The Option Investor Newsletter Wednesday 11-12-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Striking Distance Futures Wrap: Dollar demolition Index Trader Wrap: Bulls reclaim recent losses Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 11-12-2003 High Low Volume Advance/Decline DJIA 9848.83 +111.04 9859.34 9729.42 1.66 bln 2182/ 644 NASDAQ 1973.11 + 42.36 1973.11 1935.86 1.84 bln 2330/ 784 S&P 100 524.19 + 5.53 524.76 518.56 Totals 4512/1428 S&P 500 1058.53 + 11.96 1059.10 1046.57 RUS 2000 540.66 + 12.09 540.66 528.57 DJ TRANS 2953.20 + 25.96 2953.95 2923.80 VIX 16.75 - 0.79 17.85 16.55 VXO 16.99 - 1.01 18.56 16.79 VXN 25.55 - 1.00 26.81 25.32 Total Volume 3,854M Total UpVol 3,263M Total DnVol 543M 52wk Highs 586 52wk Lows 26 TRIN 0.60 PUT/CALL 0.80 ******************************************************************* Striking Distance by James Brown It appears that word of the rally's demise has been premature. Buyers came back into the markets with a vengeance. The S&P completely erased the last three days of losses while the Dow and the NASDAQ Composite came close to accomplishing the same feat. Buying was strong in technology stocks as semiconductors, hardware, Internets and software all posted strong gains. Yet even the fervor for tech issues couldn't out pace the rally in gold. December gold futures shot up nearly $7 to $395 an ounce. The last time gold came close to the $400 mark was March 1996. World indices were mostly positive but none of them put in the same kind of performance that U.S. stocks produced. The DJIA gained 111 points (+1.14%) to close at 9848. The S&P 500 added 12 points (+1.15%) to close at 1058 putting it within four points of its 52-week high. The tech-heavy NASDAQ added more than 2 percent to close at 1973 and within striking distance of NASDAQ 2000. It was a very broad based rally with nearly every sector index closing in the green, several up two percent or more, except for the UTY utility index, which dropped fractionally. Advancing stocks outnumbered decliners almost 22 to 6 on the NYSE and 23 to 7 on the NASDAQ. Up volume outpaced down volume 5-to-1 on the NYSE and 8.5-to-1 on the NASDAQ. That's not quite the bullish internals that Jim was looking for in his wrap last night but they're close. Chart of the DJIA: Chart of the NASDAQ: Wednesday was filled with a multitude of headlines. Most of them positive and they fueled the rally through out the session. The move in gold was a big one. Oddly, the rally in gold isn't necessarily a "plus" for stocks in general as it is typically seen as a defensive play against bearish markets and a weak dollar. The $6.90 jump in December gold futures put it close to the $400 mark and pushed the shiny metal to levels not seen in seven years. The dollar's strong drop against the euro powered the move in gold and many are expecting it to break the $400 mark soon. Goldbugs have been "predicting" such an event would occur for months and a close above the $400 level would be a huge psychological breakout. The hunger for the commodity pushed the XAU gold & silver index up 5.57% to 101.86. The XAU index hasn't traded this high since October of 1997. Bonds were also making headlines. The bond market was closed for Veteran's day yesterday and traders were interested to see how the market reacted to Wednesday's $16 billion 5-year note auction after Monday's 3-year auction turned out mediocre. Fortunately, there was strong demand for the new 5-year notes. Some suspect it was safe-haven buying as things heat up in Iraq again. By the end of the day bonds were higher across the board, which pushed yields lower. Tomorrow we'll see the government auction off another $17 billion in 10-year notes. After today's auction demand is expected to be strong. There were dozens of individual stories driving stocks higher and as expected most of them sprang from the tech sector. Semiconductor stocks got another shot in the arm after Gartner Inc said their forecast predicted global chip sales to rise 20 percent next year. The SOX semiconductor index rose 3.36% to its best closing high in over a year as all 18 components closed with a gain. We may see the rally continue tomorrow. After the bell today Applied Materials (AMAT), the world's biggest chip equipment maker, announced earnings that beat estimates by a penny. Net income may have dropped 90 percent from a year ago but the company says it's turning a corner and orders for next quarter should rise 20%. New orders rose strongly last quarter and the company's book-to-bill ratio hit 1.05-to-1 for the first time in a year. The stock was trading higher after hours. Tech investors also heard good news from IBM's CEO Sam Palmisano. In an analyst meeting today Sam said he was "very optimistic" about the long-term growth for IT. Shares of IBM rose 1.48% to close back over the $90 level. Another hardware stock making headway was Lexmark Intl (LXK), the computer printer maker. LXK was upgraded from a "neutral" to a "buy". The UBS analyst also raised their price target for LXK from $80 to $88. Shares surged over 4 percent and broke resistance at $75. Yet another bullish development for technology investors was news that Cisco Systems (CSCO) would buy Latitude Communications (LATD) for $80 million. Companies tend to hold on to cash unless business conditions are improving (not that $80 million is a lot of cash to CSCO). One technology stock forgotten in all this enthusiasm is Microsoft (MSFT). Shares of MSFT, while closing 18 cents higher today, have really under performed its peers in the GSO software index as well as its fellow Dow components. Some suspect the recent weakness could be some of these troubled funds trying to raise cash for redemptions and the easiest place to do that are highly liquid stocks like MSFT. The ongoing anti-trust suit that MSFT continues to face with EU regulators is just a good excuse take money out. Another Dow component making headlines was drug giant Merck & Co (MRK). Shares of MRK were hit with new selling this morning after the company disclosed it would cease research for its MK-0869 compound, better known as "substance P", which was being developed for depression. MRK said Phase III trials had failed to prove the treatment performed any better than the placebo. Major Wall Street analysts were split on their opinion of how this would affect MRK going forward. Surprisingly, shares of MRK were positive by the closing bell. Traders have a lot to look forward tomorrow and Friday. Thursday will bring economic reports on import/export prices, trade balance and the weekly initial jobless claims, which are expected to come in near the 365,000 mark. We'll also hear from the largest retailer on the planet Wal-Mart (WMT), who reports earnings before the opening bell. Estimates for WMT are 47 cents a share. Thus far WMT's weekly sales figures have been tracking inline. WMT's rival Target (TGT) will also be announcing earnings tomorrow morning. Estimates for TGT are 33 cents a share. One of the higher profile earnings announcements tomorrow will be Dell (DELL). DELL announces after the closing bell on Thursday and estimates are for 26 cents a share with revenues close to $10.5 billion. What DELL has to say about business going forward could have a big impact on tech stocks for Friday. Friday will bring the Michigan Sentiment numbers and the PPI report. One comment on the AMAT earnings tonight...normally, with the chip group so overbought one can expect a sell the news reaction but with the NASDAQ so close to 2000 it may be just the excuse traders need to finally tag that psychological level. ************ FUTURES WRAP ************ Dollar demolition Jonathan Levinson The long way of saying it is that, in dollars, equities, treasuries, commodities, foreign currencies and precious metals all rose strongly. Or, conversely, the dollar got sold precipitously. Daily Pivots (generated with a pivot algorithm and unverified): Note regarding pivot matrix: The support, pivot and resistance levels above are derived from the high, low and closing price levels by a simple mathematical formula. They are not intended to be predictive of market turning points or to serve as targets, but rather represent the range retracement levels as generated by the pivot algorithm. Do not think of them as market "calls" or predictions. Like any technically-derived indicator or price level, the pivot matrix values should be regarded as decision points at which to evaluate current market conditions. Visit us in the Futures Monitor for our realtime views of the various markets covered here. 10 minute chart of the US Dollar Index The Fed reported that it added 8B in overnight repos and another roughly 1.5B in permanent open market operations via coupon passs. However, judging from the steepness of the selloff in the US Dollar Index, there would have been more supply from other sources. The weaker dollar with strength in all other asset classes is the same pattern we saw in March and through much of this year's rally, with a flood of "hot" dollars bidding up all other asset classes. The US Dollar Index was lower by over 10 bps today. Gold and the CRB made new multiyear highs. Daily chart of December gold Gold and silver took off today, with gold breaking its previous high and peaking at 396.70. There was not an immediate pullback, and it looks very strong. The clearest indication of the move was the ratpack at CNBC mocking it yesterday, with this move aborting the downphase in progress and extending a week-long bullish run. 390-410 remains a significant resistance zone, but the simultaneous new highs on the CRB and gold, confirmed by a better than 5% move up in silver and a 7 year high in the HUI (+15.79 to 224.70), has goldbugs well-positioned to hope for continued strength to the upside. Dec gold closed higher by 6.40 at 394.80, silver +.234 at 5.301, and XAU +5.38 at 101.86. Daily chart of the ten year note yield Ten year treasuries were also strong, with the TNX dropping 4.8 bps to close right on the upper pennant trendline at 4.412%. The treasury auctioned another $16 billion in 5-year notes today at an average yield of 3.43%, generating a bid-to-cover ratio of 2.27. On the ten year note yield, the oscillator trend is still up, but another day like today could put a crimp in the ongoing oscillator upphase. The remainder of this week will be key, as a move back into the pennant would invalidate the pennant breakout and possibly signal new life in the bond bull. Daily NQ candles As expected last night, the NQ went up today. But it did with continued stealth from yesterday's slow rise off the bottom, only accelerating in the afternoon once the likely outcome began to be clear. Repeated short cycle downphases that went sideways eventually made it apparent that equities, like bonds, gold, commodities and foreign currencies, were not coming down today, and so they went up, reaching their highs at the cash close. Despite this strength, the daily cycle downphase remains intact, as I expect it to provided that the upper wedge trendline, roughly at the year highs printed last week, do not get broken to the upside. As we shall see on the shorter term charts, the anticipated 30 minute cycle upphase blew out most, if not all of its energy today. Downside support at 1425 and resistance at 1460 are the numbers to watch on the daily bear wedge. 30 minute 20 day chart of the NQ It doesn't get any cleaner than the bull wedge breakout, although yesterday's relentless weakness along the bottom of the 300 minute stochastic trough was confusing in the extreme. As we can see, a move to 1458-60 would fulfill the bull wedge, but the oscillators are toppy already. They could remain toppy for another 500 NQ points to the upside, but lined up against the ongoing daily cycle downphase and the weekly rolling over (not shown), the odds simply do not favor it. I don't expect the 52 week highs to be exceeded, and if so, not for more than a stop run and not in any meaningful way. The more likely scenario is either straight down from here, or following a blowofff buying spree at tomorrow's open as the terminal move of the upphase in this intraday timeframe. Daily ES candles ES also went up today, traversing nearly the entire bear wedge range and closing just beneath upper trendline resistance. 1064 and 1048 will be the range to watch, and as with the NQ, a bearish oscillator divergence portends potential weakness to come. 20 day 30 minute chart of the ES I've highlighted what appears to be a secondary bear wedge within the broader bear wedge on the daily chart above. Rising trendline resistance along the bottom of the wedge is now between 1063 and 1065, which coincides with the 52 week high. However, as with the NQ, the oscillators are toppy here, and failure could come any time from current levels. On any pullback, 1042 support will be key confirmation. While it appears clear that the next significant move should be to the downside from current or slightly higher levels, a shallow pullback bouncing at or above 1042 would be bullish. 150-tick ES The ES walked straight up the stairs on the 150-tick intraday chart. There were very few opportunities to cover shorts entered on the few false sell signals given by the short cycle oscillators. Daily YM candles Same setup on YM. 20 day 30 minute chart of the YM The methodology that makes the most sense to me is to follow the different nested cycles using constant settings and timeframes, and to correlate the results across different markets. That methodology told me to expect upside of varying strength today, and it's telling me to expect downside tomorrow. An opening pop higher, possibly a gap and crap open, would not invalidate the analysis, provided that the year highs don't get exceeded. The one wildcard is that the move in dollar combined with strength in every other asset class reeks of intervention to me. As we saw when they dropped gold by 22 points from 12:01PM to 12:59PM a few weeks ago, artificial moves are unpredictable, not as much in direction as they are in scope. If they're jamming dollars into the various tapes, then it could go farther than the cycles suggest. Such would go against the market's current imbalance, however, with the oscillators overbought, and so I don't expect it to happen. See you at the bell! ******************** INDEX TRADER SUMMARY ******************** Bulls reclaim recent losses The major indices looked to stabilize in the early morning trade, after Japan's Nikkei-225 ($NIKK) 10,226 managed to hold on to a fractional 22-point gain, but some positive comments from IBM (NYSE:IBM) $90.69 +1.48% and General Electric's (NYSE:GE) $28.70 +2.09% top brass that they were starting to see some resemblance of a stronger economy in their business trends, helped boost investor optimism and have the major indices reversing a three- session slide. Investors did show some bullish caution in the first hours of trade after Mary Farrell, UBS's Wealth Management chief investment strategist commented that the sizeable valuation gap between the high and low price-to-earnings ratios within the S&P 500 (SPX.X) 1,058.53 +1.14% sectors was a cause for concern. Ms. Farrell told clients, "Recent encouraging economic reports continue to lend support to our optimistic market outlook, however we believe investor expectations should be tempered. It is clear to us that some of these upside 'surprises' have already been priced into market valuations." Ms. Farrell added that the current price-to-earnings gap within the S&P 500 is "greater than 89% of all historical observations," and that, except for the boom-bust cycle of the last five years, it's near all-time levels. With those words of caution, UBS then raised its 2004 earnings estimates for the S&P 500 to $63 a share from $60, an upward revision of 5%, citing prospects for a faster-than-expected acceleration of the U.S. economy. While UBS's analysts were crunching their numbers higher for earnings, Maury Harris, a UBS economist boosted his 2004 GDP forecast to 4.2% from 3.9%. For me, Jeff Bailey, it was one of those sessions where I felt like I was being pulled at both ends. The U.S. Dollar Index (dx00y) 92.29 -0.87% showed the dollar notably weak in this morning's early trade, and that had, and has me concerned as to how Japan's market participants, if not European investors are going to respond to the dollar once again showing weakness after some signs of stability. While I was deep in thought about the perplexities of the dollar relationship with equities, my trade station alerted me that I was getting stopped out of a bearish trade in the NASDAQ-100 Tracking Stock (AMEX:QQQ) $35.81 +2.13% at $35.38 from yesterday morning's bearish profile of $35.20. Roughly 75 seconds later I profiled a bullish trade in the QQQ at $35.37, stop $34.95, with a target of $36.15, as my thoughts for a bearish test of WEEKLY S2 looked to be evaporating. To be truthful, I thought it would be wonderful for a bull if the QQQ could achieve its WEEKLY Pivot of $35.65 by today's close. Tonight's after-hours response to Applied Materials (NASDAQ:AMAT) $25.44 +2.16% quarterly earnings report, where the company beat analysts estimates by a penny found a positive reaction to $26.19. The bulk of the after-hour's boost came after the company indicated that cap ex spending in fiscal 2004 is expected to increase 25% compared to last year and in Q1 (January), orders for new equipment are expected to continue growing at a rate of 20% sequentially, while revenues are expected to increase 5% to 7% over the recently completed quarter. The guidance for AMAT's Q1 then implied revenue of $1.28-$1.31 billion, which was above Q1 consensus estimates for $1.24 billion. While Applied Materials (NASDAQ:AMAT) represents a more modest 1.9% weighting in the NASDAQ-100 Index (NDX.X) 1,443.52 +2.4% and its Tracking Stock (AMEX:QQQ) $35.81, the QQQ currently ticks by at $36.00 in tonight's after-hours trade (after-hours high tick was $36.10). At the 04:00 PM mark, I did suggest that QQQ bulls raise their stops to $35.45 (just under the WEEKLY Pivot) and leave the bullish target at $36.15. After reviewing tonight's Pivot Matrix, I'm now going to suggest raising the profit stop higher to $35.59, which you will see is just below tomorrow's DAILY Pivot and correlative WEEKLY Pivot. All equity sectors I follow in my U.S. Market Watch finished with gains, with the loan exception being the Utility Index (UTY.X) 288.63 -0.1%. I don't know what the heck took place to have the AMEX Gold Bugs Index ($HUI.X) 224.82 +7.61% surging by 15.9 points in today's trade, other than the weakness in the U.S. dollar triggering an extensive amount of buying in the sector. One comment I heard on CNBC was that there may have been some hedges coming off in the commodity when gold broke above $290/oz. The December Gold futures contract (gc03z) $395.00 +1.75% closed at a contract high, after trading as high as $397.00 intra-day. Here is a quick look at the pivot matrix. From what I saw on an intra-day basis, the S&P Banks Index (BIX.X) 332.13 +0.66% was first to trade back to its WEEKLY Pivot, and while its gains were very fractional, it did seem to be just enough of a bullish catalyst within the weekly levels to have the other indices following the lead. The Dow Industrials (INDU) 9,848.83 +1.14% was the last equity index in our matrix to reach its WEEKLY pivot, but today was the first day this week the INDU was able to reach this level and a sign of weekly strength. Pivot Matrix - With eyes squinting as if I've lit a fuse on a firecracker, we now await tomorrow's open, and I would once again be taking a pulse on Japan's Nikkei-225 ($NIKK). I see that my QQQ profit target of $36.15 is now snugly place right between tomorrow's DAILY R1 ($36.13) and WEEKLY R1 ($36.16). I think most traders are ready for the MARKET to sell the AMAT news at the open. Right? That's not illogical. After all, it was just last Wednesday evening when another technology bellwether Cisco Systems (NASDAQ:CSCO) $22.97 +2.77% reported quarterly earnings, traded higher in its after-hours session, and while the major indices moved marginally higher the following session (Thursday, November 6) sellers were formidable. Well, here we are. CSCO is right back to where it closed on November 6, and so are the major indices. About the only difference I can point out as a technician is that Stochastics (which I put about 20% weighting toward) are closer to oversold levels than they were last week, when they were turning lower from overbought. Some traders have been wondering "when" we might see some bearish capitulation to mark the end of this bullish run. And while its is difficult to say if bears will ever capitulate, it would seem only logical that when I am really determined to take a bullish profit and sell bullish strength, the bearish capitulation will certainly come and drive the indices to their weekly R2s. NASDAQ-100 Tracking Stock (QQQ) - Daily Interval I had full intention of locking in profits on a bearish trade back lower at the $34.62 level in the QQQ, then turning and going long. However, price action in the QQQ too strong today, consigned the loss and tried to get back on the right side of things. While Stochastics and MACD oscillators are still advising bullish caution, there certainly looks to be the setup for a strong push higher. Today's trade saw a net loss of 1 stock to a point and figure sell signal in the NASDAQ-100 Bullish % ($BPNDX). This has the chart plotting a new "O" at 70% and has me skittish that the internals are NOT confirming the QQQ price action. Still "bear confirmed" at 70%. S&P 500 Index (SPX.X) Chart - Daily Intervals I didn't see quite the amount of strength from the Dow Transports (TRAN) 2,953.20 +0.88% or the S&P Banks Index (BIX.X) 332.13 +0.66% to have me thinking the SPX has an "easy" shot at the 1,070 level this week. Don't get me wrong. Both showed some strength today, but not enough to offset some of my concerns as it relates to the weakness in the dollar and what impact that may have on global markets, which may dampen bullishness for U.S. equity markets. Today's trade saw no net change in the broader S&P 500 Bullish % ($BPSPX). Still "bull confirmed" at 80.6%. S&P 100 Index (OEX.X) Chart - Daily Intervals OEX resistance still looks more formidable at the 525 level and support at 516. Tough risk/reward trade here, but some sign of bullishness in the fact that OEX didn't test its WEEKLY R1 on recent pullback, as if buyers were more eager. Today's trade saw a net gain of 1 stock to a point and figure buy signal in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" status, but edging up to 81%. Dow Industrials (INDU) Chart - Daily Intervals INDU chart is only one of the indices that shows Stochastics with %K above %D and a bullish crossover on this oscillator. If INDU can hold above 9,828 after tomorrow's economic data, psychology should stay positive for thoughts of Dow 10,000. Today's trade saw no net change in the very narrow Dow Industrials Bullish % ($BPINDU). Still "bull correction" status at 83.33%. Jeff Bailey ------------------------------------------------------------ WINNER of Forbes Best of the Web Award optionsXpress voted Favorite Options Site by Forbes Easy screens for spreads, collars, or covered calls Free streaming quotes Real-time option chains, charts + calculators Go to http://www.optionsxpress.com/marketing.asp?source=oetics21 Note: Options involve risk. 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The Option Investor Newsletter Wednesday 11-12-2003 Copyright 2003, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Stop Loss Updates: None Dropped Calls: None Dropped Puts: None Play of the Day: Call - JCI Spreads, Combinations & Premium-Selling Plays: A Technical Bounce Or The Next Leg Up? Watch List: Bounce Ready Candidates Updated on the site tonight: Market Posture: Relief Rally ------------------------------------------------------------ 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 ------------------------------------------------------------ ***************** STOP-LOSS UPDATES ***************** None ************* 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 ------------------------------------------------------------ ********************** PLAY OF THE DAY - CALL ********************** Johnson Controls - JCI - cls: 108.01 chg: +2.30 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) - Most Recent Update (Tuesday, Nov. 11, 2003) - We had suspected that a high-dollar stock like JCI would see profit taking if the markets continued to slip and that is exactly what happened. Our plan was to look for a bounce in the $106-107.50 range but selling pressure has pushed JCI under the $106 mark. Now shares are approaching our stop and round-number support near $105. It is interested that aside from the early morning drop today JCI narrowed into a very tight trading range. Volume on the last two sessions has been light but given the holiday today that's not a surprise. We would NOT suggest new bullish positions in JCI until we saw a bounce and if it trades under $105.00 we'll close the play at our stop. - Play of the Day Comments - We like the strength of the bounce and the decent volume in Wednesday's rally. As long as there are no major market surprises we would expect to see some follow through tomorrow. - 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. Right now our preference would be Decembers. ! Alert - November options expire next week! BUY CALL NOV 105 JCI-KA OI=568 at $3.60 SL=1.85 BUY CALL NOV 110 JCI-KB OI=315 at $0.70 SL= -- BUY CALL DEC 105 JCI-LA OI= 15 at $4.70 SL=2.50 BUY CALL DEC 110 JCI-LB OI=117 at $1.85 SL=1.00 BUY CALL DEC 115 JCI-LC OI=158 at $0.55 SL= -- Annotated Chart: Picked on October 30 at $107.07 Change since picked: + 0.96 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 432 thousand Chart = ------------------------------------------------------------ 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 ------------------------------------------------------------ ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* A Technical Bounce Or The Next Leg Up? By Ray Cummins Stocks soared Wednesday amid a somewhat expected "relief rally" as investors looked for new entry points in bullish issues. The Dow Jones Industrial Average jumped 111 points to 9,848 with Altria (NYSE:MO), AT&T (NYSE:T), Boeing (NYSE:BA), Caterpillar (NYSE:CAT), Eastman Kodak (NYSE:EK), General Motors (NYSE:GM), Honeywell (NYSE:HON), and McDonald's (NYSE:MCD) participating in the bullish activity. The NASDAQ Composite was more ebullient, climbing 42 points to 1,973 as hardware and networking issues enjoyed strong buying pressure. The Standard & Poor's 500-stock index added 11 points to close at 1,058 with gold, aluminum, and homebuilding shares among the surprise winners while healthcare and oil services issues were generally lower. Volume was average with only 1.3 shares changing hands on the NYSE while 1.8 million shares were swapped on the NASDAQ. Breadth was positive in all major markets, with winners outpacing losers better than 3 to 1 on the Big Board and the technology exchange. Bonds started the session in an upbeat mode, but withered near the end of the day. The 10-year note closed up 8/32 at 98 23/32 to yield 4.40%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 11/11/03 *************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. Naked Puts ********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield DRIV NOV 25 24.50 25.23 $0.50 4.78% 2.04% ERES NOV 32 31.50 37.45 $1.00 6.89% 3.17% NTAP NOV 20 19.50 24.00 $0.50 5.70% 2.56% BRCM NOV 27 27.00 35.99 $0.50 4.69% 1.85% CYD NOV 18 17.20 26.70 $0.30 4.95% 1.74% ERES NOV 35 34.20 37.45 $0.80 6.19% 2.34% LRCX NOV 22 22.20 29.93 $0.30 3.86% 1.35% NVLS NOV 35 34.15 43.30 $0.85 5.35% 2.49% RMBS NOV 20 19.55 25.00 $0.45 6.20% 2.30% TXN NOV 22 22.10 29.66 $0.40 4.23% 1.81% VECO NOV 22 22.00 25.93 $0.50 5.04% 2.27% APPX NOV 22 22.05 26.10 $0.45 7.08% 2.04% CKFR NOV 22 22.20 26.85 $0.30 4.03% 1.35% CYD NOV 20 19.75 26.70 $0.25 4.37% 1.27% ERES NOV 35 34.55 37.45 $0.45 4.25% 1.30% LEND NOV 20 19.70 26.34 $0.30 5.40% 1.52% NFLX NOV 40 39.45 47.03 $0.55 4.89% 1.39% NSCN NOV 20 19.70 24.42 $0.30 4.96% 1.52% ONXX NOV 17 17.15 22.34 $0.35 6.57% 2.04% ANPI NOV 40 39.35 44.50 $0.65 6.30% 1.65% CYD NOV 22 22.25 26.70 $0.25 4.91% 1.12% GPRO NOV 22 22.10 28.30 $0.40 6.92% 1.81% LEXR NOV 20 19.70 21.05 $0.30 5.59% 1.52% MSTR NOV 45 44.55 53.05 $0.45 4.32% 1.01% NTE NOV 35 34.40 34.28 ($0.12) 0.00% 1.74% NTLI NOV 50 49.50 60.05 $0.50 4.38% 1.01% ICOS NOV 40 39.65 44.70 $0.35 5.12% 0.88% IMCL NOV 30 29.75 34.60 $0.25 5.35% 0.84% GPRO NOV 25 24.75 28.30 $0.25 5.75% 1.01% MRVL NOV 40 39.65 43.26 $0.35 4.74% 0.88% MSTR NOV 50 49.55 53.05 $0.45 4.79% 0.91% NVLS NOV 40 39.65 43.30 $0.35 4.55% 0.88% PHTN NOV 37 36.90 39.63 $0.60 7.92% 1.63% PMCS NOV 17 17.25 20.80 $0.25 8.84% 1.45% NTAP NOV 22 22.25 24.00 $0.25 5.86% 1.12% QCOM NOV 42 42.15 46.42 $0.35 4.20% 0.83% VRNT NOV 20 19.75 21.75 $0.25 6.53% 1.27% There are a number of issues on the "watch" list due to the recent profit-taking in stocks and traders are encouraged to exit (or adjust) any suspect positions in the interest of capital preservation. There was no opportunity to initiate the bullish positions in New Century Financial (NASDAQ:NCEN), Photon Dynamics (NASDAQ:PHTN), or Netscreen Technologies (NASDAQ:NSCN) due to "gap-up" in the underlying issues on the day after the plays were offered. The recent position in Palm (NASDAQ:PALM), although profitable, has been removed from the summary due to its complex split resulting in shares of both PalmSource (NASDAQ:PSRC) and PalmOne (NASDAQ:PLMO). Genzyme (NASDAQ:GENZ) has previously been closed to limit losses. Naked Calls *********** Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield FLML NOV 40 40.80 23.23 $0.80 8.88% 1.96% IMCL NOV 45 45.65 34.60 $0.65 6.97% 1.42% SOHU NOV 45 45.55 31.50 $0.55 5.85% 1.21% BGEN NOV 40 40.50 38.54 $0.50 3.96% 1.23% MGAM NOV 45 45.30 44.85 $0.30 3.99% 0.66% * NPSP NOV 35 35.25 26.62 $0.25 4.53% 0.71% NTES NOV 60 60.70 40.76 $0.70 7.65% 1.15% SEPR NOV 30 30.60 25.77 $0.60 9.84% 1.96% PCLN NOV 25 25.30 19.65 $0.30 9.55% 1.19% FLML NOV 30 30.25 23.23 $0.25 8.57% 0.83% SEPR NOV 30 30.25 25.77 $0.25 6.38% 0.83% Multimedia Games (NASDAQ:MGAM) is on the "early-exit" list and unless there is a pause in the rally, only aggressive traders should consider remaining in the position. There was no opportunity to initiate the bearish position in Surmodics (NASDAQ:SRDX) due to the "gap-down" in the underlying issue on the day after the play was offered. Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status CUM 50.77 44.72 NOV 42 45 0.30 44.70 $0.02 Open? CYMI 45.27 46.29 NOV 35 40 0.60 39.40 $0.60 Open ERTS 103.58 99.28 NOV 90 95 0.55 94.45 $0.55 Open SYK 78.92 80.60 NOV 70 75 0.45 74.55 $0.45 Open APOL 63.95 62.41 NOV 55 60 0.60 59.40 $0.60 Open BDK 45.96 46.24 NOV 40 45 0.75 44.25 $0.75 Open? SEE 52.31 52.75 NOV 45 50 0.50 49.50 $0.50 Open GDT 51.47 50.89 NOV 45 50 0.60 49.40 $0.60 Open IFIN 35.10 35.20 NOV 30 32 0.25 32.25 $0.25 Open MXIM 48.24 50.78 NOV 40 45 0.45 44.55 $0.45 Open ELAB 43.74 42.85 NOV 35 40 0.40 39.60 $0.40 Open HIT 63.61 60.78 NOV 55 60 0.55 59.45 $0.55 Open? WFMI 59.00 59.99 NOV 50 55 0.45 54.55 $0.45 Open Positions in Cummins (NYSE:CUM), Black & Decker (NYSE:BDK) and Hitachi (NYSE:HIT) are on the "watch" list for potential early exits. The position in J2 Global Communications (NASDAQ:JCOM) has previously been closed to limit potential losses. Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status MEDI 33.09 24.82 NOV 40 37 0.30 37.80 $0.30 Open BUD 48.89 52.19 NOV 55 50 0.50 50.50 ($1.69) Closed KMX 32.31 32.12 NOV 40 35 0.70 35.70 $0.70 Open NBR 36.75 36.80 NOV 42 40 0.25 40.25 $0.25 Open AMGN 60.30 58.98 NOV 70 65 0.45 65.45 $0.45 Open FRE 57.03 54.95 NOV 65 60 0.60 60.60 $0.60 Open FNM 72.75 69.40 NOV 80 75 0.65 75.65 $0.65 Open BBOX 42.35 43.82 NOV 50 45 0.45 45.45 $0.45 Open GILD 52.00 52.15 NOV 60 55 0.60 55.60 $0.60 Open MANH 28.30 29.45 NOV 35 30 0.50 30.50 $0.50 Open ATH 68.61 65.88 NOV 75 70 0.60 70.60 $0.60 Open MDT 44.03 43.85 NOV 47 45 0.40 45.40 $0.40 Open MMC 44.10 44.47 NOV 50 45 0.65 45.65 $0.65 Open The position in Anheuser-Busch (NYSE:BUD) was closed last week when the issue rallied on positive comments at a Morgan Stanley Consumer Conference and an upgrade by Bear Stearns. Wellpoint Health Networks (NYSE:WLP), which has previously been closed to limit potential losses, returned to profitability on Monday. The speculative positions in Manhattan Associates (NASDAQ:MANH), Medtronics (NYSE:MDT) and Marsh & McLennan (NYSE:MMC) should be monitoring daily for timely exit (or adjustment) signals. Synthetic Positions ******************* No Open Positions Debit Straddles *************** No Open Positions Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** AMAT - Applied Materials $25.44 *** Bullish Outlook! *** Applied Materials (NASDAQ:AMAT) develops, manufactures, markets and services semiconductor wafer fabrication equipment for the worldwide semiconductor industry. The firm manufactures systems that perform most of the primary steps in the chip fabrication process, including atomic layer deposition, CVD or chemical vapor deposition, physical vapor deposition, electroplating, etch, ion implantation, rapid thermal processing, wafer cleaning, chemical mechanical polishing, metrology and wafer inspection. Applied Materials' subsidiary, AKT, manufactures CVD systems used to make flat panel displays that are used in notebook computers, desktop monitors, televisions and other applications. Another business subsidiary, Etec, is a manufacturer of systems used to generate, etch and inspect circuit patterns used in the photolithography process. The firm also provides manufacturing facility management software, as well as services to enhance manufacturing yields. AMAT - Applied Materials $25.44 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 25 ANQ WE 17263 0.65 24.35 19.0% 2.7% SELL PUT DEC 22.5 ANQ XX 25072 0.45 22.05 4.8% 2.0% * SELL PUT DEC 25 ANQ XE 17703 1.25 23.75 9.4% 5.3% ************** EYE - Visx $24.71 *** Entry Point? *** Visx (NASDAQ:EYE) is engaged in the development of proprietary technologies and systems for laser vision correction. Laser vision correction relies on a computerized laser system to treat nearsightedness, farsightedness and astigmatism with the goal of eliminating or reducing reliance on eyeglasses and contact lenses. The company's Excimer Laser System (the Visx System) ablates or removes submicron layers of tissue from the surface of the cornea to reshape the eye, thereby improving vision. The Visx system also treats certain types of corneal pathologies in an outpatient procedure known as PhotoTherapeutic Keratectomy. The company's significant customers include Laser Vision Centers, and TLC Laser Eye Centers. EYE - Visx $24.71 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 22.5 EYE WX 5030 0.40 22.10 15.1% 1.8% SELL PUT DEC 20 EYE XD 326 0.35 19.65 5.2% 1.8% * SELL PUT DEC 22.5 EYE XX 365 0.85 21.65 8.2% 3.9% ************** ICOS - ICOS Corporation $46.30 *** Premium Selling! *** ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products with significant commercial potential by combining its unique capabilities in molecular, cellular and structural biology, high-throughput drug screening, medicinal chemistry and gene expression profiling. The firm applies its integrated approach to erectile dysfunction and other urologic disorders, sepsis, pulmonary arterial hypertension and cardiovascular diseases, as well as inflammatory diseases. The company has established collaborations with pharmaceutical and biotechnology companies to enhance its internal development capabilities and to offset a substantial portion of the financial risk of developing its product candidates. ICOS - ICOS Corporation $46.30 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 45 IIQ WI 3785 1.10 43.90 18.3% 2.5% SELL PUT DEC 35 IIQ XG 1924 0.45 34.55 3.8% 1.3% TS SELL PUT DEC 40 IIQ XH 1247 1.20 38.80 7.4% 3.1% ************** LLTC - Linear Technology $44.33 *** New 2003 High! *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $44.33 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 42.5 LLQ WV 1184 0.30 42.20 5.6% 0.7% * SELL PUT DEC 40 LLQ XH 454 0.55 39.45 3.2% 1.4% TS SELL PUT DEC 42.5 LLQ XV 602 1.20 41.30 5.8% 2.9% ************** MRVL - Marvell Technology $44.59 *** Uptrend Intact! *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. MRVL - Marvell Technology $44.59 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 42.5 UVM WH 2582 0.30 42.20 5.7% 0.7% * SELL PUT NOV 45 UVM WT 2571 0.80 44.20 12.8% 1.8% ************** NVLS - Novellus Systems $44.45 *** BofA Upgrade! *** Novellus Systems (NASDAQ:NVLS) manufactures, sells and services semiconductor processing equipment. The company's products are comprised primarily of advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface prior to these deposition processes. Novellus is a supplier of high productivity deposition and surface preparation systems used in the fabrication of integrated circuits. Chemical Vapor Deposition systems employ a chemical plasma to deposit all of the dielectric (insulating) layers and certain of the metal (conductive) layers on the surface of a semiconductor wafer. Physical Vapor Deposition systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an aqueous solution. NVLS - Novellus Systems $44.45 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 42.5 NLQ WA 3395 0.45 42.05 8.4% 1.1% SELL PUT DEC 40 NLQ XH 2126 0.80 39.20 4.7% 2.0% * SELL PUT DEC 42.5 NLQ XA 879 1.50 41.00 7.1% 3.7% ************** PHTN - Photon Dynamics $40.58 *** The Rally Continues! *** Photon Dynamics (NASDAQ:PHTN) is a provider of yield management solutions to the flat panel display (FPD) industry. The company also offers yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industries and the cathode ray tube display and CRT glass and auto glass industries. The firm's test, repair and inspection systems are used by manufacturers to collect data, analyze product quality and identify and repair product defects at critical steps in the manufacturing. PHTN - Photon Dynamics $40.58 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 37.5 PDU WU 33 0.30 37.20 6.8% 0.8% SELL PUT DEC 35 PDU XG 9 0.75 34.25 5.4% 2.2% * SELL PUT DEC 37.5 PDU XU 72 1.35 36.15 7.7% 3.7% ************** PMCS - PMC-Sierra $21.90 *** 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. PMCS - PMC-Sierra $21.90 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 20 SQL WD 4556 0.30 19.70 12.7% 1.5% SELL PUT DEC 17.5 SQL XW 629 0.40 17.10 6.9% 2.3% * SELL PUT DEC 20 SQL XD 5432 0.95 19.05 10.0% 5.0% ************** SAP - SAP AG $38.98 *** Multi-Year High! *** SAP AG (NYSE:SAP) operates as a business software company. The firm primarily offers the mySAP Business Suite, which is a suite of unique business software applications and an application and integration platform designed to enable companies to manage the entire value chain across business networks, allowing SAP to adapt quickly and remain flexible when faced with changing business conditions. In addition to its software solution portfolio, the company provides service offerings such as business solutions consulting, solution operations services, educational services, hosting services and support services including project planning, implementation assistance, ongoing post-implementation support activities and virtual classroom training for new and existing customers. SAP's customers include multi-national enterprises, as well as small and mid-sized businesses. SAP - SAP AG $38.98 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT NOV 37.5 SAP WT 305 0.30 37.20 6.3% 0.8% * SELL PUT DEC 35 SAP XG 460 0.45 34.55 3.1% 1.3% TS SELL PUT DEC 37.5 SAP XT 275 1.15 36.35 6.2% 3.2% ************** BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. *************** KLAC - KLA-Tencor $60.08 *** Bullish Outlook! *** KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. The company's large portfolio of products, software, analysis, services and expertise is designed to help integrated circuit manufacturers manage yield throughout the entire wafer fabrication process, from research and development to final mass production yield analysis. The company offers a broad spectrum of products and services that are used by every major semiconductor manufacturer in the world. These customers turn to the company for in-line wafer defect monitoring; reticle and photomask defect inspection; CD SEM metrology; wafer overlay; film and surface measurement; and overall yield and fab-wide data analysis. KLAC - KLA Tencor $60.08 PLAY (less conservative - bullish/credit spread): BUY PUT DEC-50.00 KCQ-XJ OI=9940 ASK=$0.50 SELL PUT DEC-55.00 KCQ-XK OI=6807 BID=$1.25 INITIAL NET-CREDIT TARGET=$0.75-$0.80 POTENTIAL PROFIT(max)=17% B/E=$54.25 ************** MIK - Michael's Stores $50.55 *** All-Time High! *** Michaels Stores (NYSE:MIK) is an arts and crafts specialty retailer providing materials, ideas and education for creative activities. The firm operates over 700 Michaels retail stores in 48 states, as well as in Canada, offering a products for the do-it-yourself home decorator and arts and crafts supplies. The company also operates over 150 Aaron Brothers stores in nine states, with photo frames, a full line of ready-made frames, custom framing services and a wide selection of art supplies. In addition, the company owns and operates Star Wholesale, a single-store wholesale operation located in Dallas, Texas, offering merchandise primarily to interior decorators/designers, wedding/event planners, florists, hotels, restaurants and commercial display companies. MIK - Michael's Stores $50.55 PLAY (less conservative - bullish/credit spread): BUY PUT DEC-42.50 MIK-XV OI=1708 ASK=$0.45 SELL PUT DEC-45.00 MIK-XI OI=263 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$44.70 ************** SMH - Semiconductor HOLDRS Trust $44.65 *** Strong Sector! *** The Semiconductor HOLDRS Trust (AMEX:SMH) is a unique instrument that represents an investor’s ownership in the stock of specified companies in the semiconductor sector. HOLDRS allow investors to own a diversified group of stocks in a single investment that is highly transparent, liquid and efficient. Each HOLDR is a fixed basket of 20 stocks (except the Telebras HOLDR, which holds 12 companies). They work operate much like ADRs; American Depositary Receipts, which allow U.S. investors to purchase foreign-owned companies on the U.S. exchanges in dollar denominated amounts. In just the same way, the investor actually owns the shares of each underlying company, receives dividends, proxies, and annual reports from each. The HOLDRs are not managed, and once the companies and amounts have been determined they are fixed, no companies will be substituted. In this way, the HOLDRs differ somewhat from Spiders (SPDRs), or Standard & Poor Depositary Receipts and other exchange traded funds, which will add and delete stocks on a regular basis, usually in conjunction with an index that they are tracking. A complete description of this issue, including the companies that make up each HOLDRS' particular industry, sector or group can be found here: http://www.holdrs.com/holdrs/main/index.asp?Action=Definition SMH - Semiconductor HOLDRS Trust $44.65 PLAY (conservative - bullish/credit spread): BUY PUT DEC-37.50 SMH-XU OI=11011 ASK=$0.30 SELL PUT DEC-40.00 SMH-XH OI=20747 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$39.75 ************** BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. *************** IACI - InterActiveCorp $33.80 *** Recent Slump! *** InterActiveCorp (NASDAQ:IACI), formerly known as USA Interactive, is a multi-brand interactive commerce firm transacting business worldwide via the Internet, television and the telephone. Their portfolio of companies collectively enables direct-to-consumer transactions across many areas, including home shopping, tickets, personals, travel, teleservices and local services. During 2002, InterActiveCorp completed two major transactions that together transformed the company. The firm acquired a majority interest in Expedia.com and it accomplished the contribution of its entertainment businesses to Vivendi Universal Entertainment, a joint venture controlled by Vivendi Universal, S.A. The firm's business is organized into three groups: Electronic Retailing; Information and Services, and Travel Services. IACI - InterActiveCorp $33.80 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 35 QTH KG 8415 0.40 35.40 9.6% 1.1% SELL CALL DEC 37.5 QTH LU 1134 0.45 37.95 3.6% 1.2% TS SELL CALL DEC 35 QTH LG 2345 1.15 36.15 7.0% 3.2% ************** WEBX - WebEx Communications $19.80 *** Premium-Selling Only! *** WebEx (NASDAQ:WEBX) develops and markets services that allow users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard Web browser. Integrated telephony and Web-based audio and video services are also available using telephones, computer Web-cameras and microphones. The company's activities have been focused on continuing to enhance and market its WebEx Interactive Services and its WebEx Multimedia Switching Platform, developing and deploying new services, expanding its sales and marketing organizations and deploying its global WebEx Media Tone Network. The company sells WebEx Meeting Center, WebEx Meeting Center Pro, WebEx Training Center, WebEx Support Center, WebEx OnStage and WebEx Enterprise Edition. It also provides a service called WebEx Business Exchange to existing customers. WEBX - WebEx Communications $19.80 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 20 UWB KD 567 0.60 20.60 21.9% 2.9% SELL CALL DEC 25 UWB LE 1273 0.30 25.30 5.8% 1.2% * SELL CALL DEC 22.5 UWB LX 979 0.60 23.10 8.5% 2.6% ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** BGEN - Biogen $38.57 *** Bearish Biotech? *** Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human healthcare. The firm derives revenues from sales of its Avonex (Interferon beta-1a) product for the treatment of relapsing forms of multiple sclerosis (MS) and from royalties on worldwide sales by its licensees of a number of products covered under patents it controls. In addition, Biogen has a number of ongoing research programs and a pipeline of development-stage products, the furthest along of which, Amevive (alefacept), is being considered for approval by the United States Food and Drug Administration and regulatory authorities in the European Union and Canada for the treatment of moderate to severe psoriasis. BGEN - Biogen $38.57 PLAY (moderately aggressive - bearish/credit spread): BUY CALL DEC-45.00 BGQ-LI OI=870 ASK=$0.20 SELL CALL DEC-42.50 BGQ-LV OI=1917 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$42.75 ************** NE - Noble Corporation $33.79 *** Sector Slump! *** Noble Corporation (NYSE:NE) is a provider of diversified services to the oil and gas industry. The firm performs contract drilling services with a fleet of 49 offshore drilling units located in key markets worldwide. Its fleet of floating deepwater units consists of nine semisubmersibles and three dynamically positioned drillships, seven of which are designed to operate in water depths greater than 5,000 feet. Its premium fleet of 34 independent leg, cantilever jack-up rigs includes 21 units that operate in depths of 300 feet and greater, four of which operate in depths of 360 feet and greater, and 11 units that operate in depths up to 250 feet. Its fleet also includes three submersible drilling units. Over 60% of the fleet is deployed in global markets, principally the North Sea, Brazil, West Africa, the Middle East, India and Mexico. The firm also provides labor contract drilling services, site and project management services, and engineering services. NE - Noble Corporation $33.79 PLAY (moderately aggressive - bearish/credit spread): BUY CALL DEC-37.50 NE-LU OI=355 ASK=$0.15 SELL CALL DEC-35.00 NE-LG OI=1925 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=19% B/E=$35.40 ************** SEE DISCLAIMER - SECTION 1 ************** ------------------------------------------------------------ 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 ------------------------------------------------------------ ********** Watch List ********** Bounce Ready Candidates SanDisk - SNDK - close: 84.99 change: +3.39 WHAT TO WATCH: Shares of SNDK produced a big bounce after finding short-term support near $81.00. Volume was very strong and the stock looks ready to make a rally attempt towards the $90 mark. Traders should be cautious because the stock is so overbought but a tight stop might make it worthwhile. Chart= --- Diebold Inc - DBD - close: 55.74 change: +0.93 WHAT TO WATCH: We highlighted DBD as a potential bullish candidate in the MarketMonitor this afternoon. Shares have a very strong rising channel and investors have been using the 21 and 30-dma's to buy the dips. The recent pull back (a.k.a. profit taking) has stalled at the round-number support of $55.00 that just happens to be underpinned by the 30-dma. Shares bounced today and bullish traders could buy the bounce with a tight stop under yesterday's low. Target $60.00. Chart= --- Thor Industries - THO - close: 61.98 change: +1.48 WHAT TO WATCH: Shares of THO have pulled back to five-week old support at the $60 level. However, this time support is bolstered by its rising simple 50-dma. Bullish traders aggressive enough to buy the bounce here could stick a stop loss under the low on Tuesday (59.50). Otherwise, momentum traders may want to wait for another breakout above the $64 mark. Chart= --- Alliant Tech Systems - ATK - close: 52.49 change: +0.59 WHAT TO WATCH: Shares of ATK are currently struggling with P&F resistance near $53.00 but if you look at its daily chart the resistance appears to be $52.50. Option traders who believe the stock will breakout could buy a $50 call and look for a run toward the $55 mark. The escalating violence in Iraq could have a positive affect on defense stocks like ATK even if the reaction is purely psychological. Chart= =================================== RADAR SCREEN - more stocks to watch =================================== PETM $27.66 +1.12 - Wow! PETM put together to back-to-back rallies after consolidating sideways for a month. Next stop could be the $30 level. CVH $56.20 +1.65 - Shares of CVH found strong support at its simple 50-dma last week and have now reclaimed the $55 mark. Bulls could target $60.00. CDWC $60.95 +1.89 - Another big bouncer today is CDWC. Shares rebounded from the simple 50-dma and broke the short-term trend of lower highs. ************** MARKET POSTURE ************** Relief Rally To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/mp_111203.asp ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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