The Option Investor Newsletter Sunday 10-12-2003 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: Gee, GE! Futures Market: Dollar Woes Index Trader Wrap: The Teflon Market Editor's Plays: Betting on the Goal Market Sentiment: Earnings Upon Us Ask the Analyst: Asian markets 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 10-10 WE 10-03 WE 9-26 WE 9-19 DOW 9674.68 +102.37 9572.31 +259.23 9313.08 -331.74 +173.27 Nasdaq 1915.31 + 34.74 1880.57 + 88.50 1792.07 -113.63 + 50.67 S&P-100 518.05 + 2.88 515.17 + 15.56 499.61 - 21.01 + 8.32 S&P-500 1038.06 + 8.21 1029.85 + 33.00 996.85 - 39.45 + 17.67 W5000 10085.32 + 95.02 9990.30 +343.82 9646.48 -407.59 +176.76 RUT 519.06 + 6.78 512.28 + 27.00 485.28 - 34.92 + 11.14 TRAN 2823.55 + 38.70 2784.85 +121.02 2663.83 -130.88 + 59.11 VIX 18.45 - 1.05 19.50 - 2.73 22.23 + 3.16 - 1.18 VXN 27.62 - 1.58 29.20 - 1.68 30.88 + 1.14 - 2.94 TRIN 1.24 0.60 1.42 1.35 Put/Call 0.93 0.75 0.98 0.68 ****************************************************************** Gee, GE! by Jim Brown You know the bulls are in control when the biggest manufacturing company in America warns that they will miss earnings and the market ignores it. You know the bulls are in control when Intel Chairman Andy Grove warns that the U.S. is in danger of losing its technology lead due to outsourcing 500,000 high tech jobs over the last two years and the market ignores it. It was not a banner day for investor sentiment but the bulls held the line once again. The market traded in a very tight range with a solid underlying bid all day and came very close to finishing in the green despite the bad news. The economic reports were not exciting with the PPI rising +0.3% when the consensus was flat. The majority of the increase was due to gains in food and energy and after subtracting those items the core rate was unchanged. The finished goods component rose +1.2% with the strongest jump in fresh vegetables and meat. With Canadian beef now outlawed in the U.S. until the mad cow scare passes the price of red meat has rocketed. In the broader scope of things the inflation rate has remained very low at a +2.0% rate for the year. There was nothing in this report for the Fed to worry about. The International Trade deficit slowed during August as imports fell faster than exports. The headline number came in at -$39.2 billion compared to consensus estimates of -$41.5 billion. The drop in both imports and exports surprised analysts who worried that global demand may be slipping without a U.S. bounce to hold them up. France and Germany both contracted in July with Germany dropping -2.9% and France -0.9%. Mexico remains weak and Brazil is mired in a recession. The only pockets of strength were the Asian economies. Those terribly unexciting economic reports failed to distract traders from the GE and INTC warnings. However after seeing the minor market impact it appears traders were more interested in leaving early for the long holiday weekend. GE spoiled the bullish party by warning that they were not going to hit their previous 4Q estimates of 46-49 cents and would be looking at 45-47 cents instead. GE announced earnings for Q3 inline with consensus estimates at 40 cents but revenue only rose +3% from the same period last year. It was not a great quarter but GE put on a strong face and went shopping to improve future results. GE said higher costs and a challenging environment caused several of their units to lose ground. They lowered the outlook for the plastics division due to weak demand. The shopping trip picked up a bargain in London with the $9.5 billion acquisition of Amersham PLC, a British medical diagnostic company. This fits in well with their current product line and Jeffery Immelt said we know how to do medical systems right. The strategy of announcing a key acquisition along with the disappointing earnings had the desired effect. The stock only lost -81 cents for the day. Andy Grove, the Intel Chairman, warned that America was losing its lead as the technology super power. Grove warned that outsourcing jobs to India was growing at such a rapid rate that 500,000 high tech jobs had left the U.S. in just the last two years. Grove warned that India could take the technology lead from the U.S. by 2010. He pointed out that labor costs in India are only 1/6th the cost of the same worker in America. With jobs leaving at such a rapid rate the high paid American worker will find it tougher to find another job that will provide him the same high standard of living. Grove warned that this was dangerous to the future of America. He suggested that the U.S. technology sector could go the way of the steel sector which enjoyed a 90% global market share until the technology became available overseas where cheaper labor eventually knocked the U.S. back to only a 10% share. The sector has never recovered from the blow. Grove warned than the same move currently underway in information technology would be a serious problem if allowed to continue. He also pointed to the recent drop in the chip market from 90% American made to massive amounts being produced in Asian markets at a fraction of the cost. He said that 1 in 10 American information technology jobs would be eliminated next year by outsourcing overseas and millions more by the end of the decade. (Gartner Group survey) He emphasized his point by noting that the U.S. economy is slowly recovering but the tech job market is not. This dire warning fell on deaf ears and after a brief bout of selling the dip was bought. Other than the GE results, which were not really bad, the earnings parade has been stellar. However we have only seen the lead horses so far. Next week the pace will pick up substantially and as long as the news remains the same traders should be pleased. JNPR was the first major tech to report and they helped increase recovery hopes when they said their book-to-bill was greater than 1.0 for the qtr. Next week will see a lot of various companies report and the techs will have a tough test ahead of them. Word on the street has several banks ready to announce less than stellar earnings as well. The bond implosion has caused massive earnings losses at some major institutions or so the rumor goes. The size of the losses are said to be enormous. Rumor or fact remains to be seen but the BKX is not making any progress as earnings dates get closer. Janus is still bleeding cash according to the people that track these things. $4.4 billion was withdrawn in September from Janus funds after they admitted finding several hedge fund trading schemes. Several funds have pledged to make investors whole for any damages by the fraudulent trading practices and the authorities are expanding their probes to new fund families almost daily. Get used to the cheap gas because it may not last. I paid $1.45 for unleaded on Friday in Denver but with oil trading over $32 a barrel on Friday those prices are not going to last long. There are multiple reasons for these hikes and you have heard them before. The bottom line is the coming drag on the recovery when energy prices begin rising again. There is no drag on the markets with the risk to the bears instead of the bulls. Every dip is continuing to be bought and the minor profit taking expected for Friday was so minor it was almost nonexistent. The NASD warned on Friday that the tech dips were being bought on credit with margin money and that margin credit was reaching dangerous levels. According to the NASD there was $26 billion in margin debt on Nasdaq stocks in July which is the most current month reported. To put this in perspective there was only $21 billion in Nasdaq margin debt in March 2000 at the top of the market. Stocks bought on margin are considered held by weak hands as a sudden drop in the market can cause a wave of forced liquidation that further accelerates the drop. With Yahoo's market cap equal to General Motors there is concern that bubble mania has returned. Volume in low priced stocks has surged to more than the NYSE or Nasdaq. Volume in bulletin board stocks surged to 41 billion last month compared to 117 billion for all of 2000. This represents extreme speculation and an increase in market risk. Volume on Friday barely broke 3 billion shares across all markets. It was 25% below Thursday's levels and there was speculation that the Thursday volume was option expiration related as traders rolled out positions before the holiday weekend. Monday is Columbus Day and while the bond market is closed the equity markets will be open. If you thought Friday's volume was low wait until Monday. It is also an expiration week but they have been remarkably uneventful recently. At least uneventful from an expiration viewpoint. Earnings will be heating up substantially as well as new economic reports. Monday and Tuesday we get a pass on economics with no material reports. Wednesday we get the Fed Beige Book and NY Empire State Index. Thursday has CPI, Jobless Claims, Business Inventories, Industrial Production, Capacity Utilization and the Philly Fed Survey. Friday has Housing Starts, Building Permits and Michigan Sentiment. This sets up Thursday as a key day for the week. There are over 400 companies that announce earnings from Monday thru Thursday. Many of them are key blue chips and key tech stocks. We have key economic reports on Thursday and options expire on Friday. This could be a volatile day. With Monday a quasi holiday there will be a lot of money changing hands in only three days of trading. One train of thought has the Dow hitting 10,000 by Thursday on hopes of better than expected earnings from the big guys. That same trader talk has the Dow recoiling from a touch of 10,000 with some serious profit taking and portfolio reshuffling before the mutual fund year end two weeks later. That is only one scenario being discussed but almost everyone is having trouble coming up with a catalyst to push the Dow any higher than 10K near term. I am not going to rehash the gains for the year or the earnings expectations. They are both at extreme levels. Bullish sentiment as measured by Investors Intelligence is hovering at 60% and bearish sentiment is rising at 22.5%. The Dow Bullish Percent chart below shows the BP at 83.33. This is an extreme reading but as you can see it has been over 80 for five consecutive months. The only conclusion we can draw here is that there is no weakness in sight. Dow Bullish Percent Nasdaq Bullish Percent Since the bulls are refusing to slow the stampede we should decide what the upside potential is from here. The Dow has reached a level where it is facing about six months of congestion in the 9800-10000 range from 2002. On a more detailed view you can see strong resistance at 9800, 9900 and again at 10,000. Each of these levels will require stronger and stronger commitment by the bulls. The S&P is where the real battle will be fought. There is strong resistance at 1050 and again at 1068, which is the 38% retracement level from the all time high to the bear market lows. These are the two levels that will serve as resistance between now and Thursday. Once over 1068 the next major hurdle is the 50% retracement at 1161 and the five month high of 1170 from 2002. This could/should be extremely tough resistance whenever we get there. S&P Weekly Chart The Nasdaq has been unstoppable and it is also approaching an area of tough resistance between 1950 and 2050. This level was the top for several months in 2001/2002. Nasdaq Weekly Chart What does this mean to us? At the risk of alienating some readers I have to stress caution once again. I can easily buy the theory that the Dow will make a run toward 10000, Nasdaq 2000, SPX 1068 but once there I have a hard time believing that we will have enough momentum left to break out of that resistance. We cannot go a day without several noted analysts claiming +5% to +7% GDP growth for the 3Q/4Q. Dallas Fed President McTeer said on Friday that growth was likely to be 5% for both quarters with zero inflation. You heard it straight from the top. Unfortunately we have been hearing it daily for weeks. To not believe it is already priced into the market would be in error. This brings us back to the facts. The bulls have a wall of worry to climb and they have been doing an excellent job. The only question is whether they can make it through this earnings week without being tripped up. If they do make it through this week then they are staring at the Mutual fund year end two weeks later. Nobody knows if funds will try to lock in profits or risk it all with a dice roll on the 4Q. That leaves us with a huge wall of worry right in front of strong resistance. These same obstacles existed last week and the bulls tacked on +400 points. Let's sprinkle a few earnings misses over the next four days and see if they can add +300 more. When we are sitting at 9700 and only 300 points from Dow 10K the goal is clearly in sight. Friday was a day of rest and low volume on Monday should restrain any action. That makes Tuesday launch day if they are going to have a chance to hit that goal. The critical earnings on Tuesday are INTC, MOT, MER, NVLS, TER, JNJ and BAC. Positive results from these early reporters could go a long way towards keeping the rally alive. Should the Dow actually hit 10,000 this week the bulls could consider it the finish line and take a well deserved rest. I suggest we do the same. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Dollar Woes Jonathan Levinson The clearest trend continued to be weakness in the US Dollar Index, which despite Thursday night's bounce attempt closed on Friday near multiyear lows. Equities, treasuries, gold and the CRB all advanced. 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 made an optimistic bounce on Thursday night, reaching as high as the 92.40 level before sellers returned, drilling it back to its lows at 91.20. Gold, silver and the CRB all jumped in US Dollars, as did euro and CDN dollar futures. The US Dollar Index completed its seventh consecutive week of declines, setting a new bear market low below the previous low of 91.88 posted in June of this year. The CRB gained 1.43 to close at 246.30, led by strength in heating oil, natural gas, crude oil and soybean futures. Daily chart of December gold December gold had a positive week overall and a positive day on Friday, closing just below its high of the day at 374.30 on a gain of 4.20. Following last week's precipitous, unexplained 22 point selloff in one hour, gold made decent gains, retracing better than half the drop. The daily chart oscillators remain in a downphase, but 365 support has only been tested once, with 370 support the bulk of this week's drops. For the week, December gold printed a bullish harami, but I'm not inclined to get overly excited about it. Following what continues to look like an aberrant selloff last Friday, a bounce was to be expected. Hopefully the dust settled this week, and we can look to next week for some clarity as to gold's direction. The oscillators continue to indicate an ongoing downphase, but if the price decline is weak, then the next upphase could pack some punch. Daily chart of the ten year note yield Ten year treasuries advanced on Friday, retracing part of their losses for the week. The ten year note yield (TNX) dropped 5.4 bps to close at 4.248% following an impressive rally this week. It was noted in Thursday night's Futures Wrap that Bollinger band resistance overhead could impede the TNX' advance, and this is what occurred Friday. The daily chart oscillators are in gear to the upside, however, and it will take more than Friday's mild pullback to reverse it. The outlook continues to be bearish for bonds/bullish for yields on this basis. The bull wedge breakout in progress targets levels for the TNX as high as the current rally high of 4.6%. Daily NQ candles Volume on the Nasdaq for Friday was a tad below anemic, with an absence of trades contributing to an excruciatingly slow, rangebound session. As noted in Thursday's Futures Wrap, the selloff from the Thursday high set a higher low, a not-bearish development. Friday's trading set a higher low again, and the bullish advance continued. While Thursday's hysteria peak was obviously overdone, Friday's trading confirmed that the daily oscillator upphase is for real, and bears will have to contemplate the possibility of a retest of those highs. 1420 remains trendline, round-number and 52-week high resistance. Support begins 1394, followed by 1376. 30 minute 20 day chart of the NQ The NQ managed a positive session on Friday, while the ES and YM traded both sides of unchanged and closed right on the line. The range was sufficiently narrow to discourage even the most fervent traders and market-watchers. While numerous commodities, such as soybeans, live-cattle, crude oil and natural gas were making strong directional moves, equity futures were not. Although some would ascribe Friday's listless range to a lack of volume in equities, the more accurate assessment points to the opposition of cycles in the different timeframes we watch. As noted in last weekend's Index Wrap, the weekly chart oscillators are beginning downphases, set off against the daily chart upphases. Intraday, most of Friday saw the short and longer cycles continually opposed, with a short cycle upphase trigger an uptick in the longer intraday cycles, just before beginning their downphases as those following the longer cycles were beginning to buy what they took to be a cycle bottom. The net result is a difficult, sideways market reminiscent of that between 1022 and 1029 ES. Friday left off with the 30 minute chart oscillators twitching along in a weak upphase, with price advancing along the lower expanding wedge support line. This is not a bullish chart formation, and the weakness of the upphase is not bullish either. However, the lack of volume and direction from Friday leaves the NQ open to a directional move on Monday. Patient traders can look to be short below the 1394 support line (make it 1390 to be safe) and long above it in sympathy with the daily oscillator up-trend. Cash is a position, and until the current chop works itself out, it looks like compelling one at that. Daily ES candles Despite the short covering panic after the close, the ES wasn't able to close much above flat for the day. It didn't close negative, however, and did not take out Thursday's low either. Other than frustration and slim profits or losses from intraday scalps, neither bulls nor bears took much away from Friday's session. As noted on the NQ, the daily chart oscillator remains in an upphase, and bullish traders continue to be rewarded. While my discussion of the NQ sounds quite bullish, I remain very concerned about the persistent weakness in the US Dollar, as well as the rallies in oil and natural gas. The ES remains in an uptrend, but it continues to hug the lower trendline on a broken bear wedge. With the weekly oscillators toppy, the ongoing daily chart upphase is the bulls' best friend. When it tops out, we could have the makings of a significant top in price. 20 day 30 minute chart of the ES The 30 minute ES chart resembles that of the NQ, except that the rising wedge support line is not rising as steeply on the ES. The bearish divergence on the Macd continues, and the oscillator upphase is more of a hiccup at this point. Given the lack of enthusiasm to Friday's session, a burst in either direction would not surprise me. Frankly, the most surprising thing on the charts is their utter imperviousness to what appears to be an increasingly worrisome set of intermarket relationships. Good news, bad news and no news all continue to be bought by equity bulls. 150-tick ES Support is at 1039.25, followed by 1034.50 and 1029, with resistance above at 1041.50 and 1044. Daily YM candles Same story on the YM. 20 day 30 minute chart of the YM This week saw advances in equities and gold, declines in the dollar and treasuries. The strongest legs of the Spring rally saw the dollar decline, with strength in all other assets. This time, treasuries are selling, with commodities and equities rising. Note that GE got smoked for 2.42% on Friday following its earnings report. If the weakness in treasuries is attributable to foreign liquidation of US assets on the weakness in the dollar, then it makes sense that the bluest of the blue chips would get sold in that same exodus. However, equities were strong all week, setting new 52 week highs on Thursday. For trading purposes it's easier and safer to trade what each individual chart gives us. In cases of uncertainty, however, I base my bias on fundamental factors. While we can debate the relative strength or weakness of the latest economic releases, the severe selloff in the US Dollar Index over the past 7 weeks is not encouraging. If this selloff were solely the result of the Fed pumping up the money supply again, then treasuries would not be selling off. For these reasons, I remain entirely bearish on equities at these levels. For trading purposes, however, it pays to go long and short when the indicators we follow tell us to, and this is what we do in the Futures and Market Monitor. Active stops remain essential on every trade- safety first. See you at the bell! ******************** INDEX TRADER SUMMARY ******************** The Teflon Market Jonathan Levinson Friday was a light volume, narrow range session for equities, with the indices closing flat following Thursday's break to new 52 week highs. The Nasdaq closed higher by 3, the Dow lower by 5 and the S&P lower by .67. Last week saw significant declines in the US Dollar Index and in treasuries, but to bears' surprise and dismay, this weakness did not find its way to equities. What had begun as the suggestion of a daily chart oscillator upphase one week ago strengthened this week. In the attempt to get a clearer view on the different market phases in different timeframes, I've reviewed the monthly and weekly INDU and COMPX charts, and then for trading purposes focused in on the daily and 30 minute OEX and QQQ charts. In analyzing these different timeframes, I treat the Dow and OEX as rough equivalents, as with the COMPX and QQQ. This is an imperfect methodology, but it gets us easily close enough to develop an informed picture of the short, medium and long term prospects of the primary equity index trading vehicles, the OEX and QQQ. Monthly COMPX candles The ten year monthly Nasdaq chart is a sight to behold, as is the rally from the March 2003 lows. On this long timeframe, we see an ongoing oscillator upphase, indicating a long term bias toward higher highs for this year, but bumping up against Bollinger band resistance. Before zooming in on the weekly candles, it's worth noting some factors about long term charts. On the above chart, one month equals one candle, and minor moves are insignificant. Moving averages, and their derivative oscillators, including Bollinger bands, are subject to significant lag due to the nature of their computation. A 21 month moving average is computing what occurred last year in arriving at this month's value. For this reason, the monthly charts and oscillators are useful only for broad context. Few, if any, are the traders who key off a monthly chart- imagine trying to select a stop loss! Weekly COMPX candles The weekly candle chart of the COMPX shows the rise off the March lows resolving itself in a bear wedge projecting potentially back to those lows at 1260. The weekly oscillators are very toppy, with the 10 week stochastic twitching up within its downphase, still on a bearish divergence against the higher highs being printed since the summer. The laggier MACD has not rolled over, but is clearly in nosebleed territory. While a price uptrend must be respected, the weekly COMPX has significant resistance overhead and appears to be much closer to a top than to a bottom. Monthly INDU candles The 10-year INDU is declining from the 2000 highs in an expanding wedge, with this month's price just below trendline resistance at 9800, coincident with Fibonacci resistance at that level. The oscillators are in an upphase off the March 2003 lows. The weekly INDU below is also rising in a bearish ascending wedge whose downside projection is the 7400 March low. The oscillator configuration on this timeframe is similar to that on the COMPX, except that this week's bounce wasn't as strong. The MACD is in a bearish kiss, and the 10-week stochastic hasn't twitched up as vigorously as that on the COMPX. Weekly INDU candles On to the short term charts: Daily OEX candles The daily OEX is a difficult chart to read because it's gone virtually nowhere since June. The slight upslope it depicts from the summer has resulted in minor gains, and this has not been an easy range to trade. If I were holding untold fortunes of OEX securities and needed to sell them, the range since June would be an excellent range to allow me to liquidate at relatively stable prices. Bulls will see a consolidation range where I see distribution, but this is what makes a market. In the meantime, the move off the bottom of the range last week has produced an upphase on the daily chart oscillators, and it's this up phase that has fueled the up tick seen on the longer term weekly chart oscillators above. Up-trending support on the daily chart is currently at 518, resistance just north of 525. On the 30-minute chart below, the OEX is in a weak, uncertain stochastic upphase that failed to even register on the MACD. The MACD is sporting a bearish divergence, with lower highs against higher price during the same period. The bulloney bullhorn broke south, as bullhorns are wont to do, and is tracing a weakening pattern that resembles a secondary bullhorn. It could also be a hunchback head and shoulders formation, but in either case, it doesn't look bullish. Support here is at or just below 518, resistance at the rally high. 20 day 30 minute chart of the OEX Putting it all together on the OEX, we have the month chart oscillators in up phases, the weekly topped out and trying to turn down, and the daily in an upphase. The 30-minute chart looks weak, both in price and on the oscillators. Given this mixed picture, both bulls and bears have plenty upon which to base their respective arguments. If the short term weakness can overcome the rising daily upphase, then a more significant decline can begin. However, so long as the daily remains on buy signals, bears will have to watch over their shoulders. These are currently conditions for continued rangebound chop, until one of the cycles shows some dominance over the others. Until it does, it remains a market for nimble traders only, gaming off the short intraday oscillators, the 30 minute and the daily. Daily QQQ candles The setup is identical for QQQ. Support is at 34.80, resistance at the rally highs. Note that on the 30 minute chart, the oscillator bounce is higher than on the OEX. This could be attributable to the beating received by GE for Friday's earnings report, but either way, the two indices are diverging. The NDX / QQQ tend to lead their peers, and if so, the OEX should pick up on Monday. Nevertheless, QQQ is rising in a weakening pattern on the 30 minute chart, with the same bearish divergence on the MACD. 20 day 30 minute chart of the QQQ For next week, I expect the Qubes and OEX to continue to advance uncertainly so long as the daily oscillator upphase plays out. The indices gained this week, but witness the sharp, violent selloff from Thursday's highs. While the price advances are obviously bullish, the uncertainty below the surface is attributable to the weekly chart oscillator downphases. The markets are extended here, but can continue to grow more extended before they correct. The prescription is to take profits on the long side quickly, and to trail your stops on shorts enter on bounces. ------------------------------------------------------------ VOTED one of "Best Online Brokers" (4 stars)--Barron's • optionsXpress's "order-entry screens...go far beyond... other online broker sites"--Barron's • 8 different online tools for options pricing, strategy, and charting • Access to options specialists via email, phone or live chat online • Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oetics22 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** Editor's Plays ************** Betting on the Goal With the Dow only 300 points away from Dow 10,000 and Dow 10,000 likely to be a lightning rod for October mutual fund selling I am thinking about a laddered put play with 10K as the goal. The Dow is at 9675. There is strong resistance at 9800, 9900 and 10,000. We are already overextended and we have seen no evidence of any year end fund selling yet. I could be completely wrong but this looks like a pretty good setup. I am going to use the November DJX 96 puts. We are going to buy five contracts at three different levels. Buy 5 DJX-96 puts DJV-WR at Dow 9800. (est $1.50) Buy 5 DJX-96 puts DJV-WR at Dow 9900. (est $1.20) Buy 5 DJX-96 puts DJV-WR at Dow 9975. (est $1.00) We are cheating on that last entry just in case some others do the same and we don't quite reach 10,000. With everybody planning on selling there I would like to beat the rush. The stop loss will be Dow 10100. Close all positions. The profit targets will be: 1/2 position at Dow 9500. Lower stop to 9600 1/2 position at Dow 9300. If the Dow fails to reach 9800 by Friday's close or drops below 9600 before hitting 9800 then cancel the play. (If it drops before moving up then the potential for filling the upper strikes diminishes.) Once filled on any position and the Dow moves under 9600 then change the stop loss to 9700. I am trying to avoid a repeat of the last Put play where it missed our target by a few cents and then exploded back out the top. We had almost a triple but no stop loss to close it. My best guess for the start of a potential market event will be Tuesday Oct-21st. Exercised options settle on Monday and funds will be free to liquidate any positions once any options on those positions expire. Funds wanting to squeeze the last nickel out of their portfolio could have sold calls on their stocks hoping for one last bounce before expiration. If the calls are in the money then the holders will exercise them and the funds will not have to sell the stock. It will be called away from them. However, this puts the stock in the hands of somebody else who might not want to hold it. The possibilities are numerous. DJX Chart ******************************** Play Recaps MMM Bull Put Spread (recommended 10/05) We did not come close to the trigger points yet but still three weeks to go in October. Patiently waiting. http://members.OptionInvestor.com/editorplays/edply_100503_1.asp LUV Calls (recommended 9/14) http://members.OptionInvestor.com/editorplays/edply_091403_1.asp Powerball Go NYSE! The winners this week are GLW and EMC with huge gains and strong help from CMVT and FLEX. The portfolio is up +77% and 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 **************** Earnings Upon Us - J. Brown The first week and a half of October has come and gone and the traditional seasonal weakness is no where to be seen. The preceding weeks of positive prognostications for Q3 earnings have lifted the markets and now it's finally show-and-tell time. Will profits be as good as everyone expects? Will corporate guidance support the lofty expectations for Q4 results? The answers will dictate market direction even if we do see some profit taking on the initial announcements. The bulls are firmly in control but the burden now comes down to proof that all this enthusiasm was warranted. General Electric, the second biggest company by market cap, failed to uphold its part of the bargain and only met market estimates when it reported earnings on Friday. Normally the company has a history of beating the numbers by a penny. However, more damning than just reporting in-line was their future guidance. GE, once thought of as a proxy for the market due to their widespread and diverse number of businesses, actually suggested that Q4 and full year results may come in at the low end of current guidance. That's definitely not want the markets want to hear yet somehow major indices remained docile closing near unchanged on Friday. The bulls are also faced with another hazard to strong future gains. The rapid rise of crude oil from $26.50 to $32 a barrel in just three weeks could quickly become a brake on this expanding economy. When this price surge eventually filters to the gas pumps it will act as an unofficial tax on consumers who will have less discretionary money to keep the feverish GDP growth alive. To a lesser extend we should see it begin to weigh on the airlines, who despite the rise in oil, have been exceptionally strong. The XAL has been hitting a string of new 52-week highs and only slipped lower on Friday due to some analyst downgrades. Influencing the global market place is the ongoing deterioration in the U.S. dollar. The greenback dropped to yet another fresh three-year low against the yen on Friday at 108.55 and hit another low against the euro. The rumor mill is suggesting that the Japanese government is not likely to intervene against the dollar by selling yen until after President Bush's trip to Japan next week. Of course this would be ironic since one of the purposes of his trip is to lobby against currency manipulation. This has speculators pointing to a potential drop next week to 106 yen vs. the dollar and $1.20 against the euro. Additional warning signals continue to flare up despite the market's strength. It's not all that often that the NASD actually issues a warning and on Friday that's what happened. Concerns for a return to the bubble mentality gathered some strength when the NASD reported that margin debt had ballooned to $26 billion. This surpasses the $21 billion record at the bubble's top in March of 2000. A sharp retracement could force a stronger wave of selling as investors face margin calls. This in turn could ignite another round of margin selling as the cycle spins out of control. Another bubblesque caution signal is news that volume in bulletin board stocks, one of the most speculative markets, has surged to 41 billion shares. A strong rise in speculative trading for penny stocks is a classic sign that the market is generally near a top. Yet another contrarian indicator is the bullish sentiment as measured by the Investors Intelligence survey. Currently, 60% of those surveyed are bullish while only 22.5% are bearish. The good news is the bearish sentiment is slowly rising. I fully realize that the ongoing comments about the low volatility indices, the extremely high bullish percent data, the ballooning margin debt, the incredibly high penny stock volume all sound like a wounded bear doing his best chicken little impersonation. I am not predicting a market crash and I am more than happy to play the trend, which is currently up. However, we need to be aware and make note of each and every warning flag that the market gives us. One of the most basic fundamentals of trading is recognizing that stocks and markets move in cycles, both short-term and long-term. Right now the short-term cycle is very overbought and we need to see some profit taking to bring us back to a more healthy entry point for another leg higher. The wild card in the mix right now is earnings season. We've been hearing so much for so long about how good the Q3 numbers should be that we're likely to see the markets trade sideways as they wait for the results. This week alone we're going to hear from hundreds of companies with 113 of them as S&P 500 components. Throw on top of the mix a rash of economic reports and options expiration and it could be a rather dangerous week. Trade carefully. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9768 52-week Low : 7197 Current : 9674 Moving Averages: (Simple) 10-dma: 9541 50-dma: 9415 200-dma: 8739 S&P 500 ($SPX) 52-week High: 1048 52-week Low : 768 Current : 1038 Moving Averages: (Simple) 10-dma: 1025 50-dma: 1008 200-dma: 937 Nasdaq-100 ($NDX) 52-week High: 1418 52-week Low : 795 Current : 1404 Moving Averages: (Simple) 10-dma: 1364 50-dma: 1325 200-dma: 1160 ----------------------------------------------------------------- The new VIX continues to hover near multi-year lows and the VXN took a 4.2 percent dive on Friday. Investors continue to show no fear, which from a contrarian stand point, is not a good place to be making big bullish bets. CBOE Market Volatility Index (VIX) = 18.82 -0.36 Nasdaq Volatility Index (VXN) = 28.84 -0.32 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.93 464,009 431,180 Equity Only 0.70 392,661 274,963 OEX 1.28 20,331 26,028 QQQ 2.96 17,525 51,951 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.2 + 0 Bull Confirmed NASDAQ-100 77.0 + 0 Bear Confirmed Dow Indust. 83.3 + 0 Bull Correction S&P 500 79.8 + 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 0.99 10-Day Arms Index 1.01 21-Day Arms Index 1.13 55-Day Arms Index 1.07 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 1450 1417 Decliners 1357 1661 New Highs 322 251 New Lows 6 6 Up Volume 670M 835M Down Vol. 659M 559M Total Vol. 1350M 1452M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/07/03 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 After two weeks of little movement we're beginning to see commercial traders edge toward a more bearish position. Looking at the small traders we see a reduction in short positions and they remain overall net bullish. Commercials Long Short Net % Of OI 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%) 10/07/03 390,232 402,964 (12,732) (1.6%) 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 09/09/03 176,401 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% 10/07/03 138,644 88,018 50,626 22.3% 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're definitely seeing a small trend in the commercials' positions in the e-minis. Long positions have jumped strongly, outpacing new short positions, and the overall net short attitude is dwindling. Retail traders remain heavily net long. Commercials Long Short Net % Of OI 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%) 10/07/03 212,273 225,377 ( 13,104) ( 3.0%) 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 09/09/03 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% 10/07/03 134,990 63,560 71,430 36.0% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 We're still not seeing much movement in commercials willing to commit one way or the other in the NDX. They're currently net short but the margin is fading. Small traders haven't changed much either and remain net long. Commercials Long Short Net % of OI 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%) 10/07/03 33,253 40,861 ( 7,608) (10.3%) 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 09/09/03 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% 10/07/03 18,182 9,688 8,494 30.5% 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 It's the same story here in the DJ futures. There is little change between the commercials or the small traders over all positions. Commercials Long Short Net % of OI 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% 10/07/03 16,277 9,528 6,749 26.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 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%) 10/07/03 7,392 7,910 ( 518) ( 3.4%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ------------------------------------------------------------ We got trailing stops! • Trade online with trailing stops at optionsXpress, at no extra cost • Trailing stops based on the option price or the stock price • Also place Contingent, Stop Loss, and "One Cancels Other" orders • $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ *************** ASK THE ANALYST *************** Asian markets Although nothing is certain and secure. I was wondering if you had any good long term and safe Asian stocks or maybe even better, Asian mutual funds that would be good investment. Are there any US mutual funds that invest exclusively in Asia? Safe and secure? Is there such a thing? Not really. But if you're an investor or a trader looking to put a tiger in your tank, then look no further than an actively managed Asian stock mutual fund, an Exchange Traded Fund (ETF), an American Depository Receipt (ADR), or iShare that gives an investor or trader exposure to the Pacific Rim and Asia. There may be a security that suits your investment/trading profile and tolerance for risk. A mutual fund comes complete with a manager that you're going to pay to actively manage your money and regardless of market conditions, the mutual fund manager is going to invest your capital in those stocks and perhaps bonds they best see fit. When I was brokering for a living, I would recommend the Liberty Newport Tiger Fund fund (CNTAX), which at the time was called the Colonial Newport Tiger Fund. It offers various class shares with differing expense structures. One reason I chose this fund for some exposure to Asia, what that I could help my client re- allocate assets within the Liberty family of funds (Colonial at the time) when each quarter we would re-balance the portfolio, in order to stay on course for his/her longer-term objective for wealth accumulation. I also treated the mutual fund as a stock and would track its point and figure chart to make sure demand for the stocks within the fund was still strong. Dorsey/Wright and Associates used to have an Asia Bullish %, which I would also use to help understand RISK at overbought and oversold levels, when it came time for quarterly portfolio adjustments. Just as an investor/trader will chart the S&P 500 Index (SPX.X) to see if demand for its 500 stocks is strong and measure market risk levels, the same should be done for a mutual fund manager's selections and markets he/she is operating in. Remember, when you give a fund manager $1,000.00 of your money, he/she should have it fully invested in the asset class (stocks,bonds, etc.) that you want it invested in. If the fund manager is not running a hybrid balanced fund and is sitting on more the 3% cash, then you might look to take your money somewhere else where it is more fully invested. One thing I did for clients was to screen mutual funds not simply on a fund's track record, but I wanted to see some management tenure where the fund manager had been around the block a time or two, and had experience navigating through good and bad market cycles. If a fund manger left the fund, I considered the fund's track record then obsolete and would keep a very close eye on performance relative to the fund's competition and a similar market average as a benchmark for performance. I haven't kept up on the mutual fund area like I used to when it was my job to do so, but Morningstar.com has a nice search engine and fund screener where you and I can quickly type in some criteria and see what funds meet that criteria. Let me add a personal observation as it relates to Morningstar's "star" system. Don't put a great deal of weight to it. Today's 5-star is next year's 1-star. I had to play around with the search criteria to even get a list of Asia/Pacific rim funds to pass my screen. I demanded at MINIMUM 5-year management tenure. Here's a partial screen capture of Morningstar's search/scan engine. You can perform scans on your own at this http://screen.morningstar.com/FundSelector.html Morningstar Fund Screener I've placed some general comments and some things a mutual fund investor might things about or check against when making a mutual fund selection. I had to set my criteria down to a 3-star rating to even get a list of Asian funds. In the late 1990's "new fund affect" was a popular mutual fund trading scenario, where some investors would purposely invest money with a newly created fund. The thought was that when the fund manager started out, he/she was buying their favorite stocks that met a stringent screen. As the fund manager invested new money in their favorites, it often found the fund outperforming other similar funds, simply because the demand the fund manager was creating for his/her favorite stocks was having their price rise. As new mutual fund investors began to see such impressive results from the newly created fund, inflows at the fund would swell. As funds became larger and the fund manager was scrambling to get the new monies invested, he/she would have to stray away from the stringent criteria that brought success in the first place, and performance would then drop off, and those that played the "new fund affect" would bail out. I can't remember the number of mutual funds that disappeared in the last 3 years, but many that did, hadn't been around for very long to begin with. I calculated year-to-date performance for the S&P 500 Index, its 1-year performance, and 3-year performance. These might be a general benchmark a mutual fund investor might look to screen against. Here are the results of the above mutual fund screen. Morningstar screen results The search criteria I entered generated 6 hits. There mutual fund tickers from top to bottom are USPAX, ICARX, NWAPX, LNABX, LNACX, TGRCX. It looks like Liberty may have bought Colonial's funds sometime ago. I see that the Liberty Newport Tiger Fund A (CNTAX) is managed by Christopher Legallet and he began managing the fund in October 1998 (so it won't meet the 5-year criteria until next month). He is also the lead manager for the above listed Liberty Newport Asia Pacific list of funds. So... now you know of a quick way to begin performing some mutual fund scans and can order some prospectus' to make a more educated investment decision regarding mutual funds. For an investor just starting out, mutual funds are a great way to get started! One note on mutual funds. In the late 1990's some mutual fund managers received what I consider to be negative press as their annual returns lagged a major market average. This made so much sense to me, especially the better fund managers, as many of the better fund managers were managing RISK! Suddenly, when the major market averages unraveled and RISK was realized in the form of losses, the good fund managers began OUTPERFORMING the major market averages. The reason they outperformed on the way down was that they were managing RISK to begin with. This is something an investor should think about, when investing in indexes with the thought that an index will always outperform a mutual fund, and why I think it important to find a mutual fund, where the fund manager has seen both the good and bad times, and measure his/her performance against some like-benchmark. But we're not done yet. For those that may want to take a more active approach to investing/trading in Asia, perhaps have greater sensitivity toward tax issues, there's also a group of ETF's and iShares that an investor and even traders would be interested in. These two securities contain a fixed basket of individual stock similar to a mutual fund, but unlike a mutual fund, where you can only buy/sell based on the 04:00 PM closing net asset values, HOLDRs and iShares, which allow for some spreading of risk among a group of individual stocks, with some intra-day flexibility. Remember that a mutual fund manager will take a more active approach to managing your money and the stocks in the portfolio can change from time to time. For the most part, ETFs and iShares hold a group of stocks, where the group is fixed and are usually bellwether's for the region/market the security hopes to mimic. In a June 15, 2003 Ask the Analyst column, we touched on HOLDRs and iShares. If you visit iShares.com and look under "International" and then in the pull down menu "Asia" you'll find the MSCI Australia Index Fund (EWA), MSCI Hong Kong Index Fund (EWH), MSCI Japan Index Fund (EWJ), MSCI Malaysia Index Fund (EWM), MSCI Pacific ex-Japan Index Fund (EPP), MSCI Singapore Index Fund (EWS), MSCI South Korea Index Fund (EWY), MSCI Taiwan Index Fund (EWT) and the S&P/TOPIX 150 Index Fund (ITF). I would think the MSCI Hong Kong Index Fund (EWH) $10.05 +0.29% might be a fund that represents China-like markets. Here's a http://www.ishares.com/fund_info/detail.jhtml;jsessionid=E4FNUF3H3HT0GCQ BB2BRBGQKAZSNQD50?symbol=EWH to a description of the EWH, which shows Hutchison Whampoa Ltd. currently the largest weighted stock in this iShare. Real Estate is the most heavily weighted sectors at 25.37%. Here's a http://www.ishares.com/home.jhtml?&_requestid=6534&_requestid=6534 to the iShares.com page where you can browse the various iShares offered for trade. I think I also discussed a real cool feature at the NASDAQ site, where the NASDAQ developed a Heatmap of 100 ETF's. During the day, a trader can view this heatmap to see what's on the move! Here's a http://screening.nasdaq.com/heatmaps/Heatmap_ETF.asp to the NASDAQ's ETF Heatmap. NASDAQ's Dynamic ETF Heatmap - I don't have all the ETF symbols memorized, and NASDAQ has a neat feature where we can place a cursor over one of the squares and get an idea of what we're looking at. I place my mouse cursor over the South Korea (EWY) box and it gives the trader a quick snapshot of these iShares. Do you see the Hong Kong iShares (EWH)? They were up 0.3% on Friday (4th row down, 2nd box from the right). The B2B Internet HOLDRs (BBH) $2.74 -2.14% were Friday's loser. This should give U.S. investors and traders a good start to potentially discovering various ways to invest/trade foreign markets. If I were just starting out investing, and considering foreign markets, I'd suggest a good mutual fund, with a fund manager that has shown a proven track record. The all-time high for the Hong Kong iShares was set on August 7, 1997 at $18.00 a share, while the all-time lows was set on August 31, 1998. Here's a weekly interval chart of the Hong Kong ishares (EWH), where I'm using nested retracement brackets, where I would view near-term support at the $9.52-$9.61 area. The point and figure chart of the EWH is close to giving its first buy signal ($10.50) since giving a sell signal in April of 2000 at $11.50. Amazingly, the EWH's April 2003 lows came at $6.55 per share. When the EWH gave that sell signal in April of 2000, the point and figure chart bearish vertical count was to.... $7.00. Ooooo! Missed it by $0.45 cents. MSCI Hong Kong iShares (EWH) - Weekly Intervals Just to put the EWH in perspective of two ranges, I placed two different retracement bracket on the weekly bar chart, and added in some observations from the point and figure chart. The red retracement may come in handy if the EWJ can clear its May highs, where the trade at $10.50 would be the first sign of meaningful strength developing on the point and figure chart. I was reading an article just today, that Shanghai's (just up the coast from Hong Kong) gross domestic product grew at 11.8% in the first nine months of the year, its fastest rate of growth since 1997. Its GDP totaled 441 billion yuan, or $53 billion, through the first three quarters. Investors here in the U.S. could compare those statistics with recent economists' forecast being raised to 2.7% GDP growth for 2003, and 3.9% for 2004. As further comparison, from relatively comparable spring season lows, the EWH is up 53%, while the S&P 500 Index (SPX.X) has gained 31.55%. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Company Date Comment EPS Est ------------------------- MONDAY ------------------------------- HLYW Hollywood Enter Mon, Oct 13 -----N/A----- 0.32 MI Marshall & Ilsley Mon, Oct 13 Before the Bell 0.60 PKG Packaging Corp of Ame Mon, Oct 13 After the Bell 0.11 SPOT PanAmSat Mon, Oct 13 Before the Bell 0.12 TSCO Tractor Supply Co Mon, Oct 13 -----N/A----- 0.29 ------------------------- TUESDAY ------------------------------ ADTN ADTRAN, Inc. Tue, Oct 14 Before the Bell 0.42 ASO AmSouth Bancorp Tue, Oct 14 Before the Bell 0.44 BAC Bank of America Corp Tue, Oct 14 Before the Bell 1.70 BBT BB&T Corporation Tue, Oct 14 Before the Bell 0.68 BRE BRE PROPERTIES INC Tue, Oct 14 After the Bell 0.59 CSL Carlisle Companies Tue, Oct 14 After the Bell 0.72 CGNX Cognex Tue, Oct 14 After the Bell 0.10 DAL DELTA AIR LINES INC Tue, Oct 14 Before the Bell -1.47 DJ Dow Jones & Company Tue, Oct 14 Before the Bell 0.11 ETN Eaton Tue, Oct 14 Before the Bell 1.32 FITB Fifth Third Bancorp Tue, Oct 14 Before the Bell 0.77 FDC First Data Tue, Oct 14 -----N/A----- 0.51 FRX Forest Laboratories Tue, Oct 14 Before the Bell 0.49 GCI Gannett Tue, Oct 14 Before the Bell 1.03 GMH Hughes Electronics Tue, Oct 14 -----N/A----- -0.03 IDPH IDEC Pharmaceuticals Tue, Oct 14 After the Bell 0.26 INTC Intel Corporation Tue, Oct 14 After the Bell 0.23 JEF Jefferies Group Tue, Oct 14 Before the Bell 0.32 JNJ Johnson & Johnson Tue, Oct 14 Before the Bell 0.68 LLTC Linear Technology Tue, Oct 14 After the Bell 0.21 MER Merrill Lynch Tue, Oct 14 Before the Bell 0.85 MOT Motorola Inc. Tue, Oct 14 After the Bell 0.03 NVLS Novellus Systems, Inc Tue, Oct 14 After the Bell 0.00 PPP Pogo Producing Tue, Oct 14 -----N/A----- 0.95 PII Polaris Industries IncTue, Oct 14 Before the Bell 1.72 PP Prentiss Properties Tue, Oct 14 After the Bell 0.76 PHG Royal Philips Elect Tue, Oct 14 Before the Bell N/A SONC Sonic Corp. Tue, Oct 14 After the Bell 0.43 SOV Sovereign Bancorp Tue, Oct 14 After the Bell 0.37 STT State Street Corp Tue, Oct 14 Before the Bell 0.57 TER Teradyne Inc. Tue, Oct 14 After the Bell -0.14 SSP The E.W. Scripps Co Tue, Oct 14 Before the Bell 0.62 TSS TSYS Tue, Oct 14 -----N/A----- 0.18 WABC Westamerica Bancorpo Tue, Oct 14 During the Market 0.72 ----------------------- WEDNESDAY ----------------------------- ADS Alliance Data Systems Wed, Oct 15 -----N/A----- 0.21 AGI Alliance Gaming Corp. Wed, Oct 15 During the Market 0.18 ASD American Standard Wed, Oct 15 Before the Bell 1.64 APH Amphenol Wed, Oct 15 Before the Bell 0.61 AAPL Apple Computer, Inc. Wed, Oct 15 After the Bell 0.07 ASML ASML Holdings NV Wed, Oct 15 -----N/A----- -0.07 BLK BlackRock, Inc. Wed, Oct 15 After the Bell 0.60 BOKF BOK Financial Wed, Oct 15 -----N/A----- 0.64 BCR C.R. Bard, Inc. Wed, Oct 15 After the Bell 0.95 CDN Cadence Design Sys Wed, Oct 15 After the Bell 0.12 CEC CEC Entertainment Wed, Oct 15 -----N/A----- 0.63 CNT CENTERPOINT PPTYS TR Wed, Oct 15 After the Bell 1.09 CEN Ceridian Wed, Oct 15 Before the Bell 0.20 CERN Cerner Corporation Wed, Oct 15 -----N/A----- 0.32 CYN City National Corp Wed, Oct 15 After the Bell 0.94 CCE Coca-Cola Enterprises Wed, Oct 15 Before the Bell 0.45 CNB Colonial BancGroup Wed, Oct 15 -----N/A----- 0.29 CMA Comerica Incorporated Wed, Oct 15 Before the Bell 0.90 CBH Commerce Bancorp, Inc Wed, Oct 15 Before the Bell 0.64 DRL Doral Financial Wed, Oct 15 After the Bell 1.02 ET E*TRADE Group, Inc. Wed, Oct 15 -----N/A----- 0.16 ETH Ethan Allen Interiors Wed, Oct 15 Before the Bell 0.51 FBAN F.N.B. Corporation Wed, Oct 15 After the Bell 0.52 FBF FleetBoston Finl Corp Wed, Oct 15 Before the Bell 0.61 GD General Dynamics Wed, Oct 15 Before the Bell 1.24 GM General Motors Corp. Wed, Oct 15 Before the Bell 0.64 GNTX Gentex Wed, Oct 15 Before the Bell 0.32 GENZ Genzyme Corporation Wed, Oct 15 Before the Bell 0.34 GGG Graco Wed, Oct 15 After the Bell 0.49 GUC Gucci Group NV Wed, Oct 15 -----N/A----- 0.37 HDI Harley-Davidson Wed, Oct 15 Before the Bell 0.56 HIB Hibernia Corp. Wed, Oct 15 Before the Bell 0.44 HMT Host Marriott Wed, Oct 15 Before the Bell 0.02 HCBK Hudson City Bancorp Wed, Oct 15 -----N/A----- 0.28 HBAN Huntington Bancshares Wed, Oct 15 Before the Bell 0.37 IBM Intl Bus Machines Wed, Oct 15 After the Bell 1.02 IFIN Invest Finl Serv Corp Wed, Oct 15 Before the Bell 0.34 KMI Kinder Morgan Wed, Oct 15 After the Bell 0.76 KFT Kraft Foods Wed, Oct 15 After the Bell 0.46 LRCX Lam Research Wed, Oct 15 After the Bell 0.03 LEG Leggett & Platt Wed, Oct 15 After the Bell 0.28 MOGN MGI Pharma Wed, Oct 15 Before the Bell -0.47 MTG MGIC Investment Corp. Wed, Oct 15 Before the Bell 1.15 MLNM Millennium Pharm Wed, Oct 15 After the Bell -0.29 MIL Millipore Corp. Wed, Oct 15 After the Bell 0.49 MOLX Molex Inc. Wed, Oct 15 After the Bell 0.16 MON Monsanto Company Wed, Oct 15 Before the Bell 0.23 NCC National City Wed, Oct 15 After the Bell 0.58 NFLX NetFlix.com Wed, Oct 15 After the Bell 0.10 NTRS Northern Trust Wed, Oct 15 -----N/A----- 0.49 PH Parker Hannifin Corp. Wed, Oct 15 Before the Bell 0.40 PPDI Pharm Product Develop Wed, Oct 15 After the Bell 0.41 PLT Plantronics, Inc. Wed, Oct 15 After the Bell 0.26 PCP Precision Castparts Wed, Oct 15 Before the Bell 0.60 PFGI Provident Financial Wed, Oct 15 Before the Bell 0.58 QLGC QLogic Wed, Oct 15 After the Bell 0.35 RDN Radian Group Wed, Oct 15 After the Bell 1.14 RDC Rowan Companies, Inc. Wed, Oct 15 -----N/A----- 0.16 SNDK SanDisk Corp. Wed, Oct 15 After the Bell 0.42 SEBL Siebel Systems Wed, Oct 15 After the Bell 0.03 SOTR SouthTrust Wed, Oct 15 Before the Bell 0.52 STJ St. Jude Medical, Inc Wed, Oct 15 -----N/A----- 0.44 SNV Synovus Financial CorpWed, Oct 15 After the Bell 0.33 SYNT Syntel, Inc. Wed, Oct 15 Before the Bell 0.20 TCB TCF Financial Corp Wed, Oct 15 Before the Bell 0.51 TFX Teleflex, Incorp Wed, Oct 15 After the Bell 0.46 TLAB Tellabs Wed, Oct 15 Before the Bell -0.06 ALL The Allstate Corp Wed, Oct 15 After the Bell 0.88 UB UnionBanCal Wed, Oct 15 After the Bell 0.94 UIS Unisys Wed, Oct 15 Before the Bell 0.17 WB Wachovia Corporation Wed, Oct 15 Before the Bell 0.81 WBS Webster Financial CorpWed, Oct 15 Before the Bell 0.87 WERN Werner Enterprises Wed, Oct 15 After the Bell 0.26 ------------------------- THURSDAY ----------------------------- AMD Advanced Micro DevicesThu, Oct 16 After the Bell -0.37 ALFA Alfa Corporation Thu, Oct 16 Before the Bell 0.24 MO Altria Group, Inc. Thu, Oct 16 Before the Bell 1.21 ABK Ambac Financial Group Thu, Oct 16 Before the Bell 1.35 ATR AptarGroup Thu, Oct 16 After the Bell 0.55 ASBC Associated Banc-Corp Thu, Oct 16 -----N/A----- 0.75 AF Astoria Financial CorpThu, Oct 16 After the Bell 0.59 ATML Atmel Corporation Thu, Oct 16 After the Bell -0.08 ALV Autoliv Thu, Oct 16 Before the Bell 0.52 AVID Avid Technology, Inc. Thu, Oct 16 After the Bell 0.30 AVCT Avocent Corporation Thu, Oct 16 Before the Bell 0.28 BXS BancorpSouth, Inc. Thu, Oct 16 After the Bell 0.40 BNK Banknorth Group Inc. Thu, Oct 16 Before the Bell 0.55 BAX BAXTER INTL INC Thu, Oct 16 -----N/A----- 0.47 BGG Briggs & Stratton CorpThu, Oct 16 Before the Bell -0.19 BRCM Broadcom Thu, Oct 16 After the Bell 0.13 CAT Caterpillar Inc. Thu, Oct 16 Before the Bell 0.74 CF Charter One Financial Thu, Oct 16 After the Bell 0.69 CHZ Chittenden Thu, Oct 16 Before the Bell 0.50 CBCF Citizens Banking Thu, Oct 16 -----N/A----- 0.47 CNET CNET Networks Thu, Oct 16 After the Bell -0.06 CFBX Community First Bank Thu, Oct 16 Before the Bell 0.49 ED Consolidated Edison Thu, Oct 16 -----N/A----- 1.22 CAL Continental Airlines Thu, Oct 16 Before the Bell 0.38 CTB Cooper Tire & Rubber Thu, Oct 16 Before the Bell 0.25 COT Cott Corporation Thu, Oct 16 Before the Bell 0.33 CREE Cree Inc. Thu, Oct 16 -----N/A----- 0.12 CCK CROWN HOLDINGS INC Thu, Oct 16 Before the Bell 0.23 CY Cypress Semiconductor Thu, Oct 16 Before the Bell 0.06 CYT Cytec Industries Inc. Thu, Oct 16 After the Bell 0.49 DHR Danaher Thu, Oct 16 Before the Bell 0.84 DPH Delphi Thu, Oct 16 Before the Bell 0.01 DLX Deluxe Corporation Thu, Oct 16 Before the Bell 0.96 DO DiamOffshore Drilling Thu, Oct 16 Before the Bell -0.07 DCLK DoubleClick Thu, Oct 16 After the Bell 0.03 DOV Dover Corporation Thu, Oct 16 After the Bell 0.35 EWBC East West Bancorp Thu, Oct 16 Before the Bell 0.60 EBAY eBay Thu, Oct 16 After the Bell 0.18 EMC EMC Corporation Thu, Oct 16 Before the Bell 0.04 EFX Equifax Inc. Thu, Oct 16 Before the Bell 0.39 FCS Fairchild Semicon IntlThu, Oct 16 After the Bell 0.01 FNM Fannie Mae Thu, Oct 16 Before the Bell 1.75 FMER FirstMerit Thu, Oct 16 Before the Bell 0.43 F Ford Motor Company Thu, Oct 16 -----N/A----- -0.13 FO Fortune Brands Thu, Oct 16 Before the Bell 0.92 FCX Frprt-MMR Cper & Gld Thu, Oct 16 -----N/A----- 0.40 GPC Genuine Parts Thu, Oct 16 Before the Bell 0.52 GP Georgia-Pacific Thu, Oct 16 Before the Bell 0.58 GPT GreenPoint Financial Thu, Oct 16 Before the Bell 1.02 DA Groupe Danone Thu, Oct 16 -----N/A----- N/A GDT Guidant Thu, Oct 16 -----N/A----- 0.56 HSY Hershey Foods Corp Thu, Oct 16 Before the Bell 1.13 HON Honeywell Thu, Oct 16 Before the Bell 0.40 IEX Idex Thu, Oct 16 Before the Bell 0.49 ITW Illinois Tool Works Thu, Oct 16 Before the Bell 0.83 IDTI Integrated Device TechThu, Oct 16 -----N/A----- -0.03 IVC Invacare Thu, Oct 16 Before the Bell 0.62 IPAS iPass Inc. Thu, Oct 16 After the Bell 0.06 ESI ITT Educational Serv Thu, Oct 16 Before the Bell 0.32 JKHY Jack Henry & Ass Thu, Oct 16 Before the Bell 0.15 KEY KeyCorp Thu, Oct 16 Before the Bell 0.52 LEXR Lexar Media Thu, Oct 16 After the Bell 0.09 MAN Manpower Thu, Oct 16 Before the Bell 0.45 MAT Mattel Thu, Oct 16 -----N/A----- 0.60 MYG Maytag Thu, Oct 16 Before the Bell 0.57 KRB MBNA Thu, Oct 16 -----N/A----- 0.47 MEG Media General Thu, Oct 16 Before the Bell 0.47 MCHP Microchip Technology Thu, Oct 16 After the Bell 0.17 MHK Mohawk Industries, IncThu, Oct 16 After the Bell 1.34 NCF Natl Comm Finl Corp Thu, Oct 16 Before the Bell 0.41 NAP National Processing Thu, Oct 16 Before the Bell 0.25 NXY Nexen Thu, Oct 16 -----N/A----- 0.67 NXTL Nextel Communications Thu, Oct 16 Before the Bell 0.32 NOK Nokia Thu, Oct 16 Before the Bell 0.19 NFB North Fork Bancorp Thu, Oct 16 Before the Bell 0.63 NWAC NW Airlines Corp Thu, Oct 16 Before the Bell -0.62 ODP Office Depot Inc. Thu, Oct 16 Before the Bell 0.28 BTU Peabody Energy Corp. Thu, Oct 16 Before the Bell 0.37 PNR Pentair, Inc. Thu, Oct 16 Before the Bell 0.75 PBCT People's Bank Thu, Oct 16 -----N/A----- 0.23 PMCS PMC-Sierra, Inc. Thu, Oct 16 After the Bell -0.01 PNC PNC Finl Services Grp Thu, Oct 16 Before the Bell 0.96 PLCM Polycom Incorporated Thu, Oct 16 After the Bell 0.09 PUK Prudential PLC Thu, Oct 16 Before the Bell N/A RMBS Rambus Inc. Thu, Oct 16 After the Bell 0.04 RF Regions Financial Thu, Oct 16 -----N/A----- 0.73 RHI Robert Half Intl Thu, Oct 16 After the Bell 0.02 SWY Safeway, Inc. Thu, Oct 16 -----N/A----- 0.47 KS Samsung Electronics Thu, Oct 16 After the Bell N/A SAP SAP AG Thu, Oct 16 Before the Bell 0.20 S Sears, Roebuck and Co.Thu, Oct 16 Before the Bell 0.81 SEIC SEI Investments Thu, Oct 16 Before the Bell 0.34 SIVB Silicon Valley Bancsh Thu, Oct 16 After the Bell 0.47 SKYF Sky Financial Group Thu, Oct 16 Before the Bell 0.45 SLM SLM Corporation Thu, Oct 16 Before the Bell 0.47 SYK Stryker Thu, Oct 16 After the Bell 0.52 STU Student Loan Thu, Oct 16 Before the Bell N/A SUNW Sun Microsystems Thu, Oct 16 After the Bell -0.08 TXT Textron Inc. Thu, Oct 16 Before the Bell 0.48 KO The Coca-Cola Company Thu, Oct 16 -----N/A----- 0.52 NYT The New York Times Co Thu, Oct 16 Before the Bell 0.32 TBL The Timberland CompanyThu, Oct 16 Before the Bell 1.42 TRB Tribune Thu, Oct 16 Before the Bell 0.50 UCBH UCBH Holdings, Inc. Thu, Oct 16 -----N/A----- 0.34 UMBF UMB Financial Thu, Oct 16 After the Bell 0.62 UPC Union Planters Corp Thu, Oct 16 Before the Bell 0.67 UTX United Technologies Thu, Oct 16 Before the Bell 1.24 UNH UnitedHealth Group Thu, Oct 16 Before the Bell 0.74 VLY Valley National Banc Thu, Oct 16 Before the Bell 0.40 WHI W Holding Company Thu, Oct 16 -----N/A----- 0.39 GWW W.W. Grainger Thu, Oct 16 Before the Bell 0.63 WTNY Whitney Holding Corp Thu, Oct 16 Before the Bell 0.59 XLNX Xilinx, Inc. Thu, Oct 16 After the Bell 0.15 ZION Zions Bancorp Thu, Oct 16 After the Bell 1.04 ------------------------- FRIDAY ------------------------------- AKZOY Akzo Nobel N.V. Fri, Oct 17 -----N/A----- N/A ADP Automatic Data ProcessFri, Oct 17 Before the Bell 0.29 CBSS Compass Bancshares Fri, Oct 17 -----N/A----- 0.67 EQT Equitable Resources Fri, Oct 17 Before the Bell 0.45 HU Hudson United Bancorp Fri, Oct 17 After the Bell 0.66 KRI Knight Ridder Fri, Oct 17 Before the Bell 0.81 LEA Lear Corp. Fri, Oct 17 Before the Bell 1.02 RG Rogers Communications Fri, Oct 17 Before the Bell N/A RCN Rogers Wireless Comm Fri, Oct 17 -----N/A----- N/A SII Smith International Fri, Oct 17 Before the Bell 0.35 SON Sonoco Products Fri, Oct 17 Before the Bell 0.32 SUP Superior Industries Fri, Oct 17 Before the Bell 0.40 UST UST Inc. Fri, Oct 17 Before the Bell 0.74 WL Wilmington Trust Fri, Oct 17 Before the Bell 0.51 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable 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 ATU Atuant Corp 2:1 Oct 21st Oct 22nd -------------------------- Economic Reports This Week -------------------------- Earnings season is upon us and the announcements will be coming fast and furious for the next few weeks. Many of the truly big names will be announcing this week. We also have a very full economic calendar starting on Wednesday. ============================================================== -For- ---------------- Monday, 10/13/03 ---------------- None ----------------- Tuesday, 10/14/03 ----------------- None ------------------- Wednesday, 10/15/03 ------------------- Retail Sales (BB) Sep Forecast: -0.2% Previous: 0.6% Retail Sales ex-auto(BB)Sep Forecast: 0.4% Previous: 0.7% NY Empire State Indx(BB)Oct Forecast: 15.0 Previous: 18.4 Fed's Beige Book (DM) ------------------ Thursday, 10/16/03 ------------------ Initial Claims (BB) 10/11 Forecast: N/A Previous: 382K CPI (BB) Sep Forecast: 0.3% Previous: 0.3% Core CPI (BB) Sep Forecast: 0.1% Previous: 0.1% Business Inventories(BB)Aug Forecast: 0.0% Previous: -0.1% Industrial Prodction(DM)Sep Forecast: 0.4% Previous: 0.1% Capacity Utilization(DM)Sep Forecast: 74.8% Previous: 74.6% Philadelphia Fed (DM) Oct Forecast: 16.4 Previous: 14.6 Natural Gas Inventories Wall Street Wireless Industry Conference ---------------- Friday, 10/17/03 ---------------- Housing Starts (BB) Sep Forecast: 1.834M Previous: 1.820M Building Permits (BB) Sep Forecast: 1.828M Previous: 1.886M Mich Sentiment-Prel.(DM)Oct Forecast: 88.5 Previous: 87.7 Treasury Budget (DM) Sep Forecast: N/A Previous: $42.5B Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity • No hidden fees for limit orders or balances • $1.50 /contract (10+ contracts) or $14.95 minimum. • Zero minimum deposit required to open an account • Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. 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The Option Investor Newsletter Sunday 10-12-2003 Sunday 2 of 5 In Section Two: Watch List: Lots To Watch This Week Put Play of the Day: CCMP Dropped Calls: RYL Dropped Puts: None ------------------------------------------------------------ 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 ********** Lots To Watch This Week Magna Intl Corp - MGA - close: 77.70 change: +2.04 WHAT TO WATCH: Shares of MGA are back on the rebound. After reaching all-time highs above $83 in August the stock sold off as investors took profits from the big March-August run. Shares found support at their 100-dma and the $72 region. We've since seen it battle with resistance at its simple 50-dma and Friday's move was a clean breakout above it. Expect some resistance at $80 but bulls can target the recent highs. Chart= --- Perkin Elmer Inc - PKI - close: 17.19 change: +0.27 WHAT TO WATCH: PKI has been a big winner for investors this year with a massive gain off its February lows near $7.25. Now the stock is breaking out from a multi-week consolidation pattern to hit new yearly highs. We like the overall trend despite potential resistance on its weekly chart between $18.50 and $19.00 but earnings should be coming up in just five trading days. PKI could be worth watching. Estimates are for 14 cents a share. Chart= --- Zebra Technologies - ZBRA - close: 57.92 change: +0.98 WHAT TO WATCH: We came close to adding ZBRA to the OI call list this weekend. Shares have been consolidating sideways in a range between $49 and $56 for months. The Thursday-Friday surge broke through the top of this range and produced a nice pattern on its point-and-figure chart. This is a new all-time high for ZBRA and while we might expect some resistance at $60, patient investors may want to time an entry on a dip to $56. Chart= --- ImClone Systems - IMCL - close: 42.00 change: +2.90 WHAT TO WATCH: Wow! Friday produced a big volume surge and a nice gain for the share price. IMCL broke above its simple 50-dma while its MACD looks ready to produce a bullish buy signal. There is some speculation that the FDA will be reporting back to IMCL on its Erbitux treatment later this week. Expectations are positive but woe to any shareholder should the FDA come back negative. Chart= --- Invitrogen Corp - IVGN - close: 61.43 change: +2.34 WHAT TO WATCH: Here's another biotech stock that has produced big results from its April lows. Shares have more than doubled since mid April and Friday's move added another 4 percent. The recent trend of higher lows looks encouraging and the close back above $60 also looks tempting. Optimistic bulls might want to target late 2001 resistance near $70 but watch out for earnings on October 23. Chart= --- Wellpoint Health Network - WLP - close: 80.63 change: +1.00 WHAT TO WATCH: WLP was one of the best performing stocks during the bear market. Now shares have been suffering a multi-month consolidation phase from its June highs. It looks like WLP may have produced a double-bottom at the $74 level. Interested bulls might want to use a trigger above $81.50. Earnings are expected in late October. Chart= ---------------------------------- RADAR SCREEN: more stocks to watch ---------------------------------- NTAP $25.15 +1.12 - This networking stock jumped ahead on Friday despite JNPR's good, but not great earnings report. The stock is looking a little overbought from its recent low near $20. XRX $11.11 +0.31 - Stock traders may want to take a look at XRX. Shares have broken out of its trend of lower highs. While XRX does have resistance at $11.50 a breakout above this level wouldn't surprise us. MBT $82.30 -3.19 - This high-flyer finally ran into some profit taking on Friday. Shares remain very overbought and could consolidate back to the $75 level. KSS $52.65 -0.35 - This retailer has been under performing its peers and just broke down out of a bear flag consolidation pattern late this week. A retest of the June lows could be in order. UNTD $30.40 -0.74 - More aggressive bears are probably already on the trail of UNTD. The stock broke its rising channel a couple of weeks ago but it's still falling. A breakdown at $30 could lead to a retest of support and its simple 200-dma near $25. ------------------------------------------------------------ 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 ------------------------------------------------------------ ******************* THE PLAY OF THE DAY ******************* Put Play of the Day: ******************** Cabot Microelect. - CCMP - close: 58.54 change: -0.26 stop: 61.50 See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ The Ryland Group - RYL - close: 81.70 change: -0.20 stop: 79.25 Despite the very real possibility that we'll later have seller's remorse, it feels like it's time to close our RYL play. It has performed better than we had expected, up more than $8.50 from our picked price and still looks like it could head higher. But like the old adage says, "nobody ever went broke taking a profit". RYL is either putting in a top near $82 or getting ready to explode higher again. While we're exiting the play this weekend, our recommendation would be to sell into any further strength early on Monday. Traders with the intestinal fortitude to hang on for more upside should maintain stops at $79.25 and look for an exit in the $85 area. Picked on September 4th at $72.18 Change since picked: +8.59 Earnings Date 10/21/03 (confirmed) Average Daily Volume = 842 K PUTS ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ------------------------------------------------------------ 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 ------------------------------------------------------------ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 10-12-2003 Sunday 3 of 5 In Section Three: Current Calls: BBY, BSC, CBE, CAT, EXC, FD, UTX New Calls: COO Current Put Plays: MRK New Puts: CCMP ------------------------------------------------------------ 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 ****************** Best Buy Company - BBY - close: 52.65 change: -0.59 stop: 50.25 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: Just as we were beginning to fret that BBY might just roll over and die, the stock rocketed sharply higher on Thursday following the company's reaffirmation of its guidance. The entire Retail sector was strongly positive and that helped the bulls push to just 25-cents from our initial $54 target. Friday's lackluster session really didn't have anything to offer except for a bit of consolidation ahead of the weekend. Next week, we'll be looking for a breakout over $54 to confirm that our aggressive target of $57 is achievable. The best entries right now will come from a pullback and rebound from the $51.50-52.00 area, although momentum entries on a breakout over $54 should work too. Note that our stop is now set at $50.25 (just below the bottom of the 10/03 gap). Since BBY doesn't report earnings again until the middle of December, we have plenty of time to let the action play out. 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 next week. That makes the more conservative short-term choice the November 50 Call. 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 December 55 Call. ! Alert: October Options Expire on Friday the 17th! BUY CALL OCT-50 BBY-JJ OI=16075 at $3.00 SL=1.50 BUY CALL NOV-50 BBY-KJ OI= 1488 at $4.30 SL=2.75 BUY CALL NOV-55 BBY-KK OI= 4140 at $1.60 SL=0.75 BUY CALL DEC-55 BBY-LK OI= 5282 at $2.55 SL=1.25 Annotated Chart of BBY: Picked on October 5th at $51.00 Change since picked: +1.65 Earnings Date 12/17/03 (unconfirmed) Average Daily Volume = 3.89 mln --- Bear Stearns Cos - BSC - close: 76.64 chg: -0.05 stop: 73.50 Company Description: Founded in 1923, Bear, Stearns & Co. Inc. is a leading worldwide investment banking and securities trading and brokerage firm, and the major subsidiary of The Bear Stearns Companies Inc. With approximately $34.4 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities Corp., it offers prime broker and broker dealer services, including securities lending. Headquartered in New York City, the company has approximately 10,500 employees worldwide. (source: company press release) Why We Like It: Our recently added call play in BSC is still sleeping. We have been triggered when it traded above the $77.50 level but shares have spent most of last week consolidating sideways above the $76 mark. That's not necessarily a bad thing but we were expecting BSC to follow the strength in the XBD broker/dealer index. Speaking of which, the XBD has continued to notch new one-year highs as of Thursday's session and only slipping back two points during Friday's session. We are slightly cautious on BSC and bullish traders can take their time picking an entry point. We pointed out on Tuesday that our stance on BSC was somewhat risky as the stock is battling its bearish resistance on its point-and-figure chart. Currently, this level is proving to be a successful obstacle to the bulls. We would not be surprised to see BSC dip back to the $75 mark if the markets and the XBD pull back for some overdue profit taking. Should a dip to $75 occur, then bulls can look for a bounce to gauge any new entries. Potentially affecting our success in BSC are the myriad earnings announcements this week, specifically from the banking sector. Rumor has it that several big banks lost a ton of money on the bond market implosion this quarter and that could negatively affect the brokerage group (more of a guilt by association affect). We already know that BSC and most of the big brokers have already announced very strong earnings for the latest quarter but traders can have short memories sometimes. We want to reiterate that traders can be patient here. Technicals are somewhat mixed on BSC and some are suggesting some future weakness. A dip near $75 would be a preferable entry point. Suggested Options: We would not suggest the October options because there is not much time left. November and January's appear to be the best bet. Our preference would be the 75's. ! Alert: October Options Expire on Friday the 17th! BUY CALL NOV 75 BSC-KO OI= 369 at $3.50 SL=1.75 BUY CALL NOV 80 BSC-KP OI= 839 at $1.15 SL=0.65 BUY CALL JAN 75 BSC-AO OI=5169 at $5.00 SL=3.00 BUY CALL JAN 80 BSC-AP OI=3357 at $2.50 SL=1.25 Annotated Chart: Picked on October 9 at $77.50 Change since picked: - 0.86 Earnings Date 09/18/03 (confirmed) Average Daily Volume: 1.2 million Chart = --- Cooper Industries - CBE - cls: 50.45 chg: -0.12 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 initially added CBE to the call list as more of a technical play. The stock has broken strongly upward from a bull flag consolidation pattern on decent volume. The stock has now spent the last few sessions consolidating its recent gains from the $48 level and establishing new short-term support at $50.00. Traders can choose their entry point. A bounce from the $50 mark looks good while momentum traders can wait for a move above $51.50 or $52.00. The stock is currently in the process of filling the gap from the market's reaction to the 9/11 attacks two years ago and our initial upside target at $55 still looks viable. Should the broader markets pull back in profit taking this coming week we would expect to see CBE break the $50 mark and drop towards the simple 50-dma near $48.70. We've placed our stop at $48.00 to keep our risk light. 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. ! Alert: October Options Expire on Friday the 17th! BUY CALL NOV 50 CBE-KJ OI= 195 at $2.20 SL=1.15 BUY CALL NOV 55 CBE-KK OI= 532 at $0.45 SL= -- BUY CALL JAN 55 CBE-AK OI= 67 at $0.90 SL=0.45 Annotated Chart: Picked on October 5 at $51.00 Change since picked: - 0.55 Earnings Date 10/23/03 (confirmed) Average Daily Volume: 539 thousand Chart = --- Caterpillar Inc - CAT - close: 75.75 chg: -0.33 stop: 71.90 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: The stock market has been pretty enthusiastic over cyclical stocks. The improving economy, reflecting in the strong ISM data two weeks ago, and its expanding manufacturing sector means more business for companies like CAT. Shares of the stock certainly reflect the generous mood and CAT has been on a non-stop run after breakout of its recent consolidation from late-August through September. Contributing to CAT's strength is expectation that the company could also win a very big contract from the U.S. government for power generators in Iraq. The deal is rumored to be worth 25-to-30 cents a share for CAT's 2004 earnings. Technically, everything is firing on all cylinders. CAT's MACD, momentum and RSI indicators are all bullish although RSI is just beginning to reach overbought levels. Short-term stochastics are already pegged at overbought and Friday's dip in the share price has stochastics curving lower. CAT also has a very bullish P&F chart indicating strong demand. We are not suggesting new bullish plays in CAT because the company is due to announce earnings on Thursday the 16th. OptionInvestor.com will probably close the play on Tuesday or Wednesday ahead of earnings. We've all heard the term "buy the rumor, sell the news" and we don't want to get caught in the downdraft should it occur. Short-term traders can already begin to take profits and the rest of us should be planning our exits. Suggested Options: CAT is expected to announce earnings on Thursday, October 16th and we are not suggesting any new bullish plays at this time. ! Alert: October Options Expire on Friday the 17th! Annotated Chart: Picked on October 2 at $72.70 Change since picked: + 3.05 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 2.9 million Chart = --- Exelon Corporation - EXC - close: 62.45 change: -0.05 stop: 62.75 Company Description: Exelon Corp. is the parent corporation for each of Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO), which are electric utilities. Exelon, through its subsidiaries, operates in three business segments: Energy Delivery, Generation and Enterprises. The Energy Delivery segment consists of the retail electricity distribution and transmission businesses of ComEd in northern Illinois and PECO in southeastern Pennsylvania and the natural gas distribution of PECO in the Pennsylvania counties surrounding the city of Philadelphia. Generation is made up of the electric generating facilities, energy marketing operations and equity interests in Sithe Energies, Inc. and AmerGen Energy Company, LLC. Enterprises consists of competitive retail energy sales, energy and infrastructure services, communications and other investments weighted towards the communications, energy services and retail services industries. Why we like it: It was a rather quiet week for shares of EXC, as the stock hovered near its recent highs. The bulls actually pushed a few pennies above the 10/02 high on Thursday afternoon, but they couldn't hold onto the gains into the close and the stock fell back into the $63.50-65.00 consolidation zone. Despite the lack of bullish conviction last week, it was encouraging to see the EXC hold above the 10-dma ($64.19), and the prior high ($63.10), while gradually drifting back towards the center of the ascending channel. We're looking for the stock to make a directional move in the week ahead and based on the bullish technical picture, we're still giving the nod to the upside. Use dips back to the $63.50-64.00 area as viable entry points in anticipation of a breakout to new multi- year highs. Momentum traders can consider new positions on a move above $65.10, but need to see the move come on solid volume and preferable accompanied by renewed strength in the Utility Sector index (UTY.X), which has been drifting sideways to lower over the past week. Maintain stops at $62.75. Suggested Options: Shorter Term: The November 65 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Traders looking to capitalize on an extended rally will want to look to the January 65 Call. This option should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. ! Alert: October Options Expire on Friday the 17th! BUY CALL NOV-60 EXC-KL OI= 119 at $5.00 SL=3.00 BUY CALL NOV-65 EXC-KM OI= 235 at $1.25 SL=0.50 BUY CALL JAN-65 EXC-AM OI= 769 at $2.15 SL=1.00 Annotated Chart of EXC: Picked on September 28th at $62.64 Change since picked: +1.81 Earnings Date 10/23/03 (confirmed) Average Daily Volume = 1.23 mln --- Federated Dep Store - FD - cls: 45.58 chng: -0.02 stop: 42.75*new* Company Description: Federated Department Stores, Inc. is a retail organization operating department stores that sell a range of merchandise, including men's, women's and children's apparel and accessories, cosmetics, home furnishings and other consumer goods. As of February 2003, the company, through its subsidiaries, operated 394 department stores and 61 furniture galleries and other specialty stores under the names Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Lazarus, Macy's and Rich's. In addition to its stores in 34 states, Puerto Rico and Guam, the company conducts direct-to-customer mail catalog and e-commerce business under the Bloomingdale's By Mail and macys.com names. Why we like it: Coming on the heels of Thursday's strongly bullish breakout, Friday's tight-range consolidation session was a clear victory for the FD bulls. the stock traded in a narrow 38-cent range on light volume as positions were squared ahead of the weekend. This looked like a healthy consolidation session ahead of further upside and we want to take advantage of any weakness in FD to establish new positions. A dip and rebound from the $44.00-44.50 area would now be a gift of an entry point, as that level of former resistance should now provide firm support. Momentum types can consider entering on a breakout over the $46 level, but only if accompanied by the Retail index (RLX.X) pushing through the $380 resistance. Fortunately, FD doesn't report earnings until mid-November, so we don't have the time pressure of having to be out of the play ahead of the earnings announcement. Our target of $50 still looks reasonable, although we've decided to raise our stop to $42.75, which is below all of the major moving averages except for the 200-dma. Suggested Options: Shorter Term: The October 45 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 next week. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 47 Call or even the January 50. These options are 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 45 Call. ! Alert: October Options Expire on Friday the 17th! BUY CALL OCT-45 FD -JI OI=218 at $1.25 SL=0.60 BUY CALL NOV-45 FD -KI OI=244 at $2.40 SL=1.25 BUY CALL NOV-47 FD -KW OI= 61 at $1.15 SL=0.50 BUY CALL JAN-50 FD -AJ OI=769 at $1.25 SL=0.60 Annotated Chart of FD: Picked on October 9th at $45.60 Change since picked: -0.02 Earnings Date 11/12/03 (unconfirmed) Average Daily Volume = 1.89 mln --- United Technologies - UTX - cls: 82.13 chg: -0.47 stop: 78.50 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) Why We Like It: United Technology is another cyclical manufacturer that has enjoyed some share price appreciation in recent weeks. We added it back to the call list on a breakout above resistance at the $80.50 level. Since then we've seen it trade as high as 84.17 on Thursday before slipping backwards in mild profit taking. If the markets continue to slip, then we would expect UTX to retest support in the $80-81 region. However, if the broader indices can hold steady or even continue their climb then UTX might see a last gasp pre-earnings run up early in the week. The company is expected to announce earnings on October 16th. For this reason we are not suggesting new bullish plays in UTX at this time. There are too many unknown variables that can sabotage a call play. The company could miss earnings. It could beat the estimates but have poor revenue numbers. It could turn in very strong headline numbers but then fudge the conference call. Who knows but we do know that OptionInvestor will be closing the play on Tuesday or Wednesday before the announcement. Unfortunately, our expectations aren't very high at the moment. The DJIA is looking a little top heavy and in need of additional consolidation. The little dip on Friday isn't going to be enough and normally, as a Dow component, UTX is likely to follow where the index leads. Suggested Options: We are not suggesting new bullish plays with UTX expected to report earnings on Thursday, Oct. 16th. ! Alert: October Options Expire on Friday the 17th! Annotated Chart: Picked on October 2 at $80.45 Change since picked: + 1.70 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 1.9 million Chart = ************** NEW CALL PLAYS ************** Cooper Cos - COO - close: 41.40 chg: +0.55 stop: 39.00 Company Description: The Cooper Companies, Inc. manufactures and markets specialty healthcare products through its CooperVision and CooperSurgical units. CooperVision markets a broad range of contact lenses for the vision care market. Headquartered in Lake Forest, Calif., it manufactures in Huntington Beach, Calif., Rochester, N.Y., Norfolk, Va., Adelaide, Australia, Farnborough and Hamble, England, Madrid, Spain and Toronto. CooperSurgical supplies diagnostic products, surgical instruments and accessories to the gynecology market. With headquarters in Trumbull, Conn., it also manufactures in Bedminister N.J., Cranford, N.J., Fort Atkinson, Wis., Malmo, Sweden, Montreal and Berlin. (source: company press release) Why We Like It: Probably better known for its specialty contact lens that let you change the color of your eyes, COO actually operates two different divisions. Together they have been performing well. The company last reported earnings on September 3rd and beat estimates by 4 cents with results of 58 cents a share. Revenues were up almost 20% and the company guided higher for the fourth quarter. Someone must have found out beforehand because the stock was up sharply right before the earnings announcement. The stock had heavy short interest near 18% of its float and bears were running to cover. Shares shot up from $37 to almost $45 in just three days. Since that time the stock has slowly consolidated back towards the $40 level, actually the $39.50 mark, where the stock had gapped up on its earnings report. We've seen it bounce twice at $39.50 and COO has essentially "filled the gap". Now that the consolidation is over its technical oscillators (momentum, RSI, MACD) are all starting to turn positive again. Friday's gain was actually a breakout of its trend of declining highs. The stock still has relatively high short interest near 15% of its float. Combine all of the above with a relatively cheap valuation with a trailing P/E of 20 and a forward P/E of 16 and suddenly COO looks attractive to investors who may be looking for a place to put their money if tech looks too pricey. We're going to start the play with a stop loss at $39.00 although one could easily slide it up to 39.50 (the recent double bottom). Our initial target is $45 but its P&F chart is forecasting a price target closer to $55 (given enough time). Suggested Options: Short-term traders should probably look over the November options while longer-term traders can evaluate the February strikes. BUY CALL NOV 40 COO-JH OI= 111 at $1.75 SL=0.90 BUY CALL NOV 45 COO-JI OI= 158 at $0.25 SL= -- BUY CALL FEB 45 COO-BI OI= 360 at $1.70 SL=1.00 Annotated chart: Picked on October 12 at $41.40 Change since picked: + 0.00 Earnings Date 09/03/03 (confirmed) Average Daily Volume: 391 thousand Chart = ------------------------------------------------------------ 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 ------------------------------------------------------------ ***************** CURRENT PUT PLAYS ***************** Merck & Co - MRK - close: 49.48 chg: +0.49 stop: 51.50 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: Why are drug stocks under performing? Sector rotation. Money has been chasing the tech and cyclical stocks and ignoring boring, dependable players like big cap drugs. Granted several of the drug giants have been battling patent expiration issues on some of the bigger cash cows the last few years. Investors have also been concerned about growing competition for MRK's cholesterol drugs from rival AstraZeneca who just launched their new treatment Crestor. Technically, MRK has been in a multi-year decline and the recent drop from its June-July highs appears to be part of the pattern. Thursday's drop through $50.00 and surpassing the August lows on strong volume was a key breakdown in multi-month support. MRK did see a bounce on Friday but we would expect it to rollover under the $50 mark. There are always risks when playing drug/biotech stocks. The omnipresent headline risk of some new breakthrough can give bears nightmares. Plus, as these stocks get cheaper we're in danger of another analyst deciding to upgrade them on a valuation basis. If it's any consolation MRK does have a bearish point-and-figure chart indicating a price objective near $39-$40. Suggested Options: Short-term traders can choose November strikes. Longer-term traders can look to the January's. ! Alert: October Options Expire on Friday the 17th! BUY PUT NOV 50.00 MRK-WJ OI= 7285 at $1.90 SL=0.95 BUY PUT NOV 47.50 MRK-WW OI= 6938 at $0.85 SL=0.50 BUY PUT NOV 45.00 MRK-WI OI= 2022 at $0.35 SL= -- Annotated Chart: Picked on October 6 at $49.90 Change since picked: - 0.42 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 6.2 million Chart = ************* NEW PUT PLAYS ************* Cabot Microelect. - CCMP - close: 58.54 change: -0.26 stop: 61.50 Company Description: Cabot Microelectronics is a supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization (CMP). CMP is a polishing process used by IC device manufacturers to flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. Why we like it: The week just ended was pretty positive for the Semiconductor stocks, with the SOX closing at its best level in a month and looking like it wants to make a run at its 52-week highs near $473. Despite this clear sector strength, CCMP is a standout weakling, unable to really participate to the upside and all too eager to fall. The latest feeble rally attempt in the stock came to an abrupt halt on Friday morning, as the initial surge above $61 was harshly knocked back, with the stock then ending near its low of the day. The PnF chart is still bearish (although the bearish price target of $55 has already been achieved. This is a pure relative weakness play, where we're looking for anticipation of earnings on 10/23 to exacerbate that weakness. Initial support will likely be found near $55, just as it was a couple weeks ago. But this time, we're expecting to see that support fail and price drop into the $51-52 area to test the 200-dma ($51.05). It is interesting that Thursday's failed rebound was turned back right at the descending trendline from the August high, as well as the 30-dma ($61.16). Those continually dropping measures of resistance should provide a very firm ceiling for CCMP, allowing us to place our stop just above at $61.50. There's the potential for some mild support to be found just below $58, reinforced by the 10-dma ($57.77), but a break below $57.50 can be used for aggressive momentum entries now that daily Stochastics have clearly turned bearish and MACD is starting to roll over. But the preferable entry will come on a failed rebound below $60, as it provides a more favorable risk/reward ratio. Note that this will have to be a rather quick play, as CCMP is due to report its earnings on the morning of 10/23. Suggested Options: Aggressive short-term traders will want to focus on the November 55 Put, as it will provide the best return for a short-term play. More conservative traders will want to look to the November 60 strike, with is slightly in the money. We've also listed the October 60 strike, but take note that these contracts expire on Friday, making them a very aggressive choice. BUY PUT OCT-60 UKR-VL OI=1353 at $2.45 SL=1.25 BUY PUT NOV-60 UKR-WL OI= 197 at $4.80 SL=3.00 BUY PUT NOV-55 UKR-WK OI= 251 at $2.65 SL=1.25 Annotated Chart of CCMP: Picked on October 12th at $58.54 Change since picked: +0.00 Earnings Date 10/23/03 (unconfirmed) Average Daily Volume = 745 K ------------------------------------------------------------ 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 10-12-2003 Sunday 4 of 5 In Section Four: Leaps: New Lows Ahead Traders Corner: Will It Hit The Fan This Week? Get Ready To Duck! Traders Corner: Where is the Dow Going? ------------------------------------------------------------ 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 ------------------------------------------------------------ ***** LEAPS ***** New Lows Ahead By Mark Phillips mphillips@OptionInvestor.com While it wouldn't take a genius to know that is my prognosis for the stock market over the long term, that isn't the point I'm trying to convey. All areas of the equity markets appear headed higher in the weeks ahead and any bearish moves are likely to be driven by company-specific admissions in the October earnings cycle. What I'm referring to with that title is the VIX, which is very close to trading at new multi-year lows. Putting aside the issue of the non-linearity created by the change in the way this measure of market sentiment is calculated, the VIX plummeted to 18.45 by the end of last week and aside from a brief dip to 18.23 in August of 2000, this is the lowest level for the VIX since July of 1999. As a point of reference, the VXO (the old VIX) ended the week at 19.24 -- still quite low but not its lowest point for this cycle. What does that mean about the near future in terms of the equity markets? I wish I knew, but I do not perceive it as a validation that we're soon headed to new highs for any of the major averages. At the same time, it doesn't predict an imminent plunge this week, or even this month. As I've mentioned recently, there are 3 primary factors that influence the action in the market -- Fundamentals, Technicals and Sentiment. Much of the technical picture is bullish, but quite extended to the upside, as investors have been buying in anticipation of improving fundamentals. In short, sentiment has been driving the markets higher, which has served to keep the technicals pointing up, all the while the fundamental picture for the market and the US economy are mixed, at best. Sky-high stock valuations, an abysmally weak currency that flies in the face of the stated "strong dollar" policy of the current administration, negligible signs of job growth and a still large overhang of excess capacity are just some of the major bearish factors currently facing the bulls. At the same time, the Fed has been trying to keep its finger in the dyke, printing money and keeping interest rates low in an attempt to stimulate economic growth with which to pay off the ever-growing mountains of government debt. By looking at the action in the stock market, it would seem that the Fed is succeeding in this endeavor, but I view it as the final desperation move in an attempt to keep the house of cards from falling over. Eventually sanity will reign again and it could be a painful experience for those that have blindly bought into the story that the 2-year bear market is dead and buried. That doesn't mean that we should blindly short into an irrationally extended market. There are too many stories of investors that were ruined trying to do just that during 1999 and early 2000 before the top was finally in. But at the same time, we should all remain cognizant of the inherent risks that exist for long positions. Another measure of the fact that things are starting to get a bit frothy is the degree to which margin debt is once again beginning to grow. During the quarter ended on June 30th, margin debt at E-Trade rose by 31% over the prior quarter. Am I the only one that feels like it is late 1999 all over again? The big thing that feels very different is the action of the corporate insiders, who are selling at an incredible rate compared to their aggregate buying activity. Normally, when there are $20 worth of insider sales for every dollar of insider buys, it is considered bearish. Just as a single data point, in August, there was $644 of insider stock sales for every dollar on the buy side for Semiconductor stocks. That's off the charts, in my opinion! So while the smart money (corporate insiders) are dumping stocks at the greatest rate since just before the 1987 crash, the dumb money (individual investors) are expanding their margin debt to buy these very same stocks. Sure the bullish rise may continue from here and I certainly won't try to bet against it with my account until the charts tell me it is advisable, but this does not appear to be the environment in which I want to be trying to play the long side for anything longer than a week or two at a time. Clearly, trades of that short of a duration do not fit the bill of what we're trying to do here in the LEAPS column. Even if I had been smart enough to play the long side out of the long summer consolidation, I have to say that the volatility seen at the end of September would likely have been too great to allow me to remain in those long-term position trades. This is the inherent risk of trying to catch a bullish ride on a market that is already overextended and becoming more so. That brings us back to the bullish percent readings, which are really telling us nothing other than the bulls are still carrying the bulk of the risk, but still remain very much in charge. Let's review where things are. NASDAQ-100 - Bear Confirmed at 77% NASDAQ Composite - Bull Confirmed at 73.6% Dow Industrials - Bull Correction at 83% S&P 500 - Bull Confirmed at 79.80% S&P 100 - Bull Correction at 79% The NASDAQ-100 is the only major index not in a bullish stance, and that index closed at new 52-week highs last Friday. Typically, a BP reading over 70% is considered overbought, yet since May, only the NDX and COMPX have spent any time below that threshold! In June the COMPX BP finally climbed above 70% and the NDX BP only had a brief foray below that level during the August dip. Bullish Percent readings, the VIX, weekly and monthly oscillators and numerous factors in the underlying economy all point to significant price weakness ahead. But they've been doing that for several months and price has just continued its inexorable rise. To me, that says position trades intended to last for a period of months or longer are ill-advised unless we can find the ideal entry setup and play with tight stops. I've been in the process over the past few weeks of trying to build a Watch List that will allow us to achieve those favorable entry points, while at the same time giving us the ability to play in either bullish or bearish market conditions. About all I've managed to accomplish is churn numerous plays on and off of the Watch List, with some of the current candidates moving in and out of HOLD status. But at least we haven't been suckered into bad Portfolio plays, and in the current market, I consider that to be a huge success. Portfolio: WMT - It's hard to say whether entering the WMT play was a wise or foolish move. The Retail index (RLX.X) really had an impressive week, and that bodes badly for our play. But WMT really didn't participate in the sector strength and that looks good for our bearish position. Both daily and weekly Stochastics are pointing down and it now remains to be seen if the weakness seen through the month of September was a bear trap or a precursor of the future. Traders still looking for an entry point should be able to do well with entries near current levels to as high as $59.75, just below that long-term descending trendline. Maintain stops at $61. Watch List: AGN - Still in its holding pattern, AGN can't trade the $82 level to generate that PnF Buy signal, yet there isn't enough weakness to drive it below the bottom of the multi-month rising wedge pattern. We need to wait for AGN to trade the $82 level to give that PnF Buy signal before taking any action. So until that happens we wait. QQQ - I really hate to do it, but there's really no other responsible choice but to change our QQQ play back to Hold status. The NASDAQ went straight up throughout the past week and Friday's close was a new 52-week high for the QQQ. Remember, we don't want to try to pick a top in this market, but want to take a good entry once it's clear things have changed in favor of the bears. That clearly hasn't happened yet, with QQQ moving back above the midline of the ascending channel and really showing no signs of significant weakness. We may not be able to find a solid entry, but at least we aren't in a losing position! Turning to the PnF chart, there isn't any sign of weakness, as price remains in a column of X, above the bearish resistance line, with a bullish price target of $45. With the VXN NASDAQ Volatility index approaching its all-time lows and the NASDAQ-100 Bullish Percent still in Bear Confirmed, there's no way I'd consider a bullish position trade in this symbol. But clearly we're premature for considering a bearish trade as well. I'm as sick of writing it as you are of reading it, but patience is the key. SMH - Well, last week our patience was definitely rewarded with the SMH moving higher all week long and ending very near the highs from early September. The dip out of overbought on the weekly Stochastics is already being reversed back up and price closed above the descending trendline that began in early 2001. Shifting the scale to Logarithmic shifts that trendline up slightly to $40, which coincides with pretty solid resistance on the weekly chart. The PnF chart shows the SMH still on a Buy signal, in a column of X and with a bullish price target of $55! So for now, trying to short a top in this symbol is still a very aggressive strategy. I won't attempt to pick a top here, but will instead wait for some significant sign of weakness. Right now, that looks like a break below $34 will be required. That would give us a break below the late September low and the 50-dma as well as a fresh PnF Sell signal. We probably won't want to enter on the initial break below $34, so I'm shifting SMH back into Hold status, pending that trade at $34. FRX - Last week had me feeling pretty good about putting FRX on Hold. Price action was weak, volume was anemic and I'm having a harder time justifying a bullish position here. FRX is fast approaching its October 19th FDA deadline related to its Memantine treatment for severe Alzheimer's. At this point, I think we're best served by remaining on the sidelines and wait for the reaction to the news once it comes out. NEM - Based on the was gold and gold stocks stabilized last week, you'd think I'd be kicking myself over setting far too aggressive an entry target for the play. Ah, contraire! You see, the decline that will give us a solid entry appears to be just getting underway, with weekly Stochastics (10,5,3) on NEM just starting to tip out of overbought territory. I don't expect enough weakness in NEM to let us play the downside profitably, but getting it on the Watch List early will have it catching our attention on a regular basis and that should prevent us from missing the next bullish run that is quite likely to unfold as the dollar continues to weaken. Radar Screen: FNM - There still hasn't been any sign of weakness from FNM, as it steadily works higher towards the long-term descending trendline, now at $73.25. The prudence of not forcing a bearish play here is becoming more evident by the week and for now the plan remains the same. Wait for either price weakness or at least a bearish cross on the weekly Stochastics, while price remains below that trendline. QCOM - QCOM appears to have left the station without us, continuing to gradually move higher after that rebound from the $42 area a couple weeks ago. The bullish camp still has the ball and I like the long-term upside for the stock. But for now, the best course of action is to wait for a viable entry point to materialize, ideally with a drop to the $40-41 area. DJX - While it still sounds like a broken record, it's still premature to consider a bearish position in the DJX, as price continues to march higher. The $98-100 area is still a strong price magnet and I expect that zone to be tested before any discernable weakness materializes. Earnings season will be in full swing next week and from the early reports last week there doesn't seem to be anything to challenge the strong bullish sentiment that prevails in the broad market. The DOW Bullish Percent is still near its cycle highs at 83% and weekly Stochastics (10,5,3) is really not showing any overt signs of weakness, having been in or near overbought since late April. Trying to play the upside appears to have too little potential reward, while playing the downside is still too risky. So for now we wait and watch for a viable trade entry setup. Despite several hours of searching, I found not one more stock that I was willing to list, even on the Radar Screen. Bullish candidates look far too extended to consider and those that I'd like to play to the downside are not yet showing enough weakness. We already have plenty of plays like that already listed, so I decided to leave the list alone and take a fresh look when I return in two weeks. Closing Thoughts: Here we are midway through the month of October, and I don't feel like we are any nearer to resolution of how high is high for the broad market averages. The DOW still feels like it wants to test 10,000, the NASDAQ Composite appears headed for 2100 and the S&P 500 is still seeking the 1070 area. Until those measures are reached, the bullish sentiment is likely to remain undaunted and playing the downside for more than a quick swing trade is likely to be met with failure. I have no doubt that trending markets will return, but it is unlikely to occur over the next couple weeks unless there are some really ugly earnings disappointments. That means the bulls still have the ball and their grip is unlikely to loosen over the near-term. I got a one-week reprieve on the imminent approach of parenthood, but that grace period is unlikely to be extended. I'll be stepping away from the markets beginning on Wednesday and will remain out of the publication schedule next weekend. So there will not be a LEAPS column next weekend. Trade safely in the meantime, and I'll see you again on October 26th. 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 $ 4.70 - 7.84% $61 '06 $ 55 WWT-MK $ 7.20 $ 6.50 - 9.72% $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 10/05/03 $33-34 JAN-2005 $ 35 ZIE-AG CC JAN-2005 $ 30 ZIE-AF JAN-2006 $ 35 WIE-AG CC JAN-2006 $ 30 WIE-AF SBUX 10/12/03 $27.50-28.00 JAN-2005 $ 30 ZIE-AG CC JAN-2005 $ 25 ZIE-AF JAN-2006 $ 30 WIE-AG CC JAN-2006 $ 25 WIE-AF PUTS: QQQ 08/10/03 HOLD JAN-2005 $ 32 ZWQ-MF JAN-2006 $ 32 WD -MF SMH 08/24/03 HOLD JAN-2005 $ 35 ZTO-MG JAN-2006 $ 35 YRH-MG New Portfolio Plays None New Watchlist Plays SBUX - Starbucks Corporation $30.19 **Call Play** Just in case anyone needs an explanation of what SBUX does, they make good coffee and sell it for a tidy profit. The franchise has been growing so rapidly that one of these days we'll likely see a news release for the first Starbucks store opening within a Starbucks! Seriously, it is a well-run, profitable business that just keeps growing at a slow and steady pace. It isn't the business that captures my attention though, it is the price chart. SBUX has been in a broad ascending channel since July of last year and is showing no signs of slowing down anytime soon. Unfortunately, price is currently banging right against the top of that rising channel and needs to pull back to give us a decent entry. I like a retracement into the $27.50-28.00 area for new entries, as there should be very strong support just below $27.50 from the July/August consolidation. To be fair, SBUX has already had quite a run in the past year, rising a full 33%. So how much more upside can there really be? Taking a look at the PnF chart, we see that SBUX is clearly on a Buy signal, above the bullish support line and has a bullish price target of $37. A $9 move on a $28 stock looks like plenty of profit potential to me, and the LEAPS are reasonably priced. The bottom of the rising channel is currently $25.50, with the 200-dma at $25.50, so we'll initially look to place our stop at $25. Potentially $3 of risk and $9 or upside makes for a favorable risk/reward ratio. Let me re- emphasize that it is highly unlikely we'll be taking an entry in the near-term, as the stock looks extended and weekly Stochastics are pinned in overbought. SBUX goes into the Watch List this weekend, but we're unlikely to take a position until after the company reports earnings on November 13. BUY LEAP JAN-2005 $30 ZOS-AF BUY LEAP JAN-2005 $25 ZOS-AE **Covered Call** BUY LEAP JAN-2006 $30 WSP-AF BUY LEAP JAN-2006 $25 WSP-AE **Covered Call** Drops None ------------------------------------------------------------ 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 ------------------------------------------------------------ ************** TRADERS CORNER ************** Will It Hit The Fan This Week? Get Ready To Duck! By Mike Parnos, Investing With Attitude People were bidding over $1,600 on Ebay for tickets to watch the New York Yankees play the Boston Red Sox. I doubt they were CPTI students. As a matter of fact, these are the very people who are buying the options that we're selling. Fools and their money are soon parted. Why shouldn't we benefit? What could you buy for $1,600? 160 large pizzas, 500 bags of Doritos, 10 pair of Air-Jordans, a 1994 Ford pick-up, 2-weeks of prescription painkillers for Rush Limbaugh, public speaking lessons for Arnold Swartznagger, and two round trip tickets to Colorado, accommodations, and a personal tour of Kobe Bryant's cell. Aren't you glad I'm here to put things into perspective? (a rhetorical question). If you have to look up "rhetorical," don't tell anyone. _____________________________________________________________ While the rest of the world re-examines its priorities, let's check out some possible quickie (1 week) trades. We've had some success with these "quickie" trades in the past. The best part is that we're only exposed to market fluctuations for a week. Quickie #1 – QLGC Siamese Condor - $50.59 Sell 10 contracts of QLGC October $50 puts @ $1.15 Sell 10 contracts of QLGC October $50 calls @ $1.70 Buy 10 contracts of QLGC October $40 puts @ $.10 Buy 10 contracts of QLGC October $60 calls @ $.10 We have a total net credit of $2.65 and a profit range of $47.35 to $52.65. There seems to be support and resistance near our profit parameters. As usual, our bailout points are our parameters. Quickie #2 – SPX Iron Condor - 1038.60 Sell 10 contracts of SPX October 1015 puts @ $.45 Sell 10 contracts of SPX October 1065 calls @ $.75 Buy 10 contracts of SPX October 1005 puts @ $.05 Buy 10 contracts of ADRX October 1075 calls @ $.05 We have a total net credit of $1.40 ($1,400) and a very decent maximum profit range of 1015 to 1075. There is no compelling reason for SPX to go anywhere in particular (but that doesn't mean it won't!). Some support and resistance are there, but, as we know, the SPX can be unpredictable. Quickie #3 – QQQ Lottery Play - $35.01 Buy 10 contracts of QQQ October $33 puts @ $.10 Buy 10 contracts of QQQ October $37 calls @ $.05 We have a net debit of $.25 ($250). A two-point move could double your money – or more. If you want to make more, you have to risk a little more. You can buy the $34 puts and $36 calls for a total of $.35 ($350). If the QQQs make a move, you'll participate more quickly and to a greater degree. Quickie #4 – ADTN Bear Put Spread - $74.03 I advocate not picking a direction. However, if you have a few extra shekels you'd care to risk, you might find this interesting. Buy 10 contracts of the ADTN October $75 puts @ $2.80 Sell 10 contracts of the ADTN October $70 puts @ $.75 Total debit of $2.15. ADTN has run up and it may be time for it to pull back and test support at about $70 before it continues its move up. ADTN moves in chunks. If ADTN finishes below $70, you have a profit potential of $2.85 ($2,850) – the difference between the strike prices ($5) less the debit ($2.15). In a worst-case scenario, the most you could lose is $2.15 ($2,150). If you prefer, you could position yourself similarly with a $70/$75 bear call spread. In that case you would sell the $70 calls at about $4.75 and buy the $75 calls for $1.95 – a net credit of about $2.80. As ADTN moves down, the less it would cost you to buy it back. Plus, you have the rapid time erosion of the last week of the cycle working in your favor. This method may actually be preferable, but remember, we're picking a direction and that is dangerous. Don't use your rent or pizza money. _____________________________________________________________ A Reminder & Word Of Caution The premiums quoted here are based on Friday's closing bid/ask prices. In a few instances, when the bid/ask spread is wide, we figure you may be able to shave off a nickel here and there. Also, remember, on Monday the premiums may be different due to market movement and/or the additional two days of time erosion. Be careful. If a stock gaps up or down, it may change the entire dynamic of the trade. Don't jump into the pool without making sure there's enough water. ___________________________________________________________ Do You Have Your Siamese Condor Checklist? On Thursday, I wrote about the Siamese Condor checklist I created. I've sent out over 100 so far. If you're a serious CPTI student, you should have one. It will simplify the selection (and elimination) process. Send me an email requesting it (mparnos@OptionInvestor.com) and I'll be glad to send it to you. It's in a Microsoft Word file. Print it out, make a lot of copies and have fun. _____________________________________________________________ OCTOBER & ONGOING POSITIONS October Position #1 – SPX Iron Condor – Trading @ 1038.06 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 1067.30. We're at 1038.73 – about a 30-point cushion on our upside. October Position #2 – QQQ – Put Calendar Spread – Trading @ $35.01 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 $39.49. 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 @ $518.05 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 -- $35.01. 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 $21.05. 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 #3 – INTC "Siamese" Iron Condor: $250 Loss __________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, look under "Education" on the OI home page and click on "Traders Corner." They're waiting for you 24/7. ___________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self-discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP ************** TRADERS CORNER ************** Where is the Dow Going? By Steve Gould 'Tis the season for presidential politics. And such a funny game it is. At the start of this season, the field of presidential contenders sported about nine potential new presidents. Over time, that number will slowly dwindle down to about 2-3. Eventually the clear winner will emerge and secure the nomination. We are sort of in a similar situation with the wave count. Last week I presented three viable, alternative scenarios as to where the market could go. Eventually, one scenario will emerge as the clear winner and we will know where the market is heading. Let's briefly recap the scenarios. (For a more thorough discussion of these scenarios, please see last week's analysis.) Scenario One: The S&P 500 has already started its downward descent toward 650. The retracement of wave 2 was at 99.999999% of wave one, but hey, it did not violate the rule yet. Should the S&P 500 not trace any higher and actually decline, this was still a viable scenario. Scenario Two: The S&P 500 has not yet finished the C wave of the 4 wave. It should do so around the 1060-1090 level and then the S&P 500 will start the move down to 650. Scenario Three: The S&P 500 has completed the A wave of the larger A-B-C correction with a five wave basic pattern containing a failed fifth wave. The B wave up is now in progress. Over the last week, scenario one became unviable. If we do the math, we calculate that we are down to two. I am afraid that we will not know the verdict on those two for a while. But in the meantime, let’s see what has happened over the last week. Chart: S&P 500 Weekly 10/10/2003 Here is where the S&P 500 stands from a weekly vantage point. Let's take a closer look at this in terms of scenario two, the one I think is most probable. The key to this scenario is to figure out just how high the S&P 500 will go. To start the process, I am going to quote one of my chiropractic instructors. He would always say, "when you hear hooves, think horses. If it turns out to not be horses, then you can think zebras." The point being that when a patient presents with a certain set of symptoms, go with the obvious diagnosis. Then if the treatment turns out to be ineffective, start thinking about more exotic diseases. In this absolutely classic picture of an unfolding five wave basic pattern, the obvious choice is that the developing 4 wave is an expanded flat. The characteristics of an expanded flat are 1. The A-B-C waves segment into a 3 wave, a 3 wave and a 5 wave. Based on this chart, the A wave is a 3 wave zigzag, the B wave is a 3 wave expanded flat and the C wave is a 5 wave (with caveats). 2. The A wave and B wave are the same height (plus/minus 25%). The A wave started at 768.63 and ended at 954.28 for a total of 185.65 points. The B wave started at 954.28 and ended at 788.90 for a total of 165.38 points. The B wave is 89% of the A wave. 3. The C wave is somewhere between 1.38 to 1.62 times the height of the A wave. (Usually it is closer to 1.62.) The A wave started at 768.63 and ended at 954.28 for a total of 185.65 points. The C wave started at 788.90 and so far has extended to 1048.28 for a total of 259.38 points. The C wave is currently 1.40 x Wave A. At 1.62 x wave A the C wave will be 1089.65 Raw numbers are hard to visualize so let's see what it looks like graphically. (Note that the numbers do not match exactly because the resolution could not produce the exact readings of the range. For example, you see that the bottom of the B wave reads at 788.49 instead of 788.90.) Chart: S&P 500 Weekly Expanded Flat 10/10/2003 Technically speaking, the C wave has already reached the target zone of 1045 satisfying this criterion of the expanded flat. The S&P 500 could start declining at any time. However, a further rise to the 1090 level would not surprise me. We will just have to figure out how to label this C wave. The other area of resistance is going to be the Fibonacci retracement level of the 3 wave. Typically, a wave 4 will retrace anywhere between 23.6 – 76.4% of wave 3. However, the majority of retracements fall between 38.2 – 61.8%. Chart: S&P 500 Weekly Retracement Levels 10/10/2003 Right now the S&P 500 is coming up on to its 38.2% retracement level at 1060. Obviously the S&P 500 has already surpassed the 23.6% retracement, but the five wave basic pattern was not fully formed. The minimum criteria for retracements were satisfied but the wave form was not complete. The next logical level is the 38.2% and the S&P 500 is fast approaching it with a fully formed five wave basic pattern. If we combine the retracement level with the expanded flat levels we would get the following chart. Chart: S&P 500 Weekly Resistance Zone 10/10/2003 What this chart is saying is that the S&P 500 will most likely climb to new highs over the next few weeks. Maybe even months. When the S&P 500 prints somewhere between the 1060 - 1090 level, it will then be up against a brick wall. This resistance level is going to be tough for it to penetrate. Oh sure, it may go through it to 1100, but that is really insignificant in the scheme of things. Then at that juncture, the S&P 500 will reverse course and begin its journey down to the 650 level. That could take many months or it could happen in a matter of weeks. Another terrorist attack could send the markets plunging just like September 11. You may be thinking, what happens if the S&P 500 does breakthrough the 1090 level? Is the analysis completely dead in the water? Not yet. Expanded flats come in several flavors. The vanilla flavor is where wave C is 1.62 x wave A. However, in rare cases, wave C can be 2.62 x wave A. This puts the C wave around 1275. The 61.8% Fibonacci retracement is 1240. So if the S&P 500 does burst through the 1090 level, look for the next resistance level at 1240 – 1275. Chart: S&P 500 Daily 10/10/2003 With scenario two, the daily chart is now proving to be a bit problematic. The dip below 1000 in late September and the new high are causing some labeling problems. Elliott Wave rules cannot be violated. The 5 wave just does not label very cleanly which means we need to think up some creative labels. Perhaps the four wave needs to be adjusted, or the five wave is going to be very extended. Hard to tell at the moment. Any conjecture would be a PFA (pulled from air) guess. So far, everything else is falling into place (oscillator, subdivisions, etc.) so I am going to reserve judgment for now and see how it plays out. Note that a close look at the chart shows that Advanced Get also thinks that somewhere around 1100 will be the end of the 5 wave, based on a Fibonacci ratio to wave 3. If we go back to the case where the C wave is 2.62 x wave A, then the daily chart does not pose a problem at all. Consider that the 5 (circle) wave is going to be very extended. The rise from the bottom of the 4 (circle) wave to September high is wave 1, the drop below 1000 wave 2 and the new rise is the start of wave 3. Or not. We will know soon enough. Bottom line, I believe we will see some more highs in the market for the next few weeks to months. I just do not know whether the highs are going to be 1090 or 1275. ------------------------------------------------------------ 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 ------------------------------------------------------------ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 10-12-2003 Sunday 5 of 5 In Section Five: Covered Calls: Hedge Strategies With Covered-Calls Naked Puts: Economics & Stock Prices -- They Go Hand-in-Hand Spreads/Straddles/Combos: A Day Without Direction! Updated In The Site Tonight: Market Posture: Minor Signs of Profit Taking ------------------------------------------------------------ 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: Hedge Strategies With Covered-Calls By Mark Wnetrzak One of our readers offered some excellent ideas for the use of put options with volatile covered-call candidates. Attn: markw@OptionInvestor.com Subject: Hedges for Covered-Calls? Many thanks for the opportunity to learn about covered calls from your articles and comments in the OIN. I have been using your valuable education mainly to help select my own securities for writing calls, but I also use some of your stock picks if they fit with my own criteria. I always use stop losses on the long stock in case things go against me, and most of the time things work out just fine. However, sometimes unforeseen events will cause the price of the security to gap below my stop. Case in point is HEPH, one of this month's list a couple of weeks ago. Ah, biotechs and pharmaceuticals, they can be so unpredictable, but because of that they also often have expensive option premiums, very nice for writing calls. That brings me to the point of this note. Buying a put at the next lower strike when the call is shorted could offer some protection should the stock drop precipitously. However, this would reduce the profit for the total play, so I was wondering if you might comment on this type of hedge. As an aside, I have to leg into all of my covered call trades, as my broker only allows a covered call trade as a combination if a put protection is included. Thanks again for your great OI articles. Duggo Hello Duggo, Thank you for your kind words! I believe whole-heartedly that each individual must tailor any strategy they use to fit their own personality and reward-verses-risk tolerance. The key to all trading or investment strategies really boils down to a successful application of money-management techniques. Yes, buying puts to protect a position is a viable strategy but always at a price. If an individual is writing covered-calls and using puts to offset any catastrophic drop in the underlying stock, the credit from the sold calls must be large enough to offer a potential profit after the debit of buying the protective puts. This would probably entail selling at-the-money (ATM) covered-calls (CCs) as opposed to ITM CCs to obtain the largest time value to help pay for the put protection. The overall position would still be susceptible to a loss - the difference between the cost-basis (CB) and the striking price of the puts, not to mention an increase cost of commissions. In many cases, the loss could be rather large, but lets look at an example: Netflix (NASDAQ:NFLX) at $44.05 with 46 days to Nov. expiration and the Nov-40 call bid at $6.50 and the Nov-35 put ask at $1.20. The cost basis of the covered-call is $37.55 (44.05 - 6.05) and the return is 6.12% (2.45 / 40). At 46 days, that is a potential monthly return of 4% (6.12 / 46 * 365 / 12). If you purchase the Nov-35 put at $1.20, your return drops to 3.13% (1.25/40) or 2.06% on a monthly basis, and your cost basis rises to $38.75. You do get protection for any move below $35 but the position is susceptible to a loss of $3.75, not counting commissions. Without the protective put, the potential loss is $37.55, if the stock moves to zero. Of course, one would need to analyze all of the potential combinations of covered-call strikes and put strikes to find a position that offers a reasonable profit and probability of success. Again, it just depends on each individual's personal preference. If you think a catastrophic move is probable, puts do offer some protection, but what if the move is up? That can be just as frustrating (grin)! Best Regards, Mark W. Editors Note: Mark "W." is at markw@OptionInvestor.com. There is a "w" after Mark in the address and we have more than one "Mark" on the OIN staff. Thank you! 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 ALKS 15.28 15.16 OCT 15.00 1.00 0.72* 11.0% HLIT 5.48 7.78 OCT 5.00 0.80 0.32* 9.9% SCMR 5.20 5.15 OCT 5.00 0.65 0.45* 8.6% STEC 7.73 9.08 OCT 7.50 0.50 0.27* 8.1% PVN 12.60 12.49 OCT 12.50 0.55 0.44 7.9% BEAV 5.12 5.11 OCT 5.00 0.45 0.33* 7.7% CHU 7.43 9.07 OCT 7.50 0.50 0.57* 7.1% QSFT 12.44 13.43 OCT 12.50 0.50 0.56* 6.8% ARIA 5.24 6.50 OCT 5.00 0.60 0.36* 6.7% CHKP 17.88 18.00 OCT 17.50 0.85 0.47* 6.0% MXO 12.90 14.00 OCT 12.50 1.05 0.65* 6.0% ECLG 22.37 20.58 OCT 20.00 2.90 0.53* 5.9% OXGN 11.17 11.50 OCT 10.00 1.55 0.38* 5.7% VXGN 6.50 12.03 OCT 5.00 1.80 0.30* 5.5% XING 8.43 9.40 OCT 7.50 1.20 0.27* 5.4% THOR 16.83 15.88 OCT 15.00 2.70 0.87* 5.4% NTPA 7.97 8.55 OCT 7.50 0.65 0.18* 5.3% CREE 19.21 20.77 OCT 17.50 2.25 0.54* 4.6% NABI 8.22 10.90 OCT 7.50 0.95 0.23* 4.6% SEAC 13.18 13.86 OCT 12.50 1.05 0.37* 4.4% DSCM 7.99 8.15 OCT 7.50 0.85 0.36* 4.4% ALKS 14.23 15.16 OCT 12.50 2.20 0.47* 4.2% ISRG 17.75 16.79 OCT 17.50 0.70 -0.26 0.0% ISIS 8.05 6.50 OCT 7.50 0.80 -0.75 0.0% * Stock price is above the sold striking price. Comments: Next week should be interesting as the October option series expires and earnings season begins in earnest. Can the bulls take the major averages higher or will the temptation to "sell the news" finally take hold? As always, the next few days should offer some clues. ISIS Pharmaceuticals (NASDAQ:ISIS) continues to act a bit worrisome and next week the position will be shown closed. Other stocks on our early exit watch list include: Ecollege.com (NASDAQ:ECLG), Thoratec (NASDAQ:THOR) and Intuitive Surgical (NASDAQ:ISRG). Positions Previously Closed: Hollis-Eden Pharma (NASDAQ:HEPH), Incyte (NASDAQ:INCY) and ID Biomedical (NASDAQ:IDBE); the last two are now positive (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 BVSN 5.31 NOV 5.00 QVB KA 0.65 64 4.66 42 5.3% ALGN 15.60 NOV 15.00 CUA KC 1.60 80 14.00 42 5.2% PUMA 5.54 NOV 5.00 PUP KA 0.85 185 4.69 42 4.8% IBIS 14.42 NOV 12.50 UIB KV 2.65 111 11.77 42 4.5% BRCD 6.33 NOV 6.00 BQB KI 0.65 2450 5.68 42 4.1% TLAB 7.83 NOV 7.50 TEQ KU 0.70 1239 7.13 42 3.8% ALKS 15.16 NOV 12.50 QAL KV 3.20 5640 11.96 42 3.3% 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). ***** BVSN - BroadVision $5.31 *** Bottom Fishing *** BroadVision (NASDAQ:BVSN) is a company that develops, markets and supports enterprise portal applications that enable their customers to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners and customers through a personalized self-service model that increases revenues, reduces costs and improves productivity. The company also provides a full spectrum of global services to help ensure success for businesses, including strategic services, implementation services, migration services and ongoing training and support. BroadVision has been forming a Stage I base for over a year and investors can use this position to speculate on the company's future. Earnings are due on Oct. 22. NOV-5.00 QVB KA LB=0.65 OI=64 CB=4.66 DE=42 TY=5.3% ***** ALGN - Align Technology $15.60 *** Next Leg Up? *** Align (NASDAQ:ALGN) is engaged in the design, manufacture and marketing of Invisalign, a proprietary system for treating malocclusion, or the misalignment of teeth. Invisalign includes ClinCheck, an Internet-based application that allows dental professionals to simulate treatment, in three dimensions, by modeling two-week stages of tooth movement, and Aligners, which are thin, clear plastic, removable dental appliances that are manufactured in a series to correspond to each two-week stage of the ClinCheck simulation. As of December 31, 2002, around 80,000 patients worldwide had entered treatment using Invisalign. Align rallied on heavy volume Thursday to a new all-time high which suggests further upside potential. Investors can use this position to establish an entry point closer to technical support. Earnings are due Oct. 23. NOV-15.00 CUA KC LB=1.60 OI=80 CB=14.00 DE=42 TY=5.2% ***** PUMA - Pumatech $5.54 *** Cheap Speculation *** Pumatech (NASDAQ:PUMA) is a company that develops, markets and supports synchronization, mobile-application development and mobile-application management/device management software that enables consumers, mobile professionals and IT officers to harness the full capabilities of handheld organizers/computers, Web-enabled cellular phones, pagers and other wireless or hardline personal communications platforms. Its products, which include Intellisync, Enterprise Intellisync, Enterprise Intellisync, Second Edition and Satellite Forms software; along with its technology licensing offering, the Intellisync Software Development Kit (Intellisync SDK), are designed to connect mobile devices to essential information anytime, anywhere. In September, Pumatech announced that the company will license its software to a major seller of hand-held computers in Asia. Investors were obviously pleased as they have almost doubled the stocks share value in the last several weeks. Our outlook is also bullish, due to the recent technical strength and this position offers a reasonable cost basis in the issue. Target shooting a lower net-debit will increase the potential yield. NOV-5.00 PUP KA LB=0.85 OI=185 CB=4.69 DE=42 TY=4.8% ***** IBIS - Ibis Technology $14.42 *** Testing Resistance *** Ibis Technology (NASDAQ:IBIS) develops, manufactures and markets SIMOX-SOI implantation equipment and wafers for the worldwide semiconductor industry. SIMOX, or Separation by IMplantation of Oxygen, is a form of silicon-on-insulator (SOI) technology that creates an insulating barrier below the top surface of a silicon wafer. SIMOX-SOI products are well suited for many commercial applications, including servers and workstations, portable and desktop computers, wireless communications and battery-powered devices such as laptop computers, personal digital assistants (PDAs) and mobile telephones, integrated optical components and harsh-environment electronics. Sales of 300-millimeter wafers accounted for approximately 44% of the company's total wafer product sales in 2002. Shares of Ibis Technology have rallied strongly since May and are now testing an "old" resistance area. Investors with a bullish outlook and who believe the rally will continue can use this position to establish a favorable cost basis in the issue. NOV-12.50 UIB KV LB=2.65 OI=111 CB=11.77 DE=42 TY=4.5% ***** BRCD - Brocade $6.33 *** Bottom Fishing: Part II *** Brocade Communications Systems (NASDAQ:BRCD) develops, markets, sells and supports data storage networking products and services. Brocade offers a line of intelligent storage networking products and SAN management software that enables companies to implement highly available, scalable, manageable and secure environments for data storage applications. Their products and services are marketed, sold and supported worldwide to end users through distribution partners, including OEM partners, value-added distributors, systems integrators and VARs. Brocade is another stock that has been forging a Stage I base for about a year and this position offers a conservative method for investors to speculate on the company's future. NOV-6.00 BQB KI LB=0.65 OI=2450 CB=5.68 DE=42 TY=4.1% ***** TLAB - Tellabs $7.83 *** Bottom Fishing: Part III *** Tellabs (NASDAQ:TLAB) designs, makes and markets communications equipment to telecommunications service providers worldwide. Their products include optical networking systems, broadband access systems and voice-quality enhancement systems. Tellabs' optical networking systems are designed to help service providers reduce operating costs, generate greater revenues and efficiently manage bandwidth. The company's broadband access systems consist of managed access and transport systems used to deliver wireless and business services. The company's voice-quality enhancement systems consist primarily of the Tellabs 3000 family of broadband and narrowband echo cancellers and its voice-quality enhancement solutions, which enable wireless and landline providers to improve voice quality in long distance, wireless and private networks. Yet once again, we have a stock that has been in a Stage I base for almost a year. Investors interested in the communications sector can use this position to speculate on the near-term performance of the issue. Target shooting a lower net-debit will increase the potential yield and offer a more favorable cost basis. Earnings are due Oct. 15. NOV-7.50 TEQ KU LB=0.70 OI=1239 CB=7.13 DE=42 TY=3.8% ***** ALKS - Alkermes $15.16 *** Entry Point? *** 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. Last week Alkermes 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 at the risk of owning this Alkermes near its long-term (150-day) MA. NOV-12.50 QAL KV LB=3.20 OI=5640 CB=11.96 DE=42 TY=3.3% ***** ***************** 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 LNUX 5.29 NOV 5.00 UKF KA 0.80 218 4.49 42 8.2% NTAP 25.15 NOV 25.00 NUL KE 2.00 1130 23.15 42 5.8% SANM 10.48 NOV 10.00 SQN KB 1.20 410 9.28 42 5.6% IMCO 7.81 NOV 7.50 IQZ KU 0.85 363 6.96 42 5.6% NKTR 14.03 NOV 12.50 QNX KV 2.25 544 11.78 42 4.4% SSTI 10.89 NOV 10.00 SJV KB 1.45 3011 9.44 42 4.3% INET 5.17 NOV 5.00 UAU KA 0.45 998 4.72 42 4.3% ATYT 15.77 NOV 15.00 QFY KC 1.60 2162 14.17 42 4.2% OXGN 11.50 NOV 10.00 QYO KB 2.05 159 9.45 42 4.2% ITG 20.43 NOV 20.00 ITG KD 1.50 43 18.93 42 4.1% CIPH 13.28 NOV 12.50 UBI KV 1.45 80 11.83 42 4.1% RHAT 10.78 NOV 10.00 RCV KB 1.30 996 9.48 42 4.0% ***************** NAKED PUT SECTION ***************** Options 101: Economics & Stock Prices -- They Go Hand-in-Hand By Ray Cummins A lot has been said about the government's ability to correctly manage interest rates and money supply, but how much do you really know about the Federal Reserve and its activities. Today's article is a bit "off-topic" but one of our readers asked for a brief narrative on this subject and I think it is important for traders to know how changes in monetary policies flow through to other economic variables and ultimately to security prices. With that idea in mind, I have decided to review some of the key concepts of U.S. monetary policy as well as the primary entities that control the variables in our unique financial system. Before we can discuss that topic, you must have a clear understanding of economic principles, including some basic terms and definitions. The first area we will examine is the economic environment, which basically revolves around our GDP or Gross Domestic Product. The Gross Domestic Product is the total market value of all goods and services produced within the U.S. in a given period. The principal components of the GDP are: consumption, which is generally consumer -based; investments, which refers to business-related spending but also includes new housing purchases; government spending; and net exports (total exports minus total imports). The sum of these four groups makes up the GDP and statistics suggest that consumption is responsible for nearly 70% of its total value. With such a large portion of the total output, it's obvious why the consumer is very important in any analysis of economic growth and that's why there are so many reports on recent trends in spending and consumer confidence, employment and similar factors. Another import sphere of economics is supply and demand. Most of you are familiar with this concept simply through past experience with stock prices, however you may not realize the importance of this dynamic relationship in the overall scheme of economics. The fundamental correlation between supply and demand is very simple: as demand for a given product or service increases, so does its price. At the same time, the quantity of products or services offered by businesses, who anticipate profits at the higher price, increases as well. A corollary to that idea infers that when an economic factor other than price changes, demand also increases or decreases. This is a crucial relationship because it defines the way the Federal Reserve adjusts the cost of money (interest rates) with regard to the demand for money. Recall the recent trends in interest rates; the Fed has been continuously balancing the need for lower borrowing costs (which fuels economic growth) with the potential for deflation, where prices decline in absolute terms. Since deflation is a condition contrary to the Federal Reserve's established goal of price stability, and can lead to a reduction in economic activity, it remains the primary concern. The final topic for today's dialogue is the business cycle. The business cycle can be divided into three basic trends: Expansion, Contraction (or Recession), and Recovery. In the expansion phase, prices for commodities and natural resources rise, which leads to inflation. The GDP increases, mostly due to new investments in plants and equipment by profitable businesses and the demand for loans is high. Employment is also robust and wages increase, but labor productivity falls. The Fed eventually tightens the money supply, causing interest rates to move higher while the price of fixed-income investments decline. In the market, "smart" money transitions from growth to value stocks and defensive issues. The contraction stage starts with a decline in business and consumer spending. Government investment generally increases to offset the consumption deficit in the private sector but productivity and the GDP ultimately wanes. The Federal Reserve's fiscal and monetary policy shifts to "expansionary" and interest rates are reduced. Inflation begins to subside and prices for commodities stabilize or decline. The effect on financial instruments is most obvious in stocks, which fall to historic support areas as investors move to fixed-income and convertible issues. Eventually, the recovery cycle begins but it is the most difficult period to assess as there are mixed signals in many areas of the economy. Analysts look for rising corporate profits, increased consumer spending, declining unemployment and expanding GDP. The Fed must cooperate by keeping inflation in check and interest rates low, despite the increased demand for borrowing. Investors who accurately predict the trend switch to growth and cyclical stocks while paring positions in long-term bonds. If everything works in favor of the economy, GDP growth resumes and the business cycle continues until a new peak is reached. Hopefully, we are somewhere in the early stages of the recovery phase now. Next time, we'll talk about the Federal Reserve and how the FOMC uses basic economics to effect fiscal and monetary policy. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield EMIS 6.19 7.54 OCT 5.00 0.35 0.35* 6.5% 18.6% RMBS 18.73 26.33 OCT 15.00 0.30 0.30* 4.4% 16.0% CERN 35.47 35.00 OCT 30.00 0.55 0.55* 4.1% 12.9% GERN 12.98 13.70 OCT 10.00 0.25 0.25* 3.7% 12.7% ADLR 15.95 18.20 OCT 12.50 0.50 0.50* 3.6% 11.8% USG 17.51 15.97 OCT 12.50 0.35 0.35* 3.1% 9.9% SEAC 14.34 13.86 OCT 12.50 0.35 0.35* 3.1% 9.0% LRCX 22.81 26.24 OCT 20.00 0.40 0.40* 3.0% 8.6% STAT 14.58 12.96 OCT 12.50 0.40 0.40* 2.9% 8.4% MSTR 50.03 49.79 OCT 45.00 0.55 0.55* 2.7% 7.7% NFLX 40.15 44.65 OCT 32.50 0.30 0.30* 2.0% 7.5% PDII 25.06 24.89 OCT 22.50 0.40 0.40* 2.6% 7.4% NKTR 13.83 14.03 OCT 10.00 0.25 0.25* 2.2% 7.2% ONXX 23.92 25.50 OCT 20.00 0.40 0.40* 2.2% 7.2% ERES 36.70 39.75 OCT 32.50 0.35 0.35* 2.4% 7.0% RIMM 37.29 42.86 OCT 32.50 0.50 0.50* 2.3% 6.8% BRCM 28.79 31.37 OCT 25.00 0.25 0.25* 2.2% 6.8% CEPH 49.62 47.10 OCT 40.00 0.65 0.65* 1.8% 6.5% ERES 33.63 39.75 OCT 27.50 0.30 0.30* 1.6% 5.7% AMHC 41.98 43.59 OCT 35.00 0.40 0.40* 1.7% 5.7% MERQ 45.76 50.29 OCT 40.00 0.50 0.50* 1.8% 5.6% IDXC 26.02 23.91 OCT 22.50 0.35 0.35* 1.7% 5.3% INSP 19.92 24.44 OCT 17.50 0.35 0.35* 1.8% 5.2% GOLD 23.93 22.52 OCT 20.00 0.35 0.35* 1.5% 5.1% ATMI 27.52 24.65 OCT 25.00 0.30 -0.05 0.0% 0.0% * Stock price is above the sold striking price. Comments: Friday's languid session was very strange, considering the recent volatile trading activity and the only conclusion one might draw is that investors are hunkering down for the upcoming barrage of profit reports. Monday marks the true beginning of the earnings season and expectations are high, based on current share values. Anything less than a perfect scorecard will likely result in a sell-off for individual companies, so traders should keep their stops tight and continue to employ diligent portfolio management. Atmi Inc. (NASDAQ:ATMI) became an early-exit candidate this week after the firm said it would book a quarterly loss due to the cost of closing plants, shifting production to contract manufacturers and an inventory write-down. i-Stat (NASDAQ:STAT) appears to be stuck in a range and any further downside activity would be cause for early exit. Randgold (NASDAQ:GOLD), IDX Systems (NASDAQ:IDXC) and USG Corp. (NYSE:USG) 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 XMSR 19.10 NOV 17.50 QSY WW 0.85 759 16.65 42 3.7% 8.9% FCEL 14.35 NOV 12.50 FQG WS 0.50 267 12.00 42 3.0% 8.2% PXLW 12.10 NOV 10.00 PUO WB 0.30 610 9.70 42 2.2% 7.1% MTZ 12.81 NOV 10.00 MTZ WB 0.25 0 9.75 42 1.9% 6.4% NWAC 12.18 NOV 10.00 NAQ WB 0.25 242 9.75 42 1.9% 6.2% CNX 21.88 NOV 20.00 CNX WD 0.55 150 19.45 42 2.0% 5.4% CY 20.44 NOV 17.50 CY WW 0.40 265 17.10 42 1.7% 5.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). ***** XMSR - XM Satellite Radio $19.10 *** Rally Mode! *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service. With nearly 930,000 subscribers, XM is on pace for 1.2 million subscribers later this year. Broadcasting live daily from studios in Washington, DC, New York City and Nashville, Tennessee at the Country Music Hall of Fame, XM provides its loyal listeners with 101 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. In addition, XM is available in more than 80 different 2004 car models. XMSR is in "rally mode" and traders who think the trend will continue in the coming weeks can profit from that outcome with this position. NOV-17.50 QSY WW LB=0.85 OI=759 CB=16.65 DE=42 TY=3.7% MY=8.9% ***** FCEL - FuelCell Energy $14.35 *** Alternate Energy! *** FuelCell Energy (NASDAQ:FCEL), based in Danbury, Connecticut, is a world-recognized leader for development and commercialization of high efficiency fuel cells for electric power generation. The company's DFC technology eliminates external fuel processing to extract hydrogen from a hydrocarbon fuel. This results in a product whose cost, combined with high efficiency, simplicity and reliability, results in product advantages for stationary power generation. Shares of FCEL rallied last week after the company said it was selling a direct fuel-cell plant to its Japanese partner. Similar announcements of new contracts have also "fueled" the stock's rise in recent weeks and traders who believe the trend to alternate energy sources will continue should consider this position. NOV-12.50 FQG WS LB=0.50 OI=267 CB=12.00 DE=42 TY=3.0% MY=8.2% ***** PXLW - Pixelworks $12.10 *** Digital Display Technology *** Pixelworks (NASDAQ:PXLW), headquartered in Tualatin, Oregon, is a leading provider of system-on-a-chip ICs for the advanced display market. Pixelworks' solutions process and optimize video, computer graphics and Internet information for display on a wide variety of devices, including flat-panel monitors, digital televisions and multimedia projectors, used in business and consumer markets. The company's broad IC product line is used by leading manufacturers of consumer electronics and computer display products to enhance image quality and ease of use. The demand for flat screen displays and high-definition visual graphics is driving the stocks in this group higher and PXLW has performed better than most in recent weeks. Investors who agree with a bullish outlook for PXLW can use this position to establish an entry point in the issue. The company's quarterly earnings are due this week. NOV-10.00 PUO WB LB=0.30 OI=610 CB=9.70 DE=42 TY=2.2% MY=7.1% ***** MTZ - MasTec $12.81 *** Hot Sector! ** MasTec (NYSE:MTZ) is a leading communications, intelligent traffic and energy infrastructure service provider in North America and Brazil. The company designs, builds, installs, maintains and monitors internal and external networks for leading telecom, broadband, energy and Fortune 1000 companies and for state departments of transportation. In August, Mastec posted earnings that were above estimates and the CEO said the results represented "solid evidence" that the company's restructuring activities in the fourth quarter of 2002 were successful. The company president also said that a "visible trend has emerged that has set the stage for increasing profitability and cash flow." Investors appear to agree with the bullish outlook as the stock recently hit a 2-year high on increasing volume. Traders can speculate on future upside activity in the issue with this position. NOV-10.00 MTZ WB LB=0.25 OI=0 CB=9.75 DE=42 TY=1.9% MY=6.4% ***** NWAC - Northwest Airlines $12.18 *** Bottom-Fishing: Airlines *** Northwest Airlines (NASDAQ:NWAC) is the world's fourth largest airline with hubs at Detroit, Minneapolis/St. Paul, Memphis, Tokyo and Amsterdam, and approximately 1,500 daily departures. With its travel partners, Northwest serves nearly 750 cities in almost 120 countries on six continents. In 2002, consumers from throughout the world recognized Northwest's efforts to make travel easier. A 2002 J.D. Power and Associates study ranked airports at Detroit and Minneapolis/St. Paul, home to Northwest's two largest hubs, tied for second place among large domestic airports in overall customer satisfaction. Readers of TTG Asia and TTG China named Northwest "Best North American airline." The airline sector has rebounded in recent sessions after a number of analysts said the group will recover in the coming year. Investors can attempt to establish a low-risk cost basis in NWAC with this position. Quarterly earnings are due this week. NOV-10.00 NAQ WB LB=0.25 OI=242 CB=9.75 DE=42 TY=1.9% MY=6.2% ***** CNX - CONSOL Energy $21.88 *** Coal: A "New" Black Gold? *** CONSOL Energy (NYSE:CNX) is the largest producer of high-Btu bituminous coal in the United States, and the largest exporter of U.S. coal. CONSOL Energy has 20 bituminous coal mining complexes in seven states and in Australia. In addition, the company is one of the largest U.S. producers of coalbed methane, with daily gas production of over 130 million cubic feet. The company also produces electricity from coalbed methane at a joint-venture generating facility in Virginia. CONSOL Energy has annual revenues of $2.2 billion. The company received a U.S. Environmental Protection Agency 2002 Climate Protection Award and the Department of the Interior's Office of Surface Mining 2003 and 2002 National Award for Excellence in Surface Mining for the company's innovative reclamation practices in southern Illinois. CONSOL is a recently active stock in the Metals and Minerals sector and investors who want to diversify their portfolio should consider this position. NOV-20.00 CNX WD LB=0.55 OI=150 CB=19.45 DE=42 TY=2.0% MY=5.4% ***** CY - Cypress Semiconductor $20.44 *** Earnings Speculation! *** Cypress Semiconductor (NYSE:CY) is "connecting from last mile to first mile" with high-performance solutions for personal, network access, enterprise, metro switch, and various other core communications-system applications. Cypress "connects" using wireless, wireline, digital, and optical transmission standards, including USB, Fibre Channel, SONET/SDH, Gigabit Ethernet, and DWDM. Leveraging its process and system-level expertise, Cypress makes industry-leading physical layer devices, framers, and network search engines, along with a broad portfolio of high-bandwidth memories, timing technology solutions, and reconfigurable mixed-signal arrays. Cypress is due to announce quarterly earnings this week and traders who believe the report will be favorable can speculate on that outcome with this play. NOV-17.50 CY WW LB=0.40 OI=265 CB=17.10 DE=42 TY=1.7% MY=5.1% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield AMR 14.64 NOV 12.50 AMR WV 0.55 7301 11.95 42 3.3% 9.3% ONXX 25.50 NOV 20.00 OIQ WD 0.75 907 19.25 42 2.8% 9.3% CREE 20.77 NOV 17.50 CVO WW 0.70 1094 16.80 42 3.0% 8.8% RMBS 26.33 NOV 20.00 BNQ WD 0.65 1404 19.35 42 2.4% 8.0% NFLX 44.65 NOV 35.00 QNQ WG 0.85 257 34.15 42 1.8% 6.3% ERES 39.75 NOV 32.50 UDB WZ 0.80 100 31.70 42 1.8% 6.1% DPMI 27.00 NOV 25.00 DUD WE 0.80 0 24.20 42 2.4% 6.0% DRIV 32.28 NOV 25.00 DQI WE 0.55 137 24.45 42 1.6% 5.7% IDXC 23.91 NOV 20.00 XQW WD 0.45 11 19.55 42 1.7% 5.3% CELL 40.00 NOV 30.00 ULN WF 0.60 414 29.40 42 1.5% 5.1% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A Day Without Direction! By Ray Cummins Stocks consolidated Friday amid light trading volume as investors moved to the sidelines ahead of next week's parade of quarterly earnings reports. The Dow drifted 5 points lower to 9,674 while the NASDAQ Composite added 3 points to close at 1,915. The broader Standard & Poor's 500 Index ended unchanged at 1038. All three stock averages moved higher during the week. Breadth was roughly neutral with losers outpacing winners 6 to 5 on the technology exchange while the ratio was reversed on the NYSE. Volume was light at 1.1 billion shares on the Big Board and 1.4 billion shares on the NASDAQ. Bonds rose with the benchmark 10-year Treasury note up 10/32 to yield 4.26%, down from the one-month high of 4.35% on Thursday. ***************** 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 29.06 OCT 22 25 0.30 24.70 $0.30 Open MERQ 49.41 50.29 OCT 40 42 0.30 42.20 $0.30 Open BBH 137.69 133.16 OCT 120 125 0.45 124.55 $0.45 Open CELG 45.48 44.83 OCT 35 40 0.50 39.50 $0.50 Open MYL 27.74 28.01 OCT 22 23 0.13 22.97 $0.13 Open SINA 37.41 41.52 OCT 25 30 0.45 29.55 $0.45 Open COGN 33.16 34.14 OCT 27 30 0.40 29.60 $0.40 Open CTSH 40.41 43.99 OCT 30 35 0.55 34.45 $0.55 Open IMDC 76.91 71.50 OCT 60 65 0.55 64.45 $0.55 Open NEM 40.66 39.25 OCT 35 37 0.30 37.20 $0.30 Open EBAY 54.22 60.46 OCT 47 50 0.25 49.75 $0.25 Open GENZ 46.00 49.78 OCT 40 42 0.35 42.15 $0.35 Open RIMM 37.29 42.86 OCT 30 32 0.20 32.30 $0.20 Open ADTN 72.64 74.03 OCT 60 65 0.35 64.65 $0.35 Open? MRVL 40.61 42.63 OCT 35 37 0.20 37.30 $0.20 Open SNDK 71.18 72.95 OCT 60 65 0.50 64.50 $0.50 Open SMH 36.92 38.35 OCT 32 35 0.25 34.75 $0.25 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Adtran (NASDAQ:ADTN) did not offer the target credit, however it may have been a viable position for conservative spread traders. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status CAH 56.36 58.25 OCT 65 60 0.65 60.65 $0.65 Open PFE 30.51 30.75 OCT 35 33 0.25 32.75 $0.25 Open XL 76.05 78.18 OCT 85 80 0.60 80.60 $0.60 Open APC 42.70 43.01 OCT 48 45 0.35 45.35 $0.35 Open CI 47.15 46.65 OCT 55 50 0.50 50.50 $0.50 Open FRX 48.93 47.85 OCT 60 55 0.50 55.50 $0.50 Open BVF 36.75 27.06 OCT 45 40 0.50 40.50 $0.50 Open GPRO 25.85 24.45 OCT 32 30 0.25 30.25 $0.25 Open IMCL 37.73 42.00 OCT 50 45 0.40 45.40 $0.40 Open? DNA 79.82 80.65 OCT 90 85 0.55 85.55 $0.55 Open FFH 157.95 160.50 OCT 175 170 0.45 170.45 $0.45 Open IMCL 39.64 42.00 OCT 50 45 0.40 45.40 $0.40 Open? LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss ImClone (NASDAQ:IMCL) is a candidate for early exit after the firm announced Friday that the FDA has accepted for filing and possible accelerated approval ImClone's application for the use of Erbitux in combination with irinotecan for the treatment of patients with EGFR-expressing irinotecan-refractory metastatic colorectal cancer. XL Capital (NYSE:XL) is on the "watch" list and Cerner (NASDAQ:CERN), which is profitable, has previously been closed to limit potential losses. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status HTCH 33.02 32.91 OCT 25 30 4.50 29.50 0.50 Open AVII 5.54 5.50 DEC 5 7 0.90 5.90 (0.40) Open DELL 34.91 35.47 OCT 30 32 2.40 32.40 0.10 No Play LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss Dell (NASDAQ:DELL) didn't offer a viable entry in the bullish play. 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 46.20 OCT 55 50 4.60 50.40 0.40 Open CCMP 55.83 58.54 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) will be an "early-exit" candidate on any further upside activity. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status XING 9.13 9.40 DEC 12 7 0.10 0.30 Open JNPR 16.63 17.62 NOV 19 14 (0.20) 1.00 Open? LRCX 24.38 26.24 DEC 30 20 0.15 0.50 Open Juniper Networks (NASDAQ:JNPR), which cost slightly more to enter than expected, and Lam Research (NASDAQ:LRCX) offered favorable profits in less than one week. Gene Logic (NASDAQ:GLGC), 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 31.60 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 should consider closing the play to limit losses. CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status PRU 36.41 38.07 DEC-37C OCT-37C 0.30 0.60 Open MSFT 27.31 28.91 JAN-27C OCT-30C 2.20 2.40 Open Positions in both Ing Groep (NYSE:ING) and The Medicines Company (NASDAQ:MDCO) offered profitable opportunities prior to be closed. Prudential (NYSE:PRU) is a candidate for (bullish) adjustment on any further upside activity. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status CLS 17.55 17.84 OCT 17 17 2.35 3.10 Open? NVDA 18.17 16.73 OCT 17 17 2.90 3.50 Open? AFCI 22.66 24.37 OCT 22 22 3.10 3.00 Open? TRI 30.50 32.35 NOV 30 30 4.90 5.00 Open EASI 59.70 63.5 NOV 60 60 8.50 9.00 Open YHOO 37.24 43.16 OCT 37 37 3.75 5.75 Open? ZMH 55.52 56.52 DEC 55 55 5.20 5.50 Open COF 59.70 61.98 OCT 60 60 2.80 3.75 Open? TTWO 39.18 39.20 OCT 40 40 2.45 2.45 Open Yahoo! (NASDAQ:YHOO) was a big winner this week after the firm rallied on favorable earnings. Capital One (NYSE:COF) was also volatile in conjunction with the finance group and the position yielded a great short-term gain. Celestica (NYSE:CLS), Nvidia (NASDAQ:NVDA), Zimmer Holdings (NYSE:ZMH) and Engineered Support Systems (NASDAQ:EASI) 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 27.69 Oct 30 25 1.40 0.50 Open? Conservative traders can close the position in Manhattan Associates (NASDAQ:MANH) for a favorable profit. 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. ***** AET - Aetna $62.76 *** Safe-Haven Sector? *** Aetna (NYSE:AET) is a health benefit company with three primary businesses: Health Care, Group Insurance and Large Case Pensions. Health Care consists of health and dental plans offered on both a risk basis, where Aetna assumes all or a majority of the risk for health and dental care costs, and an employer-funded basis, where the plan sponsor under an administrative service contract, and not the company, assumes all or a majority of this risk. Health plans generally include health maintenance organization, point-of-service, preferred provider organization and indemnity benefit products. The Group Insurance segment includes both group life insurance products offered on a risk basis, as well as group disability and long-term care insurance products offered on a risk, and an employer-funded basis. Large Case Pensions manages a large variety of retirement products, including pension and annuity products, primarily for defined benefit and defined contribution plans. AET - Aetna $62.76 PLAY (conservative - bullish/credit spread): BUY PUT NOV-50.00 AET-WJ OI=375 ASK=$0.40 SELL PUT NOV-55.00 AET-WK OI=2567 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$54.45 ***** MXIM - Maxim Integrated Products $44.82 *** Strong Sector! *** Maxim Integrated Products (NASDAQ:MXIM) designs, develops, makes and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high-frequency design processes and capabilities that can be used in custom design. Maxim's products include data converters, interface circuits, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, delay lines, real-time clocks, microcontrollers, switches, battery chargers, battery management circuits, radio frequency circuits, fiber-optic transceivers, sensors and voltage references. The firm's unique products are sold to customers in various markets including automotive, communications, consumer, industrial control, instrumentation and data processing. MXIM - Maxim Integrated Products $44.82 PLAY (conservative - bullish/credit spread): BUY PUT NOV-35.00 XIQ-WG OI=2076 ASK=$0.30 SELL PUT NOV-40.00 XIQ-WH OI=1902 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$39.35 ***** PHS - PacifiCare Health Systems $54.50 *** Next Leg Up? *** PacifiCare Health Systems (NYSE:PHS) offers managed care and other health insurance products to various employer groups and Medicare beneficiaries in eight western states and Guam. The firm's major commercial and senior plans include health maintenance organizations, preferred provider organizations, and Medicare Supplement products. The firm also offers a variety of specialty managed care products and services that employees can purchase as a supplement to basic commercial and senior medical plans or as stand-alone products. These products include pharmacy benefit management, behavioral health services, group life and health insurance and dental and vision benefit plans. PHS - PacifiCare Health Systems $54.50 PLAY (conservative - bullish/credit spread): BUY PUT NOV-45.00 PHS-WI OI=449 ASK=$0.85 SELL PUT NOV-47.50 PHS-WS OI=85 BID=$1.15 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$47.20 ***** PIXR - Pixar $71.56 *** New Deal With Disney? *** Pixar (NASDAQ:PIXR) is a digital animation studio with the creative, technical and production capabilities to create a new generation of animated feature films and related products. The firm focuses on creating, developing and producing computer-animated feature films that appeal to audiences of all ages. The company has created and produced four full-length animated feature films, Toy Story, A Bug's Life, Toy Story 2 and Monsters, Inc., that were marketed by The Walt Disney Company. The company's fifth animated feature film, Finding Nemo, was the top-grossing movie of last summer, taking in over $330 million at the U.S. box office alone. In 1997, the company agreed to produce five original feature films for distribution by Disney. Under their current deal, Disney and Pixar evenly split production costs and profit from the films after Disney takes a distribution fee off the top. That agreement could change significantly with the current contract negotiations. PIXR - Pixar $71.56 PLAY (conservative - bullish/credit spread): BUY PUT NOV-60.00 PQJ-WL OI=11 ASK=$0.40 SELL PUT NOV-65.00 PQJ-WM OI=597 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$64.35 ***** AVCT - Avocent $31.20 *** Trading Range? *** Avocent Corporation (NASDAQ:AVCT), together with its wholly owned subsidiaries, designs, manufactures and sells analog and digital KVM (keyboard, video and mouse) switching systems, as well as serial connectivity devices, extension and remote access products and also display products for the computer industry. The firm's switching and connectivity solutions provide information technology managers with access and control of multiple servers and network data centers from any location. AVCT - Avocent $31.20 PLAY (conservative - bearish/credit spread): BUY CALL NOV-37.50 QVX-KU OI=351 ASK=$0.40 SELL CALL NOV-35.00 QVX-KG OI=381 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$35.25 ***** CA - Computer Associates $23.50 *** Accounting Issues? *** Computer Associates International (NYSE:CA) is a business software development company. The company designs, markets and licenses computer software products that allow businesses to run and manage critical aspects of their information technology operations and that allow data center managers and programmers to automate their daily functions. The firm is considered an independent software vendor. As an ISV, the company's software products are designed to work with almost every commercially available computer hardware platform and with all types of common software operating systems. CA - Computer Associates $23.50 PLAY (conservative - bearish/credit spread): BUY CALL NOV-30.00 CA-KF OI=7357 ASK=$0.15 SELL CALL NOV-27.50 CA-KY OI=2040 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$27.75 ***** MTG - MGIC Investment $53.79 *** Short-Term Trading Top? *** MGIC Investment (NYSE:MTG) is a holding company that provides private mortgage insurance coverage in the United States to the home mortgage lending industry. The company operates through its wholly owned subsidiary, Mortgage Guaranty Insurance Corporation. In addition to mortgage insurance on first liens, the company, through other subsidiaries, provides lenders with underwriting and other services and products related to home mortgage lending. The company's earnings report is due on 10/15/03. MTG - MGIC Investment $53.79 PLAY (conservative - bearish/credit spread): BUY CALL NOV-65.00 MTG-KM OI=0 ASK=$0.25 SELL CALL NOV-60.00 MTG-KL OI=308 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$60.50 ************* 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. ***** LLTC - Linear Technology $40.77 *** In A Comfort Zone! *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $40.77 PLAY (conservative - bullish/debit spread): BUY CALL NOV-35.00 LLQ-KG OI=1327 ASK=$6.40 SELL CALL NOV-37.50 LLQ-KU OI=2193 BID=$4.20 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$37.20 ******************* SYNTHETIC POSITIONS ******************* These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. ***** PHTN - Photon Dynamics $32.40 *** A Reader's Request! *** Photon Dynamics (NASDAQ:PHTN) is a provider of yield management solutions to the flat panel display (FPD) industry. The company also offers yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industries and the cathode ray tube display and CRT glass and auto glass industries. The firm's test, repair and inspection systems are used by manufacturers to collect data, analyze product quality and identify and repair product defects at critical steps in the manufacturing. PHTN - Photon Dynamics $32.40 PLAY (speculative - bullish/synthetic position): BUY CALL JAN-40.00 PDU-AH OI=26 ASK=$1.30 SELL PUT JAN-25.00 PDU-ME OI=30 BID=$1.15 INITIAL NET-CREDIT TARGET=$0.00-$0.15 INITIAL TARGET PROFIT=$0.60-$1.05 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $775 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($25.00). *********************** 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. ***** PII - Polaris Industries $79.35 *** Earnings Play! *** Polaris Industries (NYSE:PII) is engaged, with its subsidiaries, in the design, engineering, manufacturing and marketing of high performance motorized products for recreation and utility use, including all-terrain vehicles, snowmobiles, motorcycles, and personal watercraft. Its products, together with related parts, garments and accessories are sold worldwide through a network of dealers, distributors and its subsidiaries located in the United States, Canada, France, Great Britain, Australia, Norway and Sweden. PII - Polaris Industries $79.35 PLAY (very speculative - neutral/debit straddle): BUY CALL OCT-80.00 PII-JP OI=80 ASK=$1.25 BUY PUT OCT-80.00 PII-VP OI=11 ASK=$2.05 INITIAL NET-DEBIT TARGET=$3.10-$3.20 INITIAL TARGET PROFIT=$1.10-$1.75 ***** WEBX - WebEx Communications $22.54 *** Expiration Week! *** WebEx (NASDAQ:WEBX) develops and markets services that allow users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard Web browser. Integrated telephony and Web-based audio and video services are also available using telephones, computer Web-cameras and microphones. The company's activities have been focused on continuing to enhance and market its WebEx Interactive Services and its WebEx Multimedia Switching Platform, developing and deploying new services, expanding its sales and marketing organizations and deploying its global WebEx Media Tone Network. The company sells WebEx Meeting Center, WebEx Meeting Center Pro, WebEx Training Center, WebEx Support Center, WebEx OnStage and WebEx Enterprise Edition. It also provides a service called WebEx Business Exchange to existing customers. WEBX - WebEx Communications $22.54 PLAY (very speculative - neutral/debit straddle): BUY CALL OCT-22.50 UWB-JX OI=707 ASK=$0.85 BUY PUT OCT-22.50 UWB-VX OI=268 ASK=$0.95 INITIAL NET-DEBIT TARGET=$1.60-$1.75 INITIAL TARGET PROFIT=$0.50-$0.90 ***** ------------------------------------------------------------ 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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