The Option Investor Newsletter Wednesday 10-29-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Bulls Catch Their Breath Futures Wrap: Volatility Crash Index Trader Wrap: Indices traded steady ahead of Q3 GDP Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 10-29-2003 High Low Volume Advance/Decline DJIA 9774.53 + 26.22 9787.27 9724.68 1.91 bln 1744/1085 NASDAQ 1936.56 + 4.30 1937.37 1923.56 1.95 bln 1868/1150 S&P 100 518.66 + 0.02 519.69 516.54 Totals 3612/2235 S&P 500 1048.11 + 1.32 1049.83 1043.35 RUS 2000 531.81 + 5.96 531.99 524.00 DJ TRANS 2901.55 + 18.28 2902.03 2877.64 VIX 16.43 - 0.39 17.02 16.34 VXO 17.15 - 0.69 18.09 17.07 VXN 24.72 - 0.28 25.37 24.61 Total Volume 4,207M Total UpVol 2,591M Total DnVol 1,539M 52wk Highs 894 52wk Lows 25 TRIN 1.44 PUT/CALL 0.58 ******************************************************************* Bulls Catch Their Breath by James Brown Momentum in the rally slowed on Wednesday as bulls were left to catch their breath after yesterday's FOMC-inspired sprint higher. The Dow spent most of the day churning sideways as investors battled their urge to sell the losers Johnson-and-Johnson (JNJ) and AT&T (T) versus buying the winners Boeing (BA), Eastman Kodak (EK) and Alcoa Inc (AA). Yet by day's end the major averages ended green making it three straight gains for the markets. The largest gains were seen gold stocks, defense, airlines and homebuilders. Suffering the brunt of Wednesday's selling pressure were biotechs and drugs. U.S. markets got a boost from a strong Japanese NIKKEI, which added 178 points or 1.69% to close at 10,739. The Hong Kong Hang Seng also posted a gain up 38 points to 12,130. European stocks were mixed but German equities turned in a strong performance with the DAX index up 1.87% to 3615. The Dow Jones Industrials added 26 to close at 9774. The NASDAQ Composite added just 4 points to close at 1936 and the S&P 500 squeaked out a 1.3-point gain to close at 1048, under heavy resistance at 1050. Market internals were positive. The NYSE reported 17 winning stocks for every 10 losers. The NASDAQ turned in 18 winners for every 11 losers. New highs sprung back to live with 761 new 52-week highs between the two exchanges. Volume was strong with more than 1.9 billion shares on each exchange. Chart of DJIA: Chart of NASDAQ: Powering the DFI defense index to a new 52-week high were strong earnings from Boeing (BA) and Northrop Gruman (NOC). The world's largest plane manufacturer was also the biggest gainer in the Dow Jones Industrials with a 6.8% gain after reporting strong Q3 earnings. BA turned in a profit of 32 cents a share, which beat estimates for 27 cents. The company also lifted their 2003 sales guidance from $49 billion to $50 billion. Its defense-sector buddy, NOC, the world's preeminent naval ship builder, add 3.26% to its own stock price and closed above resistance at $90, its 50-dma and its 200-dma. NOC reported Q3 earnings this morning of $1.21 a share, which beat consensus estimates by 21 cents. The company told analysts it expects double-digit profit growth next year. Suppressing the Dow's gains were components AT&T, Johnson & Johnson and Microsoft. AT&T's troubles produced a 4.4% decline in the stock after the Wall Street Journal reported that BellSouth (BLS) had backed out of merger talks with Ma Bell because the price tag was too high. Those close to the deal said BLS wasn't willing to pay $19 billion for AT&T, the No. 1 long- distance phone company. Meanwhile JNJ clogged up the advance after news hit that the FDA issued a statement on JNJ's Cypher stents. JNJ was the first to introduce stents to the lucrative U.S. market but now the FDA is saying it has received almost 300 reports of blood clotting in patients with more than 60 deaths linked to the devices. A Merrill Lynch analyst said the reaction to the FDA statement is overdone. Even the FDA stated that hundreds of thousands of patients have been successfully treated with the Cypher stent. The agency is ordering a new 2,000 patient study to evaluate the clotting issues. In a tangent to the JNJ story, shares of Boston Scientific (BSX), a rival in the stent market and soon to be approved for a drug-eluting stent that is supposed to reduce clotting occurrences, saw its shares rise 3.5% and closing near all-time highs. Shares of software titan Microsoft (MSFT) weighed on both the Dow and the NASDAQ, closing down 1.7%. Mr. Softee has agreed to settle several antitrust class-action lawsuits with multiple states for vouchers worth $200 million. This is certainly a step in the right direction but MSFT still has at least four other state lawsuit settlements that have not yet been approved by the courts. Casting another dark cloud on the software giant is a new probe by the European Union. The Financial Times is reporting that the EU commission has sent at least 20 hardware makers formal inquiries regarding their Microsoft licenses. One analyst at Deutsche Bank expects that odds are growing for the EU to issue a negative ruling. Another stock putting pressure on technology, specifically biotech stocks was Gilead Sciences (GILD). The company reported earnings after the close yesterday but missed consensus estimates. GILD said slower than expected sales of its HIV treatment Viread were to blame for the miss. Furthermore they warned that total Viread sales for the year would likely be 5% less than previously forecast. The stock gapped lower and closed down 12.5% just barely closing above its simple 200-dma. Tomorrow could be an interesting day for traders. Unlike today we have a full boat of economic reports. Weekly initial jobless claims should come in before the open and Wall Street is expecting close to 385,000 new claims. We'll also get the much- anticipated Q3 GDP report. Most of Wall Street's biggest institutions have come out with estimates in the 6.0%, 6.5% even 7.0% Q3 GDP growth. Thus if we do get strong GDP growth at 6% or better there may not be much of a reaction and we could potentially see a sell-the-news (take profits) sort of move. Economists will also be waiting for the Employment Cost Index, the Help Wanted Index and the FOMC minutes will be released. Let's not forget that we'll still be hearing from dozens of companies reporting their Q3 earnings. It certainly seems like most of the surprises lately have been to the downside. Speaking of downside, we've made much about the low levels in the VIX, VXN and specifically the VXO or old VIX. The VXO has slipped to another new multi-year low at 17.15 today. This is screaming "market top" but if you remember our previous comments on the volatility indices it is more art than science and any peak in the markets could be still be a couple of days to several days away. There is certainly nothing in the rule books that state the markets can't become even more overbought pushing the VIX to even lower lows. Yet it is worth nothing that market veterans are probably growing antsy and more reluctant to open new bullish plays. More importantly let me remind everyone that it can be dangerous to your financial health if you try and pick the top before the market does. Currently the trend is still up and it's safer to play the trend, just do so with a disciplined stop. That way when the markets turn, you'll be out and ready to start looking for bearish positions. ************ FUTURES WRAP ************ Volatility Crash Jonathan Levinson The OEX-volatility index, the VXO, formerly known as the VIX, set a new multiyear low at 17.08 today, accompanied by persistently low put to call readings. The combination made new long positions risky, but price remained firm, frustrating the shorts. Gold and HUI advanced, treasuries decline, and the US Dollar Index struggled below 92. 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. 10 minute chart of the US Dollar Index The US Dollar Index spent more time below the 92 level, rising off the intraday lows in wedge. Despite the bounce, gold, the HUI and XAU, and commodities rallied, with strength in corn, lean hogs, soybeans and live cattle futures. Daily chart of December gold December gold made another surprise move today, this time to the upside, engulfing yesterday’s candle and flipping the curling oscillators back onto buy signals. At this point, the oscillators on the daily chart are changing direction almost as frequently as the price. The intraday high was 388.50, low 380.60. Resistance begins at 390, and has been very solid so far. The HUI traded above 222 for most of the session at what I believe to be an alltime high for that index. The CRB added .70 to close at 249.77. Daily chart of the ten year note yield Ten year treasury bonds got sold today, with the TNX adding 8.6 bps to close at 4.275%. The Fed’s modest 1.75B repo drain does not account for the selling today, which ran countertrend to the ongoing daily chart upphase in treasuries/downphase in the yield. I’m looking for a test of the lower wedge trendline as the likelier zone for a sustained bounce in the yield. Daily NQ candles We expected either a blowoff top or, less likely, an immediate failure, and so naturally the market did neither, printing a doji star and closing flat atop yesterday’s gains. The daily cycle downphase got clipped again, leaving the 10 day stochastic on a bullish kiss. The rally highs were not tested, and volatility collapsed, with the VXN joining the VXO at extreme multiyear low levels. The entire session was either a consolidation below the 52 week highs or a distribution top, and with volatility so low, it’s tempting to think the latter. Traders attempted to go long and short today, and unless they were very choosy about their entry levels, the only winner was the broker reeling in commissions. 30 minute 20 day chart of the NQ Bulls or panicked shorts succeeded in bucking the downtrend that kicked off today following yesterday’s sharp closing rally. Bearish divergences abounded, compounding the alert being signaled all day by the bottomy volatility readings. With prices high, volatility low, and daily, weekly and 30 minute chart oscillators all in gear to the downside, long positions weren’t particularly easy to put on. But, shorts did not work, and it appears that the plethora of economic data before the cash open will provide the push in whichever direction it turns out to be. If the break proves to be to the upside, it will cause the 30 minute oscillators to trend, the daily oscillator downtrend to truncate, and most likely a trending collapse in volatility. All of these are unlikely events, and would be very bullish. The more likely outcome is a downside break. The first sign of trouble for bulls will be a break below 1415, followed by 1400, 1387 and so on, with 1345 critical support. Daily ES candles The ES also closed flat, defying downphases on the weekly, daily and 30 minute chart oscillators. It was a bullish candle printed today, and the lack of pullback was an impressive display from the bulls, sufficient to leave us with a bullish kiss on the oscillators. The session high of 1048.75 is just below major resistance continuing up to the rally high at 1056, but a short covering panic could provide the energy to test it if 1050 is broken tomorrow morning. 20 day 30 minute chart of the ES ES treated us to a bearish divergence on the 300 minute stochastic even as it trended higher. The chart pattern here is a clean, steep bear wedge, with support up to 1045.50. It projects to a possible downside target of 1016. 150-tick ES The 150 chart of the ES shows the pain inflicted on traders today with a flat wedge/pennant narrowing price throughout the afternoon, despite the plethora of sell signals and divergences and subterranean volatility readings. The short cycle oscillators are trending uselessly in overbought, waiting for a downside break of the day’s range. Daily YM candles Same picture on the YM. 20 day 30 minute chart of the YM A reader sent me the following email after the cash close: “hi jon, how can one trade what u see? besides price/vol action, a massive seell signal has been given. even when greeny flooded capital before y2k, our vix wasn't that low. we did however printed doji's today. i am ready to capitulate however, so pls talk some sense into me. sincerely mike” Mike’s comments are the best market summary I could provide after a day like today. Given that equities went nowhere today, it was not a mistake not to go long, and nor were shorts the wrong trade either, provided that they weren’t stopped on the various upside spikes. The fact is that in the current low volatility environment, long positions at current levels are imprudent in the extreme. But, given that price is in a nascent uptrend, shorts are risky. While cash is a position, I’m willing to assume the risk of shorts at current levels, but would much prefer an upside spike to the rally highs from which to enter. If it does not come, risk-conscious bears can wait for 1038-40 to be cracked to the downside. Days like today are frustrating and discouraging in the extreme, as is any flat or coiled market. But, like the moment of weightlessness when a steep rise reverses, we may well be witnessing a distribution top. Patience is key. Don’t force the trade, and keep your stops in place. There’s no need to catch the exact top, and with the VXO at current extreme lows, the implication is that there will be plenty of downside if and when the break occurs. See you in the Futures Monitor. ******************** INDEX TRADER SUMMARY ******************** Indices traded steady ahead of Q3 GDP The major indices finished today's session either fractionally higher or unchanged as yesterday's bullish tone held together as investors await a first look at how fast the economy grew in the third quarter. Tomorrow morning and 08:30 AM EST, the government will release it preliminary third-quarter Gross Domestic Product (GDP) figures, where economists are forecasting the economy to have grown at a 6.0% annual rate in the third quarter, up from the second quarter's 3.3% annual rate and higher still from a 1.4% annual rate of growth in the first quarter. On the heels of strong consumer spending, economists predict personal consumption expenditures to have swelled to 6.4%, the strongest level of personal consumption since the third-quarter of 1997. Tomorrow's GDP brings a first test to yesterday's decision by the Fed to leave rates unchanged, despite signs that the economy is improving. Why is this a first test? It a test for the market's reaction on weather the Fed has accurately measured its monetary policy, in relation to just how fast the economy is growing. It is probably hard to believe that the economy could grow too fast, and trigger a negative reaction from the market, and while this type of reaction would be unlikely, we'll want to keep an eye on gold and Treasury YIELDS just in case. Today's trade saw the December Gold futures contract (gc03z) $387.00 +0.9% gain $3.60 and recoup the bulk of yesterday's losses, while the AMEX Gold Bugs Index ($HUI.X) 222.41 +2.82% shined as today's sector winner to close at an all-time high as it nears closer to its current point and figure chart bullish vertical count of 226. Based on the premise of gold trading between $400 and $300 per oz., I thought the Fed should keep interest rates where they were, and while the markets greeted the decision with a strong session on Tuesday, tomorrow's Q3 GDP data is the first test of that decision. If the Fed is "too easy" and GDP accelerates well above economists' forecast, I think we should have an eye on gold, which in its own right has been signaling thoughts of economic growth, which should bring some healthy signs of inflation in the early part of an economic recovery. But just as Goldilocks preferred her porridge "just right" and not too cold or too hot, gold and Treasury YIELD trade may be two observations outside of the major market indices for traders to keep an eye on. Just as I did not expect shares of Garmin (NASDAQ:GRMN) $52.05 +15.7% to trade an intra-day high of $54.08 when it triggered a triple-top buy signal in today's trade, I don't expect gold to shoot above the $400 level as if to signal the Fed is way to easy with its monetary policy, but it never hurts to be alert. With the December Gold futures (gc03z) showing a bullish vertical count of 442 (box size $2) on its point and figure chart, there is reason for gold bugs to be optimistic for higher price. The www.stockcharts.com point and figure chart of the Continuous Gold Contract ($GOLD) set on $2 box scale, would look very similar to the December gold futures contract. Gold - Continuous Contract ($GOLD) - $2 box The PnF chart of $GOLD is bullish and today's low of $380 would have come at the extension of the recently broken to the upside bearish resistance trend (red +), and by session's end, demand found price higher at $386. Support looks firm above the $366 level, and should the preliminary GDP figure some in much above 6% to 6.5% tomorrow, gold equities, which often move ahead of the commodity itself are at 52-week highs. Newmont Mining (NYSE:NEM) $43.78 +2.4% is perhaps the bellwether for the sector, and any hedging the company may do with its gold production is very small and a good stock to closely track price movement with gold. If memory serves me correct, NEM was profiled as bullish in early June (red 6 on a Pnf Chart) when it triggered a triple-top buy signal at $31. It's PnF chart currently hints at a bullish vertical count of $77, which at this point would only be negated with a trade at $37, just below its October (red A on PnF chart) low. And just as gold recouped the bulk of yesterday's losses, Treasuries gave back the bulk of yesterday's gains with the benchmark 10-year YIELD ($TNX.X) rising 8.6 basis points to 4.275%. The one comment I heard today from market economists was that he would begin getting concerned for stocks on a near-term basis should the 10-year YIELD move much above the 4.5% level at this point. On a technical basis, the 10-year YIELD found YIELD resistance in August at the 4.6% level. Here's a quick look at the Pivot Analysis Matrix. Little change today, but the Dow Diamonds (AMEX:DIA) $97.87 +0.24% did trade their WEEKLY R1, and showed some strength within the WEEKLY pivot matrix. Pivot Analysis Matrix - In last night's Index Wrap, about the only early correlative support level we could find in the MATRIX was at OEX 513. Tomorrow, the OEX once again looks to be the index to monitor for correlative support, but higher at 515 (DAILY S2 and MONTHLY R1). I've "dashed green" some very early tentative levels, at the DAILY Pivots and WEEKLY R1s for the DIA, QQQ, BIX.X. The upside bullish level looks to also have the OEX a key major index tomorrow at DAILY R2 and WEEKLY R1 of 521, 522 to be safe. It would have to be my thought that the MARKET just loves the way things are going if the OEX were to break above 522, and if so, that could have OEX 530 in play. If yesterday's trade and bullish response to the Fed was just a hoax, the OEX 515, say 514 would fail to hold support. S&P 100 Index Chart (OEX.X) - Daily Interval Taking note of correlative support at 515 in tomorrow's matrix, this would be at the MONTHLY R1 and I still think traders need to give at least that much room to things. In fact, early today, with banks having trouble finding much of a bid and markets trading either side of unchanged, I was planning on the OEX trending back into 513, with the thought that market participants were going to sit things out ahead of tomorrow morning's GDP report. The OEX proved me wrong, and traded stronger than that analysis. I'm going to remove a "cloned" trend we've had on the OEX chart for sometime. It just doesn't seem to be a trend that is in play. However, just as we had cloned that trend and placed it at the September 18 and 19 relative high, where it did appear to be in play on the rally back higher from 496, I'm going to simply slide that cloned trend to the recent highs, challenge the OEX, and if the OEX can get above this downward trend, the I think the "love trade" unfolds with the OEX having potential to WEEKLY R2 and MONTHLY R2 zone. Should a bull "love" the OEX enough to plow every last dollar of his/her trading account into OEX calls on a break above 522 or 525? No way, but I would "like" a bulls chances should price action move above 522 and MACD see a bullish crossover above its SIGNAL. Today's trade saw a net gain of 1 stock to a point and figure buy signal in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" at 79%, but up from Monday's relative low 77%. Nothing major here, but slight sign of a couple stocks where demand is outstripping supply. S&P 500 Index (SPX.X) Chart - Daily Interval While the Fed may see its first true test to keep interest rates where they were, tomorrow may be the real test for last week's scenario that the SPX could duplicate the mid-September rebound to make a new 52-week high. Aside from my SPY bullish trade being stopped out by a 2-cent margin, the SPX duplication of the mid-September trade setup is very close to coming to fruition. Still, there's work to be done. A TRADER/INVESTOR is more alert to DIVERGENCE to the past than duplication, or history repeating. I would thing an SPX trade back below 1,038 would be this signal for DIVERGENCE. This might also be a point where an AGGRESSIVE bear might look for a trade, but he/she may also be waiting things out into next week, to see what happens from an SPX 52-week high near 1,060. Just as history looks to be playing out for the bulls, we might well want to use the decline from SPX 1,039 to 1,000 to set up an AGGRESSIVE bear trade next week. Again.. I personally am always more hesitant to try and short/put a security that is trading 52-week highs or has shown the ability to trade a high, as overhead supply is simply too limited and nobody likes to be short when an angry bear decides to cover. Today's trade saw a net gain of 5 stocks to point and figure buy signals in the broader S&P 500 Bullish % ($BPSPX). Still "bull confirmed" and up 1% to 79.6% bullish. If the OEX is going to see a "love trade" to its WEEKLY/MONTHLY R2 zone, and since we just talked about angry bear's, then let's look at the QQQ where short interest has been growing since April 15 and has a key economic report due out in less that 12-hours. NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals Today's high in the QQQ matched yesterday's, and if anything, showed conviction by bears. At the same time though, bulls didn't cave in, and it looks like traders are ready for some fireworks tomorrow. I'd still want to be on the bullish side of things, especially if the QQQ kicks above $35.71. One of our "short squeeze" pulse stocks found NetFlix (NFLX) $59.06 +4.56% trading another 52-week high, yet James Cramer said tonight on CNBC that there's no stock to borrow in order to short, meaning the public float is basically short and bulls aren't selling. While NFLX is not a NDX/QQQ component the run from $40 has been further painful to bears. Breadth for the NDX/QQQ finished at 51 gainers, 2 unchanged, and 47 decliners. Just about as even as you can get in the NDX/QQQ. SANM +5.29%, ERICY +4.13% and SSCC +3.75% lead the gainer's list, while GILD -12.5%, MNST -4.6% and GENZ -2.8% lead the list of losers. The most heavily-weighted MSFT -1.69% looks to threaten Friday's lows. Today's trade saw a net gain of 3 stock to point and figure buy signals and edges back up 3% to 78%. Still "bear correction" status. Dow Industrials (INDU) Chart - Daily Intervals In an attempt to challenge the INDU with a downward trend, I cloned an "old" trend where resistance broken saw a move higher, then have the broken trend serve support on a retest. Cloning that trend and placing it at the recent 52-week high would have the INDU above that trend. Tomorrow, a move much above 9,800 has the INDU further above this broken trend and back into its upward regression channel. In last night's Wrap, we looked at a sliver of support in the DIA chart, and that is present in the INDU from 9,689-9,678, and would be deemed near-term support, and allow some wiggle room on a negative knee-jerk reaction to the GDP data. Still, a break below that level would spell DIVERGENCE to our bullish mid-September rebound to new highs. Dow components setting new high had AA, HD, INTC, MMM and MO setting new intra-day 52-week highs. MO is perhaps the newest component to set a new 52-weeker as it did pierce its July 8 high of $47.07 today, when it traded a session high of $47.20. JNJ set a new 52-week low. Today's trade saw now net change in the very narrow Dow Industrials Bullish % ($BPIND). Still "bull correction" status at 83.33%. Jeff Bailey ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. 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The Option Investor Newsletter Wednesday 10-29-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: None Dropped Calls: None Dropped Puts: AVID Play of the Day: SEE NOTE Spreads, Combinations & Premium-Selling Plays: Bullish Momentum Continues...Barely! Watch List: Another Round of Bullish Breakouts Updated on the site tonight: Market Posture: MACD Turns its Frown Upside Down ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ Avid Technology - AVID - cls: 52.35 chg: +1.83 stop: 52.51 It is arguable if our stop may have been too tight on AVID but shares have certainly reversed course on us after breaking under the $50 level a few days ago. The over zealous bullish enthusiasm for stocks the last couple of days hasn't helped our position here. AVID traded through our stop loss at 52.51 midday today so we're closing it. A move up through the $54 level and short-term traders may want to consider bullish positions. Picked on October 24 at $49.90 Change since picked: + 2.45 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 628 thousand Chart = ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** *************** PLAY OF THE DAY *************** There is no POD for tonight! ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* Bullish Momentum Continues...Barely! By Ray Cummins Stocks drifted to a higher close Wednesday as investors remained optimistic about the economy in the wake of the Federal Reserve's interest-rate policy statement. The Dow Jones Industrial Average added 26 points to end at 9,774 on strength on Boeing (NYSE:BA), which rallied after posting better-than-expected third quarter results. On the downside, Johnson & Johnson (NYSE:JNJ) slumped to a 52-week low after the FDA warned of "adverse events" associated with the company's drug-coated stents. The NASDAQ Composite climbed 4 points to 1,936, despite a bout of profit-taking in Internet stocks. The S&P 500 Index closed 1 point higher at 1,048 with biotechnology and drug shares losing ground, while precious metals, tobacco, and oil service stocks generally moved higher. In the broader market, advancing issues outnumbered declining stocks by a small margin on both the NYSE and the NASDAQ. Volume was 1.5 billion shares on the Big Board and 1.9 billion shares on the technology exchange. The price of the 10-year Treasury fell 26/32 while its yield climbed to 4.28%, due to jitters over upcoming bond sales. *************** SUMMARY OF CURRENT POSITIONS - AS OF 10/28/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield DRIV NOV 25 24.50 28.13 $0.50 4.78% 2.04% ERES NOV 32 31.50 48.93 $1.00 6.89% 3.17% NTAP NOV 20 19.50 25.86 $0.50 5.70% 2.56% BRCM NOV 27 27.00 32.00 $0.50 4.69% 1.85% CYD NOV 17 17.20 28.79 $0.30 4.95% 1.74% ERES NOV 35 34.20 48.93 $0.80 6.19% 2.34% GENZ NOV 47 46.55 48.58 $0.95 4.34% 2.04% LRCX NOV 22 22.20 28.99 $0.30 3.86% 1.35% NVLS NOV 35 34.15 40.63 $0.85 5.35% 2.49% RMBS NOV 20 19.55 25.12 $0.45 6.20% 2.30% TXN NOV 22 22.10 29.35 $0.40 4.23% 1.81% VECO NOV 22 22.00 24.50 $0.50 5.04% 2.27% APPX NOV 22 22.05 26.45 $0.45 7.08% 2.04% CKFR NOV 22 22.20 27.95 $0.30 4.03% 1.35% CYD NOV 20 19.75 28.79 $0.25 4.37% 1.27% ERES NOV 35 34.55 48.93 $0.45 4.25% 1.30% LEND NOV 20 19.70 29.00 $0.30 5.40% 1.52% NFLX NOV 40 39.45 56.48 $0.55 4.89% 1.39% NSCN NOV 20 19.70 24.34 $0.30 4.96% 1.52% ONXX NOV 17 17.15 23.60 $0.35 6.57% 2.04% PALM NOV 22 22.20 27.24 $0.30 3.97% 1.35% There was no opportunity to initiate the bullish position in New Century Financial Corporation (NASDAQ:NCEN), due to bullish "gap-up" in the issue on the day after the play was offered. Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield FLML NOV 40 40.80 28.65 $0.80 8.88% 1.96% IMCL NOV 45 45.65 34.40 $0.65 6.97% 1.42% SOHU NOV 45 45.55 37.17 $0.55 5.85% 1.21% BGEN NOV 40 40.50 39.30 $0.50 3.96% 1.23% * MGAM NOV 45 45.30 36.82 $0.30 3.99% 0.66% NPSP NOV 35 35.25 27.35 $0.25 4.53% 0.71% Biogen (NASDAQ:BGEN) is on the "watch" list and any further upside activity would signal an exit in the bearish spread. Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status CUM 50.77 46.35 NOV 42 45 0.30 44.70 $0.30 Open CYMI 45.27 44.99 NOV 35 40 0.60 39.40 $0.60 Open ERTS 103.58 98.43 NOV 90 95 0.55 94.45 $0.55 Open SYK 78.92 81.46 NOV 70 75 0.45 74.55 $0.45 Open APOL 63.95 63.87 NOV 55 60 0.60 59.40 $0.60 Open BDK 45.96 47.77 NOV 40 45 0.75 44.25 $0.75 Open SEE 52.31 53.04 NOV 45 50 0.50 49.50 $0.50 Open The position in J2 Global Communications (NASDAQ:JCOM) has previously been closed to limit potential losses. Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status MEDI 33.09 26.86 NOV 40 38 0.30 37.80 $0.30 Open WLP 78.72 89.95 NOV 90 85 0.60 85.60 ($3.15) Closed BUD 48.89 49.20 NOV 55 50 0.50 50.50 $0.50 Open KMX 32.31 31.92 NOV 40 35 0.70 35.70 $0.70 Open NBR 36.75 36.93 NOV 43 40 0.25 40.25 $0.25 Open AMGN 60.30 60.85 NOV 70 65 0.45 65.45 $0.45 Open FRE 57.03 58.59 NOV 65 60 0.60 60.60 $0.60 Open FNM 72.75 75.35 NOV 80 75 0.65 75.65 $0.30 Open As noted last week, Wellpoint Health Networks (NYSE:WLP) was on the "watch" list and traders who did not exit the bearish spread were astonished by a merger announcement on Monday. The stock soared on the news and is currently trading near the long (call) option in the position. Due to the premium in that option, the cost to close the spread is far less than the difference in strike prices ($5) minus the premium ($0.60), and the summary reflects that value. Synthetic Positions ******************* No Open Positions Debit Straddles *************** No Open Positions Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** ANPI - Angiotech $45.95 *** JNJ Sell-Off = ANPI Rally! *** Angiotech Pharmaceuticals (NASDAQ:ANPI) is engaged in the fusion of medical device technologies and pharmaceutical therapies. The company's first product was a drug-coated stent. A stent is a cylindrical medical device, usually made of metal, inserted into a body duct or tube to prevent collapse, blockage or overgrowth of the duct or tube. Angiotech's primary goal is to develop new products to enhance the performance of medical devices and other biomaterials through the use of pharmatherapeutics. In 2002, the company agreed to a merger with Cohesion Technologies, which will continuing as a wholly owned subsidiary of Angiotech. ANPI - Angiotech $45.95 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 40 AUJ WH 990 0.65 39.35 6.3% 1.7% * SELL PUT NOV 45 AUJ WI 402 1.95 43.05 12.8% 4.5% ************** CYD - China Yuchai $31.00 *** The Rally Continues! *** China Yuchai International (NYSE:CYD) is a medium-duty diesel engine manufacturer in China that also produces diesel power generators and diesel engine parts. The company owns a major interest in Guangxi Yuchai Machinery and owns, through six subsidiaries, 76.4% of the outstanding common shares of Yuchai. Yuchai primarily makes and sells diesel engines for medium-duty trucks in China. Yuchai's primary products are its 6105QC and 6108 medium-duty engines, which are used in medium-duty trucks with a load capacity of five to seven tons. In addition, Yuchai also offers light-duty engines and heavy-duty engines. Besides diesel engines, Yuchai produces a limited number of diesel power generators and diesel engine parts. CYD - China Yuchai $31.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 22.5 CYD WX 663 0.25 22.25 4.9% 1.1% * SELL PUT NOV 25 CYD WE 776 0.55 24.45 10.0% 2.2% ************** GPRO - Gen-Probe $25.95 *** Earnings Speculation *** Gen-Probe (NASDAQ:GPRO) is a leader in the development, manufacture and marketing of rapid, accurate and cost-effective nucleic acid testing products used for the clinical diagnosis of human diseases and for screening donated human blood. Using its patented NAT technology, Gen-Probe has received FDA approvals or clearances for over 60 products that detect a variety of infectious microorganisms, including those causing sexually transmitted diseases, tuberculosis, strep throat, pneumonia and fungal infections. Additionally, the company developed and manufactures the only FDA-approved blood screening assay for the simultaneous detection of HIV-1 and HCV, which is marketed by Chiron Corporation. Gen-Probe and Bayer Corporation have formed a collaboration to develop, manufacture and market nucleic acid diagnostic tests for certain viral organisms, and under the agreement Bayer has the right to distribute these tests. Gen-Probe has 20 years of nucleic acid detection research and product development experience, and its products are used daily in clinical laboratories and blood collection centers throughout the world. Quarterly earnings are due on 10/30/03. GPRO - Gen-Probe $25.95 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 22.5 PSU WX 6738 0.40 22.10 6.9% 1.8% SELL PUT NOV 25 PSU WE 923 1.10 23.90 13.2% 4.6% ************** LEXR - Lexar Media $22.50 *** Strong Sector! *** Lexar Media (NASDAQ:LEXR) is a leading designer, marketer and licensor of award-winning removable flash-based digital storage media, card readers and ATA controller solutions for the digital photography, consumer electronics, industrial and communications markets. Lexar brands digital memory cards in the industry's most popular formats including CompactFlash, SmartMedia, Memory Stick, MultiMediaCard and SD. As a digital storage innovator, Lexar was the first to develop and advance proprietary read-write speed standards for its USB-enabled CompactFlash cards and holds over 60 controller and system patents. Licensees of Lexar's technology include Olympus, SanDisk, Samsung Electronics and Sony. LEXR - Lexar Media $22.50 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 20 EQG WD 2104 0.30 19.70 5.6% 1.5% * SELL PUT NOV 22.5 EQG WX 128 1.20 21.30 14.9% 5.6% ************** MSTR - MicroStrategy $53.17 *** On The Rebound! *** MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly critical business intelligence software market. Large and small firms alike are harnessing MicroStrategy's business intelligence software to gain vital insights from their data to help them proactively enhance cost-efficiency, productivity and customer relations and optimize revenue-generating strategies. The firm's business intelligence platform offers exceptional capabilities that provide organizations, in virtually all facets of their operations, with user-friendly solutions to their data query, reporting, and advanced analytical needs, and distributes valuable insight on this data to users via Web, wireless, and voice. MSTR - MicroStrategy $53.17 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 45 EOU WI 638 0.45 44.55 4.3% 1.0% * SELL PUT NOV 50 EOU WJ 220 1.55 48.45 10.0% 3.2% ************** NSCN - NetScreen Technologies $24.24 *** Solid Earnings! *** NetScreen Technologies (NASDAQ:NSCN) develops, markets and sells a broad family of integrated network security solutions. The firm's security solutions provide key security technologies, such as virtual private networking (VPN), denial of service protection, firewall and intrusion detection and prevention (IDP), in a line of easy-to-manage security systems and appliances. NetScreen's firewall and VPN systems and appliances deliver integrated firewall, VPN and denial of service protection capabilities in a single device using its proprietary application-specific integrated circuits, the GigaScreen and GigaScreen-II ASICs, and its proprietary security operating system and applications, ScreenOS. NSCN - NetScreen Technologies $24.24 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 20 QKN WD 390 0.25 19.75 5.6% 1.3% TS SELL PUT NOV 22.5 QKN WX 1713 0.85 21.65 12.2% 3.9% * ************** NTE - Nam Tai Electronics $41.01 *** New All-Time High! *** Nam Tai Electronics (NYSE:NTE) is a electronics manufacturing and design services provider to original equipment manufacturers of telecommunication and consumer electronic products. Through its electronics manufacturing services operations, the company makes electronic components and subassemblies, including liquid crystal display panels, transformers, LCD modules, and radio frequency modules. The firm also manufactures finished products, including cordless phones, palm-sized personal computers, personal digital assistants, electronic dictionaries, calculators and digital camera accessories for use with cellular phones. In addition, the company assists its OEM customers in the design and development of their products and furnishes full turnkey manufacturing services. Its services include hardware and software design, component purchasing, assembly into finished products or electronic subassemblies and post-assembly testing. NTE - Nam Tai Electronics $41.01 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 35 NTE WG 365 0.60 34.40 6.9% 1.7% * SELL PUT NOV 40 NTE WH 123 1.90 38.10 13.9% 5.0% ************** NTLI - NTL Incorporated $60.06 *** Up, Up And Away! *** NTL Incorporated (NASDAQ:NTLI) provides communications services to residential, business and wholesale customers. The company offers residential telephony, cable television and Internet access services. NTL also provides national and international carrier telecommunications, satellite and radio communications, as well as digital and analog television and radio broadcast transmission services. NTLI - NTL Incorporated $60.06 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 50 NUD WJ 1450 0.50 49.50 4.4% 1.0% * SELL PUT NOV 55 NUD WK 1302 1.40 53.60 8.7% 2.6% ************** PHTN - Photon $32.81 *** Next Leg Up? *** Photon Dynamics (NASDAQ:PHTN) is a provider of yield management solutions to the flat panel display (FPD) industry. The company also offers yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industries and the cathode ray tube display and CRT glass and auto glass industries. The firm's test, repair and inspection systems are used by manufacturers to collect data, analyze product quality and identify and repair product defects at critical steps in the manufacturing. PHTN - Photon $32.81 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 27.5 PDU WY 127 0.40 27.10 6.2% 1.5% * SELL PUT NOV 30 PDU WF 107 1.00 29.00 11.2% 3.4% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** GDT - Guidant $51.47 *** Big News In The Stent Market! *** Guidant Corporation (NYSE:GDT) pioneers lifesaving technology, giving an opportunity for a better life today to millions of cardiac and vascular patients worldwide. The company, driven by a strong entrepreneurial culture of more than 11,000 employees, develops, manufactures and markets a broad array of products and services that enable less invasive care for some of life's most threatening medical conditions. GDT - Guidant $51.47 PLAY (less conservative - bullish/credit spread): BUY PUT NOV-45.00 GDT-WI OI=3007 ASK=$0.15 SELL PUT NOV-50.00 GDT-WJ OI=1417 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$49.40 ************** IFIN - Investors Financial Services $35.10 *** Comfort Zone? *** Investors Financial Services (NASDAQ:IFIN) provides services for a variety of financial asset managers including mutual fund complexes, investment advisors, banks, and insurance companies. Through its wholly-owned subsidiary, Investors Bank & Trust Company, they provide core services including global custody, multicurrency accounting, and mutual fund administration, as well as value-added services including securities lending, foreign exchange, and cash management. IFIN - Investors Financial Services $35.10 PLAY (conservative - bullish/credit spread): BUY PUT NOV-30.00 FLQ-WF OI=244 ASK=$0.30 SELL PUT NOV-32.50 FLQ-WZ OI=490 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$32.25 ************** MXIM - Maxim Integrated $48.24 *** Technicals Only! *** Maxim Integrated Products (NASDAQ:MXIM) designs, develops, makes and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high-frequency design processes and capabilities that can be used in custom design. Maxim's products include data converters, interface circuits, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, delay lines, real-time clocks, microcontrollers, switches, battery chargers, battery management circuits, radio frequency circuits, fiber-optic transceivers, sensors and voltage references. The firm's unique products are sold to customers in various markets including automotive, communications, consumer, industrial control, instrumentation and data processing. MXIM - Maxim Integrated $48.24 PLAY (conservative - bullish/credit spread): BUY PUT NOV-40.00 XIQ-WH OI=3417 ASK=$0.15 SELL PUT NOV-45.00 XIQ-WI OI=4398 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$44.60 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** NTES - NetEase.com $50.64 *** Sell-Off In Progress! *** NetEase.com (NASDAQ:NTES) is a China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. The NetEase Web sites, operated by a company affiliate, organize and provide access to 18 content channels through distribution arrangements with more than one hundred international and domestic content providers. In addition, the NetEase Internet sites offer a variety of products and services, including Instant Messaging (Popo), Dating, Love, Alumni and Personal Home Page. These products and services enable users to communicate about interests and areas of expertise. At the end of March 2003, the number of registered users of NetEase Web sites reached 114 million with the average number of daily page views over 370 million. NTES - NetEase.com $50.64 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 60 NQG KL 1,675 0.80 60.80 8.7% 1.3% * SELL CALL NOV 55 NQG KK 800 1.85 56.85 13.2% 3.3% ************** SEPR - Sepracor $26.52 *** Drug Speculation! *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. SEPR - Sepracor $26.52 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 32.5 ERQ KZ 882 0.20 32.70 4.6% 0.6% TS SELL CALL NOV 30 ERQ KF 1,045 0.60 30.60 9.8% 2.0% * SELL CALL NOV 27.5 ERQ KY 382 1.40 28.90 16.1% 4.8% ************** SRDX - SurModics $24.70 *** Stent Market Shake-Up! *** SurModics (NASDAQ:SRDX) is a provider of surface modification solutions to the medical device industry. The company's primary focus is the commercialization of its coating technologies through licensing arrangements. SurModics provides value-added surface modification solutions to a variety of medical device markets and product categories. Examples of products in the market or under development that incorporate the firm's coating technology include guidewires, catheters, stents and other similar devices used in interventional cardiology, neurology and urology markets. SRDX - SurModics $24.70 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 30 UZF KF 1,921 0.25 30.25 6.1% 0.8% * SELL CALL NOV 25 UZF KE 1,105 1.60 26.60 18.1% 6.0% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** BBOX - Black Box $42.35 *** SEC Subpoenas = Sell-Off! *** Black Box (NASDAQ:BBOX) is a technical services firm dedicated to designing, building and maintaining complicated network infrastructure systems. Black Box provides its clients with around-the-clock technical support at no charge through a hotline telephone consulting service, available to clients in 132 countries worldwide. It also provides complete structured cabling and telephony solutions, including design, installation and maintenance. In addition, the firm offers a line of network infrastructure products, and more than 90,000 products through its catalogs and Website. PLAY (conservative - bearish/credit spread): BUY CALL NOV-50.00 QBX-KJ OI=60 ASK=$0.25 SELL CALL NOV-45.00 QBX-KI OI=470 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$45.40 ************** GILD - Gilead Sciences $52.00 *** A Big "Down" Day! *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five products that are marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $52.00 PLAY (less conservative - bearish/credit spread): BUY CALL NOV-60.00 GDQ-KL OI=10140 ASK=$0.20 SELL CALL NOV-55.00 GDQ-KK OI=2635 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$55.65 ************** MANH - Manhattan Associates $28.30 *** Mediocre Earnings *** Manhattan Associates (NASDAQ:MANH) is a global leader in providing supply chain execution solutions. The company enables operational excellence through our warehousing and distribution, transportation and trading partner management applications. The firm's integrated solutions leverage state-of-the-art technologies, innovative supply chain practices and their domain expertise to enhance performance, profitability and competitive advantage. Manhattan Associates has licensed more than 870 customers from more than 1,300 facilities worldwide, which include some of the world's leading manufacturers, distributors and retailers. MANH - Manhattan Associates $28.30 PLAY (less conservative - bearish/credit spread): BUY CALL NOV-35.00 MQR-KG OI=2184 ASK=$0.25 SELL CALL NOV-30.00 MQR-KF OI=663 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$30.55 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** Another Round of Bullish Breakouts Borg Warner Inc - BWA - close: 79.96 change: +2.96 WHAT TO WATCH: Argh! We hate it when that happens. We came this close to adding BWA to the OI call play list last night. The stock surged higher today with many stocks in the auto-related sector. BWA is now a stock to watch because going long just under the $80 level is not the best entry point. A pull back and bounce near 77.00-77.50 might work for new plays. Chart= --- Thor Industries - THO - close: 63.88 change: +1.67 WHAT TO WATCH: THO is another auto-related stock worth watching. This mobile-home/RV maker has been consolidating sideways in a range between $60 and $64. A breakout above 64.00-64.25 might be worth playing. More aggressive traders can try and enter a bounce near $60 but use a tight stop. Chart= --- Taro Pharmaceuticals - TARO - close: 64.90 change: +1.52 WHAT TO WATCH: This biotech/drug player has been consolidating sideways in a wedge-pennant pattern for days. The breakout today was a bullish one and traders might want to target the $70 level. However, be aware that TARO is due to announce earnings on Oct. 30th. Estimates are for 52 cents a share. Chart= --- Infosys Technologies - INFY - close: 82.62 change: +2.77 WHAT TO WATCH: This India-based software developer has soared from its April-May lows near $40. Today the stock has broken out to the upside from a bull flag pattern. Short-term traders can target the old highs near $86.00. A bounce from $80 would be the preferred entry point but it may not present itself. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- CMA $50.88 +0.37 - After months of consolidating sideways this regional banking stock has soared on takeover speculation. A bounce from 49.50-50.00 might be playable. GTK $44.22 +0.30 - The rising channel is still intact and the simple 50-dma has been support for GTK. A move over $45 may be an entry point. UOPX $69.97 +1.11 - The educational stocks are running again (just see shares of COCO). UOPX, a subsidiary of APOL, looks like a buy over $70.00. Use a good stop. ************** MARKET POSTURE ************** MACD Turns its Frown Upside Down To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/mp_102903.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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