The Option Investor Newsletter Sunday 10-26-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Old bear was a bull's best friend Futures Market: Never a Dull Moment Index Trader Wrap: Magoo Market Editor's Plays: Two for Two, What Did I Do Wrong? Market Sentiment: Whispering October Winds Ask the Analyst: Who's side are you on? 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 10-24 WE 10-17 WE 10-10 WE 10-03 DOW 9582.46 -139.33 9721.79 + 47.11 9674.68 +102.37 +259.23 Nasdaq 1865.59 - 46.77 1912.36 - 2.95 1915.31 + 34.74 + 88.50 S&P-100 511.25 - 6.87 518.12 + 0.07 518.05 + 2.88 + 15.56 S&P-500 1028.91 - 10.41 1039.32 + 1.26 1038.06 + 8.21 + 33.00 W5000 9983.50 -114.8810098.38 + 13.06 10085.3 + 95.02 +343.82 RUT 506.43 - 13.93 520.36 + 1.30 519.06 + 6.78 + 27.00 TRAN 2827.25 - 20.03 2847.28 + 23.73 2823.55 + 38.70 +121.02 VIX 17.71 + 0.09 17.62 - 0.83 18.45 - 1.05 - 2.73 VXO 18.93 - 0.26 19.19 - 0.05 19.24 VXN 25.45 + 0.12 25.33 - 2.29 27.62 - 1.58 - 1.68 TRIN 1.44 1.59 1.24 Put/Call 0.91 0.64 0.93 WE= Week Ending ****************************************************************** Old bear was a bull's best friend A late session rally, which I feel may have been largely attributed to short covering, had the major indices recouping the bulk of their session's losses, but still finishing lower as investors pondered stock valuations and another session largely driven my corporate earnings. The negative tone to Friday's trade was put in place Thursday evening when Microsoft (NASDAQ:MSFT) $26.61 -7.95% told analysts that it wasn't going to be the 20% annual revenue grower it used to be, and for some technology bulls those revelations may have been too much to swallow. It has been awhile since I've written a market wrap, so I was reading Jim Brown's wrap from last Sunday. Imagine the mental state of bulls this morning after reading that wrap, where Jim reminded us all about the crash of 1987. While Jim noted that the "Crash of 87" began on Monday October 9, 1987, the party for the bears didn't reach full swing until the 28th and 29th when the Dow Industrials fell 23.9% in two days. As I sat at my trading desk today, I had set some program trading buy/sell premium alerts on my QCharts trading software. This isn't something I do on a regular basis, but for those subscriber that read the Index Trader Wrap at OptionInvestor.com, you will know that the major indices were flirting with some weekly pivot matrix support levels, where in recent months, it has been an observation that the major indices would normally find some pretty good support, especially after having traded a 52-week high in a prior week or two. Today, the buy/sell program premium alerts, which we report in every morning's 09:00 AM EDT Update, were being triggered at the sell side as fast as I could reset them. When I looked at an intra-day chart of these alerts on 5-minute intervals, I counted 19 sell program alerts and just 2 buy program premium alerts, where the alerts are created when there is an arbitrage discrepancy seen between the futures and the cash market. I want to take note of this in today's trade, as it may come in handy in the days or weeks to follow. I was thinking to myself... "gosh, with all these sell program premium alerts being triggered, how the heck are these markets hanging in here like they are." Now some traders may not think the markets were hanging in there during the bulk of today's trade, but I think there was one heck of a lot of short covering taking place today, as short interest continued to build through the middle of October, as the major indices were still setting new 52-week highs. Intra-day SPY and Premium of S&P Futures - 5-min There were plenty of sell programs in today's session, and with so many sell programs taking place, its my feeling that some old bears were using today's weakness to cover some positions after seeing new 52-week highs again last week. Should the S&P Depository Receipts (AMEX:SPY) $103.58 +0.22% come back into the better part of today's range of $103.24-$102.18, and move QUICKLY or sharply through this range, then my thoughts that today's buying was largely short covering related may be correct. This could be an important observation in coming weeks as it takes BULLISH buying to keep stocks trending higher. Yesterday I profiled a bullish trade in the above SPY at $103.40, with a stop loss at $103.20 and was stopped out almost right at the bottom of today's trade. While frustrating, I'll also take note of this and in coming sessions, if the SPY were to move quickly through today's range and further below these lows, I'm going to sense that today's stability was largely attributed to BEARISH buying, not bullish buying. Here's a quick look at short interest on the S&P Depository Receipts (AMEX:SPY). Last month's data, tallied on the 15th of each month, show short interest fell for the first time since the March lows, but showed an increase in the latest month. If you're a trader, you've probably shorted or bought a put on some security since the March lows, and may have lost money on the trade. There's probably some old bears out there from April, May, June, July, or even August that may have been doing some buying. One way to try determine who is doing the bulk of the buying, which will hold stocks steady or drive prices higher is to monitor areas of irregular or heavy institutional activity, like I think we saw today with a rather large number of program trading alerts, make a note of the area or range of that activity, and if the range is traded, try and observe the pace or how quickly or slowly price moves when the range is retested. Monthly Short Interest on the SPY Sometimes it is helpful to see the market as a football game. One team is the bulls and the other team is the bears. Then look at the markets from both sides (bullish and bearish) to determine who has been winning. Then, put yourself on the winning team, which we will show has been the BULLS, but identify a point where you might want to switch teams and changes of allegiance. Let's take today's range of the SPY and observations made of active buy/sell program premium alerts, and see if that observation may have any significance in the future, but just as important, see if it might make any historical sense with the above short interest data. Just for grins, imagine your short 100,000 shares of SPY, and established that short position on August 15th. If you were a baseball manager, or football coach, aren't you always trying to figure out what the other team is thinking and what there next move will be? S&P Depository Receipts (AMEX:SPY) - Daily Interval Boom! Had I been paying more attention to the June 17 and 18 relative highs when I set up the bullish trade in the SPY on Thursday, with a stop at $102.20, I might have set the stop lower to $102.10 or just under $102.00. In horizontal red lines, I've just extended to the left, Friday's active program trading range. There is definitely some technical significance at, or just above the $102.00 level isn't there? You've heard of "counting cards" haven't you? If you are caught counting cards in Vegas, the casino will ask you to leave. However, counting short interest in the stock market, and trying to figure out what a bear is doing, especially the SMART ones, is not illegal, and in trading and investing, all is fair in love and war. Starting at the recent 52-week high on October 15, and comparing that high to the Sept. 18 relative high of $104.70, we get a rough idea that there is just over 3.2 million shares of short interest that is profitable. That's not a lot of profitable bears at this point when we see from the short interest that bears have been shorting all the way up the scale since March. Please note that there is a difference between a SMART bear and a normal everyday run-of-the-mill bear. True you are! At some point, a bear, just like a bull, will be proven correct. Going into next weeks trade, I will say that some bears (those from $104.70-$105.89) will begin to look SMART if the SPY breaks below $102.00, which would be a break of trend, but also give those BEARS that were short the SPY dating clear back to mid-June a chance to cover on further weakness to the $100.00 level. If I'm a bull, and I was in the SPY until I got stopped out at $102.20, I could put myself in the paws of a bear that has been short the SPY since mid-June, even at the then 52-week high of $102.17 and perhaps get the sense that on Friday, he/she didn't care what the heck Microsoft (NASDAQ:MSFT) said about future earnings has they had the chance to get squared up after seeing a new 52-week high. Maybe, MSFT's news will have a negative impact on the other 499 stocks in the S&P 500 (SPX.X) 1,028.91 -0.47%, but what if it doesn't? OK, so we've determined that it may be best to be bullish above $102.00, but CAUTIOUSLY more bearish below $102.00. Below SPY=$102.00 (this is roughly equivalent to SPX 1,020) I've marked two prior relative lows of $99.25-$98.83. In actuality, this marks a zone of support, which oddly enough is just below July 15 and August 15 closing values. Couldn't we say the REASON the SPY found both of those relative lows was because SMART bears, especially those still short on the pullback to $99.25 that had now seen a new 52-week high thought... "gosh darn it! I didn't think the SPY would trade a new high when I shorted it at $102.17 in June, so I'd better cover some of that position around $100.00, just in case the SPY trades another new high." Do you sense the point I'm trying to get across? Until a bear or even a bull sees a LOWER HIGH and a LOWER LOW, he/she is just as uncertain about a MARKET'S valuation as any bull is at this point. A bearish trader has seen just as many higher and higher lows as a bullish trader has. Haven't they? If simply thinking about the MARKET in this respect, the first sign of any near-term trouble is a break below $102.00, which most likely finds support at $98.83-$99.25, and as I learned today, those levels may be off by a couple of pennies. It's always nice to sell short a rally than the breakdown, but where does a bear that does know for fact that the market is overvalued, look to short at? Most bears at this point are tired of guessing, but my best guess would be to look for a bounce back near, or just above the $104.70 level (SPX = 1,047) and a reversal back lower, where a mandatory stop of $106.50 might be placed. Then and only then, a good trade would be sensed on a decline back below $102, with a bearish cover target of $100.00. Below the SPY $98.83 level, I've followed with a red arrow, to depict increasing weakness. This would depict a MARKET now seeing its first relative low after a 52-week high and a DIVERGENCE of pattern since the March lows. Since I'm combining tonight's Market Wrap with this weekend's Ask the analyst column, this would a level where a portfolio of stocks should be hedged at currently. I received several questions from subscribers this week that felt the markets were getting a little top heavy, and were ready for a reversal, and wondered at what level would a meaningful breakdown occur. My best thought would be the equivalent of SPY $96.00, or S&P 500 (SPX) 960. In percentage terms, a 10% pullback in a major index is considered a healthy correction. If I were to assume the top is in at $105.89 on the SPY, a 10% pullback would be equivalent to $95.30 on the SPY, or 953 SPX. For the tax-sensitive bull, that is hesitant to sell current holding for capital gains reasons (tax consequences is an important part of an investors overall plan, but should NEVER be the ultimate decision making tool for not selling and profiting from the risk taken), the use of a put option with January expiration, may be your best strategy. By purchasing a January expiration, tax consequences may be pushed into the 2004 tax year. So, if you do NOT want to take some profits off the table today, or a break below SPX 1,020 and option would be to hedge part of the portfolio with a January put option. What is the worst thing that happens for a capital gains sensitive bull that buys a protective put to hedge a portfolio of stocks? The market moves higher and your current holding most likely increases in value by January 2004 expiration. You sell your PUT for a loss and you take that loss against capital gains, and reduce your capital gains tax amount. Russell-2000 Index (RUT.X) - Daily Interval Chart Note the upward trend on the RUT.X looking striking similar to that of the upward trend on the S&P Depository Receipts (AMEX:SPY) we just looked at. I carried over Jim's 515 initial support level from last Sunday's wrap, but added a little twist to the above chart. It is this kind of retracement that lead me to the "fitted retracement technique. Why in the world would the RUT.X see a double top at 534.25? Who picked that level as a selling point. If I anchored a retracement from the August 7 low and "fit" the 61.8% retracement near the September 29 low, which was 482.13, then I can perhaps make some sense out of the recent 52-week high. It is also notable how nicely the 38.2% retracement came into play PRIOR to the 52-week high, when the RUT.X pulled into support. Conclusion: The RUT.X should find support near 502.05, if it doesn't, the RUT.X vulnerable to 61.8% retracement and match the recent relative low. Should the RUT.X break much below the 500 level this week, then break of trend that has held since August 7 (the attachment point for trend and retracement), is an alert to a change in trend. If RUT.X were to fall to 480-482 level, then look for resistance right back higher at 518. Anytime a stock or index breaks an upward trend, be cognizant that the potential bounce back higher finds that broken support trend coming into play as resistance. Dow Industrials ($INDU) Chart - 50-point box Today's trade in the Dow saw an additional 2-box decline with MSFT -7.95%, HPQ -2.52% offsetting gains in T +3.91% and SBC +2.68%. While 9,500 may be psychological support, more formidable support found at 9,400. Gains in AT&T (NYSE:T) $19.91 +3.91% were found after the Wall Street Journal reported that it and Bell South (NYSE:BLS) $25.83 -0.34% had recently renewed talks of a merger and that a merger between the two makes strategic sense in the very highly competitive telecom services industry, where price competition is high. AT&T continues to see revenues decline and has cut costs to the bone. A merger with price talk of mid-$20 per share may be best for T shareholders, and allow further cost reductions to be seen when combined with another bell. Bell South is said to have a very strong balance sheet, and can afford to take on debt to further gain market share and T's coveted long distance business. Some say the talk were revived as it looks like WorldComm will come out of bankruptcy. The talks between T and BLS stopped when it was questioned whether WorldComm was going to survive, if not allowed by the bankruptcy courts. NASDAQ-Composite (COMPX) Chart - Daily Intervals The broader NASDAQ found support at its rising 50-day SMA and PINK trend from the March lows, which I've attached to the August 7 lows. This PINK trend would be considered significant as it looks to have provide support for a rebound to new highs on the late September pullback. First sign of weakness would be a move below 1,835 which would then have 1,775 in play as support. The RED regression channel was a channel I had placed on the COMPX months ago, that seemed to represent the aggressive bullish nature of the broader NASDAQ and other major indices. Only today do I see that the base of this old trend may have come into play as resistance at the recent 52-week highs. This may make some sense in the scope of an early economic recovery when the markets anticipate and accurately reflect a growing economy. However, there is always some "finite second" when the markets realize a point of perfect price, that fully reflects true price perfection, then awaits further information to try and figure out if their is further upside fundamentals, which are always depicted by the charts. The markets have been inundated with fundamental data from corporate earnings this week, and I get the sense from the NASDAQ chart that it is digesting the plethora of information it has been given and ready to make a decision. The trend is higher from what I can see, but the suspicious 52-week high that found the base of regression may hint it is time for a rest. This week, the only economic report (other than a lot of corporate earnings) was weekly jobless claims, which were in line with forecast at 386,000. With all the earnings being released, the jobless claims data really had little impact, but still showed some sign of an improving labor market. While last week was rather void of economic data, next week will heat up with Monday's report for September existing home sales forecasted at a 6.3 million unit annual rate and new home sales forecasted at 1,113K annual rate. The MARKET seems to be looking for good numbers from the new homes data as the Dow Jones Home Construction Index (DJUSHB) 537.39 traded an all-time high on Thursday. Then on Tuesday, September durable goods data, October consumer confidence and the FOMC meeting will intrigue investors. Most Fed watchers do not expect the Fed to raise rates, and with Gold still below $400.00, Steve Forbes would agree. For some thoughts on why the Fed should not raise interest rates because gold is trading under $400/oz. I wrote an Ask the Analyst column on Steve Forbes' thoughts, and we back tested these thoughts as to what the Fed had been doing over the years, where gold was trading, and wanted to see what the stock market's reaction was to the Fed's decisions. Here is the http://www.OptionInvestor.com/ask/ask_083103_1.asp to that article. Have a great weekend! Jeff Bailey ************** FUTURES MARKET ************** Never a Dull Moment Jonathan Levinson Friday's trading produced its share of quiet spaces, but they were colored with sufficient anxiety of the inevitable next move to keep traders on the edge of their seats. Equities fell and were trading in the red until a sharp bounce commencing at 3:40PM drove the indices back into positive territory. Treasuries, precious metals and the CRB all rose on 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 MSFT's disappointment on Thursday cast the US markets under the darkest of clouds Friday, and the US Dollar Index sold off sharply at 8:30AM. It bounced from a low of 91, trading 91.34 as of this writing. The CRB challenged the 250 level, HUI the 220 level, and gold the 390 level. For the week, the US Dollar Index completed a bearish star at a new low for the now- 9 week decline. Daily chart of December gold December gold bludgeoned more shorts Friday, extending its upphase on the daily charts and challenging lower wedge resistance, a return to the scene of the previous breakdown. In so doing, it printed a massive bullish engulfing candle on the weekly chart, nearing but not touching its September high. The HUI hit 220 before pulling back, and the move was matched by strength in silver and the broader CRB for the week. Daily chart of the ten year note yield The ten year note yield extended its slide on Friday, continuing the downtrend since breaking what now appears to be a narrow bear wedge on the daily chart. The rally in bonds appears to project to a low yield either at Fibonacci support in the 4.3% area, coincident with the start of price confluence at that level, or just below it at 3.9%, the downside bear wedge target. For the week, the TNX printed a bearish engulfing candle from a lower high, boding well for treasury bulls. Daily NQ candles Never turn your back on a bull. Friday was an awe-inspiring display of either short panicking, tape-painting, robot-jamming, or, as I can almost hear Paul Kangas barking, "bargain-hunting". The doji hammer tells the whole story. It bounced from the rising trendline on the daily chart, not repairing any of the technical damage caused by this week's impressive selloff, but at least avoiding the deleterious impact of Joe- and Jane Sixpack's Saturday-morning newspaper rendezvous with the fact that they once again (according to Trimtabs) parked a huge amount of money into mutual funds just in time (according to me) to catch the top of yet another bear market rally. MSFT got smoked for 7.81%, following in GE's recent footsteps, and if anyone thinks that a quick 20 minute jam job on Friday afternoon can erase the writing on the wall, they should think again. For the week, the NQ printed a lower low and lower high, with sharp candle spikes in both directions. 30 minute 20 day chart of the NQ Volume was heavy on Friday, with 1.98B Nasdaq shares again traded. The majority of the volume I saw came in on the sell side, however, and I'll reiterate that the closing bids smelled more of desperation than of renewed bullishness to me. Nevertheless, we were writing about the likelihood of a bounce in the Futures Monitor as indicated by the 30 minute chart oscillators, and it arrived. The bounce will have to contend with the recent trend of lower oscillator highs, but it has the possibility of a bull wedge breakout projecting to 1430 in its favor. That said, the trend on this chart is no longer up, and 1390 is not going to fall easily. With downphases on the daily and weekly (not shown) chart oscillators, this 30 minute chart upphase should do no more than relieve the oversold condition short term before the slide begins anew. I expect a failure at 1390 or 1410 at the outside, and if 1410 is breached, then we'll have to reevaluate. Daily ES candles The ES never made it to the lower support line, bouncing instead from the 38.2% retracement from the rally high. As on the NQ, we had a lower low and lower high, within the context of the ongoing daily downphase. It will take a decisive move above 1040 to begin to complicate what continues to appear to be a clear bearish picture. By the same token, however, until 1008 fails, bulls can bide their time. Below 1008, bears will have confirmation that this is more than a mere pullback in the grander scheme of this year's rally. 20 day 30 minute chart of the ES Like the NQ, we see a possible bull wedge breakout in effect. Note the bullish divergence on the stochastic, telegraphing the possible bounce. All afternoon we were expecting one, but the buying was so abysmal that it was very difficult to buy. The last surge was the strongest of the day. 1030 is solid resistance, followed by 1038-40 which I expect to hold for this intraday upphase. The broader head and shoulders pattern about which I was writing throughout the week is still in play, with the preliminary target of 1014 missed by a point and a half on Friday. However, I believe that the 1021 neckline is in play, projecting to a low in the 987 area. So long as the daily chart downphase continues, I expect lower highs on the 30 minute chart. Daily YM candles Same setup on the YM. 20 day 30 minute chart of the YM This week saw new lows reached on the US Dollar Index matching new year highs for the HUI, a revisit of the year high for gold and the CRB, and relative highs for treasuries within their most recent upleg. Equities printed bearish candles, despite the end of Friday ramp job. While I expect an unceremonious end to this bounce, next week is the end of the month, and mutual fund window-dressing has become sufficiently accepted as a concept to have made a headline on my news ticker last month (seriously). With GE and MSFT now being sold together, I don't see much reasonable hope for a resurgence of the rally, but anything is possible. We will continue to trade what we see, but the intermarket relationships combined with this week's price action bodes ill for equities. ******************** INDEX TRADER SUMMARY ******************** Magoo Market Jonathan Levinson With the volatility indices hitting extreme lows this week (VXO sub-18), an oblivious, complacent market was miraculously saved in the closing minutes of Friday's session by a vertical spurt of bids. Volume was strong, with 1.4B NYSE shares and 1.98B Nasdaq shares changing hands, with numerous surprises to the upside and downside to tempt every trader. Despite the apparent chaos, however, the markets behaved in an orderly fashion. In an effort to simplify and clarify, I've begun with the weekly views of the Nasdaq and the Dow. I then review the shorter timeframes pertinent to our primary trading vehicles, the QQQ and OEX, focusing in on the daily and 30 minute candle charts. As noted, complacency remains high. This bear market in volatility/fear has dominated for the past several weeks, and Friday's negative closing prints on the VXN, VXO, QQV and almost VIX (+.03 at 17.71) is as close to a technical indictment of the current equities prices as one is likely to find anywhere. With the market's bellwethers, GE and MSFT being sold precipitously, option premium remains ready collapse on the slightest hint of short covering. This virtually guarantees that the markets will be slow to react to further downside, which in turn should exacerbate that downside when it does come. A different facet of this low volatility/low premium environment is that most participants have developed strong faith in the cycle upphases when they are due. This is a Pavlovian response to this long year of surprise flagpole rallies and robot jams off the flimsiest of buy signals. All participants, this author included, expected a bounce all afternoon and were reluctant to short/ eager to get long or hedge open shorts in anticipation of a nice upside run. Fortunately for the market it came, if somewhat later than expected. I expect this to prove disastrous in the long run, because when a big drop does come, there will be fewer shorts to provide buying (covering) on the way down. I had prefaced this with the statement that the markets behaved themselves this week and on Friday. Let's take a look: Weekly COMPX candles The Nasdaq moved lower this week, dropping 2.4% this week and 1.1% or 19.92 points on Friday. The Naz is down 1.9% for the month. This weakness reflects itself with lower low for the weekly candle print above, and the general weakening of upward momentum shows up as a bearish stochastic divergence since the end of June. Despite the higher price highs, the stochastic oscillator has been weakening, and continues to await the beginning of its downphase. A break below 1800 could kick off the move from what have become very overbought levels on the weekly oscillators. Weekly INDU candles We see a similar picture on the Dow weekly candles, with a clearer bear wedge pattern off the March low. 9500 looks like the key support at current levels, tested but not broken on Friday. For the week, the Dow lost 1.4% and is up .1% for the month. The same bearish stochastic divergence as we see on the Nasdaq is evident here. Daily QQQ candles The weakness in the Qubes this week lined up perfectly with the oscillator downphase on the daily chart oscillators. This downphase confirmed the rally high as an actual high for the time being, and a lower price high for the next oscillator upphase will seal it. Trendline support at 32.90 was not tested, and the trend on this six month chart is clearly still up despite this week's bearishness. However, the increasingly underdone sentiment readings combined with the toppy, divergent weekly oscillators are keeping score, and the markets shouldn't rise forever. We await the test of 32.90 to give us a clearer view of what to expect, but for the time being, the stronger-than-recent price declines derived from the coincident downside cyclicality of the weekly and daily oscillators. 20 day 30 minute chart of the QQQ The weakness mentioned above is most evident on the 30 minute charts, with a trend of lower oscillator highs under the influence of the dailies. Price fell far more easily than it rose this week, Friday's end of session ramp job notwithstanding. If my interpretation is correct, the bull wedge on this chart should not play out to its full 35.40 target, and I expect a battle at 34.50. The Friday bounce was anticipated by the oversold 300 minute stochastic on this chart, which continues to track the price very efficiently. Daily OEX candles We see the same setup on the OEX, with this week's weakness following the daily oscillator path perfectly. Meaningful support is at 505, below which 497 should provide some bids. The trend remains up until those break, but note that the last upphase in October was much shorter than the previous one from August to September. 20 day 30 minute chart of the OEX Same story on the 30 minute chart. 515 looks like the next problem area for bulls, and as the 30 minute chart oscillators are fighting the downphase on the daily, I expect a lower high from the current upphase. Above 517, my picture will become more complicated than this, and we'll have to reassess. For next week, the bias is short term strength as the 30 minute upphases play out, but within the context of overriding weakness under the influence of the downphasing daily and weekly chart oscillators. ------------------------------------------------------------ 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 ************** Two for Two, What Did I Do Wrong? The DJX put play from Oct-12th never filled the second and third level of the Nov-96 puts like we hoped but we did get a drop to our sell target of 9500 on Friday. The puts we did get a trigger on should have filled in the $1.35 range depending on your broker on Monday the 13th. They were trading at $2.20 on Friday when the Dow hit our target of 9500. Initially we were going to sell 1/2 at 9500 and 1/2 at 9300 but last week I suggested selling them all at 9500 since we never triggered on the two remaining entries. Either way if finished as a successful play. AMZN posted a profit for the first non holiday quarter ever but gave some tame guidance and investors returned the stock for a refund. The stock was trading near $60 when puts were recommended last Sunday. It traded as high as $61 on Tuesday giving traders plenty of opportunity to pick up a few of the recommended Jan-$55 put as suggested. That put closed at $3.80 the Friday before the recommendation and traded as low as $2.95 by Tuesday. AMZN has traded as low as 52.91 since earnings and those puts rocketed to $5.50 as investors continue to sell the stock. Regardless of where you bought the puts you would have been profitable. OK, now what? We hit Dow 9500, not really a magic number but more of a psychological level. We bounced slightly but without conviction. Unfortunately that is what I have today, a lack of conviction about direction. It is tough to suggest a play for this week with the Dow right in the middle of its expected range. That range for next week could run from 9000 to 10,000 and while I am still leaning to the downside I cannot see entering a play from here. My actual personal target is 9300. However, I am not confident enough in the bounce potential to suggest calls at any level. It would be really easy to suggest buying laddered calls at 9300, 9200, 9100 and 9000 but I have no confidence that the rebound will be soon. We could wander in the 9000-9500 range for a month if investors decide the earnings were not as exciting as they expected. The bullish case says the funds buy the dip the first week of November and we are off to the races again. With this the last week in October and the mutual fund year end anything is possible. When you have no bias it is best not to play. Otherwise it is just a coin flip. My suggestion for this weekend is to pass. If you feel led then buy the dip under 9300. Dow 9000 is massive support and I do not see that cracking. If I thought we were just going to dive to that level next week I would not hesitate to buy the dip. I am just not convinced. My choice would probably be the DJX 92.00 calls at 9000. Far enough out of the money to sell for a buck and close enough to be in the money quickly on any rebound. Good luck! ******************************** Play Recaps MMM Bull Put Spread (recommended 10/05) Still patiently waiting. http://members.OptionInvestor.com/editorplays/edply_100503_1.asp LUV Calls (recommended 9/14) PowerBall Technical problems on the portfolio quotes today. I will update it again next Sunday. ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Whispering October Winds - J. Brown Wow! What a week for the markets. A week ago Friday many thought we would have seen Dow 10,000 and NASDAQ 2000 this last week. Instead we're left with a bounce from 9500 and 1841, respectively. The declines were widespread with Europe and Asia suffering along with us. Actually, Japanese NIKKEI has fallen more than 820 points in the last few days with more than 500 of that decline in one session. More than a few traders were spooked that we would see similar declines in the U.S. markets but in an amazing show of strength (or manipulation) the $INDU and COMPX slid lower in a much more orderly fashion. Of course we shouldn't be too surprised that the markets witnessed some profit taking this week. The Q3 earnings season has pretty much delivered on the promise to turn in strong earnings growth and investors tend to sell the news. Hastening the urge to lock in profits were disappointing earnings and comments from several major drug companies mid-week and then MSFT's lackluster report on Thursday. Throw in some new multi- year lows for the fear indices (VIX, VXO and VXN) and combine it with growing valuation concerns and the market pull back looks down right sedate. Did you hear it? This week I heard something that I probably haven't heard for a couple of years. That's right, I heard traders and market pundits talking about companies meeting the "whisper number". The whisper number was a staple of bull market earnings seasons and a force to be reckoned with. Companies that have been managing earnings to just meet or beat the estimates now have even more pressure to deliver and investors' urge to sell the news on positive reports will only grow stronger. Speaking of earnings reports there are three Dow components announcing on Monday. Those are American Express (AXP), International Paper (IP) and Procter & Gamble (PG). They will certainly set the tone for the DJIA. Let's hope it's a positive one and we get a tradable bounce off the 9500 level. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9850 52-week Low : 7197 Current : 9582 Moving Averages: (Simple) 10-dma: 9721 50-dma: 9528 200-dma: 8803 S&P 500 ($SPX) 52-week High: 1053 52-week Low : 768 Current : 1028 Moving Averages: (Simple) 10-dma: 1041 50-dma: 1021 200-dma: 943 Nasdaq-100 ($NDX) 52-week High: 1439 52-week Low : 795 Current : 1370 Moving Averages: (Simple) 10-dma: 1404 50-dma: 1358 200-dma: 1179 ----------------------------------------------------------------- Hmm... interesting development in the fear indices on Friday. The afternoon bounce in the markets had the VXO and VXN rolling over. Could we still see another surge higher for stocks? CBOE Market Volatility Index (VIX) = 17.71 +0.03 CBOE Mkt Volatility old VIX (VXO) = 18.93 -0.17 Nasdaq Volatility Index (VXN) = 25.45 -0.64 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.91 690,948 630,758 Equity Only 0.79 567,785 447,421 OEX 0.93 26,319 24,572 QQQ 2.28 21,291 48,493 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.9 + 0 Bull Confirmed NASDAQ-100 75.0 + 0 Bear Correction Dow Indust. 83.3 + 0 Bull Correction S&P 500 78.6 - 1 Bull Confirmed S&P 100 78.0 - 1 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-dma: 1.16 10-dma: 1.13 21-dma: 1.09 55-dma: 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 1147 1201 Decliners 1632 1823 New Highs 110 97 New Lows 12 10 Up Volume 559M 520M Down Vol. 1144M 1376M Total Vol. 1730M 1942M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/21/03 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 Unfortunately we're still not seeing much change in sentiment for the Commercials in the big S&P futures. They remain slightly net short. Small traders aren't making many moves either and they remain net long. Commercials Long Short Net % Of OI 09/30/03 395,713 397,577 ( 1,864) (0.0%) 10/07/03 390,232 402,964 (12,732) (1.6%) 10/14/03 391,972 410,299 (18,327) (2.3%) 10/21/03 394,176 411,246 (17,070) (2.1%) 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 09/30/03 144,681 96,801 47,880 19.8% 10/07/03 138,644 88,018 50,626 22.3% 10/14/03 133,940 86,418 47,522 21.6% 10/21/03 136,643 88,290 48,343 21.5% 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 It's the same story here. Commercials increased their positions in both longs and shorts but remains slightly net short. Small traders trimmed some short positions and opened 30K more long contracts just in time for the late week weakness. Commercials Long Short Net % Of OI 09/30/03 163,828 218,991 (55,163) (14.4%) 10/07/03 212,273 225,377 (13,104) ( 3.0%) 10/14/03 221,897 233,066 (11,169) ( 2.5%) 10/21/03 226,985 236,906 ( 9,921) ( 2.2%) 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 09/30/03 131,698 65,259 66,439 33.8% 10/07/03 134,990 63,560 71,430 36.0% 10/14/03 161,208 59,213 101,995 46.3% 10/21/03 168,236 56,564 111,672 49.7% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Sorry...no big changes for the Commercial traders here either. They remain net short while the Small Trader remains net long. Commercials Long Short Net % of OI 09/30/03 33,571 42,993 ( 9,422) (12.3%) 10/07/03 33,253 40,861 ( 7,608) (10.3%) 10/14/03 34,639 41,880 ( 7,241) ( 9.5%) 10/21/03 36,314 43,305 ( 6,991) ( 8.8%) 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 09/30/03 19,803 9,917 9,886 33.3% 10/07/03 18,182 9,688 8,494 30.5% 10/14/03 16,822 9,046 7,776 30.1% 10/21/03 16,917 9,750 7,167 26.9% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL No one seems willing to make any big bets. Commercials have been stuck in the same range for weeks now and remain net long the DJ futures. Small traders took some money out of their long and dumped some of it into shorts but not much. Commercials Long Short Net % of OI 09/30/03 16,561 8,932 7,629 31.5% 10/07/03 16,277 9,528 6,749 26.2% 10/14/03 16,595 9,433 7,162 27.5% 10/21/03 16,876 9,037 7,839 30.3% 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 09/30/03 7,578 8,125 ( 547) ( 3.5%) 10/07/03 7,392 7,910 ( 518) ( 3.4%) 10/14/03 6,427 8,495 (2,068) (13.9%) 10/21/03 5,392 8,842 (3,450) (23.1%) 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 *************** Jeff was pretty busy this week and was asked to fill in for this weekend's Market Wrap. In that wrap, Jeff encorporates short interest observations, use of retracement and a "high pole warning" that has developed in the Dow Industrials. Each of these applications have been discussed in prior Ask the Analyst columns and now may be the time to use these techniques. ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ADVP AdvancePCS Mon, Oct 27 After the Bell 0.52 AIN Albany International Mon, Oct 27 Before the Bell 0.48 AFC Allmerica Financial Mon, Oct 27 After the Bell 0.43 AXP American Express Co Mon, Oct 27 -----N/A----- 0.58 AMKR Amkor Technology, Inc Mon, Oct 27 After the Bell 0.01 BOH Bank of Hawaii Corp Mon, Oct 27 Before the Bell 0.56 ABX Barrick Gold Mon, Oct 27 -----N/A----- 0.06 BWA BorgWarner, Inc. Mon, Oct 27 -----N/A----- 1.28 CSE CAPITALSOURCE INC Mon, Oct 27 After the Bell 0.15 CB Chubb Corp Mon, Oct 27 After the Bell 1.25 CUZ Cousins Prop Incorp Mon, Oct 27 After the Bell 0.44 DNB D&B Mon, Oct 27 After the Bell 0.53 FCNCA First Citizens BancSh Mon, Oct 27 -----N/A----- N/A FTI Fmc Technologies, Inc Mon, Oct 27 After the Bell 0.28 GGP General Growth Prop Mon, Oct 27 -----N/A----- 1.65 HMY Harmony Gold Mining Mon, Oct 27 Before the Bell 0.07 HE Hawaiian Electric Mon, Oct 27 -----N/A----- 0.82 HUM Humana Inc. Mon, Oct 27 Before the Bell 0.38 IKN Ikon Office Solutions Mon, Oct 27 Before the Bell 0.16 IP International Paper Mon, Oct 27 Before the Bell 0.25 JP Jefferson-Pilot Mon, Oct 27 After the Bell 0.89 LIHRY LIHIR GOLD LTD Mon, Oct 27 -----N/A----- N/A MXICY Macronix Intl Mon, Oct 27 -----N/A----- N/A WFR MEMC Elec Materials Mon, Oct 27 -----N/A----- 0.12 NU Northeast Utilities Mon, Oct 27 Before the Bell 0.27 IX Orix Corp Mon, Oct 27 -----N/A----- N/A PG Procter & Gamble Co Mon, Oct 27 Before the Bell 1.25 PTZ Pulitzer Inc. Mon, Oct 27 Before the Bell 0.46 QGENF Qiagen N.V. Mon, Oct 27 During the Market 0.08 RCII Rent-A-Center Mon, Oct 27 After the Bell 0.57 RCL Ryl Caribbean Cruises Mon, Oct 27 Before the Bell 0.98 SAFC Safeco Corp. Mon, Oct 27 Before the Bell -0.18 SHR Schering AG Mon, Oct 27 Before the Bell N/A SINA SINA CORP Mon, Oct 27 After the Bell 0.19 SPF Standard Pacific Corp Mon, Oct 27 Before the Bell 1.48 STO Statoil ASA Mon, Oct 27 Before the Bell N/A SYY SYSCO Corp Mon, Oct 27 Before the Bell 0.31 TCP Telesp Celular Part Mon, Oct 27 -----N/A----- 0.01 TIN Temple-Inland, Inc. Mon, Oct 27 After the Bell 0.19 TP TPG NV Mon, Oct 27 -----N/A----- 0.24 TRI Triad Hospitals, Inc Mon, Oct 27 Before the Bell 0.46 UDR United Dom Realty Tr Mon, Oct 27 After the Bell 0.38 VTR Ventas Mon, Oct 27 After the Bell 0.39 VMC Vulcan Materials Mon, Oct 27 After the Bell 0.89 BER W.R. Berkley Mon, Oct 27 After the Bell 0.80 WRI Weingarten Realty Inv Mon, Oct 27 Before the Bell 0.86 WLP WellPoint Health Net Mon, Oct 27 After the Bell 1.45 ------------------------- TUESDAY ------------------------------ ABB ABB Tue, Oct 28 Before the Bell N/A ACE ACE LTD Tue, Oct 28 After the Bell 1.02 ATE Advantest Corp Tue, Oct 28 -----N/A----- N/A APD Air Products & Chem Tue, Oct 28 Before the Bell 0.59 AMI ALARIS Medical, Inc. Tue, Oct 28 Before the Bell 0.12 ALD Allied Capital Corp Tue, Oct 28 Before the Bell 0.52 AW Allied Waste Ind Tue, Oct 28 After the Bell 0.17 AMB AMB Property Corp Tue, Oct 28 After the Bell 0.50 ARI Arden Realty Inc Tue, Oct 28 After the Bell 0.63 AVP Avon Products Inc. Tue, Oct 28 Before the Bell 0.54 BLL Ball Corp Tue, Oct 28 Before the Bell 1.28 STD Bnco Sntndr Cntrl HispTue, Oct 28 Before the Bell N/A BHP BHP Billiton Ltd Tue, Oct 28 After the Bell 0.16 BGEN Biogen, Inc. Tue, Oct 28 Before the Bell 0.43 BP Bp PLC Tue, Oct 28 Before the Bell 0.83 BTI British Am Tobacco Tue, Oct 28 Before the Bell 0.62 BPO BROOKFIELD PPTYS CORP Tue, Oct 28 After the Bell 0.55 CCJ Cameco Tue, Oct 28 -----N/A----- N/A CMX CareMark Rx, Inc. Tue, Oct 28 Before the Bell 0.28 CINF Cincinnati Finl Corp Tue, Oct 28 -----N/A----- 0.50 BVN Comp Minas Buenavent Tue, Oct 28 -----N/A----- 0.80 CNX CONSOL Energy Tue, Oct 28 Before the Bell 0.03 CAM Cooper Cameron Tue, Oct 28 Before the Bell 0.53 COX Cox Communications Tue, Oct 28 Before the Bell 0.04 CCI Crown Castle Intl Tue, Oct 28 After the Bell -0.30 CUM Cummins Inc. Tue, Oct 28 Before the Bell 0.67 RDY Dr. Reddy's Labs Tue, Oct 28 Before the Bell N/A EDMC Education Mgmnt Corp Tue, Oct 28 After the Bell 0.10 ECA EnCana Corp Tue, Oct 28 -----N/A----- 0.68 EOP Equity Office Prop Tue, Oct 28 Before the Bell 0.70 ESA Extended Stay America Tue, Oct 28 After the Bell 0.20 FLR Fluor Corp Tue, Oct 28 After the Bell 0.56 FBR Fredmn Bill, Rmsy Grp Tue, Oct 28 After the Bell 0.40 GILD Gilead Sciences Tue, Oct 28 After the Bell 0.35 HMC Honda Motor Co. Ltd. Tue, Oct 28 Before the Bell 0.54 HGSI Human Genome Sciences Tue, Oct 28 Before the Bell -0.42 IRF Intl Rectifier Tue, Oct 28 After the Bell 0.28 JNY Jones Apparel Group Tue, Oct 28 Before the Bell 0.68 KG King Pharmaceuticals Tue, Oct 28 Before the Bell 0.41 KRON Kronos Incorporated Tue, Oct 28 After the Bell 0.55 LMT Lockheed Martin Tue, Oct 28 Before the Bell 0.58 LUX Luxottica Group Tue, Oct 28 -----N/A----- N/A MFC Manulife Finl Corp Tue, Oct 28 During the Market 0.54 MC Matsushita Elec Ind Tue, Oct 28 Before the Bell N/A MXIM Mxm Integrated Prod Tue, Oct 28 After the Bell 0.25 MNT Mentor Tue, Oct 28 After the Bell 0.29 MGM Metro-Goldwyn-Mayer Tue, Oct 28 -----N/A----- -0.15 MNST Monster Worldwide Tue, Oct 28 After the Bell 0.11 MRH Montpelier Re Holding Tue, Oct 28 After the Bell 0.88 MCO Moody's Corp Tue, Oct 28 After the Bell 0.51 MPS MPS Group Tue, Oct 28 Before the Bell 0.06 MUR Murphy Oil Corp Tue, Oct 28 After the Bell 0.65 NOI National Oilwell Tue, Oct 28 Before the Bell 0.27 NTES Netease.com Inc Tue, Oct 28 -----N/A----- 0.32 ORLY O'Reilly Automotive Tue, Oct 28 After the Bell 0.54 OMC Omnicom Group Tue, Oct 28 Before the Bell 0.71 OSK Oshkosh Truck Tue, Oct 28 -----N/A----- 0.59 OHP Oxford Health Plans Tue, Oct 28 Before the Bell 1.15 PY Pechiney Tue, Oct 28 -----N/A----- 0.24 PFGC PERFORMANCE FOOD GROUPTue, Oct 28 Before the Bell 0.46 PAA Plains All Am PipelineTue, Oct 28 Before the Bell 0.38 PCO Premcor Inc. Tue, Oct 28 Before the Bell 0.77 RHD R.H. Donnelley Corp Tue, Oct 28 After the Bell 0.66 RJR R.J. Reynolds Tobacco Tue, Oct 28 Before the Bell 0.92 RNWK RealNetworks Tue, Oct 28 After the Bell -0.02 RGS Regis Corp Tue, Oct 28 Before the Bell 0.53 RCI Renal Care Group, Inc.Tue, Oct 28 After the Bell 0.53 RMD ResMed Inc. Tue, Oct 28 After the Bell 0.36 SHW Sherwin-Williams Tue, Oct 28 Before the Bell 0.78 SAH Sonic Automotive Tue, Oct 28 Before the Bell 0.81 SPW SPX Tue, Oct 28 -----N/A----- 0.95 STTS ST Assembly Test Serv Tue, Oct 28 After the Bell 0.00 SLF Sun Life Financial Tue, Oct 28 -----N/A----- 0.46 SY Sybase Tue, Oct 28 Before the Bell 0.25 TPP Teppco Tue, Oct 28 After the Bell 0.37 EL Estie Lauder Comp Inc Tue, Oct 28 Before the Bell 0.32 RSE The Rouse Co Tue, Oct 28 -----N/A----- 0.93 TWTC Time Warner Telecom Tue, Oct 28 -----N/A----- -0.26 TRP TransCanada Corp Tue, Oct 28 -----N/A----- N/A RIG Transocean Inc. Tue, Oct 28 Before the Bell 0.06 TSM TSMC Tue, Oct 28 -----N/A----- 0.10 X United States Steel Tue, Oct 28 Before the Bell -0.07 UVV Universal Corp Tue, Oct 28 -----N/A----- N/A VCI Valassis Comm Tue, Oct 28 Before the Bell 0.52 VAR Varian Medical SystemsTue, Oct 28 After the Bell 0.59 VZ Verizon Tue, Oct 28 Before the Bell 0.62 WPC W. P. Carey & Co. LLC Tue, Oct 28 Before the Bell 0.68 WDR Waddell & Reed Finl Tue, Oct 28 Before the Bell 0.30 ----------------------- WEDNESDAY ----------------------------- AAP Advance Auto Parts Wed, Oct 29 After the Bell 1.22 AEM Agnico-Eagle Mines LtdWed, Oct 29 After the Bell 0.02 ARG Airgas Wed, Oct 29 After the Bell 0.28 AHC Amerada Hess Wed, Oct 29 Before the Bell 1.30 AHM Amersham Wed, Oct 29 -----N/A----- N/A ANT Anteon Intl Corp Wed, Oct 29 Before the Bell 0.30 ATH Anthem, Inc. Wed, Oct 29 Before the Bell 1.33 APPB Applebee's Intl Wed, Oct 29 After the Bell 0.43 BLDP Ballard Power Systems Wed, Oct 29 -----N/A----- -0.29 BCE BCE Wed, Oct 29 -----N/A----- 0.47 CBL CBL & Associates Prop Wed, Oct 29 After the Bell 1.14 CRL Charles River Labs Wed, Oct 29 After the Bell 0.40 CHIR Chiron Wed, Oct 29 -----N/A----- 0.53 COP ConocoPhillips Wed, Oct 29 Before the Bell 1.59 COCO Corinthian Colleges Wed, Oct 29 Before the Bell 0.37 TEU CP Ships Wed, Oct 29 Before the Bell 0.35 CVS CVS Corp Wed, Oct 29 Before the Bell 0.46 DRE Duke Realty Corp Wed, Oct 29 After the Bell 0.62 EDS Electronic Data Sys Wed, Oct 29 After the Bell 0.32 EGN Energen Wed, Oct 29 -----N/A----- 0.24 EQY Equity One Wed, Oct 29 After the Bell 0.37 ERIE Erie Indemnity Wed, Oct 29 After the Bell 0.74 ESS Essex Property Trust Wed, Oct 29 After the Bell 1.08 ESRX Express Scripts, Inc. Wed, Oct 29 After the Bell 0.81 FSH Fisher Scientific IntlWed, Oct 29 After the Bell 0.62 FMT Fremont General Wed, Oct 29 Before the Bell N/A GRMN Garmin Ltd. Wed, Oct 29 Before the Bell 0.36 GEMP Gemplus International Wed, Oct 29 -----N/A----- -0.10 GGB Gerdau S.A. Wed, Oct 29 -----N/A----- 0.85 HAL Halliburton Co Wed, Oct 29 Before the Bell 0.28 HTV Hearst-Argyle TV, Inc Wed, Oct 29 Before the Bell 0.20 HIT Hitachi Limited Wed, Oct 29 -----N/A----- N/A IMDC INAMED Wed, Oct 29 After the Bell 0.58 INGR Intergraph Wed, Oct 29 After the Bell 0.07 IRM Iron Mountain Incorp Wed, Oct 29 Before the Bell 0.18 JNS Janus Capital Group Wed, Oct 29 Before the Bell 0.26 KMT Kennametal Inc. Wed, Oct 29 Before the Bell 0.34 KMG Kerr-McGee Wed, Oct 29 Before the Bell 0.73 KEG Key Energy Services Wed, Oct 29 Before the Bell 0.08 LNC Lincoln National Wed, Oct 29 After the Bell 0.79 MKL MARKEL CORP Wed, Oct 29 -----N/A----- 0.26 MDP Meredith Corp Wed, Oct 29 Before the Bell 0.38 MX Metso Corp Wed, Oct 29 -----N/A----- N/A MWI Moore Wallace Incorp Wed, Oct 29 After the Bell 0.22 MYL Mylan Laboratories Wed, Oct 29 After the Bell 0.27 NBR Nabors Industries Wed, Oct 29 -----N/A----- 0.32 NSCN NetScreen Tech Wed, Oct 29 After the Bell 0.13 NEM Newmont Mining Corp Wed, Oct 29 After the Bell 0.24 NIHD NII Holdings Wed, Oct 29 Before the Bell 1.23 NBL Noble Energy, Inc. Wed, Oct 29 Before the Bell 0.49 NSC Norfolk Southern Corp Wed, Oct 29 Before the Bell 0.34 NOC Northrop Grumman Wed, Oct 29 Before the Bell 1.01 NVO Novo-Nordisk Wed, Oct 29 -----N/A----- N/A PTNR Partner CommunicationsWed, Oct 29 Before the Bell N/A POG Patina Oil & Gas Wed, Oct 29 After the Bell 0.66 PTEN Patterson-UTI Energy Wed, Oct 29 Before the Bell 0.18 PD Phelps Dodge Wed, Oct 29 -----N/A----- 0.06 PDG Placer Dome Wed, Oct 29 After the Bell 0.09 PX Praxair Inc Wed, Oct 29 Before the Bell 0.90 PVN Providian Finl Corp Wed, Oct 29 After the Bell 0.21 STR Questar.com Wed, Oct 29 After the Bell 0.33 ROH Rohm and Haas Co Wed, Oct 29 -----N/A----- 0.43 SEM Select Medical Corp Wed, Oct 29 After the Bell 0.31 SILI Siliconix Wed, Oct 29 Before the Bell 0.39 SIRI Sirius Sat Radio Wed, Oct 29 Before the Bell -0.11 SSCC Smurfit-Stone Cont Wed, Oct 29 Before the Bell -0.04 SUG Southern Union Co Wed, Oct 29 -----N/A----- -0.18 TDK TDK Wed, Oct 29 -----N/A----- N/A TLSN TeliaSonera AB Wed, Oct 29 -----N/A----- N/A BA The Boeing Co Wed, Oct 29 Before the Bell 0.28 UN Unilever N.V. Wed, Oct 29 Before the Bell 1.21 UL Unilever PLC Wed, Oct 29 Before the Bell 0.73 UMC United Microelec Corp Wed, Oct 29 Before the Bell 0.02 VLI Valero L.P. Wed, Oct 29 Before the Bell 0.80 VSH Vishay IntertechnologyWed, Oct 29 Before the Bell 0.09 WON Westwood One Wed, Oct 29 Before the Bell 0.26 XL XL Capital Ltd Wed, Oct 29 After the Bell 1.01 ------------------------- THUSDAY ----------------------------- SE 7-Eleven Thu, Oct 23 Before the Bell 0.31 ASX Advanced Semi Engin Thu, Oct 30 Before the Bell 0.03 AES AES Corp Thu, Oct 30 Before the Bell 0.12 AET Aetna Inc. Thu, Oct 30 Before the Bell 1.22 ATG AGL Resources Thu, Oct 30 Before the Bell 0.22 AGU Agrium, Inc. Thu, Oct 30 After the Bell 0.09 ALA Alcatel Thu, Oct 30 -----N/A----- -0.01 AC Alliance Cap Mgmt Thu, Oct 30 -----N/A----- 0.53 LNT Alliant Energy Thu, Oct 30 Before the Bell 0.63 ATK Alliant Techsystems Thu, Oct 30 Before the Bell 0.83 AXL Am Axle & Manu Thu, Oct 30 Before the Bell 0.69 APCC Am Power Conversion Thu, Oct 30 After the Bell 0.21 AMT American Tower Corp. Thu, Oct 30 Before the Bell -0.20 ASL ASHANTI GOLDFIELDS LTDThu, Oct 30 Before the Bell 0.10 AN AutoNation Thu, Oct 30 Before the Bell 0.36 AVE Aventis Thu, Oct 30 -----N/A----- 0.87 AVT Avnet Thu, Oct 30 -----N/A----- 0.09 SAN Banco Santander-Chile Thu, Oct 30 -----N/A----- 0.42 BOL Bausch & Lomb Thu, Oct 30 Before the Bell 0.58 BEC Beckman Coulter Thu, Oct 30 Before the Bell 0.61 BVF Biovail Corp Thu, Oct 30 Before the Bell 0.39 BKH Black Hills Corp Thu, Oct 30 -----N/A----- 0.59 BMC BMC Software Thu, Oct 30 Before the Bell 0.05 BOW Bowater Incorporated Thu, Oct 30 Before the Bell -0.88 BG BUNGE LIMITED Thu, Oct 30 Before the Bell 0.76 CP Canadian Pac Railway Thu, Oct 30 Before the Bell 0.45 CAJ Canon Thu, Oct 30 Before the Bell N/A0 CZ Celanese AG Thu, Oct 30 Before the Bell 0.65 CTL CenturyTel, Inc. Thu, Oct 30 Before the Bell 0.59 CHK Chesapeake Energy CorpThu, Oct 30 After the Bell 0.30 CBI Chicago Bridge & Iron Thu, Oct 30 Before the Bell 0.36 CBB Cincinnati Bell Inc. Thu, Oct 30 Before the Bell 0.09 CMCSA Comcast Corp Thu, Oct 30 Before the Bell 0.00 CFB Commercial Federal Thu, Oct 30 Before the Bell 0.50 CNXT Conexant Systems Inc. Thu, Oct 30 After the Bell 0.01 CEG Constellation NRG Grp Thu, Oct 30 Before the Bell 1.15 CVH Coventry Health Care Thu, Oct 30 Before the Bell 1.06 DADE Dade Behring Thu, Oct 30 After the Bell 0.24 DB Deutsche Bank Thu, Oct 30 Before the Bell N/A DDR DEVELOP DVRSFED RLTY Thu, Oct 30 After the Bell 0.59 DTC Domtar Inc. Thu, Oct 30 Before the Bell N/A DUK Duke Energy Corp Thu, Oct 30 Before the Bell 0.37 DYN Dynegy Inc. Thu, Oct 30 Before the Bell 0.09 ENB Enbridge Inc. Thu, Oct 30 After the Bell N/A ERICY Ericsson LM Telephone Thu, Oct 30 -----N/A----- -0.18 EVG Evergreen Resources Thu, Oct 30 -----N/A----- 0.42 XOM ExxonMobil Corp Thu, Oct 30 -----N/A----- 0.62 GPRO Gen-Probe Thu, Oct 30 After the Bell 0.14 GFI Gold Fields Limited Thu, Oct 30 -----N/A----- 0.10 HR Healthcare Realty TrstThu, Oct 30 After the Bell 0.69 HPC Hercules Thu, Oct 30 Before the Bell 0.23 HIW Highwoods Properties Thu, Oct 30 After the Bell 0.64 ICI Imperial Chemical Ind Thu, Oct 30 Before the Bell 0.36 IM Ingram Micro Thu, Oct 30 -----N/A----- 0.16 IVX Ivax Thu, Oct 30 Before the Bell 0.16 JEC Jacobs Engineering GrpThu, Oct 30 Before the Bell 0.60 JHF John Hancock FinancialThu, Oct 30 After the Bell 0.76 LAF Lafarge North America Thu, Oct 30 After the Bell 2.06 LANC Lancaster Colony Corp Thu, Oct 30 Before the Bell 0.61 TVL LIN TV Corp. Thu, Oct 30 Before the Bell 0.14 LIZ Liz Claiborne Thu, Oct 30 Before the Bell 0.87 MLM Martin Marietta Mat Thu, Oct 30 Before the Bell 0.90 MTD Mettler-Toledo Intl Thu, Oct 30 After the Bell 0.52 NXL New Plan Excl Rtl TrstThu, Oct 30 Before the Bell 0.47 NWL Newell Rubbermaid Thu, Oct 30 Before the Bell 0.41 NFX Newfield Exploration Thu, Oct 30 Before the Bell 0.92 GAS Nicor Inc. Thu, Oct 30 After the Bell 0.28 ORH Odyssey Re Holdings Thu, Oct 30 After the Bell 0.43 OCR Omnicare Thu, Oct 30 Before the Bell 0.53 OKE ONEOK Inc. Thu, Oct 30 After the Bell -0.18 PNP Pan Pacific Rtl Prop Thu, Oct 30 Before the Bell 0.81 PNRA Panera Bread Thu, Oct 30 Before the Bell 0.23 PCZ Petro-Canada Thu, Oct 30 -----N/A----- 1.04 PIO Pioneer Corp Thu, Oct 30 -----N/A----- N/A PXD Pioneer Natural Res CoThu, Oct 30 Before the Bell 0.56 PNM PNM Resources Thu, Oct 30 After the Bell 0.67 PT Portugal Telecom SGPS Thu, Oct 30 Before the Bell N/A PDS Precision Drilling Thu, Oct 30 -----N/A----- 0.51 PDE Pride International Thu, Oct 30 After the Bell 0.16 PL Protective Life Corp Thu, Oct 30 Before the Bell 0.69 PFS Provident Finl Serv Thu, Oct 30 After the Bell 0.16 RDA READERS DIGEST ASSN Thu, Oct 30 Before the Bell -0.12 O Realty Income Corp Thu, Oct 30 -----N/A----- 0.72 SEPR Sepracor Thu, Oct 30 -----N/A----- -0.61 SPIL SILICONWARE PRECISION Thu, Oct 30 -----N/A----- 0.05 SPG Simon Property Group Thu, Oct 30 -----N/A----- 0.98 SWKS Skyworks Thu, Oct 30 After the Bell -0.08 HOT Starwood Hotels ResortThu, Oct 30 Before the Bell 0.20 STN Station Casinos Thu, Oct 30 -----N/A----- 0.35 SRCL Stericycle Thu, Oct 30 -----N/A----- 0.36 SU Suncor Energy Thu, Oct 30 Before the Bell 0.39 TARO Taro Pharmaceutical Thu, Oct 30 Before the Bell 0.52 TNE Tele Norte Leste Prtc Thu, Oct 30 Before the Bell 0.10 TELN Telenor ASA Thu, Oct 30 -----N/A----- N/A BCO The Brink's Co Thu, Oct 30 Before the Bell 0.24 SMG The Scotts Co Thu, Oct 30 Before the Bell 0.03 SPC The St. Paul CompaniesThu, Oct 30 Before the Bell 0.92 TOC The Thomson Corp Thu, Oct 30 -----N/A----- 0.40 TKC Trkcl Iletsim Hizmetl Thu, Oct 30 -----N/A----- N/A UNTD United Online Inc. Thu, Oct 30 Before the Bell 0.22 UCL Unocal Thu, Oct 30 Before the Bell 0.68 VLO Valero Energy Corp. Thu, Oct 30 Before the Bell 1.43 VRC Varco International Thu, Oct 30 Before the Bell 0.24 VSEA Varian Semicon Equip Thu, Oct 30 After the Bell 0.00 WPL W.P. Stewart & Co. Thu, Oct 30 Before the Bell 0.27 WMI Waste Management Thu, Oct 30 Before the Bell 0.37 WFT Weatherford Intl Thu, Oct 30 -----N/A----- 0.38 WTM White Mountain Ins GrpThu, Oct 30 After the Bell 5.61 ------------------------- FRIDAY ------------------------------- ABN ABN Amro Holdings Fri, Oct 31 Before the Bell N/A APC Anadarko Petroleum Fri, Oct 31 Before the Bell 1.20 ANDW ANDREW CORP Fri, Oct 31 Before the Bell 0.05 AU Anglogold Limited Fri, Oct 31 Before the Bell 0.29 ADM Archer Daniels MidlandFri, Oct 31 Before the Bell 0.19 CVX ChevronTexaco Fri, Oct 31 Before the Bell 1.62 CI CIGNA Fri, Oct 31 Before the Bell 1.17 ENI Enersis SA ADS Fri, Oct 31 After the Bell 0.03 FFH Fairfax Financial HoldFri, Oct 31 -----N/A----- N/A FIA Fiat S.p.A. Fri, Oct 31 During the Market N/A FUJIY Fuji Photo Film Fri, Oct 31 -----N/A----- N/A HME Home Properties Fri, Oct 31 Before the Bell 0.78 NDE IndyMac Bancorp, Inc. Fri, Oct 31 Before the Bell 0.73 PGL Peoples Energy Corp. Fri, Oct 31 Before the Bell 0.02 TU TELUS Fri, Oct 31 During the Market N/A WPO The Washington Post Fri, Oct 31 -----N/A----- 5.46 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable OTEX Open Text Corp 2:1 Oct 28th Oct 29th GBR Greenbriar Corp 2:1 Oct 28th Oct 29th MDU MDU Resources Group Inc 3:2 Oct 29th Oct 30th USNA USANA Health Sciences Inc 2:1 Oct 30th Oct 31st AMRB Am River HoldingsCorp 3:2 Oct 31st Nov 3rd UNTD United Online 3:2 Oct 31st Nov 3rd EASI Engineered Support Systems3:2 Oct 31st Nov 3rd MNRO Monro Muffler Brake Inc 3:2 Oct 31st Nov 3rd CETV Cntrl Euro Media Ent Ltd. 2:1 Nov 4th Nov 5th -------------------------- Economic Reports This Week -------------------------- We have a VERY full week with plenty of economic reports and another round of corporate earnings. Look for Wall Street to pause for the FOMC meeting on Tuesday. ============================================================== -For- ---------------- Monday, 10/27/03 ---------------- Existing Home Sales(DM) Sep Forecast: 6.30M Previous: 6.47M New Home Sales (DM) Sep Forecast: 1113K Previous: 1150K ----------------- Tuesday, 10/28/03 ----------------- Durable Orders (BB) Sep Forecast: 1.2% Previous: -1.1% Consumer Confidence(DM) Oct Forecast: 79.0 Previous: 76.8 FOMC Meeting (DM) ------------------- Wednesday, 10/29/03 ------------------- None ------------------ Thusday, 10/30/03 ------------------ Initial Claims (BB) 10/25 Forecast: N/A Previous: 386K Employment Cost Index(BB)Q3 Forecast: 0.9% Previous: 0.9% GDP-Adv. (BB) Q3 Forecast: 5.8% Previous: 3.3% Chain Deflator-Adv. (BB) Q3 Forecast: 1.4% Previous: 1.0% Help-Wanted Index (DM) Sep Forecast: 38 Previous: 37 FOMC Minutes (DM) ---------------- Friday, 10/31/03 ---------------- Personal Income (BB) Sep Forecast: 0.2% Previous: 0.2% Personal Spending (BB) Sep Forecast: -0.1% Previous: 0.8% Mich Sentiment-Rev. (DM)Oct Forecast: 89.5 Previous: 89.4 Chicago PMI (DM) Oct Forecast: 54.5 Previous: 51.2 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 10-26-2003 Sunday 2 of 5 In Section Two: Watch List: New Highs & Relative Strength Call Play of the Day: ICOS Dropped Calls: None Dropped Puts: ATK ------------------------------------------------------------ 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 ********** Fortune Brands - FO - close: 63.37 change: +0.47 WHAT TO WATCH: If you're looking for stocks with good relative strength then FO qualifies. The markets went south this week and FO managed to trade sideways and bounce from its rising 10-dma. Actually the last few sessions almost look like a short-term bullish flag pattern. Chart= --- Hershey Foods - HSY - close: 76.38 change: +0.70 WHAT TO WATCH: In the spirit of Halloween we have a sweet breakout in shares of HSY. The stock has been consolidating sideways between 75 and 76 for several days. Friday the stock broke out to a new yearly high. HSY does have some resistance near its all time high under 80.00. Chart= --- Eaton Corp - ETN - close: 97.96 change: +1.86 WHAT TO WATCH: Shares of ETN surged from $88 to over $100 prior to its earnings report. Now shares have consolidated back to the $95 level (previous resistance) and bounced. The rebound looks pretty tempting, having broken the short-term (one week) trend of lower highs. Chart= --- Netease.com - NTES - close: 64.55 change: +5.75 WHAT TO WATCH: NTES has been on our watch list recently and we're re-adding it again. The stock bounced from its 50-dma and the $60 level on very big volume of 7.8 million shares. The short- term trend of lower highs is still in effect but a move over $67.00 might be playable. Trade with caution. NTES is volatile. Chart= --- T.Rowe Price - TROW - close: 39.50 change: -1.05 WHAT TO WATCH: We came "this close" to adding TROW to the OI play list as a put. Earnings were announced on Friday and the numbers were good but investors sold the news anyway. The growing proble/scandal in the mutual fund industry is a sure-fire turn off for new money in this group. The breakdown under $40.00 looks like a good entry point for bears but front month option interest is zero. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- STJ $58.00 +0.83 - This medical equipment stock has been edging higher but still has resistance at $59.00. A breakout might be playable. SINA $42.00 +4.72 - This Chinese Internet stock looks pretty tempting. Shares rocketed higher on Friday and broke the month- long trend of lower highs. Aggressive bulls can consider new plays at current levels. ------------------------------------------------------------ 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 ******************* Call Play of the Day: ******************** ICOS Corp - ICOS - close: 45.42 chg: +3.02 stop: 41.99 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 ^^^^^ None PUTS ^^^^ Alliant Tech Systems - ATK - cls: 48.44 change: -0.02 stop: 50.51 Boredom has certainly been the name of the game with ATK this week, as the stock has traded in a very tight 67-cent range for the past three days, as volume has withered to the point of being almost non-existent. When that sort of thing happens, it becomes very difficult to analyze the price action and very hazardous to have an open position. With daily Stochastics looking ready to turn up from oversold and no apparent downside conviction, we're going to err on the side of caution and exit our ATK play before it can move against us. Use any early weakness on Monday to effect a more favorable exit point. Picked on October 19th at $49.12 Change since picked: -0.68 Earnings Date 10/30/03 (confirmed) Average Daily Volume: 386 K *********** 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. 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The Option Investor Newsletter Sunday 10-26-2003 Sunday 3 of 5 In Section Three: Current Calls: ABC, AZO, BBY, COO, FD, LOW, QLGC New Calls: ICOS, SYK Current Put Plays: AVID, DNA, MATK, WFT New Puts: None ------------------------------------------------------------ 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 ****************** AmerisourceBergen - ABC - close: 57.01 change: -1.78 stop: 55.75 Company Description: AmerisourceBergen is a pharmaceutical services company dedicated solely to the pharmaceutical supply chain. The company markets its products and services to hospital systems (hospitals and acute care facilities), alternate care customers (mail order facilities, physicians' offices, long-term care institutions and clinics), independent community pharmacies, and regional drugstore and food merchandising chains. ABC also provides outsourced pharmacies to long-term care and workers' compensation programs. ABC perates in two segments: Pharmaceutical Distribution and PharMerica. The Pharmaceutical Distribution division is primarily the company's wholesale and specialty drug distribution business, and PharMerica is the company's institutional pharmacy business. Why we like it: Validating the wisdom of using a trigger on this play, ABC made a pretty convincing breakout attempt on Thursday, only to be knocked back into its consolidation zone on Friday. Thursday's gain looked encouraging with the close over the 200-dma and at the high of the day. But the negative market sentiment at the start of Friday's session resulted in an intraday dip to just above $56 before the afternoon rebound took it right back to $57, which is right in the middle of the consolidation zone of the past few weeks. Our gameplan remains the same. We will require ABC to trade over $59 in order to trigger the play to live status. Momentum traders can enter on the initial breakout, while the bargain hunters can wait for a subsequent pullback to test support in the $57-58 area. Remember, the clock is ticking, as we only have until November 5th for ABC to perform for us before we have to exit ahead of the company's earnings report. The initial upside target is $62, at which point we can re- evaluate to see if the stock appears headed for higher levels. Suggested Options: Shorter Term: The November 55 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 60 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 60 Call, although we must advise caution due to the very low open interest. BUY CALL NOV-55 ABC-KK OI= 744 at $3.40 SL=1.75 BUY CALL NOV-60 ABC-KL OI=3563 at $0.80 SL=0.40 BUY CALL DEC-55 ABC-LK OI= 24 at $4.00 SL=2.50 BUY CALL DEC-60 ABC-LL OI= 28 at $1.45 SL=0.75 Annotated Chart of ABC: Picked on October 21st at $58.44 Change since picked: -1.43 Earnings Date 11/05/03 (confirmed) Average Daily Volume = 1.70 mln ---- AutoZone, Inc. - AZO - close: 95.45 change: -0.13 stop: 93.00*new* Company Description: AutoZone is a retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of its more than 2900 stores in 42 states and Mexico carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items and accessories. Approximately half of its domestic stores also have a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations. Why we like it: It wasn't the runaway breakout we were hoping for, but last week AZO finally managed a decisive breakout over $95. The first foray over that level occurred on Tuesday, with real conviction not showing itself until Thursday when the stock managed to hit $96 intraday before pulling back slightly into the close. Despite the negative market action throughout most of Friday's session, AZO held up fairly well and with the late-day rebound, delivered its second consecutive close over $95. Intraday pullbacks near $94 look viable for continuation entries, with aggressive momentum entries advisable on a breakout over $96.10, the 9/24 intraday high. At this point, it should be safe to raise our stop to $93, as that is below the 20-dma ($93.32), the rising trendline from the July lows, and last week's intraday lows. Suggested Options: Shorter Term: The November 95 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 100 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 100 Call. BUY CALL NOV- 95 AZO-KS OI=1493 at $2.85 SL=1.50 BUY CALL NOV-100 AZO-KT OI=1600 at $0.90 SL=0.40 BUY CALL DEC- 95 AZO-LS OI= 785 at $4.50 SL=2.75 BUY CALL DEC-100 AZO-LT OI= 473 at $2.20 SL=1.00 Annotated Chart of AZO: Picked on October 14th at $94.42 Change since picked: +1.03 Earnings Date 12/22/03 (unconfirmed) Average Daily Volume = 917 K --- Best Buy Company - BBY - close: 53.64 change: -1.17 stop: 52.50 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: Without Dramamine, the past couple weeks of trading in shares of BBY have been enough to induce motion sickness. The stock has been bouncing between firm resistance at $55 and equally firm support at $52.50. While Thursday's rally had us expecting an imminent breakout, the early action on Friday induced thoughts of a potential breakdown. Fortunately, the bulls arrived just in time and bought that dip just above our $52.50 stop and lifted the stock into the middle of that consolidation range by the close. Until this range breaks, we're stuck with two potential strategies. The first is to buy rebounds near the $53 level and the second is to wait for a breakout over $55 before playing. Our target for the play remains a run to $57, at which point we'd recommend exiting open positions with a tidy gain. Should the bears win the current tug-of-war, our $52.50 stop will still result in a small gain from our picked price of $51. Suggested Options: Shorter Term: The November 50 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. 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. BUY CALL NOV-50 BBY-KJ OI= 2405 at $4.40 SL=2.75 BUY CALL NOV-55 BBY-KK OI= 6755 at $1.35 SL=0.75 BUY CALL DEC-55 BBY-LK OI= 6256 at $2.55 SL=1.25 Annotated Chart of BBY: Picked on October 5th at $51.00 Change since picked: +2.64 Earnings Date 12/17/03 (unconfirmed) Average Daily Volume = 3.94 mln --- Cooper Cos - COO - close: 40.76 chg: -0.17 stop: 39.99 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: Friday's session wasn't awe inspiring by any measure so we're not surprised to see COO still languishing near its simple 50-dma. If you're feeling impatient then closing the play here may not be a bad idea. If the markets can build on the Friday afternoon bounce then we'd expect to see some follow through on the bounce for COO as well. Technically this smells like an entry point but we're reluctant to encourage new positions. An upward move back through the $41.25-41.50 level would do a lot to renew our confidence and encourage new plays. Should that fail to appear soon we may drop COO for lack of performance. 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-KH OI= 869 at $2.10 SL=1.00 BUY CALL NOV 45 COO-KI OI=1544 at $0.35 SL= -- BUY CALL FEB 40 COO-BH OI= 816 at $3.60 SL=1.80 BUY CALL FEB 45 COO-BI OI= 426 at $1.35 SL=0.70 Annotated chart: Picked on October 12 at $41.40 Change since picked: - 0.64 Earnings Date 09/03/03 (confirmed) Average Daily Volume: 391 thousand --- Federated Dep Store - FD - cls: 45.92 chng: -0.58 stop: 44.25 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: Retail stocks stumbled early on Friday with the rest of the broad market, but the tireless bulls bought the dip yet again, trimming the loss in the Retail index (RLX.X) to a mere 0.58% by the close. Our FD play wasn't looking too hot as the lunch hour progressed, with the stock puncturing the $45 level for the first time since October 9th. But once again the dip was bought and FD ended the day just below that pivotal $46 level. That leaves the stock right in the middle of its recent consolidation range, leaving us with our preferred entry strategy of buying the dips in anticipation of a breakout to new highs. So long as the $44.50 level is not broken, then the dips look like attractive buying opportunities, so long as the RLX doesn't break below its 50-dma ($362). Traders looking for a momentum entry will need to wait for a breakout over $48 before playing. Keep in mind that a breakout trade is likely to be short-lived because of the proximity of our $50 profit target. Maintain stops at $44.25. Suggested Options: Shorter Term: The November 45 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 47 Call or even the December 47. 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 may want to use the January 47 Call due to its greater open interest than the December strikes. BUY CALL NOV-45 FD -KI OI=283 at $2.05 SL=1.25 BUY CALL NOV-47 FD -KW OI=389 at $0.90 SL=0.50 BUY CALL DEC-45 FD -LI OI= 10 at $2.75 SL=1.25 BUY CALL DEC-47 FD -LW OI= 7 at $1.45 SL=0.75 BUY CALL JAN-47 FD -AW OI=112 at $2.05 SL=1.00 Annotated Chart of FD: Picked on October 9th at $45.60 Change since picked: +0.32 Earnings Date 11/12/03 (unconfirmed) Average Daily Volume = 1.89 mln --- Lowe's Companies - LOW - close: 57.85 change: -0.80 stop: 57.00 Company Description: As a retailer of home improvement products, Lowe's has a specific emphasis on retail do-it-yourself and commercial business customers. The company specializes in offering products and services for home improvement, home decor, home maintenance, home repair and remodeling and maintenance of commercial buildings. Why we like it: We knew when we added bullish coverage of LOW on Thursday that it was an aggressive trade, as we were looking for a breakout move I a stock that was already pretty extended to the upside. Sure enough, the broad market weakness on Friday nearly killed the play before it ever got started. Recall that we're waiting for a trade at $59 to trigger the play, and that level has not yet been traded. At the same time, we've set a tight stop of $57, and the stock traded within 6 cents of that level during the lunch hour on Friday. LOW still looks like a solid breakout candidate, and Friday's price action proved the wisdom of using that entry trigger. Once the $59 level has been traded, momentum traders can enter on the initial breakout, while more cautious players can wait for a subsequent pullback and rebound from the $58-59 area, confirming old resistance as new support. The initial upside move following the anticipated breakout should carry LOW to $61, at which point we can re-evaluate whether the stock looks capable of achieving our aggressive $65 target. Suggested Options: Shorter Term: The November 55 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the November 60 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 60 Call. BUY CALL NOV-55 LOW-KK OI= 2230 at $3.90 SL=2.50 BUY CALL NOV-60 LOW-KL OI=11305 at $1.10 SL=0.50 BUY CALL DEC-55 LOW-LK OI= 30 at $4.60 SL=2.75 BUY CALL DEC-60 LOW-LL OI= 282 at $1.80 SL=0.90 Annotated Chart of LOW: Picked on October 23rd at $58.65 Change since picked: -0.80 Earnings Date 11/17/04 (unconfirmed) Average Daily Volume = 3.90 mln --- QLogic Corp. - QLGC - close: 52.44 change: +0.54 stop: 50.00 Company Description: Somebody has to make the equipment that lets your computer talk to all its peripheral equipment, and QLGC does it well. A leading designer and supplier of semiconductor and board-level input/output (I/O) management products, QLGC has been providing SCSI-based connectivity solutions to this market sector for over 12 years. QLGC's I/O products provide a high performance interface between computer systems and their attached data storage peripherals, such as hard disk and tape drives, removable disk drives and RAID (redundant array of independent disks) subsystems. The company is also the market share leader in Fibre Channel host bus adapters, a market segment that is receiving tremendous attention from investors. Why we like it: The earnings warning from KLAC hit the Semiconductor stocks hard in the latter part of last week and our QLGC play was no exception. The initial reaction to the news drove the stock below $52 on Thursday, with the slide continuing down to $51.10 on Friday before the bulls finally stepped in to support the stock above $51 support and the 20-dma (currently $50.87). Despite the near-term weakness, QLGC still looks like a strong bullish candidate, having found apparent support at former resistance, and the late day surge on Friday certainly looked convincing, gaining nearly $1 in the final hour. That rebound off the lows could certainly be viewed as a viable (albeit aggressive) entry heading into the weekend. For those unwilling to enter so close in front of the weekend, look for upside continuation above $52.75 as a decent entry on Monday. Traders waiting to enter on a breakout will still need to keep their sights set on $55.10. A move through that level would be significant and would have us then looking for a continued rally up to our initial target at $58. For now, we'll maintain our stop at $50, which should be below the 50-dma (currently $49.90) on Monday. Suggested Options: Shorter Term: The November 55 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the December 60 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. BUY CALL NOV-50 QLC-KJ OI=1659 at $3.90 SL=2.50 BUY CALL NOV-55 QLC-KK OI=6837 at $1.35 SL=0.75 BUY CALL DEC-55 QLC-LK OI= 400 at $2.25 SL=1.00 BUY CALL DEC-60 QLC-LL OI= 358 at $0.90 SL=0.45 Annotated Chart of QLGC: Picked on October 21st at $54.21 Change since picked: -1.76 Earnings Date 1/14/04 (unconfirmed) Average Daily Volume = 4.78 mln ************** NEW CALL PLAYS ************** ICOS Corp - ICOS - close: 45.42 chg: +3.02 stop: 41.99 Company Description: ICOS is a product-driven company that has expertise in both protein-based and small molecule therapeutics. ICOS combines its capabilities in molecular, cellular and structural biology, high throughput drug screening, medicinal chemistry and gene expression profiling to develop highly innovative products expected to have significant commercial potential. ICOS applies its integrated approach to erectile dysfunction and other urologic disorders, and sepsis and other inflammatory diseases. ICOS' strategy targets multiple therapeutic areas with drugs that act through distinct molecular mechanisms, increasing opportunities to market breakthrough products. (source: company press release) Why We Like It: The drug battle royale has yet to begin in the U.S. but storms of conflict are on the horizon. The battle between ED drugs (erectile dysfunction) is coming. Pfizer has enjoyed a monopoly in the U.S. markets but the little blue pill is about to get some tough competition from the Eli Lilly-ICOS treatment Cialis. Cialis is already doing well in Europe and analysts have big expectations for the drug in the U.S. Not only are bulls gunning for ICOS' upside related to the upcoming Cialis launch but technically the stock looks good too. Shares just burst through major resistance on its weekly, daily and P&F charts. To make it even more appealing the daily chart appears to be showing a reverse head-and-shoulders pattern. If this pattern holds true then bulls can target a move near $60.00. Our short-term target is $50.00 but we'll happily let the stock run as far as it wants to.. that is until earnings appear on Nov. 4th, which means we'll probably close it on the 3rd. Suggested Options: We like the November 45s and 50s for short-term traders. If you're willing to risk holding over the earnings report then the December and January strikes look good too. BUY CALL NOV 45 IIQ-KI OI=2300 at $2.90 SL=1.50 BUY CALL NOV 50 IIQ-KJ OI= 565 at $1.05 SL=0.55 BUY CALL DEC 45 IIQ-LI OI= 842 at $4.20 SL=2.15 BUY CALL DEC 50 IIQ-LJ OI= 374 at $2.05 SL=1.00 Annotated Chart: Picked on October 26 at $45.42 Change since picked: + 0.00 Earnings Date 11/04/03 (confirmed) Average Daily Volume: 1.5 million Chart = --- Stryker Corp. - SYK - close: 81.51 change: +0.57 stop: 78.00 Company Description: Stryker Corporation and its subsidiaries develop, manufacture and market specialty surgical and medical products, including orthopaedic reconstructive implants. the company operates in two reportable segments. Orthopaedic Implants sells orthopaedic reconstructive, trauma and spinal implants, bone cement and the bone growth factor osteogenic protein-1. The Medsurg Equipment segment sells powered surgical instruments, endoscopic systems, medical video imaging equipment, craniomaxillofacial implants, image-guided surgical systems and hospital beds and stretchers. Why we like it: The weekly chart of SYK certainly looks different from most other stocks, as it has been in an almost non-stop rising trend since late 1998, more than quadrupling since then. After running to a new high in late July, the stock spent more than 2 months consolidating and building its strength for the next breakout. That move arrived earlier this month, as SYK cleared $78.50 and quickly surged to just below $82. Despite some valuation concerns (the stock's trailing PE ratio is 39, which is high for a cardiovascular stock), SYK appears to have built another higher base in preparation for another breakout. The PnF chart certainly gives the impression of higher prices ahead, as it is still on a strong Buy signal and has a vertical price target of $94. We aren't expecting to see that level reached in the near- term, but a run to $86 certainly seems viable. Aggressive traders can use a dip and rebound from the $80 level to enter the play ahead of the expected breakout, while traders looking for some confirmed strength first will want to see that breakout over $82 before playing. Based on the increasing volume trend over the past few sessions, that breakout entry may be the most likely setup early next week. Owing to the aggressive nature of the play, we're setting a rather wide stop at $78, which is just below the top of the 10/15 gap. This level will also be below the 20-dma (currently $77.92) by Monday. Suggested Options: Shorter Term: The November 80 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the December 85 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 80 Call. BUY CALL NOV-80 SYK-KP OI= 590 at $2.65 SL=1.25 BUY CALL NOV-85 SYK-KQ OI= 118 at $0.55 SL=0.25 BUY CALL DEC-80 SYK-LP OI=1077 at $3.40 SL=3.00 BUY CALL DEC-85 SYK-LQ OI= 66 at $1.00 SL=1.00 Annotated Chart of SYK: Picked on October 26th at $81.51 Change since picked: +0.00 Earnings Date 1/15/04 (unconfirmed) Average Daily Volume = 701 K ------------------------------------------------------------ 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 ***************** Avid Technology - AVID - cls: 49.00 chg: -2.40 stop: 52.51 Company Description: Avid Technology, Inc. is the world leader in digital nonlinear media creation, management and distribution solutions, enabling film, video, audio, animation, games, and broadcast news professionals to work more efficiently, productively and creatively. For more information about the company's Oscar., Grammy., and Emmy. award-winning products and services, please visit: www.avid.com. (source: company press release) Why We Like It: (Thursday's Original Write up) Why do we like AVID as a put play? That's a good question because longer-term we're pretty bullish on the stock. The company recently announced earnings earlier this month and beat estimates by 5 cents. Not only were revenues up more than 10% for the quarter but AVID guided higher for the fourth quarter's revenues and income. That certainly doesn't sound like a bearish play to us. However, nothing goes up forever and we want to try and capture any profit taking in this technology stock. Shares of AVID have tripled from the March '03 lows and have run up more than 600% from early October a year ago. Now it looks like investors are ready to take some money off the table. The stock just broke its simple 50-dma for the first time since March and technical indicators have all turned negative. It's point- and-figure chart just produced its first bearish sell signal since last March as well. However, we're concerned that traders might try and buy the dip at $50.00 so we're going to use a TRIGGER at $49.90 to open the play for us. Until then we're just spectators. A 38.2% retracement of the March '03 to October run up should put AVID near $43.25, which coincides with the early August support. Once we are triggered we'll initiate the play with a stop loss at 52.51. Weekend Update: Right on target! AVID continued higher Friday morning while the NASDAQ was dropping. Yet once AVID traded up towards the $52 level the trend reversed. Mid-day there was a huge volume spike on the drop below the $50 mark and we were triggered at $49.90. We're very encouraged that AVID remained under the $50.00 in spite of the afternoon bounce in the major market averages. Traders can initiate new positions here or look for failed rallies under $50.00. Our initial stop loss is 52.51 but 52.00 or 51.50 also look okay. There may be some small support at 47.50 and 45.00 but our first target (as mentioned above) remains $43.25. Suggested Options: Short-term traders can look at the November and December 55's, 50's and 45's. Longer-term traders can choose from the March '04 strikes. We probably like the November 50's best or 45's if you're more aggressive. BUY PUT NOV 45 AQI-WI OI= 556 at $1.50 SL=0.75 BUY PUT NOV 50 AQI-WJ OI= 756 at $3.70 SL=1.85 BUY PUT DEC 40 AQI-XH OI= 619 at $1.30 SL=0.65 *risky* BUY PUT DEC 45 AQI-XI OI= 386 at $2.55 SL=1.25 BUY PUT DEC 50 AQI-XJ OI= 427 at $4.80 SL=2.50 Annotated chart: Picked on October 24 at $49.90 Change since picked: - 0.90 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 628 thousand Chart = --- Genentech Inc - DNA - close: 79.80 change: +0.67 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) Why We Like It: Right off the bat let us state this is a rather gutsy play. DNA is a perfect example of why you trade with stop losses whether you're trading stocks or options and especially any time you're trading drug or biotech stocks. A quick look at the chart for DNA and you'll notice the booster-rocket trajectory from mid-May. It was a very painful day for the bears and it hasn't ended. It has been a very good six months for DNA. Last May they announced very positive results for their colorectal cancer treatment Avastin. Many analysts believe it will be approved by the FDA in 2004 and sales could reach $1.5 to $2 billion. On top of the Avastin news, DNA has also benefited from a successful Xolair launch and an FDA approval for their Raptiva treatment. Earnings were on October 8th and DNA beat estimates by 2 cents with 27 cents/share. With all this good news why are we trying to "short" it? Well nothing goes up forever and DNA is hinting at a potential breakdown. We initiated this play last week with a TRIGGER at $77.50 in hopes of catching this stock on the way down. It soon broke its rising trendline of support and traded below our trigger. Unfortunately, DNA has spent the last few days now consolidating sideways between $76 and $80. More aggressive traders can use these failed rallies under $80 as entry points but be disciplined with your stop. Currently our stop loss is at 82.30. It might be tested soon as DNA rallied strongly on Friday afternoon and looks ready to trade back above the $80 level. This last week we did see shares of DNA produce a fresh quadruple-bottom sell signal on its P&F chart. These are usually very profitable patterns to trade but nothing is 100% accurate all the time. For the time being, DNA still has our attention but we're a little cautious and a little more patient picking any new entries. We suggest you do the same. Suggested Options: 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=2928 at $1.15 SL=0.60 BUY PUT NOV 80 DNA-WP OI=1959 at $3.00 SL=1.50 BUY PUT DEC 75 DNA-XO OI=2229 at $2.45 SL=1.25 BUY PUT DEC 80 DNA-XP OI=3788 at $4.50 SL=2.25 Annotated Chart: Picked on October 20 at $77.50 Change since picked: + 2.30 Earnings Date 10/08/03 (confirmed) Average Daily Volume: 2.5 million Chart = --- Martek Biosciences - MATK - cls: 45.69 chg: -0.31 stop: 48.01*new* Company Description: Martek Biosciences Corporation develops, manufactures and sells products from microalgae. The Company's products include: (1) specialty, nutritional oils for infant formula that aid in the development of the eyes and central nervous system in newborns; (2) nutritional supplements and food ingredients that may play a beneficial role in promoting mental and cardiovascular health throughout life; and (3) new, powerful fluorescent markers for diagnostics, rapid miniaturized screening, and gene and protein detection. (source: company press release) Why We Like It: We initially added MATK to the put list a week ago Thursday in an effort to capture any profit taking from its 350% rise from August '02 and its 200% jump from this last March. The rising trend had broken down and shares closed below their simple 50-dma and round-number psychological support at $50.00. Seller's pounced on the weakness and shares quickly dropped almost hitting our initial target of $44.00 in a couple of days. Since then the stock has consolidated sideways with a trend of higher lows and lower highs. This pennant formation has boiled down into a very narrow wedge at Friday's close. We can expect a move (up or down) very soon for MATK and we're betting on down. But remember, MATK is not without risk. The stock tends to carry a very high amount of short-interest and while they haven't moved into cover shorts lately they could at any time. Short-term traders who caught the early move can begin planning their exits. New positions can be considered on a break below $45.00. We're going to lower our stop loss to 48.01 to reduce our risk. Suggested Options: Short-term traders can choose between the November and December options for MATK while longer-term traders can look over the March 04 options. Our preference is the DEC 50's or 45's. (the NOV 45s and 40s were not available until just recently). BUY PUT NOV 40 KQT-WH OI= 10 at $0.60 SL= -- BUY PUT NOV 45 KQT-WI OI=405 at $2.00 SL=1.00 BUY PUT NOV 50 KQT-WJ OI=205 at $5.10 SL=2.50 BUY PUT DEC 40 KQT-XH OI=301 at $1.25 SL=0.65 BUY PUT DEC 45 KQT-XI OI=465 at $3.00 SL=1.65 BUY PUT DEC 50 KQT-XJ OI=169 at $5.90 SL=3.50 Annotated Chart: Picked on October 16 at $49.48 Change since picked: - 3.79 Earnings Date 09/09/03 (confirmed) Average Daily Volume: 466 thousand Chart = --- Weatherford Intl - WFT - close: 34.03 change: -0.67 stop: 36.01 Company Description: Weatherford is one of the largest global providers of innovative mechanical solutions, technology and services for the drilling and production sectors of the oil and gas industry. Weatherford operates in over 100 countries and employs approximately 16,000 people worldwide. (source: company press release) Why We Like It: (Original Write up from Thursday) Shares of WFT have been under performing the market for quite some time. We've had our eye on it lately for a break under long-time support at $35.00. That breakdown came today after the company warned that Q3 earnings would not meet expectations. Consensus analyst estimates for WFT's Q3 performance were for revenues of $672 million and net income at 38 cents a share. WFT's new guidance puts revenues at $660 million and 35 cents a share. It's not a huge miss but it should be enough to spark a new round of selling. There is potential support in the $32.50 range but our target is the round-number support at $30.00. We'll initiate the play with a stop loss at 36.01. Weekend Update: The breakdown continues for WFT as the stock gaps down at the open on Friday. Merrill Lynch is helping our cause with a downgrade for WFT on Friday. MER has cut WFT from "buy" to "neutral" after the company warned. We're encouraged by WFT's lack of participation in the late Friday afternoon market bounce. More conservative traders can probably get by with a stop loss closer to $35.00 than $36.00. Suggested Options: Short-term traders can choose between the November and December options while longer-term players can evaluate the January and February strikes. The $35 and 30's look good to us but don't buy too many 30's just because they look cheap! Trade carefully. BUY PUT NOV 30 WFT-WF OI= 2268 at $0.45 SL= -- BUY PUT NOV 35 WFT-WG OI= 2124 at $2.05 SL=1.00 BUY PUT DEC 30 WFT-XF OI= 30 at $0.70 SL= -- BUY PUT DEC 35 WFT-XG OI= 30 at $2.50 SL=1.25 Annotated chart: Picked on October 23 at $34.70 Change since picked: - 0.67 Earnings Date 10/30/03 (confirmed) Average Daily Volume: 1.3 million Chart = ************* NEW PUT PLAYS ************* None ------------------------------------------------------------ We got trailing stops! _ Trade online with trailing stops at optionsXpress, at no extra cost _ Trailing stops based on the option price or the stock price _ Also place Contingent, Stop Loss, and "One Cancels Other" orders _ $1.50 /contract (10+ contracts) or $14.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oetics23 Note: Options involve risk. 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The Option Investor Newsletter Sunday 10-26-2003 Sunday 4 of 5 In Section Four: Leaps: Didn't Miss A Thing Traders Corner: Racking Up Profits By Sinking One Ball At A Time 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 ***** Didn't Miss A Thing By Mark Phillips mphillips@OptionInvestor.com Last week was my first week back from my little "vacation" and what impressed me throughout the week was the fact that I could have taken two weeks off and still not missed anything of consequence. Sure, there were the usual daily gyrations, but the basic tone of the market remains the same as it has for months on end. Some things have changed, but nothing significant has been altered in the big picture view. The bulls are still clicking up their hooves and bears looking to make some coin are forced to make quick hit- and-run plays. That's definitely not what we're attempting to do in this column, so our best course of action is still to be exceedingly stingy about exposing capital in new long-term plays. The landscape for the week ahead should be determined by two opposing forces. On one side, we have seen a huge portion of the earnings results for the quarter, and for the most part they have been respectable. But there have been a few high-profile bombshells like KLAC and MSFT to inject a bit of reality into the mix. But any attempt at a major selloff next week seems a remote possibility with mutual funds likely to try to prop things up into the end of the quarter. Basically, it is more of the same and we're once again in a holding pattern until November rolls around. Of course then we'll start hearing about expectations for the holidays and then it will be time to start dragging out the tired old excuse of "The Santa Claus Rally" as a justification to continue pushing stocks higher. At some point in the near future, the investing public will be forced to acknowledge that at current valuations, stocks are about as attractive as the emperor in his new (and nonexistent) set of clothes. I've been harping on this for awhile now, but I think it bears repeating. The valuation of the overall market right now is MORE INFLATED than it was at the peak of the bubble that burst in early 2000. There's no doubt that prices have come down considerably, but the problem is that earnings have fallen even further. The nonsense of comparing this quarter's earnings to what the expectations were or what was reported last quarter or last year is just an extension of the greater fool theory. Now don't get me wrong, playing the momentum game can work quite nicely for intraday or swing trading. But that isn't the game we're playing here. As stated numerous times in the recent past, we're trying to establish positions in moves that can work in our favor for a period of months. In terms of the broad market, there hasn't been a tradable pullback or continuation entry to the upside since the first upward thrust concluded in mid-June with the SPX reaching the 1015 area and the DOW topping out near 9350. I won't argue that a blind buy and hold strategy from then until now would have delivered some moderate gains, but it would have been awfully difficult to hold those positions, especially through the late-September drop. And in all seriousness, how advisable would such a strategy have been with all the bullish percent readings topped out near multi-year bullish extremes, the VIX nearing 'bear alert' levels and other sentiment indicators tipping the scales at dangerously bullish/complacent? So what's changed since June? The SPX has extended its advance from 1015 to as high as 1053 and the DOW has actually traded up to the 9850 area. So let's see, that translates to a total of 38 S&P points and 500 DOW points in a period of 18 weeks for an average of 2.1 S&P points and 27 DOW points per week. Are you excited yet? I can tell you this though. Time decay (even on LEAPS) would have eaten up a large portion of our gains between mid-June and now, even if we had possessed the intestinal fortitude to hold through the volatility. The bulls' liquidity-driven party is doomed to an unpleasant end, as the ever-mounting debt levels, trade imbalances and job displacements are creating a very unhealthy economic backdrop. The underlying problems are not being dealt with, namely that we're in the process of destroying our own currency and in the process, our national economy. Like the man says, "Pay me now, or pay me later, but later is going to be much more expensive!" Using a medical analogy, let's say our economy is the equivalent of a man with cancer. He can choose to either suffer the painful and unpleasant process of Chemotherapy and Radiation treatments, or hope for the best and not be plagued by all the physical and emotional discomfort that comes with traditional cancer treatments. The treatment may be unpleasant, but it gives our hypothetical patient the knowledge that he has a good chance of eventually kicking the cancer and going on to live out the remainder of his life in a fulfilling manner. It isn't a guarantee, of course, but it is definitely an option worth considering. On the other hand, if our patient decides to ignore the cancer and just live out his life in denial of the fact that his body is destroying itself from the inside, he'll feel better in the near-term, but eventually feel much worse as the disease takes its toll. In our analogy, our 'patient' is the U.S. economy, with decisions about 'treatment' being made by the current administration and the Federal Reserve. Both have chosen to "fight" the disease by engaging in more of the same activities that brought on the "cancer" in the first place. One of the biggest problems is excess debt. What is our 'fix' for the problem? Print more money and issue more debt. It seems ludicrous when we look at it this way, but that is the direction our leaders are taking us. It's kind of like giving a lung cancer patient a pack of smokes in the hopes it will make them feel better. It may work short-term, but in the end it only exacerbates the underlying problems. This house of cards may come down next month, next year, or 3 years from now, but I have no doubt it is coming down. That keeps me focused on bearish long-term plays, except where I can find a compelling valuation or technical setup. There are very few candidates that I would say qualify for this distinction right now, as downside risks greatly outweigh the upside potential in the current climate. I could go on about this topic, but we don't have either the time or space to fully address it today. Consider this a brief teaser, which I will further expand on in a 2-part article next week on Monday and Wednesday. We'll cover where the market is in its rally phase and where all this fits within the larger economic context. Let's take the remainder of our time together and take a look at our short list of plays. Portfolio: WMT - Either WMT is putting in a lower high and prepping for a decent downward move or we'll see it rebound again from the $56 area to make another assault on the descending trendline, now at $59.80. There hasn't yet been a bearish shift in the overall Retail index (RLX.X), as it continues to hold within its rising channel, and very near its highs in the $380 area. Failed rallies below $59.50 can still be used for new entries into this bearish play, and stops should remain at $61. Until the broad market decides which way it wants to go, WMT is probably going to be stuck in this $56-60 range, but both fundamental and technical factors are favoring a breakdown. Watch List: QQQ - Here we go again. The QQQ topped out just under $36 this time and then plunged back to the bottom of the months-long rising channel. Friday's selloff found eager buyers willing to prop up the Technology market and that resulted in the QQQ reversing an intraday breakdown below both the 50-dma and the bottom of the channel. Look back to the end of September, and we can see what happened last time there was a bounce from these measures of support. Despite my fundamental view that the QQQ should drop sharply, it isn't yet ready to do so from a technical standpoint. That means we continue to wait on the sidelines, with the play on HOLD. For those aggressive risk-takers out there, another failure below $36 could be used for opening new positions, but for right now that approach is too aggressive for the LEAPS Portfolio. At a minimum, we need to see a break in the pattern of higher lows and higher highs. SMH - Semiconductors are the lifeblood of the Technology sector, and despite a stiff blow in the middle of last week from the KLAC earnings warning, the SMH found support at its 20-dma, and well above the 50-dma and the bottom of its rising channel. There's no question the SMH is overextended and pricing in business improvements that are unlikely to materialize, but there isn't yet the compelling technical setup we're looking for. Just like with the QQQ, we need to at least have a break in the pattern of higher lows and higher highs before trying to play the downside in what has been a consistent leader to the upside for the past several months. Our SMH play remains on HOLD until it shows the requisite weakness. FRX - It is actually encouraging to see that FRX has once again found support near the $46 level and rebounded back near $50 and over the 200-dma. The more I look at the price action though, the less conviction I have in the stock's upside potential. Over the past month, we've seen a failed breakout and a failed breakdown, and now FRX is sitting well inside the range of the past 6 weeks. we may miss a solid entry into the play, but I'm going to stick with a conservative entry strategy. Look to initiate new positions in the $46-47 area on a pullback and rebound, using a stop at $44. NEM - So much for a controlled pullback! Just when it looked like we'd see some decent profit taking in the gold stocks, the dollar stumbled to new multi-year lows, giving gold stocks the lift they needed. NEM vaulted back up near $42 and any thoughts of a near- term entry quickly vaporized. While aggressive traders might attempt a short-term bullish play on a rebound from the $38 area, given our typical timeframe here, I'm really not interested in anything higher than $36 for an entry. Time will tell whether waiting for that pullback is prudent or foolish SBUX - Steady as she goes. Two weeks after adding SBUX to the Watch List, there hasn't been any appreciable price action and that leaves us in a holding pattern. It doesn't seem a prudent strategy to chase an entry at current price levels, but a pullback into our targeted entry zone should prove quite lucrative, as the company continues to build out its franchise in a profitable manner. Radar Screen: FNM - There just isn't anything left to focus on to the bearish side in FNM, as the stock broke above its descending trendline in the past week and appears destined for $80. Even significantly bad news regarding the company's borrowing abilities didn't result in anything more than an intraday dip. I still like the downside in this stock from a fundamental standpoint, but only when we get a favorable technical setup. We aren't anywhere near there, so I'm going to jettison FNM from my radar screen. QCOM - Two weeks of sideways consolidation has been healthy for QCOM, but I don't see anything approaching an entry point. The 50- dma may provide some support near-term, but with the weekly Stochastics oscillator just turning down from overbought, it seems a bit too aggressive for a position trade. The better approach will be to target a drop to the $39-40 area, and that is exceedingly unlikely to occur over the next week. DJX - I'm starting to like the downside potential for the DJX play a lot more than I was two weeks ago, as we've finally seen it tag the $98.50 level. While there was a decent pullback (to $95) following that runup, we still don't have a real crack in the market's bullishness. I'm expecting next week to hold in the current range as the forces of earnings disappointment and mutual fund window dressing go head to head. Next weekend, look for DJX to move back onto the Watch List. Closing Thoughts: I normally try to find something quick and pithy to wrap up my commentary in this section. This week, I actually threw out what I had written and decided to copy what I had put here two weeks ago. It so clearly sums up where I think we are and where we are headed. Perhaps next week (when I've had more sleep), I'll be able to see more clearly! "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." 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: FRX 09/21/03 $46-47 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 None Drops AGN - $77.20 Hopefully, it comes as no surprise that we're dropping AGN from consideration as a bullish play. The stock was never able to trade the $82 level to create that PnF Buy signal and then last week, it broke down below $76, generating a PnF Sell signal. AGN has become very volatile in the past couple weeks and it would be difficult to divine a solid trade either bullish or bearish. Rather than continue to struggle with what is clearly a broken play, we'll remove it from consideration to make room for better possibilities. ------------------------------------------------------------ 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 ************** Racking Up Profits By Sinking One Ball At A Time By Mike Parnos, Investing With Attitude Something very unexpected happened on Monday night. It was highly unlikely and completely unexpected. No, I didn't win the lottery, get lucky or give birth. There wasn't an eclipse, but one might happen just as often. I won't keep you in suspense. What happened was that I won a pool (9-ball) tournament. Don't worry, you're not going to see any of my matches on ESPN (or the Playboy Channel). This was just a local handicap tournament with about 40 participants of varying skill levels. The lesser players (of which I'm one) are given a spot to help even things out and make the matches competitive. The tournaments are double- elimination – which means you can lose a match without being eliminated. You get a second chance. Then, if you win, you move on to another match, etc. When, I started playing pool seriously about 18 months ago, I sucked. I had played on those little coin-operated tables found in bars on occasion. Being a novice, I might make a ball or two and then miss three or four. In reality, I had no idea what went into being a real pool player and not just a recreational player. I started watching players who knew what they were doing. Playing on a professional 9-foot table, they made it seem so simple – making shot after shot. It seemed to come as easily to them as did breathing. The majority shots were all 18 inches to two feet in length. When practicing, I might make a ball or two, but the first one was two feet away and the next may have been six feet away. But the likelihood of me consistently making six-foot shots is the same as Carmen Electra showing up at my front door with "yes, yes" in her eyes. How do the "real" pool players manage to have most of their shots be two-feet (or less) shots? The secret (and it's certainly not classified information) is that, while making one ball, they are manipulating the cue ball into position to make the next ball. There's a certain amount of skill in hitting a ball into a pocket, but simultaneously sending the cue ball on a predetermined path to simplify the next shot is a skill (and art) unto itself. I decided to take the game seriously. Pool is a wonderful sport in that almost anyone can play – fat or thin, old or young, pretty or pretty ugly. To improve, however, you have to be able to assimilate information, add some common sense and be able to put it together and act. I took some lessons from a professional. He began at square one – taking any preconceived ideas I may have had about the game and throwing them out the window -- my stance, my stroke, my aiming, my thinking – everything! Then, he proceeded to build me back up, one step at a time. Establishing a solid foundation of fundamentals is essential. From there, you can build, learn strategies, and become a "real" pool player instead of a "recreational" player. I've been practicing ever since – and improving. Notice any similarities to option trading? Reread everything above. Don't the same basic steps apply to the development of trading skills? Almost anyone can play. Amateurs buy and sell options arbitrarily – making a few and missing more. Then, hopefully, the decision is made to learn the "right" way to trade. It takes time. It takes a lot of practice. And, it takes a professional's guidance. Well, you're here and that's encouraging. You have to pick a professional who teaches, not only the basics, but a style of playing (trading) with which you are comfortable. It will likely require you to abandon other things you "think you know" and embrace some new ideas. Envision the learning process as a boot camp setting -- where they break you down and then build you back up with know-how, discipline, and, ultimately, ready for action. The accomplished pool players have learned how to position themselves (with the cue ball) for consistent success. The same holds true for trading. If you position yourself for success, you've increased your chances exponentially (big word, huh?). I'm particularly proud of the many CPTI readers who have been with us for quite some time. They've learned -- sometimes the hard way. They've practiced and learned lessons -- sometimes expensive ones. And now they're spending all those "hypothetical" profits and smiling all the way to the bank. They've learned a skill and have increased their chances for success exponentially (I couldn't resist. Hey, it's five syllables). Will I ever win another pool tournament? Who the hell knows? But I know that, as I improve, I'll be winning a lot more smaller victories. And those "smaller" victories certainly do add up. So do our small victories in the options market. A word of warning to the pool players and option traders of the world – HERE WE COME! ____________________________________________________________ November's First Casualty We exercised our self-discipline and implemented our money- management skills on Wednesday when AFCI violated the $23.35 parameter. We bought back our short November $25 put for $2.65 and sold our long Nov. $20 put for $.30. The net cost to bail was $2,350. Since we took in $1,650, our loss on this position was $700. Unfortunately, we had to close this out early in the option cycle, so it cost us more than if some time premium had eroded away. Don't think of it as a loss, but rather a cost of doing business. _____________________________________________________________ NOVEMBER AND ONGOING POSITIONS Position #1 – SPX Iron Condor – Trading @ 1028.91 We sold 10 contracts of November SPX 985 puts and bought 10 contracts of November SPX 975 puts for a credit of $1.10 ($1,100). Then we sold 7 contracts of November SPX 1075 calls and bought 7 contracts of November SPX 1090 calls for a credit of $1.50 ($1,050) and a 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. Position #2 – AFCI Iron Condor – Trading @ $22.88 We sold 10 contracts of the AFCI November $25 puts and bought 10 contracts of the AFCI November $20.00 puts for a credit of $1.05. Then sold 10 contracts of the AFCI November $30 calls and bought 10 contracts of the AFCI November $35.00 calls for a credit of $.60. Our total net credit was $1.65. Our safety range was $23.35 to $31.65. Position closed for $700 loss. (see explanation above) Position #3 – OEX Iron Condor (By Request) – 511.25 We sold 10 contracts of the OEX November 490 puts and bought 10 contracts of the OEX November 480 puts for a credit of about $.90. Then, sold 10 contracts of the OEX November 545 calls and buy 10 contracts of the OEX November 555 calls for a credit of about another $.90. Our total net credit will be about $1.80. Our maximum profit range is 490 to 545. Position #4 – BBH – Siamese Condor - $128.17 Sell 10 contracts of the BBH November $130 puts and 10 contracts of the BBH November $130 calls for about $8.50. Then, buy 10 contracts of BBH November $140 calls and 10 contracts of the BBH November $120 puts for about $2.40. The net credit should be about $6.10. Our profit range is $123.90 to $136.10 and those are also our exit parameters. The closer BBH finishes to $130, the more we can make. Position #5 – QQQ Put Calendar Spread – Trading @ $34.20 We decided to risk a buck. Since many folks think the market is due to correct. We created a cheap play that will let us take advantage of a nice down move. Meanwhile, we will continue to sell against the January put while we wait. 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). The October $32 puts expired worthless and, on Wednesday, we rolled out to the November $32 and took in a $.30 credit. We now have a new cost basis of $.70. OEX – Bearish Calendar Spread – OEX @ $511.25 We own 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 sold the October 490 puts, took in another $3.10 and those also expired worthless. On Thursday we sold the November 485 puts for $2.60. Our cost basis is now $2.70. If we're going to make money on this position, we'll need some cooperation from the market. The OEX will have to trade down to about 490 in the next few weeks. Then, we may have to make an adjustment. This may get a bit tricky – another adventure and learning experience. QQQ ITM Strangle – Ongoing Long Term -- $34.20. We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. Then we sold 10 contracts of the QQQ Oct. 33 puts and 10 contracts of the QQQ Oct. 34 calls for a total credit of $1,900. We bought back our $33 puts and $34 calls and rolled out to November $34 puts and $34 calls, taking in another $1.15 ($1,150). So far, so good. HPQ (Hewlett Packard) Bear-Put Spread – HPQ at $20.47 This is a directional bet. We anticipate HPQ may return to the $15 range. We own 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. __________________________________________________________ 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 _____________________________________________________________ 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. ************** TRADERS CORNER ************** Where is the Dow Going? Steve Gould My daughter, who is 12 and knows better, has started playing a new game while we are driving somewhere. She will ask, "Are we there yet?" I will reply, "No", at which point she will immediately ask again, "Are we there yet?" This will go on for a few moments until at one point I will respond, "Yes". Her next question is, "Really?" I would then reply, "Yes, really." Many traders have been asking, "Are we there yet?" referring, of course, to a top in the market. I think it is time to say, "Yes". Should you ask me, "really?" I would reply, "Maybe". It looks like the market has indeed topped and is starting its decline down. However, I want to reserve judgment for just a little bit longer to see what happens over the next week because there is still a chance that the S&P 500 will make a new high. Chart: S&P 500 Weekly 10/24/2003 For those of you who are new to this column, let me explain that even though the title of the column is "Where is the Dow Going?" I am using the S&P 500 because the wave picture is significantly clearer. Since all the markets essentially move in lock step, what I say for the S&P 500 can easily be applied to the Dow or the NASDAQ. The last bar printed on this weekly S&P 500 chart shows a significant dip in the overall progression of the trend. Since no trend lines have been broken, it is hard to say whether this is as of yet technically significant. We can clearly see that the S&P 500 has not yet touched the 38% retracement level of wave 3. More significantly, though, is the oscillator. It has substantially pierced the 138% retracement level although it is far from the 162% level. Another down week like this one and the oscillator should be reversing directions. Chart: S&P 500 Weekly Close-up 10/24/2003 Recall that the 4 wave is unfolding as an expanded flat and we expect the S&P 500 to reach a level of 1046-1090. These levels represent Fibonacci ratios of 1.38 x wave A and 1.62 x wave A respectively. (See previous analyses for a more detailed explanation.) A close up view of the weekly S&P 500 shows more visibly that the 4 wave made no additional progress toward the 1090 level. The S&P 500 is parked solidly between the 38% retracement level of the 3 wave and the level of 1046 at the 1.38 mark. Ellioticians can go home happy at this level, but the more usual level would be closer to the 1.62 mark. The daily chart of the S&P 500 will allow us to see the subdivisions of this five wave basic pattern in more detail and to allow Advanced Get to make some predictions. Chart: S&P 500 Daily 10/24/2003 This daily chart of the S&P 500 shows that the oscillator is still developing the characteristic pattern of a topping five wave basic pattern. Also of interest is the MOB (make or break) bars. The MOB predicts where the next resistance level will be. It is called make or break because either the stock will make the MOB and reverse direction or it will break right through it. The first MOB is taken from the (red) B wave of the 4 (blue circle) wave. Note that the 5 wave of the 5 (blue circle) wave coincides nicely with the MOB. The other MOB taken at the 3 wave of the 5 (blue circle) also coincides at the lower boundaries of the MOB. The confluence of these two MOBS bodes well for a top around this level. The key question now is, is this really the top of the 5 (blue circle) wave or should we see a top around the 1060 level as predicted in last week's analysis? In order to determine that, we need to look at the 5 wave of the 5 (blue circle) wave on an hourly basis. As a review, here is what I predicted last week. Chart: S&P 500 Hourly 10/17/2003 "The hourly chart of the S&P 500 tells me that we are not quite done with a final thrust up. We should see a slight rise in the S&P 500 (perhaps to 1043) followed by a further decline to about 1031-1024 to complete the five wave basic pattern of the C wave of the 4 wave. Next will come a 5 (square) rally to about the 1060 level making yet another new high. Then, if this expanded triangle is really an expanded triangle, we should see the beginning of the decline to 650." Chart: S&P 500 Hourly 10/24/2003 (The red bar marks the end of last week.) What ended up happening is the S&P 500 took a much larger decline and the A-B-C correction relabeled. This chart is rather cluttered so let's look at a more updated chart where we can actually see things. Chart: S&P 500 Hourly 10/24/2003 Updated The S&P 500 retraced to the 61.8% level and has started a small rally. The S&P 500 has a perfectly formed A-B-C zigzag correction and should rally to 1060 to complete the 5 (green square) wave...except for one small problem. The oscillator is not consistent with a wave 4 correction. Advanced Get guidelines say that the oscillator must retrace somewhere between 90 – 138% of the peak at wave 3. Occasionally, if all the other ducks line up in a perfect row, 162% will be allowed. However, once the 162% level is pierced, the odds of this formation being a 4 wave is drastically reduced. In fact, it is almost zero. As we can see from this chart the oscillator has significantly pierced the 162% level. Chances are very good that this is not a wave 4 correction. At this point, we need to be considering an alternative analysis. Chart: S&P 500 Hourly 10/24/2003 Alternate This labeling is more consistent with what is happening with the oscillator, although I have some issues with the labeling of the five wave basic pattern from 990 to 1055. This is not a perfect correlation between wave formation and oscillator, but this unfolding wave pattern is more likely. What this chart is saying is that the S&P 500 has peaked and that the beginning wave down has indeed started. So far, the first three of the 5 waves have formed and if this pattern continues with a solid five wave basic pattern, then we can be confident that the top has hit on 10/15/2003. Unless it isn't. The possibility still exists, although small, that the S&P 500 could rally and make a new high over the next several days. The critical level will be 1036 which is the low of the 1 (blue circle). If the S&P 500 prints higher than that before completing the 5 (blue circle) wave, the wave count is invalidated and the S&P 500 will most likely trend higher to 1060 – 1090 level. Bottom line, I am going to reserve judgment for a few days to see how the pattern unfolds. In either case, I believe the S&P 500 (and the rest of the markets, of course) have either topped or is very close to a top. ------------------------------------------------------------ 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 10-26-2003 Sunday 5 of 5 In Section Five: Covered Calls: Trading Basics: Covered-Call Fundamentals Naked Puts: Options 101: Economics & Stock Prices -- Part II Spreads/Straddles/Combos: Rally Pauses As Doubts Surface Over Future Earnings Updated In The Site Tonight: Market Posture: Investors Sleep through Friday's Session ------------------------------------------------------------ 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: Covered-Call Fundamentals By Mark Wnetrzak These recent E-mails may help new readers understand some of the basic ideas behind the covered-call strategy. Attn: questions@OptionInvestor.com Subject: Selling covered-calls I am new to covered calls, having only initiated a few CC trades. Question? When you sell a covered call you must wait until expiration of the option - whereupon your accounted is settled, either called out or not. BUT, on the other side, the buyer of your call option can sell the option at anytime they wish. How does this work? I have bought straight options before and sometimes sold them well before expiration. I have also heard that you can buy back a covered call that you have sold - can you always do this? When? and Why? and How? Any help you could provide with these queries would be greatly appreciated. Thanks, Mark Hello Mark! First off, and I think Mr. Phillips (LEAPS) will agree, what a great name! American style options can be bought back at any time prior to expiration or assignment. So, if an investor has sold covered-calls, he can buy back (to-close) the sold options before expiration as long as the stock hasn't been assigned. The whole position can be bought back, or just one call, or any number as desired. When the sold option is bought back, it removes the obligation to sell the underlying stock (or other security) at a specific price and time. Doing this would allow an investor to: sell the stock and cut short a losing position; retain the stock in his/her portfolio; sell new options to either try for a higher potential return or protect for a short-term draw down. The various option exchanges provide the "other-side" of the trade either electronically or through market-maker specialists. To learn more about how options work and the various strategies available, you can visit the CBOE website learning center at: http://www.cboe.com/LearnCenter Larry McMillan's "Options: As A Strategic Investment," is an excellent book and the chapter on covered-calls is highly recommended. As a new option trader, it is very important to thoroughly understand any strategy you intend to use. Regards, Mark W. OIN Attn: questions@OptionInvestor.com Subject: Covered-call strategy I've sold covered calls at $27.50; my b/e on the stock is $26. As you noted [recently in the newsletter], there has been heavy resistance here for a while. I could cover and sell Nov-$30 calls, but $30 is iffy based on the charts as I see them. What would a typical pro do? Thanks, Don Hello Don, As soon as I find a typical pro I'll let you know! I think you could find as many answers as there are personalities. It will always depend on what fits "your" personal preference and risk- verses-reward tolerance; not mine, not the pros, nor hedge fund managers, etc. You will need to weigh the probability of a successful outcome with the amount of risk you are willing to take. Is the stock still in an uptrend? Is volume increasing as the stock rises? What is your technical outlook for the time frame involved? Where is the potential support area if the current trend is broken? Around $25 which correlates with several highs prior to the recent rally (or closer to $23) and the long-term MA? Maybe lower? What is your outlook for the overall Market? Are you expecting a correction or do you expect the major averages to rally higher? Only you can answer these questions and then act accordingly. The following link will take you to a general narrative on covered-call adjustments that may be helpful: http://members.OptionInvestor.com/coveredcalls/cc_101903_1.asp Best Regards, Mark W. OIN 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 SGMO 5.10 4.88 NOV 5.00 0.55 0.33 6.3% TMM 3.44 3.06 NOV 2.50 1.10 0.16* 5.9% BVSN 5.31 5.15 NOV 5.00 0.65 0.34* 5.3% ALKS 14.33 13.75 NOV 12.50 2.50 0.67* 4.9% PUMA 5.54 5.81 NOV 5.00 0.85 0.31* 4.8% CMNT 9.22 8.89 NOV 7.50 2.10 0.38* 4.6% VECO 25.67 25.49 NOV 25.00 1.85 1.18* 4.3% BRCD 6.33 6.06 NOV 6.00 0.65 0.32* 4.1% SSTI 11.21 10.28 NOV 10.00 1.65 0.44* 4.0% ALKS 15.16 13.75 NOV 12.50 3.20 0.54* 3.3% ALGN 15.60 14.62 NOV 15.00 1.60 0.62 3.2% SEAC 15.57 14.37 NOV 15.00 1.50 0.30 1.9% TLAB 7.83 7.00 NOV 7.50 0.70 -0.13 0.0% IBIS 14.42 11.10 NOV 12.50 2.65 -0.67 0.0% * Stock price is above the sold striking price. Comments: The major averages put in an ugly week as investors began to take profits amid uninspiring earnings and forecasts, which suggests that signs of a strong recovery remain illusive. A defensive outlook appears in order near-term as several issues are testing key support areas. One issue that will be shown closed next week is Ibis Technology (NASDAQ:IBIS), which was canned by investors after Wednesday's earnings report. Closing other positions that violate their technical support areas may be prudent, depending on your outlook for the stock as well as the overall market. Positions Previously Closed: None 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 XOMA 7.83 NOV 7.50 MBU KU 0.80 4108 7.03 28 7.3% OXGN 10.51 NOV 10.00 QYO KB 1.10 513 9.41 28 6.8% MONE 5.14 NOV 5.00 MOU KA 0.40 171 4.74 28 6.0% PLUG 5.91 NOV 5.00 PQL KA 1.15 198 4.76 28 5.5% GSS 5.49 NOV 5.00 GSS KA 0.70 366 4.79 28 4.8% QSFT 14.90 NOV 15.00 QUD KC 0.55 151 14.35 28 4.2% CRYP 10.84 NOV 10.00 UFW KB 1.20 21 9.64 28 4.1% 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). ***** XOMA - XOMA $7.83 *** New Drug Speculation *** XOMA (NASDAQ:XOMA) is a biopharmaceutical company that develops and manufactures products to treat cancer, immunologic and inflammatory disorders and infectious diseases. The company's products are in various stages of development and all are subject to regulatory approval before it or its collaborators can commercially introduce any products. In addition, XOMA has proprietary technologies relating to recombinant antibodies and proteins, including bacterial cell expression systems and the Human Engineering method for creating human-like antibodies, both of which are available for licensing. XOMA also uses these technologies in developing its own products. We simply favor the technical support (150-day MA) near the cost basis in this position and investors who are interested in a long-term portfolio holding in the biotech sector should consider this issue. The company's earnings are due November 12. NOV-7.50 MBU KU LB=0.80 OI=4108 CB=7.03 DE=28 TY=7.3% ***** OXGN - OXiGENE $10.51 *** New Drug Speculation: Part II *** OXiGENE (NASDAQ:OXGN) is a biopharmaceutical company engaged principally in research into, and the development of, products for use in the treatment of cancer. The company's efforts are focused on developing products for application as direct cancer treatment agents, particularly vascular targeting agents (VTAs). These agents attack a tumor's network of existing and emerging blood vessels, which are its main life support system. Oxigene is also investigating the use of certain products for other applications in the field of ophthalmology, in particular, age-related macular degeneration and diabetic retinopathy. The company is in various stages of clinical and pre-clinical development for multiple therapeutic product candidates that were derived from its principal vascular targeting platform. Oxigene's main technology is based on Combretastatin, a family of proprietary small molecule anti-tumor VTAs. Oxigene jumped on favorable news earlier this year and has since traded in a lateral range with support near $10. Traders who believe the trend will continue can profit from that outcome with this position. NOV-10.00 QYO KB LB=1.10 OI=513 CB=9.41 DE=28 TY=6.8% ***** MONE - MatrixOne $5.14 *** Stage I Base *** MatrixOne (NASDAQ:MONE) is a provider of collaborative product lifecycle management (PLM) solutions. The company's solutions enable companies from a broad range of industries to accelerate product innovation and time-to-market by collaboratively managing product development efforts. MatrixOne's PLM solutions are based on its suite of software products, collectively referred to as Matrix10. The Matrix10 solution is a comprehensive and flexible PLM environment that consists of four components: the Matrix PLM Platform, collaborative applications, lifecycle applications and enterprise interoperability products. The company also offers a variety of services that complement its PLM software. MatrixOne offers professional services, training, maintenance and customer support directly through its own services organization and indirectly through a third-party network. MatrixOne has been forging a Stage I base for over a year and it appears that Wednesday's earning's report was well received. We simply favor the bullish technical indications and our position offers a method to participate in the future movement of the issue with a cost basis closer to technical support. Target-shooting a lower "net" debit will increase the potential yield and lower the cost basis in the position. NOV-5.00 MOU KA LB=0.40 OI=171 CB=4.74 DE=28 TY=6.0% ***** PLUG - Plug Power $5.91 *** Fuel Cell Speculation *** Plug Power (NASDAQ:PLUG) designs, develops and manufactures on- site electric power generation systems utilizing proton exchange membrane (PEM) fuel cells for stationary applications. Plug is focused on fuel-cell systems with electrical output of 1 to 100 kilowatts (kW), fueled by natural gas, liquid petroleum gas (LPG) and hydrogen gas, for a variety of stationary applications. The company is developing an architected technology platform from which it expects to offer multiple point products, ranging from direct current (DC) back-up power for telecom applications, to alternating prime power for residential and light commercial applications. Plug Power has been forging a Stage I base near $5 for over a year and traders can use the inflated premiums to establish a bullish, low-risk position in the issue. NOV-5.00 PQL KA LB=1.15 OI=198 CB=4.76 DE=28 TY=5.5% ***** GSS - Golden Star $5.49 *** Gold Is Hot! *** Golden Star Resources (AMEX:GSS) is an international gold mining and exploration company producing gold in Ghana in West Africa. Through its various subsidiaries and joint ventures the company owns a controlling interest in four gold properties in Ghana: the Bogoso property, the Prestea property, the Wassa property and the Prestea underground property. Bogoso and Prestea are adjoining properties and both are owned by Golden's 90%-owned subsidiary, Bogoso Gold Ltd. These two properties function as a single operation referred to as Bogoso/Prestea. The company also holds other active exploration properties in Suriname and Ghana through its 73%-owned subsidiary, Guyanor Ressources S.A. In addition, Golden has interests in several gold exploration properties in French Guyana. Golden Star rallied to a new 52-week high Friday and the high-volume rally suggests further upside activity in the future. Traders can speculate on that outcome with this position and target-shooting a lower "net" debit will improve the cost basis and target yield in the position. The company's earnings are due October 30. NOV-5.00 GSS KA LB=0.70 OI=366 CB=4.79 DE=28 TY=4.8% ***** QSFT - Quest Software $14.90 *** Earning's Rally! *** Quest Software (NASDAQ:QSFT) is an independent software vendor for the primary database management systems and packaged and custom applications used by large and medium-sized enterprises. The company generates revenues by licensing its products, mainly on a perpetual basis, and by providing support, maintenance and implementation services for these products. Quest's products improve the quality of service of its customers' key software applications. Many of its products also initiate reduction in associated capital and operating expenses by minimizing hardware, software and/or personnel costs. The company markets over 50 products grouped into three main categories: database products, application performance management products and Microsoft infrastructure products. Apparently investors were pleased with Wednesday's earnings report as the stock rallied strongly on heavy volume, breaking through near-term resistance. Traders who believe the rally will continue can use this position to establish a reasonable cost basis in the issue. NOV-15.00 QUD KC LB=0.55 OI=151 CB=14.35 DE=28 TY=4.2% ***** CRYP - CryptoLogic $10.84 *** Internet Gaming *** CryptoLogic (NASDAQ:CRYP) is an Internet software and services provider (ISP) with proprietary e-commerce enabling technology that permits financial transactions over the Internet. They are focused on providing proprietary software technology and related support services to the Internet gaming industry. As of December 31, 2002, through its wholly owned subsidiary, WagerLogic, the company licensed and supported proprietary Internet-based software package to 18 licensees worldwide. These licensees include a number of brand name and land-based gaming organizations in the United Kingdom that hold Internet gaming licenses issued by governments where the licensees' online gaming operations are domiciled. With earnings due on November 5, investors can use this position to speculate on the company's quarterly results with a cost basis below CRIP's 50-day MA. NOV-10.00 UFW KB LB=1.20 OI=21 CB=9.64 DE=28 TY=4.1% ***** ***************** 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 ZIXI 7.92 NOV 7.50 HQU KU 1.00 3347 6.92 28 9.1% ENER 10.04 NOV 10.00 EQI KB 0.65 177 9.39 28 7.1% OPSW 7.99 NOV 7.50 UWA KU 0.90 265 7.09 28 6.3% MTSN 12.75 NOV 12.50 QQM KV 0.90 174 11.85 28 6.0% GERN 13.70 NOV 12.50 GQD KV 1.80 1091 11.90 28 5.5% AKAM 5.76 NOV 5.00 UMU KA 1.00 3552 4.76 28 5.5% JDAS 20.50 NOV 20.00 QAH KD 1.45 165 19.05 28 5.4% NABI 10.80 NOV 10.00 NIQ KB 1.20 314 9.60 28 4.5% MANH 31.08 NOV 30.00 MQR KF 2.25 631 28.83 28 4.4% ***************** NAKED PUT SECTION ***************** Options 101: Economics & Stock Prices -- Part II By Ray Cummins This week, we continue our discussion on the Federal Reserve and how the FOMC uses basic economics to effect monetary policy. In the United States, the federal government is responsible for many things but one of its most important tasks is managing the economy. In that regard, the fundamental objectives are robust employment, stable prices, and continued growth. In order to achieve these goals, the government establishes guidelines for both fiscal and monetary policy. The term fiscal policy refers to the expenditures made to provide goods and services and how these expenditures are financed. Monetary policy refers to the way the government controls the supply and value (or cost) of money. Since both fiscal and monetary initiatives are used to influence our economy, it's essential for investors to have a basic knowledge of how changes in the fundamental policies can affect the financial markets. Under the current system, the government is chiefly responsible for fiscal policy and the Federal Reserve Board, which oversees the Federal Reserve Bank, is the entity responsible for monetary policy. The goal of the Federal Reserve Board is macroeconomic stability, however the Board's influence is also used to help achieve the political objectives of the current administration through the regulation of economic activity. The inimitable ability of this 'central bank' to affect and control the domestic output of an entire country stems from the legislated power to issue currency. By adjusting the amount of money available, the Federal Reserve can influence the primary aspects of credit and the overall level of economic activity. Of course, the Fed has also been tasked to maintain the purchasing power of the U.S. dollar and its comparative worth to other currencies, however this duty has become increasingly complex task in an age where huge amounts of money travel around the world electronically in a few seconds. From a laymen's view, monetary policy focuses on the setting of interest rates as the key instrument, along with the adoption of inflation targets and the use of initiatives to control economic output. Experts debate the relevant efficacy of using changes in money supply to implement and effect monetary policy but it is a potent force when utilized to extremes. A good example of this influence occurred when Chairman Paul Volcker of the U.S. Federal Reserve applied the monetary brakes during the 1980s, a period of increasingly high consumer prices, and the result was an economic downturn with a significant drop in inflation. Another key event occurred in 1987, two months after current Federal Reserve Chair Alan Greenspan took office. That was the year the stock market plunged 22% on "Black Monday" -- the worst single-day decline in the history of equities. The Fed reacted by flooding the economy with liquidity, lowering interest rates and averting a recession. But soon inflation became the more pressing concern and the FOMC started raising interest rates. The federal funds rate rose from 6.7% in November 1987 to 9.8% in May 1989. This Fed tightening, together with other factors, pushed the economy into a recession the following year. Certainly, there is less argument that the effectiveness of monetary policy, and its timing and its eventual impacts on the economy, are not very obvious. At the same time, insights into monetary policy are very important to the investor as the availability of money and credit are key considerations in the pricing of an investment. Next week, we'll discuss the three primary instruments that the Federal Reserve uses to initiate monetary policy. These tools, which help the Fed achieve economic stability by varying the quantity of money in circulation, and the cost and availability of credit, include: Open Market Operations, Reserve Requirements, and the "Discount Window." 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 ONXX 25.93 24.76 NOV 20.00 0.60 0.60* 2.7% 9.0% XMSR 19.10 18.21 NOV 17.50 0.85 0.85* 3.7% 8.9% FCEL 14.35 13.86 NOV 12.50 0.50 0.50* 3.0% 8.2% AFCI 26.70 22.88 NOV 22.50 0.60 0.60* 2.4% 7.4% PXLW 12.10 10.74 NOV 10.00 0.30 0.30* 2.2% 7.1% MTZ 12.81 12.61 NOV 10.00 0.25 0.25* 1.9% 6.4% NWAC 12.18 13.07 NOV 10.00 0.25 0.25* 1.9% 6.2% SCUR 14.09 14.02 NOV 12.50 0.30 0.30* 2.1% 6.0% ALGN 15.21 14.62 NOV 12.50 0.25 0.25* 1.8% 6.0% FCS 20.04 19.93 NOV 17.50 0.40 0.40* 2.0% 5.9% AVCT 36.00 35.92 NOV 32.50 0.75 0.75* 2.1% 5.6% CNX 21.88 21.57 NOV 20.00 0.55 0.55* 2.0% 5.4% IDXC 24.30 24.92 NOV 20.00 0.35 0.35* 1.5% 5.3% CY 20.44 19.64 NOV 17.50 0.40 0.40* 1.7% 5.1% * Stock price is above the sold striking price. Comments: The major equity averages rallied late in the day to end the session with minimal losses after a predictably tough week for stocks. Investors were looking for optimistic forecasts from industry leading companies and although that occurred in many cases, there were a few firms that offered mediocre outlooks. A number of issues are suspect in light of the recent market slump including Advanced Fibre (NASDAQ:AFCI), which is now an early-exit candidate after reporting that third-quarter sales fell 7% and issuing a lower current quarter revenue forecast. XM Satellite Radio (NASDAQ:XMSR) appears to be in the early stages of a consolidation period and Pixelworks (NASDAQ:PXLW) may also be in for further selling after posting earnings that were lower than consensus expectations. Other stocks to watch are Cypress Semi (NYSE:CY) and Fuelcell Energy (NASDAQ:FCEL). Previously Closed Positions: None WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL! ***** The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The Simple Monthly Yield is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the position. NEW CANDIDATES ********* Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield ONXX 24.76 NOV 20.00 OIQ WD 0.50 923 19.50 28 2.8% 9.6% ESPR 23.02 NOV 20.00 SPU WD 0.60 65 19.40 28 3.4% 9.6% CYD 27.57 NOV 22.50 CYD WX 0.50 568 22.00 28 2.5% 8.4% CVTX 23.42 NOV 17.50 UXC WT 0.30 939 17.20 28 1.9% 6.5% SCRI 25.49 NOV 22.50 UEC WX 0.40 3268 22.10 28 2.0% 5.7% PALM 25.06 NOV 22.50 UPY WX 0.40 1425 22.10 28 2.0% 5.5% SCHN 36.92 NOV 30.00 SQQ WF 0.40 281 29.60 28 1.5% 5.3% 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). ***** ONXX - Onyx Pharmaceuticals $24.76 *** Encouraging Results! *** 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. Shares of ONXX moved higher Friday after analyst Mark Schoenebaum at US Bancorp Piper Jaffray said that Onyx and its pharmaceutical partner Bayer would soon release some significant results from midstage patient testing of their experimental anti-cancer drug, BAY 43-9006. On Saturday, Bayer and Onyx announced that initial studies for their kidney cancer treatment had been encouraging, and that they had begun the next phase of trials. Investors can speculate on the future success of the company and its products with this position. NOV-20.00 OIQ WD LB=0.50 OI=923 CB=19.50 DE=28 TY=2.8% MY=9.6% ***** ESPR - Esperion Therapeutics $23.02 *** Drug Speculation *** Esperion Therapeutics (NASDAQ:ESPR) discovers and develops pharmaceutical products for the treatment of cardiovascular disease. Esperion intends to commercialize a novel class of drugs that focuses on a new treatment approach called "HDL Therapy," which is based on the company's understanding of high- density lipoprotein, or HDL, function. HDL is the primary facilitator of the reverse lipid transport, or RLT, pathway by which excess cholesterol and other lipids are removed from artery walls and other tissues and are thus transported to the liver for elimination from the body. Esperion's primary goal is to develop drugs that exploit the beneficial functions of HDL within the RLT pathway and the company currently has four product candidates in clinical development. ESPR is a unique issue, both because of its proprietary drug products and because it is involved in a lawsuit in which a large portion of the common stock float is frozen due to alleged improper trading activity of the Durus Capital Management hedge fund. Investors are advised to investigate this company thoroughly before entering any positions. NOV-20.00 SPU WD LB=0.60 OI=65 CB=19.40 DE=28 TY=3.4% MY=9.6% ***** CYD - China Yuchai $27.57 *** 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 firm owns a primary interest in Guangxi Yuchai Machinery and owns, through six subsidiaries, 76.4% of the outstanding common shares of Yuchai. Yuchai 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 engine parts. Yuchai's products are in high demand due to China's rapidly growing infrastructure and the modernization of the world's most populous country bodes well for the company's bottom-line in the near-term. NOV-22.50 CYD WX LB=0.50 OI=568 CB=22.00 DE=28 TY=2.5% MY=8.4% ***** CVTX - CV Therapeutics $23.42 *** Biotech Bottom-Fishing *** CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical company focused on applying molecular cardiology to the discovery, development and commercialization of novel, small molecule drugs for the treatment of cardiovascular diseases. CVTX currently has four compounds in clinical trials. Ranexa, which represents the first new class of anti-anginal therapy in more than 20 years. Tecadenoson, an A1-adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146 is a selective A2A-adenosine receptor agonist developed for use as a pharmacologic stress agent in cardiac perfusion imaging studies. Adentri(TM), an A1-adenosine receptor antagonist for the potential treatment of acute and chronic congestive heart failure, is licensed to Biogen. Shares of CVTX soared this weak after the company announced that an FDA advisory committee will review experimental heart drug Ranexa on 12/9. Traders can speculate on the recovery in the issue, prior to the actual meeting, with this position. NOV-17.50 UXC WT LB=0.30 OI=939 CB=17.20 DE=28 TY=1.9% MY=6.5% ***** SCRI - Sicor $25.49 *** Merger/Buyout Speculation! *** Sicor (NASDAQ:SCRI) is a vertically integrated, multinational specialty pharmaceutical firm that focuses on generic finished dosage injectables, active pharmaceutical ingredients and generic biopharmaceuticals. Using its internal research and development capabilities, together with its operational flexibility and manufacturing and regulatory expertise, the company is able to take a variety of products from the laboratory to the worldwide market. Leveraging these capabilities, Sicor concentrates on products and technologies that present significant barriers to entry or offer first-to-market opportunities. The company is developing generic equivalents to existing biopharmaceutical products, including granulocyte colony stimulating factor, erythropoietin, and interferon. Sicor announced on Wednesday that it is in early talks on a possible merger or other business combination. The Israeli newspaper Ha'aretz reported that the suitor could be Israel's Teva Pharmaceutical Industries with a buyout offer of more than $2.5 billion. Swiss pharmaceutical concern Novartis AG's Sandoz unit may also be interested in the generic drug maker and traders can speculate on the outcome of the rumors with this position. NOV-22.50 UEC WX LB=0.40 OI=3268 CB=22.10 DE=28 TY=2.0% MY=5.7% ***** PALM - Palm $25.06 *** Handspring 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. Earlier this month, Palm and Handspring announced that they had entered into a memorandum of understanding with counsel to the plaintiffs in lawsuits relating to the proposed acquisition of Handspring by Palm. After it completes the acquisition of rival Handspring, Palm is set to split into two public entities: hardware maker PalmOne and software company PalmSource. Investors who wouldn't mind owning a little bit of both companies should consider this position. NOV-22.50 UPY WX LB=0.40 OI=1425 CB=22.10 DE=28 TY=2.0% MY=5.5% ***** SCHN - Schnitzer Steel $36.92 *** On The Move! *** Schnitzer Steel Industries (NASDAQ:SCHN) collects, processes and recycles metals by operating a metals recycling business in the United States. The company also owns a chain of self-service auto parts stores in the United States, operating under the name of Pick-N-Pull, and is also a maker of finished steel products at its technologically advanced steel mini-mill. As a result of its vertically integrated business, Schnitzer is able to transform obsolete or wrecked auto bodies and other unprocessed metals into finished steel products. In addition, it is a partner in joint ventures that are either in the metals recycling business or are suppliers of unprocessed metals. The company owns interests in five joint ventures that are engaged in buying, processing and selling primarily ferrous metal. Another joint venture is an industrial plant demolition contractor that dismantles industrial plants, performs environmental remediation and sells recovered metals and machinery. SCHN shares have been "on the move" in recent weeks and the company's record quarterly revenues should help the rally continue in the near-term. Traders can establish a reasonable cost basis in the issue with this position. NOV-30.00 SQQ WF LB=0.40 OI=281 CB=29.60 DE=28 TY=1.5% MY=5.3% ***** ***************** 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 NCEN 35.34 NOV 22.50 NWR WX 1.00 93 21.50 28 5.1% 13.5% RETK 10.36 NOV 10.00 QRD WB 0.50 118 9.50 28 5.7% 12.7% MTZ 12.61 NOV 10.00 MTZ WB 0.30 84 9.70 28 3.4% 11.5% ADEX 22.10 NOV 20.00 QDE WD 0.55 68 19.45 28 3.1% 8.2% NFLX 51.99 NOV 45.00 QNQ WI 0.85 2677 44.15 28 2.1% 6.3% PLCE 28.07 NOV 25.00 TUY WE 0.45 396 24.55 28 2.0% 5.7% THER 16.68 NOV 15.00 UKT WC 0.25 0 14.75 28 1.8% 5.2% ERES 43.80 NOV 37.50 UDB WU 0.55 1439 36.95 28 1.6% 5.1% RIMM 43.46 NOV 37.50 RUL WS 0.50 788 37.00 28 1.5% 4.6% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Rally Pauses As Doubts Surface Over Future Earnings By Ray Cummins Stocks closed lower Friday, despite a late-session rally, as investors showed their concerns over the earnings outlook for the coming year. The Dow finished the day 30 points lower at 9,582 with Hewlett Packard (NYSE:HPQ), DuPont (NYSE:DD), Merck (NYSE:MRK), Alcoa (NYSE:AA), International Paper (NYSE:IP) and Wal-Mart (NYSE:WMT) among the worst performing blue-chip components. The NASDAQ dropped 19 points to close at 1,865 with technology bellwethers Intel (NASDAQ:INTC) and Microsoft (NASDAQ:MSFT) leading the sell-off. Across the broader market, internet and gold were the only sectors seeing advances while airlines, software, chemicals, networkers and oil services enduring the biggest losses. The S&P 500-stock index slid 4 points to 1,028. Declining issues outpaced advancing stocks by roughly 3 to 2 on the major equity exchanges. Volume was active with 1.9 billion shares crossed on the NASDAQ while 1.4 billion shares traded on the NYSE. Bonds were broadly higher with the benchmark 10-year Treasury note up 12/32 at 99 26/32 to yield 4.27%. ***************** 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 AET 62.76 63.30 NOV 50 55 0.55 54.45 $0.55 Open MXIM 44.82 44.75 NOV 35 40 0.50 39.50 $0.50 Open PHS 54.50 55.88 NOV 45 47 0.30 47.20 $0.30 Open PIXR 71.56 67.46 NOV 60 65 0.70 64.30 $0.70 Open COH 31.43 33.65 NOV 27 30 0.35 29.65 $0.35 Open CYMI 44.99 40.80 NOV 35 40 0.65 39.35 $0.65 Open SAP 36.00 35.85 NOV 30 32 0.30 32.20 $0.30 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss This week, Cymer (NASDAQ:CYMI) replaces Pixar (NASDAQ:PIXR) on the early exit "watch" list. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status CA 23.50 23.00 NOV 30 27 0.35 27.85 $0.35 Open MTG 53.79 49.69 NOV 65 60 0.55 60.55 $0.55 Open BJS 32.50 32.27 NOV 37 35 0.30 35.30 $0.30 Open CEPH 45.77 47.55 NOV 55 50 0.55 50.55 $0.55 Open HDI 47.26 47.33 NOV 55 50 0.50 50.50 $0.50 Open SEPR 26.98 27.44 NOV 35 32 0.25 32.75 $0.25 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status LLTC 40.77 40.90 NOV 35 37 2.20 37.20 0.30 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status NPSP 25.45 26.10 NOV 35 30 4.40 30.40 0.60 Open SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status XING 9.13 9.08 DEC 12 7 0.10 0.30 Open JNPR 16.63 16.49 NOV 19 14 (0.20) 1.00 Open? LRCX 24.38 25.16 DEC 30 20 0.15 0.80 Open? PHTN 32.40 29.51 JAN 40 25 0.00 0.00 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. Photon Dynamic (NASDAQ:PHTN) will be closed on any further downside movement. SYNTHETIC (BEARISH) ******************* No Open Positions CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status PRU 36.41 38.69 DEC-37C NOV-37C (0.20) 0.10 Open MSFT 27.31 26.61 JAN-27C NOV-30C 1.70 2.40 Closed SCRI 20.52 25.49 FEB-22C DEC-22C 1.40 2.00 Open Sicor (NASDAQ:SCRI) was an interesting position, having offered a reasonable entry point early in the week, only to "gap" higher on news of a potential merger. However, adept traders had ample time to make a bullish adjustment and the new (diagonal) position is reflected in the summary. Microsoft (NASDAQ:MSFT) shares plunged after its earnings report was released but Thursday's drop, prior to the announcement, should have prompted conservative traders to exit the position and "lock-in" profits. The spread in Prudential (NYSE:PRU) has a no-risk gain of $0.20 with the issue above $37.50. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status TRI 30.50 28.60 NOV 30 30 4.90 5.00 Closed EASI 59.70 62.50 NOV 60 60 8.50 9.00 Closed ZMH 55.52 61.17 DEC 55 55 5.20 7.10 Open PCLN 30.45 27.53 NOV 30 30 4.90 5.00 Open Zimmer Holdings (NYSE:ZMH) was a big mover this week, achieving a nice "early-exit" profit for conservative traders. Engineered Support Systems (NASDAQ:EASI) has retreated from its recent highs and moved back into a neutral trend, thus traders should consider closing the play to preserve portfolio capital. Triad Hospitals (NYSE:TRI) is in a similar situation despite the issue's recent volatility, and the play has been unprofitable on a simultaneous order basis. CREDIT STRANGLES **************** No Open Positions Questions & comments on spreads/combos to Contact Support ************* READERS WRITE ************* Attn: email@example.com Subject: Trade Executions Hello Ray, Could you please help me out on this? Several weeks ago I bought call options on XYZ stock. Several days later I entered a limited order to sell these calls in the spread. Three times during the day it hit the bid price that matched my price, however my order was never filled! My question is; does the market maker has the responsibility to fill this at the bid? Thanks in advance! TG Hello TG, In theory you should have been filled. All of the exchanges are now linked to one another and if a bid matches an offer at a different exchange, the quote board highlights the match. The market maker then has the option of sending your order to the exchange that is bidding your price, if he/she does not wish to fill it. However if the order had a qualifier such as "All or None," these orders do not have to be filled. My guess is your order was on a different exchange than the one bidding your price for the option. Your quote system may only give you the best bid and offer regardless of the exchange. In other words, your order may have been on the CBOE and the bid was on the AMEX. At OneStopOption, we offer clients the ability to route their order to the exchange of their choice. In the future you could call the brokerage firm and inquire where your order is placed. Then ask if you could move your order to the exchange that is bidding your price. This should help you get filled when the market trades at your price. Andrew Aronson V.P. Investments OneStopOption Division of Man Financial 141 W. Jackson Blvd Ste 1800-A Chicago, IL 60604 Andrew Aronson and Alan Knuckman are skilled option principles, as well as long-time OIN associates, and they recently started a specialty brokerage for derivatives traders. Their personalized service will enable traders to be more confident, comfortable and successful with options. They will also help new market players learn the "right" way to trade options with education and coaching for maximum portfolio performance. Alan and Andrew's expertise is a valuable resource that will easily pay for itself through timely executions and the piece of mind that comes from someone watching your trades throughout the day. The commissions are comparable to those of discount brokers but you get to speak directly with option professionals, not customer service clerks. Clients can call them directly to review positions and update orders and they also offer "auto-trading" for many of the plays in the newsletter. OneStopOption Strengths: * Dedicated option brokerage with "live" option principals/brokers * Order routing to "best-priced" exchange and timely executions * All types of orders (stop/limit/OCO) to encourage disciplined trading and proper money management * Advanced option trading level approval for inexperienced traders * Foreign accounts including Canada -- Futures trading available * Direct electronic trading and personalized customer services * Ability to filter recommendations and provide strategy advice * Free OIN subscription for those who qualify (based on account size and portfolio activity) Get Execution, Education, and Option Experience at OneStopOption Visit their new site -- www.onestopoption.com -- or send an E-mail to: Aaronson@OptionInvestor.com ************* NEW POSITIONS ************* This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance, and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** ICOS - ICOS Corporation $45.42 *** Rally Underway! *** ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products with significant commercial potential by combining its unique capabilities in molecular, cellular and structural biology, high-throughput drug screening, medicinal chemistry and gene expression profiling. The firm applies its integrated approach to erectile dysfunction and other urologic disorders, sepsis, pulmonary arterial hypertension and cardiovascular diseases, as well as inflammatory diseases. The company has established collaborations with pharmaceutical and biotechnology companies to enhance its internal development capabilities and to offset a substantial portion of the financial risk of developing its product candidates. ICOS - ICOS Corporation $45.42 PLAY (conservative - bullish/credit spread): BUY PUT NOV-35.00 IIQ-WG OI=4405 ASK=$0.25 SELL PUT NOV-40.00 IIQ-WH OI=1706 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$39.50 ***** SINA - SINA Corporation $42.00 *** The Uptrend Resumes! *** SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an online media company and value-added information service provider for China and the global Chinese communities. With a branded network of localized Websites targeting China and overseas Chinese, the company provides an array of services to its users including region-focused online portals, search, directory, interest-based and community-building channels, free and premium e-mail, wireless short messaging, online games, virtual Internet service provider, classified listings, e-commerce, e-learning, and enterprise e-solutions. In turn, SINA generates revenue through advertising, fee-based services, e-commerce and enterprise services. SINA - SINA Corporation $42.00 PLAY (conservative - bullish/credit spread): BUY PUT NOV-35.00 NOQ-WG OI=1683 ASK=$0.30 SELL PUT NOV-40.00 NOQ-WH OI=4530 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$39.50 ***** SMH - Semiconductor Holdrs Trust $38.55 *** Chip Sector! *** The Semiconductor Holdrs Trust (AMEX:SMH) is a unique instrument that represents an investor’s ownership in the stock of specified companies in the semiconductor sector. HOLDRS allow investors to own a diversified group of stocks in a single investment that is highly transparent, liquid and efficient. Each HOLDR is a fixed basket of 20 stocks (except the Telebras HOLDR, which holds 12 companies). They work operate much like ADRs; American Depositary Receipts, which allow U.S. investors to purchase foreign-owned companies on the U.S. exchanges in dollar denominated amounts. In just the same way, the investor actually owns the shares of each underlying company, receives dividends, proxies, and annual reports from each. The HOLDRs are not managed, and once the companies and amounts have been determined they are fixed, no companies will be substituted. In this way, the HOLDRs differ somewhat from Spiders (SPDRs), or Standard & Poor Depositary Receipts and other exchange traded funds, which will add and delete stocks on a regular basis, usually in conjunction with an index that they are tracking. A complete explanation of this issue, including the companies that make up each HOLDRS' particular industry, sector or group can be found here: http://www.holdrs.com/holdrs/main/index.asp?Action=Definition SMH - Semiconductor Holders Trust $38.55 PLAY (conservative - bullish/credit spread): BUY PUT NOV-32.50 SMH-WZ OI=19715 ASK=$0.15 SELL PUT NOV-35.00 SMH-WG OI=98227 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$34.75 ***** AMZN - Amazon.com $54.51 *** A Necessary Consolidation! *** Amazon.com (NASDAQ:AMZN) is a website where customers can find and discover anything they may want to buy online. The company lists millions of items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, PC software, computer and video games, tools and hardware, outdoor living items, kitchen and house-wares products, toys, baby and baby registry, travel services and magazine subscriptions. At its Amazon Marketplace, Auctions and zShops services, businesses and individuals can sell virtually any product to millions of customers, and with Amazon.com Payments, sellers are able to accept credit card transactions in addition to other methods of payment. The company operates a U.S.-based Website: amazon.com, and four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. AMZN - Amazon.com $54.51 PLAY (conservative - bearish/credit spread): BUY CALL NOV-65.00 ZQN-KM OI=27454 ASK=$0.20 SELL CALL NOV-60.00 ZQN-KL OI=23926 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$60.50 ***** OEX - S&P 100 Index $511.25 *** For Market "Bears" Only! *** Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. Traders who participate in (OTM) credit-spreads often utilize S&P 100 options because they generally contain robust premiums and also provide an underlying instrument less prone to "gapping" moves. Review the OIN's Market Sentiment section for more specific technical information on the current trends in equities. OEX - S&P 100 Index $511.25 PLAY (conservative - bearish/credit spread): BUY CALL NOV-540.00 OEX-JH OI=4973 ASK=$1.00 SELL CALL NOV-535.00 OEX-JG OI=2013 BID=$1.40 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$535.45 ***** MERQ - Mercury Interactive $44.23 *** Mediocre Outlook! *** Mercury Interactive (NASDAQ:MERQ) is a global leader in business technology optimization, and is committed to helping customers optimize the business value of information technology. Founded in 1989, Mercury Interactive conducts business in more than 35 countries and is one of the fastest growing enterprise software companies today. Mercury Interactive offers a range of software and services to govern the priorities, people, and practices of IT; deliver and manage applications; and integrate IT strategy and execution. More than 30,000 customers rely on the company's offerings to improve quality and performance of applications and manage IT costs, risks and compliance. MERQ - Mercury Interactive $44.23 PLAY (less conservative - bearish/credit spread): BUY CALL NOV-50.00 RQB-KJ OI=3222 ASK=$0.40 SELL CALL NOV-47.50 RQB-KR OI=543 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.35-$0.45 POTENTIAL PROFIT(max)=16% B/E=$47.85 ************* 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. ***** CVC - Cablevision Systems $18.70 *** Risky Spin-Off Plan? *** Cablevision Systems (NYSE:CVC) is a holding company whose only asset is all of the outstanding common stock of CSC Holdings, which became its subsidiary in 1998. CSC Holdings is a cable operator in the United States with various investments in cable programming networks, entertainment businesses and telco firms. The company serves over 3 million cable television subscribers in and around the New York City metropolitan area. Through a wholly owned subsidiary, Rainbow Media Holdings, the company owns interests in, and manages, numerous national and regional programming networks. Cablevision classifies its business interests into four segments: telecommunications services, Rainbow, Madison Square Garden and retail electronics. CVC - Cablevision Systems $18.70 PLAY (conservative - bearish/debit spread): BUY PUT NOV-22.50 CVC-WX OI=326 ASK=$4.00 SELL PUT NOV-20.00 CVC-WD OI=2348 BID=$1.75 INITIAL NET-DEBIT TARGET=$2.20-$2.25 POTENTIAL PROFIT(max)=11% B/E=$20.25 ***** CVTX - CV Therapeutics $23.42 *** Ranexa Review = Rally! *** CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused on the discovery, development and commercialization of new small molecule drugs for the treatment of cardiovascular diseases. The company's New Drug Application (NDA) for Ranexa (ranolazine) for the treatment of chronic angina has been filed at the U.S. FDA. Tecadenoson (CVT-510), an A1-adenosine receptor agonist, is being developed for the potential reduction of rapid heart rate during atrial arrhythmias. CVT-3146, an A2A-adenosine receptor agonist, is being developed for the potential use as a pharmacologic agent in cardiac perfusion imaging studies. Adentri, an A1-adenosine receptor antagonist, is being developed by the company's partner, Biogen, for the potential treatment of acute and chronic congestive heart failure. CVTX also has several research and preclinical development programs designed to bring additional drug candidates into human clinical testing. CVTX - CV Therapeutics $23.42 PLAY (speculative - bullish/debit spread): BUY CALL NOV-20.00 UXC-KD OI=30 ASK=$4.20 SELL CALL NOV-22.50 UXC-KX OI=1181 BID=$2.25 INITIAL NET-DEBIT TARGET=$1.90-$2.00 POTENTIAL PROFIT(max)=25% B/E=$22.00 *********************** 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. ***** ADVP - AdvancePCS $49.05 *** Earnings Speculation! *** AdvancePCS (NASDAQ:ADVP) is a provider of health improvement services. As a pharmacy benefit-management company, the firm serves more than 75 million health plan members and manages prescription drug spending on behalf of its many health plan sponsors. In addition, the company offers a range of other health improvement products and services, such as prescription discount cards for the uninsured and under-insured, Web-based programs, disease management, clinical trials and outcomes studies. The firm generates revenues by providing its health improvement services to two primary customer groups: health plan sponsors and pharmaceutical manufacturers. Earnings are due on 10/28/03. ADVP - AdvancePCS $49.05 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-50.00 QVD-KJ OI=405 ASK=$1.35 BUY PUT NOV-50.00 QVD-WJ OI=600 ASK=$2.35 INITIAL NET-DEBIT TARGET=$3.50-$3.60 INITIAL TARGET PROFIT=$1.45-$1.95 ***** TM - Toyota Motor Corporation $59.45 *** Probability Play *** Toyota Motor Corporation (NYSE:TM) is engaged in the design, manufacture, assembly and sale of passenger cars, recreational and sport-utility vehicles, minivans, trucks and related parts and accessories worldwide. In addition, Toyota provides retail and wholesale financing, retail leasing and other financial services primarily to its dealers and their customers related to vehicles manufactured by Toyota. The major portions of Toyota's operations on a worldwide basis are derived from the Automotive and Financial Services business segments. The company also has an All Other segment, which includes its non-automotive business activities. The most significant of Toyota's other operations are its information technology businesses and pre-fabricated housing. Toyota operates through 500 consolidated subsidiaries and 225 affiliated companies. Earnings are due on 11/5/03. TM - Toyota Motor Corporation $59.45 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-60.00 TM-KL OI=8 ASK=$1.65 BUY PUT NOV-60.00 TM-WL OI=107 ASK=$2.05 INITIAL NET-DEBIT TARGET=$3.50-$3.60 INITIAL TARGET PROFIT=$1.25-$1.75 Editor's note: Traders should be aware of the low Open Interest in TM call options and plan to use alternative methods (exercise the call, etc.) of closing the position to avoid excess slippage. ***** ------------------------------------------------------------ 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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