consolidating in the $76-82 area for the past 3 months, so we'll set our stop at $75.50, just below the low end of that range. Traders unwilling to buy into the breakout over $82 can wait for a subsequent pullback to enter on a rebound from the $80- 81 area, as the bulls demonstrate that old resistance is newfound support. BUY LEAP JAN-2005 $85 ZFH-AQ BUY LEAP JAN-2005 $80 ZFH-AP **Covered Call** BUY LEAP JAN-2006 $90 YOK-AR BUY LEAP JAN-2006 $80 YOK-AP **Covered Call** AMGN - Amgen, Inc. $68.52 **Call Play** It has been awhile since we played AMGN, but I'm sure many of you remember with fondness the success we had to the long side last spring as we rode it from $60 up to $72. We had some solid technicals in our favor that time around and while the landscape is different now, I think the bullish prospects for the stock are just as bright. With the BBH (dropped this weekend) giving a bullish triangle breakout on the PnF chart, the sector picture is bullish. AMGN has been consolidating for the past two months and has been mired in a trading range between $65-70 for the past several weeks. But it could just be that this consolidation is simply a basing action in preparation for a run at new all-time highs. Yes, you read that right, new all-time highs. To be fair, the standard scale PnF chart is still technically bearish with a bearish price target of $60. But if we look at the 2-point box size chart, we have an image of a very strong stock that has just been consolidating a powerful bullish run. Here, we still have a bullish price target of $82 at work. On the standard price chart, AMGN appears to be finding very strong support near $65 (the site of former resistance) and on Friday the stock closed back above the 50-dma. Note also that weekly Stochastics are just beginning to turn upwards in a short-cycle bullish reversal. The real key will be whether AMGN can get back over $70, but I think that's simply a matter of time. I'm going to set two possible entry strategies in motion. The first and most aggressive would be to enter on a dip to and successful rebound from the $66 level. This is aggressive because we're taking a position before AMGN has demonstrated strong bullishness by printing a new PnF Buy signal. The more conservative strategy will be to enter on a breakout above the $70 level, which would give us both the PnF Buy signal, as well as a confirmed breakout of what currently looks like a double-bottom formation on the candle chart. AMGN won't be a fast mover, but that is one of the things that makes it such a good candidate for the LEAPS column. It has a propensity for slow and steady gains. Let's see if the bulls can continue to deliver that sort of price action. Once the play is entered, we'll look to set a stop at $64, as a trade below that level would force us to acknowledge that perhaps the bulls are losing their nerve. Our upside target will be for a move into the $80-82 area, in line with the target on the larger-scale PnF chart. BUY LEAP JAN-2005 $70 ZAM-AN BUY LEAP JAN-2005 $65 ZAM-AM **Covered Call** BUY LEAP JAN-2006 $70 WAM-AN BUY LEAP JAN-2006 $60 WAM-AL **Covered Call** Drops BBH - $137.69 Biotechnology stocks remained strong throughout last week, beginning with the strong upward surge on Monday. While the BBH couldn't quite manage a close over the $138 level, it did tap that price on several occasions during the week. A quick glance at the PnF chart is all the convincing I needed to abandon this bearish play. After a broad consolidation, BBH has broken out to new highs, giving a Bullish Triangle breakout on the PnF chart and the stock has now taken on a renewed bullish appearance. Rather than battle the rising tide, we'll take our lumps and close out the play for a loss as of Friday's close LEH - $68.13 Unfortunately, I neglected to look at the PnF chart for LEH last weekend and if I had, I would have noticed the important change in the landscape. with the reversal down and then back up in late August, the level at which LEH would have given a new Buy signal dropped to $67. Armed with that information, I would have dropped the play last weekend, so I am regrettably late in this drop. LEH is on a Buy signal, the XBD index has broken out and momentum appears to be building to the upside. LEH is still underperforming the XBD index, but the stock is still rising after failing to deliver the breakdown I was expecting, and now is the time to cut our losses. ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** TRADERS CORNER ************** The Long Term QQQ ITM Strangle Continues By Mike Parnos, Investing With Attitude I know many CPTI students have enjoyed, and profited from, their monthly Quickies, but I wanted to continue our discussion of the long term ITM QQQ Strangle. It's a good long-term strategy that can generate a nice amount of cash during the life of the position. As a matter of fact, let's put this position in our official CPTI portfolio so we can monitor it on a regular basis - and make money, too. At the end of this column, we'll outline the new position, based on Friday's closing numbers instead of Thursday's. In Review On Thursday, in Part One, we bought the January 05 QQQ $38 puts and the January 05 QQQ $28 calls for a total of $14.40. Then we sold the October QQQ $33 puts and the October $33 calls for a total credit of $2.50. What we've created with our long LEAPS options is a range ($28 to $38) in which the QQQs can bounce around. As the 16 months go by, we will be selling near term puts and calls against the long puts and calls. Our initial risk is only $4.40 for the 16 months because by owning the $38 puts and $28 calls, we have a built in intrinsic value of $10. Every month that we sell near term puts and calls against the longs, we will be reducing some of that risk. It may take a few months to totally wipe out the $4.40, but then the rest is P- R-O-F-I-T - and that spells money. What Do We Know For Sure? One thing we know is that the chances of the QQQs finishing exactly at $33 are slim and none - and slim just left town. That means that we will HAVE TO ACT, but not until the last few days prior to near term expiration. Design Your Own Position This long term ITM Strangle is very flexible. You can pretty much design it based on your personal preferences. There are those who will choose not to sell at-the-money near term puts and calls, but rather create a small range ($32-$34, $33-$35, etc). They will take in less premium, but will still have to face the fact that an action in the last few days before expiration is the prudent thing to do - even if the QQQs are within the small range. Why buy back a QQQ option that is going to expire worthless in two days? Let's say it's Wednesday. The QQQs are at $34 and you have the $33-$35 range. Both near term puts and calls are worth a nickel ($.05). Take a look at the premiums for the same strike prices for the next month. What's going to happen to these time premiums after another four or five days? Will they be less? Hell, yes. AND, they will erode by a lot more than a nickel. Depending on the volatility in the market, they may erode $.10- $.20. So, it pays to spend the nickel and put the $.10-$.20 in your pocket. That's money that will not be available to you after expiration if you wait. If you have an upward market bias, you can create a long LEAPS range of $39 to $29 or even $40 to $30, although I wouldn't advise it. Remember, at the CPTI, we try not to pick directions. It's "What if . . ." Time Let's look at how our proposed trade will work with a variety of scenarios. These scenarios will be based on our having sold both the $33 puts and $33 calls. Also, these scenarios will be based on the time frame being the Thursday prior to expiration Friday. Keep in mind that the rollout prices are projections and may vary. What if . . . 1. QQQs are at $33? Will this happen? Probably not, but, if it does, you will: a) Buy the $33 puts back for $.10 and roll them out to the Nov. $33 puts for about $1.15. You can b) Buy the $33 calls for $.10 and roll out to the Nov. $33 calls for about $1.15. c) Total new premium credit = $2.10 2) QQQs are at $35? a) The $33 calls can be bought back for $2.05 and rolled into the $33 Nov. calls for $2.30 (+ $.25 time premium). b) The $33 puts can be bought back for a nickel and rolled out to the $35 ATM puts for $1.15. c) Total new premium credit = $1.40. 3) QQQs are at $29? Obviously, it's best if the QQQs remain within the $28-$38 trading range as long as possible. Why? Because when we have to establish a new trading range, we will incur a bit of a loss. See below: a) Buy back the $33 put for $4.05. b) Buy back the $33 call for a nickel. Unless you believe the market will reverse, it's time to adjust the long LEAPS. c) Sell the 2005 $38 put for $10.00 d) Sell the 2005 $28 call for $ $4.60 e) Buy the $34 puts for $7.30 f) Buy the $24 calls for $7.10 The cost of adjusting the LEAPS is about a wash. What you get for selling the $28 & $38 LEAPS would be about $14.60. Re- establishing with a new $10 range would cost about $14.40. g) Sell the Nov. $29 puts for about $1.20 h) Sell the Nov. $29 calls for about $1.20 i) Total premium credit = $2.40 The cost of buying back the original $33 puts and calls is about $4.10. We will bring in $2.40 when we sell the new $29 puts and calls. The loss for the month we establish a new trading range will be about $1.70. But, hopefully, the new trading range will last for a number of months and we'll earn back the $1.70 quickly. The Return? Some months you'll make $2 on your original $14.40 investment, some months you'll make $1.20, others you'll make $.85 and occasionally you'll lose $1.70 in a month when you create a new trading range. Our objective is to average 7-8% per month - which translates to about 85-100% a year. _____________________________________________________________ New CPTI Portfolio Position Let's make it official. The QQQs finished at $33.82, so premiums have changed a little from our Thursday example. Plus, we're not going to sell the same strikes for the puts and calls. It's a matter of personal preference . . . and this is mine (for what it's worth). Buy 10 contracts of the 2005 QQQ $39 puts @ $7.00 = $7,000 Buy 10 contracts of the 2005 QQQ $29 calls @ $7.30 = $7,300 Total debit of $14,300 Sell 10 contracts of the QQQ Oct. 33 puts @ $.85 = $850 Sell 10 contracts of the QQQ Oct. 34 calls @ $1.05 = $1,050 Total credit of $1,900 _____________________________________________________________ SEPTEMBER POSITIONS - Remember that September is a FIVE- WEEK option cycle. Expiration is Friday, September 19th. September Position #1 - SPX Iron Condor - SPX @ 1018.63 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 taken in more money. At 1018.63, the SPX has moved up. We still have a decent cushion and it's time for a pullback, so we'll keep the faith - at least for now. September Position #2 - COF Sell Straddle - COF @ $ 58.67 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 were the parameters of our profit range. Maximum potential profit was, again, $4,850. A lot can happen in five weeks of exposure to market movement - and did. On 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. It was seemingly a wise move because COF finished Thursday @ $58.67 - far beyond our upside September Position #3 - HPQ (Hewlett Packard) Bear Put Spread - (Replacement) - HPQ at $20.08. 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 (Replacement) - OEX - Bearish Calendar Spread - OEX @ $512.30 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. __________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? 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 ------------------------------------------------------------ We got trailing stops! Trade online with trailing stops at optionsXpress, at no extra cost Trailing stops based on the option price or the stock price Also place Contingent, Stop Loss, and "One Cancels Other" orders $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. 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The Option Investor Newsletter Sunday 09-14-2003 Sunday 5 of 5 In Section Five: Covered Calls: Stock Stages Explained -- Part II Naked Puts: Develop A Plan For Success Spreads/Straddles/Combos: Stocks Close Higher Amid Late-Session Rally Updated In The Site Tonight: Market Posture: Traders Hit Snooze and Miss Friday's Session ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's 8 different online tools for options pricing, strategy, and charting Access to options specialists via email, phone or live chat online Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************* COVERED CALLS ************* Trading Basics: Stock Stages Explained -- Part II By Mark Wnetrzak One of our readers offered some great comments on the use of "stage analysis" to identify entry and exit signals in stocks. Attn: markw@OptionInvestor.com Subject: Stage II -- Now What? Mark, When I read your article this regarding the different stages stocks go through based on Stan Weinstein's book, I just had to ask you a few questions. After reading his book this summer I wanted to apply what I learned by trading a stock on a breakout after a lengthy basing stage. Earlier this summer I started purchasing shares of WWCA after it broke out of it's base. The correct entry would have been at $7 but I decided to wait for confirmation and got in later at $11.45. I purchased 1,000 shares with the plan to sell calls once it hit $20. After watching this stock's options trade with like zero volume I began to feel less confident about that strategy. My conservative self took over and I took half off the table at $17.50. Now I am sitting on some pretty good unrealized profits still as the stock has caught fire and is now starting to capture more attention in the form of analyst's upgrades. My question has to do with the appropriate time to sell and or hedge my unrealized profits. Waiting for a breakdown of the 30 week moving average down around the price at which I entered makes no sense as I would give back some healthy unrealized gains. Selling calls on the stock I own would be fine unless the stock decides to correct in which case I would want to be hedged with some low cost puts just in case. Either one of those strategies would very likely lock in profits at this level from either being called out or moving back down with the calls expiring worthless and the protective puts hedging my downside. My desire is to hold onto the stock as it is making a nice break from a long term base looking like it has the potential to really take off. The chart pattern broke from its base on strong volume and now looks like a classic rounding bottom. As I write this I realize that I will probably try to hold on to the stock and hedge my profits with protective puts. I would really like to hear from someone with an objective view since I really have no one to discuss strategies like this with. If I am whacked you could save me from myself. Since you mentioned the book and the different stages, I thought you might be able to weigh in with some of your own ideas on my thought process. You may have noticed my omitting any fundamental information. I use technical analysis as my primary filter in selecting stocks although I will mention that IBD has this puppy rated at 99 with an A+. Western wireless provides wireless services to rural customers and has a large contract with AT&T. Earlier this year they paid off significant debt and just recently had strong revenue numbers come in from it's European subsidiary. I realize this is pretty long winded but if you get the time I sure would like to know your thoughts. I have enjoyed your stuff in OI. I am one of those who reads everything out there every week. All of you do a wonderful job in not only your analysis but more importantly in teaching by imparting your knowledge on a most challenging subject. Thanks, Sko Hello Sko! First, thank you for the kind words. Hopefully, we at the OIN will continue to live up to your praise as we strive to produce the best "options-trading" newsletter on the Internet and at a reasonable price. Sko, you are dealing with what afflicts everyone - defining your personal risk-reward tolerance, and it looks like you are doing a great job. After entering a position, most professional traders reduce their exposure to loss, either by taking partial profits or hedging the position. Remember the clich‚, "You can't go broke taking profits!" It looks like you did that but feel guilty about lost profits as the stock continued to move up. But what if the stock had subsequently collapsed? Every trader has to deal with the emotional impact of "selling too soon" but that is better than the pain of "why didn't I take profits sooner!" Most professionals start out with a set trading system which they eventually adjust and fine-tune to fit their personality. What do they use when a stock is in a strong up-trend? There are many choices and you must find one that works for you: A simple trend-line; maybe a shorter-term MA that hasn't been violated (20-, 30-, 50-, 100-day MA); as you said, protective puts or taking partial profits as the stock rises; a trailing stop that rises every day/week for a preset percentage and forces a selling decision, etc. There is no "perfect" plan as there is a risk of loss in all trading strategies. In Stan Weinstein's book, he generally uses a 30-week MA for an investment position (1 to 2 years) until the stock enters Stage III, and then he recommends tightening stops. Yet even Stan waxed philosophically about whether it is better to trade or invest, or to consider a mixed approach. He even mentions taking partial profits on stocks that spike way above their 30-week MAs (read page 193). What can one conclude from all this? That each individual must establish a trading plan that fits their own personal risk-vs-reward tolerance. That one must remain disciplined and strive to remove emotion from their trading decisions. That one must endeavor to be flexible as conditions change while at the same time attempting to limit the risk of loss through proven money-management techniques. Finally, that there isn't one perfect strategy, but we must always struggle to develop techniques as complete and faultless as possible. Best Regards, Mark W. OIN Editor's note: Ok readers, if you have a specific strategy that could help Sko, please send it to: markw@OptionInvestor.com We welcome any and all comments on option trading techniques and will happily discuss them in this column. 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 CBST 13.51 13.34 SEP 12.50 1.50 0.49* 8.9% PLXT 5.25 5.83 SEP 5.00 0.60 0.35* 8.2% IPXL 15.16 14.99 SEP 15.00 0.70 0.53 8.0% WAVX 3.46 3.41 SEP 2.50 1.20 0.24* 7.7% XOMA 8.09 8.93 SEP 7.50 1.30 0.71* 7.6% FWHT 25.56 27.18 SEP 25.00 1.40 0.84* 7.6% TER 20.11 20.46 SEP 20.00 0.75 0.64* 7.2% PLUG 5.13 4.99 SEP 5.00 0.45 0.31 7.1% ENER 10.39 13.06 SEP 10.00 1.10 0.71* 6.6% EMBT 10.25 10.20 SEP 10.00 0.65 0.40* 6.3% NWAC 8.30 10.83 SEP 7.50 1.40 0.60* 6.3% EPNY 5.07 5.81 SEP 5.00 0.40 0.33* 6.1% NEOF 12.45 16.21 SEP 12.50 0.90 0.95* 6.0% FLML 28.49 37.13 SEP 25.00 4.40 0.92* 5.8% WAVX 3.20 3.41 SEP 2.50 0.85 0.15* 5.5% MCRL 12.60 13.22 SEP 12.50 0.65 0.55* 5.0% IBIS 10.70 12.12 SEP 10.00 1.00 0.30* 4.7% USG 14.11 15.99 SEP 12.50 2.35 0.74* 4.6% XOMA 9.45 8.93 SEP 7.50 2.25 0.30* 4.5% ITMN 19.01 21.00 SEP 17.50 2.00 0.49* 4.4% VSAT 15.09 16.06 SEP 15.00 0.80 0.71* 4.3% TKLC 15.46 17.85 SEP 15.00 1.15 0.69* 4.2% CCRN 15.60 15.90 SEP 15.00 1.00 0.40* 4.2% ISIS 5.33 7.20 SEP 5.00 0.60 0.27* 4.1% RFMD 8.07 10.13 SEP 7.50 0.90 0.33* 4.0% SNIC 11.18 14.75 SEP 10.00 1.70 0.52* 4.0% ADLR 13.96 15.95 SEP 12.50 1.90 0.44* 4.0% GSIC 11.52 10.14 SEP 10.00 1.95 0.43* 3.9% CREE 16.30 16.08 SEP 15.00 1.75 0.45* 3.4% TALK 15.34 14.40 SEP 15.00 0.80 -0.14 0.0% KVHI 30.99 28.88 SEP 30.00 1.85 -0.26 0.0% SIB 22.60 20.92 SEP 22.50 0.90 -0.78 0.0% * Stock price is above the sold striking price. Comments: The major averages failed to make any headway this week; neither up nor down. The "model" covered-call portfolio continues to do quite well and may even be causing some "call-selling" regret in Cubist Pharmaceuticals (NASDAQ:CBST), which announced after hours Friday that it has received FDA approval for its new antibiotic. As we move into the last week of the September expiration period, monitor closely those issues that are testing key support areas: GSI Commerce (NASDAQ:GSIC) -- 50-day MA; Cree (NASDAQ:CREE) -- 30- and 50-day MAs; and Staten Island Bancorp (NYSE:SIB) -- 50-day MA. As always, re-evaluate any stocks you may own after next week and act accordingly. Positions Previously Closed: Cerus (NASDAQ:CERS) 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 SCMR 5.20 OCT 5.00 SMZ JA 0.65 832 4.55 35 8.6% ARIA 5.24 OCT 5.00 UAQ JA 0.60 220 4.64 35 6.7% CHU 7.43 OCT 7.50 CHU JU 0.50 422 6.93 35 6.3% VXGN 6.50 OCT 5.00 UWG JA 1.80 1095 4.70 35 5.5% THOR 16.83 OCT 15.00 TQU JC 2.70 2463 14.13 35 5.4% HEPH 26.29 OCT 22.50 QGQ JX 4.90 277 21.39 35 4.5% DSCM 7.99 OCT 7.50 QKS JU 0.85 0 7.14 35 4.4% 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). ***** SCMR - Sycamore $5.20 *** New Government Contract? *** Sycamore Networks (NASDAQ:SCMR) develops and markets intelligent optical networking products that enable telecommunications service providers to cost-effectively transform the capacity created by their fiber-optic networks into usable bandwidth to deliver a broad range of telecommunications services. Their software-based intelligent optical switching products are designed to enable service providers to leverage their optical network infrastructure to deliver a broad range of end-to-end services to meet the bandwidth intensive needs of data applications. The company's products incorporate intelligent optical networking software, synchronous optical networking/synchronous digital hierarchy (SONET/SDH) functionality, dense wave division multiplexing (DWDM) technology and network management. Shares of Sycamore Networks jumped to a 2-1/2 year high Friday on reports that the company may have won a portion of a government contract worth as much as $900 million over two years. We simply favor the breakout above near-term resistance on heavy volume and traders can use this position to speculate conservatively on the company's future. OCT-5.00 SMZ JA LB=0.65 OI=832 CB=4.55 DE=35 TY=8.6% ***** ARIA - Ariad $5.24 *** New Drug Speculation *** Ariad Pharmaceuticals (NASDAQ:ARIA) is engaged in the discovery and development of breakthrough medicines that regulate cell signaling with small molecules. Breakthrough medicines are products created de novo that may be used to treat diseases in innovative ways. The company is developing a comprehensive approach to the treatment of cancer. It is primarily focused on a series of product candidates for targeted indications: AP23573, which is in Phase I development, to treat solid tumors and other malignancies; AP23464, which is intended to block the spread of cancer and to treat certain forms of leukemia, and AP23841, which is intended to treat cancer that has spread to bone, as well as to treat primary bone cancers, such as osteogenic sarcomas. Ariad is another stock which has recently rallied above near-term resistance on heavy volume. The move suggests further upside potential in the near-term and traders can profit from that outcome with this position. OCT-5.00 UAQ JA LB=0.60 OI=220 CB=4.64 DE=35 TY=6.7% ***** CHU - China Unicom $7.43 *** Pure Internet Speculation *** China Unicom (NYSE:CHU) is a telecommunications operator in China, offering a wide range of telecommunications services, including cellular, international and domestic long-distance, data, Internet and paging services. The controlling shareholder, Unicom Group, has the exclusive license to offer code division multiple access (CDMA) cellular services in China. Unicom has constructed CDMA networks nationwide and completed construction of the initial phase of its CDMA network at the end of 2001. China Unicom, including Unicom New Century, has leased capacity on the network and operates the CDMA network in the cellular service areas. China Unicom recently announced a stronger-than-expected rise in first-half earnings thanks to robust subscriber growth at its Little Smart wireless service and broadband divisions. This very speculative position offers reasonable reward at the risk of owning China Unicom shares near a technical support level. OCT-7.50 CHU JU LB=0.50 OI=422 CB=6.93 DE=35 TY=6.3% ***** VXGN - VaxGen $6.50 *** Bio-Terror Play *** VaxGen (NASDAQ:VXGN) is a biopharmaceutical company engaged in the development, manufacture and commercialization of biologic products for the prevention and treatment of human infectious disease. The company is developing preventive vaccines against anthrax, smallpox and HIV/AIDS and is the largest shareholder in Celltrion Inc., a joint venture to build biopharmaceutical manufacturing operations. Celltrion was formed by VaxGen and certain South Korean investors to provide manufacturing of complex proteins made through mammalian-cell fermentation. This type of manufacturing is used to make many of the drug products developed by the biotechnology industry, including monoclonal antibodies and therapeutic proteins. Products under development by VaxGen include an anthrax vaccine, a smallpox vaccine and the AIDSVAX AIDS vaccine. VaxGen rallied strongly on Friday as analysts speculated that the company will benefit from U.S. government spending on vaccines. Investors who agree can use this position to target-shoot a cost basis closer to technical support. OCT-5.00 UWG JA LB=1.80 OI=1095 CB=4.70 DE=35 TY=5.5% ***** THOR - Thoratec $16.83 *** Expecting News On Monday! *** Thoratec (NASDAQ:THOR) offers 2 complementary circulatory support product lines, the Thoratec Ventricular Assist Device system (Thoratec VAD system), an external device for short- to mid-term cardiac support, and the HeartMate Left Ventricular Assist system (HeartMate), an internal device for longer-term cardiac support. In addition to its cardiac assist products, the company offers vascular access grafts used in hemodialysis for patients with end-stage renal disease. The company is also developing a small diameter access graft for use in coronary artery bypass graft surgery. In addition, the company sells whole-blood coagulation testing equipment used in bedside anticoagulation management, coagulation screening and skin incision devices for the drawing of blood from adult, children and infant patients. Thoratec expects to hear from U.S. regulators by Monday on whether the U.S. Medicare health program will extend payment for additional patients for its costly implanted heart pump. Investors can use this position to speculate on the outcome. OCT-15.00 TQU JC LB=2.70 OI=2463 CB=14.13 DE=35 TY=5.4% ***** HEPH - Hollis-Eden $26.29 *** On The Move! *** Hollis-Eden Pharmaceuticals (NASDAQ:HEPH), a development-stage pharmaceutical company, is engaged in the discovery, development and commercialization of products for the treatment of immune system disorders and hormonal imbalances. HEPH's development efforts target a series of indications in which the body is unable to mount an appropriate immune response: radiation and chemotherapy induced immune suppression and immune dysregulation caused by infectious diseases such as HIV, malaria and tuberculosis. The company's initial technology development efforts are focused on a series of potent hormones and hormone analogs that are key components of the body's natural regulatory system. Hollis-Eden continues to rally higher on heavy volume and conservative investors can use this position to obtain an entry point closer to technical support. OCT-22.50 QGQ JX LB=4.90 OI=277 CB=21.39 DE=35 TY=4.5% ***** DSCM - Drugstore.com $7.99 *** Rally Mode! *** Drugstore.com (NASDAQ:DSCM) is an online drugstore and information web site focused on health, wellness, beauty, personal care and pharmacy products and related information. Located on the Web at www.drugstore.com, the company sells health, beauty, wellness and pharmacy products. DSCM also sells prestige beauty products through Beauty.com, an online retailer located at www.beauty.com, and sexual well-being products through its Website located at www.sexualwellbeing.com. During 2002, Drugstore.com organized its operations into 2 principal business segments: over-the-counter health, beauty and wellness products (non-pharmaceutical segment) and prescription drugs (pharmaceutical segment). The Internet sector remains bullish and this position offers traders who think the rally will continue a method to profit from that outcome. OCT-7.50 QKS JU LB=0.85 OI=0 CB=7.14 DE=35 TY=4.4% ***** ***************** 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 NKTR 13.83 OCT 12.50 QNX JV 2.40 3077 11.43 35 8.1% ABTL 10.02 OCT 10.00 BCU JB 0.85 50 9.17 35 7.9% TWTC 7.50 OCT 7.50 JMQ JU 0.60 169 6.90 35 7.6% ADLR 15.95 OCT 15.00 UAH JC 2.05 3036 13.90 35 6.9% ASKJ 21.29 OCT 20.00 AUK JD 2.55 2272 18.74 35 5.8% CRYP 10.55 OCT 10.00 UFW JB 1.10 149 9.45 35 5.1% IMMU 8.64 OCT 7.50 QUI JU 1.55 173 7.09 35 5.0% GOLD 23.93 OCT 22.50 GUD JX 2.55 6 21.38 35 4.6% OXGN 11.90 OCT 10.00 QYO JB 2.35 453 9.55 35 4.1% LWSN 8.01 OCT 7.50 QPA JU 0.85 229 7.16 35 4.1% USG 15.99 OCT 12.50 USG JV 4.00 1072 11.99 35 3.7% ***************** NAKED PUT SECTION ***************** Options 101: Develop A Plan For Success By Ray Cummins One of the most common requests we receive is how to develop a trading plan and what strategies it should include. When it comes to constructing a profitable arsenal of trading techniques, no single method or procedure will work for every market participant. Each trader has his (or her) own needs and requirements. Issues and concerns that may be important to one person can be of very little significance for another. The only principle that applies to everyone is that traders must identify their strengths and limitations and structure their approach to the market accordingly. One of the initial stages in creating a successful trading plan is assessing your financial situation. The easiest way to begin this process is to define your objectives and constraints. That means establishing a target portfolio return and risk tolerance level. Time is an important factor in this regard as it can be both an ally and an enemy. With short-term positions, it is more difficult to recover from substantial losses but the returns are generally higher. Strategies with a longer-term outlook have a greater chance for success, however they usually produce lower relative profits. In addition, the longer the time horizon, the more risk the entire portfolio can tolerate as there is ample opportunity to recover from unexpected losses. Regardless of the methods you choose, an acceptable risk-reward profile should be established before any strategy is initiated. The overall level of downside potential must be proportionate to the size of the portfolio and its primary purpose. The fundamental question is, "How much do you expect to earn on a monthly (percentage) basis and is your trading capital sufficient to absorb the occasional draw-downs necessary to yield that amount?" By combining your profit objective with the appropriate risk tolerance, a set of primary guidelines can be established for your trading system. In order to determine the appropriate trading strategy, you must identify the potential for profit with each individual technique. In most cases, it is relatively easy to estimate the returns you can expect from a particular approach through the use of trading models and historical results. You can also examine the returns from similar techniques and calculate the maximum profit and the break-even points for a specific position with scenario analysis. A number of inexpensive software products are available for this type of research and there are also some (free) web-based models that provide basic option pricing and volatility analysis. These tools can help you determine an expected overall return for your portfolio, based on how much capital you devote to each position. Of course, the amount of risk exposure you are willing to endure should play an important role when you select specific strategies for your option trading arsenal. There is a definite trade-off between risk and reward and most people do best with techniques that are low cost and offer a reasonable probability of a high (potential) reward. That reason is, one winning play can offset a number of losing positions. In contrast, low risk strategies are often limited profit as well, and although the probability of loss is remote, the amount of downside potential is too great to warrant the risk. The process of developing a profitable approach to trading in the market is dynamic and constantly changing. For that reason, the the final step in the procedure can also be the most difficult. This phase involves measuring and comparing the success of your trading tactics to other popular systems and current benchmarks. If the results are favorable, only small alterations are needed to maintain the integrity of the system and adapt it to current conditions. However, if your current strategies are not yielding the returns necessary to achieve portfolio targets, you may need to conduct additional analysis and make some adjustments to bring the system up to a minimal level of performance. If a thorough overhaul of the process fails to yield noticeable improvements, it may be time to consider another approach altogether. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield GNTA 16.20 14.25 SEP 12.50 0.45 0.45* 8.1% 26.5% AMSC 13.20 12.31 SEP 10.00 0.70 0.70* 6.5% 18.2% CBST 12.72 13.34 SEP 10.00 0.50 0.50* 4.6% 14.3% NEOF 16.40 16.21 SEP 15.00 0.35 0.35* 5.2% 13.8% GNTA 16.00 14.25 SEP 10.00 0.30 0.30* 4.7% 13.0% RIMM 24.61 31.96 SEP 20.00 0.75 0.75* 2.8% 9.1% RIMM 28.48 31.96 SEP 25.00 0.50 0.50* 3.1% 9.0% SINA 34.32 37.41 SEP 30.00 0.40 0.40* 2.9% 8.9% TIVO 10.91 10.02 SEP 10.00 0.30 0.30* 3.4% 8.7% OVTI 43.77 44.14 SEP 35.00 0.95 0.95* 2.4% 8.5% CVTX 27.33 25.82 SEP 25.00 0.35 0.35* 3.1% 8.5% THER 13.93 14.27 SEP 12.50 0.55 0.55* 3.3% 8.5% DRIV 28.75 27.12 SEP 25.00 0.30 0.30* 2.6% 8.1% NFLX 34.55 34.57 SEP 30.00 0.35 0.35* 2.6% 7.9% RIMM 28.74 31.96 SEP 25.00 0.60 0.60* 2.7% 7.8% NTAP 22.36 22.17 SEP 20.00 0.35 0.35* 2.7% 7.7% IDTI 13.10 14.40 SEP 12.50 0.35 0.35* 3.1% 7.6% FLML 28.49 37.13 SEP 22.50 0.30 0.30* 2.1% 7.6% BLUD 23.12 26.25 SEP 22.50 1.00 1.00* 3.4% 7.5% BOBJ 27.05 27.49 SEP 25.00 0.45 0.45* 2.8% 7.4% SEPR 21.76 29.75 SEP 17.50 0.50 0.50* 2.1% 7.3% NFLX 28.80 34.57 SEP 25.00 0.55 0.55* 2.4% 7.2% TKLC 13.73 17.85 SEP 12.50 0.45 0.45* 2.7% 6.9% PHTN 28.90 31.23 SEP 25.00 0.65 0.65* 2.3% 6.8% SRNA 18.77 18.88 SEP 17.50 0.40 0.40* 2.5% 6.5% JDAS 13.90 16.77 SEP 12.50 0.40 0.40* 2.4% 6.4% UTEK 25.75 29.69 SEP 22.50 0.55 0.55* 2.2% 6.3% SEPR 23.49 29.75 SEP 20.00 0.45 0.45* 2.0% 6.2% PDII 24.25 23.85 SEP 20.00 0.50 0.50* 1.9% 6.1% NFLX 33.33 34.57 SEP 27.50 0.30 0.30* 1.7% 5.8% IMCL 46.56 46.44 SEP 40.00 0.30 0.30* 1.6% 5.3% BRCM 25.80 27.01 SEP 22.50 0.35 0.35* 1.7% 5.2% PSUN 22.37 21.14 SEP 20.00 0.23 0.23* 1.8% 5.1% ** AEIS 21.02 22.54 SEP 17.50 0.30 0.30* 1.5% 5.0% PHTN 29.57 31.23 SEP 25.00 0.35 0.35* 1.5% 5.0% * Stock price is above the sold striking price. ** Adjusted for a 3-2 Split Comments: Despite Friday's late rally, all three indexes ended lower for the week as investors took profits from the recent rise in share values. The near-term outlook is somewhat ambiguous with the technical indications suggesting a bullish bias while analysts are saying the market is overvalued at current levels. With the quarterly earnings season approaching, it is certainly prudent to be especially vigilant in position management. Issues on the early-exit "watch" list include CV Therapeutics (NASDAQ:CVTX), Genta (NASDAQ:GENTA), and Pacific Sunwear (NASDAQ:PSUN). 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 EMIS 6.19 OCT 5.00 MTQ VA 0.35 70 4.65 35 6.5% 18.6% ADLR 15.95 OCT 12.50 UAH VV 0.50 4367 12.00 35 3.6% 11.8% STAT 14.58 OCT 12.50 TAQ VV 0.40 2 12.10 35 2.9% 8.4% ASKJ 21.29 OCT 17.50 AUK VW 0.45 889 17.05 35 2.3% 7.6% NKTR 13.83 OCT 10.00 QNX VB 0.25 45 9.75 35 2.2% 7.2% INSP 19.92 OCT 17.50 IOU VW 0.35 53 17.15 35 1.8% 5.2% GOLD 23.93 OCT 20.00 GUD VD 0.35 0 19.65 35 1.5% 5.1% 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). ***** EMIS - Emisphere $6.19 *** Rally Underway! *** Emisphere Technologies (NASDAQ:EMIS) is a biopharmaceutical company engaged in solving one of the most challenging technical hurdles in the pharmaceutical industry: the oral delivery of medicines, which, for a variety of reasons, cannot be offered to patients directly in an oral form. EMIS has pioneered the oral delivery of otherwise injectable drugs, including proteins, peptides, polysaccharides and other compounds not deliverable by oral means. These drugs present challenges for oral delivery because they are often large molecules, which are inactivated in the gastrointestinal tract, have limited ability to cross cell membranes and generally cannot be delivered orally. There is no "public" news to explain the recent rally in EMIS shares but the heavy-volume buying pressure suggests further upside potential. Traders who perform the appropriate due-diligence may find this position to be attractive in a speculative options portfolio. OCT-5.00 MTQ VA LB=0.35 OI=70 CB=4.65 DE=35 TY=6.5% MY=18.6% ***** ADLR - Adolor $15.95 *** New 52-Week High! *** Adolor (NASDAQ:ADLR) is a development stage biopharmaceutical company specializing in the discovery, licensing, acquisition, development and commercialization of prescription pain management products. The company has a number of small molecule product candidates that are in various stages of development ranging from preclinical studies to Phase 3 clinical trials. Adolor's lead product candidate, alvimopan, selectively blocks unwanted effects of opioid analgesics on the gastrointestinal tract. Alvimopan is a potential first-in-class compound that is being evaluated in acute and chronic indications, which includes the management of postoperative ileus and for reversal of the severe constipating effects associated with the chronic use of opioids. Shares of ADLR hit a 52-week high Friday and the recent buying pressure suggests additional upside potential in the near-term. OCT-12.50 UAH VV LB=0.50 OI=4367 CB=12.00 DE=35 TY=3.6% MY=11.8% ***** STAT - i-STAT $14.58 *** New Product Marketing Approvals! *** i-STAT Corporation (NASDAQ:STAT) develops, manufactures and sells diagnostic products for blood analysis that provide health care professionals critical diagnostic information accurately and immediately at the point of patient care. Through the use of advanced semiconductor manufacturing technology, established principles of electrochemistry and state-of-the-art computer electronics, i-STAT developed the first hand-held automated blood analyzer capable of performing a panel of commonly ordered blood tests on two or three drops of blood, generally in just two to three minutes at the patient's side. i-STAT recently announced it has received U.S. Food and Drug Administration clearance to market two new products: a kaolin-based activated clotting time (kaolinACT) test and a 10-minute Cardiac Troponin I (cTnI) test. The news is definitely favorable and traders who believe the FDA approvals will translate to higher share values should consider this position. OCT-12.50 TAQ VV LB=0.40 OI=2 CB=12.10 DE=35 TY=2.9% MY=8.4% ***** ASKJ - Ask Jeeves $21.29 *** Hot Sector! *** Ask Jeeves (NASDAQ:ASKJ) is a provider of natural language question answering technologies and services. The company's proprietary technology creates an interaction centered on understanding users' specific needs and interests and connecting them to the most relevant information, products and services. Specifically, its natural language technology allows users to ask a question in plain English (or another language) and receive a response pointing to relevant answers. The company serves its customers through its two divisions, Web Properties and Jeeves Solutions. Stocks in the Internet information group are "hot" and ASKJ has been one of the best performing issue on the NASDAQ for over a year. Traders who think the bullish trend will continue in the near-term should consider this position. OCT-17.50 AUK VW LB=0.45 OI=889 CB=17.05 DE=35 TY=2.3% MY=7.6% ***** NKTR - Nektar Therapeutics $13.83 *** Drug Speculation *** Nektar Therapeutics (NASDAQ:NKTR) provides industry-leading drug delivery technologies, expertise and manufacturing to enable the development of high-value, differentiated therapeutics. Nektar's advanced drug delivery capabilities are designed to enable the firm's biotechnology and pharmaceutical partners to solve drug development challenges and realize the full potential of their therapeutics, from developing new molecular entities to managing the lifecycles of established products. A number of drug makers are working to advance the insulin market and Aventis (NYSE:AVE) is now testing Nektar Pharmaceuticals' oral insulin in Phase III trials. Traders who believe the outcome will be favorable should consider this position. OCT-10.00 QNX VB LB=0.25 OI=45 CB=9.75 DE=35 TY=2.2% MY=7.2% ***** INSP - Infospace $19.92 *** Merger/Buyout Candidate? *** InfoSpace (NASDAQ:INSP) develops and delivers a wireless and Internet platform of software and application services to a range of customers that span each of its wireline, merchant and wireless business units. Many of the company's products and application services are offered to its customers, which, in turn, offer these products and application services to their customers as their own solutions. InfoSpace provides its many services across multiple platforms, including personal computers and non-PC devices. Investors are speculating on a potential buyout offer for INSP and analysts say suitors are considering Infospace because of its strong balance sheet, low valuation relative to cash flow, tech assets, and $300 million in cash. Traders who agree with a bullish outlook for the firm's share value in the near-term should consider this position. OCT-17.50 IOU VW LB=0.35 OI=53 CB=17.15 DE=35 TY=1.8% MY=5.2% ***** GOLD - Randgold Resources $23.93 *** Broad Market Hedge! *** Randgold Resources (NASDAQ:GOLD) is engaged in surface gold mining, exploration and related activities. Its activities are focused on West Africa. The company has discovered the seven million-ounce Morila deposit and the 1.5 million-ounce Yalea Deposit in Mali and the three million-ounce Tongon deposit in the Cote d'Ivoire. The company developed the Morila deposit into a high-margin gold mine that, in 2002, produced just over one million ounces. Randgold has advanced feasibility projects at Loulo in Mali and Tongon in Cote d'Ivoire. In addition, it has a portfolio of prospective exploration projects in Mali, Cote d'Ivoire, Senegal and Tanzania. This position in GOLD is an excellent play for traders who want a broad-market hedge in their options portfolio. OCT-20.00 GUD VD LB=0.35 OI=0 CB=19.65 DE=35 TY=1.5% MY=5.1% ***** ***************** 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 DNDN 8.74 OCT 7.50 UKO VU 0.35 519 7.15 35 4.3% 11.7% CELL 27.50 OCT 22.50 ULN VX 0.80 17 21.70 35 3.2% 10.2% CAL 17.98 OCT 15.00 CAL VC 0.55 812 14.45 35 3.3% 10.0% SINA 37.41 OCT 30.00 NOQ VF 0.90 435 29.10 35 2.7% 9.3% IMCL 46.44 OCT 40.00 QCI VH 1.25 530 38.75 35 2.8% 8.1% JCOM 42.50 OCT 32.50 JQF VZ 0.80 229 31.70 35 2.2% 7.5% NFLX 34.57 OCT 27.50 QNQ VY 0.65 1988 26.85 35 2.1% 7.5% IBIS 12.12 OCT 10.00 UIB VB 0.25 25 9.75 35 2.2% 7.3% PKN 18.96 OCT 17.50 PKN VW 0.50 36 17.00 35 2.6% 6.6% MERQ 48.16 OCT 42.50 RQB VS 0.90 490 41.60 35 1.9% 5.4% MSFT 28.34 OCT 27.50 MSQ VY 0.65 61415 26.85 35 2.1% 5.1% APPX 38.74 OCT 30.00 AQO VF 0.45 150 29.55 35 1.3% 4.8% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Stocks Close Higher Amid Late-Session Rally By Ray Cummins The major equity averages ended on a bullish note Friday as buying pressure emerged during the final two hours of trading. The Dow Jones industrial average closed 11 points higher at 9,471 with solid performances seen in Alcoa (NYSE:AA), Dupont (NYSE:DD), and General Motors (NYSE:GM). The technology-laden NASDAQ ended 8 points higher at 1,855 with software industry stalwart Microsoft (NASDAQ:MSFT) leading the advance after announcing it will double its annual dividend. The broader Standard & Poor's 500 Index rose 2 points to 1,018 with aluminum, homebuilding, managed healthcare, casino & gaming, and chemicals among the popular groups. Winners outnumbered losers 3 to 2 on the New York Stock Exchange with only 1.2 billion shares traded. Advancers outpaced decliners 4 to 3 on the NASDAQ, where 1.7 billion shares changed hands. The U.S. bond market finished the session with gains across the yield curve and the 10-year note up 16/32, bringing its yield down to 4.25%. ***************** 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 40.54 SEP 30 35 0.65 34.35 $0.65 Open BOW 38.57 43.85 SEP 30 35 0.60 34.40 $0.60 Open MXIM 39.11 42.23 SEP 30 35 0.65 34.35 $0.65 Open BBY 47.90 50.94 SEP 40 42 0.30 42.20 $0.30 Open JCI 96.49 99.00 SEP 85 90 0.65 89.35 $0.65 Open MBI 53.13 55.34 SEP 45 50 0.65 49.35 $0.65 Open WMT 57.77 57.48 SEP 50 55 0.50 54.50 $0.50 Open BSX 63.25 61.40 SEP 50 55 0.40 54.60 $0.40 Open SNPS 66.53 64.53 SEP 55 60 0.50 59.50 $0.50 Open ISIL 27.58 28.05 SEP 22 25 0.30 24.70 $0.30 Open POWI 32.08 35.08 SEP 25 30 0.55 29.45 $0.55 Open VIA 44.64 43.82 SEP 40 42 0.30 42.20 $0.30 Open AMZN 46.32 45.68 SEP 40 42 0.25 42.25 $0.25 Open GS 88.48 90.73 SEP 80 85 0.40 84.60 $0.40 Open TTWO 29.81 35.71 SEP 25 27 0.30 27.20 $0.30 Open SYMC 59.45 59.48 SEP 50 55 0.40 54.60 $0.40 Open AMLN 29.04 28.60 OCT 22 25 0.30 24.70 $0.30 Open MERQ 49.41 48.16 OCT 40 42 0.30 42.20 $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 ESRX 62.23 60.78 SEP 75 70 0.60 70.60 $0.60 Open DB 59.64 64.56 SEP 70 65 0.60 65.60 $0.60 Open AMGN 66.48 68.52 SEP 75 70 0.35 70.35 $0.35 Open MEDI 34.58 37.67 SEP 40 37 0.25 37.75 $0.08 Open CTX 75.42 72.72 SEP 85 80 0.40 80.40 $0.40 Open DNA 79.40 83.46 SEP 90 85 0.50 85.50 $0.50 Open CAH 56.36 57.50 OCT 65 60 0.65 60.65 $0.65 Open PFE 30.51 31.90 OCT 35 32 0.25 32.75 $0.25 Open XL 76.05 74.80 OCT 85 80 0.60 80.60 $0.60 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Previously closed spreads in Intuit (NASDAQ:INTU) and Investors Financial Services (NASDAQ:IFIN) are profitable (Murphy's Law!). SAP AG (NYSE:SAP) has been closed to limit losses. Deutsche Bank AG (NYSE:DB), Genentech (NYSE:DNA), and MedImmune (NASDAQ:MEDI), which offered a great exit opportunity on Friday, are now on the "watch" list. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status MWD 48.54 48.86 SEP 40 45 4.45 44.45 0.55 Open MGAM 24.97 27.04 SEP 20 22 2.30 22.30 0.20 Open MUR 52.94 57.43 SEP 45 50 4.45 49.45 0.55 Open CTSH 31.90 37.06 SEP 25 30 4.40 29.40 0.60 Open ERTS 89.97 89.27 SEP 80 85 4.50 84.50 0.50 Open HTCH 33.02 34.17 OCT 25 30 4.50 29.50 0.50 Open AVII 5.54 5.29 DEC 5 7 0.90 5.90 (0.61) 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 72.46 SEP 75 70 4.10 70.90 (1.56) Closed LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss As mentioned last week, traders in the "Reader's Request" spread on Hershey Foods (NYSE:HSY) should evaluate their risk-reward outlook to determine when to exit the play. Our closing trade was initiated on Tuesday for a smaller-than-published loss. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status SHPGY 22.77 22.78 JAN 30 17 0.00 0.20 Open? AVCT 27.83 30.04 SEP 30 25 (0.10) 1.30 Open? ADRX 20.79 21.75 DEC 25 17 (0.20) 0.15 Open CVTX 27.55 25.82 OCT 35 20 (0.10) 0.00 Open The new position in CV Therapeutics (NASDAQ:CVTX) is at a "key" moment and a move to the downside would suggest an early exit in the speculative position. Avocent (NASDQ:AVCT) has been a solid performer with a potential credit of up to $1300 on $950 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 24.49 OCT-20C SEP-22C 1.90 2.25 Open? MSFT 27.31 28.34 JAN-27C SEP-27C 1.20 1.50 Open NE 34.86 34.56 DEC-37C SEP-37C 1.15 1.50 Open ING 19.07 20.56 JAN-20C SEP-20C 0.75 1.00 Open NSM 22.77 34.20 JAN-20C SEP-25C 3.90 5.30 Open? MDCO 26.17 29.41 JAN-30C SEP-30C 1.50 2.40 Open GNTA 13.95 14.25 OCT-12C SEP-15C 2.00 2.40 Open? PRU 36.41 36.46 DEC-37C SEP-37C 1.10 1.25 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 position in Brady Pharmaceuticals (NYSE:BDY) is no longer being tracked in the summary. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status SNE 30.74 36.99 OCT 30 30 3.75 7.00 Open AMTD 10.00 11.98 OCT 10 10 1.45 2.40 Open? TRI 30.50 32.11 NOV 30 30 4.90 5.00 Open ADBE 34.36 39.53 SEP 35 35 2.80 4.80 Open? BBY 50.08 50.94 SEP 50 50 4.05 4.90 Open? CLS 17.55 17.71 OCT 17 17 2.35 3.10 Open NVDA 18.17 19.35 OCT 17 17 2.90 3.50 Open PDCO 54.42 55.42 SEP 55 55 2.35 2.20 Open Sony (NYSE:SNE) and Ameritrade (NASDAQ:AMTD) were "big" winners this month. Adobe Systems (NASDAQ:ADBE) has also performed better than expected and straddle plays in Best Buy (NYSE:BBY), Celestica (NYSE:CLS), Nvidia (NASDAQ:NVDA) 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 ****************** TRADING STRATEGIES ****************** Opening a new position is the easiest thing in the world. The hard part comes when you are faced with the decision to exit the position. Many of my clients have been asking about the different ways to exit a spread positions. I will try to give readers some of my insights with regards to Credit Spreads. Credit spreads are, until expiration, a limited risk position. When the position is initiated, the risk and reward outlook is predefined. Personally, I like to hold credit spreads all the way to expiration. As a trader, I am aware of the worst case in this scenario and I adjust the number of contracts to match my risk tolerance before placing the initial order. In addition, I utilize software (available to clients as well) that can help quantify the probability of the stock moving beyond the short option before expiration. As expiration nears, I encourage my clients to monitor the short option for favorable opportunities to close that position. This is the exposure leg of the trade. Once this portion of the spread is closed, the risk ends and there may be an unexpected gain in the long position. When the sold option is trading at $0.10 or less, the risk/reward outlook is skewed against you, and although it may be "wasted money" to close this position, it usually allows for some better sleeping. Many of people who try to "leg-out" or "roll" the spreads will be exiting at a market top or bottom. I prefer a more conservative approach -- sticking with the position until expiration. Then I can make a decision based on the market conditions at that time. I may close the entire position or roll the spread to the next expiration period. Another benefit of waiting until expiration is the fact that the time value in the options will be near zero. This is one of the primary components of option pricing that we are trying to take advantage of when using credit spreads. Next week, I will address "Naked" Puts and Index Options. 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. OneStopOption Strengths: * Dedicated option brokerage with "live" option principals/brokers * Order routing to "best-priced" exchange and timely executions * All types of orders (stop/limit/OCO) to encourage disciplined trading and proper money management * Advanced option trading level approval for inexperienced traders * Foreign accounts including Canada -- Futures trading available * Direct electronic trading and personalized customer services * Ability to filter recommendations and provide strategy advice * Free OIN subscription for those who qualify (based on account size and portfolio activity) Get Execution, Education, and Option Experience at OneStopOption Visit their new site -- www.onestopoption.com -- or send an E-mail to: Aaronson@OptionInvestor.com ************* 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. ***** BBH - Biotechnology Holdrs Trust $137.69 *** Biotech Boom! *** The Biotechnology Holdrs Trust (AMEX:BBH) is a unique instrument that represents an investor's ownership in the stock of specified companies in the biotechnology sector. HOLDRS allow investors to own a diversified group of stocks in a single investment that is highly transparent, liquid and efficient. Each HOLDR is a fixed basket of 20 stocks (except the Telebras HOLDR, which holds 12 companies). They work operate much like ADRs; American Depositary Receipts, which allow U.S. investors to purchase foreign-owned companies on the U.S. exchanges in dollar denominated amounts. In just the same way, the investor actually owns the shares of each underlying company, receives dividends, proxies, and annual reports from each. The HOLDRs are not managed, and once the companies and amounts have been determined they are fixed, no companies will be substituted. In this way, the HOLDRs differ somewhat from Spiders (SPDRs), or Standard & Poor Depositary Receipts and other exchange traded funds, which will add and delete stocks on a regular basis, usually in conjunction with an index that they are tracking. A complete explanation of this issue, including the companies that make up each HOLDRS' particular industry, sector or group can be found here: http://www.holdrs.com/holdrs/main/index.asp?Action=Definition BBH - Biotechnology Holdrs Trust $137.69 PLAY (conservative - bullish/credit spread): BUY PUT OCT-120.00 BBH-VD OI=2329 ASK=$0.65 SELL PUT OCT-125.00 BBH-VE OI=2149 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$124.50 ***** CELG - Celgene $45.48 *** New Patents! *** Celgene (NASDAQ:CELG) is a commercial-stage biopharmaceutical company. The company is primarily engaged in the discovery, development and commercialization of small molecule drugs that are designed to treat cancer and immunological diseases through gene and protein regulation. Small molecule drugs are man-made, chemically synthesized drugs that, because of their relatively small size, can typically be administered orally. The firm's drugs are designed to modulate multiple disease-related genes, including cytokines (which are proteins) such as Tumor Necrosis Factor alpha, or TNF(alpha), growth factor genes such as those that control angiogenesis, blood vessel formation and apoptosis genes. Because the company's drugs can be administered orally, they have the potential to advance the standard of care beyond current injectible protein drugs that inhibit TNF (alpha) and other disease-causing cytokines. CELG - Celgene $45.48 PLAY (conservative - bullish/credit spread): BUY PUT OCT-35.00 LQH-VG OI=1266 ASK=$0.25 SELL PUT OCT-40.00 LQH-VH OI=590 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$39.50 ***** MYL - Mylan Laboratories $39.00 *** All-Time High! *** Mylan Laboratories (NYSE:MYL) is engaged in developing, licensing, manufacturing, marketing and distributing generic and brand pharmaceutical products. The company conducts business through its generic and brand pharmaceutical operating segments. The Generic segment consists of two principal business units, Mylan Pharmaceuticals and UDL Laboratories, both of which are wholly owned subsidiaries. The Brand segment consists of two principal business units, Bertek Pharmaceuticals and Mylan Tech, both of which are wholly owned subsidiaries. Bertek's primary therapeutic areas of concentration are neurology, dermatology and cardiology. MYL - Mylan Laboratories $39.00 PLAY (conservative - bullish/credit spread): BUY PUT OCT-32.50 MYL-VZ OI=1873 ASK=$0.25 SELL PUT OCT-35.00 MYL-VG OI=694 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$34.75 ***** SINA - SINA Corporation $37.41 *** Internet Sector Strength! *** 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. SINA - SINA Corporation $37.41 PLAY (conservative - bullish/credit spread): BUY PUT OCT-25.00 NOQ-VE OI=681 ASK=$0.40 SELL PUT OCT-30.00 NOQ-VF OI=435 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$29.50 ***** APC - Anadarko Petroleum $42.70 *** Next Leg Down? *** Anadarko Petroleum (NYSE:APC), through RME Petroleum Company, RME Holding Company, Anadarko Canada Energy, Anadarko Canada Corporation, RME Land and Anadarko Algeria Company, is a global independent oil and gas exploration and production company. The The company's major areas of operations are located in the United States, primarily in Texas, Louisiana, the mid-continent region and the western states, Alaska and in the shallow and deep waters of the Gulf of Mexico, as well as in Canada and Algeria. APC is also active in Venezuela, Qatar, Oman, Egypt, Australia, Tunisia, Congo and Gabon. APC - Anadarko Petroleum $42.70 PLAY (moderately aggressive - bearish/credit spread): BUY CALL OCT-47.50 APC-JW OI=2870 ASK=$0.70 SELL CALL OCT-45.00 APC-JI OI=5278 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=19% B/E=$45.40 ***** CNF - CNF Inc. $28.87 *** Trading Range? *** CNF Inc. (NYSE:CNF) is a $4.8 billion management company of global supply chain services with businesses in regional trucking, air freight, ocean freight, customs brokerage, logistics management and trailer manufacturing. While CNF transports freight for many of its customers, for an increasing number of them the company is taking on a much larger role. Today the CNF companies are assuming total management of the complex transportation and information networks required for companies to get all of the raw materials they need in the door not just on the right day, but at the right time of day. CNF also focuses on effectively managing warehouses, completing final configuration, packaging products and distributing the finished goods with the same timing and precision. CNF - CNF Inc. $28.87 PLAY (moderately aggressive - bearish/credit spread): BUY CALL OCT-32.50 CNF-JZ OI=43 ASK=$0.35 SELL CALL OCT-30.00 CNF-JF OI=318 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.45 POTENTIAL PROFIT(max)=16% B/E=$30.35 ************* 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. ***** APPX - American Pharma Partners $38.74 *** On The Move! *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on the oncology, anti-infective and critical care markets. The company is one of the largest producers of injectables, with more than 130 generic products in more than 350 dosages and formulations. APPX has acquired the exclusive North American rights to manufacture and market ABI-007, a proprietary nanoparticle injectable oncology product that has completed Phase III clinical trials for metastatic breast cancer and for which the FDA has granted "Fast Track" designation. The NDA submission has commenced and it is anticipated that the entire submission will be completed in 2003. The company believes that it has established the only commercial scale protein-engineered nanoparticle manufacturing capability in the United States. APPX - American Pharma Partners $38.74 PLAY (less conservative - bullish/debit spread): BUY CALL OCT-30.00 AXD-JF OI=51 ASK=$9.40 SELL CALL OCT-33.37 AXD-JV OI=652 BID=$6.40 INITIAL NET-DEBIT TARGET=$2.90-$2.95 POTENTIAL PROFIT(max)=14% B/E=$32.95 ***** HEPH - Hollis-Eden Pharmaceuticals $26.29 *** Rally Mode! *** Hollis-Eden Pharmaceuticals (NASDAQ:HEPH), a development-stage pharmaceutical company, is engaged in the discovery, development and commercialization of products for the treatment of immune system disorders and hormonal imbalances. HEPH's development efforts target a series of indications in which the body is unable to mount an appropriate immune response: radiation and chemotherapy induced immune suppression and immune dysregulation caused by infectious diseases such as HIV, malaria and tuberculosis. The company's initial technology development efforts are focused on a series of potent hormones and hormone analogs that are key components of the body's natural regulatory system. HEPH - Hollis-Eden Pharmaceuticals $26.29 PLAY (less conservative - bullish/debit spread): BUY CALL OCT-20.00 QGQ-JD OI=36 ASK=$7.10 SELL CALL OCT-22.50 QGQ-JX OI=277 BID=$4.90 INITIAL NET-DEBIT TARGET=$2.10-$2.20 POTENTIAL PROFIT(max)=14% B/E=$22.20 ******************* 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. ***** GLGC - Gene Logic $6.00 *** Bottom-Fishing! *** Gene Logic (NASDAQ:GLGC) is a contract service provider to pharmaceutical, biotechnology, and institutional researchers worldwide combining extensive experience in sample collection and data analysis of gene expression information and expertise in preclinical safety and pharmacology studies and clinical trial consulting services. Service offerings are designed to improve the predictive value of research and pharmaceutical product development success rates. GLGC - Gene Logic $6.00 PLAY (very speculative - bullish/synthetic position): BUY CALL NOV-7.50 CYV-KU OI=240 ASK=$0.40 SELL PUT NOV-5.00 CYV-WA OI=95 BID=$0.20 INITIAL NET-DEBIT TARGET=$0.05-$0.10 INITIAL TARGET PROFIT=$0.30-$0.50 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $170 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($5.00). *********************** 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. ***** EASI - Engineered Support $59.70 *** A Reader's Request! *** Engineered Support Systems (NASDAQ:EASI) is a diversified supplier of high-tech, integrated military electronics, support equipment and logistics services for all branches of America's armed forces and certain foreign militaries. It has nine subsidiaries: Systems and Electronics, Engineered Air Systems, Keco Industries, Radian, Engineered Coil Company, Engineered Electric Company, Universal Power Systems, ESSIbuy.com and Engineered Specialty Plastics. The firm's products are manufactured within three operating segments: light military support equipment, heavy military support equipment and electronics and automation systems. EASI - Engineered Support $59.70 PLAY (speculative - neutral/debit straddle): BUY CALL NOV-60.00 UFE-KL OI=47 ASK=$4.30 BUY PUT NOV-60.00 UFE-WL OI=90 ASK=$4.40 INITIAL NET-DEBIT TARGET=$8.30-$8.50 INITIAL TARGET PROFIT=$2.90-$3.50 ***** AFCI - Advanced Fibre Comm. $22.66 *** Probability Play! *** Advanced Fibre Communications (NASDAQ:AFCI) develops, manufactures and supports a family of telecommunications access products and services. The firm's products and services enable the connection between the central office switches of telecommunications service providers and their end users for voice and high-speed Internet, data and video communications. Their products include integrated multi-service access platforms, central office switching platforms, optical add-drop multiplexers, integrated access devices, network element management systems and cabinets, as well as many related professional services. AFCI - Advanced Fibre Comm. $22.66 PLAY (speculative - neutral/debit straddle): BUY CALL OCT-22.50 AQF-JX OI=215 ASK=$1.65 BUY PUT OCT-22.50 AQF-VX OI=124 ASK=$1.55 INITIAL NET-DEBIT TARGET=$3.00-$3.10 INITIAL TARGET PROFIT=$0.85-$1.45 ***** ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. 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