The Option Investor Newsletter Wednesday 10-08-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: A Little Overdue Futures Wrap: Distribution or Consolidation Index Trader Wrap: Take a peek and see what's there Traders Corner: Real Importance Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 10-08-2003 High Low Volume Advance/Decline DJIA 9630.90 - 23.71 9672.02 9595.28 1.51 bln 1213/1582 NASDAQ 1893.78 - 14.07 1914.33 1888.53 1.78 bln 1257/1839 S&P 100 516.54 - 3.10 520.02 515.03 Totals 2470/3421 S&P 500 1033.78 - 5.47 1040.06 1030.96 RUS 2000 515.68 - 5.09 521.05 514.56 DJ TRANS 2791.62 - 8.76 2803.04 2782.62 VIX 19.18 - 0.23 19.61 19.08 VXN 29.16 - 0.14 29.46 28.94 Total Volume 3,606M Total UpVol 1,503M Total DnVol 2,058M 52wk Highs 752 52wk Lows 18 TRIN 1.34 PUT/CALL 0.81 ******************************************************************* A Little Overdue by James Brown U.S. markets closed in the red for the first time this October ending a five-day winning streak for the bulls. The general mood on Wall Street was nonchalant since stocks were over due for some profit taking. The NASDAQ composite managed to tag a fresh 52- week high near the opening bell before slipping back and the Dow Industrials traded in a narrow 80-point range all day. Contributing to the market's weakness was a one-two punch for telecom stocks but overall the session was a patchwork of individual news. Overseas markets were mixed. The British FTSE dropped less than four points while the German DAX added almost 40. Hong Kong's Hang Seng index inched down 3 points but the Japanese NIKKEI index posted its first loss in six days and it was a big one. The NIKKEI dropped 278 points or 2.57% to 10,542 as the dollar continued to weaken against the yen. We keep hearing about the new "line in the sand" where the Bank of Japan is going to defend the yen. First it was 111, then it was 110. The U.S. dollar slipped to 109.58 against the yen, just barely above its three- year low at 109.38. Some currency traders are expecting the BoJ to intervene soon despite the G7's statement two weeks about arguing against currency manipulations. A stronger yen makes Japanese exports more expensive overseas and impacts corporate profits. The dollar also happens to be trading near all-time lows against the euro. Fortunately, the profit taking here at home was much more mild. The DJIA only lost 23 points closing at 9630. The NASDAQ Composite fell 14 points to 1893 and the S&P 500 dropped just over 5 points to close at 1033. Market internals were negative. Declining stocks outnumbered advancing issues almost 16 to 12 on the NYSE and 18 to 12 on the NASDAQ. Down volume outpaced up volume on both exchanges but overall volume remained modest. Chart of the DJIA: Chart of the NASDAQ: Telecom Weakness U.S. telecom companies Verizon Communications (VZ), SBC communications (SBC) and BellSouth Corp (BLS) joined wireless companies AT&T Wireless (AWE), Nextel Communications (NXTL) and Sprint PCS Group (PCS) in contributing to the S&P 500 weakness. Local-telephone companies lost ground after the FTC won an appeals court decision in the national "do not call" list debate. The national "do not call" list has ballooned to more than 51 million consumers and the vast majority of telemarketers would be barred from calling consumers on the list. The appeals court win late Tuesday means the FTC can begin to enforce the list immediately. This could certainly put a dent in telephone traffic for the larger networks. Meanwhile, wireless companies now have to deal with the new FCC rule effective Nov. 24th that will allow customers to keep their mobile phone numbers when they change carriers. If wireless service wasn't a commodity business already it just took a big step that direction today as everything begins to boil down to price. This is going to increase customer turnover, which raises expenses for these wireless companies. Software Stronger Swimming up stream today was the GSO software index. It marked a fresh 52-week high on positive news from SAP. Shares of SAP soared 14 percent to $38.55 after the German-based software developer pre-announced stronger than expected earnings. The company is expected to report on October 16th but SAP told Wall Street that Q3 sales should come in around $1.95 billion(US), stronger than the consensus estimates of $1.8 billion. SAP said it was enjoying a stronger contract closure rate in the U.S. This news also boosted rival software developer Oracle (ORCL). News Worthy Making headlines today was news that General Electric (GE) had finally reached an agreement with Vivendi (V) to merge GE's NBC unit with V's Universal Entertainment division. GE will fork out $3.8 billion to own 80 percent of the joint venture creating a combination movie studio-television network giant. The new GE division will be named NBC Universal. Investors are also watching GE because the behemoth announces earnings on Friday and estimates are for 40 cents a share. Unfortunately, not all the earnings news was good today. Big Lots (BLI) doesn't announce earnings until next month but the stock was hit for a 7 percent loss on negative guidance. The latest guidance put BLI's Q3 numbers in the -3 cents to +1 cent per share range. This morning's press release said comparable store sales were actually up more than 5 percent but earnings would be near the low end of forecasts due to an unexpected slow down in higher-margin items. Another retailer feeling the heat was Winn-Dixie Stores (WIN). The company reported earnings that beat estimates by a penny but shares lost almost six percent. WIN reported a 96% drop in profits for its fiscal Q1 for 2004 blaming increased promotional costs. Also falling flat were shares of Papa John's Intl. Inc (PZZA), which lost 7.6% after warning that earnings would be much worse than expected. The news actually came out late yesterday. PZZA said comparable same store sales dropped 6.7% in September. The company is expected to report at the end of October and estimates had been for $2.19 a share. Now PZZA expects earnings to fall between $1.75 and $1.65 a share. YHOO Beats! Thankfully, earnings news from BLI, WIN and PZZA just don't carry a lot of weight and the markets will likely over look them as company-specific potholes. But high-flyers of yesteryear like Yahoo! Inc (YHOO) capture the imagination of bulls and bears alike. The company reported earnings after the bell this evening and the numbers were good. YHOO turned in its eighth profitable quarter and beat estimates by a penny with 10 cents a share. More importantly, revenues were up strongly from $249 million last year to $356 million in the third quarter, passing estimates of $337.8 million. The stock was trading up in the after hours session and is likely to fuel positive moves for fellow Internet stocks Amazon.com (AMZN) and Ebay (EBAY). Tomorrow Assuming there aren't any pre-market earnings implosions then the YHOO news could certainly power a surge in the tech sector. Fortunately, the bond market is holding steady after today's $16 billion auction of 5-year notes and we'll see another $9 billion sold in 10-year notes tomorrow. In the last two days we've heard from three Federal Reserve speakers and the message has been a positive one. Now if we can get another good weekly jobless claims report and some stronger same store sales data tomorrow morning then bulls might continue their October stampede. ************ FUTURES WRAP ************ Distribution or Consolidation Jonathan Levinson Equity bulls were treated to higher highs and higher lows on a light pullback today. Bonds gained slightly, gold declined slightly, and the US Dollar Index set new lows. 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. 15 minute chart of the US Dollar Index The US Dollar Index got sold to a new low last night, touching 91.50 before beginning a feeble rebound that weakened as the session wore on. The 92 level was never touched, with the USD Index spending most of the day below 91.80. Despite the dollar weakness, Dec gold and silver both traded most of the session in the red, while the CRB dropped .73 to close at 243.40 with strength in lean hogs, cotton and live cattle futures, as well as platimum, which printed a 23 year high intraday. Daily chart of December gold December gold managed a loss for the day, dropping to an intraday low of 375.10 but still well above its spike low below 365 during Friday’s one-hour mystery selloff. The downphase on the oscillators remains intact, and today qualified as a sideways move for gold, although it did set a higher high (379) and higher low over yesterday’s levels. Despite the weakness in gold and silver, the indices of mining stocks, the HUI and XAU, both had bullish days, with HUI adding 1.14 and XAU .68 to finish at 197.87 and 91.38 respectively. Daily chart of the ten year note yield The US treasury completed an auction of 16B worth of 5-year notes at a yield of 3.139%. The auction generated a solid bid-to-cover ratio of 2.25, and five year notes finished in the green, with the FVX –1.8 bps at 3.095%. The TNX closed lower by 0.2 basis points at 4.242% after trading positive by over 9 bps earlier in the session. The Fed replaced yesterday’s expiring 4.5B overnight repo with an overnight repo of 4.75B for a net addition of 250M, a relatively small amount. As with gold, today was a throwaway, with the TNX running the clock at yesterday’s levels. The oscillator uptrend remains intact, and until the US Dollar Index strengthens considerably, the outlook will continue to be bleak for US treasury bonds. Daily NQ candles Today was a bullish day for the NQ despite its negative close, insofar as it printed a higher high and higher low. If the current action at the 52 week highs is a distribution top, I would venture that the sellers are indeed professionals of the highest calibre, as volume continues to churn out just below the year highs. An equally compelling argument can be made, however, for today’s trading being a consolidation of substantial recent gains, a much-needed pullback after 5 consecutive positive sessions. Volume roughly matched that of yesterday, with 1.81B Nasdaq shares and 1.24B NYSE shares changing hands. The opening spike brought the NQ back above its daily lower wedge trendline, but the high above 1400 could not hold for longer than a few minutes. It continues to look like a failed attempt to regain the broken wedge, but with the daily oscillators back on buy signals, the bulls continue to have this timeframe on their side. It will take a solid selloff to reverse these oscillators, and given the hesitant, uncertain feel to today’s selling, it’s not looking bad for the bulls here. 30 minute 20 day chart of the NQ As noted last night, the bears needed a solid downphase on the 30 minute chart oscillators with good price traction. They got the downphase, but price could not get near yesterday’s low, and there was not nearly enough traction to gain significant ground from the bulls. The 61.8% Fibonacci line at 1366 appears as critical support here, above which lies bull territory, below which is the airball zone. However, given the mid-afternoon bounce and the beginnings of a 30 minute oscillator upphase, it appears that the short term bias is to the upside. That said, the bulloney bullhorn expanding wedge was broken and not regained today. Any immediate downside reversal would start the oscillators on this timeframe trending in oversold. As always, the oscillators are trend followers. Until either the rally highs or the broken trendline (both in the 1400 area) are taken to the upside, bulls have to deal with a difficult risk/reward balance so close to major resistance. If I sound ambivalent here, it’s because I am. The weakness in the US Dollar Index continues to be blissfully ignored as we approach earnings season. My gut feeling is that this is a huge distribution top being printed, cleaning out the bears before it mauls the bulls. Unfortunately, the charts I follow look bullish in the short term, and despite the weekly downphases underway, those buy signals on the daily chart oscillators are worrisome. I continue to wonder if the Fed, by printing an endless sea of dollars, has not effectively dip-proofed the market. My instincts continues to say “sell”, but the arguments are growing tired as price remains endlessly elevated. Daily ES candles The ES printed an equivalent return to the scene of the crime, spiking as high as 1039.75 but never touching the 1040 level at which were no doubt parked a legion of stops. The net 1.75 point drop on the day (0.17%) was negligible, and the bounce from 1029 set that confluence area as a higher low and significant support. The oscillator upphases are in full swing, with the Macd hesitating only the slightest bit. Obviously, bulls need 1040 fall, bears 1029. Until that range is broken, there will be maximum potential for short term traders to get whipped around unpredictably in this 11 point range, but then, at least we know where to place our outside stops. 20 day 30 minute chart of the ES We have the same bulloney bullhorn break on the ES, with today’s bounce coming just ahead of 1028 fib support. A break above 1036 will set the bulls up for their shot at the highs, and, never one to scrimp on drama, the market closed at 1035.50. As with the NQ, the 30 minute chart oscillators are at the early beginning of an upphase, and with the daily oscillators also on buy signals, bears do not want to be short on a break of 1040. Daily YM candles Same story on the YM. 20 day 30 minute chart of the YM It appears that today was consolidation day, with slight pauses/reversals in the larger trends we’ve been following. Equities dipped, treasuries gained, gold dipped and the US Dollar Index sunk, but only slightly for a change. The move in gold continues to confuse me, mostly because of the distortion caused by what I believe to be an entirely aberrant selloff on Friday. When it was Ben Bernanke and his clique of central bankers or commercials adding to their shorts, we can only guess, but in any event, the chart and short term price trends have been mauled for the time being. For tomorrow, we’ll continue to watch these trends and particularly equities for signs of either a breakout or a breakdown. Hopefully, resolution will come quickly. See you at the bell! ******************** INDEX TRADER SUMMARY ******************** Take a peek and see what's there If it were October 31 and Halloween, I'd have thought the major indices had dressed up like a groundhog named Punxsutawney Phil, stuck its head above yesterday's highs to see what was there, and went back in a shallow hole the remainder of the session to wait out some earnings reports and tomorrow morning's release of weekly jobless claims and September import/export price data. The tradition of Groundhog Day dates back to 1887 and was originated in Europe. The first official trek to Gobbler's Knob in 1887 had Punxsutawney Phil seeing his shadow, crawling back in his hole, and predicting six more weeks of bad weather. Only a twisted mind like mine could come up with such an analogy, but a 2.5% decline from Japan's Nikke-225 on concerns for the weakening dollar having a negative trade from the land of the rising sun, weighing on the major indices here in the U.S. That's right. The major indices popped their head above just above breakeven, perhaps saw a shadow of weakness out of Japan, and decided to wait things out in today's trade. An upside earnings report from Dow component Alcoa (NYSE:AA) $28.67 +1.70% after yesterday's closing bell did see the stock jump to a session high of $29.21, but short of its 52-week set on September 15, as top line revenues of $5.32 billion were slightly below consensus of $5.55 billion. While AA said it saw increasing demand for aluminum products, there's still some wonderment when top line growth shows more than a 3.1% year-to- year increase. In today's after-hours trade, shares of Yahoo! Inc. (NASDAQ:YHOO) $38.79 -0.35% sees after-hours trade at $39.50 after the global Internet company reported Q3 (September) earnings of $0.10 per share, which was a penny better than Wall Street's estimates. Revenues grew 43.4% year-over-year to $356.8 million, which was above estimates for $337.2 million. Looking forward to Q4, YHOO said it sees revenues between $462-$502 million, which includes an anticipated $105 million contribution from its recent Overture acquisition. Consensus estimates for Q4, which do not included Overture's contribution are at $371.95 million, and by my calculation would have YHOO's comparable to consensus guidance being between $357-$397 million and a range that is inline with consensus. Today's trade saw the CBOE Internet Index (INX.X) 165.50 -0.24% slipped 0.41 points in today's trade, while the Internet HOLDRs (AMEX:HHH) $46.50 +0.49% edged up 23 cents to close at a new 52- week high. In extended hours, the HHH gained an additional 37 cents to $46.87. The U.S. Dollar Index (dx00y) 91.63 -0.28% continued to show dollar weakness in today's session with December euro futures (eu03z) 1.1781 +0.24% and December yen futures (jy03z) 0.9141 +0.21% both gaining ground against the dollar. Treasuries finished mixed in today's session after the Treasury auctioned off $16 billion in new 5-year notes that brought a yield of 3.139% and drew a bid to cover ratio of 2.25, which was slightly stronger than the 2.2 average of the previous four sales. Comments from the auction had Drew Matus, senior financial economist at Lehman Brothers saying, " This was a pretty good auction. A five-year at 3.14% is not such a bad deal when you look out at the inflation forecasts and the fact that the Fed seems willing to leave rates alone." Federal Reserve Governor Susan Bies seemed to echo Matus' comments when saying she did not see a large risk of inflation pick-up any time soon. The 5-year YIELD ($FVX.X) finished down 1.8 basis points to 3.095%, while the benchmark 10-year YIELD ($TNX.X) edged down a fractional 0.2 basis points at 4.242%. The longest dated 30-year YIELD ($TYX.X) rose 2 basis points to 5.167%. Pivot Matrix There was little action or range in today's trade, and while the BIX.X did lead in the WEEKLY pivot with a kiss of its WEEKLY R1, buyers in the group (bulls or jittery bears) didn't feel an urge to get a breakout to new highs going in today's trade. Tomorrow, an upside trigger would be present at DAILY R1 (highlighted in PINK) which could then set the stage for a sector leading rally to the BIX's MONTHLY R2 as this would be the last level in the matrix where I would look for resistance. I've also highlighted the QQQ's DAILY S1 at $34.15 as a level where we would see some correlation with its WEEKLY 38.2% retracement, but with MONTHLY R1 at $34.07 and Tuesday's "suspicious" low at $34.01, I'd still hold a shorter-term bullish bias above $34.00. All I'm trying to do with the BIX.X and perhaps the DAILY S1's is observe a rather tight collar on the major indices at this point, after a rather impressive run the past several days, where our Stochastics on the daily interval charts are at "overbought" levels, but where MACD's still present the observation that bullish momentum exists. S&P Banks Index (BIX.X) Chart - Daily Interval I think I lost some subscribers with the comment that the BIX.X was showing strength in its Pivot Matrix, relative to the major indices. When we look at the SPX chart, the BIX.X looks similar in that it too is challenging 52-week highs, but its is the FIRST to test its WEEKLY R1 this week, and it was the FIRST to test and move through WEEKLY levels last week, which may have hinted of further bullishness for the major indices. If the BIX.X can make the move to knew highs, this SECTOR has good upside potential to its WEEKLY R2 of 323.41 in my opinion, and the more "ramping higher" MACD gives the look that there's still some upside momentum to be had. I did get an upside alert on Washington Mutual (NYSE:WM) $40.33 +0.95% today, where $40.00 had been resistance the past two months. While WM is NOT a component of the BIX.X, it is a component of the more super-regional and multi-nation KBW Banks Index (BKX.X) 915.53 -0.4%. What I take away from WM is one of two things. Either some shorts are giving up on WM as a bearish play as mortgage rates have eased back lower in recent weeks, or some "value" bulls got a little more aggressive with the stock today, as it has lagged the move higher in the broader banking sector. One clue we might take away from this is that the MARKET might have some type of confidence to buy a lagging or weaker bank, on thoughts that there is some good news coming soon. I can think of no other reasons for the stock finally breaking above the $40.00 level. In the above chart, I make an "eyeball approach" to thinking that WM trades at a BIX.X equivalent, with the benchmarking observation back to WM's 52-week high set on June 17, when the BIX.X was trading around 315.00. S&P 500 Index (SPX.X) Chart - Daily Interval I've place some BIX.X levels on the SPX.X chart, which is my mindset as to how the banks should impact the SPX. I'm going to remain positive/bullish here after our weaker Washington Mutual (WM) showed some strength from the bottom, but I still think it would benefit the SPX if the banks bust the vault open and sprint to new highs. Economic data due out before the opening bell have economists forecasting weekly jobless claims at 394,000, compared to prior week's 399,000. I don't see any economists' forecast for September Import/Export prices. In August, import prices (excluding oil) fell 0.2%, while export prices (excluding agriculture) were flat at 0.0%. Today's trade saw the broader S&P 500 Bullish % ($BPSPX) see a net gain of 5 stocks to point and figure buy signals as the bullish % edges up 1% to 79.4%. Still bull confirmed. The narrower S&P 100 Bullish % ($BPOEX) saw no net change and status remains "bull correction" status at 78%. NASDAQ-100 Tracking Stock (QQQ) Chart - Daily Interval QQQ tried to take a peek at its 52-week highs set on 09/18 and 09/19 of $34.86. Unfortunately for QQQ bulls, German software maker SAP Aktiengesell (NYSE:SAP) $38.55 +14% doesn't have 4- letters in its stock symbol and isn't a component of the QQQ. MACD has been above Signal for 2-days now and QQQ shows some intra-day new highs as a result. I would think it wise to snug a bullish stop at $33.97. This would be juuuust enough under MONTHLY R1 and yesterday's lows, where even slight clearing out of bullish stops at $33.99 might still keep a bull in the stock, but where $33.97 may be the loss of near-term momentum that has the QQQ slipping back to fill its recent gap higher back lower again. Today's trade saw no net change in the narrower NASDAQ-100 Bullish % ($BPNDX) and status remains "bear confirmed" at 74%. Dow Industrials Chart - 50-point box With the Dow having traded in a tight range today, I wanted to take a moment tonight to look at the Dow's PnF chart with WEEKLY and MONTHLY levels overlaid. From last night's bar chart, we can perhaps see how the MONTHLY 19.1% retracement is matching the recent highs of 9,650 on the PnF chart, and how this WEEK's S1 and MONTHLY Pivot give the only "zone of support" that would tie in with the INDU's PnF chart, which eventually had the Dow giving a spread-triple-top buy signal at 9,400, where the 9,350 area looks to be more of a zone of support right now. The MONTHLY levels will be with us for another 3-weeks, while the WEEKLY's will change. But lets look at the Nikkei-225, and see how the INDU and NIkkei or oscillating back and forth, where the Dow tries to lead and the Nikkei tries to follow, with the yen/dollar being a common demonator, that the MARKETs seem to be trying to sort out. Nikkei-225 ($NIKK) Chart - 50-point box The $NIKK got drilled lower after giving a double-bottom sell signal at 10,850 and fell to 10,150 before a recent reversal back higher to 10,900, and has reversed back lower, very close to where the double bottom sell signal was given. I've marked a column of X, which came during Japan's "tankan" survey, which had Japan-based companies saying they held a positive outlook on the economy, as long as the yen didn't strengthen too much against the dollar. During that time, it was also disclosed that the Bank of Japan has been intervening in the currency markets and selling yen and buying dollar to try and stem the yen's rise against the dollar. However, in recent sessions, the yen continues to show strength against the dollar, and this now has me putting some emphasis on the Nikkei-225 needing to find support above 10,100, or we might be alert for weakness in the Nikkei-225 below that level to have U.S. markets softening. A break below Nikkei-225 gets as much attention as did the break above 10,000 in the Nikkei-225 as it relates to investor optimism in Asia. As I conclude tonight's wrap, the Nikkei-225 is open for trading and currently trades higher by 16 points at 10,558.51. So far, its high/low has been 10,561-10,485, so a PnF chartist would chart an additional "O" to the above chart. Today's trade in the Dow Industrials saw no change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull correction" status at 83.33%. Jeff Bailey ------------------------------------------------------------ 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 ------------------------------------------------------------ ************** TRADERS CORNER ************** Real Importance by Mark Phillips mphillips@OptionInvestor.com As I get closer and closer to the arrival of my first child, I have found it more and more difficult to focus on the daily action in the market. Between all the last minute tasks to get ready for the blessed event, the myriad doctor's appointments (both expected and unexpected) and all of the special attention the mom-to-be now requires, focus has been fleeting at best. I'm running further behind in my reading, responding to email and I'd be mortified to think anyone could see my office! I think we're typical of mid-30's first time parents, obsessed with trying to do everything right and frequently losing sight of what a good job our parents did several decades ago with so much less. I wouldn't say that the "obsessive" approach of many others like us is right or wrong. It is what it is. Just as there is no canned strategy that will work for traders, either in terms of the overall trading approach or in the way the business plan is laid out, I don't think there is any one cut-and-dried approach to becoming a parent. You do the best you can up front and then make adjustments as necessary. The key point is to always make sure that any changes made are well thought out and take us in the direction of being better traders (or parents) and not in the other direction. Where am I going with this? Sadly for those of you that have been with me awhile, this will not be new terrain, as I'm going to revisit some material from the past. And it will have nothing to do with the latest technical analysis indicator. You see, as I've moved closer to being a parent, and I've found myself losing focus, I've had the good fortune to have a couple readers suggest to me that I go back and re-read my own articles on "distractions". Thanks guys! I can't tell you how useful it has been to keep my priorities in balance and looking at what is important. The key point in a nutshell is that it is absolute foolishness to even consider trading when you can't give it your undivided attention. That goes for position trades intended to last for weeks and intraday trades intended to last for 90 minutes. So this week, as I get set to be completely out of the loop for a few days, I want to suggest you take a look at the following articles written back in July of 2002. I think it is a good reminder for all of us about keeping the important things attended to, which does an excellent job of greasing the wheels in the rest of our lives. Here's the first article from last July. Options, Priorities and Balance http://members.OptionInvestor.com/options101/opt_070302_1.asp Remember how happy and smooth life is when your spouse is happy? As one of my best friends has told me for many years, "A happy wife is a happy life!" Additionally, I think it is imperative for anyone (especially me!) to be very careful to not actively trade when there is any sort of life transition in progress. It doesn't matter if it is marital changes, a new job, new additions to the family or something less pleasant like a death or serious illness in the family. When life is disrupted, it can have a very tangible impact on our ability to trade profitably. Hopefully this second article will be useful to those of you that are going through transitions of your own. Odds and Ends http://members.OptionInvestor.com/options101/opt_071002_1.asp As you may infer from my commentary and focus today, I've been in the process of pulling back from my day-to-day trading over the past week and have now reached the point where I will only be watching as an interested spectator for the next couple weeks. I firmly believe that in using this approach, I will derive maximum enjoyment from the process of helping my wife to bring our first son into the world, without feeling like I "should" be doing something else. At the same time, when I get ready to re-enter my day-to-day trading activities, I won't feel like I'm cheating my family, because I will know that I gave them my full and undivided attention when it was appropriate. I hope my personal reflections help you to maintain the proper balance in your trading lives as well. Mark P.S. For all those that have asked, the arrival date is now known. The "coming out party" has now been scheduled for Wednesday, October 15th. If you're wondering how I know so precisely, let's just say the 'little' tyke is going to need a bit of help entering the world. I'm 6'5" and 220 pounds and my wife is a whopping 5'2" in heels. With the baby already pushing 10 pounds, the doctor doesn't want to risk a normal delivery. I'll be engaged in my normal writing duties through next Tuesday and then I'll disappear from the usual lineup, reappearing again on Monday, October 20th. ------------------------------------------------------------ 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 ------------------------------------------------------------ ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. 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The Option Investor Newsletter Wednesday 10-08-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: None Dropped Calls: None Dropped Puts: None Play of the Day: Call - UTX Spreads, Combinations & Premium-Selling Plays: "Entry Point" or "Time to Sell"? Watch List: No Weakness Here Updated on the site tonight: Market Posture: And on the Sixth Day, She rested ------------------------------------------------------------ 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 ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ------------------------------------------------------------ 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 ------------------------------------------------------------ ********************** PLAY OF THE DAY - CALL ********************** United Technologies - UTX - cls: 82.00 chg: +0.23 stop: 77.50 -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) - Most Recent Update (Tuesday, Oct 7, 2003)- Shares of UTX, a Dow component, have not quite been enjoying the same success the index has. The stock has spent the last two sessions consolidating some of its recent gains. We're encouraged that it seems to have found new support near the $81 mark and traders can use future bounces from $81 as an entry point. There has not been any stock-moving news to report but the general fervor regarding Q3 earnings should keep things positive. Traders need to keep in mind that there are only six trading days left before UTX's Q3 earnings announcement and we will probably close the play before they report. - Play of the Day Comments - The positive earnings announcements after the close is likely to have the markets back in the green tomorrow. We're selecting UTX as our play-of-the-day for Thursday in an effort to capture in rally in the $INDU. Shares of UTX have been consolidating sideways after their breakout above the $80 level and with just a week before the company's earnings report we might see a pre- announcement ramp up. - 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= 518 at $7.50 SL=5.00 BUY CALL OCT 80 UTX-JP OI=2503 at $2.90 SL=1.55 BUY CALL OCT 85 UTX-JQ OI=1231 at $0.45 SL= -- very risky BUY CALL NOV 75 UTX-KO OI=2144 at $8.00 SL=5.50 BUY CALL NOV 80 UTX-KP OI=1604 at $4.00 SL=2.00 BUY CALL NOV 85 UTX-KQ OI= 589 at $1.45 SL=0.75 Annotated Chart of UTX: Picked on October 2 at $80.45 Change since picked: + 1.55 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 1.9 million Chart = ------------------------------------------------------------ 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 ------------------------------------------------------------ ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* "Entry Point" or "Time to Sell"? By Ray Cummins Stocks retreated today for the first time in October as concerns over share valuations and the falling dollar weighed heavily on investors. Despite Alcoa's (NYSE:AA) better than expected earnings report and a strong September for McDonald's (NYSE:MCD), the Dow Jones Industrials Average fell 23 points to 9,630. The NASDAQ slid 14 points to 1,893 amid profit-taking in semiconductor, networking, and computer hardware shares. The S&P 500 gave back 5 points to finish at 1,033 as losses in drug and biotechnology issues led the broader market lower. Declining issues outpaced advancers by roughly 3 to 2 on both the NYSE and the NASDAQ. Trading was average with 1.2 billion shares changing hands on the Big Board and 1.8 billion shares crossed on the technology exchange. The bond market was mostly unchanged in the face of heavy new debt issuances. The yield on the benchmark 10-year Treasury stayed close to its three-week high of 4.24%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 10/07/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield CELL OCT 25 24.40 37.82 $0.60 8.23% 2.46% CEPH OCT 40 39.15 47.43 $0.85 6.73% 2.17% CVTX OCT 20 19.70 21.30 $0.30 4.92% 1.52% DIGE OCT 35 34.60 44.00 $0.40 4.06% 1.16% LLTC OCT 35 34.30 39.70 $0.70 5.35% 2.04% NFLX OCT 27 27.15 44.05 $0.35 4.44% 1.29% RIMM OCT 27 26.90 43.95 $0.60 6.95% 2.23% AMHC OCT 35 34.50 40.68 $0.50 6.10% 1.45% ELAB OCT 35 34.50 39.40 $0.50 5.51% 1.45% FLML OCT 30 29.60 37.99 $0.40 5.85% 1.35% MATK OCT 50 49.30 53.97 $0.70 5.03% 1.42% NFLX OCT 32 31.90 44.05 $0.60 7.09% 1.88% RIMM OCT 27 27.20 43.95 $0.30 5.00% 1.10% RIMM OCT 30 29.35 43.95 $0.65 8.18% 2.21% VIP OCT 55 54.40 68.80 $0.60 3.99% 1.10% AMHC OCT 35 34.75 40.68 $0.25 4.49% 0.72% ERES OCT 30 29.70 38.50 $0.30 5.35% 1.01% HELE OCT 22 22.00 23.77 $0.50 10.65% 2.27% JCOM OCT 32 32.15 44.29 $0.35 6.05% 1.09% MSTR OCT 40 39.40 49.65 $0.60 7.80% 1.52% NFLX OCT 27 27.15 44.05 $0.35 8.16% 1.29% RIMM OCT 32 32.25 43.95 $0.25 4.26% 0.78% USG OCT 15 14.75 17.68 $0.25 9.14% 1.69% YHOO OCT 32 32.15 38.93 $0.35 5.37% 1.09% As noted last week, a number of issues were candidates for early exit during the recent sell-off. Among the positions closed were: American Pharmaceutical Partners (NASDAQ:APPX), Hollis Eden Pharmaceuticals (NASDAQ:HEPH), Verint Systems (NASDAQ:VRNT), and United Online (NASDAQ:UNTD). Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield APC OCT 45 45.34 43.02 $0.45 3.14% 0.99% TRMS OCT 40 40.40 28.24 $0.40 5.74% 0.99% BRCM OCT 30 30.50 30.85 ($0.35) 0.00% 1.64% * IMCL OCT 50 50.45 40.39 $0.45 6.53% 0.89% PCLN OCT 35 35.50 32.43 $0.50 8.64% 1.41% ZRAN OCT 25 25.35 19.64 $0.35 9.44% 1.38% CVTX OCT 27 27.70 21.30 $0.20 7.35% 0.72% IMCL OCT 45 45.45 40.39 $0.45 8.97% 0.99% SINA OCT 45 45.40 40.71 $0.40 9.07% 0.88% Broadcom (NASDAQ:BRCM) has rallied with the semiconductor group and conservative traders should consider closing the bearish position to limit potential losses. The "watch" list candidate this week is Sina (NASDAQ:SINA). Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status ANF 30.49 30.22 OCT 25 27 0.30 27.20 $0.30 Open CFC 75.19 84.37 OCT 65 70 0.50 69.50 $0.50 Open MO 44.65 45.14 OCT 40 42 0.30 42.20 $0.30 Open OHP 38.60 41.93 OCT 32 35 0.25 34.75 $0.25 Open AMZN 49.61 54.91 OCT 42 45 0.35 44.65 $0.35 Open AZO 94.51 93.65 OCT 85 90 0.65 89.35 $0.65 Open NE 33.98 35.10 OCT 30 32 0.25 32.25 $0.25 Open HOV 69.16 73.81 OCT 60 65 0.55 64.45 $0.55 Open KBH 64.20 64.71 OCT 60 55 0.45 54.55 $0.45 Open RJR 40.32 41.37 OCT 35 37 0.10 37.40 $0.10 No Play There was no viable credit available for the bullish position in R.J. Reynolds (NYSE:RJR). Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status FRX 49.56 47.50 OCT 60 55 0.60 55.60 $0.60 Open KO 43.01 44.66 OCT 47 45 0.30 45.30 $0.30 Open MEDI 37.03 33.32 OCT 42 40 0.25 40.25 $0.25 Open LXK 65.14 66.72 OCT 75 70 0.55 70.55 $0.55 Open NOC 86.00 86.29 OCT 95 90 0.50 90.50 $0.50 Open WTW 43.15 40.37 OCT 50 45 0.40 45.40 $0.40 Open DNA 79.72 79.50 OCT 90 85 0.50 85.50 $0.50 Open SNPS 30.71 28.07 OCT 35 32 0.15 32.65 $0.15 No Play XLNX 27.99 30.54 OCT 32 30 0.25 30.25 ($0.29) Open? There was no viable credit available for the bearish position in Synopsys (NASDAQ:SNPS). Xylinx (NASDAQ:XLNX) has rallied with the semiconductor group and conservative traders should consider closing the bearish position to limit potential losses. Synthetic Positions ******************* No Open Positions Debit Straddles *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status ABC 60.00 55.45 NOV 60 60 7.25 8.00 Open? Amerisourcebergen (NYSE:ABC) achieved profitability soon after it was offered and last week, the bearish portion (NOV-$60 Put) of the position paid for the entire cost of the straddle. Traders should consider "legging-out" of the straddle to lock-in gains or preserve capital. Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** AMHC - American Healthways $42.50 *** Near All-Time Highs! *** American Healthways (NASDAQ:AMHC) is the nation's leading and largest provider of specialized, comprehensive care enhancement services to hospitals, physicians and health plans. In addition, American Healthways is the only company in its industry whose programs are designed to meaningfully address the needs of 100% of its customer populations. The clinical excellence of the firm's programs have been reviewed and approved by Johns Hopkins, and their quality has been recognized by the National Committee on Quality Assurance, the Joint Commission on Accreditation of Health Care Organizations, and the American Accreditation Health Care Commission, making American Healthways the first and only care enhancement provider in the nation to be accredited or certified by all three organizations. American Healthways contracts to provide disease and care management programs to health plans with members in all 50 states, the District of Columbia and Puerto Rico. The company also operates diabetes management programs in hospitals nationwide. AMHC - American Healthways $42.50 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 35 QMH VG 419 0.30 34.70 9.3% 0.9% * SELL PUT OCT 40 QMH VH 605 1.15 38.85 22.4% 3.0% ************** AMZN - Amazon.com $55.70 *** New Multi-Year High! *** Amazon.com (NASDAQ:AMZN) is a website where customers can find and discover anything they may want to buy online. The company lists millions of items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, PC software, computer and video games, tools and hardware, outdoor living items, kitchen and house-wares products, toys, baby and baby registry, travel services and magazine subscriptions. At its Amazon Marketplace, Auctions and zShops services, businesses and individuals can sell virtually any product to millions of customers, and with Amazon.com Payments, sellers are able to accept credit card transactions in addition to other methods of payment. The company operates a U.S.-based Website: amazon.com, and four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. AMZN - Amazon.com $55.70 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 50 ZQN VJ 17,417 0.30 49.70 5.4% 0.6% * SELL PUT OCT 55 ZQN VK 8,329 1.40 53.60 18.5% 2.6% ************** BRCM - Broadcom $30.24 *** 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 - Broadcom $30.24 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 27.5 RCQ VY 15,145 0.25 27.25 7.9% 0.9% * SELL PUT OCT 30 RCQ VF 4,331 1.00 29.00 23.7% 3.4% ************** DRIV - Digital River $32.83 *** Next Leg Up? *** Digital River (NASDAQ:DRIV) is a provider of electronic commerce outsourcing solutions. As an application service provider, the company enables its clients to access its proprietary electronic commerce system over the Internet. The company's technology plat- form allows it to provide a suite of electronic commerce services, including Web commerce development and hosting, transaction processing, fraud screening, digital delivery, integration to physical fulfillment and customer service. Digital River also provides analytical marketing and merchandising services to assist clients in increasing Web page view traffic to, and sales through, their Web commerce systems. DRIV - Digital River $32.83 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 30 DQI VF 340 0.35 29.65 10.0% 1.2% SELL PUT NOV 25 DQI WE 107 0.50 24.50 4.8% 2.0% * ************** EBAY - eBay Inc. $58.47 *** New "All-Time" High! *** eBay (NASDAQ:EBAY) is a Web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and other miscellaneous items. The eBay trading platform is an automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. Through its wholly owned and partially owned subsidiaries and affiliates, the Company operated online trading platforms directed towards the United States, Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland and also the United Kingdom. EBAY - eBay Inc. $58.47 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 55 QXB VK 16,960 0.40 54.60 6.0% 0.7% * SELL PUT OCT 57.5 QXB VT 12,629 1.05 56.45 13.6% 1.9% ************** ERES - eResearch Technology $39.49 *** Rally Mode! *** 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. ERES - eResearch Technology $39.49 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 37.5 UDB VU 36 0.65 36.85 13.7% 1.8% SELL PUT NOV 30 UDB WF 97 0.50 29.50 4.0% 1.7% TS SELL PUT NOV 32.5 UDB WZ 75 1.00 31.50 6.9% 3.2% * ************** NFLX - Netflix $43.00 *** Solid Subscriber Outlook! *** 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. NFLX - Netflix $43.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 37.5 QNQ VU 567 0.35 37.15 8.8% 0.9% * SELL PUT OCT 40 QNQ VH 1,487 0.80 39.20 16.2% 2.0% ************** RMBS - Rambus $26.77 *** Infineon Who? *** 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 - Rambus $26.77 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 22.5 BNQ VX 2,034 0.30 22.20 13.5% 1.4% * SELL PUT OCT 25 BNQ VE 3,375 0.95 24.05 29.2% 4.0% ************** NCEN - New Century Financial $31.45 *** Testing Recent Highs! *** New Century Financial Corporation (NASDAQ:NCEN) is one of the nation's largest specialty mortgage companies, providing first and second mortgage products to borrowers nationwide through its operating subsidiaries. It offers mortgage products to borrowers who generally do not satisfy the credit, documentation or other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. New Century is committed to serving the communities in which it operates with fair and responsible lending practices. NCEN - New Century Financial $31.45 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 30 URE VF 656 0.60 29.40 15.6% 2.0% SELL PUT OCT 26.6 NWR WW 648 0.65 25.98 5.2% 2.5% * ************** NTAP - Network Appliance $24.29 *** Entry Point? *** Network Appliance (NASDAQ:NTAP) is a provider of enterprise network storage and data management solutions. NetApp network storage solutions and service offerings provide data-intensive enterprises with consolidated storage, improved data center operations, economical business continuance and efficient remote data access. The company's solutions meet the needs of archive, reference, departmental/remote office, business internal and business operations, and business-critical data with a common product architecture and data management methodology. NTAP - Network Appliance $24.29 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT OCT 22.5 NUL VX 3,714 0.20 22.30 7.5% 0.9% SELL PUT NOV 20 NUL WD 630 0.50 19.50 5.7% 2.6% * SELL PUT NOV 22.5 NUL WX 171 1.15 21.35 8.6% 5.4% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** CUM - Cummins $50.77 *** A Great Name -- If Nothing Else! *** Cummins (NYSE:CUM), a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and power generation systems. Headquartered in Columbus, Indiana, Cummins serves its customers through more than 500 company-owned and independent distributor locations in over 130 countries and territories, and employs nearly 24,000 people worldwide. CUM - Cummins $50.77 PLAY (conservative - bullish/credit spread): BUY PUT NOV-42.50 CUM-WV OI=0 ASK=$0.55 SELL PUT NOV-45.00 CUM-WI OI=13 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$44.70 ************** JCOM - j2 Global Communications $46.70 *** Another New High! *** j2 Global Communications (NASDAQ:JCOM) provides outsourced value added messaging and communications services to individuals and businesses throughout the world. The company offers faxing and voicemail solutions, Web initiated conference calling, document management solutions and unified messaging services. j2 Global markets its services principally under the brand names eFax and jConnect. The company delivers its services through its global telephony/Internet protocol network, which spans more than 600 cities in 18 countries across five continents, including four capital cities in Latin America where j2 Global is in the process of launching its unique service. JCOM - j2 Global Communications $46.70 PLAY (conservative - bullish/credit spread): BUY PUT NOV-30.00 JQF-WF OI=131 ASK=$0.35 SELL PUT NOV-35.00 JQF-WG OI=241 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$34.45 ************** NTES - NetEase.com $67.85 *** Hot Sector! *** NetEase.com (NASDAQ:NTES) is a China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. The NetEase Web sites, operated by a company affiliate, organize and provide access to 18 content channels through distribution arrangements with more than one hundred international and domestic content providers. In addition, the NetEase Internet sites offer a variety of products and services, including Instant Messaging (Popo), Dating, Love, Alumni and Personal Home Page. These products and services enable users to communicate about interests and areas of expertise. At the end of March 2003, the number of registered users of NetEase Web sites reached 114 million with the average number of daily page views over 370 million. NTES - NetEase.com $67.85 PLAY (less conservative - bullish/credit spread): BUY PUT OCT-55.00 NQG-VK OI=3510 ASK=$0.35 SELL PUT OCT-60.00 NQG-VL OI=2648 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.40-$0.45 POTENTIAL PROFIT(max)=8% B/E=$59.60 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** GPRO - Gen-Probe $23.25 *** Post-Split Slump? *** Gen-Probe (NASDAQ:GPRO) is a leader in the development, manufacture and marketing of rapid, accurate and cost-effective nucleic acid testing products used for the clinical diagnosis of human diseases and for screening donated human blood. Using its patented NAT technology, Gen-Probe has received FDA approvals or clearances for over 60 products that detect a variety of infectious microorganisms, including those causing sexually transmitted diseases, tuberculosis, strep throat, pneumonia and fungal infections. Additionally, the company developed and manufactures the only FDA-approved blood screening assay for the simultaneous detection of HIV-1 and HCV, which is marketed by Chiron Corporation. Gen-Probe and Bayer Corporation have formed a collaboration to develop, manufacture and market nucleic acid diagnostic tests for certain viral organisms, and under the agreement Bayer has the right to distribute these tests. Gen-Probe has 20 years of nucleic acid detection research and product development experience, and its products are used daily in clinical laboratories and blood collection centers throughout the world. GPRO - Gen-Probe $23.25 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 27.5 PSU JY 671 0.25 27.75 14.0% 0.9% * SELL CALL OCT 25 PSU JE 360 0.40 25.40 15.0% 1.6% ************** IMDC - Inamed $70.87 *** Premium-Selling Only! *** Inamed (NASDAQ:IMDC) is a global medical device company that develops, manufactures and markets a diverse line of products that enhance the quality of people's lives. The company has three principal product lines: breast aesthetics, consisting primarily of breast implants and tissue expanders sold largely for use in plastic and reconstructive surgery; facial aesthetics, consisting primarily of collagen and other dermal fillers sold largely to dermatologists and plastic surgeons, and obesity intervention, consisting of products for use in treating severe and morbid obesity. The company also offers collagen products for use by medical manufacturers. IMDC - Inamed $70.87 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 80 UZI JP 362 0.50 80.50 7.7% 0.6% * SELL CALL OCT 75 UZI JO 327 1.65 76.65 19.4% 2.2% ************** UNTD - United Online $30.12 *** A Big "Down" Day! *** United Online (NASDAQ:UNTD) is an Internet service provider offering consumers free and value-priced Internet access and e-mail. Its Internet access services are offered through its NetZero and Juno subsidiaries under their brands, and are available in more than 5,000 cities across the United States and Canada. In addition, the company offers marketers numerous online advertising products, as well as online market research and measurement services. As of June 30, 2002, the company had approximately 1.7 million subscribers to its pay Internet access services and approximately 4.8 million active users, including pay users. Active users include all pay users and those free users that have logged onto its services during the preceding 31-day period. UNTD - United Online $30.12 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 35 QAB JG 1,287 0.35 35.35 14.2% 1.0% * SELL CALL OCT 30 QAB JF 196 1.85 31.85 40.1% 5.8% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** MEDI - MedImmune $33.09 *** Downtrend Intact! *** MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of unique products on the market and a diverse product pipeline. The firm is focused on using advances in immunology and other biological sciences to develop new products that address significantly unmet medical needs in areas of infectious disease, immune regulation and cancer. MedImmune actively markets four products, Synagis, Ethyol and CytoGam and FluMist. MedImmune co-markets the FluMist vaccine with Wyeth and the company plans an initial product run of 4 to 5 million doses of FluMist for the 2003-2004 flu season. MEDI - MedImmune $33.09 PLAY (conservative - bearish/credit spread): BUY CALL NOV-40.00 MEQ-KH OI=3382 ASK=$0.40 SELL CALL NOV-37.50 MEQ-KU OI=449 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$37.80 ************** WLP - WellPoint Health Networks $78.72 *** Trading Range? *** WellPoint Health Networks (NYSE:WLP) serves the health care needs of over 13 million medical members and over 49 million specialty members nationwide through Blue Cross of California, Blue Cross Blue Shield of Georgia, Blue Cross Blue Shield of Missouri, HealthLink and UNICARE. WellPoint offers a broad spectrum of quality network-based health products, including open access PPO, POS and hybrid products, HMO and specialty products. Specialty products include pharmacy benefit management, dental, medical management, vision, behavioral health, life/disability insurance, long term care insurance, flexible spending accounts, COBRA administration and Medicare supplements. WLP - WellPoint Health Networks $78.72 PLAY (conservative - bearish/credit spread): BUY CALL NOV-90.00 WLP-KR OI=3 ASK=$0.35 SELL CALL NOV-85.00 WLP-KQ OI=137 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$85.60 ************** SEE DISCLAIMER - SECTION 1 ********** Watch List ********** No Weakness Here Barr Labs Inc - BRL - close: 70.71 change: +0.31 WHAT TO WATCH: We mentioned BRL in the MarketMonitor this morning and the stock was able to buck the overall weakness in both the drug sector and the biotech sector. Shares are slowly climbing higher after finding support at their simple 50-dma. While stochastics, RSI and momentum are all positive and its MACD is about to turn positive BRL could still see another small dip back to the $70 mark. That could be an entry point for a run up towards the old highs near $75. Chart= --- Corinthian Colleges - COCO - close: 57.83 change: -1.16 WHAT TO WATCH: We also mentioned COCO in the MarketMonitor today. The rising channel from its March lows has been very faithful. Twice the stock has bounced from its simple 50-dma and shares are approaching that technical level again. Traders who have faith in the trend can use a bounce from the 50-dma as an entry point. The previous two bounces resulted in $5-$6 moves. Use a tight stop. Earnings are near the end of the month. Chart= --- Gilead Sciences - GILD - close: 59.44 change: +0.96 WHAT TO WATCH: Shares of GILD continue their bounce off support in its Point-and-Figure chart and the stock out performed the biotech index and the broader indices today. Bear Stearns upgraded GILD to an "out perform" this morning but GILD is still fighting with resistance at the $60 level. Should the stock breakout higher watch for trouble at its simple 50-dma. Earnings are at the end of the month. Chart= --- Harman Intl - HAR - close: 107.60 change: -0.42 WHAT TO WATCH: Shares of HAR just continue to climb, although they were down fractionally today. The stock does have an upcoming 2-for-1 stock split and that could be keeping the momentum going. Traders might want to watch for a dip back to the $105 level if interested in bullish positions, although a bounce from $102.50 would be even more tempting. Chart= ---------------------------------- RADAR SCREEN: more stocks to watch ---------------------------------- MTB $91.51 +0.32 - Bucking the overall weakness today in the markets, shares of MTB hit a new all-time high just under the $92 mark. Earnings are on Friday so could be one to watch for some volatility. RE $79.81 +1.13 - Another stock ignoring the market weakness today is insurer RE. The stock has broken out to new highs and is just under round-number resistance at $80. Earnings should be near the 20th this month. NDN $29.44 -3.96 - Ouch! Shares of 99-cent Only Stores were hammered today. Yesterday the company pre-announced stronger revenues for its third quarter but two brokers downgraded the stock today, one citing concerns over lower margins and higher operating costs. The drop today was on very big volume and broke support at $30 and its simple 200-dma. ************** MARKET POSTURE ************** And on the Sixth Day, She rested To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/mp_100803.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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