The Option Investor Newsletter Wednesday 10-22-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Drug-Induced Decline Futures Wrap: Selloff Index Trader Wrap: 20 down and 10 to go Traders Corner: Time To Implement Plan B on CPTI SPX Position Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 10-22-2003 High Low Volume Advance/Decline DJIA 9598.24 -149.40 9742.05 9580.24 2.07 bln 766/2055 NASDAQ 1898.07 - 42.83 1923.33 1897.36 1.71 bln 752/2338 S&P 100 521.76 - 8.36 521.76 512.36 Totals 1518/4393 S&P 500 1030.36 - 15.67 1076.03 1028.39 RUS 2000 513.15 - 12.38 525.53 513.15 DJ TRANS 2818.01 - 46.85 2863.90 2817.44 VIX 17.67 + 1.12 17.98 17.10 VXO 19.00 + 1.18 19.59 18.49 VXN 25.68 + 1.33 25.87 25.04 Total Volume 4,136M Total UpVol 3,094M Total DnVol 990M 52wk Highs 332 52wk Lows 32 TRIN 1.51 PUT/CALL 0.98 ******************************************************************* Drug-Induced Decline by James Brown It proved to be a tough day for bulls on Wall Street. Major averages lead a broad-based decline with disappointing earnings results from three Dow components and a number of drug stocks. Meanwhile a strong decline in the U.S. dollar, despite Secretary Snow's attempt to bolster the currency, sent investors into the safety of bonds and gold. December gold futures rose $4.80 to close at $386.80 an ounce. By the closing bell the DJIA had lost nearly 150 points (1.53%), the NASDAQ Composite lost almost 43 points (-2.2%) and the S&P 500 dropped more than 15 points (-1.49%). Only two out of dozens of major sector indices were green, specifically the XAU gold & silver index and the UTY utility index and then both were only up fractionally. Foreign exchanges were little help today. Asian stocks were lower with the Japanese NIKKEI losing almost 142 points (-1.29%) to 10,889. The dollar's drop to 1.089 against the yen a likely culprit. European equities fared worse. With the euro rising to 1.182 against the dollar the English FTSE lost 1.53% and the German DAX dropped 2.5%. U.S. markets dropped quickly at the open and volume was rather modest by midday. Unfortunately, the sell-off picked up steam as we rolled into the closing bell and the final volume numbers were heftier than expected indicating some conviction by the sellers. The market internals were bearish as one would expect. Declining stocks out numbered advancing stocks 20 to 7 on the NYSE and 23 to 7 on the NASDAQ. Down volume was better than three times up volume on both exchanges. Overall volume tipped two billion shares on the NYSE and 1.7 billion on the NASDAQ. Professional traders were not worried by the decline. Given the strong run up into the Q3 earnings season some profit taking was expected. Many are looking for a good pull back to gauge potential new entries heading into the fourth quarter. Chart of DJIA: Chart of NASDAQ: It has been weeks since we've seen a triple-digit loss in the DJIA. Only three components managed to close in the green today; those were MCD, MMM and SBC. Leading the decliners were MRK, JPM and DD. It was not a coincident that all three reported their earnings today. Dow component DuPont (DD) reported a loss of 88 cents a share but if you exclude a $1 billion asset write-down then earnings appear to be 13 cents, which were 2 cents above estimates. The company did reaffirm its full year outlook for $1.60 a share, which is in line with analysts but investor's sold the news. After consolidating for a month under its 200-dma the stock hit a new relative low with a 4.27% loss on strong volume of 8.4 million shares. Fellow Dow component and second largest bank in the U.S. is J.P.Morgan (JPM) who announced Q3 earnings of 78 cents a share. Today's result beat estimates by 2 cents but the company's revenues of $7.53 billion were significantly under analyst estimates of $8.6 billion. Shares fell 4.6% to its simple 50-dma and led both the BKX and BIX banking indices lower. The largest drag on the DJIA was drug company Merck & Co (MRK). Not only did MRK miss estimates of 85 cents by 2 cents but they missed the revenue number and guided lower. The drug titan also announced it would cut 4400 jobs and launch a new distribution program to U.S. wholesalers. The stock gapped lower and closed down 6.5% to a new 52-week low. MRK wasn't the only drug company to disappoint today. Schering- Plough (SGP) announced a Q3 loss of 18 cents with sales falling 16% to $2 billion. The company blamed a drop in sales for its Claritin allergy drug and its Intron hepatitis treatment. Wyeth (WYE) also reported a Q3 loss. Formerly American Home Products Corp, the New Jersey-based Wyeth blamed litigation charges and increased reserves to handle diet drug fen-phen claims for the 32 cent per share loss. Excluding charges WYE's income would have been 65 cents a share. Investors sold the news and WYE hit its 200-dma by mid afternoon but rebounded off its low for a 5.45% loss. The biggest drug maker on the planet, Pfizer (PFE) also reported Q3 earnings today. The drug giant earned 47 cents a share, which is 3 cents better than estimates but only if you discount the acquisition charges related to its Pharmacia merger. Probably more important was PFE's fourth-quarter guidance, which they lowered from 54 cents a share to 51 cents. The standout drug maker to report today was GlaxoSmithKline (GSK). Britain's GSK said profits were up 20 percent for the quarter but told analysts that exchange rates could eat up 4 to 5 percent. At the end of the day the DRG drug index had lost 3.26% to close under support at 310 and its simple 200-dma. Another major story today was in the Disk Drive sector. Seagate Technology (STX) reported earnings that were 4 cents better than expected with net income rising to 40 cents a share on revenues that rose 10% for the quarter. Why then did the stock plummet almost 25% to $22.28, dragging the entire sector down with it? Directly affecting investor sentiment for the stock was news that STX had amended a lock-up agreement that would now allow insiders to immediately sell more than 20 million shares instead of a previous date in early 2004. Secondly, the company disclosed that the SEC had asked for copies of all analyst reports for the last 2.5 years. That's generally not a good thing either. This one-two punch hit the DDX for a 7% loss. Major losers in the sector besides STX were HTCH (-8.65%), STK (-13.6%) and MXO (-16.99%). I could go on with more earnings news but the focus was on the earnings misses not the successes. Of the nearly 250 companies in the S&P 500 that have already reported for the season, 65 percent of them have beaten estimates. Thomson Financial is reporting that corporate profits have risen an average of 18.6 percent, which is better than the pre-season estimates for a jump in the 16 percent range. That certainly sounds like success to me and traders are just cashing in on the good news to take some profits off the table. Now it looks like we'll be seeing a repeat of today's action given some of the after hours news. Chip stock KLA-Tencor (KLAC) reported earnings after the close with net income at 18 cents or 1 cent better than the estimates. The bad news was revenues fell more than 15% and the company is guiding lower for the December quarter. Looking ahead KLAC says next quarter could be in the 18 to 19 cent range while analysts had been looking for 23 cents a share. KLAC expects next quarter revenues to be in the $320-325 million area, below consensus of $348 million. KLAC management said some key sales contracts failed to close in September and that customers are still cautious about the rest of 2003. They hope that the general optimism for next year (2004) will start to turn into sales but the proof may be in the post-Christmas pudding (Q1 '04). Shares were down about $4 in after hours and the entire chip sector is bound to react negatively to the conference call. A heavy SOX is not going to benefit a NASDAQ that closed under the 1900 level and the next stop for the Composite could be the simple 50-dma near 1850. Tomorrow the earnings parade will continue and the major announcement on the books is Microsoft (MSFT) who announces after the close. MSFT management tends to be cautious and their conference calls almost always tend to be disappointing (to manage our expectations for next quarter). However, should they surprise us with an upbeat call then the mood could change. Don't look now but that signal in the VXO (old VIX) yesterday is getting some market confirmation today! ************ FUTURES WRAP ************ Selloff Jonathan Levinson Equities attended their much-anticipated appointment with gravity today, breaking numerous support levels as treasuries and precious metals rallied against weakness in the US Dollar Index. 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 In a move reminiscent of my Uncle Norm trying to get me to try a second bite of Christmas cake several decades ago, John Snow attempted to talk up the US Dollar Index today. The results are depicted above. The US Dollar Index was relieved of more than 10 bps, finding support just below the cliff's edge at 91.15. Gold, silver and the HUI rallied, though the CRB gave up its advanced above 245 despite strength in wheat, cotton and soybean futures, closing lower by .02 at 244.77. Daily chart of December gold It was a disheartening day for gold shorts as the December contract gapped above the 383 resistance / Fibonacci line, touching a high at 388.10 and settling in the 387 area. The daily chart oscillators have printed confirmed buy signals on this move from a higher price low, and the 400-420 resistance level dating back to the mid-1990s is the next significant hurdle for bulls to clear. Mining stocks did very well, with the HUI breaking 215, targeting its alltime high at 220. Daily chart of the ten year note yield Money fled to "quality" today, with treasuries joining the list of winners as the ten year note yield (TNX) dropped another 9.3 basis points to 4.273%. Fibonacci support held, but the oscillator and price trends are clearly down. While a brief countertrend bounce might otherwise be expected, note that the price has been gapping lower in ongoing violent moves. The buyers aren't waiting for the sellers of treasuries to come to them, and it continues to look very good for treasuries. Daily NQ candles Relatively speaking, the NQ held up reasonably well, printing a bearish engulfing daily candle and closing within spitting distance of its lows of the day. The long-awaited Macd confirmation was printed with a bearish divergence to boot, and the 10 day stochastic extended its sell signal into a bear roll. Fibonacci support at 1386 held, but the bounces was lackluster to say the least. 30 minute 20 day chart of the NQ The equity indices opened with bearish breakaway gaps that never came close to being filled. Volume was solid at more than 1.7B Nasdaq shares and 1.6B NYSE shares. The move left the NQ sitting on a possible head and shoulders neckline at 1390. The lack of moderating bounces throughout the day left the oscillators on the 30 minute chart in oversold bottoming territory, and a countertrend bounce can be expected here. With the daily chart oscillators in bear rolls here, I expect a lower high, followed by a deeper washout from that bounce high. I'd look for possible resistance at either the bottom or top of today's opening gap at 1409 or 1419 A move above 1430 would invalidate the current interpretation. Daily ES candles The daily ES makes the NQ look like a picnic, having broken the 78.6% Fibonacci support line with authority. The intraday bounce from 1026.50 was weak, and the best that could be said for it was that it was unexpected, with little significant support until 1022. We have the same oscillator sell signals, and the broken bearish ascending wedge is so far behaving as one might expect. 20 day 30 minute chart of the ES As with the NQ, the 30 minute ES chart paints what prudent bears will take to be a warning sign of an imminent countertrend bounce. The weakness seen today is for real, in that it is confirmed by a recent patter of lower oscillator highs and lower oscillator lows. Nevertheless, the oscillator settings on the 30 minute charts have been spot on, and the ES has not been this oversold in weeks. The quality of the high on the anticipated bounce could be the final judgment on this rally- if it fails from a lower high at or below 1044, (with significant resistance first at 1034, 1036 and 1042), then we'll have a lower high to validate the dominance of the downphase in the daily chart oscillators above. Support is at 1022, followed by 1014, with 1014 a likely head and shoulders target below the 1034 neckline. Daily YM candles The daily YM is a spectacularly bearish chart, an unfilled gap below the 78.6% fib line. 9500 looks like the next significant support level, and given the relentless weakness in bellwethers such as GE, it would be surprising to not see it tested. 20 day 30 minute chart of the YM Same setup on the 30 minute YM as on the NQ and ES. The extreme volatility readings yesterday corrected somewhat today, with a 7% move higher in the VXO as the put to call ratio jumped to and held the mid .90s level. A short term corrective bounce is due, but today's decline felt clearly impulsive. With the VXO still at a mere 19.06 even after today's 7% jump, there's plenty of air underneath current equity valuations. But if this rally has taught traders anything, it's to trade what we see. A bounce is due, and it must be respected. For those nimble and daring enough to try to ride it, use stop losses. Don't allow yourself to lose money because of what you think should or might happen. If the bounce proceeds as expected, bears should have plenty of time to enjoy a new trend. Gold and treasuries shone again today, and once again these assets confirm the weakness in the dollar and in equities. Gold has significant resistance beginning at 400, and while I expect it to ultimate rally above that level, I expect a significant battle first. See you at the bell! ******************** INDEX TRADER SUMMARY ******************** 20 down and 10 to go The major indices finished lower as there seemed to be something cited as a negative, whether it be earnings growth, revenue growth, future guidance, product pipeline, you name it, which found a generally-negative reaction to some of today's earnings. Dow component Alcoa (NYSE:AA) $29.65 -1.59% was the first of the 30 Dow components to report earnings this quarter, and since its October 7 report date, where the company reported earnings of $0.33 per share and beat Wall Street's estimates of $0.30, the stock still holds an impressive 5% gain since its October 7 close. However, with 20 of the 30 components having reported their recent quarterly earnings, the Dow Industrials (INDU) 9,598.24 -1.53%, which fell 149 points in today's trade, is now 56-points below its October 7 close after two-third of its blue chip components suffered its largest single session point decline since earnings season kicked into high gear. Merck (NYSE:MRK) $45.72 -6.52% plunged to a 52-week low after reporting quarterly earnings of $0.83, which was 2-cents shy of consensus estimates. With the stock falling to a 52-week low, investors seemed little impressed quarterly revenues and bottom line EPS that grew 6% versus the same quarter a year ago. While the Dow 30 isn't necessarily indicative of the broader market, many of the stocks within the Dow are deemed bellwethers for the various industries they represent. As such, I thought I'd take some time tonight to quickly review those quarterly earnings recently reported by 20 of the 30 components, make some general observations as to the company meeting or beating analysts estimates, benchmark current quarter's earnings versus the same quarter a year ago, and look at similar year-to-year revenue (top line) and earnings (bottom line) growth and declines. Since I've been hearing that analysts are going to be revising next quarter's earnings higher for the broader market, I thought we could test those comments, so I've posted some of the average estimates in place, and over time, we can come back to tonight's Index Wrap and see if some earnings estimates are being revised up or down as analysts and market participants continue to gather more information from various macro/micro economic reports, and comments from those companies that have reported quarterly earnings, and those that have yet to report. Dow Components - Quarterly Earnings Table Of the 20 components having reported earnings 15 have beat EPS estimates (green), 3 have reported inline (blue) and 2 have disappointed on the bottom line. Only 2 of the components SBC and T have shown revenue declines compared to the year-ago quarter, and all be darned if both of those company's are telecom service providers. While it would appear that revenue growth has been realized outside the telecom services space, there is still some work to be done for bottom line growth, as 12 components show improvement, while 8 of the components having reported recent quarter's earnings still have a way to go. At the far right of the chart, I've used green arrows to highlight current analysts' estimates that look for growth at the bottom line (GE, INTC, GM, IBM, CAT, HON), red arrows where analysts aren't seeing a quarter-to-quarter increase in EPS (JNJ, MO, UTX, MMM) , and blue where analysts currently predict little quarter-to-quarter earnings acceleration or decline. One thing a trader/investor might look to do with the above data is this, but with observations over time. SBC and T look like they've dialed up a wrong number if calling for fundamentals, but with all but three equity sectors showing declines on my U.S. Market Watch screen today, the North American Telecom Index (XTC.X) 531.60 +0.34% actually posted a 1.8-point gain in today's session. While this is a short-term observation, to me this may hint of some short-covering in the sector. Hold on! Telecom equipment provider Lucent (NYSE:LU) $2.78 +13.4% is an XTC.X component and this once-favorite technology stock may be finding its October beaten down tech bid that the Stock Trader's Almanac discussed on its Monday calendar notes. To the subscriber that responded to last Friday's 01:00 PM EDT intra-day update and gave me a list of "old favorites," you had mentioned CIENA Corp. (NASDAQ:CIEN) $6.27 -3.68% as a tech-stock that had once been a high flyer. CIEN sells telecom equipment, so lets stick an upside alert on CIEN at $6.65, which would mark a relative high of its current 2-week consolidation. Getting back to the Dow components. One thing that a fundamental investor needs to be aware of when looking at quarter-to-quarter EPS (Q3 to Q4 as an example) is to account for potential seasonality. For instance, 3M (NYSE:MMM) $75.82 +0.42% traded a 52-week high on an intra-day basis today, but you will note that analysts Q4 estimates are currently at $0.74 per share. I looked back at some of MMM's past Q1, Q2, Q3 (which MMM just reported) and Q4 has consistently shows a decline to Q3 EPS, so I would have to say MMM is a stock where its finds seasonality slowing in Q4. Again... the main reason for posting next quarter estimates at this point, is so that we can come back in a couple of weeks, revisit some of the estimates, and see if we can't get a feel for what analysts are doing with their estimates as they take in observations from broader economic reports, or various business/sector specific trends. Well, I thought I'd post the 30 Dow components and some of their fundamental data that has been reported. I still firmly believe the MARKET sniffs out bullish and bearish fundamentals before they are disclosed by a company, which eventually will impact the price action of a major market average. Case in point is a past bullish profile I made in shares of Merck (NYSE:MRK) $45.72 -6.52% from $57 and then again at $58 as the stock gave a spread-triple top buy signal at $58. The stock traded as high as $60 (before the Medco spinoff), but somehow sniffed things out, MRK eventually gave a triple-bottom sell signal at $51, and may now be on its way to achieving that bearish count of $39. Enough on individual stocks, but its these individual stocks, that one-by-one make up the various sectors and indices you and I will trade. Let's take a quick look at the pivot matrix, and we saw some tests and violations of WEEKLY S1s today, and these were levels where I was looking for pullback bullish entries earlier in the week, so I've got some work/analysis to perform. The Dow Diamonds (AMEX:DIA) $96.21 -1.42% saw trade at its WEEKLY S2 of $96.07 before edging back up by its close and would immediately have me assessing further potential downside to the MONTHLY Pivot of $94.18. Pivot Analysis Matrix Before I start on the matrix, it should be noted that for the Dow Industrials (INDU), SPX and OEX, today's HIGH posted for the DAILY is the recorded level of opening trade, but was really never traded as we had a pretty notable gap lower open, where that first 5-minute high was pretty much the high of the day in actual trade. As such, SHORTER-TERM traders using the DAILY levels, will want to use the DIA as a INDU replacement and the SPY as an SPX replacement on the DAILY levels. With that said, I've highlighted in BLUE for the DAILY levels, those levels, if traded, I think would be earliest sign of strength after today's declines. The BIX.X and NDX.X highs for today accurately depict today's session high. As aggressively traded as the NDX/QQQ is, this morning's opening bar high in the QQQ of $34.93, found selling 50-minutes later at $34.93 again, and this intra-day observation shows some determination, or still incomplete sell orders from the open were at this level. For the QQQ I've "dashed pink" the $34.20 level. In after-hours trade, I received a downside alert I had set at this level, I alerted traders in the Market Monitor, and profiled that short- term bears close out my profiled from late yesterday bearish trade at the $34.23 level, or at least lower profit stops to $34.56. Last tick on the QQQ is $34.25 and while after-hours trade is no indication for the next day, it has been my belief, based on observation, that when a level in the matrix is traded, it can "turn on" a computer to then buy or sell the level traded. I've also "dashed pink" tomorrow's DAILY S1 of $34.16. This is a level that I think a BULL does NOT want to see violated tomorrow. My thinking EARLY in the session is that there may be some jittery BULLS that see another gap down session (if we open at $34.25, it will be a gap down from the 04:15 PM EDT close of $34.57) and $34.16 would be the fudge room to the downside for any computer buying to try and show enough muster to have the QQQ firm early. Remember how the QQQ may have overdone things to the upside when it tested WEEKLY R1 yesterday? My "overdone on the downside" on a NEAR-TERM basis would be QQQ $34.16. The BIX.X's correlative DAILY S2 and WEEKLY S1 near 320 are considered sector support, that I think major index BULLS (INDU, SPX, OEX, NDX) need to see support tomorrow in the BIX at 320. If the BIX.X violates to the Downside, the WEEKLY S2 and MONTHLY Pivot levels for the major indices are in play! I want to start with the QQQ tonight, as its chart shows some DIVERGENCE from the other major indices in its Stochastics oscillator, which at this point would be strikingly similar to September 10, 11 and 12. This may be an IMPORTANT observation tonight, as a trader would continue to look for SIMILARITY and history to repeat itself, but if it DOES NOT, then may be a signal that something has changed!!!!! NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Intervals I see very similar oscillator setup near-term as we saw back on September 10, 11 and 12, when the QQQ pulled into its 21-day SMA, and one of our "cloned trends." I went back and reread the September 10 Index Trader Wrap, and wanted to see what we were thinking in the QQQ that night. Here's the link to that wrap. http://members.OptionInvestor.com/Itrader/marketwrap/iw_091003_1.ASP Take note too that the QQQ, on September 10, closed at $33.26, and at that time had close 1 penny below its WEEKLY S1 of $33.27. The next day, September 11, the QQQ opened at $33.27, fell to $33.01, then closed at $33.63. The next day, September 12, the QQQ opened $33.34, traded a low of $33.05, and closed $33.83. Over the course of the following 4 sessions, the QQQ eventually traded a new 52-week high. This recap of history, now becomes a test! It is my belief that a good trader continues to trade a profitable tendency, until DIVERGENCE from the past is found. It is this thought that had me alerting shorter-term bearish traders in the QQQ that the $34.20 level and WEEKLY S1 had been traded. I think a BULL that does look long the QQQ near-term (next two days) must honor a stop under WEEKLY R2, or at least have that as a downside RISK assessment. Today's trade saw a net loss of 1 stock to a point and figure sell signal in the NASDAQ-100 Bullish % ($BPNDX). Still "bear correction" status at 77%. Before I move on, I also wanted to point out that the QQQ closed below its Friday's lows. I mention this as it relates to eBay (NASDAQ:EBAY) $55.20 -1.5%, holding its rising 50-day SMA of $55.10, and still above Friday's low of $53.70. Remember it was on Thursday evening of last week that EBAY reported earnings, and may not have given as bullish of guidance as some market participants were looking for. Still, at today's close, I can't figure out why EBAY is still above Friday's low and even its session close of $54.79. Disclosure... I currently hold a bullish position in EBAY stock, and hold a BEARISH position in an EBAY $55 put. I consider this a "neutral" position, but continue to follow EBAY as a pulse stock that represents what may be considered a lofty valuation. OK, try "burning" that QQQ chart into your mind and lets look at the S&P 500 Index (SPX.X) 1,030.36 -1.49%. I know that it closed below its WEEKLY S1. Is there anything in its chart, that would tie in with the QQQ "zone of support" from $34.20-$34.25? This too becomes a test for tomorrow, and next couple of days. S&P 500 Index Chart - Daily Intervals A similar "zone" of support shows up in the SPX, but here its is the MONTHLY R1 of 1,027 and WEEKLY S2 of 1,026, where I would think institutional computer programs should be set for buying... IF INSTITUTIONS BELIEVE that the recent earnings reports given in the past couple of days, AFTER the SPX set a new 52-week high, is still in play. A trade scenario for a BULL looking for pullback entry is to BUY 1,027, STOP 1,019, MAX target a bounce back higher to 1,059. This trade scenario would be very similar to September 10-18 time table, IF history is to repeat. A STOP at 1,019 may be used to allow for any potential filling of a gap from 10/02-10/03. Today's trade saw a net loss of 5 stocks to new point and figure sell signals in the S&P 500 Bullish % ($BPSPX) as the bullish % fell 1% to 80%. Still "bull confirmed" and would take a reversal to 76% to achieve "bull correction" status. Now, burn that chart of the SPX in your mind, and concentrate on the MONTHLY R1 and 21-day SMA as relative benchmarks. Ask yourself "why is the OEX trading...." S&P 100 Index (OEX.X) Chart - Daily Interval Do you see the technical weakness in the OEX based not only as it relates to the MONTHLY R1 and today's close, but also the OEX closing below its 21-day SMA? Based on today's trade and observation of MRK -6.52% and PFE -2.79% getting hit lower, it once again becomes an observation that the DRUG stocks are having greater negative impact on the OEX. This is IMPORTANT observation in my opinion, and near-term an OEX trader monitors MRK and PFE from time to time, but may also understand why it becomes VERY important for the financials to show strength to offset the weakness in DRUG stocks. This is also important, but maybe a slightly lesser degree for the SPX. I feel the OEX is perhaps the WEAKEST looking index right now, and if breaks much below the 510 level, it would be the major index that might signal further WEAKNESS to MONTHLY Pivot. Again... Oscillators VERY similar to September 10, but a trader cant put food on the table based on an oscillator. It's PRICE action that matters most. Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" status at 79%. I didn't notice until after today's close, but our "pulse" stock in the banks found Washington Mutual (NYSE:WM) $41.77 +3.21% bucking the broader market trend after reporting earnings today. Dow Industrials (INDU) Chart - Daily Interval A 150-point drubbing is not good for a BULL's psychology, and if simply thinking psychological, a close below 9,500 would only be more damaging. Other than that, the INDU along with the NDX/QQQ have been the more technically strong indices in recent months as they had always been the first to achieve new 52-week highs. As I look for strength when current weakness is found, it would be the INDU and the MONTHLY R1 to look for support. I make note in the above chart that it has been my observation that the INDU has had a tendency to trade 10-points either side of a WEEKLY pivot analysis level. 10-points because of the Dow's larger price scales than the other indices. Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull correction" status at 83.33%. Jeff Bailey ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************** TRADERS CORNER ************** Time To Implement Plan B on CPTI SPX Position By Mike Parnos, Investing With Attitude Who Stole Our Premium? Many readers have brought to my attention that Monday's premiums reflected that premium in the SPX options were MIA (missing in action). Therefore, nobody was able to come close to entering the posted SPX position based on the position outlined in Sunday's column. However, since the market took a dump on Wednesday, a little of the volatility returned and we were able to create an alternative SPX position. Since November is a 5-week option cycle, there's still plenty of month left. Alternative "Hypothetical" SPX Position – Iron Condor – 1030.36 Sell 10 contracts of November SPX 985 puts Buy 10 contracts of November SPX 975 puts For a credit of $1.10 ($1,100) Sell 7 contracts of November SPX 1075 calls Buy 7 contracts of November SPX 1090 calls For a credit of $1.50 ($1,050). Total net credit of $2,150. We've created a maximum profit range of 985 to 1075. With four weeks left, that's a reasonable range. If, on Thursday morning, the SPX gaps in one direction or the other, it's OK to get creative. We've been doing these Iron Condors long enough now that you should be familiar with the basic criteria. _____________________________________________________________ Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. 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The Option Investor Newsletter Wednesday 10-22-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: None Dropped Calls: None Dropped Puts: None Play of the Day: Put - DNA Spreads, Combinations & Premium-Selling Plays: A Post-Earnings Slump Already? Updated on the site tonight: Earnings Movers Market Posture: Fear and Loathing on Wall Street ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ None ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************* ********************* PLAY OF THE DAY - PUT ********************* Genentech Inc - DNA - close: 77.57 change: -1.56 stop: 82.30 -Company Description- Genentech is a leading biotechnology company that discovers, develops, manufactures, and commercializes biotherapeutics for significant unmet medical needs. Sixteen of the currently approved biotechnology products originated from or are based on Genentech science. Genentech manufactures and commercializes 11 biotechnology products in the United States. The company has headquarters in South San Francisco, California, and is traded on the New York Stock Exchange under the symbol DNA. (source: company press release) - Most Recent Update (Tuesday, Oct 21, 2003)- We knew that when we wrote this play it would be somewhat daring and DNA is proving to be hard to read. On Monday the stock broke down through support and traded through our trigger at $77.50 opening the play. Actually the stock traded under $77.00 producing a quadruple-bottom sell signal on its Point-and-Figure chart. This is usually a successful bearish signal to trade off of yet now we're wondering if it might become a bear trap. The stock rebounded today, which isn't that big of a deal because it remains under the $80 level. However, AMGN's earnings after the bell we're pretty good and they beat estimates by 3 cents. This compares to a loss of $2.10 last Q3 for AMGN. The BTK biotech index was already up 3 percent today and AMGN's news is just more fuel for the bounce. We'll be encouraged if DNA remains under the $80 mark or its simple 50-dma near $81. Aggressive bears could look for any failed rally as a new entry point. The rest of us might be better of waiting for a roll over back under $78. - Play of the Day Comments - It looks like the widespread weakness in the markets today might continue into Thursday's session. For bearish plays we like how the BTK lost more than 4 percent and closed under support at 450. AMGN, the biggest biotech stock in the index, could bounce from $60. If this occurs then we'd look for new bearish entries in DNA on failed rallies under $80. Otherwise, continued weakness in DNA under the 77.50 mark looks playable. ! This play may not be suitable for all traders. Please see Sunday's play description for full details. - Suggested Options - Remember we're ONLY suggesting bearish positions if DNA trades at or below our trigger at $77.50. We like the November 80's and 75s for short-term trades and December or January's for longer- term trades. BUY PUT NOV 75 DNA-WO OI=2282 at $1.95 SL=0.90 BUY PUT NOV 80 DNA-WP OI=1813 at $4.40 SL=2.20 BUY PUT DEC 75 DNA-XO OI=1925 at $3.30 SL=1.65 BUY PUT DEC 80 DNA-XP OI=3506 at $5.70 SL=3.25 Annotated Chart: Picked on October 20 at $77.50 Change since picked: + 0.07 Earnings Date 10/08/03 (confirmed) Average Daily Volume: 2.5 million Chart = ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* A Post-Earnings Slump Already? By Ray Cummins Stocks plunged today after a trio of market bellwethers offered mediocre profit forecasts with their quarterly earnings reports. The majority of Dow issues were in the red with Merck (NYSE:MRK), J.P. Morgan Chase (NYSE:JPM) and DuPont (NYSE:DD) among the worst blue-chip losers. The Dow Jones Industrial Average finished down 149 points at 9,598. The NASDAQ composite index slid 42 points to 1,898 as computer hardware, semiconductor equipment, software, and networking shares fell victim to profit-taking. The S&P 500 index slumped 15 points to 1,030 with drug-makers taking some of the biggest losses. Healthcare, oil & gas services, brokerage, biotechnology, chemicals, aluminum, airline, and retail shares were also under pressure. Losers outnumbered winners by more than 2 to 1 on the New York Stock Exchange and by roughly 3 to 1 on the NASDAQ. About 1.6 billion shares changed hands on the Big Board, while 1.7 billion shares were crossed on the technology exchange. Treasurys were firmer with the benchmark 10-year note closing up 22/32 at 99 40/32 to yield 4.26%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 10/21/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield DRIV NOV 25 24.50 32.10 $0.50 4.78% 2.04% ERES NOV 32 31.50 43.44 $1.00 6.89% 3.17% NTAP NOV 20 19.50 25.63 $0.50 5.70% 2.56% BRCM NOV 27 27.00 31.50 $0.50 4.69% 1.85% CYD NOV 17 17.20 25.70 $0.30 4.95% 1.74% ERES NOV 35 34.20 43.44 $0.80 6.19% 2.34% GENZ NOV 47 46.55 49.32 $0.95 4.34% 2.04% LRCX NOV 22 22.20 27.06 $0.30 3.86% 1.35% NVLS NOV 35 34.15 39.49 $0.85 5.35% 2.49% RMBS NOV 20 19.55 25.28 $0.45 6.20% 2.30% TXN NOV 22 22.10 27.28 $0.40 4.23% 1.81% VECO NOV 22 22.00 27.02 $0.50 5.04% 2.27% Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield FLML NOV 40 40.80 31.15 $0.80 8.88% 1.96% IMCL NOV 45 45.65 35.09 $0.65 6.97% 1.42% SOHU NOV 45 45.55 32.86 $0.55 5.85% 1.21% Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status CUM 50.77 49.74 NOV 42 45 0.30 44.70 $0.30 Open JCOM 46.70 33.45 NOV 30 35 0.50 34.50 ($1.05) Closed CYMI 45.27 46.75 NOV 35 40 0.60 39.40 $0.60 Open ERTS 103.58 104.64 NOV 90 95 0.55 94.45 $0.55 Open SYK 78.92 80.64 NOV 70 75 0.45 74.55 $0.45 Open Shares of J2 Global Communications (NASDAQ:JCOM) plunged Tuesday after the company said fourth quarter earnings would fall below consensus estimates. Conservative traders should consider closing the bullish spread to limit potential losses. Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status MEDI 33.09 29.41 NOV 40 37 0.30 37.80 $0.30 Open WLP 78.72 84.26 NOV 90 85 0.60 85.60 $0.60 Open BUD 48.89 49.20 NOV 55 50 0.50 50.50 $0.50 Open KMX 32.31 31.05 NOV 40 35 0.70 35.70 $0.70 Open NBR 36.75 37.41 NOV 42 40 0.25 40.25 $0.25 Open Wellpoint Health Networks (NYSE:WLP) is on the "watch" list and any further upside activity would signal an exit in the bearish spread. Synthetic Positions ******************* No Open Positions Debit Straddles *************** No Open Positions Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** APPX - American Pharma Partners $27.85 *** Bottom Fishing! *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on the oncology, anti-infective and critical care markets. The company is one of the largest producers of injectables, with more than 130 generic products in more than 350 dosages and formulations. APPX has acquired the exclusive North American rights to manufacture and market ABI-007, a proprietary nanoparticle injectable oncology product that has completed Phase III clinical trials for metastatic breast cancer and for which the FDA has granted "Fast Track" designation. The company also believes that it has established the only commercial scale protein-engineered nanoparticle manufacturing capability in the United States. APPX - American Pharma Partners $27.85 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 22.5 AQO WX 1918 0.45 22.05 7.1% 2.0% * SELL PUT NOV 25 AQO WE 1879 1.10 23.90 11.5% 4.6% ************** CKFR - Checkfree $25.83 *** Consolidation Complete? *** Checkfree (NASDAQ:CKFR) is a provider of electronic billing and payment services. The company operates its business through 3 independent but inter-related divisions including Electronic Commerce, Investment Services and Software. CKFR's electronic commerce services are primarily targeted to consumers through financial institutions and Internet portals. Checkfree is also a provider of electronic commerce and financial applications software and services for businesses and financial institutions. CKFR - Checkfree $25.83 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 22.5 FCQ WX 394 0.30 22.20 4.0% 1.4% SELL PUT NOV 25 FCQ WE 1494 1.10 23.90 10.2% 4.6% ************** CYD - China Yuchai $26.80 *** Rally Mode! *** China Yuchai International (NYSE:CYD) is a medium-duty diesel engine manufacturer in China that also produces diesel power generators and diesel engine parts. The company owns a controlling interest in Guangxi Yuchai Machinery and owns, through six subsidiaries, 76.4% of the outstanding common shares of Yuchai. Yuchai primarily makes and sells diesel engines for medium-duty trucks in China. Yuchai's primary products are its 6105QC and 6108 medium-duty engines, which are principally used in medium-duty trucks with a load capacity of five to seven tons. In addition, Yuchai also offers the 4-Series light-duty engines and the 6112 heavy-duty engines. Besides diesel engines, Yuchai produces a limited number of diesel power generators and diesel engine parts. CYD - China Yuchai $26.80 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 20 CYD WD 622 0.25 19.75 4.4% 1.3% * SELL PUT NOV 22.5 CYD WX 551 0.60 21.90 8.4% 2.7% ************** ERES - eResearch Technology $41.76 *** 3-For-2 Split Coming! *** eResearch Technology (NASDAQ:ERES) is a provider of technology and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. The company offers a range of products and services, including Diagnostics Technology and Services and Clinical Research Technology. Their Diagnostics Technology and Services include centralized diagnostic services and clinical research operations, including clinical trial and data management services. Their Clinical Research Technology and Services include the developing, marketing and support of clinical research technology and services. ERES - eResearch Technology $41.76 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 32.5 UDB WZ 136 0.35 32.15 3.9% 1.1% TS SELL PUT NOV 35 UDB WG 221 0.80 34.20 7.3% 2.3% * SELL PUT NOV 37.5 UDB WU 1315 1.40 36.10 9.9% 3.9% ************** LEND - Accredited Home Lenders $25.76 *** On The Move! *** Accredited Home Lenders Holding (NASDAQ:LEND) is engaged in the business of making mortgage loans to borrowers across the United States. The company's business includes originating, selling and servicing first and junior-lien mortgage loans primarily secured by single-family residences. Accredited Home focuses on borrowers who don't meet conforming underwriting guidelines because of higher loan-to-value ratios, the nature or absence of income documentation, limited credit, high levels of consumer debt or credit difficulties. The company originates loans primarily based upon the borrower's willingness and ability to repay the loan and the adequacy of the collateral. It has primarily disposed of its loans in whole loan sales, and, to a lesser extent, in securitizations and loan sales with retained interests. Quarterly earnings are due on 10/24/03. LEND - Accredited Home Lenders $25.76 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 20 QFW WD 555 0.30 19.70 5.4% 1.5% * SELL PUT NOV 22.5 QFW WX 551 0.80 21.70 10.0% 3.7% ************** NCEN - New Century Financial $32.21 *** Entry Point? *** New Century Financial Corporation (NASDAQ:NCEN) is one of the nation's largest specialty mortgage companies, providing first and second mortgage products to borrowers nationwide through its operating subsidiaries. It offers mortgage products to borrowers who generally do not satisfy the credit, documentation or other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. New Century is committed to serving the communities in which it operates with fair and responsible lending practices. NCEN - New Century Financial $32.21 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 26.62 NWR WW 628 0.30 26.33 3.9% 1.1% TS SELL PUT NOV 30 NWR WF 282 1.10 28.90 9.2% 3.8% ************** NFLX - Netflix $52.45 *** A Blockbuster Stock! *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. NFLX - Netflix $52.45 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 40 QNQ WH 3643 0.55 39.45 4.9% 1.4% * SELL PUT NOV 45 QNQ WI 2387 1.50 43.50 9.8% 3.4% ************** NSCN - NetScreen Technologies $23.94 *** Trading Range? *** NetScreen Technologies (NASDAQ:NSCN) develops, markets and sells a broad family of integrated network security solutions. The firm's security solutions provide key security technologies, such as virtual private networking (VPN), denial of service protection, firewall and intrusion detection and prevention (IDP), in a line of easy-to-manage security systems and appliances. NetScreen's firewall and VPN systems and appliances deliver integrated firewall, VPN and denial of service protection capabilities in a single device using its proprietary application-specific integrated circuits, the GigaScreen and GigaScreen-II ASICs, and its proprietary security operating system and applications, ScreenOS. NSCN - NetScreen Technologies $23.94 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 20 QKN WD 345 0.30 19.70 5.0% 1.5% * SELL PUT NOV 22.5 QKN WX 1310 1.00 21.50 10.7% 4.7% ************** ONXX - Onyx Pharmaceuticals $24.38 *** Pure Premium-Selling! *** Onyx Pharmaceuticals (NASDAQ:ONXX) is engaged in the discovery and development of novel cancer therapies utilizing two primary technology platforms, small molecules that inhibit the proteins involved in excess growth signaling, and therapeutic viruses that selectively replicate in cells with cancer-causing genetic mutations. The firm is developing a new small molecule compound, BAY 43-9006, in collaboration with Bayer Pharmaceuticals. Using its proprietary virus technology, the company is also developing ONYX-411, a second-generation product that targets cancers with abnormal function of the retinoblastoma tumor-suppressor gene, and is developing Armed Therapeutic Virus products. ONXX - Onyx Pharmaceuticals $24.38 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 17.5 OIQ WW 732 0.35 17.15 6.6% 2.0% * SELL PUT NOV 20 OIQ WD 1216 0.70 19.30 11.3% 3.6% ************** PALM - Palm $25.63 *** Lawsuit Settlement! *** Palm (NASDAQ:PALM) develops, designs and markets Palm-branded, hand-held devices, accessories and the Palm operating system. The firm is organized into two operating segments: the Solutions Group and PalmSource. The Solutions Group develops and markets hand-held devices and accessories to provide the user with a simple, elegant and useful productivity tool. PalmSource makes and licenses the Palm OS and related software, which is referred to as the Palm platform. The Palm platform is the foundation for Palm devices, as well as for devices manufactured by third-party licensees. Over 30 million Palm-powered devices have been sold worldwide. PALM - Palm $25.63 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 22.5 UPY WX 1425 0.30 22.20 4.0% 1.4% * SELL PUT NOV 25 UPY WE 669 1.10 23.90 10.1% 4.6% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** APOL - Apollo Group $63.95 *** Uptrend Intact! *** Apollo Group (NASDAQ:APOL) provides higher education to working adults. The company operates through its subsidiaries, The University of Phoenix, Institute for Professional Development, The College for Financial Planning Institutes Corporation and Western International University. The company offers its many programs and services at 65 campuses and 111 learning centers in 37 states, Puerto Rico and Vancouver, British Columbia. APOL - Apollo Group $63.95 PLAY (less conservative - bullish/credit spread): BUY PUT NOV-55.00 OAQ-WK OI=2309 ASK=$0.25 SELL PUT NOV-60.00 OAQ-WL OI=1309 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$59.40 ************** BDK - Black & Decker $45.96 *** Solid Earnings! *** The Black & Decker Corporation (NYSE:BDK) is a leading maker and marketer of power tools and accessories, hardware and home improvement products, as well as technology-based fastening systems. The company sells products and services in over 100 countries. It operates in three business segments: power tools and accessories, hardware and home improvement and fastening and assembly systems. The power tools and accessories segment manufactures and sells consumer and professional power tools and accessories, electric cleaning and lighting products and electric lawn and garden tools. The hardware/home improvement segment manufactures and sells security hardware and makes and sells plumbing products. The fastening and assembly systems segment is responsible for the building and sale of fastening and assembly systems. BDK - Black & Decker $45.96 PLAY (moderately aggressive - bullish/credit spread): BUY PUT NOV-40.00 BDK-WH OI=1538 ASK=$0.15 SELL PUT NOV-45.00 BDK-WI OI=635 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.80-$0.85 POTENTIAL PROFIT(max)=19% B/E=$44.20 ************** SEE - Sealed Air $52.31 *** Bullish Outlook! *** Sealed Air (NYSE:SEE), operating through its subsidiaries, is engaged in the manufacture and sale of a wide range of food, protective and specialty packaging products. The firm operates in two business segments: Food Packaging, which provides a wide variety of flexible films, bags and associated packaging and absorbent pads, and Protective and Specialty Packaging, which include its cushioning and surface protection products and also certain other products. Sealed Air conducts substantially all of its business through two direct wholly owned subsidiaries, Cryovac and Sealed Air Corporation. These two subsidiaries directly and indirectly own substantially all of the assets of the business and conduct operations themselves and through subsidiaries around the globe. SEE - Sealed Air $52.31 PLAY (conservative - bullish/credit spread): BUY PUT NOV-45.00 SEE-WI OI=381 ASK=$0.25 SELL PUT NOV-50.00 SEE-WJ OI=1124 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$49.55 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** BGEN - Biogen $37.06 *** Bearish Biotech? *** Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human healthcare. The firm derives revenues from sales of its Avonex (Interferon beta-1a) product for the treatment of relapsing forms of multiple sclerosis (MS) and from royalties on worldwide sales by its licensees of a number of products covered under patents it controls. In addition, Biogen has a number of ongoing research programs and a pipeline of development-stage products, the furthest along of which, Amevive (alefacept), is being considered for approval by the United States Food and Drug Administration and regulatory authorities in the European Union and Canada for the treatment of moderate to severe psoriasis. BGEN - Biogen $37.06 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 40 BGQ KH 4758 0.45 40.45 3.6% 1.1% TS SELL CALL NOV 37.5 BGQ KU 1446 1.25 38.75 7.8% 3.2% ************** MGAM - Multimedia Games $35.34 *** Premium-Selling Only! *** Multimedia Games (NASDAQ:MGAM) is the leading supplier of interactive electronic games and player stations to the rapidly growing Native American gaming market. The company's games are delivered through a telecommunications network that links its player stations with one another both within and among gaming facilities. Multimedia Games designs and develops networks, software and content that provide its customers with a range of gaming systems. The company's development and marketing efforts focus on Class II gaming systems and Class III video lottery systems for use by Native American tribes throughout the United States. MGAM - Multimedia Games $35.34 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 45 QMG KI 213 0.30 45.30 4.0% 0.7% * SELL CALL NOV 40 QMG KH 207 0.95 40.95 8.9% 2.3% ************** NPSP - NPS Pharmaceuticals $25.78 *** Drug Speculation! *** NPS Pharmaceuticals (NASDAQ:NPSP) is a biopharmaceutical company engaged in discovering, developing and commercializing small molecule drugs and recombinant proteins. The company's product candidates are primarily for the treatment of bone and mineral disorders, gastrointestinal disorders and central nervous system disorders. NPS Pharmaceuticals has three product candidates in active clinical development and several pre-clinical product candidates. Two of these product candidates, Preos and AMG 073, are in Phase III clinical trials. The company's third product candidate, ALX-0600, is in a pilot Phase II clinical trial. NPSP - NPS Pharmaceuticals $25.78 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 35 QKK KG 282 0.25 35.25 4.5% 0.7% * SELL CALL NOV 30 QKK KF 5226 0.90 30.90 12.6% 2.9% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** AMGN - Amgen $60.30 *** Sell-Off In Progress! *** Amgen (NASDAQ:AMGN) is a biotechnology company that discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology. Amgen manufactures and sells human therapeutic products including Epogen, Neupogen, Aranesp, Neulasta and Kineret. Amgen focuses its research and development efforts on therapeutics delivered in the form of proteins, monoclonal antibodies and small molecules in the areas of nephrology, cancer, inflammation and neurology and metabolism. The company has research facilities in the United States and has clinical development staff in the United States, the European Union, Canada, Australia and Japan. Amgen has acquired Immunex, a biopharmaceutical firm dedicated to developing immune system science to protect human health. Immunex has developed two major products, Enbrel and Leukine, and has two other products, Novantrone and Thioplex, which can be used in treating multiple indications. AMGN - Amgen $60.30 PLAY (conservative - bearish/credit spread): BUY CALL NOV-70.00 YAA-KN OI=14896 ASK=$0.10 SELL CALL NOV-65.00 YAA-KM OI=30511 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$65.45 ************** FRE - Freddie Mac $57.03 *** No More Government Subsidy? *** Federal Home Loan Mortgage Corporation (NYSE:FRE) or Freddie Mac, is a stockholder-owned corporation that was established by Congress in 1970 to support home ownership and rental housing. Freddie Mac purchases single-family and multi-family residential mortgages and mortgage-related securities, which it finances mainly by issuing mortgage pass-through securities and debt instruments in the capital markets. FRE guarantees these securities and mortgage lenders sell their loans to the company and use the proceeds to fund new mortgages, which in turn increases the money supply to homebuyers. FRE does not make loans directly to homebuyers, but puts private investor capital to work for homebuyers in general. FRE - Freddie Mac $57.03 PLAY (less conservative - bearish/credit spread): BUY CALL NOV-65.00 FRE-KM OI=2156 ASK=$0.20 SELL CALL NOV-60.00 FRE-KL OI=8493 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$60.65 ************** FNM - Fannie Mae $72.75 *** Freddie's Sister In Trouble Too? *** Federal National Mortgage Association (NYSE:FNM), commonly known as Fannie Mae, is a company that works to assure that mortgage money is readily available for existing and potential homeowners in the United States. Fannie Mae does not directly lend money to homebuyers, but works with lenders to ensure that there is no shortage of funds available for mortgage loans. The method in which Fannie Mae accomplishes this is by purchasing mortgages from a variety of institutions that make up the primary mortgage market. Primary market lenders include mortgage companies, savings and loans, commercial banks, credit unions and state and local housing finance agencies. These are the businesses where the mortgages are originated and the funds are loaned directly to the borrower. Fannie Mae then purchases the mortgage, thus allowing the primary market lender to replenish their funds and lend more money to homebuyers. FNM - Fannie Mae $72.75 PLAY (less conservative - bearish/credit spread): BUY CALL NOV-80.00 FNM-KP OI=860 ASK=$0.15 SELL CALL NOV-75.00 FNM-KO OI=7797 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$75.65 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** Netease.com Inc - NTES - close: 60.06 change: +0.56 WHAT TO WATCH: Profit taking in shares of JCOM have brought fellow oriental internet-related equities like SOHU and NTES lower. Shares of NTES closed near support at $60 and its rising 50-dma. Very aggressive bulls could look to buy the bounce while bears will be looking to short the breakdown. Earnings should be Oct. 29th. Estimates are 32 cents a share. Chart= --- Harman Intl Industries - HAR - close: 121.64 change: +12.39 WHAT TO WATCH: An earnings surge pushes HAR up above the $120 level after beating estimates of 37 cents with net income at 58 cents, announced this morning. Revenues were up almost 22 percent for the quarter. The company has a shareholder meeting on Nov. 12th to vote on and authorize an increase in authorized shares so they can enact a previously announced 2-for-1 stock split. Chart= --- Allergan Inc - AGN - close: 74.85 change: -0.45 WHAT TO WATCH: After four and a half months of consolidating sideways between $75 and $82 shares of AGN maybe ready for a trend change. The stock has been falling with a trend of lower highs for two weeks and has broken support at $75. Now shares face support near $72.50, which is bolstered by price congestion, its 200-dma and P&F bullish support. Investors may defend AGN there but a breakdown could be disastrous. Earnings were this morning and AGN announced in line with earnings of 57 cents. Chart= --- Capital One Financial - COF - close: 60.10 change: -1.68 WHAT TO WATCH: COF has produced a nice bullish trend from its bounce from $45 in August. However, the last week has been a consolidation ahead of its earnings that came out tonight. The company beat estimates by 11 cents with net income of $1.17 a share. The bad news is COF missed consensus revenue estimates and it could see some selling. First level of support is near $56.00. Chart= --- CIENA Corp - CIEN - close: 6.27 change: -0.24 WHAT TO WATCH: Previous telecom darling Lucent (LU) announced earnings today and actually produced a profit. That has many investors turning their eyes to heyday high-flyer CIEN who announces in November. We could see some pre-earnings momentum. Look for a move over $6.65. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- RKY $53.15 -1.11 - RKY has pulled back from its 52-week high near $58.00 to a new relative low near its 200-dma. Earnings are tomorrow morning. SYMC $64.49 -2.88 - Company beat estimates by 8 cents this evening. Revenues were up almost 32 percent. SYMC also announced a 2-for-1 split. ERTS $101.94 -2.70 - ERTS announces eagerly awaited earnings, which beat estimates by 6 cents. Revenues jumped almost 17%. The company also announced a 2-for-1 split, as predicted in the MarketMonitor. ************** MARKET POSTURE ************** Fear and Loathing on Wall Street To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/mp_102203.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. 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