The Option Investor Newsletter Sunday 11-09-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Too Much Good news Futures Market: Reach for the Top, Race to the Bottom Index Trader Wrap: New Highs, Bullish Data Editor's Plays: Cheap Trick Market Sentiment: Confused Yet? Ask the Analyst: Sector bullish percent updates 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 11-07 WE 10-31 WE 10-24 WE 10-17 DOW 9809.79 + 8.67 9801.12 +218.66 9582.46 -139.33 + 47.11 Nasdaq 1970.74 + 38.53 1932.21 + 66.62 1865.59 - 46.77 - 2.95 S&P-100 520.70 + 0.72 519.98 + 9.73 511.25 - 6.87 + 0.07 S&P-500 1053.21 + 2.50 1050.71 + 21.80 1028.91 - 10.41 + 1.26 W5000 10289.76 + 65.24 10224.5 +241.02 9983.50 -114.88 + 13.06 RUT 542.96 + 14.74 528.22 + 21.79 506.43 - 13.93 + 1.30 TRAN 2979.29 + 66.18 2913.11 + 85.86 2827.25 - 20.03 + 23.73 VIX 16.93 + 0.83 16.10 - 1.61 17.71 + 0.09 - 0.83 VXO 17.56 + 0.41 17.15 - 1.78 18.93 - 0.26 - 0.05 VXN 25.20 + 0.31 24.89 - 0.56 25.45 + 0.12 - 2.29 TRIN 1.21 1.02 1.44 1.59 Put/Call 0.78 1.12 0.91 0.64 ****************************************************************** Too Much Good news by Jim Brown Can you have too much good news? Apparently too much good news is not good medicine for the markets. After a week of constant increases in various economic reports the Dow finished down -47 points for the day and up only +8 for the week. The Nasdaq rose +38 for the week and came within 8 points of N2K but also sold off Friday on the economic overdose. Dow Chart Nasdaq Chart While the Jobs Report was the economic home run on Friday there were other base hits. The Wholesale Trade numbers rose +0.5% when expectations were for a drop of -0.2%. Inventories rose +0.4% and Sales rose +0.5%. This put the inventory to sales ratio is at an all time low of 1.20. This continues to paint a picture of a coming boom from inventory replenishment once demand increases. The increase in sales by +0.5% is providing hope that we are entering that cycle. Also adding to the recovery was a huge bounce in consumer credit of +$15.1 billion when estimates were for only +$5.5B. Despite a slowdown in auto sales the non-revolving debt was the fastest grower. No signs of a consumer slowdown here. This jump was a nearly +10% annualized rate and the fastest pace since January. This buoyed the hopes of analysts that the 4Q holiday season could be strong. By far the biggest dose of reality came from the Jobs Report. The economy added +126,000 jobs in October and double the consensus estimate of +60K. If that was not good enough the +57K gain for September was revised upward to +125,000 and the -41K for August was revised up to +35K. This was clearly an out of the park homer with the bases loaded. The net job gain over the last three months was a whopping +286,000. Suddenly the jobless recovery became a jobs recovery and analysts could not raise estimates fast enough. This was the strongest one month gain since January. The majority of gains were in service sectors with manufacturing still losing -91K jobs over the last three months. While the gain of +286,000 jobs was great it still has not put a dent in the unemployment rate which is still 6.0%. Over 8.8 million workers are still unemployed. A sustained jobs growth of 150,000 per month is needed to overcome the normal growth in the workforce. I am not complaining but just explaining. The +286K is light years ahead of the trend for the last year and a solid foundation for the current economic recovery. Analysts and traders have constantly claimed that the recovery would not be official until the job creation caught up and this is a significant step. Add in the huge drop in Jobless Claims to 348,000, the jump in Productivity by +8.1%, GDP to +7.2%, ISM to 57, ISM Services at 64.7 and a +6.5% jump in semiconductor billings and you have clearly the best economic news in months if not the entire year. What did the markets do with this news? They traded mostly sideways with the Dow gaining only +8 points for the week. Ok, now what happened? Why did the indexes suddenly swoon on the good news? As I explained in my commentary on Thursday the news is simply too good for investor sentiment. The Fed has said repeatedly said it would remain on the sidelines for a "considerable period" of time to allow the economy to ramp up before adjusting rates. Before Friday's reports the futures were not predicting the first rate hike until May with the second one not until the 4Q-2004. A considerable period of time considering the extremely low rates. After Friday's reports the futures are now showing an 85% chance of a hike in March. The jump in the date by a couple months is very material and is causing a rethinking of market planning. The next Fed meeting is four weeks away and the worry now is that the Fed will take the "considerable period" statement out of their announcement and possibly change their bias to tightening. This is a major change of direction and institutional investors will have to rethink their bond and equity allocations. I hate to keep repeating this but markets typically discount 3-6 months ahead and the flat Fed until May had already been priced into the market. Shortening that period by 30% puts the next rate hike and the changing of bias by the Fed well into that six month window. Now investors will be buying stocks based on the expectations of rates rising quickly if the economics continue to be strong. Any potential rate hike will be offset by an increase in earnings IF the recovery continues. In the early stages of an economic recovery rates do rise and investors are used to that model. The big difference here is that they could rise much earlier and much quicker than expected just a week ago. I know this kind of economic double talk is boring and many readers just skip these paragraphs. I wish I could too but we need to know what may be in front of us. The Dow drop on Friday of -47 points is meaningless. More critical to me is the lack of an advance for the week. We tested the 52-week highs at 9900 twice during the week but the market seems very heavy. I know "seems" is a vague word but that is what I see. The internals are still strong with 1066 new 52-week highs on Friday. Definitely no weakness there. Advancers beat decliners and volume was decent. There is nothing to reach out and touch but the upward momentum is definitely slowing. I got a kick out of one reporter on CNBC Friday night saying the market was not moving higher because there was no catalyst to give investors a reason to buy. Give me a break! If you were an investor looking for a reason to buy stocks the last week was a banner week full of catalysts. If anything there were too many buy signals and there are simply no buyers left. Another problem is still the mutual funds. In the last week $4.4 billion was withdrawn from Putman with as much as $10 billion withdrawn from the other top five funds under investigation. This is a huge amount of money to leave the market in only once week. Considering there was a $15B withdrawal I think the market did rather well. Other factors weighed on the markets for the week with 20+ soldiers killed in Iraq and drawing lots of attention and negative press. A post office in Washington tested positive for Anthrax and 11 post offices were closed for further tests. Homeland Security said Al Queda was planning to use cargo planes to attack the U.S. and "specific and credible" threats prompted embassy closings for the weekend. Taking all these items into consideration it is a wonder the Dow was not down -247 instead of just -47. For those expecting a bullish week to start November and historically the two best months of the year then you may have been disappointed. We closed almost exactly where we started with tech stocks the only winners. If you are looking for a week with catalysts to inspire traders it will not be next week. There are only two major reports on Monday and then nothing of importance until Friday. The two reports on Monday are the Richmond Fed and Kansas City Fed surveys. These chart manufacturing growth and outlook for those regions and are seen as proxies for the rest of the country. They are expected to show growth but nothing exciting. This leaves traders with no news for four days. Considering the fade on fantastic news Friday this may not be a bad thing. Technically the Dow pulled back from the highs to rest on support at 9800 which had been resistance since early October. You cannot call that a bad performance. Since early October we have been trading in a narrow range with only a slight uptrend as we waded through earnings. With earnings and economics over for the time being the next level Dow support at 9700 could be tested soon. The Dow did not make any attempt to touch 10,000 and several analysts have expressed doubt we will see it before seeing 9500 again. The Nasdaq has a better uptrend in place and came very close to 2000. The drop at the close only brought it back to uptrend support at 1970 and it was quickly bought. The continuing good news on semiconductor stocks has put a floor under techs that will be difficult to break. Add in the CSCO news that IT spending is starting to increase and all the feeder stocks that supply Cisco saw a huge pop. It was a good week for techs despite the Wednesday profit taking. The Nasdaq is well above strong resistance at 1950 and it would take a serious sentiment change to move it below even stronger support at 1900. Can these indexes reach those support points at 9700/1900? Sure, if investors decide that potential rate hikes outweigh the potential gains created by an exploding economy. While I had been expecting a stronger correction soon I have just about decided that changing conditions have negated that possibility. My capitulation is a sure sign that a drop is near. The VXO remains trapped in the 17.50 range despite the end of day sell off. The total lack of fear in the market is the only thing that keeps me hanging on to an outlook that is filled with caution. I am not going into all the reasoning again but there is reason to be concerned. Dollar Chart Bonds will be under pressure next week with $57 billion coming to market to finance the deficit. The dollar got crushed on the employment numbers and there is going to be more stress next week. The economics and potential rate changes will cause currency fluctuation until traders the world over balance their risk profiles to the new paradigm. The biggest news of the week was actually the Greenspan warning shot about the deficit and the coming Social Security problem. According to Greenspan the first baby boomer retirees will begin retiring in five years and accelerate sharply from there. He said the Social Security and Medicare benefits promised under current law for these retirees CANNOT be financed with current tax rates. No surprise there since this warning has been present for the last 20 years. The fact that Greenspan chose to resurrect it in a major speech at this time in the political cycle almost seemed to be a free shot a the current administration. He warned that this will set into motion an "unsustainable dynamic" that could have "notable destabilizing effects on the economy." He said "tax rate increases of sufficient dimension to deal with our looming fiscal problems pose significant risks to economic growth and the revenue base." In other words he sees a real crisis coming that simply raising taxes will not cure and it starts in 2008. These comments were glossed over in reports about the speech but I think they are the most important paragraphs. Greenspan speech: http://www.federalreserve.gov/boarddocs/speeches/2003/20031106/default.htm I attended a financial seminar sponsored by Citigroup a couple months ago and they were projecting the same thing. Their outlook was for a massive tax increase in early 2005 once the elections were over. There are various reasons that I have explained here in the past. The reason I bring this up again is to remind readers to plan their long term investing wisely and watch out for these significant market challenges ahead. The mainline press conveniently failed to discuss these points in the Greenspan speech. We have a very flat economic week ahead and no material earnings other than Dell on Thursday. There is very little to capture investor attention and the mutual fund scandal will probably return to the top of the news sound bites. If the cash outflows continue from the top funds in trouble then that will impact the market. The squeeze is on for those in the headlines but the money will eventually find its way back to the market in another fund. This 2-3 week cycle time should help slow any market gains. In summary, the market has some more consolidation work to do before moving higher and that consolidation should continue next week. We are more than likely going to remain trapped in our current range from 9600-9900. The excitement has faded and to twist the reporters comments slightly, there is no catalyst on the horizon to rekindle that excitement. After over eating a big thanksgiving dinner the urge to nap is strong and after the economic overdose this week the markets need to take that nap. Enter Very Passively, Exit Very Aggressively! Jim Brown A reader sent me this letter to his senator and I thought it was interesting and you might enjoy it. Good research and a thought provoking conclusion. Read the letter by clicking on this link below! http://members.OptionInvestor.com/readerswrite/rw_110903_1.asp ************** FUTURES MARKET ************** Reach for the Top, Race to the Bottom Jonathan Levinson All appeared perfectly, if somewhat hysterically, bullish on Thursday night, and Friday morning delivered the bullish data to launch equities free of gravitation constraint. Interestingly, the 8:30 highs were never revisited. Bonds sold off but recovered, gold and the CRB rallied, and the US Dollar Index got murphied for over 1%. Equities closed on a spectacularly ugly note, accelerating toward their session lows. Daily Pivots (generated with a pivot algorithm and unverified): Note regarding pivot matrix: The support, pivot and resistance levels above are derived from the high, low and closing price levels by a simple mathematical formula. They are not intended to be predictive of market turning points or to serve as targets, but rather represent the range retracement levels as generated by the pivot algorithm. Do not think of them as market "calls" or predictions. Like any technically-derived indicator or price level, the pivot matrix values should be regarded as decision points at which to evaluate current market conditions. Visit us in the Futures Monitor for our realtime views of the various markets covered here. 10 minute chart of the US Dollar Index I'll let this chart speak for itself. Suffice it to say that I don't believe the intraday rumors about a technical glitch that led to the selling. All major currency pairs rallied strongly against the dollar, metals and the CRB took off. If this was truly foreign selling, as it appears to have been, then it bodes ill indeed for US equities and bonds. For the week, the US Dollar Index printed a higher high and higher low, but today's selling resulted in a long upper candle shadow, for a possible bearish reversal candle, a shooting star doji top. Daily chart of December gold December gold rallied against the dollar on Friday, adding 3.60 to a high of 384.30, going out at 384.10 after selling off precipitously on the 8:30 economic data. The session low was 375.10. Consumer credit was released at 3PM, almost tripling expectations, and gold launched to new highs on that data. As with the dollar, the move on Friday cast doubt on the week's otherwise clear trend, in this case leaving a bullish hammer with a long lower tail on the weekly candlestick. The trend remains down on the daily cycle oscillators, heavy resistance begins at 390 and continues to 410, but as we saw today, anything can happen in this market as traders react to each economic release with increasingly knee-jerk suddenness. Daily chart of the ten year note yield Ten year notes broke below trendline support at 8:30, with the TNX gapping above pennant resistance just as we suspected it would in Thursday's Futures Wrap. The yield came down off its highs, but it held above the trendline. This move aligns with the day cycle oscillator and portends further pain for treasury bulls. Pennant aside, the current level of 4.45% lines coincides with the previous top on the yield, and so bond bears aren't out of the woods yet. But, another day like Friday could do it. The TNX added 3.2 basis points to close at 4.45%. Daily NQ candles How about that close? The VXO actually closed lower by .02 at 17.56 at 4PM, and then the futures accelerated south, setting new session lows without even rousing the slumbering bears. The fact that option volatility actually dropped on a day like today is a perfect indication of the degree to which bulls have become anaesthetized by the steady unidirectional monotony of the recent sessions. The NQ spiked above the upper bear wedge trendline at 8:30AM when it set its high of the day on the spike reaction to the bullish morning data. At that instant, the market looked absolutely, perfectly bullish, as it always does at tops. The remainder of the session ground aimlessly lower, with the strong selling beginning at 3:30PM. For the day, the NQ dropped 1.04%, the ES 76% and the YM .69%. These were tame numbers, just a retracement of part of the week's gains. The trend is still, of course, up. But the failure at the new highs on beautiful news is an ominous sign, and the was already blood in the water from the shellacking administered to the US Dollar Index. It appeared at the close that bulls were saved by the bell. While the daily cycle oscillator is still pointed north, it lost some vigor today, and there's a bearish divergence setting up as indicated. Support at 1408 appears critical. 30 minute 20 day chart of the NQ There are bearish divergences galore on the 30 minute NQ chart, and the market complied by breaking below the lower rising trendline heading into the close. This selloff confirmed the sell signals on the 30 minute cycle oscillators, but was so sharp and fast as to leave doubt as to whether it will stick. On the one hand, it looks like bulls were trying to tippy-toe out the back door, but on the other it could have been a quick panic selloff heading into a weekend filled with uncertainty. The reverse head and shoulders pattern with its neckline along the 1448 level is not invalidated by the closing print, and it will take a continuation on Monday in order to ease the tension level among bears. While the 30 minute cycle oscillators are in a confirmed downphase from their lower highs, the daily cycle is still up. Next support is at 1424, followed by 1415 and 1408. Daily ES candles The daily ES candles failed at the upper bear wedge resistance line, and closed perilously close to the 1048 rising lower support line. This bear wedge projects to a downside target of 987.75 on a breakout, and unlike for the NQ, the daily cycle oscillators may be rolling over as of Friday. The bearish divergences are clear on the daily chart, and while the wedge still points higher, this is a very risky chart for those looking for further upside. A return to the high or even a nominal new high is possible, but as of this Friday, the writing is on the wall. 20 day 30 minute chart of the ES The 30 minute ES sports the same support line failure, but also the same reverse head and shoulders formation. The oscillators point south but are closer to oversold territory, and a return to the scene of the crime bounce can be expected on Monday, in this case in the 1054-56 area. While I'm anything but bullish at current levels, a bounce would not surprise me for a number of reasons. The 300 minute stochastic does not trend often on this timeframe, and doesn't tend to stay either oversold or overbought for long. Also, as noted in Thursday's Futures Wrap, this is a market that has lately gotten bought come rain, shine, sleet or hail, day after day. With caution so far from most traders' minds (ie. the VXO closing negative today), an aggressive dip buy cannot be ruled out. 1045 and 1038-40 are strong supports below. 150-tick ES Note the sharp break at 3:30PM. The closing tape-painting run didn't hold for longer than a few minutes. Daily YM candles Nothing to add on the YM which didn't even make it to its upper resistance line. 20 day 30 minute chart of the YM This was a difficult week for traders both long and short. Volatility levels continued to reflect a rare and, hopefully, short-lived nirvana environment, despite the bearish engulfing daily candles on stocks, the US Dollar Index and, to a lesser extend, bonds, and the bullish engulfings on gold and the CRB. This is a dangerous setup, and the weakness in the US Dollar Index bodes particularly ill. For next week, I urge traders to stay nimble. With the VXO so low, the markets could continue higher on short covering and "greater fool" buying, but I'm personally unwilling to buy a market as overbought as this at the risk of winding up the "greatest" fool. The VXO is not "broken" as some in the media would argue, just as they always do at tops. It seems clear to me that there's a great deal more downside than upside from here. At the same time, picking a top is very risky business, and it requires active stops and sharp attention. We remain on the lookout for further weakness in bonds and the US Dollar Index, both of which must eventually drag equities down, regardless of how otherwise bullish things may appear. See you at the bell! ******************** INDEX TRADER SUMMARY ******************** New Highs, Bullish Data Jonathan Levinson The Dow tagged 9903, Nasdaq 1992, and managed to close only slightly lower on Friday despite a steep selloff into the close, and an acceleration thereof in the futures after 4PM. The Dow dropped -47.18 points or -.48%, the Nasdaq -5.63 or -.28%, and the S&P dropped -4.84 points or -.46%. For the week, the Dow added 0.1%, the Nasdaq 0.2%, and the Nasdaq 2%. Most noteworthy in Friday's trading was the selloff following yet another day of bullish news. The wire was bullhorning blowout employment data, the actual bullishness I examine briefly below. Nevertheless, the feeling at 8:30AM was "The sky's the limit," and one suspects that the party ended as quickly as it did because there simply weren't many shorts left to squeeze. New 52 week highs were made, but the indices closed lower than they did the day before. Option volatility remains at alarmingly low levels, demonstrating a multiyear extreme in complacency, or, if you will, a bear market in fear. The VXO dropped .02 to close at 17.56, the VXN – 15 to 25.2 and the QQV -.19 at 23.49. As discussed in the Market Monitor today, these readings are ripe for an upside surprise, with the VXN coiled into a bull wedge on the weekly chart and projecting potentially as high as 70. An upside surprise in volatility would correspond with a downside spike in equities. In the meantime, the indices continue to rip higher, but as we will see below, there are increasing indications of exhaustion, with most every chart displaying bearish oscillator divergences. Weekly COMPX candles The weekly chart of the Nasdaq shows the extremely toppy oscillators, with price scraping the upper resistance line of the bear wedge in place since the March low. There is nothing to prevent the Nasdaq from pushing higher still, but the oscillators are clearly indicating that the higher odds bet is to the downside from here. The bear wedge support at 1900 is crucial, a downside break of which brings into play a possible downside target as low as 1280. Weekly INDU candles The weekly Dow chart shows the oscillators trending in overbought territory, but the 10 week stochastic is actually fade lower along the top without actually downphasing. This looks bearish to me as well, and I do not expect to see the upper wedge trendline broken. It held on this morning's retest with a year high set at 9903. A sustained break of this level will invalidate the bear wedge, but again, as with the Nasdaq, the oscillators tell us that such is the lower odds outcome. Daily OEX candles The bearish divergences pick up in frequency and intensity on the shorter timeframes, as we see on the daily chart of the OEX. Friday's bearish engulfing candle did not abort the daily cycle oscillator upphase in progress all week, but if the selling doesn't reverse on Monday, it will leave significantly lower oscillator highs against the higher price highs. This bearish divergence portends more aggressive selling to come. 517 is lower wedge support, with 525 upper resistance. While the price trend remains up, the oscillator upphase appears to be running out of racetrack, and with the weekly oscillators maxxed out, upside appears limited from here. A break below 517 projects to to a bear wedge target of 498. 20 day 30 minute chart of the OEX The 30 minute chart of the OEX shows a possible lower wedge support line break. We see more bearish oscillator divergences as indicated, and these foretold the end-of-session breakdown. There is, however, a bullish interpretation here, with the 100% Fibonacci line a possible reverse head and shoulders neckline at 525. A sustained break of this line could project to a possible target of 546. However, in the short term, the 30 minute cycle oscillators are in clear downphases, and I expect more weakness to carry into Monday. Look for possible support at 515, followed by 510. Daily QQQ candles QQQ did not leave off on as weak a note as the OEX, with somewhat more life left in the daily oscillator upphase. The same negative divergences are apparent, however. Resistance is at 36.20, support at 35.40, followed by 34.20. 20 day 30 minute chart of the QQQ Again, the same bearish oscillator divergences and bear wedge support failure. It appears a foregone conclusion that the selling on which the Qubes left off will carry into Monday morning, with the only question being how deep a selloff we can expect. In a bearish position, I'd want to see the 34.40 level broken to invalidated the potential reverse head and sholders interpretation. A bounce at or above that level could pack some upside punch, particularly if the daily cycle oscillators above are still within their upphases at that time. Tying it all together, we have the weekly cycle oscillators maxed out and showing hints of bearish divergence, the daily oscillators nearing the end of upphases and showing clear bearish divergences, and the 30 minute cycle oscillators pointed south. I expect the selling to continue on Monday morning. If it is strong, we could see the daily cycles flip to downphases, which would line up with the weekly and leave the market vulnerable to a deep correction, particularly so when considering the low volatility readings. Weak selling on Monday could result in an upside blast if the 30 minute cycle oscillators bottom out with the daily oscillators still in their upphases. One last matter concerning the economic data. I came across the following charts culled from the Bureau of Labor Statistics data, showing the percentage of the population actually employed. They certainly put the recent excitement about the alleged uptick in employment into start perspective. I strongly encourage you to play with BLS' excellent charting functions to gain your own perspective on what is actually happening out there, and to draw your own conclusions about the state of the economy. Have a great weekend and see you at the bell! 10 year chart of Employment to Population Ratio http://www.bls.gov/webapps/legacy/cpsatab1.htm ------------------------------------------------------------ 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 ------------------------------------------------------------ ************** Editor's Plays ************** Cheap Trick We have one more big earnings play this week. Dell reports on Thursday after the close and they have already affirmed guidance. This should not be an exciting event. However, it does offer an opportunity to roll the dice. Dell has been making noises about "no IT spending increase" or no recovery in the business sector. If that thought process continues then Dell's earnings are probably going to be inline. I am thinking that with the Cisco earnings win that Dell could be going to produce a positive surprise. Unfortunately I think that surprise will be short lived. Dell stock has been moving sideways at $36 since early Oct. If the news is good they could get a pop back to the high end of their range at $37. I am betting it does not hold. We could also get a rise into the earnings on a buy the rumor move based on the Cisco results. I am going to suggest a put position for the Nov/Dec $35 put. When/If Dell hits $36.75 we will enter the position. The Nov $35 put is 55 cents and the December option is 90 cents. Dell closed at $36.00 on Friday. Buying either put with Dell at 36.75 should be cheaper. I am guessing 25-30 cents for the November and 75 cents for December. Because this is a highly speculative play I would use the Nov option simply because it is so cheap. The only challenge is that it would require a gap and crap on earnings day to get back to profitability before it expired. The December put is much safer and I think we can get it for 75 cents or less. BUY the Dec-$35 put DLQ-XG with a Dell trade at $36.75 (Estimated price $0.75 cents.) Stop loss is going to be $38.00 Profit target is $35.50 Dell Chart ******************************** Play Recaps GE Call (recommended 11/02) GE did not follow the market and actually led the market down late in the week. This play was to capitalize on any investor sentiment and potential 4Q rally to 10,000. With no rally the play will fail. Set a stop loss on GE at 27.50 and exit the call if hit. http://members.OptionInvestor.com/editorplays/edply_110203_1.asp Powerball So close! The Powerball portfolio is within $65 of a 100% gain since inception. The current net profit is $1190 for every $1255 increment purchased in January. We still have two months to go and tech stocks are on fire. Unfortunately there could be some rocky times ahead. We will keep our fingers crossed and see how it plays out. Only TLAB is still significantly negative. GLW is showing a $5 profit followed by CMVT at +4 and EMC at +2.75. It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Confused Yet? - J. Brown The markets were holding their breath for the October non-farm payrolls report. Expectations were high and the economy delivered with 126,000 new jobs in October and unemployment falling to 6 percent, the lowest level in months. The paint an even rosier picture they revised the August loss of 41,000 jobs to a gain of 35,000. We've seen over 200,000 jobs added in the last three months so why didn't the markets explode higher? Part of the reason may be the market's gains from October. The Dow added 526 points or 5.6 percent in October with no consolidation. The NASDAQ added 8.1 percent in October and another 2 percent just in November. With so much "profit" already in the markets many investors are more inclined to sell the news. The prevailing train of thought is that we'll still see Dow 10K and NASDAQ 2K before any significant pull backs but then the markets tend to make a habit of fooling people A lot of the trader talk the last week has been filled with comments about the market being toppy, sick, unhealthy, etc. The extremely low volatility indices don't help matters and odds of a consolidation of some kind are growing. If you're looking for bullish trades a dip to the 50-dma in the DJIA or COMPX may be the best bet but I'd wait for the bounce. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9903 52-week Low : 7197 Current : 9809 Moving Averages: (Simple) 10-dma: 9790 50-dma: 9613 200-dma: 8864 S&P 500 ($SPX) 52-week High: 1062 52-week Low : 768 Current : 1053 Moving Averages: (Simple) 10-dma: 1050 50-dma: 1032 200-dma: 951 Nasdaq-100 ($NDX) 52-week High: 1453 52-week Low : 795 Current : 1436 Moving Averages: (Simple) 10-dma: 1423 50-dma: 1383 200-dma: 1199 ----------------------------------------------------------------- Volatility indices continue to hover around their lows as the major averages remain near their highs. They continue to suggest caution and a potential top in the markets forming. Surprise, surprise. CBOE Market Volatility Index (VIX) = 16.93 +0.19 CBOE Mkt Volatility old VIX (VXO) = 17.52 -0.06 Nasdaq Volatility Index (VXN) = 25.20 -0.15 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.78 744,763 582,223 Equity Only 0.61 643,147 394,891 OEX 1.00 28,570 28,705 QQQ 0.71 14,754 100,442 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.9 + 0 Bull Confirmed NASDAQ-100 75.0 + 1 Bear Correction Dow Indust. 83.3 + 3 Bull Correction S&P 500 81.0 + 0 Bull Confirmed S&P 100 80.0 + 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: 1.11 10-dma: 1.03 21-dma: 1.08 55-dma: 1.10 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 1565 1585 Decliners 1252 1520 New Highs 361 363 New Lows 9 12 Up Volume 868M 900M Down Vol. 838M 1001M Total Vol. 1736M 1918M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 11/04/03 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 It's been a long week since last we looked at the COT data and we're still not seeing any big moves by the Commercial traders. The same holds true for small traders but they did reduce some of their short positions. Commercials Long Short Net % Of OI 10/14/03 391,972 410,299 (18,327) (2.3%) 10/21/03 394,176 411,246 (17,070) (2.1%) 10/28/03 391,596 412,498 (20,902) (2.6%) 11/04/03 391,079 415,136 (24,057) (3.0%) 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 10/14/03 133,940 86,418 47,522 21.6% 10/21/03 136,643 88,290 48,343 21.5% 10/28/03 137,791 76,791 61,000 28.4% 11/04/03 137,829 78,206 59,623 27.6% 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 Hmm... we are seeing some movement in the e-minis. Commercials have upped their short positions by 24K contracts. Small Traders may have gotten the hint too. Short interest is up but the real change is the 45K drop in long contracts. Commercials Long Short Net % Of OI 10/14/03 221,897 233,066 (11,169) ( 2.5%) 10/21/03 226,985 236,906 ( 9,921) ( 2.2%) 10/28/03 220,171 260,644 (40,473) ( 8.4%) 11/04/03 242,409 270,785 (28,376) ( 5.5%) 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 10/14/03 161,208 59,213 101,995 46.3% 10/21/03 168,236 56,564 111,672 49.7% 10/28/03 123,569 59,742 63,827 34.8% 11/04/03 135,525 63,006 72,519 36.5% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 This time it's the Small Traders making a move in the NDX futures. Long contracts are up nearly a third to more than 21K. Commercials are still comatose but the trend is growing slowly more bearish with a small bump in short positions. Commercials Long Short Net % of OI 10/14/03 34,639 41,880 ( 7,241) ( 9.5%) 10/21/03 36,314 43,305 ( 6,991) ( 8.8%) 10/28/03 36,168 46,272 (10,104) (12.3%) 11/04/03 34,159 48,293 (14,134) (17.1%) 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 10/14/03 16,822 9,046 7,776 30.1% 10/21/03 16,917 9,750 7,167 26.9% 10/28/03 21,640 8,830 12,810 42.0% 11/04/03 24,132 9,703 14,429 42.6% 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 There is very little change here for the Small Trader but Commercial Traders have upped both their longs and their shorts. Commercials Long Short Net % of OI 10/14/03 16,595 9,433 7,162 27.5% 10/21/03 16,876 9,037 7,839 30.3% 10/28/03 20,504 11,366 9,138 28.7% 11/04/03 21,756 11,903 9,853 29.3% 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 10/14/03 6,427 8,495 (2,068) (13.9%) 10/21/03 5,392 8,842 (3,450) (23.1%) 10/28/03 5,295 8,864 (3,569) (25.2%) 11/04/03 5,099 9,160 (4,061) (28.5%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ------------------------------------------------------------ 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 ------------------------------------------------------------ *************** ASK THE ANALYST *************** Sector bullish percent updates I learned a lot from your past articles regarding sector rotation and the various bullish percent data. I started using Dorsey's point and figure charting service and see that their Wall Street sector has reversed lower into bear confirmed status at a high level. Are there any stocks in this group to short or buy puts on? It has been quite some time since we've looked at a sector bell curve. From the looks of it, it has been since late June (June 29) http://www.OptionInvestor.com/ask/ask_062903_1.asp when we looked at the various sector and market bullish percent data. For those premierinvestor.net or OptionInvestor.com subscribers that may be unfamiliar with the bullish percent and how to try and analyze a market, sector and stock, you may want to read a March 16, 2003 Ask the Analyst column "Market, sector, stock, with bullish percent distribution" http://www.OptionInvestor.com/ask/ask_031603_1.asp to get a basic understanding before reading the rest of this weekend's article. Keep in mind when you read that article, 8 months have passed. For those traders/investors that read that article, go back and read it again. Boy how things have changed! Look at what some of those stocks mentioned in the article have done (good and bad). On June 1, 2003 in an Ask the Analyst titled "Market, sector stock, and a March 16 review" we then looked at some week-to-week bullish percent sector bell curves. When we look at things today, we begin to understand that a bull cycle can be longer and more powerful than imaginable. Regardless of what the pundits may be saying. This week, I also received a couple of questions regarding a comment in Thursday evening's OptionInvestor.com Index Trader Wrap regarding Dorsey/Wright and Associates' sector bullish % for the Transport/Non Air Bullish % (BPTRAN) being "bull confirmed" at 85.37%, and how it would take a reading of 82% to reverse lower to "bull correction" status. Here too subscribers can associate that in March, the Dow Transportation Average (TRAN) 2,979.29 -0.2% was trading near 1,950, and has now gained roughly 1,025 points and encounters some significant resistance at the 3,000-3,050 level. Some traders also sent me e-mail this week regarding last weekend's article regarding 5 "beaten down" stocks for a late October bull. Maybe the sector bullish % will give some insight as to some of the market/sector/stock analysis that went into the selection of those stocks. Whew! A lot of questions this week, and maybe we can answer more than a few today. Here's an updated sector bell curve as of Friday, November 7 close. November 7, 2003 Sector Bell Curve In black squares, I've highlighted 4 sectors, that the 5 stocks highlighted in last weekend's ask the analyst column reside in, as those stocks are classified as belonging to by Dorsey/Wright's sector bullish 5 data. Ciena (NASDAQ:CIEN) $6.90 +0.87% could arguably belong to either the "telephone" or perhaps the "computer" (BPCOMP) sector bullish % and sometimes you'll be monitoring/trading a stock that could be classified as belonging to more than just once sector. As it relates to SONE, this is an Internet stock that looked to be breaking out of a longer-term basis, in a sector that is currently in a "bull correction" phase. By golly! This week, SONE did edge above it longer-term downward trend with a trade at $9.00. UNTD was a stock I observed as having been very bullish, but had pulled into a longer-term bullish trend. This week, UNTD $18.92 -1.56% saw no change on its point and figure chart. Darden Restaurants (DRI) $20.35 -0.29% started the week off with a bang, then gave investors some good news and bad news with same store sales for its Red Lobster and Olive Garden chains, but surprisingly didn't see a test of its 200-day SMA, and saw no change on its point and figure chart. Retailer Kohl's (KSS) $51.91 -0.74% filled a gap back lower on weaker same store sales. With the retailers bullish % so high, I thought a beaten down KSS, while weak, might be a good partial position trade into the holiday shopping season, and while I view the recent nonfarm payrolls data showing job growth encouraging, where consumers may spend this holiday season, KSS better get its act together and hold that $50.00 level. Kohl's Corporation Chart - Weekly Intervals My AdobePhotoshop conked out on me last weekend right when I was wrapping up last weekend's column. Here's a weekly interval chart of KSS where on Thursday, KSS had no problem backfilling a prior gap higher after reporting an 11.6% decline in October same store sales. With KSS's point and figure chart still showing a bearish vertical count of $45, I think a bull should only establish a partial bullish position, and look for strength above $57.30. If KSS can firm up above $50 and then trade $57, that would be a triple-top buy signal and have us calculating a bullish vertical count. If you believe like I do that the bullish % is a good indicator for MARKET and SECTOR risk, then you can see that a lot of retail stocks are currently showing "buy signal" on their point and figure charts. I would prefer that KSS also show a buy signal, but think it might be a good risk/reward trade into the holiday shopping season, with a stop firm at $49.00. We can really see how RISK has shifted when looking back at the March bell curve can't we? Some other comments, or even criticisms perhaps, is that some of my Index Trader profiles have been rather short-term oriented. One reason for this is that after following these sector bell curves over the years, things can change quickly, especially when extreme levels of bullishness (above 70%) and bearishness (below 30%) are found. Can you believe that the Wall Street bullish % (BPWALL) has basically run coast to coast since March? How about the Dow Industrials Bullish % ($BPINDU)! Oooooeeee were they both oversold and rather LOW risk, yet very week back in March. Just one option would have been similar to ringing up a jackpot on the slot machine. Now we see the Wall Street bullish % (BPWALL) at a very HIGH level of BULLISH risk. And while still VERY bullish, there's a few stocks starting to give sell signals. I clicked through some point and figure charts of stocks that comprise Dorsey's Wall Street bullish %, and found one stock that I'm going to keep an eye on for a short/put trade. You can get a free point and figure chart at www.stockcharts.com on shares of Gabelli Asset Management (NYSE:GBL) $36.65, and when you look at that point and figure chart, you may note the current bearish vertical count is currently hinting at $28, but I'm only going to be targeting $31.00, and should the stock reverse up 3- boxes to $37, begin looking for a short/put entry. Gabelli Asset Management (NYSE:GBL) - Daily Intervals With the major market averages trading 52-week highs, regardless of what I hear or read, I'm operating under the observation that the market is still rather bullish and most stocks have little overhead supply in place to provide needed resistance a bear looks for when trying to utilize overhead supply of stock to his/her advantage. However, shares of GBL have started to exhibit a lower low in recent weeks, and after just testing major support (when a stock breaks a triple-top buy signal, it often times finds support back at that level where "old bears" or "new bulls" will be waiting). With the Wall Street Bullish % (BPWALL) at high risk levels for bulls, shares of BGL have at least given a sell signal, but with the understanding the broader MARKET is still quite bullish, I'm looking to try and short/put the stock on a rebound back near $37, where on a point and figure chart, I can envision a 3-box reversal back higher, maybe even to $37.50 as the stock bounces back into overhead supply. Two volume spikes grab my attention and we can probably draw some correlations between these volume spikes, and sector RISK. Where was the Wall Street Bullish % on April 15? I checked Dorsey/Wright's sector bell curve and Wall Street had started reversing up into "bull alert" status somewhere between 16% to 20% bullish, when a month earlier Wall Street had been between 0% to 14% on Dorsey's sector bell curve scale. So... when I look at the sector bell curve and various market and sector status right now, Wall Street looks to be about the only sector at this point (things can change quickly at high levels of risk) showing some HIGH bullish RISK that has turned more bearish. What does biotech (BPBIOM), drugs (BPDRUG) and healthcare (BPHEAL) have in common? They all three are a little different, but they also have some commonality. One thing I think BULLS might look for in the not too distant future is some sector rotation, or cash finding its way into these LESS economically sensitive sectors. Look at Amgen (NASDAQ:AMGN) $59.95 -1.93% and make the association as to what its sector bullish % is doing. After trading a 52-week high in July near $72, the biotech bullish % (BPBIOM) was "bull confirmed" between 58% and 62%. Guess what AMGN's bullish vertical count was dating back to December of 2003? Would you believe $72? That's right! AMGN just might have reached an objective that "smart money" had been buying in late 2002. Guess what AMGN's bearish vertical count is? I come up with $57.00. By golly, if I take a retracement bracket from AMGN's July 2002 lows of $31 to this past July 2003 high of $72.37, I come up with $56.58 as being a 38.2% retracement of that range. I'm going to set an alert on AMGN at $58, and begin monitoring the stock more closely in the weeks to come. Other articles related to the bullish percent can be found in the Bailey's Basics section of the website at the November 08, 2000 "Understanding risk is key" and November 11, 2000 "Bullish Percent Updates" articles. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ABV AmBev - Companhia Mon, Nov 10 -----N/A----- 0.32 AIV Apartment Invest MngmtMon, Nov 10 Before the Bell 0.83 AOT Apogent Technologies Mon, Nov 10 After the Bell 0.36 BOBE Bob Evans Farms Mon, Nov 10 -----N/A----- 0.52 BAB British Airways Mon, Nov 10 -----N/A----- N/A EP El Paso Corp. Mon, Nov 10 Before the Bell 0.02 IFX Infineon Technologies Mon, Nov 10 Before the Bell -0.05 LZB La-Z-Boy Inc. Mon, Nov 10 After the Bell 0.29 NAB National Aust Bank Mon, Nov 10 -----N/A----- N/A NTY NBTY Inc. Mon, Nov 10 After the Bell 0.34 PSUN Pacific Sunwear Cali Mon, Nov 10 After the Bell 0.29 LQU Quilmes Industrial Mon, Nov 10 After the Bell N/A RRI Reliant Resources Mon, Nov 10 -----N/A----- 0.43 KPN Royal Kpn N.V. Mon, Nov 10 -----N/A----- N/A SPP Sappi Ltd Mon, Nov 10 Before the Bell 0.11 TS TENARIS S A Mon, Nov 10 After the Bell 0.53 TSN Tyson Foods Mon, Nov 10 -----N/A----- 0.37 VRTX Vertex Pharm Incorp Mon, Nov 10 -----N/A----- -0.49 WR Westar Energy, Inc. Mon, Nov 10 Before the Bell N/A ------------------------- TUESDAY ------------------------------ ANF Abercrombie & Fitch Tue, Nov 11 After the Bell 0.52 ATO Atmos Energy Corp Tue, Nov 11 -----N/A----- -0.15 BAY Bayer Tue, Nov 11 Before the Bell N/A CVC Cablevision Sys Corp. Tue, Nov 11 Before the Bell -0.37 GIB CGI Group Tue, Nov 11 Before the Bell N/A CMS CMS Energy Corp. Tue, Nov 11 -----N/A----- 0.11 CCH Coca-Cola Hellenic Tue, Nov 11 Before the Bell 0.51 CSC Computer Sciences CorpTue, Nov 11 After the Bell 0.59 DISH EchoStar Cmmu Corp. Tue, Nov 11 Before the Bell 0.16 ENR Energizer, Inc. Tue, Nov 11 -----N/A----- 0.66 FOSL Fossil, Inc. Tue, Nov 11 -----N/A----- 0.33 GALN Galen Holdings PLC Tue, Nov 11 Before the Bell 0.65 IPR Intl Power Tue, Nov 11 Before the Bell N/A JCP JC Penney Tue, Nov 11 Before the Bell 0.26 KUB Kubota Ltd Tue, Nov 11 -----N/A----- N/A LEE Lee Enterprises IncorpTue, Nov 11 Before the Bell 0.44 COL Rockwell Collins, Inc.Tue, Nov 11 Before the Bell 0.40 IMI SanPaolo IMI SpA Tue, Nov 11 -----N/A----- N/A SHU Shurgard Strge Cntrs Tue, Nov 11 After the Bell 0.64 TRK Speedway Motorsports Tue, Nov 11 Before the Bell 0.04 SCMR Sycamore Networks Tue, Nov 11 After the Bell -0.04 THC Tenet Hlthcr Tue, Nov 11 Before the Bell 0.05 IPG Intrpblc Grp of Co IncTue, Nov 11 -----N/A----- 0.14 MAY The May Dprtmnt StoresTue, Nov 11 -----N/A----- 0.11 TJX The TJX Companies Inc.Tue, Nov 11 Before the Bell 0.35 UBS UBS Tue, Nov 11 Before the Bell N/A WGR Western Gas Resources Tue, Nov 11 Before the Bell 0.48 ----------------------- WEDNESDAY ----------------------------- ANN AnnTaylor Stores Wed, Nov 12 After the Bell 0.61 AMAT Applied Materials Wed, Nov 12 -----N/A----- 0.05 CWP Cable & Wireless PLC Wed, Nov 12 Before the Bell N/A CNA CNA Finl Corp Wed, Nov 12 Before the Bell -1.97 CM Coles Myer Wed, Nov 12 -----N/A----- N/A RIO Companhia Vle Rio DoceWed, Nov 12 After the Bell 0.78 DHI D.R. Horton Wed, Nov 12 After the Bell 1.30 DRYR Dreyer's Grnd Ice Crm Wed, Nov 12 After the Bell N/A ELN Elan Corp, PLC Wed, Nov 12 Before the Bell -0.22 E ENI SpA Wed, Nov 12 During the Market 1.19 ESPD eSpeed, Inc. Wed, Nov 12 After the Bell 0.18 FD Fdrated Dprtmnt StoresWed, Nov 12 Before the Bell 0.33 HP Helmerich & Payne Wed, Nov 12 -----N/A----- 0.16 IAG Iam Gold Corp Wed, Nov 12 After the Bell 0.05 LTR Loews Corp. Wed, Nov 12 Before the Bell 1.17 MDT Medtronic Inc. Wed, Nov 12 After the Bell 0.39 NTLI NTL INC Wed, Nov 12 Before the Bell N/A OGE OGE Energy Wed, Nov 12 Before the Bell 1.21 PTP Pltnm Underwriters Wed, Nov 12 After the Bell 0.52 ROIAK Radio One Wed, Nov 12 Before the Bell 0.09 SQM Scdd Quimica Minera Wed, Nov 12 Before the Bell N/A WFMI Whole Foods Market Wed, Nov 12 After the Bell 0.39 ------------------------- THUSDAY ----------------------------- AEOS Am Eagle Outfitters Thu, Nov 13 Before the Bell 0.24 RMK Aramark Corp Thu, Nov 13 Before the Bell 0.47 ARM ArvinMeritor, Inc. Thu, Nov 13 Before the Bell 0.36 IRE Bank of Ireland Thu, Nov 13 -----N/A----- N/A BF BASF Thu, Nov 13 Before the Bell N/A BEAS BEA Systems Thu, Nov 13 After the Bell 0.08 BE BearingPoint, Inc. Thu, Nov 13 Before the Bell 0.03 BNG Benetton Group Thu, Nov 13 -----N/A----- N/A BOX BOC Group PLC Thu, Nov 13 Before the Bell N/A BTY BT Group PLC Thu, Nov 13 Before the Bell N/A SID Co Siderurgica Nacl Thu, Nov 13 Before the Bell 0.90 DELL Dell, Inc. Thu, Nov 13 -----N/A----- 0.26 DT Deutsche Telekom Thu, Nov 13 Before the Bell N/A ERJ Embrr-Emprs BrasileiraThu, Nov 13 After the Bell 0.17 EN Enel S.p.A. Thu, Nov 13 -----N/A----- N/A EVC Entravision Cmmu Corp Thu, Nov 13 After the Bell -0.02 GMST Gemstar-TV Guide Intl Thu, Nov 13 After the Bell -0.07 HB Hillenbrand IndustriesThu, Nov 13 Before the Bell 1.08 IDCC InterDigital Cmmu CorpThu, Nov 13 Before the Bell 0.00 JHX James Hardie Ind N.V. Thu, Nov 13 -----N/A----- N/A KSS Kohl's Thu, Nov 13 -----N/A----- 0.42 MTA Matav Thu, Nov 13 -----N/A----- N/A OMX Officemax Thu, Nov 13 Before the Bell 0.13 PBY Pep Boys Thu, Nov 13 Before the Bell 0.24 SI Siemens AG Thu, Nov 13 -----N/A----- N/A SBUX Starbucks Thu, Nov 13 After the Bell 0.17 TGT Target Corp Thu, Nov 13 Before the Bell 0.33 TEF Telefonica de Espaqa Thu, Nov 13 Before the Bell N/A TIF Tiffany & Co. Thu, Nov 13 Before the Bell 0.19 UBB Unbnc - Un Bancos . Thu, Nov 13 -----N/A----- 0.67 UCOMA UnitedGlobalCom, Inc. Thu, Nov 13 Before the Bell -0.33 UVN Univision Cmmu Thu, Nov 13 After the Bell 0.13 URBN Urban Outfitters Thu, Nov 13 During the Market 0.29 WMT Wal-Mart Stores Inc. Thu, Nov 13 Before the Bell 0.47 ------------------------- FRIDAY ------------------------------- AZ Allianz AG Fri, Nov 14 Before the Bell N/A ALT.MC Altadis Fri, Nov 14 Before the Bell N/A BSY British Sky Brdcstng Fri, Nov 14 Before the Bell N/A CNO CONSECO INC Fri, Nov 14 -----N/A----- N/A GPX GP Strategies Fri, Nov 14 -----N/A----- 0.01 IMCL ImClone Systems IncorpFri, Nov 14 -----N/A----- -0.51 ING ING Groupe NV Fri, Nov 14 -----N/A----- N/A LUK Leucadia National Fri, Nov 14 -----N/A----- N/A L Liberty Media Group Fri, Nov 14 -----N/A----- 0.07 PBR Petrobras Fri, Nov 14 -----N/A----- 1.31 SDX Sodexho Alliance S.A. Fri, Nov 14 -----N/A----- N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable BHE Benchmark Electronics Inc 3:2 Nov 13th Nov 14th LSTR Landstar System, Inc 2:1 Nov 13th Nov 14th BLUD Immucor, Inc 3:2 Nov 14th Nov 17th MSEX Middlesex Water Company 4:3 Noc 14th Nov 17th LYTS LSI Industries Inc 5:4 Nov 14th Nov 17th ERTS Electronic Arts 2:1 Nov 17th Nov 18th SYMC Symantec Corp 2:1 Nov 19th Nov 20th JBLU JetBlue Airway 3:2 Nov 20th Nov 21st -------------------------- Economic Reports This Week -------------------------- Economic reports take a break after last Friday's non-farm payrolls number. Yet this week is not without news and the majority of economic data comes out on Thursday and Friday. ============================================================== -For- ---------------- Monday, 11/10/03 ---------------- CIBC World Markets Health Care Conference ----------------- Tuesday, 11/11/03 ----------------- CIBC Health care conference ------------------- Wednesday, 11/12/03 ------------------- J.P.Morgan Small cap conference ------------------ Thursday, 11/13/03 ------------------ Initial Claims (BB) 11/08 Forecast: N/A Previous: 348K Export Prices ex-ag.(BB)Oct Forecast: N/A Previous: -0.1% Import Prices ex-oil(BB)Oct Forecast: N/A Previous: 0.2% Trade Balance (BB) Sep Forecast: -$40.5B Previous: -$39.2B Goldman Sachs software conference ---------------- Friday, 11/14/03 ---------------- PPI (BB) Oct Forecast: 0.2% Previous: 0.3% Core PPI (BB) Oct Forecast: 0.1% Previous: 0.0% Retail Sales (BB) Oct Forecast: 0.1% Previous: -0.2% Retail Sales ex-auto(BB)Oct Forecast: 0.3% Previous: 0.3% Industrial Productin(DM)Oct Forecast: 0.4% Previous: 0.4% Capacity Utilization(DM)Oct Forecast: 74.9% Previous: 74.7% Mich Sentiment-Prel.(DM)Nov Forecast: 91.5 Previous: 89.6 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ------------------------------------------------------------ We got trailing stops! 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The Option Investor Newsletter Sunday 11-09-2003 Sunday 2 of 5 In Section Two: Watch List: Tempting Trading Ideas Put Play of the Day: AZO Dropped Calls: None Dropped Puts: None ------------------------------------------------------------ Quit paying fees for limit orders or minimum equity No hidden fees for limit orders or balances $1.50 /contract (10+ contracts) or $14.95 minimum. Zero minimum deposit required to open an account Free streaming quotes Go to http://www.optionsxpress.com/marketing.asp?source=oetics24 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** Watch List ********** Tempting Trading Ideas Amazon.com - AMZN - close: 54.31 change: -0.68 WHAT TO WATCH: A very overbought and extended AMZN is trying its best to hold on to gains but short sellers are probably be circling like a pack of wolves. The Internet stock now has new resistance under $58 and the last couple of weeks look like a consolidation before it begins a new leg lower. The last two days of declines have been on stronger volume. The first test will be to see if its simple 50-dma holds up as support. Chart= --- C R Bard - BCR - close: 77.34 change: -0.85 WHAT TO WATCH: This looks like an entry point for new bearish plays on BCR. After an incredibly strong first half of October BCR ran out of gas and traded sideways between $78 and $80. Now the stock has broken short-term support at $78 and its momentum oscillators are bearish. A drop to $75 is a good bet with a potential retest of support (old highs) and its simple 50-dma near $73 a distinct possibility. Chart= --- Donaldson Co - DCI - close: 59.84 change: +0.19 WHAT TO WATCH: After a good month and a half of trading under resistance at $58.00 the stock has powered higher this last week. Its MACD has turned positive and we're seeing slightly stronger volume on the gains. Shares are at a new all-time high. Momentum traders can look for a move over $60. Dip buyers can hope for a retest of $58.00. Chart= --- Avery Dennison - AVY - close: 51.59 change: -0.72 WHAT TO WATCH: Check out the daily AND weekly charts for AVY. That is an incredible trend of lower highs. Investors continue to sell each rally with amazing precision. The next stop for AVY could be a test of support near 47-48. Chart= --- Genentech Inc - DNA - close: 84.99 change: +0.54 WHAT TO WATCH: One of the biggest names in biotech has been a big winner for investors this year. Once again the stock is crawling higher and nearing its one-year highs. We would not be surprised to see DNA trade to the $90 level and the stock has produced a fresh point-and-figure chart buy signal. Chart= --- Electronic Arts - ERTS - close: 100.10 change: -0.08 WHAT TO WATCH: ERTS put up a valiant fight on Friday but the broader market weakness was too much. It rolled over again at the $102 level and lost 8 cents on the session. Bullish traders can use a trigger above $102.00 to leg them into the play. There is some resistance near $106 but our first target would be $110. Chart= Homebuilders: PHM, KBH, HOV, RYL, MDC, BZH What to watch: The homebuilders have been an incredible story this year. Several of the stocks listed above have produced amazing gains. Friday was the first sign of weakness in weeks. The shorts may be bloodied and bruised from failed attempts in the past but this could be another entry point for bearish positions. Trade cautiously. FYI: the DJUSHB index appears to have produced a three-day candlestick reversal pattern. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- GDW $100.73 -2.54 - Watch out! After weeks of steady gains GDW produced a high volume decline on Friday. A move under its 21- dma may be a short signal. NATI $45.52 +1.02 - NATI spent nearly two months consolidating sideways between 40-44. Now the stock is breaking out to new multi-year highs. HAR $131.50 +2.19 - A shareholder meeting to vote on its upcoming 2-for-1 stock split is only days away for HAR. How much more pain can the shorts endure here? ING $21.75 +0.57 - This overseas insurance company's stock has broken out to a new high after weeks under the $21 level. TECH $36.67 +0.79 - Breaking out to new one-year highs, TECH is nearing long-term multi-year resistance in the 39-40 range. SLE $19.86 +0.01 - Nobody doesn't like who? We're watching for a breakout over long-term resistance at $20.00. ------------------------------------------------------------ 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 ------------------------------------------------------------ ******************** THE PLAY OF THE DAY ******************** Put Play of the Day: ******************** AutoZone, Inc. - AZO - close: 93.30 change: -2.82 stop: 97.75 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 ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 11-09-2003 Sunday 3 of 5 In Section Three: Current Calls: APA, COO, FD, JCI, JBL, LOW, PGR, QLGC, VRTS New Calls: None Current Put Plays: ATH, JBLU New Puts: AZO, AMGN, PCAR ------------------------------------------------------------ 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 ****************** Apache Corp. - APA - close: 69.90 change: -0.10 stop: 67.50*new* Company Description: Apache Corporation is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids. In North America, the company's exploration and production interests are focused in the Gulf of Mexico, the Gulf Coast, the Permian Basin, the Anadarko Basin and the Western Sedimentary Basin of Canada. Outside of North America, Apache has exploration and production interests offshore western Australia, offshore and onshore Egypt, offshore The People's Republic of China and onshore Argentina, as well as exploration interests in Poland. Why we like it: Our APA play definitely didn't get off to the start we were expecting last week, dropping through both the 50-dma (currently $69.19) and the mid-line of the rising channel on Tuesday. Then the stock caught a nice rebound, helped along by a recovery in energy prices. Mimicking the action in the overall market on Friday, APA surged higher at the open, hitting a high of $70.55 and activating our trigger before pulling back to close fractionally negative. A look at the light volume (barely half the ADV) on Friday shows that it is hard to read much into the price action. Look for new entries on another pullback and rebound from the area of the 50-dma or else on a breakout above Friday's intraday high. Our initial target remains $73 (at the early October highs) and then we'll evaluate whether a run at the top of the channel seems feasible. Based on last week's rebound, we're raising our stop to $67.50 this weekend, reducing our risk in the play. Suggested Options: Shorter Term: The November 70 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Note that November contracts expire in 2 weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the December 75 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 70 Call. ! Alert - November options expire in two weeks! BUY CALL NOV-65 APA-KM OI= 377 at $5.30 SL=3.25 BUY CALL NOV-70 APA-KN OI=2582 at $1.25 SL=0.65 BUY CALL DEC-70 APA-LN OI= 249 at $2.10 SL=1.00 BUY CALL DEC-75 APA-LO OI= 408 at $0.50 SL=0.25 Annotated Chart of APA: Picked on November 2nd at $69.72 Change since picked: +0.18 Earnings Date 1/22/04 (unconfirmed) Average Daily Volume = 1.36 mln Chart = --- Cooper Cos - COO - close: 43.55 chg: -0.40 stop: 41.75 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: Thus far we've been patiently waiting for COO to complete its rally and tag or break through the $45 level. COO produced a short-term double-bottom at $39.00 a month ago and dip buyers got another chance to buy the bounce from its rising simple 50-dm two weeks ago. Unfortunately, this last week has been one of sideways consolidation in the Dow and we're seeing the same pattern in COO. Bullish traders still interested in new positions may want to wait for a pull back and bounce near the $42.00 level (again, the rising 50-dma). Otherwise we are not suggesting new positions. Short-term traders can plan to exit if COO nears our initial target at $45. Suggested Options: Short-term traders should probably look over the November options while longer-term traders can evaluate the February strikes. ! Alert - November options expire in two weeks! BUY CALL NOV 40 COO-KH OI= 869 at $3.90 SL=2.00 BUY CALL FEB 40 COO-BH OI= 752 at $5.30 SL=3.20 BUY CALL FEB 45 COO-BI OI= 530 at $2.35 SL=1.25 Annotated chart: Picked on October 12 at $41.40 Change since picked: + 2.15 Earnings Date 09/03/03 (confirmed) Average Daily Volume: 391 thousand Chart = --- Federated Dep Store - FD - cls: 48.62 chng: +0.36 stop: 47.00*new* Company Description: Federated Department Stores, Inc. is a retail organization operating department stores that sell a range of merchandise, including men's, women's and children's apparel and accessories, cosmetics, home furnishings and other consumer goods. As of February 2003, the company, through its subsidiaries, operated 394 department stores and 61 furniture galleries and other specialty stores under the names Bloomingdale's, The Bon Marche, Burdines, Goldsmith's, Lazarus, Macy's and Rich's. In addition to its stores in 34 states, Puerto Rico and Guam, the company conducts direct-to-customer mail catalog and e-commerce business under the Bloomingdale's By Mail and macys.com names. Why we like it: It hasn't been particularly pretty, but shares of FD have indeed delivered the rally we've been expecting into earnings. Unfortunately they haven't yet reached the levels we were initially looking for when we initiated coverage last month. Despite the choppiness of the rise, FD is nearing that initial $50 target and with earnings set to be released on Wednesday before the opening bell, that looks like all we can expect from the play. With the imminent approach of earnings, we are not recommending new positions anymore -- now our focus moves to pulling maximum gains from the play. As mentioned last week, a move into the $49-50 area should be used for harvesting gains. Friday's brief foray above $49 provided one opportunity to do so and we're likely to get at least one more chance in the next two days. Note that we need to also tighten our stop to keep the risk and reward balanced for the duration of the play. Move stops up to $47, just below last week's closing low. Suggested Options: We are not recommending new positions at this time, with earnings only a couple days away. ! Alert - November options expire in two weeks! Annotated Chart of FD: Picked on October 9th at $45.60 Change since picked: +3.02 Earnings Date 11/12/03 (unconfirmed) Average Daily Volume = 1.87 mln Chart = --- Johnson Controls - JCI - cls: 107.84 chg: -1.02 stop: 104.99 Company Description: Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of integrated seating and interior systems, and batteries. For non- residential facilities, Johnson Controls provides control systems and services including comfort, energy and security management. (source: company press release) Why We Like It: Finally we see a stock produce more traditional cycles. A few days up, a couple days back in profit taking...or in JCI's case several days up in a row and a few days slipping backward in profit taking. There's no arguing that JCI isn't overbought but for months investors have been buying the dips. This entire industry of car-related interiors and parts has been doing extremely well, at least with improvements to their share prices. Traders interested in new bullish positions can look for a bounce in the $106-$107.50 range. Our stop is basically $105, which should keep risk to a minimum. JCI's P&F chart continues to display a triple-top buy signal. We also note that JCI is a split candidate. The company last split its stock 2-for-1 on April 1, 1997 at the $80 level. There has been ample opportunity to split since and they did not. However, shares are now trading at all-time highs and October was the first time they broke the century mark. Suggested Options: Short-term traders can choose from the November and December options while longer-term investors may want to look at January 04 and April 04 strikes. We like the 105s and 110s. ! Alert - November options expire in two weeks! BUY CALL NOV 105 JCI-KA OI=577 at $3.70 SL=1.85 BUY CALL NOV 110 JCI-KB OI=320 at $0.90 SL= -- BUY CALL DEC 105 JCI-LA OI= 5 at $4.70 SL=2.50 BUY CALL DEC 110 JCI-LB OI=102 at $2.00 SL=1.00 BUY CALL DEC 115 JCI-LC OI=128 at $0.65 SL= -- Annotated chart: Picked on October 30 at $107.07 Change since picked: + 0.77 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 432 thousand Chart = --- Jabil Circuit - JBL - close: 31.15 chg: +0.22 stop: 27.99 Company Description: Jabil Circuit, Inc. is one of the world's largest electronic manufacturing services providers. Jabil manufactures for international electronics companies in the automotive, computing and storage, consumer, instrumentation and medical, networking, peripheral and telecommunications markets. Jabil offers circuit design, board design from schematic, prototype assembly, volume board assembly, system assembly, repair and warranty services from facilities in the Americas, Europe and Asia. (source: company press release) Why We Like It: Up, up and away! Okay, JBL isn't flying that high but it did show a lot more strength this week than most stocks. The recent breakout above long-term resistance at $30.00 was essentially due to the positive earnings numbers from CSCO. Cisco Systems does a lot of business with JBL and if CSCO's business is improving that means more money for JBL as one of its suppliers. The last few weeks have seen a number of positive analyst comments on the stock. The most bullish indicator for JBL has been the very strong volume on its rallies this last week, which indicates conviction from buyers. The breakout also produced a triple-top buy signal on JBL's point-and-figure chart. We like the stock at current levels but odds are decent it will pull back to retest the $30 level as support. Patient traders can wait for the dip to evaluate new entries. We're leaving our stop loss at 27.99 but more conservative traders can probably use a stop closer to $29. We are going to keep an eye on the SOX. Chips have been very strong but they look very overbought and due for some profit taking. Suggested Options: There are plenty of options to choose from. Short-term traders can focus on November or December strikes. Longer-term traders can use the January or March strikes. We like the 30's even though they are at-the-money. ! Alert - November options expire in two weeks! BUY CALL NOV 25 JBL-KE OI= 419 at $6.40 SL=3.75 BUY CALL NOV 30 JBL-KF OI=2551 at $1.80 SL=0.90 BUY CALL DEC 25 JBL-LE OI=2211 at $6.70 SL=4.00 BUY CALL DEC 30 JBL-LF OI=5114 at $2.65 SL=1.35 BUY CALL DEC 35 JBL-LG OI= 452 at $0.60 SL= -- Annotated Chart: Picked on November 04 at $30.11 Change since picked: + 1.04 Earnings Date 09/18/03 (confirmed) Average Daily Volume: 1.4 million Chart = --- Lowe's Companies - LOW - close: 59.00 change: -0.17 stop: 58.00 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: Despite hitting new all-time highs early last week, our LOW play has been a bit of a disappointment, churning in sideways fashion between $58-60 since breaking above the last consolidation zone at the end of October. Thursday's price action was particularly unnerving, as the stock came within a dime of hitting our $58 stop. The stock does look like it is consolidating for another break higher, but after nearly 2 weeks of going nowhere, we're losing confidence in the upside potential. Aggressive traders might consider new positions on a breakout over last Monday's high, but the risk is that the breakout will be followed by another two weeks of sideways action. The better approach would be to harvest gains in the $61-62 area by selling into strength. Remember that LOW is set to report earnings on 11/17, giving the stock only one more week to achieve that initial $62 target. Maintain stops at $58 Suggested Options: Shorter Term: The November 60 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Note that November contracts expire in 2 weeks. 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. ! Alert - November options expire in two weeks! BUY CALL NOV-55 LOW-KK OI= 2321 at $4.50 SL=2.75 BUY CALL NOV-60 LOW-KL OI= 8449 at $1.10 SL=0.60 BUY CALL DEC-55 LOW-LK OI= 160 at $5.20 SL=3.25 BUY CALL DEC-60 LOW-LL OI= 1500 at $2.05 SL=1.00 Annotated Chart of LOW: Picked on October 23rd at $58.65 Change since picked: +0.35 Earnings Date 11/17/04 (unconfirmed) Average Daily Volume = 3.85 mln Chart = --- Progressive - PGR - close: 75.71 chg: -0.30 stop: 72.75 Company Description: The Progressive group of insurance companies ranks third in the nation for auto insurance based on premiums written, offering its products by phone at 1-800-PROGRESSIVE, online at progressive.com and through more than 30,000 independent insurance agencies. (source: company press release) Why We Like It: (Original Update from Thursday) In our search for profitable bullish play candidates we've had our eyes on PGR for a while. The stock has slowly been consolidating higher under resistance near $76.00-76.20 and today's action looks like it is finally ready to hit new highs. The stock has been out performing its peers per the IUX insurance index and we really like the trend of higher lows. The stock's P&F chart also shows a bullish catapult breakout pattern that further solidifies the bullish bias. The company recently announced earnings on October 22nd and beat estimates by 8 cents. PGR's earnings announcement ended the mid- October down turn and ignited the two-week rally from the $71 level. A few days after PGR's earnings announcement Warren Buffett was interviewed and he said there weren't many opportunities in stocks, bonds or corporate debt these days but he was encouraged by signs in the insurance sector. He specifically complimented PGR for its "strong systems". Whether or not you agree or disagree with Buffett doesn't matter here. He is a very long-term investor. We're short-term trading. The short-term outlook for PGR looks bullish but we're going to protect ourselves and only go long the insurance stock on a fresh breakout. We will use a TRIGGER at 76.25 to open the play. Once initiated we'll start with a stop loss at 72.75, just under the simple 50-dma. ! Weekend Comments: Our new call play from Thursday's newsletter has been triggered with a surge of strength in Friday's session. PGR traded as high as $76.44 before slipping lower with the rest of the market Friday afternoon. This triggered our play at 76.25. Traders can choose to look for a bounce from the $74 area or look for new strength above 76.50 before opening new positions. Suggested Options: Short-term traders can choose from the November or December options while longer-term traders can look over the February or May strikes. We like the 75's. ! Alert - November options expire in two weeks! BUY CALL NOV 75 PGR-KO OI= 815 at $1.75 SL=0.90 BUY CALL DEC 75 PGR-LO OI= 28 at $2.80 SL=1.40 BUY CALL DEC 80 PGR-LP OI= 14 at $0.75 SL= -- Annotated Chart: Picked on November 07 at $76.25 Change since picked: - 0.54 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 654 thousand Chart = --- QLogic Corp. - QLGC - close: 57.49 change: -0.21 stop: 55.85*new* 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 bullish action in shares of QLGC has come nowhere near rivaling the excitement of the sharp breakout over $55 on 10/28, but the stock is continuing its persistent rise. As expected, the $58.00-58.50 area provided initial resistance, but the bulls are steadily chipping away at that obstacle, with a test of that level on 5 of the last 7 days. While they can't claim victory yet, the bulls are definitely chipping away at this resistance level, with the intraday highs gradually rising. As long as the Semiconductor index (SOX.X) continues to rise, QLGC should continue its ascent as well. Be aware though, that when the NASDAQ Comp hits 2000 (probably early next week), it may initiate a bout of profit taking. So conservative traders may want to proactively harvest gains as that level is reached. Intraday dips near $57 still look acceptable for new entries ahead of a push up towards our $61-62 final target. We are still suggesting traders exit open positions when that solid resistance level is reached. Raise stops slightly to $55.85, just below the consolidation zone from the last few days in October. 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. Note that November contracts expire in 2 weeks. 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. ! Alert - November options expire in two weeks! BUY CALL NOV-55 QLC-KK OI=5594 at $3.20 SL=1.60 BUY CALL NOV-60 QLC-KL OI=7816 at $0.70 SL=0.35 BUY CALL DEC-55 QLC-LK OI= 977 at $4.50 SL=2.75 BUY CALL DEC-60 QLC-LL OI=1670 at $2.00 SL=1.00 Annotated Chart of QLGC: Picked on October 21st at $54.21 Change since picked: +3.29 Earnings Date 1/14/04 (unconfirmed) Average Daily Volume = 4.45 mln Chart = --- Veritas Software -VRTS - cls: 38.90 chng: +0.29 stop: 35.90*new* Company Description: As an independent supplier of storage management software, VRTS develops and sells products that protect against data loss and file corruption, allowing rapid recovery after disk or computer system failure. The company's products provide continuous data availability in clustered computer systems with shared resources. This enables IT managers to work efficiently with large file systems, making it possible to manage data distributed on large computer network systems without harming productivity or interrupting users. VRTS provides products for most popular operating systems, including UNIX and Windows NT, as well as a full range of services to assist its customers in planning and implementing their storage management solutions. Why we like it: The much-anticipated breakout in shares of VRTS arrived with a bang last Wednesday, with the stock rocketing through $38 resistance. Despite the broad market struggling to move higher through the remainder of the week, the stock inched steadily higher into the end of the week, testing the waters above $39 before closing just below that mark. We've still got our eye on $40 as the next logical place to harvest some gains. That achievement will likely occur in concert with the NASDAQ Composite testing the 2000 level and a round of profit taking would be the expected result. Provided it is just a normal round of profit taking, we'll be looking for new entries on a dip and rebound from the $37 level, which should now act as support. Price action is getting a bit extended above the short-term moving averages, so we would not recommend momentum entries on further strength above Friday's close. Raise stops to $35.90, which is just below the bottom of the most recent pullback. After VRTS scales the $40 level, we'll take a more in-depth look at whether a continued rally towards our aggressive $45 target seems realistic. Suggested Options: Shorter Term: The November 35 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Note that November contracts expire in 2 weeks. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the December 40 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 35 Call. ! Alert - November options expire in two weeks! BUY CALL NOV-35 VIV-KG OI=15282 at $4.20 SL=2.50 BUY CALL NOV-40 VIV-KH OI= 7717 at $0.85 SL=0.40 BUY CALL DEC-35 VIV-LG OI= 1478 at $5.00 SL=3.00 BUY CALL DEC-40 VIV-LH OI= 5991 at $1.60 SL=0.75 Annotated Chart of VRTS: Picked on October 28th at $37.27 Change since picked: +1.63 Earnings Date 1/21/04 (unconfirmed) Average Daily Volume = 6.18 mln Chart = ************** NEW CALL 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. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ***************** CURRENT PUT PLAYS ***************** Anthem, Inc. - ATH - close: 66.55 change: -0.67 stop: 70.05 Company Description: Anthem is a health benefits company serving over 7 million members, primarily in Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Colorado and Nevada. The company owns the exclusive right to market its products and services using the Blue Cross Blue Shield (BCBS) names in these states under license agreements with the Blue Cross Blue Shield Association. ATH's product portfolio includes a diversified mix of managed care products, including health maintenance organizations (HMOs), preferred provider organizations (PPOs) and point-of-service (POS) plans, as well as traditional indemnity products. The company's managed care plans and products are designed to encourage providers and members to select cost-effective healthcare by utilizing the full range of its medical management services. Why we like it: We certainly can't be disappointed with the initial action in our bearish ATH play, as the stock did as we expected and dropped on Friday. It wasn't much (about 1%), but it was a larger drop than seen in any of the major indices and that keeps the premise of relative weakness intact. When we initiated coverage, we set a trigger of $66 and while close, Friday's dip to $66.19 wasn't quite enough to get the job done. That leaves us with the same action plan for next week. Wait for the trigger to be satisfied and then enter according to your trading style. Momentum traders will want to enter on the initial break, while those with a more cautious stance will want to wait for a subsequent failed bounce in the $67-68 area. There's likely to be some mild support found in the $63.50 area, but once below there, ATH should seek out strong support near $60. Maintain stops at $70.05 and wait for the trigger to be hit before taking action. Suggested Options: Aggressive short-term traders will want to focus on the November 65 Put, as it will provide the best return for a short-term play. Longer term traders will want to look to the December 65 Put, as it should provide ample time for ATH to move in our favor without time decay becoming a major factor. Note that November contracts expire in 2 weeks. ! Alert - November options expire in two weeks! BUY PUT NOV-70 ATH-WN OI=2085 at $3.90 SL=2.25 BUY PUT NOV-65 ATH-WM OI= 575 at $0.90 SL=0.40 BUY PUT DEC-65 ATH-XM OI=2456 at $2.10 SL=1.00 Annotated Chart of ATH: Picked on November 6th at $67.22 Change since picked: -0.67 Earnings Date 1/26/04 (unconfirmed) Average Daily Volume = 1.66 mln Chart = ---- JetBlue Airways - JBLU - cls: 55.19 chg: -0.01 stop: 58.51 Company Description: JetBlue is a low-fare, low-cost passenger airline, which provides high-quality customer service. JetBlue operates a fleet of 48 new Airbus A320 aircraft and is scheduled to place into service another five A320s by the end of 2003. Based out of New York City's John F. Kennedy International Airport, JetBlue currently operates 184 flights a day and serves 22 destinations in 11 states and Puerto Rico and plans to commence service in January from Boston to Orlando, Tampa and Ft Lauderdale, FL, LA/Long Beach, CA, and Denver, CO. With JetBlue, all seats are assigned, all travel is ticketless, all fares are one-way, and a Saturday night stay is never required. (source: company press release) Why We Like It: There has been a real tug-of-war in shares of JBLU the last few days. The stock has come to a halt near the $55 mark and hasn't traded above the $56.30 level in four sessions. Whether you believe it is the bears resting before the next leg lower or that bulls are putting up a tough defense it's hard to argue with the ugly (and very bearish) P&F chart for JBLU. Of course I don't find it any coincidence that shares have been hugging the $55 level, which just so happens to be the 38.2% retracement of the April-through-October run for JBLU. Another drop from here and JBLU should hit $50 without even trying. Bulls will point to the relative strength in the airlines on Friday as the XAL index was one of the few sectors that closed in the green. This is even more surprising given the rise in crude oil prices that have climbed back above the $30 level. Higher oil means more expensive jet fuel and pressures the airlines' profit margins. Optimists will also point to the XAL's bullish trend that has not yet been broken. If the XAL can mount another rally from here it will make it tougher for bears in JBLU to gain any momentum. We are a little cautious merely because JBLU has so many fans. Traders can evaluate new entries on a failed rally under $57.00 or a new low under $54.00. Very conservative traders probably shouldn't be in a volatile stock like JBLU but if you are consider a stop loss above the 10-dma. Suggested Options: Short-term traders can choose from the November or December options while longer-term players can check out the Januarys. We like the 60s and 55s. ! Alert - November options expire in two weeks! BUY PUT NOV 60 JGQ-WL OI=1376 at $5.30 SL=3.00 BUY PUT NOV 55 JGQ-WK OI=1945 at $1.95 SL=1.00 BUY PUT DEC 60 JGQ-XL OI= 921 at $6.50 SL=4.00 BUY PUT DEC 55 JGQ-XK OI= 572 at $3.40 SL=1.70 BUY PUT DEC 50 JGQ-XJ OI=1063 at $1.60 SL=0.80 Annotated Chart Picked on November 02 at $57.67 Change since picked: - 2.48 Earnings Date 10/23/03 (confirmed) Average Daily Volume: 1.5 million Chart = ************* NEW PUT PLAYS ************* AutoZone, Inc. - AZO - close: 93.30 change: -2.82 stop: 97.75 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 that long ago that we were enjoying a nice bullish run in shares of AZO and for awhile there, it looked like the good times would never end. But that was before the mutual fund trading scandal began to pick up steam and widely held stocks like AZO have been losing their appeal. The stock suffered a steep drop on 10/31, and then after several days of consolidating that drop, got hit for another big loss on Friday. That last drop creates some real problems for longs, as it broke the 4- month rising trendline and dropped the stock all the way back to the 50-dma ($92.76) on volume that doubled the ADV. Adding to the bearish picture, the PnF chart gave a "High Pole Warning" with this sharp reversal and indicates more price weakness ahead. It isn't full bear ahead yet though, as AZO won't actually print a new Sell signal until it trades $89. AZO has had quite a drop in the past couple weeks, and chasing the stock lower at this point doesn't appear to be the best course of action. Instead, we're looking for an oversold rebound from the 50-dma and subsequent rollover in the $95-96 area, which should now be strong resistance. Entering on that rollover would be our preferred strategy. That doesn't mean that momentum entries won't work, just that they carry greater risk. Traders so inclined can use a break below $92 as an entry trigger, looking for a quick drop to next support near $89. The $86-87 area was strong resistance for nearly a year, and we're looking for it to now act as firm support on the way down. That makes for a nice target to shoot for, as well as a nice potential reward when compared against our initial stop at $97.75, which is just above last week's intraday highs. Suggested Options: Aggressive short-term traders will want to focus on the November 95 Put, as it will provide the best return for a short-term play. Longer term traders will want to look to the December 90 Put, as it should provide ample time for AZO to move in our favor without time decay becoming a major factor. ! Alert - November options expire in two weeks! BUY PUT NOV-95 AZO-WR OI=4129 at $2.85 SL=1.50 BUY PUT NOV-90 AZO-WS OI=2040 at $0.75 SL=0.35 BUY PUT DEC-90 AZO-XR OI=1929 at $2.15 SL=1.00 Annotated Chart of AZO: Picked on November 9th at $93.30 Change since picked: +0.00 Earnings Date 12/22/04 (unconfirmed) Average Daily Volume = 1.02 mln Chart = --- Amgen Inc - AMGN - close: 59.95 chg: -1.18 stop: 62.51 Company Description: Founded in 1980, Amgen is a pioneer in the biotechnology industry. Based on a history of scientific innovation, Amgen launched the first biotechnology blockbuster products, EPOGEN. (Epoetin alfa) and NEUPOGEN. (Filgrastim), and continues to research, identify and develop novel therapeutics to treat grievous illness. The Company invests heavily in research and development, having invested 22 percent of total product sales in R&D in 2002, among the highest reinvestment levels in the biotechnology and pharmaceutical industries. (source: company press release) Why We Like It: Trading biotech companies always carry a certain amount of risk. If you're long, then there is the risk that some crucial drug trial doesn't produce. If you're short, then there is the risk they come out with a cure for cancer or other amazing news that sends the stock skyrocketing. With that in mind we find it hard to believe that bears aren't drawn to the distribution taking place in AMGN these days. The stock has been a huge winner since summer of 2002 and has single-handedly lead the biotech sector higher. Unfortunately for AMGN the stock peaked in July of 2003 and hasn't been able to mount a comeback. After a couple of months sliding lower in a wide descending channel the stock was hammered after its Oct. 21st earnings announcement as investors sold the news. The mid October drop was fueled with big volume. Now the stock has taken a couple of weeks to consolidate and it looks ready for its next leg down. Further complicating matters for the bulls is the simple 200-dma that has thwarted any rally attempts for the last two weeks. AMGN's point-and-figure chart has broken rising bullish support and Friday's close under $60 looks like an entry point. There is some congestion and potential support between $57.50 and 60.00 from March and April of this year but we don't think it will hold. Our first target is $55. We'll start the play with a stop at 62.51. Suggested Options: The December and January 60s and 55's look tempting. ! Alert - November options expire in two weeks! BUY PUT NOV 60 YAA-WL OI=15117 at $1.35 SL=0.65 BUY PUT DEC 55 YAA-XK OI= 4760 at $0.75 SL= -- BUY PUT DEC 60 YAA-XL OI= 4394 at $2.30 SL=1.15 BUY PUT DEC 65 YAA-XM OI= 1240 at $5.70 SL=3.25 Annotated Chart: Picked on November 09 at $59.95 Change since picked: - 0.00 Earnings Date 10/21/03 (confirmed) Average Daily Volume: 8.8 million Chart = --- PACCAR - PCAR - close: 76.35 chg: -2.12 stop: 78.01 Company Description: PACCAR is a global technology leader in the design, manufacture and customer support of high-quality light-, medium- and heavy- duty trucks under the Kenworth, Peterbilt, DAF and Foden nameplates. It also provides financial services and distributes truck parts related to its principal business. In addition, the Bellevue, Washington-based company manufactures winches under the Braden, Gearmatic and Carco nameplates. (source: company press release) Why We Like It: After an incredible run from $40 in January to 87.50 in August investors are finally taking profits in shares of PCAR. The last two months have produced a wedge-like consolidation pattern with higher lows and lower highs. Normally this is a neutral pattern that can produce a powerful breakout in either direction. However, this time we see the simple 50-dma applying pressure to shares in October and again in early November. Combine that with its extremely overbought status and the rising volume on Friday's decline and it smells like a put play candidate. Aggressive traders can evaluate new bearish positions as soon as it breaks the trend of higher lows. We're going to look for a little bit of momentum and only open the play on a drop below the $75.00 mark. Our trigger is $74.99. If we're triggered our first stop loss will be 78.01 but we'll quickly move to lower it as the play progresses. Suggested Options: We like the 75 and 70 strikes with a preference for Decembers. ! Alert - November options expire in two weeks! BUY PUT NOV 75 PAQ-WO OI=1313 at $1.00 SL= -- BUY PUT DEC 70 PAQ-XN OI= 27 at $1.10 SL=0.50 BUY PUT DEC 75 PAQ-XO OI= 83 at $2.70 SL=1.35 BUY PUT DEC 80 PAQ-XP OI= 210 at $5.60 SL=3.00 Annotated Chart: Picked on November xx at $xx.xx Change since picked: - 0.00 Earnings Date 10/21/03 (confirmed) Average Daily Volume: 899 thousand Chart = ------------------------------------------------------------ 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 11-09-2003 Sunday 4 of 5 In Section Four: Leaps: DOW 10,000 - Here We Come! Traders Corner: Does God Protect Drunks And Fools? Futures Corner:: Swing Trade Plan--Putting All the Pieces Together ------------------------------------------------------------ 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 ------------------------------------------------------------ ***** LEAPS ***** DOW 10,000 - Here We Come! By Mark Phillips mphillips@OptionInvestor.com The DOW has had a pretty impressive rally over the past several months, rebounding from below 7500 and is now knocking on the door of the venerable 10,000 level. The media mavens are trumpeting the virtues of the latest wave of economic growth and the bulls are responding by pawing the ground with glee. The doom-sayers are issuing warnings about extreme over-valuation and all the myriad problems with the economy, but are largely ignored, both by the media and the investing public. Anything but long has been wrong for several months and for the most part, nobody believes it can change anytime soon. In short, everyone is right and to be fair, most are wrong. Both the bulls and the bears are about to be treated to a roller- coaster ride of unprecedented speed and excitement. You see, I'm describing the conditions in early March, 2000. This was before the DOW had ever seen the upside of 10,000 and before the Y2K bug had really moved to the forefront of our consciousness. Over the next year, the DOW would soar to almost 12,000, before finally tipping over and...well, we all know the rest of the story. Well, here we are 4 1/2 years later, with the DOW once again approaching 10,000 and the media trumpeting the virtues of economic growth and the return of the bull market. There are plenty of bears to point out the problems in the here and now, and in all honesty, I have to count myself among them. You see, by my read, the underlying economic conditions are very different than they were in 1999. Instead of government surpluses, we have huge (and growing) deficits, corporate and individual indebtedness is frighteningly high and despite the recent improvement in the employment statistics, the reality is that U.S. jobs are still flooding over the borders. There's still a large overhang of production capacity and businesses are still quite stingy about opening up the capital expenditures purse strings. But probably the most important difference is the deteriorating condition of our currency. In early 1999, the dollar was in the early stages of recovery from the abrupt correction of late 1998. Fast forward to today, and the dollar is off sharply against every major currency in the past 6,12 and 18 months. Not only that, but it is trading near its 1998 lows and with the profligate money printing activities of the Fed, it seems unlikely that it can go anywhere but down. We spend a lot of time over the past couple weeks in the Trader's Corner column delving into my fundamental views of the economy and I won't belabor the point here today. Suffice to say, it doesn't yet appear anywhere close to healthy, but these types of macro factors rarely have merit in a short-term trading environment. Our job is to trade what the market gives us, regardless of the underlying economic picture. There are rare times when the confluence of fundamental factors generates a substantial market move (like what happened in March of 2000), but for the most part it is the day-to-day price action and the technical chart patterns it creates that determines where the market is headed. We remain in a cyclical bull market within an overall secular bear market. It has been over 20 years since this particular dynamic presented itself to us. I will turn 40 next year, so it should come as no great surprise that this particular macro market dynamic is new territory to me. That means I continue to rely on the collected wisdom of those who are both older and wiser than I in my quest to make sense of what I see. I've been actively trading in various markets since the mid-1990s, and what I find interesting is that most of the tools I have relied on in the equity market over the past 5 years have performed poorly, if at all. Oscillators, sentiment readings, various technical studies and even basic chart patterns have failed to work again and again. The over-riding and controlling factor is the money the Fed is pumping into the system and that is inflating all assets, even stocks, without regard to what comes next. When the Fed ceases to prime the money pump, or worse yet, starts to run it in the other direction (through rising interest rates and a drop in liquidity), we will be in for a nasty correction in the market. That's precisely what happened in early 2000, as the Fed began removing the excess liquidity that had been injected to head off any potential problems related to Y2K. If you look at the recent numbers for money supply growth/contraction, it is clear the Fed is already starting to back off on the accelerator. It doesn't mean the music has stopped, but I think it would be wise to scope out a chair that you can get to in a hurry just in case it does stop. The market's date with destiny (Dow=10K, SPX=1065-1070, COMPX=2000) appears right on track and I'd actually be surprised if we don't at least brush these levels next week. The VIX remains at levels that screams for a decent correction in the market, the likes of which we haven't seen since this rally began in March. Until the major indices drop below their respective 50- dmas and stay there for more a day or two, long is really the only way to play. At the same time, position trades to the long side continue to carry more risk than I'm comfortable assuming with the bullish percent readings holding at multi-year bullish extremes. Throughout the course of the last 5 months, the DOW has advanced 800 points, the SPX has gained roughly 50 points and the NASDAQ Composite is up roughly 300 points. Those are all enviable gains that I certainly would have liked to have captured. But the underlying conditions from which those gains were spawned was not one in which I would have even remotely considered initiating long position trades. The VIX by early June was already flirting with the 20 level, which normally forecasts a sizeable market correction and all of the bullish percent readings were pegged deep in overbought territory. In addition, every one of the weekly Stochastics oscillators were threatening to break down out of overbought territory after being there for over a month. Needless to say, the market correction has yet to show itself, weekly Stochastics have never really dropped out of overbought, the VIX continues driving to lows not seen since 1998 and the bullish percent readings have yet to show any appreciable deterioration. How much longer can it continue? It could all come crashing down next week or the market may continue stumbling higher right into 2004. I honestly don't know. We've got a couple bearish plays cued up that should perform quite nicely if we successfully pick the top. But let me be very clear in stating that we are trying to pick a top in a market that has been very unforgiving of that type of trade for the past 8 months. Without further ado, let's turn our attention to the meager list of plays we're currently following. Portfolio: WMT - The more time that goes by, the better I like our WMT play. Not because it is performing great -- in fact it has really done nothing for us in the past month -- but I like the way it is starting to show real weakness relative to the broad market and the Retail index (RLX.X). So long as the stock remains below that long-term descending trendline (now at $59.70), odds favor the downside. In fact, if we can get the weekly Stochastics to tip over here, we should have a decent shot at an initial drop to the $53-54 area, which will allow us to lower our stop near breakeven. For now, failed rally attempts below the trendline can still be used for new entries, and we'll keep our stop set at $61. Watch List: QQQ - Still climbing well within its ascending channel, the QQQ has yet to give us either a definite sign of weakness or a push high enough to attempt shorting the top. I still think the best - albeit aggressive - approach will be to try to pick a top on a push up to the $36.50-37.00 area, which should coincide with the NASDAQ Composite testing the 2000 level. For traders that would prefer to wait for signs of a breakdown, waiting for the clear breakdown means waiting for a drop below the bottom of the channel ($34.55) and the 50-dma ($34.39) before entry. So we can raise our trigger for the breakdown entry to $34.40. Stops on the higher entry will be set at $39.25, while traders taking a breakdown entry should set their stop just above the relative high at $36.25. SMH - I sure am glad we put this play on hold a few weeks back! The Semiconductor index has continued to lead the NASDAQ higher and is now pushing into heavy resistance in the $540-560 area. That corresponds to $44-46 on the SMH and until there is some sign of weakness - either a breakdown or a pattern of lower highs, I believe we're best served by keeping it on hold. We'll continue to monitor the action until conditions are more favorable for a downside play, but for now we watch and wait. NEM - As strong as the equity market has been lately, it has been pretty impressive to see gold and gold stocks holding up as well as they have been of late. A big part of the strength in gold continues to be attributable to the weakness in the dollar, a dynamic that shows no signs of ending anytime soon, with the rampant money supply growth from the Fed. That said, I believe it is a fool's errand to be chasing shares of NEM higher at this elevated level. Our job right here is to exercise the necessary level of patience and wait for the inevitable (I hope) pullback. That pullback should drop the price of gold back near its 200-dma (now at $359) and NEM should pull back as well. I'm still expecting a drop back near $38, so we'll keep that entry target in place. Traders willing to take a bit more risk can enter on a dip and rebound from the 50-dma (currently $40.28), as it has been acting as strong support ever since late April. In either case, we'll be using a generous stop at $35, as that should keep us in this long-term bullish trend. SBUX - Ah, regret. SBUX broke out without giving us even a hint of an entry point and the stock has continued to rise from there. That doesn't mean that we can't make a viable play here, but it does mean that we're going to need to wait a bit longer. The stock broke out of its long-term ascending channel and is once again hitting new all-time highs. If the price pattern remains intact, we're unlikely to see our initial $27.50-28.00 entry target offered. Instead, the likely point of consolidation is likely to be in the $29-30 area, with the 50-dma now sitting at $29.98. So that's where our entry target goes now. Initial stops will be placed at $28, which is just below the top of the late- August gap. DJX - The other half of our top-fishing duo, our DJX play is very likely to offer up an entry next week on a foray up to the $100 level. As we've discussed repeatedly, this is an aggressive play, with the DOW having failed to show any of the signs of weakness we'd like to see. We're strictly placing a bet on the strength of resistance and selling pressure that ought to be waiting at that level. We're not looking for a huge market correction, but a drop back to $90 is certainly possible. In keeping with the play's aggressive nature, we're using a wide stop at $104, which should be sufficient to keep us in the play, even if the ultimate top is up nearer to the $103 level. Conservative traders may want to hedge their bets by opening only a 1/2 position at $100, looking to round it out to a full position in the vicinity of $103. Radar Screen: QCOM - If it weren't for the fact that the PnF price target for QCOM is at $67, I would be removing it from consideration this weekend. It certainly appears like a breakout is coming again early next week and the stock has clearly run away from what would have been a nice entry in the $40 area. Fundamentally and technically, I still like the outlook for QCOM, but finding an attractive entry point has been a bit of a challenge. I'm a patient man though and I can wait. We could see a near-term pullback into the $42-43 area and that would work for aggressive traders. In fact, looking again at the PnF chart, that is the level I would prefer for targeting a bullish entry. A drop to $40 would generate a PnF Sell signal, so I would expect the $40-41 area to be staunchly defended by the bulls, giving us the freedom to use a tight stop at $39.50. There were no nasty surprises at all in the company's earnings report last week, and I like the current price action. Next week, we can look forward to QCOM transitioning to the Watch List. Closing Thoughts: I did a lot of thinking this week about the big picture -- between diaper changes and late-night feedings -- and was reminded of the difference between having a big picture market view and making money from market action. Sometimes the two are in perfect concert and that was certainly the case for me in 2001-2002. This year has been a challenge, due largely to the fact that the market has not behaved according to the tools I've become accustomed to using in recent years. You know the old saying, "If it ain't broke, don't fix it"? Well, the corollary to that saying is that if it's busted, scrap it! The bottom line is that the market is in full bull mode and until something changes, it is unlikely to provide winning trades in line with my big picture view. I'll continue watching for plays that fit within my market view, but in the meantime, I'm going to dust off some methods that I haven't used in many a year. The intended goal will be to find some longer-term winning plays that we can enjoy while we wait for the market to come to its senses or for the economy to prove me wrong. Look for an aggressive repopulation of the Radar Screen and Watch List in the weeks ahead. 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 $ 4.10 -19.61% $61 '06 $ 55 WWT-MK $ 7.20 $ 5.90 -18.06% $61 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: NEM 10/05/03 $37-38, $40 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 $29-30 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 $36.50-37.00 JAN-2005 $ 32 ZWQ-MF $34.40 JAN-2006 $ 32 WD -MF SMH 08/24/03 HOLD JAN-2005 $ 35 ZTO-MG JAN-2006 $ 35 YRH-MG DJX 11/02/03 $99.50-100.00 DEC-2004 $ 96 YDK-XR JUN-2005 $ 96 ZDK-RR New Portfolio Plays None New Watchlist Plays None Drops None ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ------------------------------------------------------------ ************** TRADERS CORNER ************** Does God Protect Drunks And Fools? By Mike Parnos, Investing With Attitude Considering the abundance of fools, along with a healthy population of drunks, who trade stocks and options, it seems that God has his work cut out for him. While he works on a solution, let's see what enticing strategy we can come up with for the CPTI fraternity. Is there any strategy in the market that is foolproof? Or drunkproof? Of course not. A dose of stupidity with a 100-proof chaser can submarine most any well thought out strategy. But, if we're alert, cagey, capitalized -- and sober, we have a good chance of coming home at the end of the day with more than we started with. Introducing the OEX BP Boogie Well, we have to call it something, right? BP stands for "Bull Put" and "Boogie" refers to the possible adjustments that might be necessary during the life of the trade. Don't like the name? Well, it'll do for now. If you have a better idea, send me your suggestions. At this writing, the OEX index is trading at $520.70. We're currently in an uptrend. How can we take advantage of continued upward movement – and reduce our risk to almost nothing? Impossible you say? Well, almost anything is possible. Don't believe me? We now know how to take pictures with a telephone, put cheese inside of a pretzel, get Santa down a chimney without Vaseline, and cure everything but stupidity and the common cold. Need I say more? The Position We like the OEX index because it’s a cash settlement. It’s not a stock. That means there is no risk of early assignment regardless of how deep in the money an option becomes. We will use a 1-contract position for our example. You should obviously adjust your position to accommodate your risk tolerance and account size. Sell a Dec. OEX $525 put @ $13.40 Buy a Dec. OEX $510 put @ $7.40 Credit: $6.00 x 100 = $600 per contract Risk: $9.00 x 100 = $900 per contract We're assuming that you’re a shrewd trader and managed to shave an additional $.20 off each side of the spread. That would make your credit an even $6.00 and your risk an even $9.00. I like round numbers better. I like a lot of round things . . . Oreos, M&Ms, pizza, Pamela Anderson . . . the list goes on and on. Are You Sufficiently Capitalized? This strategy requires a substantial sized account. There may be large margin requirements when placing the adjustments. The initial maintenance requirement on a 10-contract position is $9,000 (difference between the strikes -- $15 -- less the credit received -- $6.00 -- for the 10 contracts. Notice that, it’s the same as the initial risk. The Plan Now, I said that the risk would be reduced to almost zero. We’re going to accomplish this by having a plan – a way to adjust the position should it go in the wrong direction. If the trend continues and OEX moves, and remains, above $525, we’re in great shape (Just like me. Round is a shape, isn't it?). No adjustments would be necessary and we'll all live happily ever after. It will also please all of our beneficiaries. If the OEX becomes a PIA and starts to trend in the other direction: 1. We wait until it gets to a point where it costs $12 to buy back the short call. At that point, we buy back the short $525 put contract for $12. Why do we wait that long? We wait for a large of a movement because we hope, if the short strike is violated, that a new trend has begun. We don’t want to be whipsawed back and forth. Now what? We were wrong about the initial direction. So what? It’s not the first time and certainly won’t be the last. It broke, the chart lied, but it’s fixable. 2. Now we look over to the put side of the option chain. We find a bull put spread, at or below the current OEX value, which will enable us to take in a credit of $6.00 – and sell 20 contracts. That will effectively replenish the $12 we just spent to buy back the short $525 puts. In order to achieve a $6.00 credit in the new bull put spread, it might be necessary to widen it a bit – thereby increasing your maintenance requirement. For example, instead of a $15 difference between strikes, it might require a $20 difference between strikes. If you took in $600 per spread, your risk would be $1,400 per spread. Twenty contracts would require $28,000 in maintenance. Sounds like a lot, but it’s not really at risk – if you follow the plan. It’s just to give the broker some peace of mind. Many Forms Of Maintenance When we discuss maintenance, remember that maintenance does not have to be in the form of cash. If you have bonds, mutual funds, stocks or other securities, the maintenance can be applied against their marginable value. Make sure your bungee cord is attached before you jump – and confirm length of the cord, too. Call your broker and check out their margin policies. Note that, after our little flurry of trades, our original $6.00 credit is still intact – less a few commissions. If the OEX continues trending up, everything is just dandy. However, if it reverses again, we have to repeat the process – by going in the other direction – and doubling the number of contracts. We’re hoping for a trend, and it doesn’t really matter what direction. It doesn’t have to last forever – four or five weeks is plenty. We’re willing to go with the flow and that’s how we position ourselves. You’ll never look more forward to option expiration. Amen & Pass The Doritos The OEX BP Boogie strategy may not be our salvation. It probably isn't going to do much for fools and drunks either – they're God's problem. After all, you can't wash the spots off a leopard. It does, however, give dedicated CPTI students a way of taking advantage of a trending market – and that's what we seem to have, at least for now. _____________________________________________________________ NOVEMBER POSITIONS Position #1 – SPX Iron Condor – Trading @ 1053.21 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 two weeks left, anything can happen. A pullback would be nice. Position #2 – AFCI Iron Condor – Position closed for $700 loss. Que sera, sera. Position #3 – OEX Iron Condor (By Request) – 520.70 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 - $128.00 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. Looking very good. Position #5 – QQQ Put Calendar Spread – Trading @ $35.63 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 @ $520.70 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. QQQ ITM Strangle – Ongoing Long Term -- $35.63 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, but, again, a pullback would be nice. _____________________________________________________________ What did the cannibal get when he was late to dinner? The cold shoulder. _____________________________________________________________ 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. ************** FUTURES CORNER ************** Swing Trade Plan--Putting All the Pieces Together Keene Little After years of trading several different systems, each seemingly good for one kind of market but not good for another, I've refined a system that seems to be usable in all markets. After all my struggles to find the Holy Grail, which clearly doesn't exist, I've naturally found that I have to combine indicators to give me greater confidence in taking a trade, and just as importantly, where to exit. But most importantly, where to place my protective stop. I think part of the learning process, usually paid for dearly as a high tuition cost paid to the market, is to figure out which system or indicators will work for you in the type of market you're currently in. Moving averages work beautifully in a trending market. Oscillators are perfect in a range-bound market. Sentiment indicators are great for helping identify major turning points in the market. But how do you identify where you are currently in the market? As I've said to many, I'm the first one signed up for hindsight trading as soon as it's offered. Until then, we need to figure it out real-time. The most effective "indicator" I've found is Elliott Wave (EW) analysis combined with fibonacci tools. I will use them as my primary tools to identify turning points, support levels and to predict market action. When I make a prediction based on these tools, and the market obliges me, my confidence to enter the trade is increased. I use oscillators, moving averages, Bollinger Bands, ADX and other tools to back me up. If as many of these tools as I can comfortably watch don't "line up" and support my belief in a direction for the trade, I prefer to stand aside and wait for clarity. You will see me say that a lot. I've mentioned before, this is a great profession we've chosen. If we don't like the looks of the bus which just pulled into the station to pick us up, we let it leave without us. We do this because we know there will be another bus right behind it for us to check out. Probably the biggest reason I like using EW and fibonacci is because it takes much of the emotion out of the equation. We human beings react to fear and greed and it negatively affects our trading. We just don't think straight when we're afraid. Planning your trade and trading your plan seems to be easily tossed out the window at the starting gun. When I use EW and fibs, I'm trading price levels that are very logical to me and I can identify where and why I should enter a trade and where a logical stop loss level should be. Knowing where that stop level is before I enter the trade allows me to assess my risk before I ever take the trade. This is absolutely essential. Let's start with the chart setups I use so that we're all singing off the same sheet of music. Here's what I'm watching on the bottom of my charts (I'm using QCharts): As can be seen in the chart above, I use stochastic settings of 10,5,3. MACD uses 8,13,5 (these numbers are fibonacci numbers). RSI setting is 13. And I like to watch stochastic of RSI as a backup to the standard oscillators because I've found it to give fewer false signals. Settings on it are 13,21,5,5. Feel free to play with these settings to give you signals you're comfortable with. I use the same settings on the various time frames I use. I have my screen set up so that I'm watching NQ, YM and ES on 1- minute charts so that I can quickly see if one of the markets is stronger than the others. I have smaller windows to watch 5- minute, 10-minute, 30-min and 60-min charts of whichever symbol I choose. I also have my symbols list and small chart windows to watch bonds, NYSE advance-decline volume and NYSE advance-decline issues. I have a few other charts in icons that I can bring up as soon as I want to look at them, such as the daily chart. I'm running QCharts on a 2-screen setup which obviously helps in viewing all this data. If you have fibonacci tools available on your charts, I strongly suggest you play with them to get comfortable. Users of QCharts have some very good fibonacci tools. I'm not that familiar with TradeStation's tools and it's been years since I used eSignal. If anyone would like more information and recommendations for setups on these tools, drop me a line. The standard settings are usually fine. You will see these tools used on the charts I regularly post. I don't want to bore you to tears on EW--there are plenty of good books, the best primer probably is Elliott Wave Principle, by Frost and Prechter. But basically I watch for a trend marked by impulse waves and pullbacks which are marked by corrective waves. Impulse waves consist of 5 internal waves, corrective waves have 3 (but can be more complicated versions). Impulse waves are much easier to trade than corrective waves. There are certain rules and "personalities" of the waves, but I won't get into that here. If ever you'd like a little more information on what I'm seeing from an EW standpoint, shoot me an email. I try to keep EW comments to a minimum because it can be confusing to the uninitiated. Here's a chart showing the SPX's rally and pullback since October 24th. I think it's a good example of what I watch: For those who care to follow EW counts, you can see my wave labels from the October 24th low. There are 5 waves up, ending the rally on November 3rd (there are some internal wave labels within these 5 but let's stick with the larger waves. An impulse wave is the direction of the larger trend. A corrective wave, typically labeled a-b-c, can be seen as the pullback November 3rd through the 5th. Note that the pullback came to the 38% retracement of the 5-wave rally. I also watch for fibonacci relationships between the waves to determine a level where I'll be watching for the market to turn. The next chart below shows an example of this. There are certain rules that EW patterns follow. If these rules are violated by price action, the count must be something different. You will see me refer to certain price levels that can't be violated otherwise my assumption for the market's direction is wrong. I will typically use these levels for my stop levels. Again, I don't want to get too technical on EW analysis. I just wanted to show an example of what I watch for during the day. You will see counts on my charts and if you ever have any questions or comments about these, please drop me a line. EW analysis is not an exact science and is subject to interpretation. That's why in addition to EW counts and fibonacci levels, I use the indicators you see in the chart below. I like to make us of trend lines as well. The following chart shows an example of a number of signals that would have helped us set up a trade. Look at the setup above. Number 1 (in blue) shows the count--after the 5th wave up there will need to be a larger correction. Number 2 shows a common fibonacci relationship between the waves that help me identify potential turning points. If I miss the initial trade, I watch for a break of the up channel. Number 3 shows an opportunity where both the trend line and the middle of the Bollinger Bands (the 20-period moving average) were broken. Number 4 shows the rollover in the oscillators, confirming the breakdown after reaching the high. And number 5 shows the classic "kiss" of the broken trend line (and the 20-pma in this case). When I can get groups of these tools to confirm each other, I'll feel more confident about entering the trade. Note that the upper trendline was drawn from wave-1 to wave-3, and then a parallel line was created and attached to wave-2. This creates the up-channel. Wave-4 will usually run over/down to the line and then head up to finish the rally. And when the count gets confusing, sometimes these trend lines are the simplest way to confirm the end of the run. This analysis, like the use of any of the other technical tools, can be used on any of the various time frames you care to look at. That pretty well sums up the tools I use to set up my trades and to identify targets and stop levels. I like clarity to build my confidence in taking a trade. There are some basic rules I've established for myself. I do not like jumping in and out of trades several times a day on a "gut" feel for a direction. That's scalping and my emotions kill me trying to do that kind of trading. In my swing trades I look for at least a 3:1 ratio of reward to risk. If I'm risking 2 points on the ES to my stop, I need to see a target of at least 6 points. If I take 3 losses in a row, I'm out of synch and I'll step out of the game until I get my head cleared. That usually means I'm done until the next day. If at any time you have suggestions about what you would like to see more, or less, of, your comments and suggestions are more than welcome. This service is for you and we value your input. Above all, we are trying to teach the logic of why trades are taken, the value of risk management and tight stop control. Stay disciplined and happy trading! Keene Little ------------------------------------------------------------ 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 ------------------------------------------------------------ ********** 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 11-09-2003 Sunday 5 of 5 In Section Five: Covered Calls: Covered-Call Q&A Naked Puts: Economics & Stock Prices -- Part III Spreads/Straddles/Combos: Investors Brace For A Pause In The Rally Updated In The Site Tonight: Market Posture: Bears Stage Late Day Cattle Drive ------------------------------------------------------------ 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 ------------------------------------------------------------ ************* COVERED CALLS ************* Trading Basics: Covered-Call Q&A By Mark Wnetrzak One of our readers wants to know about "target-shooting" an entry in a covered-call position and another reader has questions about a "rule of thumb" for net-debit orders. Attn: markw@OptionInvestor.com Subject: Opening Covered-Call Plays Hi, I'm fairly new to the web-site and you wrote something last week that seemed confusing. The statement in the stock's write-up was "target-shooting a lower net-debit will lower the cost basis and raise the potential yield in the position." What exactly does this mean when it involves a covered call -- which requires that I buy stock AND sell call options? Does it refer to the stock price or the option price? Thanks for your help! KN Hello KN, The technique of "target-shooting" to open a covered-call play involves placing a buy-write (with a net-debit) order at a price less than the current market and waiting for a dip in the cost of the underlying issue to fill the order. A buy-write involves the buying of stock, whilst simultaneously writing a call against the purchase of that underlying security. Sometimes you can wait days for a dip, but in the current market climate we are seeing volatile activity almost every day. Normally the dips are too quick to react with manual orders but if you have an existing (limit) order, you can get filled when it happens and sometimes at the low for the day. Obviously, if you use this method, you will enter fewer plays because not all the orders will be filled. However, the plays you do enter will have better profit potential and you may be buying-in at the low price for the day. In short, using the buy-write order can help you establish a new position at an acceptable risk/reward ratio without the possibility of loss during the transaction. The stock does not have to be monitored during the day's trading as the order will be executed only when the appropriate net-debit is achieved. This type of trading works well with low volume issues and provides the market-maker with an opportunity to fill the request based on other orders in the pits. It can also be used with volatile stocks that new investors might otherwise avoid when utilizing the conservative, covered-writing strategy. Regards, Mark OIN Attn: markw@OptionInvestor.com Subject: Covered Call questions Hi Mark, First of all, I like your service. I've found it to be quite educational. I'm starting to take a real liking to ITM CCs. Maybe the monster returns aren't there, but they certainly aren't bad for the limited risk! A couple of questions... First: Are you able to recommend a good online screener? I've been trying Optionfind.com. It seems pretty good for what I'm after (I'm not a full time trader, so I'm not looking for an expensive "professional" screener...just a reliable one). Second: Here's one trade that I was looking at (more for education rather than investment, at this point). The spread is fairly large, so I'd like to put a combined debit order in. Do you have any rule of thumb for where you would enter an order? Would you have a chance by splitting the B & A at $4.89? Quotes Last Bid Ask APHT 6.40 6.37 6.45 NOV 5 CALL 2.45 1.40 1.65 Covered Call Price 4.72 - 5.05 Thank you for any insight! ST Hello ST, Thank you for the kind remarks. Even though ITM covered-calls are considered a conservative investing strategy, there is still a risk of loss. Yes, they do reduce the risk from outright stock ownership, but only to a certain extent, and at the cost of upside potential. There are several covered-call screeners (besides the OIN) that are available on the Internet and one of the most popular among our readers is Poweroptions (www.poweropt.com). In addition, a simple search for "covered calls" would likely yield a number of other data providers. As for entering a position like the one you listed, it really just depends on the liquidity of the stock and option series. In your example (stock at $6.40 and option bid at $1.40), the covered-call is priced at parity, and there is very little chance a "net-debit" order would be filled. As in all market transactions, demand and supply will control the pricing pressure, and if the market isn't liquid, then there will be no pricing pressure. 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 5.01 NOV 5.00 0.55 0.45* 8.6% XOMA 7.83 7.52 NOV 7.50 0.80 0.47* 7.3% OXGN 10.51 10.28 NOV 10.00 1.10 0.59* 6.8% ITMN 20.03 20.13 NOV 20.00 0.85 0.82* 6.2% MONE 5.14 5.72 NOV 5.00 0.40 0.26* 6.0% TMM 3.44 3.55 NOV 2.50 1.10 0.16* 5.9% SEAC 15.57 15.13 NOV 15.00 1.50 0.93* 5.7% PLUG 5.91 6.01 NOV 5.00 1.15 0.24* 5.5% TLAB 7.53 7.56 NOV 7.50 0.30 0.27* 5.4% BVSN 5.31 5.10 NOV 5.00 0.65 0.34* 5.3% ALGN 15.60 17.87 NOV 15.00 1.60 1.01* 5.2% QSFT 14.90 15.14 NOV 15.00 0.55 0.65* 4.9% CMOS 16.31 16.73 NOV 15.00 1.80 0.49* 4.9% RTEC 26.15 27.18 NOV 25.00 1.95 0.80* 4.8% PUMA 5.54 7.29 NOV 5.00 0.85 0.31* 4.8% GSS 5.49 5.40 NOV 5.00 0.70 0.21* 4.8% CMNT 9.22 10.59 NOV 7.50 2.10 0.38* 4.6% VECO 25.67 26.93 NOV 25.00 1.85 1.18* 4.3% EMBT 12.90 14.25 NOV 12.50 0.75 0.35* 4.2% BRCD 6.33 6.89 NOV 6.00 0.65 0.32* 4.1% CDN 15.39 16.66 NOV 15.00 0.80 0.41* 4.1% CRYP 10.84 12.46 NOV 10.00 1.20 0.36* 4.1% SSTI 11.21 13.46 NOV 10.00 1.65 0.44* 4.0% AFFX 25.63 25.55 NOV 25.00 1.30 0.67* 4.0% TLAB 7.83 7.56 NOV 7.50 0.70 0.37* 3.8% ALKS 14.33 12.27 NOV 12.50 2.50 0.44 3.2% ALKS 15.16 12.27 NOV 12.50 3.20 0.31 1.9% * Stock price is above the sold striking price. Comments: The major averages continued to move higher this week though the bullish momentum seemed to wane as the weekend approached. Will there be any consolidation or will the market morph into a Christmas rally without pause? Maybe we have seen the highs for the year? As always, next week should offer some new clues in this never-ending puzzle. With two weeks until expiration, continue to monitor and adjust positions that are acting weaker than expected or changing their trends. Alkermes (NASDAQ:ALKS) is testing a key support area and could become an "early-exit" candidate if its long-term MA fails to hold. Positions Previously Closed: Ibis Technology (NASDAQ:IBIS) - rebounding for a second-chance exit?. 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 EMIS 7.90 NOV 7.50 MTQ KU 0.80 215 7.10 14 12.2% AKAM 10.30 NOV 10.00 UMU KB 0.75 798 9.55 14 10.2% IDTI 17.60 NOV 17.50 ITQ KW 0.65 617 16.95 14 7.0% FFIV 25.49 NOV 25.00 FLK KE 1.25 835 24.24 14 6.8% IFX 15.70 NOV 15.00 IFX KC 1.15 143 14.55 14 6.7% VSAT 22.98 NOV 22.50 IQS KX 1.15 43 21.83 14 6.7% ACN 25.05 NOV 25.00 ACN KE 0.55 1755 24.50 14 4.4% 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). ***** EMIS - Emisphere $7.90 *** Drug Speculation *** Emisphere Technologies (NASDAQ:EMIS) is a biopharmaceutical company specializing in the oral delivery of therapeutic macromolecules and other compounds that are not deliverable by oral means. The company has pioneered the oral delivery of otherwise injectable drugs, including proteins, peptides, polysaccharides and other compounds. Emisphere has been forging a Stage I base as investors await positive news on the company's drug trials. The recent bullish activity suggests further upside potential and traders who believe good news is forthcoming can profit from that outcome with this position. Earnings are due on Wednesday, November 12. NOV-7.50 MTQ KU LB=0.80 OI=215 CB=7.10 DE=14 TY=12.2% ***** AKAM - Akamai $10.30 *** Earnings Rally *** Akamai Technologies (NASDAQ:AKAM) provides services and software that enable private enterprises and government agencies to extend and control their e-business infrastructure. Akamai's services are designed to help extend the reach of its clients e-business infrastructures for all their business processes. Through a large distributed computing platform, Akamai offers its customers seamless information flow and robust, control of information, enabling the secure delivery of networked information and applications. Its services are built upon its distributed platform for content, streaming media and application delivery, which is comprised of more than 13,000 servers within over 1,100 networks in 66 countries. Akamai has rallied higher on very heavy volume after reporting favorable earnings and most recently, a lawsuit settlement. We simply favor the bullish trend and this short-term position allows investors a reasonable way to speculate on the company's future share value. NOV-10.00 UMU KB LB=0.75 OI=798 CB=9.55 DE=14 TY=10.2% ***** IDTI - Integrated Device Tech. $17.60 *** Rally Mode *** Integrated Device Technology (NASDAQ:IDTI) designs, develops, makes and markets a range of high-performance semiconductor products. Applications for the products include data networking and telecommunications equipment, such as routers, hubs, switches, cellular base stations and other devices; SANs; other networked peripherals and servers, and PCs. The company provides a portfolio of communications-oriented ICs, including ICs focused on accelerating intelligent packet processing in next-generation network equipment. IDT serves equipment vendors by applying its advanced hardware, software and memory technologies to create flexible, highly integrated products that enhance the functionality and processing of network services. The company offers 1,300 devices in over 15,000 product configurations. IDTI appears to be completing a bottom formation and investors who agree can utilize this short-term position to try and "target-shoot" an entry point in the issue. NOV-17.50 ITQ KW LB=0.65 OI=617 CB=16.95 DE=14 TY=7.0% ***** FFIV - F5 Networks $25.49 *** Next Leg Up? *** F5 Networks Inc. (NASDAQ:FFIV) provides integrated products and services to manage, control and optimize Internet traffic. FFIV's core products, the BIG-IP Controller, the 3-DNS Controller and the BIG-IP Link Controller, help manage traffic to servers and network devices in a way that maximizes availability and throughput. The company's iControl Architecture integrates its products and also allows its customers to integrate them with other third-party products. FFIV's solutions address many elements required for successful Internet and Intranet business applications, including high availability, high performance, intelligent load balancing, fault tolerance, security and streamlined manageability. FFIV spiked to a two-year high this week after the company said it returned to profitability in the 4th-quarter due to an increase in sales across all product lines. The technical indications suggest a bullish bias in the near-term and this position offers traders a way to profit from upside movement in the issue with a cost basis closer to the 30-day MA. NOV-25.00 FLK KE LB=1.25 OI=835 CB=24.24 DE=14 TY=6.8% ***** IFX - Infineon $15.70 *** Another New High! *** Infineon Technologies (NYSE:IFX) designs, develops, manufactures and markets a broad range of semiconductors and complete systems solutions used in a wide variety of microelectronic applications, including computer systems, telecommunications systems, consumer goods, automotive products, industrial automation and control systems, as well as chip card applications. Their products include standard commodity components, full-custom devices, semi-custom devices and application-specific components for memory, analog, digital and mixed-signal applications. Shares of Infineon rallied to another new 52-week high on Friday as the stock moved above a resistance area near $15, which should now provide support. Reasonable short-term speculation on a bullish stock. NOV-15.00 IFX KC LB=1.15 OI=143 CB=14.55 DE=14 TY=6.7% ***** VSAT - ViaSat $22.98 *** Hot Stock! *** ViaSat (NASDAQ:VSAT) is a provider of advanced broadband digital satellite communications and other wireless networking and signal processing equipment and services to the defense and commercial markets. For the defense market, the company offers UHF DAMA (demand assigned multiple access) products and services. In addition, it has developed communications products for military applications such as the Link-16 MIDS (multi-function information distribution system) terminal, information assurance and simulator and test products. ViaSat's government defense business units include Mobile Satellite Systems, Tactical Data Links, Simulation and Test and Tactical Networking and Information Assurance. For the commercial markets, it offers satellite communications and other wireless communications products and services. These commercial business units include VSAT Network Systems, Satellite Ground Systems, Broadband Systems, Comsat Laboratories and U.S. Monolithics. ViaSat continues to soar higher as the stock made another new multi-year high on Friday after reporting favorable earnings results. Traders can speculate conservatively on the near-term performance of the issue with this position. NOV-22.50 IQS KX LB=1.15 OI=43 CB=21.83 DE=14 TY=6.7% ***** ACN - Accenture $25.05 *** The Rally Continues *** Accenture (NYSE:ACN) is a management consulting and technology services organization. The company's consulting and technology services and solutions business is structured around 5 operating groups: Communications and High Tech, Financial Services, Products, Resources and Government. ACN provides business and management consulting, technology and outsourcing services and delivers solutions tailored to each client's industry. The company also has two capability groups, Business Consulting and Technology and Outsourcing, which support the operating groups and provide access to the full spectrum of business and IT solutions. Its capability groups comprise service lines and solution units. Accenture made another new 52-week high on Friday as the stock attacks a 2-year old resistance area. Reasonable short-term speculation for those investors who wouldn't mind owning ACN near $24.50. NOV-25.00 ACN KE LB=0.55 OI=1755 CB=24.50 DE=14 TY=4.4% ***** ***************** 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 MMR 16.10 NOV 15.00 MMR KC 1.65 493 14.45 14 8.3% ENER 10.03 NOV 10.00 EQI KB 0.40 197 9.63 14 8.3% PLXT 10.10 NOV 10.00 PIU KB 0.45 86 9.65 14 7.9% TER 25.16 NOV 25.00 TER KE 1.00 1099 24.16 14 7.6% MTSN 15.06 NOV 15.00 QQM KC 0.55 86 14.51 14 7.3% NTPA 13.61 NOV 12.50 NQD KV 1.50 244 12.11 14 7.0% IIJIE 5.73 DEC 5.00 IQD LA 1.15 456 4.58 42 6.6% RMBS 25.73 NOV 25.00 BNQ KE 1.45 6987 24.28 14 6.4% ISSX 17.60 NOV 17.50 ISU KW 0.60 1179 17.00 14 6.4% MGAM 41.45 NOV 40.00 QMG KH 2.55 618 38.90 14 6.1% MANU 7.74 DEC 7.50 ZUQ LU 0.80 279 6.94 42 5.8% LTXX 15.77 NOV 15.00 UXT KC 1.15 436 14.62 14 5.6% SIMG 7.65 DEC 7.50 QSI LU 0.65 160 7.00 42 5.2% ***************** NAKED PUT SECTION ***************** Options 101: Economics & Stock Prices -- Part III By Ray Cummins This week, we continue our discussion on the Federal Reserve and how the FOMC uses basic economics to effect monetary policy. There are three primary instruments that the Federal Reserve uses to accomplish its goals in monetary policy. These tools help the Fed achieve economic stability by varying the quantity of money in circulation, and the cost and availability of credit. They are: Open Market Operations, Reserve Requirements, and the Discount Window. The use of Open Market Operations is both relatively simple and appropriately titled as it involves the purchase and sale of government bonds by the Central Bank in the open market. When it is necessary to expand the money supply and lower interest rates, the Central Bank will buy bonds. In contrast, bonds will be sold if the Fed needs to reduce a surplus of credit and raise borrowing costs. Due to its ease of application and the smooth interaction it has with the economy as a whole, this technique is the most widely used method in the Federal Reserve's ongoing efforts to manage the money supply. The process begins with the Federal Open Market Committee, which specifies the short-term objective for open market operations. This objective can be a specific quantity of reserves or a desired level for the federal funds rate, which is interest rate banks charge when they lend money to other banks overnight. The Federal Reserve's objective for open market operations has evolved considerably over the past decade with a major change occurring in 1994, when the FOMC began announcing its policy stance. In 2000, the FOMC began publishing an assessment of the risks to achieving its long-run goals after each meeting. In recent year's, the committee's focus has been on attaining a specific federal funds rate and that is the most obvious indicator of the Fed's outlook on the economy. The next instrument of monetary policy involves the amount of money that commercial banks and other depository institutions must keep on deposit at the Central Bank as a requirement for specified liabilities in federal banking regulations. The term for this obligation is "reserve requirement" and it is expressed as a percentage, or reserve ratio, of the financial institution's demand deposit liabilities (net transaction accounts, nonpersonal time deposits, and eurocurrency liabilities). An important fact is these accounts do not pay interest and although rarely used to effect policy, the reserve requirement may be adjusted by the Central Bank in order to restrict or increase the money supply. For example, when the reserve requirement is increased, a larger percentage of a bank's deposits are held by the Central Bank, thereby taking money out of the open market. This eventually leads to higher interest rates as less cash (through loans and financing) is available to borrowers. Since an adjustment of this magnitude affects many facets of the finance industry in a very significant manner, this type of action is only performed occasionally as a severe corrective measure. In addition, the Fed has slowly been moving towards an environment where reserve requirements are relatively small, thus reducing the competitive disadvantage of non-interest bearing reserves for banks. The last tool in the Fed's arsenal of policy-making devices is the Discount Window. This is the vehicle through which banks and other depository institutions are able to borrow reserves from the Central Bank at a discounted rate. This enables banks to change credit conditions, thereby affecting the money supply. The term Discount Window originated in the days when banks would sell securities to the government at a "discount" in order to collateralize a short-term loan. Currently, the interest rates that financial institutions pay for the Federal Reserved money are recommended by the regional banks -- subject to the Board of Governors -- and they are below short-term market rates. It's also important to note that although the Discount Window is not viewed as a crucial aspect of monetary policy, it is often used to signal the Fed's intentions. A reduction in the discount rate, for example, may indicate that the Fed foresees a lower risk of inflation in the future, and possibly will lean towards a more expansive monetary policy. Economists will always argue about the effectiveness of changes to the money supply, however most agree that monetary policy can establish ranges for inflation, unemployment, and interest rates. This fundamental idea compels our government to actively influence money supply through monetary policy with the goal of achieving a stable financial environment, where investment and savings can help sustain economic growth. That is one of the primary steps a nation must take to achieve its financial goals and in the next segment, we'll talk about how well the Fed is living up to its task of promoting a prosperous (and enduring) economy. 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 CYD 29.90 36.45 NOV 25.00 0.65 0.65* 3.9% 12.2% ONXX 24.76 24.30 NOV 20.00 0.50 0.50* 2.8% 9.6% ESPR 23.02 24.35 NOV 20.00 0.60 0.60* 3.4% 9.6% ONXX 25.93 24.30 NOV 20.00 0.60 0.60* 2.7% 9.0% XMSR 19.10 22.49 NOV 17.50 0.85 0.85* 3.7% 8.9% CYD 27.57 36.45 NOV 22.50 0.50 0.50* 2.5% 8.4% ESPR 23.87 24.35 NOV 20.00 0.35 0.35* 2.6% 8.4% FCEL 14.35 16.39 NOV 12.50 0.50 0.50* 3.0% 8.2% XMSR 20.25 22.49 NOV 17.50 0.30 0.30* 2.5% 7.7% AFCI 26.70 23.92 NOV 22.50 0.60 0.60* 2.4% 7.4% PXLW 12.10 14.23 NOV 10.00 0.30 0.30* 2.2% 7.1% INSP 26.05 26.53 NOV 22.50 0.35 0.35* 2.3% 7.0% CELL 28.65 26.89 NOV 23.38 0.30 0.30* 1.9% 6.7% FFIV 25.01 25.49 NOV 22.50 0.35 0.35* 2.3% 6.5% MTZ 12.81 12.93 NOV 10.00 0.25 0.25* 1.9% 6.4% NWAC 12.18 13.47 NOV 10.00 0.25 0.25* 1.9% 6.2% SCUR 14.09 15.28 NOV 12.50 0.30 0.30* 2.1% 6.0% ALGN 15.21 17.87 NOV 12.50 0.25 0.25* 1.8% 6.0% FCS 20.04 24.25 NOV 17.50 0.40 0.40* 2.0% 5.9% SCRI 25.49 26.83 NOV 22.50 0.40 0.40* 2.0% 5.7% AVCT 36.00 37.48 NOV 32.50 0.75 0.75* 2.1% 5.6% FCS 22.60 24.25 NOV 20.00 0.25 0.25* 1.8% 5.4% CNX 21.88 21.55 NOV 20.00 0.55 0.55* 2.0% 5.4% IDXC 24.30 24.60 NOV 20.00 0.35 0.35* 1.5% 5.3% SCHN 36.92 39.39 NOV 30.00 0.40 0.40* 1.5% 5.3% CY 20.44 22.84 NOV 17.50 0.40 0.40* 1.7% 5.1% * Stock price is above the sold striking price. Comments: Renewed concerns over the lofty levels of stocks ended the recent bullish trend Friday, despite stronger than expected employment data. The activity suggests that the market is in need of brief consolidation and it is likely to extend into the holiday season, possibly until early next year. With that in mind, traders are cautioned to initiate new positions only in the most technically favorable issues and to be extra attentive to current portfolio plays. Advanced Fibre (NASDAQ:AFCI) remains on the "watch" list. In addition, the profitable position in Palm (NASDAQ:PALM) has been removed from the portfolio due to the complex share value adjustments in the wake of the company's merger with Handspring (NASDAQ:HAND), which produced PalmOne (NASDAQ:PLMO), and the spin-off of PalmSource (NASDAQ:PSRC). Previously Closed Positions: CV Therapeutics (NASDAQ:CVTX), which is currently profitable. WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL! ***** The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The Simple Monthly Yield is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the position. NEW CANDIDATES ********* Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield PMCS 22.12 NOV 20.00 SQL WD 0.40 1841 19.60 14 4.4% 12.2% RTEC 27.18 NOV 25.00 UXH WE 0.45 65 24.55 14 4.0% 10.7% PHTN 40.90 NOV 37.50 PDU WU 0.45 49 37.05 14 2.6% 7.3% ECLG 25.25 NOV 22.50 EGU WX 0.25 20 22.25 14 2.4% 7.1% CYD 36.45 NOV 30.00 CYD WF 0.25 999 29.75 14 1.8% 6.5% MCD 26.01 NOV 25.00 MCD WE 0.25 2414 24.75 14 2.2% 5.6% ERES 46.78 NOV 40.00 UDB WH 0.30 838 39.70 14 1.6% 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). ***** PMCS - PMC-Sierra $22.12 *** On The Move! *** PMC-Sierra (NASDAQ:PMCS) designs, develops, markets and supports a broad range of high-performance integrated circuits primarily used in the telecommunications and data networking industries. The company has more than 120 different semiconductor devices that are sold to equipment manufacturers, who in turn supply their equipment principally to communications network service providers and enterprises. The firm also provides semiconductor solutions for customers by leveraging its intellectual property, design expertise and systems knowledge across a wide range of applications. The company's networking products are sold into four areas of the global network infrastructure: metro, access, enterprise/storage and consumer-related markets. Shares of PMCS started moving higher in late October, partly due to expectations that major customer Cisco Systems (NASDAQ:CSCO) would post strong quarterly results and provide an optimistic business outlook. As it turns out, Cisco's report was indeed favorable and the future for PMCS looks great, based on recent trends in the semiconductor industry. NOV-20.00 SQL WD LB=0.40 OI=1841 CB=19.60 DE=14 TY=4.4% MY=12.2% ***** RTEC - Rudolph Technologies $27.18 *** Favorable Earnings! *** Rudolph Technologies (NASDAQ:RTEC) is a worldwide leader in the design, development manufacture and support of high-performance process control metrology systems used by semiconductor device manufacturers. The company provides a full-fab solution through its families of proprietary systems for metrology applications used throughout the device manufacturing process. Rudolph's product development has successfully anticipated and addressed many emerging trends that are driving the semiconductor industry's growth. The firm's success in creating complementary metrology applications through aggressive research and development is key to Rudolph's strategy for continued technological and market leadership. RTEC recently posted favorable earnings, noting that revenue increased to $14.2 million as gross margins rose by 3% over the prior year. The company also said it anticipates 6% to 10% sequential revenue growth for the fourth quarter. Traders who like the outlook for the stock can speculate conservatively on its near-term performance with this position. NOV-25.00 UXH WE LB=0.45 OI=65 CB=24.55 DE=14 TY=4.0% MY=10.7% ***** PHTN - Photon $40.90 *** Rally Mode! *** 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 has been on of the best performing stocks over he last few weeks due to the company's favorable earnings announcement. Photon recently posted a narrower quarterly loss as revenue rose to $21 million from $13 million in the previous period. The company also forecast revenue for the first quarter of fiscal 2004 to be between $21 million and $23 million, with the potential for a profit of up to $0.03 per share. Investors who agree with a bullish future for the issue can establish a cost basis near $37 with this position. NOV-37.50 PDU WU LB=0.45 OI=49 CB=37.05 DE=14 TY=2.6% MY=7.3% ***** ECLG - eCollege.com $25.25 *** Go To School At Home! *** eCollege.com (NASDAQ:ECLG) is a provider of technology, products and services that enable colleges, universities, primary and high schools, grade schools and corporations to offer online classes for distance, on-campus and hybrid learning. The firm's unique technology enables it's customers to reach students who wish to take courses at convenient times and locations via the Internet. Its customers can also use its technology to supplement on-campus courses with an online environment. In addition, the company offers services to assist in the development of online programs, including online course and campus design, development, management and hosting, as well as ongoing administration, faculty and student support. eCollege is a leader in the development of e-learning solutions for post-secondary education programs and the company's stock price reflects that fact. Investors who believe the trend towards this type of curriculum will continue can profit from that outcome with this position. NOV-22.50 EGU WX LB=0.25 OI=20 CB=22.25 DE=14 TY=2.4% MY=7.1% ***** CYD - China Yuchai $36.45 *** Another New High! *** 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. Traders can speculate conservatively on a continued rally in the issue with this position. NOV-30.00 CYD WF LB=0.25 OI=999 CB=29.75 DE=14 TY=1.8% MY=6.5% ***** MCD - McDonald's $26.01 *** Blue-Chip Portfolio Stock *** McDonald's Corporation (NYSE:MCD) operates in the foodservice industry and primarily operates and franchises quick-service restaurant businesses under the McDonald's brand. The firm's restaurants serve a varied, yet limited menu in 119 countries worldwide. Approximately 80% of McDonald's restaurants and about 75% of the total revenues of its restaurants are in nine markets: Australia, Brazil, Canada, China, France, Germany, Japan, the United Kingdom and the United States. The company also operates other restaurant concepts under its partner brands: Boston Market, Chipotle Mexican Grill and Donatos Pizzeria, which are located primarily in the United States. McDonald's recently announced that global system-wide sales increased 17.8% in October, compared with October 2002. The company's CEO also said, "The U.S. continued to generate robust sales as customers find more reasons to make McDonald's a part of their day." Investors who want to make MCD part of their long-term portfolio should consider target-shooting a higher initial premium to initiate this position. NOV-25.00 MCD WE LB=0.25 OI=2414 CB=24.75 DE=14 TY=2.2% MY=5.6% ***** ERES - eResearch Technology $46.78 *** Uptrend Intact! *** eResearch Technology (NASDAQ:ERES) is a provider of technology and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. The company offers a range of products and services, including Diagnostics Technology and Services and Clinical Research Technology. Their Diagnostics Technology and Services include centralized diagnostic services and clinical research operations, including clinical trial and data management services. Their Clinical Research Technology and Services include the developing, marketing and support of clinical research technology and services. In late October, eResearch announced that earnings and revenue in the coming year would top its previous estimates because of recent contract signings. The company said it now expects 2004 earnings of 92 cents per share to 94 cents per share, up from its previous estimate of 84 cents per share. ERES also announced a 3-for-2 split of its common stock, to be distributed on November 26, 2003. Traders who agree with a bullish outlook for the company can profit from continued upside activity in its share value with this position. NOV-40.00 UDB WH LB=0.30 OI=838 CB=39.70 DE=14 TY=1.6% 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 UNA 23.10 NOV 22.50 UNA WX 0.60 3 21.90 14 6.0% 14.1% SOV 23.65 NOV 22.50 SOV WX 0.55 1033 21.95 14 5.4% 13.5% ADAT 14.12 NOV 12.50 HAU WV 0.25 103 12.25 14 4.4% 12.7% DOX 25.13 NOV 25.00 DOX WE 0.60 133 24.40 14 5.3% 12.4% PLMD 31.35 NOV 30.00 PM WF 0.65 104 29.35 14 4.8% 11.9% MCRL 18.02 NOV 17.50 MIQ WW 0.35 35 17.15 14 4.4% 10.8% BRCM 36.05 NOV 35.00 RCQ WG 0.65 1912 34.35 14 4.1% 10.1% AMD 17.01 NOV 16.00 AMD WQ 0.25 6706 15.75 14 3.4% 9.0% KEI 18.05 NOV 17.50 KEI WW 0.25 0 17.25 14 3.1% 7.8% RMBS 25.73 NOV 22.50 BNQ WX 0.20 4881 22.30 14 1.9% 6.0% SRZ 33.32 NOV 30.00 SRZ WF 0.25 454 29.75 14 1.8% 5.3% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Investors Brace For A Pause In The Rally By Ray Cummins U.S. equities drifted lower Friday after a favorable employment report failed to inspire stock buyers, who have recently become worried about lofty share values. The blue-chip Dow Jones industrial average slipped 47 points to 9,809 amid weakness in cyclical and financial components. The technology-laden NASDAQ Composite Index fell 5 points to 1,970, despite having reached a 21-month high earlier in the session. The broad Standard & Poor's 500 Index wilted 4 points to 1,053, with tobacco, paper, brewer, aluminum, lodging, and gold shares among the few groups seeing buying pressure. Volume was active with 1.41 billion shares changing hands on the New York Stock Exchange and 1.95 billion traded on the NASDAQ. Even with the slump in the equity indices, advancers outnumbered decliners by a small margin on the major exchanges. Treasuries continued to slide in the wake of favorable economic data with the 10-year note closing down 9/32 to yield 4.44%. ***************** 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 58.99 NOV 50 55 0.55 54.45 $0.55 Open MXIM 44.82 51.74 NOV 35 40 0.50 39.50 $0.50 Open PHS 54.50 56.53 NOV 45 47 0.30 47.20 $0.30 Open PIXR 71.56 71.69 NOV 60 65 0.70 64.30 $0.70 Open COH 31.43 36.46 NOV 27 30 0.35 29.65 $0.35 Open CYMI 44.99 48.73 NOV 35 40 0.65 39.35 $0.65 Open SAP 36.00 38.63 NOV 30 32 0.30 32.20 $0.30 Open ICOS 45.42 46.70 NOV 35 40 0.50 39.50 $0.50 Open SINA 42.00 38.68 NOV 30 35 0.45 34.55 $0.45 Open SMH 38.55 43.99 NOV 32 35 0.20 34.80 $0.20 Open BBY 58.31 58.14 NOV 50 55 0.40 54.60 $0.40 Open CTX 97.50 97.18 NOV 85 90 0.40 89.60 $0.40 Open VSEA 48.40 51.69 NOV 40 45 0.45 44.55 $0.45 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Sina Corporation (NASDAQ:SINA) and Aetna (NAYSE:ATE) are the most obvious issues on the early exit "watch" list. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status CA 23.50 23.30 NOV 30 27 0.35 27.85 $0.35 Open MTG 53.79 52.76 NOV 65 60 0.55 60.55 $0.55 Open BJS 32.50 32.18 NOV 37 35 0.30 35.30 $0.30 Open CEPH 45.77 46.60 NOV 55 50 0.55 50.55 $0.55 Open HDI 47.26 47.51 NOV 55 50 0.50 50.50 $0.50 Open SEPR 26.98 26.63 NOV 35 33 0.25 32.75 $0.25 Open AMZN 54.51 54.31 NOV 65 60 0.50 60.50 $0.50 Open OEX 511.25 520.70 NOV 540 535 0.45 535.45 $0.45 Open MERQ 44.23 49.55 NOV 50 47 0.40 47.90 ($1.65) Closed EBAY 55.93 56.13 NOV 65 60 0.50 60.50 $0.50 Open FNM 71.69 69.15 NOV 80 75 0.50 75.50 $0.50 Open KSS 56.07 51.91 NOV 65 60 0.40 60.40 $0.40 Open NBIX 46.88 48.51 NOV 55 50 0.50 50.50 $0.50 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss As noted last week, Mercury Interactive (NASDAQ:MERQ) has rallied in conjunction with technology stocks and the additional upside activity was due cause for an early exit in the bearish position. Neurocrine Biosciences (NASDAQ:NBIX) has reversed direction in the short-term and traders should be prepared to cover/roll/close the position in the coming week. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status LLTC 40.77 44.14 NOV 35 37 2.20 37.20 0.30 Open QCOM 47.49 48.04 NOV 42 45 2.25 44.75 0.25 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss CV Therapeutics (NASDAQ:CVTX) was crushed by investors recently after the U.S. Food and Drug Administration said it would grant conditional approval for the company's angina drug Ranexa, but also indicated that it wants "additional clinical information" before it issues final marketing clearance. The announcement was totally unexpected and with little hope of a near-term rebound, the position has been closed to limit losses. PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status NPSP 25.45 28.26 NOV 35 30 4.40 30.40 0.60 Open CVC 18.70 20.94 NOV 22 20 2.20 20.30 (0.64) Closed IACI 37.34 33.45 NOV 42 40 2.25 40.25 0.25 Open As mentioned last week, the recent upside activity in Cablevision (NYSE:CVC) suggested an early exit in the position. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status XING 9.13 8.95 DEC 12 7 0.10 0.30 Open JNPR 16.63 18.70 NOV 19 14 (0.20) 1.00 Open? LRCX 24.38 30.76 DEC 30 20 0.15 2.20 Open? PHTN 32.40 40.90 JAN 40 25 0.00 3.40 Open? Lam Research (NASDAQ:LRCX) and Photon Dynamic (NASDAQ:PHTN) have provided outstanding profits for speculative traders. 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 36.95 DEC-37C NOV-37C (0.20) 0.40 Open? SCRI 20.52 26.83 FEB-22C DEC-25C 1.40 2.10 Open GPRO 26.77 29.56 FEB-30C NOV-30C 1.95 2.25 Open Traders in the Prudential (NYSE:PRU) position can close the play for a favorable gain. Sicor (NASDAQ:SCRI) has previously been adjusted to a diagonal spread and that position is reflected in the summary. The Microsoft (NASDAQ:MSFT) spread, which offered a number of profitable opportunities, has previously been closed. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status ZMH 55.52 65.08 DEC 55 55 5.20 10.25 Open? PCLN 30.45 20.78 NOV 30 30 4.90 9.25 Open? ADVP 49.05 51.04 NOV 50 50 3.40 3.90 Open? TM 59.45 63.35 NOV 60 60 3.40 4.25 Open? DIGE 35.10 37.03 NOV 35 35 4.50 6.00 Open PLCE 30.10 31.04 NOV 30 30 3.00 3.20 Open RMBS 24.79 25.73 NOV 25 25 2.50 2.35 Open Priceline.com (NASDAQ:PCLN) exceeded all expectations, providing nearly a 100% gain after the issue plunged on mediocre earnings. Zimmer Holdings (NYSE:ZMH) continued to trade higher this week, adding to its previous profits. Both Advance PCS (NASDAQ:ADVP) and Toyota Motors (NYSE:TM) have achieved small short-term gains. The straddle in Engineered Support Systems (NASDAQ:EASI), which has previously been closed, offered traders yet another lucrative exit opportunity. Triad Hospitals (NYSE:TRI), which has never achieved profits on a simultaneous order basis, has previously been closed to preserve capital. CREDIT STRANGLES **************** 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 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. ***** LNCR - Lincare $41.05 *** Multi-Year High! *** Lincare (NASDAQ:LNCR) is one of the nation's largest providers of oxygen and other respiratory therapy services to patients in the home. The Company provides services and equipment to over 465,000 customers in 47 states. The firm's customers typically suffer from chronic obstructive pulmonary disease, such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen or other respiratory therapy services in order to alleviate the symptoms and discomfort of respiratory dysfunction. The firm also provides a variety of durable medical equipment and home infusion therapies in certain geographic markets. LNCR - Lincare $41.05 PLAY (conservative - bullish/credit spread): BUY PUT DEC-35.00 LQN-XG OI=88 ASK=$0.30 SELL PUT DEC-37.50 LQN-XU OI=45 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$37.20 ***** MGAM - Multimedia Games $41.45 *** Buyout Rumors = Rally! *** Multimedia Games (NASDAQ:MGAM) is the leading supplier of interactive electronic games and player stations to the rapidly growing Native American gaming market. The company's games are delivered through a telecommunications network that links its player stations with one another both within and among gaming facilities. Multimedia Games designs and develops networks, software and content that provide its customers with a range of gaming systems. The company's development and marketing efforts focus on Class II gaming systems and Class III video lottery systems for use by Native American tribes throughout the United States. MGAM - Multimedia Games $41.45 PLAY (conservative - bullish/credit spread): BUY PUT DEC-30.00 QMG-XF OI=57 ASK=$0.45 SELL PUT DEC-35.00 QMG-XG OI=132 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.55-$0.70 POTENTIAL PROFIT(max)=12% B/E=$34.45 ***** PLMD - PolyMedica $31.35 *** Near All-Time Highs! *** PolyMedica (NASDAQ:PLMD) is a rapidly growing national medical products company. The company is best known through its Liberty brand name and unique direct-to-consumer television advertising to seniors with diabetes and respiratory disease. Building on its technology-based operating platform and compliance management focus, PolyMedica continues to expand its product offerings for these chronic diseases and in other categories. PLMD recently posted a rise in its second-quarter results on increased demand for its diabetes test kits. PLMD - PolyMedica $31.35 PLAY (less conservative - bullish/credit spread): BUY PUT NOV-27.50 PM-WY OI=117 ASK=$0.35 SELL PUT NOV-30.00 PM-WF OI=104 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$29.75 ***** AIG - American Intl. Group $58.28 *** A New Leg Down? *** American International Group (NYSE:AIG) is a holding company that, through its subsidiaries, is engaged in a variety of insurance related activities, mainly general insurance and life insurance, in the United States and abroad. The principal general insurance subsidiaries are American Home Assurance Company; National Union Fire Insurance Company of Pittsburgh, Pennsylvania; New Hampshire Insurance Company Lexington Insurance Company; The Hartford Steam Boiler Inspection and Insurance Company (HSB); Transatlantic Reinsurance Company; American International Underwriters Overseas, Ltd., and United Guaranty Residential Insurance Company. AIG's operations are conducted primarily through four business segments: general insurance, life insurance, financial services and retirement savings and asset management. AIG - American Intl. Group $58.28 PLAY (less conservative - bearish/credit spread): BUY CALL DEC-65.00 AIG-LM OI=728 ASK=$0.20 SELL CALL DEC-60.00 AIG-LL OI=1406 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.90-$1.00 POTENTIAL PROFIT(max)=22% B/E=$60.90 ***** BJS - BJ Services Company $32.18 *** Bearish Trend Intact! *** BJ Services Company (NYSE:BJS) is a provider of pressure pumping and oilfield services serving the petroleum industry worldwide. The company's pressure pumping services consist of cementing and stimulation services used in the completion of new oil and gas wells and in remedial work on existing wells, both onshore and offshore. Other oilfield services include completion products and tools, completion fluids and tubular services provided to the oil and gas exploration and production industry, commissioning and inspection services provided to refineries, pipelines and offshore platforms, as well as specialty chemical services. In 2002, the company acquired OSCA, a completion services (pressure pumping), completion tools and completion fluids company with operations primarily in the Gulf of Mexico, Brazil and Venezuela. BJS - BJ Services Company $32.18 PLAY (conservative - bearish/credit spread): BUY CALL DEC-37.50 BJS-LU OI=289 ASK=$0.25 SELL CALL DEC-35.00 BJS-LG OI=827 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$35.30 ***** SNPS - Synopsys $30.85 *** Stuck In A Trading Range? *** Synopsys (NASDAQ:SNPS) is a global supplier of electronic design automation software to the electronics industry. The company offers customers a comprehensive suite of products used in the logic synthesis and functional verification phases of chip design, including a broad array of reusable design building blocks. It also offers a set of physical synthesis and design products and a number of physical verification products. The company offers its customers products required to design a chip from concept to the point at which it goes to the manufacturer for fabrication, as well as an array of design building blocks. It also offers a range of professional services, including turnkey design services, design assistance and methodology consulting. The company is organized into four product development groups: Integrated Circuit Implementation, Verification Technology, Nanometer Analysis and Test and Intellectual Property and Design Services. SNPS - Synopsys $30.85 PLAY (conservative - bearish/credit spread): BUY CALL DEC-37.50 YPQ-LU OI=848 ASK=$0.20 SELL CALL DEC-35.00 YPQ-LG OI=5959 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$35.30 ************* 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. ***** LTR - Loews Corporation $38.99 *** Earnings Rescheduled? *** Loews (NYSE:LTR) is a holding company whose subsidiaries are engaged in various lines of business. These include property, casualty and life insurance through CAN Financial Corporation, a 90%-owned subsidiary; the production and sale of cigarettes through Lorillard, a wholly owned subsidiary; the operation of hotels through Loews Hotels Holding Corporation, a wholly owned subsidiary; the operation of offshore oil and gas drilling rigs through Diamond Offshore Drilling, a 54%-owned subsidiary, and the distribution and sale of watches and clocks through Bulova Corporation, a 97%-owned subsidiary. LTR - Loews Corporation $38.99 PLAY (speculative - bearish/debit spread): BUY PUT NOV-45.00 LTR-WI OI=315 ASK=$6.30 SELL PUT NOV-40.00 LTR-WH OI=1403 BID=$1.80 INITIAL NET-DEBIT TARGET=$4.40-$4.50 POTENTIAL PROFIT(max)=11% B/E=$40.50 ***** VLO - Valero Energy $44.00 *** Rally Mode! *** Valero Energy Corporation (NYSE:VLO) is an independent petroleum refining and marketing company in the United States. Valero owns and operates six refineries in Texas, California, Louisiana and New Jersey with a combined throughput capacity of one million barrels per day. Valero produces premium, environmentally clean products such as reformulated gasoline, low-sulfur diesel and oxygenates, and is able to achieve the specifications of the California Air Resources Board (CARB) for gasoline. Valero also produces a substantial slate of middle distillates, jet fuel and petrochemicals. Valero markets its products in across the U.S. through an extensive wholesale bulk and rack-marketing network, and in California through over 300 retail locations. The firm also owns Ultramar Diamond Shamrock, an independent petroleum product and convenience store merchandise marketing company. VLO - Valero Energy $44.00 PLAY (conservative - bullish/debit spread): BUY CALL DEC-37.50 VLO-LU OI=978 ASK=$6.30 SELL CALL DEC-40.00 VLO-LH OI=3800 BID=$4.10 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$39.70 ******************* SYNTHETIC POSITIONS ******************* These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. ***** IDCC - InterDigital $19.00 *** Bottom-Fishing Only! *** InterDigital Communications (NASDAQ:IDCC) specializes in the architecture, design and delivery of wireless technology and product platforms. Over the course of its corporate history, the company has amassed a substantial and significant library of digital wireless systems experience and know-how, and holds an extensive worldwide portfolio of patents in the wireless systems field. InterDigital markets its technologies and solutions primarily to wireless communications equipment producers and related suppliers. In addition, the company licenses its Time Division Multiple Access and Code Division Multiple Access patents to equipment manufacturers worldwide. IDCC - InterDigital $19.00 PLAY (speculative - bullish/synthetic position): BUY CALL JAN-25.00 DAC-AE OI=940 ASK=$0.50 SELL PUT JAN-15.00 DAC-MC OI=1106 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.15-$0.25 INITIAL TARGET PROFIT=$0.45-$0.85 Note: Using options, the position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $450 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($15.00). *********************** 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. ***** KDE - 4Kids Entertainment $25.00 *** Earnings Speculation! *** 4Kids Entertainment (NYSE:KDE) is a diversified entertainment and media firm specializing in the youth-oriented market with operations in the Licensing, Advertising Media and Broadcast, Television and Film Production/Distribution business segments. The Licensing business is conducted by 4Kids Entertainment Licensing and 4Kids International, which license commercial rights to children's properties, personalities and product concepts. The firm's Advertising Media and Broadcast business provides programming content to the Fox Box, Fox Broadcasting Company's Saturday morning programming block. Also included in this segment are the operations of The Summit Media Group, which provides media planning and buying services for clients in both print and broadcast media. The company's Television and Film Production/Distribution business is conducted by 4Kids Productions, 4Kids Entertainment Music, and 4Kids Entertainment Home Video. Quarterly earnings are due on 11/14/03. KDE - 4Kids Entertainment $25.00 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-25.00 KDE-KE OI=447 ASK=$0.85 BUY PUT NOV-25.00 KDE-WE OI=125 ASK=$0.90 INITIAL NET-DEBIT TARGET=$1.60-$1.70 INITIAL TARGET PROFIT=$0.55-$0.90 ***** URBN - Urban Outfitters $35.07 *** A "Reader's Request" *** Urban Outfitters (NASDAQ:URBN) is a merchandising company that operates specialty retail stores under two distinct brands, Urban Outfitters and Anthropologie, as well as the Free People wholesale division. The company creates and manages retail stores that offer highly differentiated collections of fashion apparel, accessories and home goods in dynamic store settings. In addition to its retail stores, the company offers its many products and markets its many brands directly to the consumer through the urbn.com and anthropologie.com Websites, as well as the Anthropologie catalog. The company's quarterly earnings report is due on 11/13/03. URBN - Urban Outfitters $35.07 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-35.00 URQ-KG OI=401 ASK=$1.45 BUY PUT NOV-35.00 URQ-WG OI=108 ASK=$1.40 INITIAL NET-DEBIT TARGET=$2.65-$2.80 INITIAL TARGET PROFIT=$0.90-$1.20 ***** ------------------------------------------------------------ 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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