The Option Investor Newsletter Sunday 10-05-2003 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: Prosperity Breaking Out All Over Futures Market: Equities rise, Treasuries fall, Metals slammed Index Trader Wrap: Naz Catches Up Editor's Plays: Time to Go Bullish Market Sentiment: No Doubt Ask the Analyst: The NASDAQ-100 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 10-03 WE 9-26 WE 9-19 WE 9-12 DOW 9572.31 +259.23 9313.08 -331.74 9644.82 +173.27 - 31.79 Nasdaq 1880.57 + 88.50 1792.07 -113.63 1905.70 + 50.67 - 3.21 S&P-100 515.17 + 15.56 499.61 - 21.01 520.62 + 8.32 - 0.19 S&P-500 1029.85 + 33.00 996.85 - 39.45 1036.30 + 17.67 - 2.76 W5000 9990.30 +343.82 9646.48 -407.5910054.07 +176.76 - 29.38 RUT 512.28 + 27.00 485.28 - 34.92 520.20 + 11.14 + 0.19 TRAN 2784.85 +121.02 2663.83 -130.88 2794.71 + 59.11 - 11.69 VIX 19.50 - 2.73 22.23 + 3.16 19.07 - 1.18 + 0.88 VXN 29.20 - 1.68 30.88 + 1.14 29.74 - 2.94 + 11.98 TRIN 0.60 1.42 1.35 1.11 Put/Call 0.75 0.98 0.68 0.90 ****************************************************************** Prosperity Breaking Out All Over by Jim Brown To the surprise of everyone the jobs number was positive instead of negative and the resulting explosion caught the bears completely off guard. The Dow gapped up to near its 52-week highs as broadcasters tripped all over themselves trying to explain why the consensus estimates were so wrong. Dow Chart Nasdaq Chart S&P Chart The Jobs Report showed a gain of +57,000 jobs in September and the -93,000 loss in August was revised up to -41,000. This is a net increase of +109,000 jobs and the markets were caught completely unprepared. The gains were driven by stronger hiring in services and construction. The unemployment rate remained at 6.1% due to a drop in the labor force participation rate to 66.1%. That means many workers gave up looking for a job and are no longer in the census. The number of workers that have been out of work for more than 27 weeks rose to 23.2% and levels not seen since 1992. Hourly earnings fell by a penny and the first time they have fallen since 1989. While jobs have been the missing piece of the puzzle the positive report did have some negative implications. The drop in hourly wages imply that consumer spending could slow and that deflation concerns may be increasing. Also reversing estimates was the news that the state survey adjustment was projecting a loss of -145,000 jobs instead of the +200,000 gain analysts were expecting. The chief economist for Banc One was expecting a gain of +300,000. This is the book balancing between the state and federal numbers each June. The September jobs report is the first look at the numbers and they will be revised as we move forward. Temporary workers increased and produced a bullish spin to the news. Companies tend to put on temporaries to test the water before adding permanent employees. If this is the case then the coming trend could be improving. This was the fifth straight month that temporary jobs were added. The only other economic report was the ISM Services which came in at 63.3 compared to consensus at 62.8. While slightly higher than consensus it was still a drop from the 65.1 we saw last month. As I said on Thursday this was a throw away number as long as it was over 60 and the 63.3 was icing on the cake. With the jobs bounce already underway when this number was released at 10:AM there was only a slight move from the markets. Last months number was an index high so a slight pullback was anticipated. The employment component did fall -1.9% so there is still trouble in employment even in the booming services sector. New orders fell -7.7% to 59.9 in September. Individual stock news was pretty much ignored with the race to cover shorts but there were some significant events. HPQ announced it would give $25,000 in free services to any company that switched to HPQ from SUNW for its servers. While this makes great headlines in a week where SUNW has been the tech scapegoat it will have little or no impact on SUNW or HPQ. HPQ would have easily discounted their servers on any quote for much more than the $25K they are offering. The switch from SUNW to HPQ would likely be a multi hundred thousand dollar effort with hundreds if not thousands of man hours and not something that $25K will impact. Great marketing ploy and HPQ got much more than $250K worth of advertising just from the announcement. It would be interesting to know six months from now how many companies actually collected on the offer. BVF was a highlight on Friday and did not open for trading until 1:45 and closed down -$6.67 or -18% on news that a truck carrying up to $20 million in drugs was involved in a multi car accident. The drugs will have to be returned to the plant and re-certified as saleable before being put back into the pipeline. BVF said it would impact earnings for the quarter. ADTN jumped +9.15 (+14%) on raised guidance to 42 cents when analysts were only expecting 36 cents per share. Revenue was expected to be up +6%. This telecom equipment maker exploded on the good news while TLAB barely broke even after warning that it was cutting another 10% of its work force and close a development center in Canada. The company has already suffered seven rounds of job cuts in the past two years and five straight quarters of losses. ADTN said the improvement was in market share gains and an improved business climate. Maybe TLAB should start tailing the ADTN salesmen. Emcor (EME) fell -8.66 to $34.79 after warning that their second half guidance was dropping by -50%. The construction services company said small task projects were dropping due to competitive pressures. The company said the small jobs were the first to be cut when cost savings were needed and the last to return. Their outlook is still good once the economy returns to prior levels. Sounds like a familiar story. Another Grasso story made the rounds on Friday. A Wall Street Journal story said a NYSE specialist firm said Grasso pressured them to buy more AIG stock to prevent a drop in price. No big deal since the market makers are supposed to provide a liquid market and try to avoid big swings in the stock prices. The problem was that Grasso did it after receiving complaints from the chairman of AIG. Still no big deal until you hear that AIG Chairman Hank Greenberg was a NYSE director and a member of the compensation committee that approved Grasso's pay package. This will see more press only because of the relationship and the assumption Grasso is an easy target now. With any jump in the market or in the perception of the economy you would expect a corresponding decline in bonds. What you would not expect is the magnitude of the decline. The ten-year yield jumped to near 4.22% when it was trading at only 3.12% at Wednesday's close. Traders claim this is the worst volatility in 40 years in the bond market. The 100-year storm that FNM CEO Franklin Rains has claimed is far from over. The on again off again bond market rally is playing havoc with mortgage rates. A full point jump, +33%, in two days on the ten-year is literally unheard of. Builders took it on the chin in early trading but rallied back in the afternoon on speculation that more jobs meant more buyers. If you are a bond junkie how do you hedge yourself against a 33% change in yields in a 48 hr period? When changes in yields are normally measured in 10-15 basis points and not +186 basis points as on Friday there has got to be pain. How that pain filters back through the markets next week will be the key. Obviously it was a knee jerk reaction and will probably equalize but those forced out of positions today for big losses will not appreciate that fact. Another financial instrument got hammered on Friday. The gold bugs woke up to a major move that knocked -13.70 off the price of gold to close at $370. This knocked off all the gains from September and put the metal back at Aug-27 levels. This is well off the 394.80 high just seven days ago. Going in the opposite direction was oil, which closed over $30 once again on fears that Saudi Arabia was going to cut production to offset rising Iraqi output. Also adding to the confusion was strike worries from Nigeria and comments from Venezuela that they wanted to see prices several dollars higher. Just when you thought prices were going to settle back down after soaring to over $2 a gallon in many areas it appears supply is dwindling again. This undeclared tax on the U.S. consumer and corporations alike will act to slow any future recovery. When added to the hike in interest rates this is a serious problem that most people fail to consider. Depending on whom you listen to there were either outflows from funds in the week ended on Thursday or at best a drop in the amount of money deposited. TrimTabs said inflows to all funds fell -50% last week to only $2.39 billion but the numbers are vague. It appears more than $3 billion flowed out of the funds that are under investigation for illegal trading. Janus supposedly lost -$2.6 billion over the last week after they said they uncovered 12 arrangements for improper trading of its funds. If that money actually left Janus then there was some serious selling to raise it and that could have been one of the major reasons for the drop last week. That money is probably already sloshing around in some other funds coffers and is either already back in the market over the last three days or will be put back in next week. Fed Rant Ahead Ok, I admit it. It was a perfect setup. The perfect sting to benefit the greater good. Thursday night I mentioned that it was very coincidental that five different Fed heads all took it upon them selves to say how concerned the Fed was about jobs on the very same day. The day before the actual jobs report. Very coincidental and questionable I said at the time. What I and obviously many other traders thought was we were going to have a disaster of a Jobs report and they were setting us up for it in advance to ease the blow. After all they were really concerned and they were really feeling our pain. Considering the Fed gets a 24-48 hour advance notice of all the economic reports they obviously knew in advance how bad it was. BINGO! They knew in advance exactly how good it was and they orchestrated the perfect short squeeze. Set everybody up to lean to the downside and then knock them out of the ring with the sucker punch. The perfect sting for active traders. But why go to all the trouble? Because it is easier to manipulate the markets when the opportunity presents itself than cut rates again. It costs them nothing and to 99.9% of the public it is totally secret. Another reason is to pump up taxes. Not only does the Fed want to pump up the market long term to reflate tax collection but they need to stimulate tax collection short term as well. Causing wild gyrations in the market will promote trading and trigger tax consequences short term. How many traders were either stopped out of positions Friday or closed them for unexpectedly large profits? Maybe millions. They accomplished multiple goals at once. They took a period where everybody was coiled up tight worried about an October drop and blew them out of the water and completely turned the market around to bring the bulls back to thinking about new highs. Those hoping to buy the October dip are much less certain that a dip will appear. Now they are nervous that they might miss the train. Bullish emails were flying Friday afternoon. Dow 10,000 was mentioned numerous times. The normal October tribulation period has been completely discounted after Friday's bounce. If a company CEO did this to his stock he would go to jail. The Fed can do it because they don't own the stocks. They are operating in our best interest or at least in the best interest of the country. My shorts that were stopped out on Friday did not benefit from the Fed help. When you are dealing with banker barons who have a federal "get out of jail free" card it brings an entirely new meaning to "don't fight the Fed." What I would have given to be a fly on the wall when Bernanke called Alan at the close. "Well, Al, how did I do? We really put the screws to those those traders today. What have you got planned for next week? This is more fun than printing money!" Obviously I have no evidence to support any of the above scenario and I am only speculating. I do know that the Fed gets 24-48 hour advance notice of reports. We also know for a fact that five Fed guys hit on Jobs in public speeches after they got that advance information. You connect the dots. The markets exploded out of the gate on the jobs news with the Dow gapping up to 9631 (+150) and completely bypassed two critical resistance levels at 9500 and 9600. After an initial but brief pullback the Dow moved to a high of 9666 at 1:PM, +185 points. The Nasdaq surged to a high of 1891 and +56 points. While the Dow traded briefly over its prior 52-week closing high of 9659 the Nasdaq could not make repeat the feat. At 2:45 the sell programs began to fire and the Dow dropped back to up only +84 and 100 points off its high. Still a very nice gain. The Nasdaq pulled back to 1878 and +44 for the day. Despite the afternoon selling this was a very strong performance for October. This stretched the October winning streak to three consecutive days. The Dow is up over +300 points already for Oct and the Nasdaq +90. This puts the bulls, bears and traders on exactly opposite sides of the fence. The bulls have completely written off the possibility of an October decline. I get tons of hate mail if I even mention the historical trends. (That should be a strong contrarian indicator on its own.) The bears, while expecting the mother of all October dips are scared to pull the trigger and attempt to short the market even at these levels. Being convinced there is a dip in our future and being brave enough to put money on the line and fight the Fed requires vastly different levels of commitment. Traders don't care which way we go and have no clue which way we are going. I published a chart on Thursday showing the almost daily reversals of sentiment over the last month. Friday's action did not help change that picture. Technically speaking, and that is what I am doing when I talk about the market levels, we are at a critical point in the market and in time. It seems almost daily since the rebound began three days ago that I get numerous emails calling me to task for mentioning a potential October dip. I got no emails for the prior week when we were slipping but now they are flying fast with all the reasons why we should be bullish. I have no argument with being bullish. I agree we should be long term bullish but that is not the point. The point is not being bullish or bearish but being careful as traders. It is simply ridiculous to go blindly through October as though historical trends did not exist. The trends MAY not repeat this October but that does not mean we should not be wary. You would not try to cross a busy street without first looking both ways before you stepped off the curb. Be bullish all you want but at least be aware of the potential land mines in your path. Technically speaking the Dow is better off where it closed than at the highs of the day. Closing at 9650 would have been an open invitation for shorts to take a free shot at the open on Monday. Closing at 9575 is just far enough below several resistance levels to make them think twice before taking the leap. On the long side the bulls do not have to grit their teeth and hold their nose to buy at the 52-week high. They can calmly look at the market action on Monday and decide where to make their buys. With support at every 50 point increment below us there are plenty of potential dip buying entry points. Closing 100 points off the highs took all the pressure off the bulls and put the worry back on the side of the bears. Still the odds of a gap fill in our future are really strong. The Nasdaq has very strong resistance at 1900 and equally strong support at 1800. 1865 is probably the price magnet in the middle. The Nasdaq was the strongest index Friday and was up +4.7% for the week. The networkers were up +6.8%. While the Friday close represents exactly a 50% gain for the Nasdaq since the March lows many individual stocks have huge gains for the year. INTC +89%, EBAY +128%, SAMN +131%, AMZN +170%. Fundamentally speaking this is a huge reason why getting over 1900 could be a challenge over the next two weeks. Everybody knows earnings start next week. The first Dow component announces on Tuesday with Alcoa taking the plunge. Tuesday heats up with YHOO, DNA, SONS, COST. The number of companies increases daily with GE leading the list on Friday. The earnings really heat up the week of the 13th with the biggest accumulation of big caps including IBM and INTC. Earnings expectations have ratcheted up over the last two weeks to nearly +20% for the S&P. Considering the strength of the recovery this is huge. The rally has been huge and many think the expectations are already priced into the market and leave us nowhere to go if companies just hit these numbers. I have no opinion about the potential earnings other than I do not expect a lot of better than expected results. The warnings have been especially light and that has helped ramp up expectations. We all know what happens when companies just meet expectations. The result is normally not pleasant. With expectations so high it is going to be tough to exceed them enough to please most bullish investors. What we have is a critical point in the markets. Not a bullish or bearish point but simply a collection of related items all rushing together over the next two weeks. It is small wonder these are the most volatile two weeks of the year. Other than the small dip that ended on Tuesday we have not really seen any fund selling yet. As I stated earlier that bout of weakness could have been Janus flight more than any generic portfolio shuffling. That leaves the fund portfolios packed full of profits and racing toward their October fiscal year end. The most likely scenario would be some spark over the next two weeks that triggers some profit taking. Whether that spark is earnings or just a point on the calendar is anybody's guess. Just because there is a good chance of profit taking in our future does not mean we should not be bullish. The jobs report was the first really positive sign that the employment is starting to cycle up again. That is very bullish but it is just a sign and not a major event. With 140 million jobs in the country an addition of +57,000 is not statistically significant. It is significant only to the sentiment and to investor confidence. Traders might remember that despite the positive jobs report the PMI, Personal Income, Chain Store Sales, Consumer Confidence, Construction Spending, ISM, Jobless Claims and Factory Orders were all worse than expected. But who is counting? While they were weaker than expected nothing goes straight up and there were extenuating circumstances. We had a blackout and a hurricane in the reporting period. I am only trying to paint the entire picture and get you to step back from the microscopic focus on the jobs report. I am bullish long term but I still expect some profit taking in October. What you expect depends on your point of view and your time horizon. If you are a long term stock investor then the short term fluctuations are just a nuisance factor. You probably are hoping for a dip to buy. If your time frame is 2-3 weeks then you should revisit your stop loss plan. If your timeframe is only 2-3 days then you already have an opinion about immediate market direction and I am not going to influence you. Monday is Yom Kippur and many traders will not be at work. Normally this would be a low volume day. After three days of gains I would expect another consolidation day due to the low volume. It takes strong volume to move the markets upward and that volume could be lacking on Monday. Use it as a day to research individual stocks to see which ones have better than average relative strength and which ones report earnings late in the cycle. For example with JNPR reporting earnings next week any positive results would be reflected in expectations for other networkers that report a week or two later. Playing JNPR, which reports on the 9th, does not give you much time and I never recommend holding over an earnings event. By taking a position in FDRY or CSCO, only an example, both of which report much later you could profit from the reaction to the JNPR news with much less risk. The next two weeks are one of the most enjoyable "trading" periods of the year. Moves tend to be quick, volume high and reversals frequent. I can't wait. I spent many long hours last week studying chart setups and playing with different indicators. I suggest you do the same. I suggest you prepare an October game plan. Decide where you want to enter new trades both bullish and bearish and decide where you want to exit those trades once entered. Plan for bounces and plan for dips. If you plan your trades in advance then the emotion of things like the jobs report spike will not cause a knee jerk reaction that costs you money. There were a lot of traders that went long at the top of the bounce on Friday because they thought the market was going to run away from them. If that is your game plan then go for it. My game plan is still the same as it was last Sunday. I am going to buy dips at support and sell spikes to resistance. I am going to let October play out any way it wants and just follow along for the ride. Once you form a hard opinion about market direction you may find yourself humbled. I know from many years of experience. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Equities rise, Treasuries fall, Metals slammed Jonathan Levinson The release of positive economic data 8:30AM and 10:00AM coincided with a rally in equities, a decline in bond and preceded a vertical liquidation of precious metals at noon. Daily Pivots (generated with a pivot algorithm and unverified): Note regarding pivot matrix: The support, pivot and resistance levels above are derived from the high, low and closing price levels by a simple mathematical formula. They are not intended to be predictive of market turning points or to serve as targets, but rather represent the range retracement levels as generated by the pivot algorithm. Do not think of them as market "calls" or predictions. Like any technically-derived indicator or price level, the pivot matrix values should be regarded as decision points at which to evaluate current market conditions. Visit us in the Futures Monitor for our realtime views of the various markets covered here. Daily chart of the US Dollar Index The US Dollar Index had a good day on Friday for a change, closing above 93 and printing a bullish doji hammer for the week, its first solidly bullish weekly print in nearly six weeks. Friday’s bullish move was the determinative day for the week, as it was in gold, silver, treasuries and, to a lesser extent, equities. The Commodities Index, the CRB, lost .66 to close at 243.90, and was led by strength in crude oil, natural gas and sugar futures. The real action, however, occurred in precious metals, and it wasn’t pretty. Daily chart of December gold As was noted in Thursday’s Futures Wrap, the Fed and the BoJ took center stage this week, with word of mind-boggling sums of intervention in the currency markets by the BoJ, Ben “Printer” Bernanke asserting with a straight face that the bubbles whose existence Chairman Greenspan once denied are not likely caused by interest rate policy, and numerous Fed heads expressing concerned words about unemployment. Jim Brown discusses this latter issue more fully in the Market Wrap this weekend. The move in gold and silver is more easily understood in the context of various central bankers taking the limelight this week, and with that, I’ll review the daily chart. December gold actually gained on the initial release of the employment data, held steady through the ISM release at 10AM, declined slightly, and then tanked in what seemed like the blink of an eye at noon, spiking down approximately 20 points inside of one hour. Silver got smoked for an equivalent amount. The low printed at 364.30 before it bounced to close at 371.50, down 12.20 on the day. The oscillators are on sell signals, and the bear wedge is obviously in play. My only other observation is that technical analysis alerted us to the toppiness of and vulnerability in the precious metals, and I’ve commented on it in the Futures Monitor. The charts identified potential support and resistance areas quite well. However, the move today was unpredictable as to its magnitude, and while as of this writing I’ve heard only silence as to what was behind the high volume selloff, it left a bad taste in my mouth. Suffice it to say that the move in the US Dollar Index does not begin to explain the precipitous one hour sell-a-thon. Wire services noted that it was the single largest one day drop in longer than one year, but I could find no event or news as of this writing. For the week, we have a bearish gap down following last week’s doji top. For the day, the HUI lost 4.8% to close at 189.37 and the XAU lost 4.6%, closing at 88.63. Daily chart of the ten year note yield Coincident with the drop in gold was a selloff in treasuries, but it began earlier and was neither as sudden nor as shocking. The TNX added 18.6 basis points to close at 4.195%, turning the daily cycle oscillators up from oversold levels and beginning their upphase. The bull wedge is now in play, and projects to the year highs for the TNX. Note that the TNX bottomed well above the midpoint of this year’s range, and if this upmove sticks, it is quite bearish for bonds. Treasury bulls needed to see more of the summer rate rally retraced. The Fed drained near 20B net since Thursday via unrefunded expiring repurchase agreements, and this no doubt contributed to the selling. For the week, the TNX printed a doji hammer, the first bullish close in 7 weeks. Daily NQ candles Nasdaq bulls were treated to a 2.91% gain in the NQ, as it outperformed the ES and YM strongly, mostly playing catch up. While the ES and YM added less than 1% with their respective gains, the NQ did not test its 52 week high, while the ES and YM did. Friday’s 37 point gain did not issue buy signals, but it certain caused some hesitation on the sell signal we’ve been following since they printed in early September. The daily cycle oscillators twitched up with the 3 day bounce off the Wednesday low, but an upphase has yet to commence. On this daily timeframe, both bears and bulls will be on uncertain ground until Friday’s gains can either be consolidated or reversed. Bulls will point at the huge gains within 3 sessions, the potential truncation of a daily cycle downphase, and lack of depth to the preceding pullback. Bears will note that it doesn’t pay to anticipate signals, and that a lower high was printed despite all the excitement and short panic this week. 30 minute 20 day chart of the NQ On the 30 minute NQ chart, the dramatic advance has resolved itself into what appears as a megaphone or “bulloney bullhorn” formation. This is, as one might guess, a bearish pattern, but it remains an uptrend until its reversal. The oscillators reversed at the top of a trend of higher lows, but the true story will be told once the lower trendline is tested. The most recent uptrend on this timeframe reflects itself on the longer daily candles above as an uptick in the rolling oscillators. The downphase now in progress suggests that the bearish roll should resume, and not reverse. Monday will tell the tale. Look for support between 1362-65, resistance at the rally highs of 1400. Daily ES candles Unlike the NQ, the ES actually fulfilled the bull wedge target of 1038 before failing just below its 52 week high. Bears and bulls managed to wait until the last point before selling against an obvious rally high, creating a double top and formidable resistance. The depth of the current downphase commencing on the 30 minute chart oscillators (below) will give us an idea of whether that double top will hold or not. A higher lower would suggest that the bulls are not yet done. 20 day 30 minute chart of the ES The bulloney bullhorn formation contained both the highs and the lows, with the ES closing out right on the lower rising trendline. The rolling 30 minute chart oscillators suggest that the trendline will break on Monday. The steepness of the ascent from Wednesday feels untenable, but another bounce from the 1028- 9 confluence zone cannot be ruled out. Were such to occur, the 1050 target favored by Elliott Wavers could be in play. Daily YM candles The YM most closely resembles the ES once again, and while the bullish action brought the daily oscillators close to bullish kisses, buy signals were not printed. 20 day 30 minute chart of the YM This week brought equities to lower lows and, despite the impressive rally since Wednesday, lower highs. The intermarket relationships, however, give us uncertainty in equities in both directions. We saw treasuries and precious metals sustain significant technical damage this week, and the US Dollar Index looks to have put in a bottom. This presents two scenarios, as I see it: On the one hand, traders are abandoning defensive positions, a flight from quality, and foreigners are buying US Dollars with which to load up on US equities for the next launch in an already-impressive equity rally this year. On the other, the Fed drained reserves since Thursday, reducing the supply of dollars, forcing its dealers to liquidate bonds. Gold and silver are very thin markets in any event, but if we’re looking at a deflationary scenario in which treasuries and metals decline, then equities should fall as well. This latter scenario is the same as the March 2003 rally in reverse, where we saw the dollar fall and all other asset classes rise. I will be absent on Monday, and wish all of our Jewish readers an easy fast. See you on Tuesday. ******************** INDEX TRADER SUMMARY ******************** Naz Catches Up Jonathan Levinson Another high volume day brought the Nasdaq up 44 points for a 2.41% gain, while the Dow Industrials added .89% or 84 points, 94% or 9.6 points for the S&P 500. The move helped the Nasdaq, which had lagged the Dow and S&P on their rallies off the Wednesday low, recover some of its lost ground. It was a day that finished less bullishly than it began, with the indices trying unsuccessfully to tag their 52 week highs. Nevertheless, volume was strong overall, with 1.9B NYSE shares and 2B Nasdaq shares changing hands. Stocks advanced throughout the day, pulling back toward the close. Weekly COMPX candles This week began on a bleak note for bulls, following last week's steep decline into Wednesday. Despite the significant advance to reverse most of those losses, this week nevertheless had a lower low and a lower high. That said, the uptrend from the March lows was never seriously challenged, and while the weekly chart oscillators are on the cusp of a downphase, with the 10-week stochastic showing a divergent pattern of lower highs since July, the price remains firm above 1760. Daily COMPX candles Wednesday's upside reversal came right on time, and Friday's gap up brings the Nasdaq to within sight of its year highs set two weeks ago. Note that while the strong move off the lower rising trendline retraced most of the decline from the September high, the oscillators remain within their ongoing downphases. As the longer cycle on the weekly chart is topped out and tentatively rolling over, the ongoing daily chart downphase is aligned with the longer cycle. While a higher high for the year is not impossible, the onus is on bulls to generate sufficient countertrend momentum to cause these longer cycle oscillators to begin trending in overbought territory. The failure from a lower high on Friday despite the overwhelming bullish consensus and frantic short covering adds to the bulls' burden, as double and triple top resistance begins to build at current levels. For the moment, however, it's easiest to trade support and resistance and follow the intraday oscillators, which have been performing reasonably well as seen below in our OEX and QQQ discussions. On the Nasdaq, 1800 is first trendline support on the daily chart, and long term bears will want to see 1760 support fail before allowing themselves to relax. To the upside, the rally highs are the level against which both bulls and bears were selling on Friday. Weekly INDU candles The INDU has been printing a more gentle rollover than that of the COMPX on the weekly chart, with the stochastic divergence less pronounced than it is on the COMPX. The week gave us a lower low and lower high, but the nascent downphase on these longer cycle oscillators remains. As noted on the COMPX, a minor break above the year highs would not on its own reverse this downward bias on the oscillators as the uptrend has been weakening for months. Daily INDU candles Seen on the daily INDU chart, the gains since Wednesday amounted to a retest of the broken rising wedge trendline from the March lows, otherwise known as a "return to the scene of the crime rally." I've indicated the various oscillator divergences, and, in the case of the Macd, we've been seeing lower oscillator highs since June. While these signals do not provide specific timing cues, they do tell us that the current downphase in the daily chart oscillators is for real, and bulls need to be careful in this timeframe. A sustained break above 9700 will be necessary to begin changing the technical picture. 9250 support is the first level bears need to defend below. That's the broader context. I've detailed the daily and intraday timeframes for trading purposes below: Daily OEX candles The OEX daily chart shows a successful bull wedge breakout printed this week, with the daily chart oscillators printing bullish kisses from oversold territory. Note that the OEX and NDX (or its tracking stock, the QQQ) tend to lead the broader indices. Here we see that both the OEX and QQQ became more oversold than did the broader markets, and the bullish kiss is printing from just above oversold territory. If it completes into a full oscillator upphase, it will run into resistance against the topping weekly oscillators, but could conceivably pack enough punch to cause the longer cycle to begin trending. It's for this reason that the 525 resistance level is crucial. If it fails, the picture will begin to look substantially more promising for a continuation of this year's rally. 20 day 30 minute chart of the OEX On the shorter period 30-minute chart, we see the steep rise off the Wednesday lows in the form of a megaphone formation. The oscillator uptrend is intact and implies a continuation of the pattern of higher lows, but the megaphone or "bulloney bullhorn" is not generally a sustainable pattern and implies a downside break. Combined with the toppy oscillators in this shorter timeframe, and I'm watching 516 support closely for the first sign of a change in trend. Tying it all together, we have the weekly cycles trying to roll over, the daily bottoming, and the 30 minute topping. This suggests a test of downside support at 516, followed by a possible bounce to challenge the day high of 520m followed by the rally high of 523, or the upper trendline around 525. A failure can come at any of those levels. If the upper resistance at 525 fails, then my next Market Wrap will sound considerably more bullish than this, as we'll have a new daily oscillator upphase and potentially trending weekly oscillator phase underway. Daily QQQ candles We see the same setup on QQQ, but the bullish kisses aren't as well-developed as on the OEX. Nevertheless, the cycle picture is the same, with the longer weekly cycles trying to pull lower, the daily possibly bottoming, and the 30 minute topping. The oscillators imply a trip to 33.60-70, and then a bounce attempt. Above the 52 week high, it will appear that the daily chart oscillators are dominant, in which case the picture becomes more bullish. For now, however, the outcome of the 30 minute oscillator downphase just commencing is key. 20 day 30 minute chart of the QQQ Next week will be significant as it begins within sight of a failed attempt to gain the year highs. I expect a trendline failure in either direction kick off a quick continuation move, as either bulls or bears run for cover. Respect your timeframe, be nimble, and we'll see you in the Market Monitor. ------------------------------------------------------------ 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 ------------------------------------------------------------ ************** Editor's Plays ************** Time to Go Bullish With the potential growing for a continuing 4Q rally it is time to go back to a time tested bullish strategy. A potential bout of profit taking by mutual funds over the next three weeks could give us a dip to buy or in this case sell that could be very profitable. The strategy I like to use is selling naked puts on quality stocks on a dip. Because many readers do not have the capability to sell naked we are going to turn it into a bull put spread by purchasing the long side of it now while the price is cheap. I want to target a price for entry of the short side that is at support and is likely to stop any future drops. I picked MMM as the potential candidate. It has continued to move up in a seemingly endless bullish ramp. If we get an October drop this would be a stock I would like to buy. I am hoping there are several hundred thousand other investors with the same thought. Buy the dip, hold for the quarter. MMM also just affirmed estimates and has already rebounded from the 2:1 split. For MMM I want to use the January $80 put MMM-MP. Support for MMM is at $69 and $65.00. I want to sell one contract at each price point. We may not get both of them but we will try. If MMM hits $69 the $80 put should be about $12.00 and about $16.50 if it hits the second entry at $65.00. When selling puts the money goes directly into our account just like covered calls. It remains there until the put is closed or expires. We draw interest on the money while it is there. The risk is that MMM falls below $65 on a serious market event. To eliminate the majority of that risk we are going to buy the Jan-$65 put now for 95 cents. This is the insurance for the trade. If we never get filled on the short side then this money is lost. If we do get filled then it turns into a bull put spread. It also reduces the margin required to enter the trade. The risks in the trade are as follows: The price paid for the long Jan-$65 puts at 95 cents. The difference between $69 and $65 on the first put sold. $4 (If this is too much risk then just take the single entry at $65 instead) There is no risk on the second $80 put sold at $65 as the long $65 put covers the risk of any drop below $65. The profit potential depends on where MMM closes in January. For the first put sold at $69 the profit is every dollar above $69 that MMM rises to a maximum of $80. Once over $80 no more profit is available. The profit on the put sold at $65 is every dollar above $65 that MMM rises up to $80. Assuming that both shorts were filled at even money and not allowing for any time premium and that MMM rebounded over $80 before January the play would look like this. Short $80 put at $69 = $11.00 (no time value illustration) Short $80 put at $65 = $15.00 Income = $26.00 Long (2) $65 puts at 95 cents = ($1.90) Profit = $26.00 - 1.90 = $24.10 Game Plan: Buy 2 Jan-$65 puts now @ 95 cents Sell 1 Jan-$80 put with MMM at $69.00 Sell 1 Jan-$80 put with MMM at $65.00 Close all positions with a MMM trade over $80 or before expiration in January. MMM Chart ******************************** Play Recaps QQQ/DJX Puts (recommended 9/21) This is starting to be annoying. The targets for the first exit on the DJX puts was 92.0. The DJX hit 92.30 on Tuesday. The DJX was 96.45 when I recommended this play and the Oct $95 recommended strike was $1.10. The option traded at $3.10 on Tuesday. The game plan was to exit 1/2 at $92 and set a stop at $93. While we came very close to the $92 level we did not hit it but I hope everyone decided 92.30 was close enough for government work and either exited early or at least set the stop for $93 and closed the play on the bounce. Unfortunately, writing the game plan for the week ahead always seems to leave out some contingency. The option was trading for $2.35 when $93 was crossed again and closed the day at $2.85 on the second dip below 93. There was plenty of time and opportunity to exit the play for more than a double. The QQQ plan was to exit 1/2 at $32 and set a stop at $33. The QQQ traded to a low of 32.35 twice on Tuesday and down from the $34.58 when recommended. The Oct-$34 put, recommended at 75 cents traded at $1.95 several times on Tuesday and offered an opportunity to exit for more than 100% profit. It was trading for $1.50 when the QQQ crossed $33 to the upside on Wednesday. Both stocks did not trade exactly as planned but they did offer multiple opportunities to exit for better than a 100% profit. We will chalk this one up as a win. If you are still in the trade I would look for a dip to exit as both options are still profitable. http://members.OptionInvestor.com/editorplays/edply_092103_1.asp LUV Calls (recommended 9/14) http://members.OptionInvestor.com/editorplays/edply_091403_1.asp Powerball The rebound powered the portfolio back into decent profit territory but we really need to see some of the laggards in the middle catch fire. SUNW may be dead and with the TLAB news this week I doubt they will be surging ahead. Still three months to go. It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** No Doubt - J. Brown There should be no doubt as to investor sentiment these days. The gain in the September jobs report on Friday was the missing piece to the economic puzzle. For months bears have been harping on the weak job market and finally bulls have some improvement they can point to. Of course, as Jim points out in his wrap, the +57,000 jobs (+100,000 if you count the revision in August) is not even a drop in the bucket to the number of jobs needed. However, it is improvement and hopefully signs of a reversal in the trend of declining jobs and not just a seasonal blip. If bears were on the defense earlier, Friday's economic reports should have them running for cover and short covering was a major influence on Friday's gains. Investors will now be free to focus on the up coming earnings season instead of worrying about every little economic report. Yet 100% focus on corporate earnings will be a double-edged sword. The good news is that expectations for Q3 results are extremely positive. The bad news is that expectations for Q3 results are extremely positive. Should results fail to meet or beat these raised expectations we could easily see a reversal of fortunes. Currently, analysts expect earnings for companies in the S&P 500 to come in +15 to +16 percent compared with +6.8 percent growth last year. Bulls will also point to the lack of earnings warnings this time. The ratio of companies who have lowered estimates compared to those raising estimates is about 1.5 to 1, which is a big improvement over the recent trend of 3 to 1. Looking ahead we could see some consolidation of the recent gains on Monday due to the Yom Kippur holiday. However, investors will probably use any weakness to buy the dip ahead of the earnings parade. Speaking of which, Alcoa starts the earnings parade on Tuesday this week. Estimates are for Alcoa to turn in 30 cents a share. Later in the week we hear from bluechip heavy-weight General Electric on Friday. If there is one thing that traders should expect in October it's volatility so trade carefully. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9686 52-week Low : 7197 Current : 9572 Moving Averages: (Simple) 10-dma: 9439 50-dma: 9373 200-dma: 8709 3_01 S&P 500 ($SPX) 52-week High: 1040 52-week Low : 768 Current : 1029 Moving Averages: (Simple) 10-dma: 1013 50-dma: 1004 200-dma: 933 3_02 Nasdaq-100 ($NDX) 52-week High: 1406 52-week Low : 795 Current : 1375 Moving Averages: (Simple) 10-dma: 1343 50-dma: 1313 200-dma: 1151 3_03 ----------------------------------------------------------------- The market strength has sent the VIX back under the 20 mark and the old VIX (now VXO) backs towards the 20 level. Given the bullishness in the markets I wonder if we'll see new yearly lows on the VIX soon. CBOE Market Volatility Index (VIX) = 19.50 –1.30 Nasdaq Volatility Index (VXN) = 29.20 –2.05 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.75 811,472 609,997 Equity Only 0.55 632,898 351,244 OEX 1.01 47,644 48,034 QQQ 2.54 33,282 84,515 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.0 + 0 Bull Confirmed NASDAQ-100 72.0 + 0 Bear Confirmed Dow Indust. 83.3 + 0 Bull Correction S&P 500 77.2 + 0 Bull Confirmed S&P 100 79.0 + 0 Bull Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 0.90 10-Day Arms Index 1.18 21-Day Arms Index 1.42 55-Day Arms Index 1.38 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 1978 2128 Decliners 853 963 New Highs 235 179 New Lows 13 3 Up Volume 1407M 1583M Down Vol. 443M 384M Total Vol. 1862M 1988M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 09/30/03 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 Wow! It looks like the commercials traders went to sleep. There was almost no change in either the number of longs or number of short positions. Everyone must have been waiting on the September Jobs report. Small Traders were upping their bets with small increases in both longs and shorts but still heavily long. Commercials Long Short Net % Of OI 09/02/03 417,973 482,392 (64,419) (7.2%) 09/09/03 418,958 486,209 (67,251) (7.4%) 09/23/03 395,123 397,858 ( 2,735) (0.0%) 09/30/03 395,713 397,577 ( 1,864) (0.0%) 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 09/02/03 169,030 75,748 93,282 38.1% 09/09/03 176,401 81,444 94,957 36.8% 09/23/03 139,482 87,981 51,501 22.6% 09/30/03 144,681 96,801 47,880 19.8% 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 We did see some movement in the e-minis. Commercials added about 50K new longs while only adding 14K new shorts. Small Traders took some money off the table with a redemption in their longs by more than 40K. However, small traders are still heavily bullish. Commercials Long Short Net % Of OI 09/02/03 347,724 224,011 123,713 21.6% 09/09/03 370,909 237,610 133,299 21.9% 09/23/03 109,417 204,026 ( 94,609) (30.2%) 09/30/03 163,828 218,991 ( 55,163) (14.4%) 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 09/02/03 56,709 134,094 (77,385) (40.6%) 09/09/03 59,692 130,270 (70,578) (37.1%) 09/23/03 175,750 62,558 113,192 47.5% 09/30/03 131,698 65,259 66,439 33.8% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Much like the large S&P futures contracts, the commercial traders appear to be asleep with very little change this last report. Small traders were also comatose with just a couple of thousand new long contracts. Commercials Long Short Net % of OI 09/02/03 37,002 55,379 (18,377) (19.9%) 09/09/03 44,677 62,369 (17,692) (16.5%) 09/23/03 32,648 42,565 ( 9,917) (13.2%) 09/30/03 33,571 42,993 ( 9,422) (12.3%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 09/02/03 23,168 10,561 12,607 37.4% 09/09/03 28,788 13,370 15,418 36.6% 09/23/03 17,862 9,880 7,982 28.8% 09/30/03 19,803 9,917 9,886 33.3% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL There seems to be a theme here for commericals... no movement. This time the small traders joined them in their sit back and wait mode. Commercials Long Short Net % of OI 09/02/03 25,462 10,447 15,015 41.8% 09/09/03 25,807 10,756 15,051 41.2% 09/23/03 15,911 9,123 6,788 27.1% 09/30/03 16,561 8,932 7,629 31.5% 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 09/02/03 6,629 13,402 (6,773) (33.8%) 09/09/03 7,429 13,796 (6,367) (30.0%) 09/23/03 7,505 7,779 ( 274) ( 1.8%) 09/30/03 7,578 8,125 ( 547) ( 3.5%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ------------------------------------------------------------ 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 ------------------------------------------------------------ *************** ASK THE ANALYST *************** The NASDAQ-100 I learned a lot from the article you wrote regarding the S&P 100 Index and its components. Would it be possible for you to put together a list of the NASDAQ-100 Components? I've had several e-mail requesting an article on the NASDAQ-100 Index after having written "Cap-weighted vs. Price Weighted Index" on September 14, 2003. There's not all that much I'd add to the basic comments from the 09/14/03 article, but I'll show the NASDAQ-100 components with some different information. For those not familiar with the NASDAQ-100, this index is not unlike the S&P 100 in that it is also a cap-weighted index consisting of 100 of the largest companies listed on The NASDAQ Stock Exchange based on market capitalization. The NASDAQ 100 does not contain financial companies including investment companies. Today I'm going to show the current NASDAQ-100 components with a table I created in QCharts, but will remind traders and investors that these components may change over time. I'm also going to make note that after reviewing some of the QCharts data, it would appear there are some errors in the data, but for the most part, should serve its purpose for this article. For updated information on how the NASDAQ-100 Index is weighted, I would recommend traders and investor go to the NASDAQ site at this http://dynamic.nasdaq.com/dynamic/nasdaq100_activity.stm. The NASDAQ-100 is often associated with technology stocks, and while the bulk of stocks comprising the NASDAQ-100 are indeed technology related, there are a few stocks in there than many of us, at least me, never realized were components to begin with. Henry Schein? C.H. Robinson Worldwide? Ryanair Holdings? Microsoft? Ooops! I've heard of Microsoft. To let you know how smart I am. I was working at Mobil Oil in the the 1980's when this computer operating system calls Windows was released. One of the geologists in my group had just installed it and was showing me how neat it was. I told him it would never catch on as real computer users like myself would prefer to change directories by type in cd://jeffsanidiot to get to the directory where important files were located. Anyway... I digress. Here's a list of the NASDAQ-100 components, which I've sorted by their market capitalization. Again, it appears that QCharts may not have their market capitalization correct, as the sort order would be incorrect in relation to how the NASDAQ-100 is weighted. The top 6 weighted stock in the NASDAQ-100 are Microsoft (10.08%), Intel (6.20%), Cisco Systems (4.72%), Qualcomm (3.91%), Amgen (3.78%) and Dell Computer (3.09). As such, I have arranged the top 6 stocks accordingly, and these 6 stocks account for near two-thirds of the NASDAQ-100's weighting. Top 50 cap-weight NASDAQ-100 Stocks 1 I really like QCharts as a charting package, but I will urge everyone to double check any fundamental data show above. Underlined in PINK, I corrected some 12-month percentage gain totals there were in error, and I almost hesitate to even show QCharts data like P/E Ratio, E/S Growth, Gross Margin, Revenue Growth and YrNet % Change, but thought some fundamental investors might find the data informative. It has been a long-held belief of mine, especially for technology stocks, revenue growth and gross margins tell a lot about a company's products. Usually the good and bad news shows up in the chart before the fundamentals, but if a company can grow the top line (revenue) and large margins are found, it often times flows to the bottom line at a similar pace and gets reflected in the stock price. Lower 50 cap-weight NASDAQ-100 Stocks 2 I didn't comb through the lower 50 market cap stocks, but since I mentioned Texas Instruments (NYSE:TXN) $25.65 as a stock that showed up in a stock screen in the September 14, 2003 Ask the Analyst column as a stock that looked to be gaining longer-term favor within the OEX, I thought it appropriate to perhaps make a selection for the NDX. I've discussed and profiled shares of Monster Worldwide (NASDAQ:MNST) $28.50 as bullish in prior months, at these same price levels, Friday's nonfarm payroll data may finally be showing some signs of a recovery taking place for the jobs market. Running the same point and figure scan used for the 09/14/03 Ask the Analyst column, but this time for the NDX .... Price between $0.00 and $200.00 per share, Relative Strength is "buy" Relative Strength trend/column is X All Sectors Universe is NDX Monster Worldwide (MNST) gave a relative strength "buy" signal back on June 5, 2003, when the stock closed that session at $22.50. Hey, that's right! I also used MNST as an example stock in the July 27, 2003 Ask the Analyst column titled "Looking for short squeeze candidates." As an update here, September 15th short interest report from the NASDAQ had 12.7 million shares short, with a days to cover ratio at 7.72. With Halloween just around the corner and some resemblance of a job recovery at hand, its scary to me to think there are so many shorts in MNST, with a bullish vertical count of $46 currently in play. Get it? Halloween, scary, Monster? For purposes of disclosure, I do hold a bullish position in MNST. Some other stocks among the NASDAQ-100 that showed up as recently giving some longer-term relative strength buy signals and currently in a column of X ... RF Micro Devices (NASDAQ:RFMD) $9.96, which gave a relative strength buy signal on 09/08/03 when the stock closed that session at $10.46, and its PnF chart currently has a bullish vertical count of $22.50. Applied Materials (NASDAQ:AMAT) $19.46 gave a relative strength buy signal on 08/22/03 when the stock closed at $21.30. AMAT's PnF chart has a bullish vertical count of $26.00 currently associated with its chart. I wish I could have more confidence in QCharts fundamental data as it would be interesting to come back to the above stocks after this upcoming quarter's earnings reports and make some comparisons, see if the fundamentals match the technicals. Here's the NASDAQ-100 Components again, but this time I'm sorting them by Industry Name. Some QQQ traders that like to implement hedges by being long the QQQ and short a stock or two, or short the QQQ and long a stock, wanted to see some basic sector information that they might use along with Dorsey/Wright & Associates various sector bullish % data. Several others wanted a quick reference guide so when a sector is on the move, they would have a list of stocks to quickly scan by sector. I'm looking forward to issuing an upside or downside alert on the school sector someday! NASDAQ-100 Components - Sorted by Industry (1-50) 3 NASDAQ-100 Components - Sorted by Industry (1-50) 4 Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ AA ALCOA Tue, Oct 07 -----N/A----- 0.30 AMB AMB Property Corp Tue, Oct 07 After the Bell 0.51 APOL Apollo Group Tue, Oct 07 Before the Bell 0.34 PEP PepsiCo Tue, Oct 07 Before the Bell 0.62 RI Ruby Tuesday Tue, Oct 07 Before the Bell 0.36 YUM Yum! Brands, Inc. Tue, Oct 07 After the Bell 0.52 ----------------------- WEDNESDAY ----------------------------- BRO Brown & Brown Wed, Oct 08 After the Bell 0.37 COST Costco Wholesale Corp Wed, Oct 08 Before the Bell 0.47 DNA Genentech, Inc. Wed, Oct 08 After the Bell 0.25 ISCA Intl Speedway Wed, Oct 08 Before the Bell 0.68 RPM RPM INTL INC Wed, Oct 08 Before the Bell 0.40 SONS Sonus Networks Wed, Oct 08 -----N/A----- -0.01 SVU Supervalu Inc. Wed, Oct 08 Before the Bell 0.46 SBL Symbol Technologies Wed, Oct 08 -----N/A----- 0.08 WIN Winn-Dixie Stores Wed, Oct 08 After the Bell 0.00 YHOO Yahoo, Inc. Wed, Oct 08 After the Bell 0.09 ------------------------- THURSDAY ----------------------------- ABT Abbott Laboratories Thu, Oct 09 Before the Bell 0.53 ACN Accenture Thu, Oct 09 Before the Bell 0.25 ADX Adams Express Thu, Oct 09 -----N/A----- N/A ARA ARACRUZ CELULOSE S A Thu, Oct 09 -----N/A----- 0.57 CBSH Commerce Bancshares Thu, Oct 09 Before the Bell 0.73 FNFG 1st Niagara Finl GroupThu, Oct 09 Before the Bell 0.15 JNPR Juniper Networks Thu, Oct 09 After the Bell 0.03 MDC M.D.C Holdings Thu, Oct 09 Before the Bell 1.68 MAR Marriott Intl Thu, Oct 09 Before the Bell 0.38 STI SunTrust Thu, Oct 09 Before the Bell 1.17 ------------------------- FRIDAY ------------------------------- ATYT ATI Technologies Fri, Oct 03 Before the Bell 0.10 GE General Electric Fri, Oct 10 Before the Bell 0.40 INFY Infosys Technologies Fri, Oct 10 Before the Bell 0.45 MTB M&T Bank Corporation Fri, Oct 10 Before the Bell 1.37 OCENY OcÚ N.V. Fri, Oct 10 Before the Bell N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable MYL Mylan Laboratories Inc 3:2 Oct 8th Oct 9th TXUI Texas United Bancshares 3:2 Oct 15th Oct 16th CELL Brightpoint Inc 3:2 Oct 15th Oct 16th MPR Met-Pro Corporation 4:3 Oct 15th Oct 16th THFF First Financial Corp 2:1 Oct 15th Oct 16th PCBK Pacific Continental Corp 4:3 Oct 15th Oct 16th -------------------------- Economic Reports This Week -------------------------- Q3 earnings announcements really don't get started for another week but we'll see some early birds begin to announce starting this Tuesday. Thursday and Friday this week have the heaviest economic reports. ============================================================== -For- ---------------- Monday, 10/06/03 ---------------- None ----------------- Tuesday, 10/07/03 ----------------- Consumer Credit (DM) Aug Forecast: $6.0B Previous: $6.0B ------------------- Wednesday, 10/08/03 ------------------- Wholesale Invntories(DM)Aug Forecast: 0.1% Previous: 0.0% ------------------ Thursday, 10/09/03 ------------------ Initial Claims (BB) 10/04 Forecast: N/A Previous: 399K Export Prices ex-ag.(BB)Sep Forecast: N/A Previous: 0.0% Import Prices ex-oil(BB)Sep Forecast: N/A Previous: -0.2% Natural Gas Inventories (report) September Same-Store Sales come out ---------------- Friday, 10/10/03 ---------------- Trade Balance (BB) Aug Forecast: -$41.0B Previous: -$40.3B PPI (BB) Sep Forecast: 0.1% Previous: 0.4% Core PPI (BB) Sep Forecast: 0.2% Previous: 0.1% Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ------------------------------------------------------------ optionsXpress has "...a lot of bang for the buck."--Barron's • $1.50 /contract (10+ contracts) or $14.95 Min. 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The Option Investor Newsletter Sunday 10-05-2003 Sunday 2 of 5 In Section Two: Watch List: Breakouts, Bounces & Consolidations Call Play of the Day: CBE Dropped Calls: APOL, SLB Dropped Puts: CCMP, GILD ------------------------------------------------------------ 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 ------------------------------------------------------------ ********** Watch List ********** Breakouts, Bounces & Consolidations General Dynamics - GD - close: 79.50 change: +0.73 WHAT TO WATCH: The second half of September was pretty tough on defense stocks as several brokers downgraded the entire industry over concerns that the defense spending boom may already be fading. Shares of GD gapped down out of rising channel, broke support under its simple 50-dma and the $80 level and then proceeded to drop towards the $75 mark. We've since witnessed a nice bounce back to the $80 level. The question now is where does it go from here? Short-term resistance is actually about $80.65 but then it has more overhead resistance at the 50-dma and its old support near $83.00. Bulls can keep an eye on it for a breakout but bears will be watching the one-week trend of higher lows for any signs of weakness. Chart= --- General Motors - GM - close: 41.44 change: +0.62 WHAT TO WATCH: The largest automaker in the U.S. just recently announced its September sales numbers, which were up about 13%. While this is good news some analysts had been expecting better performance. Chart readers will notice the big breakout over the $40 level of resistance in late August. Since then the stock has consolidated lower back to the $40 mark. Friday produced a small bounce but it wasn't that convincing. Technically bulls might consider bounces above $40 as potential entry point but use a tight stop under $40. Keep in mind the stock doesn't move that fast and earnings are expected in two weeks. Chart= --- Foundry Networks - FDRY - close: 23.83 change: +1.63 WHAT TO WATCH: Networking stocks have been very big winners for bullish traders and FDRY added another 7.3% on Friday's rally. The weekly charts show some strong resistance at $22.50 (conquered) and again at $25.00, while the daily chart shows FDRY struggling with the $24 level. We suspect that momentum style bulls could use a trigger above $24.00 to open a play and ride the next breakout. A dip (and bounce) back near the $22 level might work for traders who like to target shoot an entry. Use a tight stop! Chart= Y --- MicroStrategy - MSTR - close: 50.03 change: +2.03 WHAT TO WATCH: Friday's rally did produce a decent sized gain for MSTR but this looks like one software stock that hasn't gotten ahead of itself. Shares spent the month of September consolidating between $45 and $50(51). Technology bulls could use a trigger above $51.00 to open a play and ride the next leg higher. Or, if given the opportunity, look for a bounce again from the $45 level and use a tight stop. Chart= r ---------------------------------- RADAR SCREEN: more stocks to watch ---------------------------------- PPG $54.07 +0.74 - Shares are still consolidating under a pattern of lower highs. Look for a breakout over $55. HAR $106.20 +1.70 - HAR is still rocketing higher after consolidating for a month near the $100 mark. If the opportunity appears, a bounce from the $102-103 level might be worthwhile. AVID $56.62 +3.07 - The rising channel for AVID is still very much in play. After Friday's 5.7% gain and slight rollover under resistance at $58 we might see another entry point near $52.50- 53.00. Otherwise, look for the breakout above $58.00. GDT $46.82 -1.07 - Shares of GDT appear to be painting a three- candle reversal pattern under resistance of its simple 50-dma. Bears might want to evaluate new positions on a breakdown under the $46.00 mark. ------------------------------------------------------------ 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 ------------------------------------------------------------ ******************** THE PLAY OF THE DAY ******************** Call Play of the Day: ********************* Cooper Industries - CBE - cls: 51.00 chg: +1.00 stop: 48.00 See details in play list _1 ************************** 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 ^^^^^ Apollo Group - APOL - close: 67.64 chg: -0.13 stop: 64.75 Okay, students. Put down your pencils. Time's up for APOL. The company is expected to report earnings on Tuesday, October 7th, most likely before the opening bell. We just haven't seen the follow through on its bounce from the $65 level and there was no participation in the market's rally on Friday. Expectations are pretty positive for its earnings report so investor reaction could quickly sour if earnings quality is poor or the company says something Wall Street doesn't like. We're closing this play. Picked on September 16 at $68.45 Change since picked: - 0.81 Earnings Date 10/07/03 (confirmed) Average Daily Volume: 1.9 million Chart = l --- Schlumberger Ltd. - SLB - close: 50.08 change: +0.41 stop: 48.00 We've certainly exercised sufficient patience in our wait for SLB to deliver on the upside. Unfortunately, it just doesn't seem in a rallying mood. While it is nice to see the stock successfully rebound from above $48 and reclaim the $50 level, that only just gets us back to slightly below break even. Rather than continue to nurse an underperforming position, we're just going to drop the play and recommend exiting the play into any strength on Monday. Traders willing to hold in the expectation of further upside should work with a stop no lower than $49.00, Friday's intraday low. Picked on September 21st at $50.99 Change since picked: -0.91 Earnings Date 10/21/03 (unconfirmed) Average Daily Volume = 3.15 mln Chart = PUTS ^^^^ Cabot Microelect. - CCMP - close: 57.96 change: +2.83 stop: 58.25 Thoughts of economic recovery surged through the Technology market on Friday, with the Semiconductor index (SOX.X) delivering a beefy 4.5% gain by the end of the day. Despite its very poor performance lately, our CCMP finally caught more than a token lift and itself finished with a 5.1% gain. Although the stock ended off its intraday high and below our stop, it seems clear the tide has turned. In hindsight, the better exit would have been on Thursday near $55, but we'll settle for a small gain. Take advantage of any weakness early on Monday to manage a better exit, but make no mistake, this play is over and its time to lock in whatever gains have accrued. Picked on September 23rd at $59.05 Change since picked: -1.09 Earnings Date 10/23/03 (unconfirmed) Average Daily Volume = 771 K Chart = p --- Gilead Sciences - GILD - close: 58.79 chg: -0.10 stop: 60.01 That's an interesting pattern on the BTK biotech index and the chart of GILD. Both really failed to enjoy most of the market's rally on Friday. The BTK may have closed in the green but it gave up most of its gains. Meanwhile, GILD did trade higher in the session but actually lost ground. Unfortunately, the early morning enthusiasm was too much for GILD and it traded above our stop loss at $60.01. This actually looks like a potential failed rally in GILD and thus a new entry point for bearish plays but we'll pass. Picked on September 16 at $59.40 Change since picked: -0.61 Earnings Date 07/31/03 (confirmed) Average Daily Volume: 3.31 million Chart = d *********** 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. ------------------------------------------------------------ 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. 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The Option Investor Newsletter Sunday 10-05-2003 Sunday 3 of 5 In Section Three: Current Calls: AMZN, CAT, RYL, UTX New Calls: BBY, CBE Current Put Plays: ITT New Puts: MRK ------------------------------------------------------------ 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 CALL PLAYS ****************** Amazon.com - AMZN - close: 52.89 change: +2.80 stop: 49.50*new* Company Description: Amazon.com is a website where customers can find virtually anything they want to buy online. The company lists millions of unique items in categories such as books, music, DVDs, consumer electronics, toys, software, computer and video games, lawn a patio items, kitchen products and wireless products. Through its Amazon Marketplace, Auctions and zShops services, any business or individual can sell virtually anything to AMZN's approximately 30 million cumulative customers. Why we like it: After that first foray above the $50 level nearly two weeks ago, AMZN settled into a bull flag consolidation pattern, finding support last Wednesday right at the center of the rising channel and the 20-dma (now at $48.05). The first hint of a bullish resolution to that pattern was Thursday's rally through the top of the flag just over $49, with a subsequent close over $50. That hint turned into a flashing neon sign as the stock gapped sharply higher at the open and then charged dutifully higher throughout the day, hitting a high of $53.22, before settling in just below $53 at the close. Showing just how strong Friday's rally was, AMZN closed well above its upper Bollinger band ($52.10) and above the top of the 7-month rising channel on volume more than 50% above the ADV. Clearly, the stock is extended up here, but with no signs of weakness, it appears our $55 target could be achieved early next week. Conservative traders would do well to harvest some gains near current levels and we're recommending that all positions be closed into strength near that $55 target. One other factor to be aware of is that YHOO is set to report earnings on Wednesday, and it would be prudent to harvest gains ahead of that event. Given the proximity of that target, it is time to start getting more aggressive with our stop. Raise stops to $49.50 this weekend, which is just below both the 10-dma ($49.65) and the bottom of Friday's gap ($50.09). Suggested Options: Shorter Term: The October 47 Call will offer short-term traders the best return on an immediate move, as it is slightly in the money. Note that October strikes expire in two weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 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 November 47 Call. BUY CALL OCT-50 ZQN-JJ OI=18341 at $3.80 SL=2.25 BUY CALL OCT-55 ZQN-JK OI= 9079 at $1.10 SL=0.50 BUY CALL NOV-50 ZQN-KJ OI=10650 at $5.50 SL=3.50 BUY CALL NOV-55 ZQN-KK OI= 2271 at $2.90 SL=1.50 Annotated Chart of AMZN: n_1 Picked on September 18th at $47.89 Change since picked: +5.00 Earnings Date 10/21/03 (unconfirmed) Average Daily Volume = 9.04 mln Chart = n --- Caterpillar Inc - CAT - close: 73.38 chg: +0.68 stop: 67.50 Company Description: For more than 75 years, Caterpillar Inc. has been building the world's infrastructure and, in partnership with its worldwide dealer network, is driving positive and sustainable change in every continent. With 2002 sales and revenues of $20.15 billion, Caterpillar is a technology leader and the world's leading manufacturer of construction and mining equipment, clean diesel and natural gas engines and industrial gas turbines. (source: company press release) Why We Like It: (original write up from Thursday) There appears to be a lot of positives being reflected in CAT's stock price. The recent ISM data reassured investors that the manufacturing sector was still expanding for its third month in a row. Analysts are still suggesting investors look to cyclicals to benefit from the pick up in economic activity. CAT shareholders are also eager to find out if CAT will be awarded a major contract to the U.S. government for power generators to rebuild Iraq. The latest news, regarding the potential contract, hit the wires today and contributed to CAT's breakout of its trend of descending highs. CSFB's analyst John McGinty said the potential deal could be worth 25 to 30 cents a share to CAT's earnings for 2004. Details were muddy but the expectation is for an announcement sooner rather than later. He reiterated his "out perform" and $79 price target for the stock. Meanwhile, we really like the technical breakout for CAT. MACD took a long time to drift back from overbought and today's move helped create a fresh buy signal. The stock's stochastics, RSI and momentum oscillators all look positive as well. Today's jump even created a fresh buy signal on its point-and-figure chart (see below). We're going to target the $79-80 level and start the play with a stop at $67.50 (the recent low). More conservative traders might be able to sneak by with a stop closer to $69.00. Earnings are in two weeks so we might actually see some pre-earnings momentum. Friday update: The jobs report was exactly what the market wanted to hear and bluechips surged behind technology issues. The current breakout already underway in CAT broke to a new high before fading back into the afternoon. Patient traders might get a chance to buy CAT on a dip back to the $72 level. Suggested Options: Short-term traders can look at the October and November strikes, while those investors who enjoy a little more time can evaluate the January's. We like the 70's and 75's and would probably play the Novembers. BUY CALL OCT 70 CAT-JN OI=7088 at $3.90 SL=1.85 BUY CALL OCT 75 CAT-JO OI=3592 at $1.05 SL=0.45 BUY CALL NOV 70 CAT-KN OI=2974 at $5.00 SL=2.55 BUY CALL NOV 75 CAT-KO OI=1345 at $2.20 SL=1.10 BUY CALL NOV 80 CAT-KP OI= 449 at $0.75 SL= -- speculator BUY CALL JAN 70 CAT-AN OI=8353 at $6.40 SL=4.00 BUY CALL JAN 75 CAT-AO OI=5389 at $3.60 SL=1.75 BUY CALL JAN 80 CAT-AP OI=1159 at $1.80 SL=0.95 Annotated Chart: _1 Picked on October 2 at $72.70 Change since picked: + 0.68 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 2.9 million Chart = --- The Ryland Group - RYL - close: 78.25 change: -0.40 stop: 74.00 Company Description: The Ryland Group is a homebuilder and mortgage-finance company that has built more than 175,000 homes. Additionally, the Ryland Mortgage Company (RMC) has provided mortgage financing and related services for more than 155,000 homebuyers. Currently, Ryland homes are available in more than 260 communities in 21 markets across the United States. Why we like it: From the "Nick of Time" file, we clearly initiated coverage on RYL with perfect timing. The stock absolutely exploded upwards on Wednesday, moving to new all-time closing highs. Over the past two days, the bulls have been struggling with resistance at $79 and it now remains to be seen whether there is more upside in store. The strong selling in the bond market on Friday drove RYL down to an intraday low of $76.06, but the powerful bullish sentiment drove the stock right back up to resistance before a slight drop into the close. Conservative traders should have taken advantage of the strength towards the end of the week to lock in some gains and that still remains our advice. With price still above the upper Bollinger band, entering at this altitude is not advisable. With the $DJUSHB index ending the week at another new high, RYL still looks like it could continue higher, so we're maintaining our stop at $74. Traders unwilling to give the play that much room to the downside can use a tighter stop at $76, just under Friday's intraday low. The PnF bullish price target is $91, so there is still substantial potential upside. But the best approach for traders still looking for new entries would be on a rebound from the $75-76 area, which should now be solid support. Suggested Options: Shorter Term: The October 75 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Note that October strikes expire in two weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 80 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders will want to use the November 75 Call. BUY CALL OCT-75 RYL-JO OI=1826 at $4.70 SL=2.75 BUY CALL OCT-80 RYL-JP OI= 836 at $1.80 SL=0.90 BUY CALL NOV-75 RYL-KO OI= 72 at $6.80 SL=4.75 BUY CALL NOV-80 RYL-KP OI= 142 at $4.00 SL=2.50 Annotated Chart of RYL: _1 Picked on September 4th at $72.18 Change since picked: +5.14 Earnings Date 10/21/03 (unconfirmed) Average Daily Volume = 835 K Chart = --- United Technologies - UTX - cls: 81.80 chg: +1.35 stop: 77.50*new* Company Description: United Technologies Corp., based in Hartford, Connecticut, is a diversified company that provides a broad range of high technology products and support services to the building systems and aerospace industries. Its four main business segments are Otis, Carrier, Pratt and Whitney, and Flight Systems. (source: company press release) Why We Like It: (Thursday's original write up) It's back! We're adding UTX back to the call list because it finally looks finished with its consolidation between $77 and $80.50. Fundamentally, the company should benefit from the economic expansion in the manufacturing sector as evidenced from the ISM report earlier this week. The stock didn't react to last week's multiple-broker downgrade of the defense sector. Technically, we like the new relative high and breakout over the $80.50 level (okay, it closed back below it by a nickel). The stock's MACD has drifted back from overbought and looks ready to print another buy signal. Plus, there are just two weeks left before its earnings report and we might actually see some pre- earnings momentum. Our first target will be the old highs near $87. We'll start the play with a stop at $77 and look to raise it as shares progress higher. More conservative traders may want to wait for a little more confirmation with a move over today's high. Friday's update: Good news for UTX bulls. The powerful rally in the markets helped push shares of UTX confidently through the 80.50 mark, which has been a barrier the past few weeks. The stock's MACD has finally produced a new buy signal and there is little overhead resistance between here and our target near $87. However, we would not be surprised by a pull back should the markets dip early next week and traders can gauge new entries on any bounce above $80. Suggested Options: There are just two weeks before UTX's earnings and we don't plan to hold over the report, which means traders could use the October calls, but they remain higher risk. We're going to suggest trading the Novembers. BUY CALL OCT 75 UTX-JO OI= 548 at $7.20 SL=4.50 BUY CALL OCT 80 UTX-JP OI=2635 at $2.90 SL=1.45 BUY CALL OCT 85 UTX-JQ OI=1096 at $0.50 SL= -- riskier BUY CALL NOV 75 UTX-KO OI=2145 at $7.80 SL=5.00 BUY CALL NOV 80 UTX-KP OI=1603 at $4.10 SL=2.00 BUY CALL NOV 85 UTX-KQ OI= 442 at $1.35 SL=0.65 Annotated Chart: _1 Picked on October 2 at $80.45 Change since picked: + 1.35 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 1.9 million Chart = ************** NEW CALL PLAYS ************** Best Buy Company - BBY - close: 51.00 change: +2.08 stop: 46.00 Company Description: Best Buy a specialty retailer of name-brand consumer electronics, home office equipment, entertainment software and appliances. The company provides a broad selection of models within each product line in order to provide the customer with a meaningful assortment, offering more than 5800 products, not counting entertainment software titles. Growing its store count by 15% in fiscal year 2000, brought the grand total to more than 4000 in 41 states by year end. Why we like it: Investors have responded with strong enthusiasm to the economic reports over the past two days, taking the improvement in the employment picture as evidence that the much-advertised second- half recovery is for real. Fresh from its breakdown out of the 6-month ascending channel, the Retail index (RLX.X) has been driven vertically back inside that chart formation over the past 3 days, with Friday's 2.06% gain bringing this index right back to the mid-September $363 resistance level. Following its top in early September near $54, BBY has been headed lower in a bull flag formation. Friday's 4.25% gain pushed the stock just above the top of that pattern at $50 and it looks like a fresh assault on those highs from a month ago is in the cards. Friday's move left behind a good-sized gap down to just below $49 and it is entirely possible that gap will need to be filled in with an intraday dip before the stock can continue higher for that retest of the recent highs and an expected breakout. That makes the best entry strategy to buy into a rebound from the $49 level, especially if accompanied by continued strength in the RLX. Aggressive traders can certainly use a breakout over Friday's intraday high ($51.55) to enter the play on the assumption that we've got a breakaway gap on our hands, but with potential resistance every 50-cents between $52 and $54, the dip entry certainly carries less risk. The PnF chart really provides no guidance, as despite the fact it is still strongly bullish, the vertical count of $52 was reached in late August. Looking at the weekly chart, it appears there will be strong resistance found in the $57-58 area, so we'll use a $57 profit target for the play. Place initial stops at $48, as a trade at that level would represent a break of Thursday's intraday low, as well as the 50-dma ($48.75) and would be a clear indication that this breakout attempt has failed. Suggested Options: Shorter Term: The October 50 Call will offer short-term traders the best return on an immediate move, as it is just slightly in the money. Note that October contracts expire in 2 weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 55 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders will want to use the November 50 Call. BUY CALL OCT-50 BBY-JJ OI=17475 at $1.95 SL=1.00 BUY CALL NOV-50 BBY-KJ OI= 1395 at $3.30 SL=1.75 BUY CALL NOV-55 BBY-KK OI= 1870 at $1.20 SL=0.60 BUY CALL DEC-55 BBY-LK OI= 3210 at $1.95 SL=1.00 Annotated Chart of BBY: _1 Picked on October 5th at $51.00 Change since picked: +0.00 Earnings Date 12/17/03 (unconfirmed) Average Daily Volume = 3.78 mln Chart = --- Cooper Industries - CBE - cls: 51.00 chg: +1.00 stop: 48.00 Company Description: Cooper Industries, Ltd., with 2002 revenues of $4 billion, is a global manufacturer of electrical products and tools and hardware. Incorporated in Bermuda, with administrative headquarters in Houston, Texas, Cooper has more than 28,000 employees serving more than 100 locations around the world, and sells products to customers in more than 50 countries. (source: company press release) Why We Like It: We're adding CBE to the call list as a technical play. The stock has been a huge winner from late May where it broke out of a sideways consolidation under $39.00. The rally pushed CBE up to the $51 level by late August and shares spent the month of September consolidating in bullish flag formation. The recent strength has produced a clean bullish breakout with decent volume on Friday's move. There is potential resistance at $51.00-51.50 but we don't expect it to hold for very long. Should we see a pull back, then traders can use dips above the $50 mark as potential entry points. CBE's MACD is about to produce a new bullish buy signal while its daily stochastics, momentum and RSI indicators are already bullish. There is potential for more resistance at $54, where CBE gapped down from the 9/11 attack but we're going to target a move to the $55-56 region. We will use an initial stop loss at $48.00 near its simple 50-dma but more conservative traders can probably beat that by another dollar. Suggested Options: Short-term traders have October and November options to choose from while longer-term traders can look at January and April strikes. Our preference is for the November 50s and 55's. BUY CALL OCT 50 CBE-JJ OI= 104 at $1.65 SL=0.85 BUY CALL OCT 55 CBE-JK OI= 0 at $0.15 SL= -- not recommended BUY CALL NOV 50 CBE-KJ OI= 83 at $2.60 SL=1.40 BUY CALL NOV 55 CBE-KK OI= 507 at $0.65 SL= -- Annotated Chart: _1 Picked on October 5 at $51.00 Change since picked: + 0.00 Earnings Date 10/23/03 (confirmed) Average Daily Volume: 539 thousand Chart = ------------------------------------------------------------ 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 PUT PLAYS ***************** I T T Industries - ITT - cls: 61.33 chg: +0.24 stop: 62.51 Company Description: ITT Industries, Inc. (www.itt.com) supplies advanced technology products and services in key markets including electronic interconnects and switches; defense communication, opto- electronics, information technology, and services; fluid and water management; and specialty products. Headquartered in White Plains, NY, the company generated $4.99 billion in 2002 sales. In addition to the New York Stock Exchange, ITT Industries stock is traded on the Midwest, Pacific, Paris, and Frankfurt exchanges. (source: company press release) Why We Like It: We like ITT as a put play for several reasons. The month of September should have been more bullish for the stock. The company reiterated their financial guidance twice and received a nice upgrade from Goldman Sachs. Yet investors ignored all of it and have sent shares strongly lower. As a matter of fact shares of ITT have been slowly eroding over the last few months while most of the market has been climbing. We originally added ITT on the breakdown below its simple 200-dma and the $60 level of support. However, in the last week we've witnessed a huge rebound in the broader markets and ITT was not immune to this buying pressure, although it did seem to under perform. Volume has been declining on the recent bounce and the stock has performed a great looking failed rally just under our stop loss at $62.51. We see Friday's move as a low-risk entry for new bearish positions but it takes guts because the stock is still above its 200-dma and the $60 mark. More conservative traders may want to wait for the momentum to fade and for ITT to close back below its 200-dma. Suggested Options: Our preference to play the drop in ITT would be the October and November 60's and 55's but investors who prefer a higher delta can consider the 65's. BUY PUT OCT 55 ITT-VK OI= 92 at $0.25 SL= -- BUY PUT OCT 60 ITT-VL OI=174 at $0.80 SL=0.40 BUY PUT OCT 65 ITT-VM OI=160 at $4.00 SL=2.25 (low premium) BUY PUT NOV 55 ITT-WK OI= 74 at $1.30 SL=0.65 BUY PUT NOV 60 ITT-WL OI=343 at $1.60 SL=0.85 BUY PUT NOV 65 ITT-WM OI= 4 at $4.50 SL=2.25 Annotated Chart: _1 Picked on September 28 at $59.64 Change since picked: +1.69 Earnings Date 07/28/03 (confirmed) Average Daily Volume: 546 thousand Chart = ************* NEW PUT PLAYS ************* Merck & Co - MRK - close: 50.11 chg: -0.89 stop: 52.01 Company Description: Merck & Co., Inc. is a global research-driven pharmaceutical products and services company. Merck discovers, develops, manufactures and markets a broad range of innovative products to improve human and animal health, directly and through its joint ventures. (source: company press release) Why We Like It: The drug sector has seriously been under performing the broader markets for months and after a brief rally higher in early September they look ready for another leg lower. Trying to lead the charge are shares of MRK, which completely ignored the rally on Friday and produced a wonderful failed rally at the $52 level. Investors could be concerned about new competition in the cholesterol drug market from rival AstraZeneca who just launched their Crestor drug last month. Merck could also be suffering some bad karma as federal prosecutors have moved from a probe to a lawsuit against the recently spun off Medco unit. The U.S. is charging Medco with fraud. Of course, the company is not without its good news. Just a few days ago one of its partners, Iceland- based deCODE Genetics (DCGN) announced they have found the "fat" gene, which could be used in the fight against obesity. MRK is their partner to develop a fat-fighting drug. Plus, bears playing the short side of major drugs will have to contend with potential headline risks. There is always risk of MRK announcing some big new breakthrough or more probable that the brokerage houses will start upgrading the group on valuation since they're so much cheaper than the rest of the market. The daily and weekly charts of MRK show support at the $50 mark so we're going to use a TRIGGER at $49.90 to open the play for us. Momentum traders may want to see MRK break the old low from late August near $49.50 before opening any bearish positions. Fortunately, MRK is already on a P&F sell signal, which also looks ready for another leg lower. Our first target is $45 but shares could fall even lower. Suggested Options: Short-term traders can choose from October and November strikes but our preference would be for Novembers. Longer-term traders can look to the January's. BUY PUT OCT 50.00 MRK-VJ OI=10270 at $1.10 SL=0.55 BUY PUT OCT 47.50 MRK-VW OI= 2819 at $0.40 SL= -- BUY PUT NOV 50.00 MRK-WJ OI= 5649 at $1.80 SL=0.90 BUY PUT NOV 47.50 MRK-WW OI= 6196 at $0.80 SL=0.50 BUY PUT NOV 45.00 MRK-WI OI= 1502 at $0.40 SL= -- Annotated Chart: _1 Picked on October 5 at $xx.xx Change since picked: - 0.00 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 6.2 million Chart = ------------------------------------------------------------ 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. 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The Option Investor Newsletter Sunday 10-05-2003 Sunday 4 of 5 In Section Four: Leaps: Are We Having Fun Yet? Traders Corner: Another Trade Bites The Dust - Just A Small Bite Traders Corner: Where is the Dow Going? ------------------------------------------------------------ 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 ***** Are We Having Fun Yet? By Mark Phillips mphillips@OptionInvestor.com Nobody ever said this was an easy gig, and the past several months have certainly proven that to be true. One week, it looks like we're headed to new highs and the following we're contemplating a major breakdown. Move forward a few more weeks and repeat the process. In my opinion, the major development last week was the selloff in bonds and huge rally in equities, both of which seems to have been driven by the "positive" economic data. I put the word positive in quotes because I really think you have to squint to see the reported data as sufficient to drive the market as strongly as it did, especially on Friday. The key here is that it is all about expectations. Clearly expectations were for much worse numbers than were reported, especially for the employment picture and equity bulls rejoiced on the mistaken (my opinion) perception that the second half recovery is here and we can kiss the bear market good-bye. Let's just say I remain unconvinced. Be that as it may, Sentiment took over again big time towards the end of last week, and the bulls are in a frisky mood. That optimism could evaporate next week, or it could propel the major indices to those lofty levels I've recently mentioned in this column. For review, the DOW looks like it could be headed for 9800-10,000, the SPX to the 1070 level and the NASDAQ Composite could lift off towards the 2100 area. I don't think those are reasonable levels based on fundamentals, but as we've seen in recent months, Sentiment and Technicals can easily trump the fundamentals in the near-term. The 'new and improved' VIX plunged back under 20 to close at 19.50 on Friday, keeping the trend of lower highs intact. As a measure of how deeply 'oversold' the VIX is, the weekly Stochastics (10,5,3) have essentially remained in oversold territory for 5 months and it feels like an upside explosion is getting closer and closer to reality. Take a look at the weekly Stochastics on the VIX from 11/01-4/02 and tell me if it doesn't look an awful lot like the current picture on the VIX weekly Stochastics. Recall that from late April 2001 through July 2002, the VIX absolutely exploded to the upside from roughly 20 to above 56. Could it happen that way again? Absolutely! Picking the timing of the move though is a tricky business. The key is finding what the catalyst will be, and more and more I believe it is found in the currency arena. At some point, we're going to have to pay the piper for the flagrant money creation that has been occurring over the past couple years, and if the dollar does in fact break down, it could get ugly in a hurry. In that event, investments in tangible assets and real money like gold will soar. That's a big part of why I'm pushing NEM onto the Watch List this weekend, despite the absolute pounding suffered in the precious metals markets over the past couple weeks. But we aren't at that elusive tipping point yet and until the right catalyst comes along, the bulls are content to party like its 1999. You know what they say -- the bigger they are, the harder they fall. Correspondingly, the higher the markets go, the more out of whack the valuations become and the more room there is to the downside. I still feel the Bullish Percents are our best method of determining when there is a clear shift of both Sentiment and Technicals in unison. The only Bullish Percent reading that looks to be giving us the "go" signal is the NASDAQ-100, which is in Bear Confirmed. All the rest of the major indices are in varying degrees of Bullishness. The NASDAQ Composite and S&P 500 are still Bull Confirmed, with the OEX and DOW resting comfortably in Bull Correction status. But all of the readings are still above the 70% reading that denotes overbought. Sure the bulls are still carrying the bulk of the risk here, but that certainly hasn't stopped investors from continuing to buy the dips. In last Wednesday's Trader's Corner article, I updated the technical view on the markets, focusing on the S&P 500, bringing in the issues of bearish Stochastics divergence, the bullish percent SharpChart and the price pattern on the VIX as it pertains to the ADX. In just a few short days, that picture has changed significantly, telling me that pressing the downside, even with long-term positions is still a premature move. The bearish cross on the weekly Stochastics has almost completely been reversed and that divergence will likely be negated if the SPX breaks out to new highs next week. Following the pattern seen back in early August, the ADX for the VIX has dipped back under the 20 level, keeping the 'trendless' condition intact. And to top it all off, the SPX bullish percent line has turned back up and should challenge the 10-dma next week. At the same time the CCI on the BP SharpChart is threatening to cross back above the - 100 level. None of these developments negate the downside potential I see for the market. But they do work together to tell us that if establishing bearish positions, we need to do so by selling into failed rallies, not by attempting to jump into a breakdown in progress. We're 5 weeks past the official end of summer and while the markets have definitely woken up significantly, they really haven't made any progress in telling us whether this bull phase is about out of juice or if there is another leg up in store. We're making progress in aligning our playlists to benefit from either scenario, but it is definitely a work in progress. Without further ado, let's dive right in and see what developments the week just ended has to offer. Portfolio: WMT - Alright, enough is enough. WMT satisfied our amended entry criteria on Friday and this play finally moves into the Portfolio. Watch List: AGN - Well, what do you know? AGN came back to life with the rest of the market, rebounded from the ascending trendline near $78 and looks like it wants to make a run at that elusive breakout over $82. After struggling with this resistance level since the middle of June, a breakout over that level could be quite powerful, as it would also give a "quintuple-top" Buy signal on the PnF chart, projecting a vertical count of at least $93. Our entry strategy on this play is a bit different from usual, as we'll enter on a breakout and close above $82 without waiting for a subsequent pullback. Individual traders are welcome to "game" the entry as they see fit, but please don't jump the gun before that trade at $82. After entry, we'll set our stop at $76, as a trade at that level would be a subsequent PnF Sell and would invalidate any bullish target. For a taste of how that could happen, all we have to do is look at the price action in AMGN over the past few weeks. AMGN - It's the end of the road for any bullish aspirations on AMGN's part. Last week's trade below $64 generated a PnF Sell signal and it's time to let this one go. QQQ - Can you say volatility? After a brief violation of the bottom of the ascending channel last week, the QQQ regained its composure and then really launched higher on Friday, to the tune of 2.79%, most of that move taking place on a large gap. When I reactivated the play last week, I was looking for a failed rally at $34 to justify a bearish entry point. Well, we got the rally, but you'd be hard-pressed to call the fade at the end of the day a failure! There is the possibility that Friday's rally marked the right shoulder of a H&S pattern, but the problem with that theory is that we'll need to see a break of the neckline (currently $32.25) to know for sure. With the QQQ back inside its ascending channel, it will take a trade at $33 to break back under that pattern and a trade under the 50-dma ($32.65) for further confirmation. The problem with using either of those measures as a trigger is the fact that they were both violated on a closing basis last week and here we are back to testing resistance near $35. That makes new entries still an aggressive proposition until the QQQ breaks below last week's lows. At that point, we could once again be faced with a buy-the-dip phenomenon. Are you dizzy and confused yet? We'll stick with the initial trade plan, looking to enter on a close below $34, provided it doesn't happen on a big gap. More conservative traders will want to wait for a break and close below $32 before playing. Once filled, we'll use a stop at $35. That way, if I'm wrong and the NASDAQ does just continue higher, we'll be out with minimal damage. SMH - The Semiconductor index gave up its relative weakness on Friday and the SMH launched higher by 4.44% to end right at the top of our targeted entry zone. I vacillated back and forth about whether I ought to initiate a position, but in the end was forced to concede that new positions here would likely be ill-advised. Certainly, the SMH closed significantly off its intraday high, but there wasn't enough weakness to suggest that it is headed immediately lower from here. We'll wait for a subsequent close below the bottom of the entry zone ($36) before taking a position, but we won't do it on another big gap move. Aggressive traders may want to consider entering on a failed rally closer to strong resistance in the $38-39 area, but that's too aggressive for our official Portfolio, especially in light of the strong buying volume on Friday. Once we enter the play, our initial stop will be placed at $40, which should be safe unless the bulls have a lot more gas in the tank. FRX - There have been numerous days in the past 2 weeks when I've lamented that I must have set the entry target too strictly and feared we'd never see an entry point into our FRX play. Well the pric action last week certainly didn't look very constructive now, did it? FRX has been very volatile since the company gained FDA approval for its Alzheimer's drug. I really don't care for the pattern of lower highs and lower lows we've seen since that event, so I'm going to fall back to the initial plan of targeting entries in the $46-47 area, with my preference being for the lower end of that range. We need to see some base-building before taking an entry, as trying to pick an entry point out of the price action we've seen in the past couple weeks can be quite treacherous. There is no trend to speak of and I would now classify FRX as an aggressive play. The issue that really concerns me is that a trade at $47 will generate a new Sell signal on the PnF chart, negating the Buy signal that first caught my attention a few weeks back. I still think this one has bullish potential, but I don't want to take an entry until we see some more constructive price action. So with regret, I'm shifting FRX to HOLD and we'll look for a more solid base to form and give a better entry setup. Radar Screen: FNM - With mortgage rates falling again most of last week, FNM continued its persistent climb, reaching the $72 level on Friday before profit taking took hold. I'm having a hard time maintaining a bearish stance on the stock, with the only factor in our favor being the descending trendline from the April 2002 highs, which currently rests at $73.50. Weekly Stochastics are still climbing and the PnF chart is on a strong Buy signal, with price above the bearish resistance line and a bullish price target of $95! Can you say high risk? As I mentioned several weeks ago, I'm done with trying to pick tops in uptrends for awhile and FNM certainly qualifies. Until we see some signs of price weakness or a hint of a PnF Sell signal, I think we had best leave it here on the Radar Screen. QCOM - Any hopes of nabbing an entry point on QCOM quickly vanished last week, with the stock finding support on Wednesday at $41 and vaulting higher in gap-happy fashion. that rebound took place in space without a serious test of support and we couldn't have considered it a strong entry anyways. I'll keep it on my short list for now, but in reality, we need to see it trade down to at least $40 before we'll have a tempting setup. Patience is the watchword for now. DJX - Last week's price action should remove any doubt as to why I wasn't willing to put the DJX back onto the Watch List last weekend. With Bullish Percents still quite high and the DOW BP still in Bull Confirmed, we're still early to any play to the downside. And with the bulls charging hard at the end of the week in response to the "great" jobs data, we've got a very clear picture of the still-strong bullish sentiment. Remember, I am not going to try to pick a top for a bearish play until the charts say it is advisable to do so. I'm expecting that any follow through to the upside could take the DOW back to the 9800-10000 area that we were talking about some weeks back. At a minimum, we need to see the DOW Bullish Percent fall below 80% to show us some sign of internal weakening. With components like CAT, UTX, MMM and PG still charging to new 52-week highs, patience is the best strategy. NEM - With gold and gold stocks getting dumped wholesale on Friday, you'd think this would be the last place I'd be looking for a bullish play. You'd be right if it was any other sector. But this weakness is just the sort of gift I've been eagerly awaiting for several months now. Closing Thoughts: Last week at this time, I really felt like things were starting to behave in a rational manner, but as you can see from my commentary above and the actual action in the market, I'm less sure of myself again this weekend. The dominant factor in price action is still the overwhelming bullish sentiment and until that factor suffers a serious blow, it is going to be difficult for the broad market to make any significant progress to the downside. I have no doubt that there is another major leg down, but determining when it will occur and from what altitude, remains a challenge of the first order. But make no mistake about it -- I'll be here each and every week doing my level best to sort it all out. That is, with the very likely exception of next week. Time is drawing short in life as I have known it, as I'm expecting the arrival of my first child by the middle of next week. That means there is a better than even chance that I won't be writing a LEAPS column next weekend. It all depends on what fate has in store, and I apologize in advance for the gap in coverage. But I hope you'll understand that I must take care of that priority before refocusing my efforts on the pursuit of financial gain that we engage in here each week. Have a great week! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None Puts: WMT 10/03/03 '05 $ 55 ZWT-MK $ 5.10 $ 5.10 + 0.00% $61 '06 $ 55 WWT-MK $ 7.20 $ 7.20 + 0.00% $61 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: AGN 09/14/03 $82 JAN-2005 $ 85 ZFH-AQ CC JAN-2005 $ 80 ZFH-AP JAN-2006 $ 90 YOK-AR CC JAN-2006 $ 80 YOK-AP FRX 09/21/03 HOLD JAN-2005 $ 50 ZML-AJ CC JAN-2005 $ 45 ZML-AI JAN-2006 $ 50 WRT-AJ CC JAN-2006 $ 40 WRT-AH NEM 09/21/03 $33-34 JAN-2005 $ 30 ZIE-AG CC JAN-2005 $ 35 ZIE-AF JAN-2006 $ 30 WIE-AG CC JAN-2006 $ 35 WIE-AF PUTS: QQQ 08/10/03 $34 JAN-2005 $ 32 ZWQ-MF JAN-2006 $ 32 WD -MF SMH 08/24/03 $36-37 JAN-2005 $ 35 ZTO-MG JAN-2006 $ 35 YRH-MG New Portfolio Plays WMT - Wal-Mart Stores, Inc. $57.48 **Put Play** That's enough waiting for me! WMT reversed last month right at its descending trendline and headed sharply lower with the weakness in the overall Retail index (RLX.X) Over the past few days, the RLX has been in strong rally mode, as the economic reports last week seem to have convinced investors that the second half recovery is real. We've been looking for a rally failure in the $58 area and that's precisely what the market delivered on Friday, with an opening gap followed by a continued push up to $58.23, before weakness set in, driving the stock down to close at its intraday low. While WMT still ended with a 0.7% gain on the day, its intraday weakness was in sharp contrast to the more than 2% gain in the RLX. Part of this weakness may be related to the company's "reaffirmation" of Q3 guidance at $0.45-0.47 cents per share. That didn't sit too well with investors, when consensus estimates were calling for $0.47. Technically, the weakness over the past few weeks produced a breakdown from the bearish ascending wedge and Friday's intraday high looks like a clear rejection from the lower wedge line as prior support is now looking like resistance. Additionally, weekly Stochastics are now in full bearish decline and odds favor the downside. The only missing ingredient is a PnF Sell signal, but we won't get that until WMT trades $51, clearly a long ways away. We have strong resistance working for us at the long term descending trendline just below $60. So placing our stop at $61 should keep us out of trouble, if the play has any hope of working in our favor. There's likely to be lots of support on the way down, meaning we'll have to exercise significant patience, but if the economic weakness I expect begins to manifest itself into Q4, then a drop back to major support at $45 is not out of the question. BUY LEAP DEC-2005 $55 ZWT-MK $5.10 BUY LEAP DEC-2006 $55 WWT-MK $7.20 New Watchlist Plays NEM - Newmont Mining $37.88 **Call Play** Gold and gold stocks have been vacillating near their highs for the past several weeks, but gold has been unable to push through the $390 level and the Gold and Silver index (XAU.X) couldn't maintain its altitude either. Profit taking took a big bite out of the elevated level of the XAU just over a week ago and economic data pointing towards an improvement in the employment picture sent gold and the XAU reeling again on Friday. Gold lost more than $13/ounce, while the XAU got slammed lower for a 4.59% loss. So why am I picking this opportunity to move NEM onto the Watch List for a bullish play? Anticipation! My long-term view is that the wholesale creation of fiat currencies is going to have a profound long-term impact and it isn't going to be pretty. Gold is the ultimate hedge against out-of-control currency inflation and we want to take advantage of this selloff as a gift of an entry point. NEM broke its 50-dma on Friday and it did so on very heavy volume. Obviously this is not the place to be entering new bullish positions. But I do like our odds if we can get an entry down near the $33-34 area. By that time, I expect to see the 200- dma rise to the $32.50 area, which should provide solid support. At the same time, we should see the XAU fall back near $80, which is also very strong support and should be just above the 200-dma at the time. Weekly Stochastics are just starting to tip over out of overbought, so we're in no hurry to establish a position here, but this is the heads up to start watching. Assuming we get the entry point I've listed, we'll go with a rather broad stop at $30, which should be an untouchable level if my fundamental views are correct. Over the next year or two, I can see NEM marching its way into the $60-70 area, with gold challenging making an earnest effort at reaching levels most investors don't even dream about now. This is a play that will serve us well if we can exercise the necessary patience, both in terms of entry and position management. BUY LEAP JAN-2005 $35 ZIE-AG BUY LEAP JAN-2005 $30 ZIE-AF **Covered Call** BUY LEAP JAN-2006 $35 WIE-AG BUY LEAP JAN-2006 $30 WIE-AF **Covered Call** Drops AMGN - $64.97 The suspense is over. After tapping $70 just over 2 weeks ago, it looked like our bullish play on AMGN was good to go with a fresh PnF Buy signal. But things took an ugly turn the very next day with a downgrade from Wachovia. A couple days of consolidation and the stock really plunged, reaching to just above $64 a little over a week ago. That had us really on edge, as a trade at $64 would generate a PnF Sell signal, negating the Buy signal and the $81 price target. That trade at $64 appeared this past Monday and as noted in the Market Monitor, it ended my interest in trying to game an entry to the long side. AMGN spent the remainder of the week vacillating between $64-67, and with Friday's drop, it appears the bears have the nod. Time to let this one go and look for better candidates. ------------------------------------------------------------ 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 ************** Another Trade Bites The Dust - Just A Small Bite By Mike Parnos, Investing With Attitude A surprise positive jobs report goosed the market on Friday. We can all use an occasional goose (not the X-mas kind). It's a great motivator. However, in this instance, one of our positions was assaulted. Our stronghold is still in tact, though, but we did have a casualty. (See Below) Recap Of INTC (Intel) "Siamese" Condor October Position We sold 10 contracts of the October INTC $27.50 calls and sold 10 contracts of the October INTC $27.50 puts for a total credit of $2.10 ($2,100). Then, for protection, we bought 10 contracts of the October INTC $32.50 calls and 10 contracts of the October INTC $22.50 puts for a total debit of $.20 ($200). Our total net credit was $1.90 ($1,900). Our profit range was $25.60 to $29.40. The parameters of our profit range were also our bailout points. On Friday morning, when Intel moved through $29.40 we were out. We bought back the $27.50 call for $2.25 and sold the $32.50 for $.10. The closeout cost was $2.15. We had taken in $1.90, so we accepted a loss of $250 - not bad for a trade gone awry. Intel closed at $29.61. It's completely possible that Intel will come back down to finish within our profit range. But, again, we have to adhere to our trading plan. We have to preserve our trading capital. An alternative: We could have not sold the $32.50 call and remained long. Hell, it's only a dime. If Intel continues its upward move, that $.10 could turn into $.50 pretty easily. _________________________________________________________________ CPTI Decree Henceforth the strategy formerly known as a "Joined" Condor will now be known as a "Siamese" Condor - thanks to a suggestion of William, a long time CPTI student. I have to admit, it's creative, more colorful and lends a uniqueness to the strategy - plus conjures up an interesting image. _________________________________________________________________ Iron Condor vs. Siamese Condor In last Thursday's column we discussed some of the differences between these two Condor strategies. We looked at our exposure in each strategy. We concluded that the worst-case scenario exposures technically aren't too different. Let's Dig Deeper One of the benefits of using the Siamese Condor is that you give yourself the opportunity to make a lot more money. In the educational example outlined in Thursday's column, with IBM trading close to $90, we sold the October $90 puts and calls, then protected them buy buying the $100 calls and the $80 puts for a total net credit of $4.20. If IBM hovers around the $90 level, the closer it finishes to $90, the more money we make. If it finishes at $92, we simply have to buy back the $90 call for about $2. We make the $4.20 less the $2 = $2.20. That's substantially more than the $.90 we would have made based a normal Iron Condor with an $85 to $95 range. Also helping our cause are our friends(?) the market makers. Check the option chains. You'll see that the $90 puts and calls have the highest open interest. As option expiration approaches, the market makers have a tendency to try to manipulate the stock toward the strike price with the highest open interest. In this rare scenario, market makers would actually be working toward increasing our profits. Lower Risk OK. This will take some focus. With the normal Iron Condor, it's difficult to calculate the optimal time to bail out of the trade. Do we bail when the short strike is violated? When a support or resistance line is broken? Do we just wait and hope? Note that, as the stock approaches the short strike (Iron Condor), the amount of time value is increasing. When it reaches the short strike, it will be at-the-money. Therefore, you will pay more to close out the position. With the Siamese Condor, for every dollar IBM moves away from the short strike ($90), the more in-the-money it becomes. The more intrinsic (ITM) value there is in the option's price, the less time value there is. Since we took in $4.20, once IBM reaches $94.20, there won't be much time value left in the $90 call - maybe $.75-$1.00 or less (depending on when the move occurs). You might have to pay $5.20 to close the short call. Then, you might recoup $.25-$.40 (or more) when you sell the long $100 call. Thus, to close the bear call portion of the Siamese might cost only $.60-$.75. That's not bad for a position that has gone wrong. Wait! We're Not Done Yet Just because we closed out the bear call spread, we're not out totally of the woods. Don't forget that, in the above example, we're still holding the $90/$80 bull put spread. If IBM reverses and moves below $90, you'll be faced with possible additional losses. Some traders may prefer to close the short $90 put when they close the bear call spread - to eliminate any additional exposure. ______________________________________________________________ OCTOBER POSITIONS October Position #1 - SPX Iron Condor - Trading @ 1029.85 We were going to create an Iron Condor with a range of 995-1075 and take in $2,300 in premium. However, on the Monday following expiration Friday, the SPX gapped lower. So, we adjusted our condor to take the gap into consideration. We created the Iron Condor with a new range is 980-1065. We sold 10 contracts of the October 980 puts and also sold 10 contracts of the October 1065 calls. Then we bought our protection in the form of 10 contracts of the October 970 puts and 10 contracts of the October 1075 calls. We took in a total of $2,300 in premium and that's our maximum potential profit. Our maximum profit range is 980 to 1065. Our safety range is 977.70 to 1077.30. We're at 1029.85, comfortably near the middle of our Iron Condor position - a nice place to be. October Position #2 - QQQ - Put Calendar Spread - Trading @ $34.19 We decided to risk a buck. Since many folks think the market is due to correct. So we created a cheap play that will let us take advantage of a nice down move. We bought 10 contracts of January 04 QQQ $32 puts and sold 10 contracts of October 03 QQQ $32 puts for a total debit of $1.00 ($1,000). If/when the QQQs make their move down, the January $32 put will increase in value more rapidly than the October $32 put. We'll look for a $500-$750 profit on this position and take the money and run. The risk is small. The percentage profit potential is very appealing. October Position #3 - FDC (First Data Corp.) "Siamese" Condor - Trading at $41.01. We selected FDC, a financial stock, because is may be less vulnerable volatile movements of the tech stocks. We're going to sell 10 contracts of the October FDC $40 calls and sell 10 contracts of the October FDC $40 puts for a total credit of $2.40 ($2,400). Then, for protection, we'll buy 10 contracts of the October FDC $45 calls and 10 contracts of the October FDC $35 puts for a total debit of $.30 ($300). Our total net credit is $2.10 ($2,100). Our profit range is $37.90 to $42.10. The closer FDC finishes to $40, the more profit we will make. The parameters of our profit range are also our bailout points. OEX - Bearish Calendar Spread - OEX @ $511.20 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. The Sept. 470 puts obviously expired worthless. We were going to sell the October 490 puts and take in another $2.10. However, with the Monday market gap-down, we were able to take in $3.10 instead. Our new cost basis is $5.30. QQQ ITM Strangle - Ongoing Long Term -- $33.26. We bought 10 contracts of the 2005 QQQ $39 puts @ $7.00 = $7,000 and also bought 10 contracts of the 2005 QQQ $29 calls @ $7.30 = $7,300 for a total debit of $14,300. Then we sold 10 contracts of the QQQ Oct. 33 puts @ $.85 = $850 and also sold 10 contracts of the QQQ Oct. 34 calls @ $1.05 = $1,050 for a total credit of $1,900. HPQ (Hewlett Packard) Bear-Put Spread - HPQ at $19.52. 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. We'd gladly accept a profit of $800-900 and close the position early if the opportunity presents itself. This is a long-term position. ______________________________________________________________ OCTOBER CLOSED POSITIONS #1 - APPX Short Term Straddle: $1,400 Profit #2 - BBH "Siamese" Iron Condor: $300 Loss For trade details, refer to Sept. 21 and Sept. 25 columns #3 - INTC "Siamese" Iron Condor: $250 Loss For trade details, see article above _______________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? The OptionInvestor archives offer a wealth of information - from my columns to past and present informational and educational columns by my OI colleagues. To find past CPTI (Mike Parnos) articles, look under "Education" on the OI home page and click on "Traders Corner." They're waiting for you 24/7. ______________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP ************** TRADERS CORNER ************** Where is the Dow Going? By Steve Gould I had my weekly analysis completely written on Wednesday night, albeit in my head. The S&P 500 was behaving ideally and I did not see any reason why this Elliott Wave pattern should not unfold as expected. Then Thursday hit and everything went to Hell in a hand basket. At least as far as my analysis was concerned. If I were as arrogant and egoistical as an ex-friend of mine I would have said that my analysis was faultless. It is the market that is wrong. (How does that work?) It looks as if the market is set to go higher yet before it does what it is going to do next. What will it do next, you ask? Well, it will go down...unless of course it goes up. Before we look at Friday's charts, let's recap last week's analysis. Last week I predicted that the weekly S&P 500 had completed the 4 wave, because it had completed the A-B-C correction, because the five wave basic pattern was complete on the C wave. Therefore, the S&P 500 was on its way down to the 650 level as it completes wave 5 of the five wave basic pattern that started in January 2000. Everything lined up so precisely that I had a very high confidence level in my analysis. On Wednesday night, the S&P 500 hourly chart looked like it was behaving just the way it was supposed to. Well, almost. Chart: S&P 500 Hourly 10/1/2003 The Wednesday hourly chart of the S&P 500 shows that the wave pattern starting on 9/19/2003 is consistent with the formation of the five wave basic pattern that I was expecting. Had the S&P 500 finished the final 5 (circle) wave, this would have been the 1 wave on the daily chart. If we dig a bit deeper, we can see that the S&P 500 did signal a few red flags within this pattern. Notice that the 4 wave has retraced to within 0.08 points of overlapping into the 1 wave's territory. This would violate the first rule of Elliott Wave theory. IF the S&P 500 did not continue any higher, for example, gapping down, then everything would still be fine. Unfortunately, that was not going to be a likely possibility because the oscillator had not yet retraced the required 90% and further upside movement was likely. It could still happen mind you. IF the S&P 500 did not trace out any higher and instead trended sideways for a bit, the oscillator could have caught up. If, if, if. At this point, the S&P 500 had to behave in a very specific manner with no margin for error for this scenario to play out. It has been my experience that if I have to place all these conditions on a market, then the analysis is most likely faulty. True to form, the S&P 500 did not let me down. The next day the S&P 500 did print higher. (This was of course all my fault as I had bought SPX puts at the 1012 level. At 12:00 pm EST, the analysis was a perfect set up.) Fast forwarding to Friday's close, the S&P 500 now looks like this. Chart: S&P 500 Weekly 10/3/2003 Here is the current wave pattern of the weekly S&P 500. At this point we have to consider three possibilities. Scenario 1: In this scenario, I am going to follow through on my original prediction from last week where the S&P 500 (and the rest of the markets) has completed the 4 wave and is starting the 5 wave down to the 650 level. Chart: S&P 500 Daily 10/3/2003 scenario 1 This is still a possibility, BUT a bunch of things have to take place for this to occur. The S&P 500 is still presenting evidence, if only by a thread, that the 5 wave has peaked. Specifically, the oscillator divergence and the nice subdivisions of the 5 (circle) wave suggest that the S&P 500 will go no higher. However, we do not have a good start to the new 1 (circle) wave. The 1 wave is well formed but the 2 wave is not. The retracement level of this alleged 2 wave comes to within 99.9999999% of the 1 wave. Not unheard of, but unlikely. Furthermore, when we look at the hourly data, the chart suggests that the S&P 500 is about to trend higher. Chart: S&P 500 Hourly 10/3/2003 scenario 1 The hourly chart of the S&P 500 implies that the daily 1 wave is well formed but the 2 wave is suspect. 2 waves are going to be an A-B-C correction pattern. I just don't see an A-B-C correction in this wave pattern no matter how much I blur my eyes. Could it still happen? Yes. Is it likely? I am losing confidence rapidly. Scenario 2 In this scenario, I am going to put forward that the 4 wave on the weekly chart is not yet complete. Chart: S&P 500 Weekly 10/3/2003 scenario 2 This weekly S&P 500 chart focuses in on the now notorious 4 wave. In the past, I have suggested that this 4 wave corrective pattern is unfolding as an expanded flat. That has not changed. One of the characteristics of the expanded flat is that the C wave is 1.38 - 1.62 times the length of the A wave. This chart shows that the 1.62 x A wave level is at 1070. Coincidentally, the 38.2% retracement level of the 4 wave is at the 1060 level. This confluence sets up a massive resistance level that the S&P 500 will find most arduous to penetrate. In my opinion, this is the most likely scenario that the S&P 500 will take over the next week or so. If so, the iv wave will need to be relabeled. Scenario 3 This scenario takes into account the possibility that both the other scenarios are ill conceived and the markets are actually taking a completely different form. I do not think this is the most likely scenario, but it does have some merit and must be considered. Chart: S&P 500 Weekly 10/3/2003 scenario 3 Keep in mind that the markets are currently undergoing an A-B-C correction of a larger wave pattern. Just how it will unfold is yet to be determined. But we do know that we will see some type of an A-B-C correction. We just don't know how yet. In the other two scenarios the A wave is unfolding to be a five wave basic pattern that has not, as of yet, completed. In this scenario, the S&P 500 has already completed the A wave of the A-B-C correction and is proceeding to unfold the B wave. This A wave turns out to be a five wave basic pattern with a failed 5th wave. Since the A wave is a five wave basic pattern, the most likely A-B-C correction pattern would be a zigzag. Remembering that the B wave will be an A-B-C correction, the S&P 500 could trend a bit higher to complete the a wave, then drop to trace out the b wave and then rise again to finish with the c wave. The time frame on that would most likely be a b wave by the end of November and a new bear market rally well into the next year. Bottom line, I expect the markets to trend a bit higher (to an S&P 500 level of 1060-1070 and equivalent in the other markets) over the next week or so before they undergo a major correction. ------------------------------------------------------------ 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 10-05-2003 Sunday 5 of 5 In Section Five: Covered Calls: Q&A With The Editor Naked Puts: Q&A On Volatility -- Part II Spreads/Straddles/Combos: Stocks Rally On Optimistic Jobs Outlook! Updated In The Site Tonight: Market Posture: Bears in Hibernation ------------------------------------------------------------ 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 ------------------------------------------------------------ ************* COVERED CALLS ************* Trading Basics: Q&A With The Editor By Mark Wnetrzak One of our devoted readers offered some excellent ideas for position management and the use of technical analysis to identify favorable covered-call candidates. Editor's note: Today's reply makes reference to previous comments about a bullish position in Western Wireless (NASDAQ:WWCA). Here is a link to the initial discussion on the issue: http://members.OptionInvestor.com/coveredcalls/cc_092103_1.asp Attn: mark@OptionInvestor.com Subject: WWCA hedge (Continued) Hi Mark, Man, I am really glad I sought out your thoughts on this subject. All of the suggestions are outstanding and I have learned so much. This is what I finally decided upon. Going into October my number one priority was to NOT give back the unrealized gain I am sitting on -- just as all of the suggestions emphasized. I purchased the October 20 puts for the following reasons. The market is due for a correction at the very least; a consolidation period to digest the gains if in fact the market wants to make another run higher. If WWCA decides to tank I have locked in profits just under the current levels [and] at the same time I am able to participate in any further gains from here. Like you said, it is a balancing act and if there is one thing I have learned over the years, it is imperative to hedge my bets [while] at the same time letting the winners run. If October does in fact get ugly, I will close the trade and possibly look to reenter at lower levels. Reestablishing a trade after a period of consolidation or distribution is something that for some reason gets pushed to the back of my mind and yet it is such a great tactic to employ in these types of situations. Since we are heading into the worst period of the year for stocks, I will be looking to put together a list of candidates that I can trade like this early next year. Many of the stocks I have been watching look very similar to WWCA. A long period of basing in stage I evolving into the classic rounding bottom chart pattern and stage II. A few are beginning to build a handle to the cup and handle pattern, while some have even broken out beyond the handle. This is just another observation. During periods like October I notice you warn against becoming complacent with the covered call strategy. Would those stocks that survive over the next month with the cup and handle intact and then break upwards from there be good covered call candidates? Do patterns like these play a part in the covered call strategy? Over time I have noticed that many stocks exhibit the same patterns as they start to move together as a group. I realize this is a generalization and I do not mean to place all stocks into this category. It also seems like it could be a pattern that might lend support to the strategy and could be taken advantage of much like your first article highlighting the different stages. This has been an awesome experience and I want to thank you and the other readers for the great ideas. Again, Thanks for all of the great ideas. Sko Hello Again Sko, My section of the OIN is very short-term oriented and involves only "in-the-money" covered-call candidates. With that in mind, I use technical analysis to identify neutral to bullish stocks that offer a reasonable probability of success in conservative covered-call positions. As a "cup-and-handle" pattern is generally considered bullish by market technicians, it could be considered a positive signal, but it tends to be more of a long-term signal, outside of my target time frame. Thanks again for the kind words and good luck! Best Regards, Mark W. OIN Well readers, here's your chance. Any thoughts about Sko's use of the cup-n-handle formation? Please use this link to send your replies and other questions or comments: http://www.OptionInvestor.com/email/author.asp?author=mark 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 HLIT 5.48 7.16 OCT 5.00 0.80 0.32* 9.9% CHU 7.43 8.91 OCT 7.50 0.50 0.57* 7.1% SCMR 5.20 4.91 OCT 5.00 0.65 0.36 6.9% QSFT 12.44 13.39 OCT 12.50 0.50 0.56* 6.8% ARIA 5.24 6.43 OCT 5.00 0.60 0.36* 6.7% MXO 12.90 13.10 OCT 12.50 1.05 0.65* 6.0% OXGN 11.17 11.55 OCT 10.00 1.55 0.38* 5.7% VXGN 6.50 11.51 OCT 5.00 1.80 0.30* 5.5% XING 8.43 9.06 OCT 7.50 1.20 0.27* 5.4% THOR 16.83 16.00 OCT 15.00 2.70 0.87* 5.4% CREE 19.21 19.01 OCT 17.50 2.25 0.54* 4.6% NABI 8.22 10.30 OCT 7.50 0.95 0.23* 4.6% SEAC 13.18 13.50 OCT 12.50 1.05 0.37* 4.4% DSCM 7.99 7.98 OCT 7.50 0.85 0.36* 4.4% ALKS 14.23 15.28 OCT 12.50 2.20 0.47* 4.2% BEAV 5.12 4.60 OCT 5.00 0.45 -0.07 0.0% INCY 5.15 4.20 OCT 5.00 0.50 -0.45 0.0% ISIS 8.05 6.65 OCT 7.50 0.80 -0.60 0.0% * Stock price is above the sold striking price. Comments: The sell-off from last week failed to gain much follow-through and the bulls finally pushed the major equity averages higher as September came to an end. With the recent "wild" action, a defensive outlook appears in order and exiting any positions that act weaker than expected may be wise. Friday's move lower by Incyte (NASDAQ:INCY) on a bullish day is a bit worrisome and next week, we will show the position closed. Other issues to consider for early-exit on further weakness are: B.E. Aerospace (NASDAQ:BEAV) and ISIS Pharmaceuticals (NASDAQ:ISIS). Positions Previously Closed: Hollis-Eden Pharma (NASDAQ:HEPH) and ID Biomedical (NASDAQ:IDBE), which rebounded. (sigh...) 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 ALKS 15.28 OCT 15.00 QAL JC 1.00 1169 14.28 14 11.0% PVN 12.60 OCT 12.50 PVN JV 0.55 7409 12.05 14 8.1% STEC 7.73 OCT 7.50 QCQ JU 0.50 49 7.23 14 8.1% CHKP 17.88 OCT 17.50 KEQ JW 0.85 7327 17.03 14 6.0% ECLG 22.37 OCT 20.00 EGU JD 2.90 2 19.47 14 5.9% ISRG 17.75 OCT 17.50 AXQ JW 0.70 53 17.05 14 5.7% NTPA 7.97 OCT 7.50 NQD JU 0.65 257 7.32 14 5.3% 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). ***** ALKS - Alkermes $15.28 *** Next Leg Higher? *** Alkermes (NASDAQ:ALKS) is a pharmaceutical company developing products based on applying its sophisticated drug delivery technologies to enhance therapeutic outcomes. The company's areas of focus include controlled, extended-release of injectable drugs using its ProLease and Medisorb delivery systems, and the development of inhaled pharmaceuticals based on its proprietary Advanced Inhalation Research pulmonary delivery system. Alkermes partners its proprietary technology systems and drug delivery expertise with many other pharmaceutical companies, and it also develops novel, proprietary drug candidates for its own account. The company has a pipeline of products in various stages of development including: Risperdal Consta, Nutropin Depot, Vivitrex, inhaled epinephrine, r-hFSH (recombinant human follicle stimulating hormone), Exenatide LAR, inhaled insulin and inhaled human growth hormone. Alkermes has rallied above the June high on good volume making another new 52-week high. Investors who believe the bullish trend will continue can use this position to profit from that outcome. OCT-15.00 QAL JC LB=1.00 OI=1169 CB=14.28 DE=14 TY=11.0% ***** PVN - Providian $12.60 *** Rally Mode! *** Providian Financial (NYSE:PVN) provides credit card and deposit products to customers throughout the U.S. The company's lending and deposit taking activities are conducted primarily through Providian National Bank and Providian Bank. PVN historically focused on three market segments: the standard market segment, the middle market segment and the platinum market segment. As of December 31, 2002, approximately $5.0 billion of reported loans and $17.70 billion of managed loans were outstanding to customers in the standard and middle market segments. In addition to its core credit card business, Providian operates GetSmart.com, an online marketplace designed to match individual consumers seeking a specific product, such as a credit card, home loan or auto loan, with lenders offering those products. Providian soared this week after Fitch Ratings raised the company up one level to "B-plus," citing management's progress in a restructuring effort and improved liquidity. We simply favor the bullish trend that shows no signs of abating and traders can use this short-term position to gain an entry point closer to technical support. OCT-12.50 PVN JV LB=0.55 OI=7409 CB=12.05 DE=14 TY=8.1% ***** STEC - SimpleTech $7.73 *** STEC Raises Guidance *** SimpleTech (NASDAQ:STEC) designs, manufactures and markets a comprehensive line of memory and storage products, as well as connectivity products that connect memory cards and hard drive upgrade kits to personal computers. The company's memory and storage products are based on DRAM, SRAM and Flash memory technologies. These products are used in consumer electronics, high-performance computing, defense and aerospace, networking and communications and industrial applications. STEC offers its products through its industrial and commercial divisions. Commercial division channels include value-added resellers, direct marketers, commercial and industrial distributors and mass-market retailers. The industrial division sells primarily custom memory products for newly manufactured systems. The company raised its 3rd-quarter financial outlook this week, citing higher-than-expected sales and favorable pricing. The stock continues to move higher on heavy volume and investors can speculate on the near-term performance of the issue with this position. OCT-7.50 QCQ JU LB=0.50 OI=49 CB=7.23 DE=14 TY=8.1% ***** CHKP - Check Point $17.88 *** Stage I Base *** Check Point Software Technologies (NASDAQ:CHKP) develops, markets and supports Internet security and VPN solutions for enterprise and high-end networks, small and medium-sized businesses, and service providers. Check Point product offerings also include Quality of Service (QoS) and Security Management solutions. Check Point products are fully integrated as a part of the company's Secure Virtual Network architecture, and provide centralized management, distributed deployment and comprehensive policy administration. The capabilities of Check Point products can be extended with the Open Platform for Security (OPSEC), enabling integration with hardware appliances and third-party security software applications. The company's Security product line includes the VPN-1 family of virtual private networking solutions FireWall-1 family of products, SmartDefense, SofaWare Safe@ product line, SMART management solutions, Web Access solutions and some associated products. Check Point has been forging a Stage I base for almost two years and this position offers a method to profit from that trend at the risk of owning CHKP shares near $17. OCT-17.50 KEQ JW LB=0.85 OI=7327 CB=17.03 DE=14 TY=6.0% ***** ECLG - eCollege.com $22.37 *** Rally Mode: Part II *** eCollege.com (NASDAQ:ECLG)) is a provider of technology, products and services that enable colleges, universities, primary and high schools (K-12) and corporations to offer an online environment for distance, on-campus and hybrid learning. The company's technology enables it's customers to reach students who wish to take courses at convenient times and locations via the Internet. Its customers can also use its technology to supplement their on-campus courses with an online environment. In addition, ecollege offers services to assist in the development of online programs, including online course and campus design, development, management and hosting, as well as ongoing administration, faculty and student support. ECLG is another stock in a bullish trend supported by heavy volume. Investors who believe the rally will continue can profit from that outcome with this position. OCT-20.00 EGU JD LB=2.90 OI=2 CB=19.47 DE=14 TY=5.9% ***** ISRG - Intuitive Surgical $17.75 *** Bracing For A Rally? *** Intuitive Surgical (NASDAQ:ISRG) manufactures and markets the da Vinci Surgical System, an advanced surgical system for use in performing what the company calls intuitive surgery. Intuitive surgery is a procedure similar in scope to open surgery and minimally invasive surgery. Intuitive Surgical's da Vinci Surgical System consists of a surgeon's console, a patient-side cart, a high-performance vision system and proprietary wrested instruments. The da Vinci Surgical System seamlessly translates the surgeon's natural hand movements on instrument controls at a console into corresponding micro-movements of instruments positioned inside the patient through small puncture incisions, or ports. The company also manufactures a variety of EndoWrist instruments, each of which incorporates a wrist joint for natural dexterity, with tips customized for various surgical procedures. ISRG has recovered from its post-split selling phase and is now on the verge of moving above the June high. Investors who wouldn't mind owning the issue near a cost basis of $17 can profit from future upside activity in the stock with this play. OCT-17.50 AXQ JW LB=0.70 OI=53 CB=17.05 DE=14 TY=5.7% ***** NTPA - Netopia $7.97 *** Rally Mode: Part III *** Netopia (NASDAQ:NTPA) develops, markets and supports broadband equipment, software and services that enable its carrier and broadband service provider customers to simplify and enhance the delivery of broadband services to their residential and enterprise-class customers. The company's product and service offerings enable carriers and broadband service providers to improve their profitability with feature rich routers and gateways and software that manages to the edge of the network to reduce costs, and provide value-added services to enhance revenue generation. These bundled service offerings often include DSL or broadband cable equipment bundled with back-up, bonding, virtual private networking (VPN), firewall protection, parental controls, Web content filtering, integrated voice and data and e-site and e-store hosting. Netopia has now moved to a new multi-year high on heavy volume and appears destined to climb higher. This short-term position offers traders a method to profit from the current trend with a cost basis closer to near-term technical support. OCT-7.50 NQD JU LB=0.65 OI=257 CB=7.32 DE=14 TY=5.3% ***** ***************** 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 DRIV 30.10 OCT 30.00 DQI JF 1.45 664 28.65 14 10.2% DCTM 22.89 OCT 22.50 QDC JX 1.25 2615 21.64 14 8.6% GLFD 6.39 NOV 5.00 GQF KA 1.95 0 4.44 49 7.8% MOBE 8.47 NOV 7.50 MUL KU 1.70 161 6.77 49 6.7% ASYT 15.51 OCT 15.00 QQY JC 0.90 1118 14.61 14 5.8% AGEN 13.39 OCT 12.50 QHL JV 1.20 362 12.19 14 5.5% ERES 36.70 OCT 35.00 UDB JG 2.55 748 34.15 14 5.4% IMCO 7.70 NOV 7.50 IQZ KU 0.80 365 6.90 49 5.4% FDRY 23.83 OCT 22.50 OUJ JX 1.85 1872 21.98 14 5.1% VXGN 11.51 NOV 10.00 UWG KB 2.25 1593 9.26 49 5.0% JCOM 43.16 OCT 40.00 JQF JH 3.90 2079 39.26 14 4.1% VICL 5.50 NOV 5.00 VAQ KA 0.75 115 4.75 49 3.3% ***************** NAKED PUT SECTION ***************** Options 101: Q&A On Volatility -- Part II By Ray Cummins Our recent discussion on volatility prompted one reader to submit some additional comments on the subject. Attn: Contact Support Subject: Volatility & Option Pricing Explanation Ray, I liked the stuff you talked about last week in the volatility and option pricing E-mail but I think you left a few readers in the dark when you went straight into the reply without giving definitions for some of your terms and references. That works great when the reader is experienced but many of the people in your audience are new to options and pricing theories. Look at what you said at the beginning: "The problem with using longer-term historical volatility in the calculations is that it is based on a statistical measure - which reflects standard deviation of the stock from the mean over the trading pattern of past stock prices, averaged over some period such as 20, 50 or 100 trading days." Obviously, we can all read the words but I don't know how many people really understood that sentence. You need to explain the more complex types of analysis thoroughly and make sure the main ideas are clear and simple so that the readers can understand the explanation and make better use of the information you are providing. Also, I doubt few of them really learned why a stock in a directional trend might not be a good candidate for normal volatility analysis. Want to try that explanation again? Keep up the good work! GD Hello GD, Your critique is well taken and looking back, I see now that much of that narrative would be useless to new traders without some background information. With that in mind, we'll use this week's narrative for a review of volatility and hopefully the reasons for using a more subjective type of analysis when evaluating debit straddles on directional issues will become transparent. A stock's volatility, often referred to as historical volatility, is determined by mathematical formulas that use the issue's recent price activity (closing or high and low values). One of the most common volatility calculations utilizes past closing prices for a specific stock to determine its annualized standard deviation. For example, a historical volatility of 50 means that the stock has a 68% probability (one sigma) of trading within 50% of its average targeted move within one year. In contrast, an option's volatility usually refers to its implied volatility. This is an estimate or assumption produced by an option pricing model based on factors such as relative strike price, time to expiration, intrinsic value, risk-free interest rate, and the dividend issued with ownership of the underlying stock. Pricing models use a projection of a stock's future volatility in calculating option prices. These formulas do not include an issue's directional trend or price momentum. Thus, if all other factors are the same (stock and strike price, time to expiration, and dividend issued), two different issues that have the same forecast volatility will have similar option prices. It doesn't matter whether one has remained relatively close to a specific price (a trading range) while the other has moved steadily in one direction. That's why it is so important to have a fundamental understanding of technical analysis and basic market trends when selecting an issue; because an option trader can greatly improve his or her success in situations where directional trends are not incorporated into an option's pricing. One tool that can help the decision-making process in evaluating future volatility in a trending issue is a probability calculator. Although this calculator cannot factor-in expected potential or upcoming events, it is very useful for establishing a statistical range for future prices in the underlying. I personally like the "Monte-Carlo style" calculator, which is basically a mathematical process that models an event such as a potential market character or movement. The Monte-Carlo style calculator works by repeating randomly generated instances of a particular set of circumstances to formulate a prediction as to how the whole process might behave. This unique type of simulation is appropriate when a formula can't be used, and that is often the case in real-life situations. Most calculators found in option pricing software programs only tell you the resultant probability percentages, which is the chance that the stock will exceed the target price at the end of the time period. These probabilities are insufficient, however, for an option trader that needs to make decisions during the time period prior to the option's expiration. A Monte-Carlo style calculator gives you the overall probabilities of the stock ever reaching the target price at any time during the life of the position. One of the most popular products in this category is available from option guru Larry McMillan and most traders agree that it is a useful, low cost tool for probability analysis. We'll continue our discussion on volatility next week... 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 EMIS 6.19 7.85 OCT 5.00 0.35 0.35* 6.5% 18.6% GERN 12.98 13.05 OCT 10.00 0.25 0.25* 3.7% 12.7% ADLR 15.95 18.44 OCT 12.50 0.50 0.50* 3.6% 11.8% USG 17.51 17.00 OCT 12.50 0.35 0.35* 3.1% 9.9% SEAC 14.34 13.50 OCT 12.50 0.35 0.35* 3.1% 9.0% LRCX 22.81 24.38 OCT 20.00 0.40 0.40* 3.0% 8.6% STAT 14.58 14.45 OCT 12.50 0.40 0.40* 2.9% 8.4% PDII 25.06 25.99 OCT 22.50 0.40 0.40* 2.6% 7.4% NKTR 13.83 13.50 OCT 10.00 0.25 0.25* 2.2% 7.2% ONXX 23.92 23.85 OCT 20.00 0.40 0.40* 2.2% 7.2% RIMM 37.29 41.75 OCT 32.50 0.50 0.50* 2.3% 6.8% CEPH 49.62 45.98 OCT 40.00 0.65 0.65* 1.8% 6.5% ERES 33.63 36.70 OCT 27.50 0.30 0.30* 1.6% 5.7% AMHC 41.98 44.23 OCT 35.00 0.40 0.40* 1.7% 5.7% MERQ 45.76 50.15 OCT 40.00 0.50 0.50* 1.8% 5.6% IDXC 26.02 24.40 OCT 22.50 0.35 0.35* 1.7% 5.3% INSP 19.92 22.16 OCT 17.50 0.35 0.35* 1.8% 5.2% GOLD 23.93 22.08 OCT 20.00 0.35 0.35* 1.5% 5.1% * Stock price is above the sold striking price. Comments: The recent broad rally has brought new hope to investors but the fact remains, there is much work to be done before the market can truly be called "bullish" from a long-term viewpoint. With that idea in mind, traders should continue to diligently monitor all of the issues in their portfolio and exit any positions with less than outstanding technical indications. Seachange (NASDAQ:SEAC), i-Stat (NASDAQ:STAT) and Randgold (NASDAQ:GOLD) are on the "watch" list. Previously Closed Positions: Ask Jeeves (NASDAQ:ASKJ), Thoratec (NASDAQ:THOR) and Nps Pharmaceuticals (NASDAQ:NPSP), all of which are currently profitable. 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 RMBS 18.73 OCT 15.00 BNQ VC 0.30 3292 14.70 14 4.4% 16.0% CERN 35.47 OCT 30.00 CQN VF 0.55 858 29.45 14 4.1% 12.9% MSTR 50.03 OCT 45.00 EOU VI 0.55 285 44.45 14 2.7% 7.7% NFLX 40.15 OCT 32.50 QNQ VZ 0.30 745 32.20 14 2.0% 7.5% ATMI 27.52 OCT 25.00 ASQ VE 0.30 38 24.70 14 2.6% 7.4% ERES 36.70 OCT 32.50 UDB VZ 0.35 794 32.15 14 2.4% 7.0% BRCM 28.79 OCT 25.00 RCQ VE 0.25 18537 24.75 14 2.2% 6.8% 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). ***** RMBS - Rambus $18.73 *** Litigation Speculation! *** Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip" interface solutions that enhance the performance and effectiveness of its client's chip and system products. These solutions include multiple chip-to-chip interface products, which can be grouped into two categories: memory interfaces and logic interfaces. Rambus' memory interface products provide an interface between memory chips and logic chips. In addition, the firm's logic interface products provide an interface between two logic chips. Rambus has two major memory interface products: Rambus dynamic random access memory and Yellowstone. Additionally, it offers a logic interface product for high-speed serial chip-to-chip communications between logic chips in a range of computing, networking and communications applications. RMBS shares soared in January after a favorable ruling in a patent case. A federal appeals court ruled that Rambus had not committed fraud in a dispute involving memory maker Infineon, reversing the ruling of a lower court, and the court also revived Rambus' patent infringement claim against Infineon. The bullish trend continued after a U.S. appeals court denied a request by Infineon for a full court rehearing of the case. Last week, the stock rallied again after the U.S. Supreme Court released a preliminary list of cases it will hear this session which did not include an appeal from Infineon Technologies. Investors who think the court will decide not to review the Infineon case can speculate on that outcome in a relatively conservative manner with this position. OCT-15.00 BNQ VC LB=0.30 OI=3292 CB=14.70 DE=14 TY=4.4% MY=16.0% ***** CERN - Cerner $35.47 *** Trend Reversal? *** Cerner Corporation (NASDAQ:CERN) designs, develops, markets, installs, hosts and supports software information technology and content solutions for healthcare organizations and consumers. The company's solutions give end users secure access to clinical, administrative and financial data in real-time. Consumers get the appropriate care information and educational resources via the Internet. The firm implements these solutions as stand-alone, combined or enterprise-wide systems. Cerner solutions can also be managed by the firm's clients or via an application outsourcing or hosting model. Cerner provides hosted solutions from its data center in Lee's Summit, Missouri. Shares of CERN jumped over 10% Friday with no "public" news to explain the upside activity. The volume-supported move was in opposition to the recent trend and traders who believe there is a good reason for the renewed buying pressure should consider this position. OCT-30.00 CQN VF LB=0.55 OI=858 CB=29.45 DE=14 TY=4.1% MY=12.9% ***** MSTR - MicroStrategy $50.03 *** Consolidation Complete? *** MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly critical business intelligence software market. Large and small firms alike are harnessing MicroStrategy's business intelligence software to gain vital insights from their data to help them proactively enhance cost-efficiency, productivity and customer relations and optimize revenue-generating strategies. The firm's business intelligence platform offers exceptional capabilities that provide organizations, in virtually all facets of their operations, with user-friendly solutions to their data query, reporting, and advanced analytical needs, and distributes valuable insight on this data to users via Internet, wireless, and voice. MicroStrategy was recently awarded the 2003 Software Business Industry Award for Best Product Development. The award was based on the firm's Business Intelligence Platform, which has "consistently stood out as an industry-leading solution" and is the "only platform flexible enough to suit every business need." Investors must be happy with the news as the stock is testing a 2-year high and appears poised to breach that level in the coming week. OCT-45.00 EOU VI LB=0.55 OI=285 CB=44.45 DE=14 TY=2.7% MY=7.7% ***** NFLX - Netflix $40.15 *** Solid Subscriber Growth! *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. Shares of NFLX soared last week after the online DVD renter said that quarterly subscriber growth beat forecasts, raising prospects that earnings may exceed targets. Netflix announced it ended the third quarter with 1.29 million subscribers, up 74% from the same period last year and up 13% from the previous quarter. Traders who believe the trend will continue should consider this bullish position in the issue. OCT-32.50 QNQ VZ LB=0.30 OI=745 CB=32.20 DE=14 TY=2.0% MY=7.5% ***** ATMI - Atmi Inc. $27.52 *** Chip Equipment Rally! *** Atmi Inc. (NASDAQ:ATMI) provides specialty materials and related equipment and services, to the worldwide semiconductor industry. As the Source of Semiconductor Process Efficiency, ATMI helps customers improve wafer yields and lower operating costs. The semiconductor-equipment segment lead the technology rally on Friday and ATMI was one of the issues that powered higher amid heavy trading volume. The technical indications suggest the bullish trend will continue in the near-term and traders can profit from that outcome with this position. OCT-25.00 ASQ VE LB=0.30 OI=38 CB=24.70 DE=14 TY=2.6% MY=7.4% ***** ERES - eResearch Technology $36.70 *** Uptrend Intact! *** eResearch Technology (NASDAQ:ERES) is a provider of technology and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. The company offers a range of products and services, including Diagnostics Technology and Services and Clinical Research Technology. Their Diagnostics Technology and Services include centralized diagnostic services and clinical research operations, including clinical trial and data management services. Their Clinical Research Technology and Services include the developing, marketing and support of clinical research technology and services. Last week, eResearch Technology announced that earnings and revenue in the coming year would top its previous estimates because of recent contract signings. The company said it now expects 2004 earnings of 92 cents per share to 94 cents per share, up from its previous estimate of 84 cents per share. Traders who agree with a bullish outlook for the company can profit from continued upside activity in its share value with this position. OCT-32.50 UDB VZ LB=0.35 OI=794 CB=32.15 DE=14 TY=2.4% MY=7.0% ***** BRCM - Broadcom $28.79 *** New Trading Range? *** Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated silicon solutions that enable broadband communications and the networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for all broadband communications markets. Their diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/O(TM) server solutions. BRCM shares soared to a recent high during Friday's rally and the chart pattern implies a new trading range for the popular issue. Traders with a positive outlook on the company can establish a low risk entry point in the issue with this position. OCT-25.00 RCQ VE LB=0.25 OI=18537 CB=24.75 DE=14 TY=2.2% MY=6.8% ***** ***************** 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 RETK 7.68 OCT 7.50 QRD VU 0.30 74 7.20 14 9.1% 20.4% RSAS 15.73 OCT 15.00 QSD VC 0.40 101 14.60 14 6.0% 14.6% TALX 26.65 OCT 25.00 TUB VE 0.60 74 24.40 14 5.3% 13.6% ADIC 15.54 OCT 15.00 QXG VC 0.35 82 14.65 14 5.2% 12.6% ISIL 27.21 OCT 25.00 UFH VE 0.45 2226 24.55 14 4.0% 10.7% AMHC 44.23 OCT 40.00 QMH VH 0.70 526 39.30 14 3.9% 10.7% LRCX 24.38 OCT 22.50 LMQ VX 0.40 840 22.10 14 3.9% 10.5% LEXR 20.10 OCT 17.50 EQG VW 0.25 1054 17.25 14 3.1% 9.5% NTLI 52.60 OCT 45.00 NUD VI 0.55 2411 44.45 14 2.7% 8.5% MERQ 50.15 OCT 47.50 RQB VR 0.70 3438 46.80 14 3.2% 8.4% WMAR 20.85 OCT 20.00 XWQ VD 0.30 24 19.70 14 3.3% 8.4% JNPR 16.63 OCT 15.00 JUX VC 0.20 10292 14.80 14 2.9% 8.3% RIMM 41.75 OCT 37.50 RUL VS 0.45 930 37.05 14 2.6% 7.6% INTC 29.61 OCT 27.50 INQ VY 0.25 55814 27.25 14 2.0% 5.4% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Stocks Rally On Optimistic Jobs Outlook! By Ray Cummins The major equity averages moved higher Friday after the Labor Department said that the U.S. economy added its first jobs since the beginning of 2003. The Dow Jones industrial average climbed 84 points to 9,572 with nearly all of the 30 components participating in the bullish activity. Hewlett-Packard (NYSE:HPQ), 3M Corp. (NYSE:MMM), Alcoa (NYSE:AA), and Honeywell (NYSE:HON) lead the blue-chip group. In the technology segment, the NASDAQ Composite Index rose 44 points to 1,880 with semiconductor-related stocks enjoying much of the renewed buying pressure. The broad Standard & Poor's 500 Index added 9 points to close at 1,029 with gold stocks the only dull spot in the major sectors. Breadth was bullish with advancers leading decliners by more than 2 to 1 on both the Big Board and the NASDAQ. Trading was active, with about 1.5 billion shares swapped on the New York Stock Exchange and 2 billion crossed on the technology exchange. Treasury prices tumbled after the jobs report with the 10-year note ending down 1 21/32 while its yield climbed to 4.2%. ***************** 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 AMLN 29.04 29.98 OCT 22 25 0.30 24.70 $0.30 Open MERQ 49.41 50.15 OCT 40 42 0.30 42.20 $0.30 Open BBH 137.69 132.00 OCT 120 125 0.45 124.55 $0.45 Open CELG 45.48 44.54 OCT 35 40 0.50 39.50 $0.50 Open MYL 39.00 41.93 OCT 32 35 0.20 34.80 $0.20 Open SINA 37.41 37.70 OCT 25 30 0.45 29.55 $0.45 Open COGN 33.16 32.39 OCT 27 30 0.40 29.60 $0.40 Open CTSH 40.41 39.70 OCT 30 35 0.55 34.45 $0.55 Open IMDC 76.91 75.40 OCT 60 65 0.55 64.45 $0.55 Open NEM 40.66 37.88 OCT 35 37 0.30 37.20 $0.30 Open EBAY 54.22 57.35 OCT 47 50 0.25 49.75 $0.25 Open GENZ 46.00 49.10 OCT 40 42 0.35 42.15 $0.35 Open RIMM 37.29 41.75 OCT 30 32 0.20 32.30 $0.20 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss The recent bullish activity saved our portfolio from impending doom and it appears the trend will continue in the near-term. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status CAH 56.36 58.04 OCT 65 60 0.65 60.65 $0.65 Open PFE 30.51 30.78 OCT 35 33 0.25 32.75 $0.25 Open XL 76.05 79.12 OCT 85 80 0.60 80.60 $0.60 Open APC 42.70 42.00 OCT 48 45 0.35 45.35 $0.35 Open CI 47.15 45.96 OCT 55 50 0.50 50.50 $0.50 Open FRX 48.93 48.48 OCT 60 55 0.50 55.50 $0.50 Open BVF 36.75 31.10 OCT 45 40 0.50 40.50 $0.50 Open CERN 31.42 35.47 OCT 40 35 0.60 35.60 $0.13 Closed GPRO 25.85 27.08 OCT 32 30 0.25 30.25 $0.25 Open IMCL 37.73 39.64 OCT 50 45 0.40 45.40 $0.40 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss This week's recovery rally was not favorable for bearish traders but most of the positions in this portfolio are holding up well considering the upside activity. Cerner (NASDAQ:CERN) was one of the victims of the recent "buying-spree" and the spread has been closed to limit potential losses. XL Capital (NYSE:XL) is on the "watch" list for the coming week. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status HTCH 33.02 34.17 OCT 25 30 4.50 29.50 0.50 Open AVII 5.54 5.23 DEC 5 7 0.90 5.90 (0.67) Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss America Pharma Partners (NASDAQ:APPX) and Novellus (NASDAQ:NVLS), which is currently profitable, have previously been closed to limit losses. Avi Biopharma (NASDAQ:AVII) is a speculative play based on potential news-driven activity later in 2003, thus it will remain open until a major change in (technical) character occurs. PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status LMT 48.70 45.70 OCT 55 50 4.60 50.40 0.40 Open CCMP 55.83 57.82 OCT 65 60 4.35 60.65 0.65 Open Lockheed Martin (NYSE:LMT) did not offer the target debit in the bearish position, however the available spread price was viable for conservative traders with a bearish outlook on the issue. Cabot Micro (NASDAQ:CCMP) may become an "early-exit" candidate if the recent rally in semiconductor-related stocks continues. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status XING 9.13 9.06 DEC 12 7 0.10 0.30 Open Gene Logic (NASDAQ:GLGC) traded at a recent high Friday, however that bullish play, along with positions in Andrx (NASDAQ:ADRX) and CV Therapeutics (NASDAQ:CVTX), have previously been closed to limit losses. SYNTHETIC (BEARISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Put Call Credit Value Status NTE 24.61 28.57 OCT 20P 30C 0.10 0.00 Open? The "Reader's Request" position in Nam Tai Electronics (NYSE:NTE) has been very volatile and traders who are in the bearish play should monitor the underlying issue closely for potential upside activity. CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status PRU 36.41 37.63 DEC-37C OCT-37C 0.30 0.60 Open MSFT 27.31 29.08 JAN-27C OCT-30C 2.20 2.40 Open Ing Groep (NYSE:ING) and The Medicines Company (NASDAQ:MDCO) both offered profitable opportunities prior to be closed. Prudential (NYSE:PRU) and Microsoft (NASDAQ:MSFT) are performing well with regard to the recent volatility. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status CLS 17.55 16.98 OCT 17 17 2.35 3.10 Open NVDA 18.17 16.78 OCT 17 17 2.90 3.50 Open AFCI 22.66 23.63 OCT 22 22 3.10 3.00 Open TRI 30.50 32.03 NOV 30 30 4.90 5.00 Open EASI 59.70 62.01 NOV 60 60 8.50 9.00 Open YHOO 37.24 39.24 OCT 37 37 3.75 3.90 Open ZMH 55.52 56.69 DEC 55 55 5.20 5.00 Open Celestica (NYSE:CLS), Nvidia (NASDAQ:NVDA), Engineered Support Systems (NASDAQ:EASI), and Yahoo! (NASDAQ:YHOO) have achieved small profits. Advanced Fibre Communications (NASDAQ:FIBR) has been a very active issue, but has yet to achieve a profit on a simultaneous order basis. The very successful position in Sony (NYSE:SNE) has previously been closed to "lock-in" gains. CREDIT STRANGLES **************** Stock Pick Last Exp. Short Short Initial Current Play Symbol Price Price Month Call Put Credit Debit Status MANH 27.68 28.60 Oct 30 25 1.40 1.40 Open Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS ************* This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance, and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** ADTN - Adtran $72.64 *** New Multi-Year High! *** Adtran designs, develops, manufactures, markets and services a broad range of high-speed network access products utilized by providers of telecommunications services and corporate end users to implement advanced digital data services over both public and private networks. The company's business is arranged with two divisions, the Carrier Networks Division (CN) and the Enterprise Networks Division (EN), to enable it to quickly respond to the needs of the two important market segments that its products address. These two market segments are CN products for use in the service provider's Local Loop, including central office, remote terminal and customer premises, and EN products for use at enterprise headquarters, remote offices and telecommuting locations. Adtran offers more than 500 products built around a set of core technologies, and developed to address high-speed digital communications over the last mile of the Local Loop. ADTN - Adtran $72.64 PLAY (less conservative - bullish/credit spread): BUY PUT OCT-60.00 RQA-VL OI=1871 ASK=$0.50 SELL PUT OCT-65.00 RQA-VM OI=783 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$64.45 ***** MRVL - Marvell Technology $40.61 *** Consolidation Complete? *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. MRVL - Marvell Technology $40.61 PLAY (less conservative - bullish/credit spread): BUY PUT OCT-35.00 UVM-VG OI=4165 ASK=$0.15 SELL PUT OCT-37.50 UVM-VU OI=1452 BID=$0.35 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$37.25 ***** SNDK - SanDisk $71.18 *** Next Leg Up? *** SanDisk (NASDAQ:SNDK) designs, manufactures and markets flash memory storage products that are used in a wide variety of electronic systems and devices. SanDisk's products are compatible with a number of consumer electronics applications including digital cameras, PDAs, portable digital music players, digital video recorders and mobile telephones, as well as in industrial and communications applications, such as communications routers and switches and wireless communications base stations. The company's products include removable CompactFlash (CF) cards, SD cards, miniSD cards, xD-Picture cards, SmartMedia cards, FlashDisk cards, MultiMediaCards (MMC), Memory Stick and Memory Stick Pro version, CompactFlash and SD card Wi-Fi access and storage cards, Cruzer, Cruzer Mini Universal Serial Bus flash drives, plus-embedded flash chipsets and NAND flash components ranging in storage capacities ranging from 16 megabytes to four gigabytes. SNDK - SanDisk $71.18 PLAY (less conservative - bullish/credit spread): BUY PUT OCT-60.00 SWQ-VL OI=5335 ASK=$0.45 SELL PUT OCT-65.00 SWQ-VM OI=2378 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$64.45 ***** SMH - Semiconductor Holdrs Trust $36.92 *** Hot Sector! *** The Semiconductor Holdrs Trust (AMEX:SMH) is a unique instrument that represents an investor's ownership in the stock of specified companies in the semiconductor 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 SMH - Semiconductor Holders Trust $36.92 PLAY (less conservative - bullish/credit spread): BUY PUT OCT-32.50 SMH-VZ OI=59835 ASK=$0.15 SELL PUT OCT-35.00 SMH-VG OI=46783 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$34.70 ***** DNA - Genetech $79.82 *** The Consolidation Continues! *** Genentech (NYSE:DNA) is a biotechnology firm using human genetic information to discover, develop, manufacture and commercialize biotherapeutics for significant unmet medical needs. The company manufactures and commercializes 10 biotechnology products directly in the United States. These include Herceptin, Rituxan, TNKase, Activase, Cathflo Activase, Nutropin Depot, Nutropin AQ, Nutropin human growth hormone, Protropin and Pulmozyme. The company also licenses several additional products to other companies and its product development efforts, including those of its collaborative partners, cover a wide range of medical conditions, including cancer, respiratory disorders, cardiovascular diseases, endocrine disorders and inflammatory and immune problems. DNA - Genetech $79.82 PLAY (less conservative - bearish/credit spread): BUY CALL OCT-90.00 DNA-JR OI=4387 ASK=$0.15 SELL CALL OCT-85.00 DNA-JQ OI=13465 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$85.55 ***** FFH - Fairfax Financial $157.95 *** In A Trading Range? *** Fairfax Financial Holdings Limited (NYSE:FFH) is a financial services holding company which, through its subsidiaries, is engaged in property, casualty and life insurance/reinsurance, investment management and insurance claims management. The company's corporate objective is to achieve a high rate of return on invested capital and build long-term shareholder value. The firm has subsidiaries in both the United States and Canada. Canadian insurance subsdiaries include Commonwealth Insurance, Federated Insurance, Lombard Insurance, Markel Insurance and CRC (Bermuda) Reinsurance. Insurance subsidiaries based in the United States include Crum & Forster, Fairmont Insurance, Old Lyme Insurance and Falcon Insurance. FFH - Fairfax Financial $157.95 PLAY (conservative - bearish/credit spread): BUY CALL OCT-175.00 FFH-JO OI=8 ASK=$0.85 SELL CALL OCT-170.00 FFH-JN OI=11 BID=$1.25 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$170.40 ***** IMCL - ImClone $39.64 *** Premium-Selling Only! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. IMCL - ImClone $39.64 PLAY (conservative - bearish/credit spread): BUY CALL OCT-50.00 QCI-JJ OI=5742 ASK=$0.25 SELL CALL OCT-45.00 QCI-JI OI=8741 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.40-$0.55 POTENTIAL PROFIT(max)=8% B/E=$45.40 ************* 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. ***** DELL - Dell Inc. $34.91 *** Break-Out Coming? *** Dell (NASDAQ:DELL), formerly known as Dell Computer Corporation, designs, develops, manufactures, markets, services and supports a range of computer systems, including enterprise systems (servers, storage and networking products and workstations), notebook PC systems, desktop computer systems and software and peripherals. The company also offers a portfolio of services that help maximize information technology (IT), rapidly deploy systems and educate IT professionals and consumers. In addition, Dell offers a variety of financing alternatives, asset management services, and customer financial services for its business and consumer customers in the United States through Dell Financial Services, a joint venture between Dell and CIT Group. The company is generally managed on a geographic basis: the Americas, Europe and Asia Pacific-Japan. DELL - Dell Inc. $34.91 PLAY (conservative - bullish/debit spread): BUY CALL OCT-30.00 DLQ-JF OI=3065 ASK=$4.70 SELL CALL OCT-32.50 DLQ-JZ OI=7983 BID=$2.45 INITIAL NET-DEBIT TARGET=$2.20-$2.25 POTENTIAL PROFIT(max)=11% B/E=$32.25 ******************* 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. ***** JNPR - Juniper Networks $16.63 *** Optimistic Outlook! *** Juniper Networks (NASDAQ:JNPR) transforms the entire business of networking by converting a commodity: bandwidth, into a dependable, secure, and highly valuable corporate asset. Founded in 1996 to meet the stringent demands of service providers, Juniper Networks is now relied upon by the world's leading network operators, such as government agencies, research and education institutions, and information-intensive enterprises as the foundation for stable, uncompromising networks. JNPR - Juniper Networks $16.63 PLAY (speculative - bullish/synthetic position): BUY CALL NOV-19.00 JUX-KT OI=163 ASK=$0.55 SELL PUT NOV-14.00 JUX-WP OI=8293 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.00-$0.05 INITIAL TARGET PROFIT=$0.45-$0.60 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $450 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($14.00). ***** LRCX - Lam Research $24.38 *** Chip-Equipment Specialist! *** Lam Research Corporation (NASDAQ:LRCX) designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. The company's products are currently used in the front-end of the wafer processing manufacturing cycle: etch, CMP, and post-CMP clean. Lam's unique family of etch systems incorporates plasma technologies designed to meet both current and future needs. The company offers both 200-milimeter and 300-milimeter Teres CMP integrated polishing and cleaning systems with Linear Planarization Technology (LPT), which uses a high-speed belt instead of the rotating table used in conventional polishers. The company also provides the Synergy Integra, which incorporates advanced cleaning technology with a platform that integrates polisher and cleaner. LRCX - Lam Research $24.38 PLAY (speculative - bullish/synthetic position): BUY CALL DEC-30.00 LMQ-LF OI=226 ASK=$0.60 SELL PUT DEC-20.00 LMQ-XD OI=485 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.20-$0.25 INITIAL TARGET PROFIT=$0.65-$0.90 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $600 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($20.00). *********************** STRADDLES AND STRANGLES *********************** Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. ***** COF - Capital One Financial $59.70 *** Probability Play! *** Capital One Financial (NYSE:COF) is a holding company whose major subsidiaries market a variety of financial products and services to consumers using its proprietary information-based strategy. The company's primary business is consumer lending, with a focus on credit cards, but including other consumer lending activities such as unsecured installment lending and automobile financing. The company's principal subsidiary, Capital One Bank, a limited purpose, state-chartered credit card bank, offers credit card products. Capital One, F.S.B., a federally chartered bank, offers consumer lending and deposit products. Capital One Services, the other major subsidiary, provides various operating, administrative and business services to the company and its subsidiaries. COF - Capital One $59.70 PLAY (very speculative - neutral/debit straddle): BUY CALL OCT-60.00 COF-JL OI=7301 ASK=$1.35 BUY PUT OCT-60.00 COF-VL OI=1811 ASK=$1.60 INITIAL NET-DEBIT TARGET=$2.90-$2.95 INITIAL TARGET PROFIT=$1.00-$1.45 ***** TTWO - Take-Two Interactive $39.18 *** An Active Issue! *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated global developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the PC, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Interactive $39.18 PLAY (very speculative - neutral/debit straddle): BUY CALL OCT-40.00 TUO-JH OI=414 ASK=$0.95 BUY PUT OCT-40.00 TUO-VH OI=95 ASK=$1.70 INITIAL NET-DEBIT TARGET=$2.50-$2.60 INITIAL TARGET PROFIT=$0.80-$1.25 ***** ------------------------------------------------------------ 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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