The Option Investor Newsletter Wednesday 11-19-2003 Copyright 2003, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Stocks End Losing Streak Futures Wrap: Back from the brink Index Trader Wrap: NASDAQ-100 is main index to monitor for weakness Traders Corner: Adapting To Change Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 11-19-2003 High Low Volume Advance/Decline DJIA 9690.46 + 66.30 9707.64 9614.24 1.62 bln 1712/1105 NASDAQ 1899.65 + 17.90 1903.43 1880.31 1.78 bln 1805/1269 S&P 100 516.82 + 4.60 517.57 512.22 Totals 3517/2374 S&P 500 1042.44 + 8.29 1043.95 1034.15 RUS 2000 525.62 + 3.94 527.15 519.84 DJ TRANS 2866.87 - 0.08 2878.21 2843.77 VIX 18.80 - 0.31 19.51 18.65 VXO 19.45 - 0.45 20.41 19.35 VXN 29.96 + 0.31 30.40 29.15 Total Volume 3,832M Total UpVol 1,288M Total DnVol 2,486M 52wk Highs 302 52wk Lows 47 TRIN 0.81 PUT/CALL 0.87 ******************************************************************* Stocks End Losing Streak by James Brown U.S. stock market averages ended a four-day losing streak as Jim's mysterious buyers* arrived on time to buy the dip (*see yesterday's wrap). Strong housing data and a round of positive corporate news ushered in a wide rally. Only airlines and oil service stocks seemed to attract any heavy selling while buyers concentrated on technology with Internets, semiconductors, networking and biotech lead the way. Rumors were circling that the Bank of Japan intervened last night to lift the dollar off its five-year lows against the yen near 107.55. The greenback also bounced back from its all-time lows against the euro. Foreign exchanges were not so lucky. The Japanese NIKKEI index fell 282 points to close at 9614. This comes on the heels of Monday's 380-point loss. The Hang Seng dropped another 154 points to follow up on its 200-point drop from Monday. The drop was likely fueled by the new import caps on Chinese textiles announced yesterday. The Hang Seng closed at 11,872. European stocks were mostly lower following the weakness from their Asian counterparts. The broad-based rally here at home lifted 25 out of 30 Dow components and the majority of sector indices closed green. Advancing stocks ran past decliners 17 to 11 on the NYSE and 18 to 12 on the NASDAQ. Up volume was about twice down volume on both exchanges. The 66-point bounce in the DJIA lifted the index back towards the 9700 level but it failed to close above it. Likewise the 17.9-point rally in the NASDAQ took it right to the 1900 mark but failed to close above it. That doesn't sound very convincing if you're looking for new bullish positions. Yet looking at the rising trend from March you'll notice that most of the short-term lows took a good three or four days to consolidate before the next rebound truly appeared. Chart of the DJIA: Chart of the NASDAQ: The economic news of the day was the U.S. housing starts for October. The Commerce Department reported that the number of new homes started in October jumped 2.9%. This pushed the rate to an adjusted rate of 1.96 million homes a year. This was the highest level since 1986 and well above analyst estimates of 1.85 million. The report also said that new starts for single-family homes jumped 5.7% to a rate of 1.62 million - another record level not seen since the mid-1980s. While the homebuilders failed to rally on the report it is good news. High home starts and sales promote strong consumer spending, which will continue to give the economy an underlying strength. Thank goodness for a resilient retail investor because the feds are busy on Wall Street again. In addition to the growing mutual fund scandal the FBI busted 37 brokers and charged 10 more in a currency trading scam. The bust came last night and authorities arrested traders from J.P.Morgan UBS Warburg, even a former employee of the Federal Reserve. Thankfully, the markets appeared to ignore the news and shares of JPM lost a mere 13 cents. There were plenty of stocks making headlines today but none bigger than General Electric (GE). GE offered strong earnings guidance for 2005 but said 2004 would likely be flat as it adjusted its "portfolio" into a position to generate double-digit growth again. The company did raise its dividend by 5 percent and said it would split off part of its mortgage and life insurance business. The IPO, expected to launch next year, is called Genworth Financial and said to be worth as much as $10 billion. GE plans to initially spin off 30% of the company before slowly divesting themselves fully of the business. GE's stock was the most active on the Big Board today and closed up 3.6%. Discount broker Charles Schwab (SCH) also made news when they announced a $321 million acquisition of SoundView Technology (SNDV). This values SNDV at $15.50 and equals a 17 percent premium above SNDV's stock price from yesterday. SCH claims SNDV will be a good addition to their own research operations. Shares of SCH dropped 8 cents to $11.34 and SNDV jumped 16% to $15.41. Internet stocks made some gains today after a Smith Barney analyst, Lanny Baker, said online advertising revenues should jump 20 percent in 2004 and remain strong throughout 2005. Yahoo! Inc. (YHOO) saw its price target raised $3 to $46 while DoubleClick (DCLK) had its price target lifted $3 to $12 after Lanny upgraded DCLK from a "sell" to a "buy". The INX internet index rose 2.54% after three days of heavy losses. It was interesting to note the UTY utility index bounced 1.4% after a government report came out today fingering Ohio's FirstEnergy Corp as the culprit for the nation's largest blackout. FirstEnergy denies the claim but the report said FirstEnergy failed to monitor its electrical transmission systems. The August 14th blackout spread to eight states and took out 263 power plants. Investors welcomed positive news from Analog Devices (ADI), Big Lots (BLI) and United Health (UNH) as all three raised their earnings guidance. The ADI and UNH news helped fuel strong gains in the SOX semiconductor index and the HMO healthcare index. Wall Street received even more good news after the close with earnings reports from retailer Hot Topic (HOTT) and Hewlett- Packard (HPQ). HOTT reported Q3 earnings of 31 cents a share, which beat estimates by 3 cents. Sales jumped 32 percent with same-store sales climbing 10.8 percent. Meanwhile Dow component HPQ beat estimates by a penny, with 36 cents a share sans one- time items. HPQ's Q4 net profit came in at $862 million, which was twice its year-ago numbers. The company gave credit to strong sales of technology services and PC's. Tomorrow is up for grabs in my book. Bulls would like to see some follow through on today's bounce but as I mentioned earlier previous lows all took three or four days to consolidate before buyers could initiate the next rebound. The markets continue to receive positive economic and corporate earnings news but the urge to harvest gains appears to be growing as we approach the end of the year. This belief that investors are comfortable with their year-to-date gains and therefore less likely to chase stocks higher could lead to a range bound market. Overall the mutual fund scandal and rising geo-political tensions are psychological hurdles that could put the brakes on this traditionally bullish season. As Jim mentioned in his wrap yesterday the situation regarding Syria is heating up and I read a newsflash today stating the U.S. had just doubled the number of troops on the Iraq-Syrian border. Thursday will bring a number of earnings announcements from the retail sector. Announcing are: American Eagle Outfitters (AEOS), Barnes & Noble (BKS), Borders Group (BGP), Claire's Stores (CLE), The Gap (GPS), Foot Locker (FL), and Limited Brands (LTD). Also announcing is Dow component Disney (DIS). ************ FUTURES WRAP ************ Back from the brink Jonathan Levinson Equities decided not to take yesterday's carnage to the next level, setting a low overnight and recovering for the remainder of the day. The US Dollar and equities rose, treasuries and commodities declined. Daily Pivots (generated with a pivot algorithm and unverified): Note regarding pivot matrix: The support, pivot and resistance levels above are derived from the high, low and closing price levels by a simple mathematical formula. They are not intended to be predictive of market turning points or to serve as targets, but rather represent the range retracement levels as generated by the pivot algorithm. Do not think of them as market "calls" or predictions. Like any technically-derived indicator or price level, the pivot matrix values should be regarded as decision points at which to evaluate current market conditions. Visit us in the Futures Monitor for our realtime views of the various markets covered here. 10 minute chart of the US Dollar Index The US Dollar Index found bidders in Europe and managed to continue its rise off the overnight lows, trading as high as 90.95. Gold, silver and the CRB all declined, thought the HUI and XAU managed a turnaround at the close to finish in positive territory. Daily chart of December gold December gold dropped 2.30 to close at 395.30, printing an intraday high of 399.80. Silver dropped 8.7 cents or 1.62%, bu the mining indices advanced, HUI +1.59 at 236.81 and XAU +.53 at 105.17. Today's pullback in the metal was to be expected and did not impact the current daily cycle upphase. A move below 388 would alter the picture, but in the meantime the consolidation below 400 continues. The CRB dropped 3.45 to close at 251.92. Daily chart of the ten year note yield The bearish trade in metals and commodities was matched by selling in treasuries, with the TNX adding 6.8 bps in a bullish engulfing reversal of this week's prior loss to close at 4.235%. So long as treasuries continue to trade against equities, I will expect equities to underperform, as the Fed has been insistent on prioritizing low yields above all else. I continue to believe that the Fed would prefer a crash in equities to a rally in yields. The recent action suggests that it will be one or the other, but we're just guessing at this level. Daily NQ candles In retrospect, it was an entirely predictable day- a good day for robots trading OPM (other people's money). The 30 minute cycle trough reversed off the overnight low and ran straight to the top, with the daily candle a "return to the scene of the crime" test of failed support on the rising bear wedge. The move did not impact the daily cycle oscillators, and if the 30 minute rolls over from here, a break of 1360 support will be the next tell to confirm what felt yesterday like a bone fide downtrend. A break above 1392 should not occur under this scenario, and if does, we'll be forced to reevaluate. 30 minute 20 day chart of the NQ Today's bounce could be a bull wedge breakout on the 30 minute candle chart, but the oscillators do not support it, and I expect weakness to reassert itself either from the get-go or slightly after the open. 1384 appears to be horizontal resistance under the sloppy head and shoulders-esque top currently in place, and again, 1392 should cap any residual upphase from out now-very- trusty 300 minute stochastic. Daily ES candles The ES printed the same tweezer bottom as the NQ, but it did so above 1032 support, coinciding with the lower wedge support line. The move reversed most of yesterday's losses, but still set a lower high. Most noteworthy was that it didn't collapse entirely at the open, given the ferocity of yesterday's end-of-session selling. I believe that options expiration manipulation helped prop the markets last night and this morning, but the 300 minute stochastic predicted it as well. 1030-32 is the key support to watch, with 1055 now resistance on any bounce. 20 day 30 minute chart of the ES The 300 minute stochastic on the 30 minute chart is in rollover territory here, lining up nicely with the resistance line at 1043. A failure here would again line up with the downphasing daily and weekly oscillators and should, in theory, pack some downside weight. If it does not, and a higher low above 1032 is printed, we can expect more upside at current levels. I'm expecting possible upside follow-through tomorrow, but I'd be surprised to see today's highs exceeded. Above 1048, it would be more than a mere throwover, and we'd be forced to reevaluate our nearterm bearish bias. 150-tick ES There's not much to say about today's intraday chart, other than to observe that the short cycle oscillators are in a so-far shallow downphase. Again, more upside is possible, but it shouldn't amount to much. Daily YM candles The YM resembles the ES to a "t". Nothing to add here. 20 day 30 minute chart of the YM I'm becoming increasingly comfortable with the increasingly predictable inverse relationship between bonds and equities. The side-by-side rallies this spring threw me off, and the markets make much more sense to me now that things are back in swing. The fact that traders cannot simply buy anything, be it treasuries, equities or commodities, and have it go up right away implies that the Fed has finally pulled its foot off the gas, at least for the moment. Given the importance of the astronomic credit bubble, I expect scarce resources to favor bond prices over equity prices. So long as the two are trading inversely, I'll expect to see weakness in equities for a change. The fact that the cycles I follow agree with this intermarket interpretation is all the better. Careful tomorrow, as scam week is still upon us. The cycle picture should be clear, but be ready for the unexpected with opex Friday approaching. See you tomorrow. ******************** INDEX TRADER SUMMARY ******************** NASDAQ-100 is main index to monitor for weakness The major indices reversed their recent slide in today's session, bolstered in part to the Bank of Japan intervening on the yen in yet another attempt to stem the yen rise against the U.S. dollar. The six foreign currency weighted U.S. Dollar Index (dx00y) 90.91 +0.64% showed the dollar strengthening against the major currencies. The two most heavily weighted foreign currencies had the December euro futures contract (eu03z) 1.1871 -0.60% and December yen futures contract (jy03z) 0.009154 -1.13% trading back from yesterday's highs. And while a rebound in the dollar helped the major indices finish green, I view today's gains somewhat shaded, as if colored with artificial food coloring. I've bitten into a few pieces of candy that were colored green, but instead of a refreshing peppermint taste, the green-color candy was nothing more than raw sugar that was artificially colored, and I was left wanting more. Not more of the sugared candy, but something with some bight to it. Recent e-mail has had market monitor participants wanting continual hourly updates on short-term trading the NASDAQ-100 Tracking Stock (AMEX:QQQ) $34.21 +0.97%. On a day like today, this was a difficult task, but some potentially worthy observations were made, which we'll review in a moment. All day I felt like something was missing for a strong bullish move higher with the dollar rebounding as it was and perhaps tonight's updates on the market internals will show that it may well be that bullish leadership may be tiring and has today's gains being somewhat sugar coated. Let's quickly review the pivot matrix, where the Dow Industrials (INDU) 9,690.46 +0.68% kissed its WEEKLY S2 of 9,619 early this morning for the first time this week, to close back near its WEEKLY S1 after trading a session high of 9,707.64 late this afternoon. When reviewing tonight's closing values for the major equity indices, we will note the INDU, DIA, SPX, SPY and OEX all closed very near their WEEKLY S1s, with the NDX/QQQ lagging in the WEEKLY Pivot matrix. Keep this in mind when we later look at the NH/NL breadth indicators. Pivot Analysis Matrix While today's gains in the dollar undoubtedly helped put some near-term fears to rest that the dollar would simply fall apart, I think it important to understand that the dollar's rebound was largely due to intervention by Japan, and not necessarily the response of untainted market. But as I've discussed with some extremely bullish gold bugs, that have said the only reason gold isn't at $800 per ounce and the dollar worthless, is that while bank interventions and various hedging or "manipulation" of markets may seem unnatural, the true trade will always work its way out in the end, and all is fair in love and war. If the Bank of Japan has the clout to sell yen and buy dollars, which on this particular day stemmed the yen's advance and dollar's slide and influenced markets, then so be it. However, we take note of the Bank of Japan's actions may have had on today's trade, what impact similar interventions have had on the yen/dollar, and move on. It has been awhile since we've looked at the NYSE and NASDAQ new high and new low breadth. While I sensed something missing for a more bullish session with the dollar's rebound, I think it may have been the lack of bullish leadership in the NASDAQ's NH/NL breadth. NYSE and NASDAQ New High / New Low Daily Breadth While tonight's focus will be the NSDQ NH/NL 10-day Average of NH/NL ratio (scale 0%-100%, just like the bullish % is scaled) I'm also showing the 5-day Average where I like to color it green and red to get the visual perspective similar to a 5-day moving average crossing above (green) or below (red) the 10-day average. It is today's 91.4% reading which has me alert that today's trade and 117 new highs versus 29 new lows has the 10-day average reversing back lower to what would be considered "bull correction" status for this indicator of leadership. Please note that this is the NH/NL breadth for the NASDAQ Composite (COMPX) 1,899.65 +0.95%, but can be tied with the NASDAQ-100 for an observation of new highs versus new lows. Here's a quick look at my hand charting of this 10-day average ratio of new highs versus new lows. Those of you that look at the FREE bullish % charts on a point and figure basis at www.stockcharts.com, will probably begin to see some similarity. NASDAQ NH/NL 10-day Avg. Ratio Chart - 2% box scale Today I'm charting a 3-box reversal back lower to "bull correction" in the NASDAQ Comp. NH/NL 10-day Avg. As you can see, on September 24th to be exact (red 9) I charted a reversal back up to 98%, and its has taken almost 2-months for another chart entry to be found. However, a chart entry at 90% would have this indicator of NH/NL breadth turning "bear confirmed" and then below its August (red 8) 92% reading. On August 14, 2004, the NASDAQ Comp. NH/NL 10-day Avg. was 90.1% and came just shy of the a 90.0% reading. As a quick side note for the NYSE NH/NL 10-day average, it would currently take a 10-day average reading of 92% to reverse back lower to "bull correction" and a reading of 62% to then turn "bear confirmed." As a comparison, in August (red 8), the NYSE NH/NL fell to 64% before reversing back higher to an October reading of 98%. While today's reversal is not OVERLY concerning to bulls, I feel it is certain WORTHY of note, and gives me a visual observation that may confirm what I "sensed" in today's NASDAQ-100 Tracking Stock (AMEX:QQQ) $34.21 +0.97% trade. Here's a chart of the NASDAQ-100 Tracking Stock (AMEX:QQQ) that I showed in today's market monitor. While this chart was captured at approximately 10:21:55, it may tie in very well after viewing the above NH/NL breadth chart. NASDAQ-100 Tracking Stock (AMEX:QQQ) - Daily Intervals In an effort to concentrate on the QQQ in today's market monitor, we looked at multiple time intervals. The above chart has conventional retracement used where the bottom is anchored that the March lows (make this tie with the NH/NL reversal up) and the recent 52-week high of $36.17. While we usually look at the QQQ with WEEKLY/MONTHLY pivot analysis retracement, where the QQQ violated its WEEKLY S2 yesterday, the above retracement at its 19.1% level of 19.1% may indeed be a level that found buyers yesterday, and after breaking below a rather longer-term trend from the March low, can be observed as an important near-term level of support. From a Fibonacci retracement perspective, it is considered normal for a stock or index to retrace 38.2% or even 50% of an upward move. However, when trying to figure out where the actual top is/was, that's the most difficult part. I begin to think that the NASDAQ-100 is going to break lower, and show DIVERGENCE from the PINK circled area of mid-August and that observation becomes what I think is a very good near-term test into next week, where I would look for the 21-day SMA to become a level of resistance. Still, we may begin to see some lacking of bullish leadership taking place in the NH/NL breadth indications for the NASDAQ Composite. The NASDAQ-100 Bullish % ($BPNDX), which is "bear confirmed" status also saw a net loss of 2 stocks to point and figure sell signals today, and this different indicator of market internals has been weakening of late. As such, traders and investors are VERY ALERT TO WEAKNESS in this part of the market, and weakness below yesterday's lows would be views as a NEGATIVE. S&P 500 Index Chart - Daily Interval On a near-term basis, the starting to round out 21-day SMA becomes a focal point of near-term resistance, as does the little sliver zone of resistance near 1,047, where Monday's trade saw a pretty share break below that level. With option expiration this WEEK, I might add a little room for resistance to the WEEKLY Pivot of 1,052.50 for volatility. A break below 1,032 would be viewed as further weakness as discussed in last night's wrap. I would continue to hold yesterday's profiled put in the SPX. Today's trade saw no net change in the S&P 500 Bullish % ($BPSPX). Still "bull confirmed" at 79.2%. Today's trade saw no net change in the narrower S&P 100 Bullish % ($BPOEX). Still "bull correction" status at 79.0%. Dow Industrials Chart - Daily Intervals I'm viewing 9,800 (give or take 10-points based on size of scale) and 9,600 (give or take 10-points) as a near-term consolidation range for the INDU. In past I've been more willing to buy this dip, but I'm a little more cautious with China trade developments, and yesterday's rather sharp decline in the dollar. Today's trade saw no net change in the Dow Industrials Bullish % ($BPINDU) and still "bull correction" status at 80%. Jeff Bailey ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************** TRADERS CORNER ************** Adapting To Change by Mark Phillips mphillips@OptionInvestor.com The past few months have been trying for intraday traders in the futures arena due to the contracting daily ranges in the major indices, accompanied by the CBOE Volatility index (VIX.X) plunging to multi-year lows. Whether this is a short-term aberration or a long-term change is really not germane to the approach we choose to employ towards profitable trading. What is critical is that we modify our approach to account for the change, whether that means changing the technical indicators we use or considering a modification of our chosen trading vehicle. The modification may be as simple as recognizing that market conditions have changed and accept that we need to be less aggressive and more discriminating in our trade selection. But first we need to quantify and understand the nature of the changes that have taken place. First let's look at current conditions in the ES. More days than not, the price action is characterized by tight-range, noisy movement, punctuated by the occasional buy or sell program. Let's face it, when the total range for the ES on a given day is 6-8 points, it is tough to make a buck in there unless you're a very highly skilled scalper. Just for clarification, that isn't me. I describe myself as a swing trader. I like to take one to three trades in a given session, taking a chunk out of the middle of whatever intraday trends might exist. For instance, if the day has a total range of 10-12 points, then I might look to capture 60-70% of an intraday trend from the low to the high. Let's look at a recent intraday chart to get an idea of what I'm talking about. 5- Minute Chart of the ES - November 18th This is typical of the type of session that is very straightforward to trade. Just take every overbought alignment on the Stochastics and trade the downside in keeping with the overall trend. These types of sessions used to come along 3-4 times per week, but as we all know, they have been arriving with less and less frequency over the past few months. Rather than the rule, these steady trending sessions have become the exception. Each of the overbought alignments on the chart above provided profitable entries into the downtrend. The first entry would have been on the aggressive side due to it being early in the day and at that point in time, we really didn't have any indication as to whether the trend would be down or if the gap would be followed with more bullish action. I would also label the last one at roughly 12:30pm PT (3:30pm ET) as questionable due to its proximity to the end of the regular trading session. So let's call this session one with 2 profitable entries into a solid downtrend. In a total range of 17 points, both of those entries would have been capable of delivering a 10-point gain for the day. The next chart shows the sort of session we have been confronted with all too often since Labor Day rolled around. The trend remains questionable throughout the session, with false signals around every corner. Exacerbating the problem is the fact that the distance between the turns is so small that by the time we can discern a change and switch directions, that move is practically over as well. 5-minute chart of the ES - November 13th Using the same entry strategy employed in the first example, let's just look at each of the Stochastics entries this day provided. By my count, that's 5 short trades and three long trades -- definitely ugly just on the number of trade setups that presented themselves. To be generous, I'll throw out the first and last short signals, as the first was a bit early in the day for my taste and the last one came on a pretty big sell program inside the final hour. That leaves us with four short signals, with none of them producing anything but losses. The "best" trades of the day were the long signals at 8:00am and then near 10:30, and if we had the foresight to exit at the peaks of those two respective moves (not likely), we could have netted gains of 3 points and 5 points respectively. In reality, that might have been enough to offset the 3 losing short trades and the one losing long trade. In a word, "Yuck!" Reality is that in an market we choose to trade, these untradable or losing sessions are bound to crop up. It's just part of the game. But we need to have a predominance of the former trending session in order to make consistent profits in the market that we've chosen. While the ES provided the appropriate balance between the two up through the early part of the summer, I've noticed with disdain the number of "piggish" sessions has been larger than the number of tradable sessions. That is not a recipe for success. Before we go on though, let's look at a method we can use to quantify the change I'm describing. Most charting applications (I'm showing it here in eSignal) have a neat little indicator called Average True Range, which is a measure of the range averaged over the specified number of periods (I've used 14). Over time, we can see whether the range in a market is expanding or contracting. As you can see from the chart below, the range in the ES has definitely been contracting. Daily Chart of the ES December Contract While the uptrend in the market has remained intact, we can see from the sharp decline in the ATR indicator through August, that the ES has moved into a mode of much lower range than what we saw through the summer, which itself seemed rather narrow. In order to see if this is a short-term aberration or something more significant, I stepped back from the ES contract, which only gives us a few months of data per contract and looked at the daily chart of the S&P 500 (SPX). Daily Chart of the S&P 500 (SPX) Lo and behold, this is a major change in the overall dynamic of the market. Since the peak last July, the ATR has put in a pattern of lower highs and lower lows, bringing the indicator down near the 10 points per day level. I didn't show it here, but in scrolling the chart back, I found that the last time the ATR was this low for the SPX was in early 1998. Hmmm... Could there be any correlation to the fact that the last time we saw the VXO (the old VIX based on the OEX options volatility) probing the 16-17 area was back in 1998 as well. That gives us a very important piece of information with respect to when we might be able to expect the intraday range on the ES to expand to more normal levels. When we see the VIX pushing back over 20 and preferably closer to the midpoint of its historically normal range (roughly 25), that should be a good indication that we can expect a daily range on the ES to run in the 15-18 point area. In the meantime, we have a couple of different ways in which we can cope with the less than ideal trading conditions in the ES. The first is to become more selective in the trades we're willing to take, forcing the market to give an indication of a trending session or else only trading in agreement with the trend shown on a longer-term chart (say 30 or 60 minute). We'll end up taking fewer trades, but hopefully shift the bias sufficiently so that there are more winners than losers. The other possibility that deserves consideration is evaluating whether there is a better trading vehicle we can consider. The qualities such a market would have are wider intraday ranges and a propensity to still trend more often than not. I had intended to get to that part of the discussion tonight as well, but in typical fashion I bit off more than I could chew. I've run out of both time and space for tonight, but we'll pick up where we left off next week. One final note about ways to deal with the current challenges in the ES. You'll note that I did NOT list as one of possible remedies a change in the technical indicators or trade signals used. You see, except for a very skilled scalper, it really doesn't matter what tools are being employed when the ES is chopping in a 6-8 point range -- there isn't enough trending movement to allow for we mere mortals to take technical entries, hold judicious stops and not get knocked out at the extremes of the chop before the one or two program-driven moves of the day. The moral of the story is that we need to pick the trading strategy that we've satisfied ourselves (through back-testing) works in markets that move in a methodical manner. Then we select the market to trade, based on whether its pattern of movement that is in concert with our chosen trading system. If that market ceases to be consistently cooperative, then perhaps it is time to evaluate whether that is the right market to trade. Tonight we've defined what the problem is and next week we'll address a potential solution. See You Next Week! Mark ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. 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. You may also fax the information to: 303-797-1333 ********** 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 Wednesday 11-19-2003 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: AMGN Play of the Day: Put - AVID Spreads, Combinations & Premium-Selling Plays: Stocks Rebound As Dollar Recovers! Watch List: A Few Three-Lettered Stocks Updated on the site tonight: Market Posture: Flat Bounce ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ***************** STOP-LOSS UPDATES ***************** None ************* DROPPED CALLS ************* None ************ DROPPED PUTS ************ Amgen Inc - AMGN - close: 60.10 chg: +1.26 stop: 61.01 The rebound in the BTK biotech index was too much for traders bullish on AMGN. The stock traded up to 61.10 today before falling back toward the $60 level. That was enough to stop us out for a small loss. It didn't help having both Bank of America and Merrill Lynch reiterate their buy ratings on AMGN in the last couple of days. Picked on November 09 at $59.95 Change since picked: + 0.15 Earnings Date 10/21/03 (confirmed) Average Daily Volume: 8.8 million Chart = ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ********************* PLAY OF THE DAY - PUT ********************* Avid Technology - AVID - cls: 47.98 chg: -0.42 stop: 51.26 -Company Description- Avid Technology, Inc. is the world leader in digital nonlinear media creation, management and distribution solutions, enabling film, video, audio, animation, games, and broadcast news professionals to work more efficiently, productively and creatively. (source: company press release) - Most Recent Update (Tuesday, Nov. 18, 2003) - The consolidating trend in shares of AVID continues but the stock has not yet given up its support level at the $48 mark. Instead we've seen selling pressure push its highs lower and lower and the last two days have both produced failed rallies at the $50 level. The skeptic inside us paused to wonder...why isn't AVID weaker with the markets down four days in a row? That's a good question and we don't have an answer except that the tug-of-war between buyers and sellers is about to climax as the stock coils tighter into its wedge-pattern. More aggressive traders can use the failed rallies at round-number support-resistance at $50 to initiate new positions but more conservative types may want to wait for that $48 level to crack first. No change in our stop loss. - Play of the Day Comments - We finally got the breakdown under the $48.00 level in shares of AVID and while the market was bouncing! This relative weakness isn't likely to sit well with shareholders. Traders can look for some confirmation tomorrow morning but the next leg down could be about to start. - Suggested Options - We like the December and March 50s and 45's. ! Alert - November options expire on Friday! BUY PUT DEC 50 AQI-XJ OI= 523 at $4.00 SL=2.10 BUY PUT DEC 45 AQI-XI OI= 527 at $1.75 SL=0.90 BUY PUT MAR 50 AQI-OJ OI=1771 at $6.80 SL=4.50 BUY PUT MAR 45 AQI-OI OI=2111 at $4.40 SL=2.25 Annotated Chart: Picked on November 16 at $48.45 Change since picked: - 0.47 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 637 thousand Chart = ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ********************************************* SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS ********************************************* Stocks Rebound As Dollar Recovers! By Ray Cummins U.S. equities closed higher Wednesday as the dollar bounced back from record lows and investors searched for bargains after the recent market slump. The Dow Jones Industrial Average ended up 66 points at 9,690 on strength in General Electric (NYSE:GE), which rose over 3% after saying it sees a return to double-digit growth in 2005. In the technology segment, gains in networking, internet, and biotech shares lifted the NASDAQ index 17 points to 1,899. The Standard & Poor's 500-stock index added 8 points to close at 1,042 amid a rebound in retail and utility shares. Winners outnumbered losers by a ratio of 3 to 2 on the Big Board and by 7 to 5 on the NASDAQ. Trading was moderate on the New York Stock Exchange with over 1.3 billion shares changing hands while more than 1.8 billion shares were crossed on the technology exchange. Treasury issues fell in the wake of strong housing data. The benchmark 10-year note was down 26/32, bringing its yield up to 4.24%. *************** SUMMARY OF CURRENT POSITIONS - AS OF 11/18/03 *************** 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 22.78 ($1.72) 0.00% 2.04% ERES NOV 32 31.50 39.35 $1.00 6.89% 3.17% NTAP NOV 20 19.50 23.43 $0.50 5.70% 2.56% BRCM NOV 27 27.00 34.13 $0.50 4.69% 1.85% CYD NOV 17 17.20 27.70 $0.30 4.95% 1.74% ERES NOV 35 34.20 39.35 $0.80 6.19% 2.34% LRCX NOV 22 22.20 29.13 $0.30 3.86% 1.35% NVLS NOV 35 34.15 41.11 $0.85 5.35% 2.49% RMBS NOV 20 19.55 24.04 $0.45 6.20% 2.30% TXN NOV 22 22.10 27.86 $0.40 4.23% 1.81% VECO NOV 22 22.00 25.90 $0.50 5.04% 2.27% APPX NOV 22 22.05 34.85 $0.45 7.08% 2.04% CKFR NOV 22 22.20 26.25 $0.30 4.03% 1.35% CYD NOV 20 19.75 27.70 $0.25 4.37% 1.27% ERES NOV 35 34.55 39.35 $0.45 4.25% 1.30% LEND NOV 20 19.70 27.37 $0.30 5.40% 1.52% NFLX NOV 40 39.45 46.57 $0.55 4.89% 1.39% NSCN NOV 20 19.70 24.08 $0.30 4.96% 1.52% ONXX NOV 17 17.15 24.30 $0.35 6.57% 2.04% ANPI NOV 40 39.35 46.83 $0.65 6.30% 1.65% CYD NOV 22 22.25 27.70 $0.25 4.91% 1.12% GPRO NOV 22 22.10 28.73 $0.40 6.92% 1.81% LEXR NOV 20 19.70 19.96 $0.26 4.83% 1.52% MSTR NOV 45 44.55 50.39 $0.45 4.32% 1.01% NTE NOV 35 34.40 33.24 ($1.16) 0.00% 1.74% NTLI NOV 50 49.50 58.30 $0.50 4.38% 1.01% ICOS NOV 40 39.65 44.40 $0.35 5.12% 0.88% IMCL NOV 30 29.75 35.49 $0.25 5.35% 0.84% GPRO NOV 25 24.75 28.73 $0.25 5.75% 1.01% MRVL NOV 40 39.65 42.35 $0.35 4.74% 0.88% MSTR NOV 50 49.55 50.39 $0.45 4.79% 0.91% NVLS NOV 40 39.65 41.11 $0.35 4.55% 0.88% PHTN NOV 37 36.90 38.42 $0.60 7.92% 1.63% PMCS NOV 17 17.25 19.35 $0.25 8.84% 1.45% NTAP NOV 22 22.25 23.43 $0.25 5.86% 1.12% QCOM NOV 42 42.15 45.43 $0.35 4.20% 0.83% VRNT NOV 20 19.75 20.83 $0.25 6.53% 1.27% LLTC NOV 42 42.20 40.97 ($1.23) 0.00% 0.71% MRVL NOV 42 42.20 42.35 $0.15 2.84% 0.71% SAP NOV 37 37.20 36.73 ($0.47) 0.00% 0.81% NVLS DEC 40 39.20 41.11 $0.80 4.65% 2.04% PHTN DEC 35 34.25 38.42 $0.75 5.41% 2.19% PMCS DEC 17 17.10 19.35 $0.40 6.88% 2.34% AMAT DEC 22 22.05 23.03 $0.45 4.81% 2.04% EYE DEC 20 19.65 22.84 $0.35 5.21% 1.78% ICOS DEC 35 34.55 44.40 $0.45 3.81% 1.30% As noted last week, 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 (NASDAQ:NCEN), Photon Dynamics (NASDAQ:PHTN), or Netscreen (NASDAQ:NSCN), due to the "gap-up" in the underlying issues on the day after the plays were offered. The Palm (NASDAQ:PALM) position, 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 24.78 $0.80 8.88% 1.96% IMCL NOV 45 45.65 35.49 $0.65 6.97% 1.42% SOHU NOV 45 45.55 30.95 $0.55 5.85% 1.21% BGEN NOV 40 40.50 34.43 $0.50 3.96% 1.23% MGAM NOV 45 45.30 44.11 $0.30 3.99% 0.66% * NPSP NOV 35 35.25 26.43 $0.25 4.53% 0.71% NTES NOV 60 60.70 40.40 $0.70 7.65% 1.15% SEPR NOV 30 30.60 22.51 $0.60 9.84% 1.96% PCLN NOV 25 25.30 17.35 $0.30 9.55% 1.19% FLML NOV 30 30.25 24.78 $0.25 8.57% 0.83% SEPR NOV 30 30.25 22.51 $0.25 6.38% 0.83% IACI DEC 37 35.90 30.83 $0.40 3.22% 1.11% WEBX DEC 25 25.30 17.34 $0.30 5.79% 1.19% 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 issue on the day after the play was offered. The price for Biogen (NASDAQ:BGEN) is quoted from the last trading day prior to its change to Biogen-Idec (NASDAQ:BIIB). Put-Credit Spreads ****************** Symbol Pick Last Month L/P S/P Credit C/B G/L Status CYMI 45.27 44.98 NOV 35 40 0.60 39.40 $0.60 Open ERTS 46.79 45.92 NOV 45 47 0.27 47.23 ($1.31) Closed SYK 78.92 79.57 NOV 70 75 0.45 74.55 $0.45 Open APOL 63.95 65.04 NOV 55 60 0.60 59.40 $0.60 Open SEE 52.31 51.07 NOV 45 50 0.50 49.50 $0.50 Open GDT 51.47 52.58 NOV 45 50 0.60 49.40 $0.60 Open IFIN 35.10 35.42 NOV 30 32 0.25 32.25 $0.25 Open MXIM 48.24 49.92 NOV 40 45 0.45 44.55 $0.45 Open ELAB 43.74 47.93 NOV 35 40 0.40 39.60 $0.40 Open WFMI 59.00 63.39 NOV 50 55 0.45 54.55 $0.45 Open KLAC 60.08 55.35 DEC 50 55 0.75 54.25 $0.75 Open MIK 50.55 45.50 DEC 42 45 0.30 44.70 $0.30 Open SMH 44.65 41.20 DEC 37 40 0.25 39.75 $0.25 Open As noted last week, positions in Cummins (NYSE:CUM), Hitachi (NYSE:HIT) and Black & Decker (NYSE:BDK), which is profitable, were candidates for early exit and they have been closed to limit potential losses. KLA-Tencor (NASDAQ:KLAC) and Michael's (NYSE:MIK) are on the "early exit" watch-list. The position in J2 Global Communications (NASDAQ:JCOM) has previously been closed to conserve portfolio capital. Call-Credit Spreads ******************* Symbol Pick Last Month L/C S/C Credit C/B G/L Status MEDI 33.09 24.50 NOV 40 37 0.30 37.80 $0.30 Open KMX 32.31 31.57 NOV 40 35 0.70 35.70 $0.70 Open NBR 36.75 37.79 NOV 42 40 0.25 40.25 $0.25 Open AMGN 60.30 58.84 NOV 70 65 0.45 65.45 $0.45 Open FRE 57.03 53.28 NOV 65 60 0.60 60.60 $0.60 Open FNM 72.75 68.50 NOV 80 75 0.65 75.65 $0.65 Open BBOX 42.35 42.75 NOV 50 45 0.45 45.45 $0.45 Open GILD 52.00 53.96 NOV 60 55 0.60 55.60 $0.60 Open MANH 28.30 28.44 NOV 35 30 0.50 30.50 $0.50 Open ATH 68.61 67.78 NOV 75 70 0.60 70.60 $0.60 Open MDT 44.03 44.58 NOV 47 45 0.40 45.40 $0.40 Open MMC 44.10 44.13 NOV 50 45 0.65 45.65 $0.65 Open NE 33.79 34.23 DEC 37 35 0.40 35.40 $0.40 Open There was no (new) position available in Biogen (NASDAQ:BGEN) as the company began trading as Biogen-Idec (NASDAQ:BIIB) on the day after the play as listed. Positions in Anheuser-Busch (NYSE:BUD) and Wellpoint Health Networks (NYSE:WLP) have previously been closed to limit potential losses. 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 ************** READERS WRITE -- E-MAIL REPLIES ************** Hi Ray, Love your naked option picks so much I have changed my online nickname to The Naked Strangler. One question on this week's pick in Radware (NASDQ:RDWR). I noticed that the OTM open interest for the $20 strike is over 25500 contracts while all the rest of the strikes are less than 200. Being that there is most likely an institutional investor who bought/sold to initiate the huge open interest, is it more or less likely that the stock will trade below 20? Do they know something that us mere mortals do not? I once heard of the "maximum pain" strike price that says that because of the huge open interest, the institutions won't let it get exercised. I am most interested if you can discuss this in an upcoming article and specifically, how you think it would effect your picks... Thank you The Naked Strangler Dear Naked Strangler: First, I like the fact that you have noticed this big spike in open interest. You are right when thinking that some stocks seem to be attracted or repelled away from certain strike prices at expiration. What we do not know if this was a recommended trade, whether one retail investor or large institution has initiated this position. In addition, this may be initiated as a spread or as a covered put, or even a naked put. A large open interest is good to keep an eye on, however because we do not know the true position that was taken, it is difficult to predict the stock will fall below the $20 level (based on any institutional activity). The more open interest in a position, the better the liquidity in the options. This will result in lower spreads and better fills. I would never avoid a position that I had researched because of a very large open interest -- if anything, I would be more likely to initiate the play. The main point is to have a game plan for every trade and stick to that game plan. Andrew Aronson V.P. Investments OneStopOption Division of Man Financial 141 W. Jackson Blvd Ste 1800-A Chicago, IL 60604 Andrew Aronson and Alan Knuckman are skilled option principles, as well as long-time OIN associates, and they recently started a specialty brokerage for derivatives traders. Their personalized service will enable traders to be more confident, comfortable and successful with options. They will also help new market players learn the "right" way to trade options with education and coaching for maximum portfolio performance. Alan and Andrew's expertise is a valuable resource that will easily pay for itself through timely executions and the piece of mind that comes from someone watching your trades throughout the day. The commissions are comparable to those of discount brokers but you get to speak directly with option professionals, not customer service clerks. Clients can call them directly to review positions and update orders and they also offer "auto-trading" for many of the plays in the newsletter. OneStopOption Strengths: * Dedicated option brokerage with "live" option principals/brokers * Order routing to "best-priced" exchange and timely executions * All types of orders (stop/limit/OCO) to encourage disciplined trading and proper money management * Advanced option trading level approval for inexperienced traders * Foreign accounts including Canada -- Futures trading available * Direct electronic trading and personalized customer services * Ability to filter recommendations and provide strategy advice * Free OIN subscription for those who qualify (based on account size and portfolio activity) Get Execution, Education, and Option Experience at OneStopOption Visit their new site -- www.onestopoption.com -- or send an E-mail to: Aaronson@OptionInvestor.com Editor's note: Further research determined that the large Open Interest in the Radware (NASDAQ:RDWR) option series was a "mistype" by the option exchange. However, I have often experienced similar situations and obviously, institutions have lots of leverage when it comes to options expiration and maintaining the price of the underlying in the short-term. In many cases, they are buyers of puts to support their bullish stock holdings, however there are also many funds (and corporations) that sell uncovered puts during favorable market conditions. Also, with regard to large-volume trades, it's usually very difficult to determine what the actual position was, without knowing who crossed the trade. At the same time, I wouldn't avoid a trade just because there was large open interest due to a block position -- "smart money" players are sometimes less savvy (or simply have different goals) than adept retail participants. ************* NEW POSITIONS This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ************** BULLISH PLAYS - NAKED PUTS All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ************** ANPI - Angiotech $47.82 *** Consolidation Complete? *** Angiotech Pharmaceuticals (NASDAQ:ANPI) is engaged in the fusion of medical device technologies and pharmaceutical therapies. The company's first product was a drug-coated stent. A stent is a cylindrical medical device, usually made of metal, inserted into a body duct or tube to prevent collapse, blockage or overgrowth of the duct or tube. Angiotech's primary goal is to develop new products to enhance the performance of medical devices and other biomaterials through the use of pharmatherapeutics. In 2002, the company agreed to a merger with Cohesion Technologies, which will continuing as a wholly owned subsidiary of Angiotech. ANPI - Angiotech $47.82 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 35 AUJ XG 1956 0.30 34.70 3.1% 0.9% TS SELL PUT DEC 40 AUJ XH 2444 0.95 39.05 7.9% 2.4% * SELL PUT DEC 45 AUJ XI 427 1.95 43.05 10.8% 4.5% ************** APPX - American Pharma Partners $34.08 *** On The Rebound! *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on the oncology, anti-infective and critical care markets. The company is one of the largest producers of injectables, with more than 130 generic products in more than 350 dosages and formulations. APPX - American Pharma Partners $34.08 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 25 AQO XE 992 0.45 24.55 6.3% 1.8% * SELL PUT DEC 30 AQO XF 1285 1.40 28.60 13.0% 4.9% ************** EASI - Engineered Support Systems $48.50 *** All-Time High! *** Engineered Support Systems (NASDAQ:EASI) along with its various subsidiaries, designs and manufactures military support equipment and electronics for the United States armed forces. The company also engineers and manufactures air handling and heat transfer equipment, material handling equipment and custom molded plastic products for commercial and industrial users. Engineered Support Systems' six wholly owned subsidiaries are Systems & Electronics (SEI), Engineered Air Systems (Engineered Air), Keco Industries, (Keco), Engineered Coil Company (d/b/a Marlo Coil), Engineered Electric Company (d/b/a Fermont) and Engineered Specialty Plastics. EASI - Engineered Support Systems $48.50 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 43.37 FPE XY 109 0.70 42.68 4.7% 1.6% * SELL PUT DEC 45 UFE XI 37 1.10 43.90 6.6% 2.5% ************** GPRO - Gen-Probe $30.12 *** Recovery In Progress! *** Gen-Probe (NASDAQ:GPRO) is a leader in the development, manufacture and marketing of rapid, accurate and cost-effective nucleic acid testing products used for the clinical diagnosis of human diseases and for screening donated human blood. Using its patented NAT technology, Gen-Probe has received FDA approvals or clearances for over 60 products that detect a variety of infectious microorganisms, including those causing sexually transmitted diseases, tuberculosis, strep throat, pneumonia and fungal infections. Additionally, the company developed and manufactures the only FDA-approved blood screening assay for the simultaneous detection of HIV-1 and HCV, which is marketed by Chiron Corporation. Gen-Probe and Bayer Corporation have formed a collaboration to develop, manufacture and market nucleic acid diagnostic tests for certain viral organisms, and under the agreement Bayer has the right to distribute these tests. Gen-Probe has 20 years of nucleic acid detection research and product development experience, and its products are used daily in clinical laboratories and blood collection centers throughout the world. GPRO - Gen-Probe $30.12 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 25 PSU XE 99 0.35 24.65 4.9% 1.4% * SELL PUT DEC 30 PSU XF 23 1.75 28.25 13.0% 6.2% ************** INSP - InfoSpace $25.40 *** Uptrend Intact! *** InfoSpace (NASDAQ:INSP) develops and delivers a wireless and Internet platform of software and application services to a range of customers that span each of its wireline, merchant and wireless business units. Many of the company's products and application services are offered to its customers, which, in turn, offer these products and application services to their customers as their own solutions. InfoSpace provides its services across multiple platforms, including personal computers and non-PC devices. INSP - InfoSpace $25.40 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 22.5 IOU XX 47 0.65 21.85 8.3% 3.0% * SELL PUT DEC 25 IOU XE 81 1.55 23.45 13.9% 6.6% ************** MGAM - Multimedia Games $43.38 *** Premium-Selling Only! *** Multimedia Games (NASDAQ:MGAM) is the leading supplier of interactive electronic games and player stations to the rapidly growing Native American gaming market. The company's games are delivered through a telecommunications network that links its player stations with one another both within and among gaming facilities. Multimedia Games designs and develops networks, software and content that provide its customers with a range of gaming systems. The company's development and marketing efforts focus on Class II gaming systems and Class III video lottery systems for use by Native American tribes throughout the United States. MGAM - Multimedia Games $43.38 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 35 QMG XG 341 0.40 34.60 4.3% 1.2% * SELL PUT DEC 40 QMG XH 159 1.40 38.60 9.2% 3.6% ************** NEM - Newmont Mining $45.20 *** Gold "Bulls" Only! *** Newmont Mining (NYSE:NEM), along with its subsidiaries, is a worldwide company engaged in the production of gold, exploration for gold and acquisition of gold properties. The company also has an interest in a copper/gold mine that commenced production in late 1999. In addition, the company produces zinc, lead and copper concentrates at its property in Western Australia. The company approved in late 2002 a restructuring to facilitate the acquisitions of Normandy Mining Limited and Franco-Nevada Mining Corporation Limited and to create a flexible corporate structure. NEM - Newmont Mining $45.20 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 40 NEM XH 4519 0.40 39.60 3.1% 1.0% TS SELL PUT DEC 42.5 NEM XV 3053 0.90 41.60 5.6% 2.2% * ************** NVLS - Novellus Systems $42.73 *** Chip Industry Leader! *** 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 $42.73 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 37.5 NLQ XU 3516 0.55 36.95 4.5% 1.5% * SELL PUT DEC 40 NLQ XH 2008 1.10 38.90 7.2% 2.8% ************** PHS - PacifiCare Health Systems $58.40 *** Safety Sector! *** PacifiCare Health Systems (NYSE:PHS) offers managed care and other health insurance products to employer groups and Medicare beneficiaries in eight western states and Guam. The company's commercial and senior plans include various health maintenance organizations (HMOs), preferred provider organizations (PPOs), and Medicare Supplement products. The firm also offers a variety of specialty managed care products and services that employees can purchase as a supplement to basic commercial and senior medical plans or as stand-alone products. These products include pharmacy benefit management (PBM), behavioral health services, group life and health insurance, dental and vision benefit plans. PHS - PacifiCare Health Systems $58.40 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 50 PHS XJ 1780 0.60 49.40 3.9% 1.2% * SELL PUT DEC 55 PHS XK 1409 1.65 53.35 7.7% 3.1% ************** UTSI - UTStarcom $35.14 *** Bottom-Fishing! *** UTStarcom (NASDAQ:UTSI) is a global provider of wireless and wireline access and Internet protocol switching solutions. The company designs, manufactures, sells and installs an integrated suite of future-ready access network and next-generation switching solutions. It enables wireless and wireline operators in growth markets worldwide to offer voice, data and Internet access services rapidly and effectively by utilizing their existing infrastructure. UTStarcom's products provide a seamless migration from wireline to wireless, from narrowband to broadband and from circuit to packet based networks by employing next-generation network technology. UTSI - UTStarcom $35.14 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT DEC 30 UON XF 5152 0.35 29.65 3.8% 1.2% * SELL PUT DEC 35 UON XG 1026 1.75 33.25 11.3% 5.3% ************** 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. *************** BRCM - Broadcom $34.62 *** Networking Sector Favorite! *** Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated silicon solutions that enable broadband communications and the networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for all broadband communications markets. Their diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/O(TM) server solutions. BRCM - Broadcom $34.62 PLAY (conservative - bullish/credit spread): BUY PUT DEC-27.50 RCQ-XY OI=2098 ASK=$0.25 SELL PUT DEC-30.00 RCQ-XF OI=1677 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$29.75 ************** BRL - Barr Laboratories $81.14 *** Multi-Year High! *** Barr Laboratories (NYSE:BRL) is a specialty pharmaceutical company primarily engaged in the development, manufacture and marketing of generic and proprietary prescription pharmaceuticals. The company manufactures and distributes more than 100 different dosage forms and strengths of pharmaceutical products in core therapeutic categories, including oncology, female healthcare (including hormone replacement and oral contraceptives), cardiovascular, anti infective and psychotherapeutics. In addition, the company has a proprietary, novel vaginal ring drug delivery system it is using to develop products intended to address a variety of female health issues and unmet medical needs. BRL - Barr Laboratories $81.14 PLAY (conservative - bullish/credit spread): BUY PUT DEC-70.00 BRL-XN OI=245 ASK=$0.30 SELL PUT DEC-75.00 BRL-XO OI=120 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$74.50 ************** TOL - Toll Brothers $38.27 *** Bullish Housing Industry! *** Toll Brothers (NYSE:TOL) designs, builds, markets and arranges financing for single-family detached and attached homes in middle-income and high-income residential communities catering to move-up, empty-nester and age-qualified homebuyers in the United States. The communities generally are located on land the company has either developed or acquired fully developed and, in some cases, improved. The company operates its own land development, architectural, engineering, mortgage, title, security monitoring, landscape, cable television, broadband Internet access, lumber distribution, house component assembly and manufacturing operations. Toll also owns and operates golf courses in some of its master-planned communities. TOL - Toll Brothers $38.27 PLAY (conservative - bullish/credit spread): BUY PUT DEC-30.00 TOL-XF OI=468 ASK=$0.15 SELL PUT DEC-35.00 TOL-XG OI=396 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$34.45 ************** 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. *************** MERQ - Mercury Interactive $44.46 *** Revenge Play! *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2003 companies enhance the user experience by improving the performance, availability, reliability and scalability of their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $44.46 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 45 RQB LI 680 1.85 46.85 9.8% 3.9% SELL CALL DEC 47.5 RQB LR 1260 0.90 48.40 5.8% 1.9% * SELL CALL DEC 50 RQB LJ 6128 0.40 50.40 3.2% 0.8% TS ************** SEPR - Sepracor $22.40 *** A 3-Month Low! *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. SEPR - Sepracor $22.40 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 25 ERQ LE 2969 0.55 25.55 8.1% 2.2% SELL CALL DEC 27.5 ERQ LY 2251 0.25 27.75 5.4% 0.9% * ************** TTWO - Take-Two Int. Software $32.69 *** Sales Slump! *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Int. Software $32.69 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 35 TUO LG 705 1.50 36.50 12.4% 4.1% SELL CALL DEC 37.5 TUO LU 692 0.80 38.30 8.9% 2.1% SELL CALL DEC 40 TUO LH 3297 0.40 40.40 5.8% 1.0% * ************** BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ************** HDI - Harley-Davidson $45.17 *** Next Leg Down? *** Harley-Davidson (NYSE:HDI) operates in the motorcycles and other related products segment and the financial services segment. The motorcycles and related products segment includes the group of companies doing business as Harley-Davidson Motor Company, subsidiaries of H-D Michigan, and Buell Motorcycle Company LLC. The motorcycles segment designs, manufactures and sells primarily heavyweight touring, custom and performance motorcycles, as well as a complete line of motorcycle parts, accessories, clothing and collectibles. The financial services segment consists of the firm's subsidiary, Harley-Davidson Financial Services, and its various subsidiaries. HDFS is engaged in the business of financing and servicing wholesale inventory receivables and consumer retail installment sales contracts (primarily motorcycles and aircraft). HDI - Harley-Davidson $45.17 PLAY (conservative - bearish/credit spread): BUY CALL DEC-50.00 HDI-LJ OI=617 ASK=$0.20 SELL CALL DEC-47.50 HDI-LW OI=1662 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$47.80 ************** SYMC - Symantec $60.35 *** Sell-Off In Progress! *** Symantec (NASDAQ:SYMC) provides content and network security software and appliance solutions to enterprises, individuals and service providers. The firm provides client, gateway and server security solutions for virus protection, firewall and virtual private network, security management, intrusion detection, e-mail filtering and Internet content, remote management technologies and security services to enterprises and service providers worldwide. The company views its business in five operating major segments: enterprise security, enterprise administration, consumer products, services and other activities. SYMC - Symantec $60.35 PLAY (moderately aggressive - bearish/credit spread): BUY CALL DEC-70.00 SYQ-LN OI=2216 ASK=$0.35 SELL CALL DEC-65.00 SYQ-LM OI=1089 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.75-$0.90 POTENTIAL PROFIT(max)=17% B/E=$65.75 ************** SEE DISCLAIMER - SECTION 1 ************** ********** Watch List ********** A Few Three-Lettered Stocks Pulte Corp - PHM - close: 88.99 change: +0.42 WHAT TO WATCH: The new housing starts numbers for October were very strong. Stronger than analysts had expected and at levels not seen since the mid-1980's. Shares of PHM look like a bullish play candidate on a breakout above the 90.35 mark (maybe 90.50). Once triggered bulls could aim for the psychological round-number resistance (and magnet) at $100.00. Chart= --- Alberto Culver - ACV - close: 61.30 change: +0.24 WHAT TO WATCH: The lengthy rally in ACV peaked in early November just north of $64. Now shares have slowly consolidated back to its 50-dma. The pull back has been orderly suggesting a lack of willing sellers. Bullish traders may want to scope out a new higher high potentially above the $62.00 mark as a trigger to go long. Bears can look for a breakdown under the $60 mark. Chart= --- Hershey Foods - HSY - close: 77.39 change: +0.14 WHAT TO WATCH: Patient traders may want to take a look at HSY. The stock continues to climb in a steady rising channel and has not been shook up by the recent volatility in the markets. The rising 21-dma has been the preferred entry point for traders buying the dip and shares bounced there two days ago. Conservative traders can use the 21-dma to guide their stop loss, while more aggressive traders can use the 30-dma. Be careful, there is some old resistance just under the $80 level. Chart= --- Fedex Corp - FDX - close: 74.90 change: -0.14 WHAT TO WATCH: Today's 14-cent loss isn't very big but it is noticeable when the markets produce a wide-spread rally. Aggressive traders could initiate shorts at current levels but a trigger under the $74.00 mark wouldn't be a bad idea either. There is some support just under $72.00 but if the markets continue to drop then FDX is likely to hit its 50-dma just north of $70. 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