The Option Investor Newsletter Sunday 11-23-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Support Holds Again Futures Market: TGIF Index Trader Wrap: Standoff Editor's Plays: Clear Signal Market Sentiment: Event Risk Ask the Analyst: Trading a hedge when times are uncertain Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 11-23 WE 11-14 WE 11-07 WE 10-31 DOW 9628.53 -140.15 9768.68 - 41.11 9809.79 + 8.67 +218.66 Nasdaq 1893.88 - 36.38 1930.26 - 40.48 1970.74 + 38.53 + 66.62 S&P-100 511.77 - 7.24 519.01 - 1.69 520.70 + 0.72 + 9.73 S&P-500 1035.28 - 15.07 1050.35 - 2.86 1053.21 + 2.50 + 21.80 W5000 10098.88 -145.78 10244.6 - 45.10 10289.7 + 65.24 +241.02 RUT 525.93 - 7.03 532.96 - 10.00 542.96 + 14.74 + 21.79 TRAN 2845.32 - 82.32 2927.64 - 51.65 2979.29 + 66.18 + 85.86 VIX 18.98 + 2.04 16.94 + 0.01 16.93 + 0.83 - 1.61 VXO 19.89 + 2.26 17.63 + 0.07 17.56 + 0.41 - 1.78 VXN 29.08 + 2.92 26.16 + 0.96 25.20 + 0.31 - 0.56 TRIN 1.04 1.35 1.21 1.02 Put/Call 0.80 0.69 0.78 1.12 ****************************************************************** Support Holds Again by Jim Brown Buyers circled the wagons at Dow 9600 and fought off all the attackers. Threats of increased terror attacks, downgrade to a Dow component, option expiration and new mutual fund allegations failed to push the indexes lower. Sellers tried to run over buyers but were turned back each time. Dow Chart Nasdaq Chart The was no major economic news on Friday with Internet Sales the most noteworthy report. Sales climbed to $13.29 billion for the 3Q and the second highest volume ever. The current quarter is expected to be the best ever as consumer acceptance of the web continues to grow. YHOO rose on the news but AMZN lost ground. EBAY was still reeling from the suit filed yesterday by AT&T but closed well off the lows at $51.90. AT&T sued EBAY claiming that PayPal violated their patent on ecommerce payments. Seems AT&T patented the third party pmt process where an uninterested 3rd party handles payments for a two other unrelated parties. This boggles my mind how they could patent a concept as broad as that. They are asking for all profits made using their concept as well as damages and that PayPal cease taking payments or pay license fees. AT&T was granted the "Mediation of Transactions by a Communication System" patent in 1994. Considering PayPal is not doing anything different than Visa and MasterCard have been doing for years, handling payments between two parties, it is hard to understand how AT&T can win this suit. However, EBAY was just hit with a $29 million judgment for offering "Buy it Now" auctions. Seems somebody else patented the concept of offering to end an auction early for a fixed price. Amazon and Barnes and Noble went to court over the "1-click" option on Amazon. The suit was eventually settled out of court. Amazing. Let's go one step further. Option Investor was threatened a couple years ago for using the phrase "knowledge is power" in an article because it had been trademarked. A quick search on Google comes up with 8,670,000 pages with that phrase in print. Selling license rights for $100 per occurrence would be highly lucrative. It appears you can copyright, patent or trademark anything and once done you lay in wait for somebody to trip over your rights and allow you to sue them. Now if I could just figure out how to patent air. The only other economic report was the ECRI Weekly Leading Index which rose to 130.9 from 129.2. The six-month growth rate rose to 11.1%. The index had stalled for about a month but over the last three weeks has begun moving up again. The +11.1% growth rate is down from the high of +13.5% back in August and the drop was mostly due to the jump in interest rates. Now that the index is rising again it is another indication that there is a recovery underway. In stock news Dow component MRK set another 52-week low after scrapping a late stage diabetes drug. MRK was hit with downgrades, some very negative in tone, and dropped nearly -$3 to close just above $42.00. On Nov-12th MRK pulled another drug which it had been testing for six years for depression. MRK has been on the sell list since July and the bargain hunters were starting to pay attention with the spike to $47 last week but now even the bottom fishers are deserting it. FRE made history by restating earnings to the upside by nearly $5 billion dollars. $4.4 billion came from 2000-2002 and $600 million from periods before that. FRE said that they may not be able to complete 2003 accounting until next June. The company claims it had previously understated earnings to smooth the volatility and warned that the new accounting will show that much higher volatility in future releases. Because FRE uses derivatives to hedge its interest exposure it has massive swing potential depending on the current rate environment. Needless to say regulators are not impressed and wonder what other mushrooms might be growing in the FRE accounting dept. Since they under reported instead of over reported they are not in the Enron or WorldCom category but breaking the rules is still breaking the rules. FRE spiked +$5 on the news over the last three days and then gave up nearly half as the smoke cleared. The mutual fund scandal continued with Bear Stearns hit with a subpoena for mutual fund trading records. Innocent until proven guilty of course. Wal-Mart announced that it was pulling two Putman funds out of the 401K options for employees. Revlon and Interpublic Group also said they were pulling assets from Putman. Based on the latest estimates Putman has seen withdrawals of over $25 billion over the last three weeks and more companies are fleeing the fund daily. This is continuing to pressure the broader market as the fund family churn is removing some of the upward bias. The mutual fund pressure on the market took a back seat to the weekend terror prospects. Homeland Security warned that there was an increased chance of an attack against the U.S. both at home and abroad over the weekend due to the Ramadan holiday. The government stressed concerns that Al-Qaeda could try to hijack cargo jets and crash them into targets. They issued that warning as well as warnings of an increased bombing alert to law enforcement agencies world wide. They specifically warned that bridges, dams, chemical and energy plants were at higher risk. They told Americans worldwide to maintain a heightened state of vigilance for possible attacks this weekend. They expressed concern that the ending of Ramadan and the beginning of the heavy Thanksgiving travel season could produce higher risk. Ramadan was kicked off with multiple attacks and officials fear it could end with a series of coordinated attacks. Ramadan ends on Tuesday. Despite the heightened terror alert the markets held their ground. Volume was light and advancers beat decliners by a ratio of 4:3. The option expiration Friday may have helped defuse the selling by providing a mixture of position closings. The markets tracked pretty closely to the maximum pain points for the index options. Most closed within a strike of the point where the most options would expire worthless. This shows a fairly level bias and was one of the closest expirations we have seen lately. The Dow hit support at 9600 and bounced briefly before a strong sell program managed to punch through that level for a few ticks but the index was quickly bought in strength. While the buyers rushed to buy the morning dip they were content to maintain their positions around the 9620 level instead of chasing sellers higher. The index traded in barely more than a 30 point range from 11:00 until the close. The Dow closed around 20 points below its 50 DMA at 9656 and on solid support. The Nasdaq also closed positive +12 and only traded in negative territory for about 25 minutes in early trading. The Nasdaq has tested support at 1880 for three days and each time returned to rest just below 1900. The 50 DMA is 1903 and well within striking distance. There are so many conflicting opinions about market direction next week that it can be very confusing. There are ten analysts in the Market Monitor each day and I think there were ten different market views on Friday. Some view the next week as the potential cliff with Friday as the last step before taking the plunge. I believe the opposite. I think the dead stop on support this week has relieved the selling pressure and the lack of a bounce was due to the terror wild card. Who in their right mind would invest serious money on a day that the U.S. is warning about a high risk of attack over the next three days? That kept many people out of the market but just enough stayed in to maintain a strong bid just under Dow 9600. Last week had been up for the last ten years and the trend has been broken. Next week has a very bullish record over the last 50 years and I think that Friday was a setup day. Traders are positioned for the worst with a sharp increase in the VXO at Friday's close as put buying increased sharply. They refused to sell and protected positions instead. Futures went out near the high of the day after the cash close. I believe the stage is set and Monday could be a bullish day with Tuesday even stronger. Monday could still have a cloud over it with Ramadan ending on Tuesday. The flaw in this view is the weekend event risk. If we have an event close to home then the markets could break support and we could see another leg down. If we have an event overseas like the Turkey attacks then the market should hold its ground and should see any dip bought. If we have no event then the markets should breathe a sigh of relief and begin a rebound into Thanksgiving. If this does not come to pass I will be eating crow instead of turkey on Thursday. My rationale for this is the continuing strong economic reports, the Fed going out of their way to stress low rates for a long time, the holiday mood and historical trend. We have sold off substantially from the 9900 level by nearly 300 points yet the Dow refuses to turn lose of the 50 DMA at 9650. Friday the Dow traded at or below the 50 DMA all day but closed only about 20 points below it on very negative news. If you look at the Dow since March it has not traded a single day below the 50 DMA all day. It has traded below it but never without touching it intraday. Obviously trends are only trends until they change but this trend has held the line during a very rough week. It could easily change on Monday but without a weekend event I am betting against it. Now the bad news. I do not think that the bounce, if we get one, will take us to new highs. I still think we are going to be range bound for the rest of the year between 9600-9900. Using the Fed's comment format I will phrase it this way. The author perceives that the upside and downside risks are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in the markets exceeds that of a rise above its recent highs. While I say that jokingly it is how I view the future. Should we get a bounce next week we will end it only a week ahead of the next Fed meeting and that one will have some serious rate stress attached to it. We will also be entering the earnings warning season again as well as the year end portfolio rebalancing process. However, a rally next week will have commentators talking about a Santa Claus rally and that could offset the negatives and have retail investors jumping back on the train. Remember, cash inflows into mutual funds were near +$4 billion last week despite all the scandal news and the shuffling of money into different fund names. This is very bullish in light of the conditions. I keep telling you to watch the internals and despite the terror threats and the -140 Dow drop for the week there were still 275 new highs and only 36 new lows on Friday. The entire week was down significantly with the new high average about 300 per day, down from around 580 the prior week, but still strong. Bottom line, until the Dow and Nasdaq lose their grip on the 50 DMA we are just profit taking. Should that grip fail the outlook could change rapidly unless it is event related. Next support on the Nasdaq is 1800 and 9500 on the Dow. Keep your fingers crossed that there are no weekend events and look for a relief bounce at the open on Monday. Should this work out like I expect the bounce should run into resistance around 9700-9725. It may not be earth shaking but any rebound after the week we had would be gladly accepted. Most trading will take place on the first two days of the week. Wednesday is a full day for the markets but afternoon volume should be very light. Friday is a half day and the markets close at 1:PM ET. Despite the shortened week and the scarcity of traders the economic calendar is more stuffed than Thursday's turkey. Monday is a pass but Tuesday we have the GDP revision, Consumer Confidence and Existing Home Sales. On Wednesday, with most traders wanting to either leave early or not show up at all there are no less than 13 economic reports. Mortgage Applications Jobless Claims Consumer Comfort Index Durable Goods Personal Income NY-NAPM Consumer Sentiment Chicago PMI Help Wanted Index New Home Sales Monthly Mass Layoffs ECRI Weekly Leading Index Fed Beige Book They have taken all the reports for the rest of the week and lumped them all into one day. If traders do show up at work the economics will be over by 10:30 with only the Beige Book in the afternoon. Despite the low volume the Wednesday before and Friday after Thanksgiving have produced some upside surprises in the past. There are only 26 trading days left in the year and we are almost equal distance between Dow 9000 and 10,000 and analysts are almost equally divided on which one will be touched first. The economics on Wednesday along with the ISM and Jobs the following week should provide the direction for the rest of the year. Let's hope those reports have not changed direction since last month. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** TGIF Jonathan Levinson Opex week came to a close, in a relatively tame session that saw equities and metals advance, treasuries, commodities and the US Dollar Index decline. 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 gave back most of Thursday's gains on Friday, but found support at a higher low, trading 90.60 as of this writing. For the week, the US Dollar Index printed a bearish doji, setting a new bear market low but failing to break below 90. The CRB, despite strength in wheat, copper and silver futures, fell back below 249 on Friday. Daily chart of December gold December gold had a good day on Friday, adding 2.30 to close at 396.70 with a session high of 398.30, no doubt aided by news that Barrick (NYSE:ABX) has announced an end to its hedging program. With Barrick no longer shorting gold futures, a significant seller has removed itself from the market. Whether this is the kind of capitulation event that markets the end of the upphase, or if it is an insider's acknowledgment of the irresistible force beneath the gold market, we cannot know. Gold spent the week trying unsuccessfully to break 400, and expended most of its oscillator upphase in the attempt. This continues to appear to be a short-term toppy market to me on a technical basis. Fundamentally, I see no compelling reason why gold should not be trading at several times its current price. The money supply has multiplied by several orders of magnitude during the past decades. I intend to be a buyer of any significant pullback. Daily chart of the ten year note yield The ten year note yield dropped .7 bps to close at 4.147% on Friday, completing another bearish weekly candle. We saw bonds trading inversely to equities all week, and I've become convinced that the Fed's dealers' support of equities is in its last days. The Fed's recent attempts to jawbone yields lower have been laughably ineffectual, but a good panic bid, a flight to quality, is another way to accomplish the same end. Has anyone noticed how visible the Fed governors have become? Years ago, it was difficult to name more than the Chairman. Now, there is daily bullhorning on the wires from the different representatives of the different districts. Things that make you go "hmmm". Daily NQ candles The session opened with the NQ lining up to take the dunking it so richly deserved, with a quick revisit to Thursday's lows. There was a moderate bid under the market, just enough to defend the bottom without convincing either bulls or bears that it would hold. It did hold, and was not retested again during the session. A choppy drift higher ensued, with the NQ and its peers all closing near their session highs, well below Thursday's high. The daily cycle oscillators gave hints of a bottom forming above 1350, and the weekly candle, though oriented as a bullish hammer, printed significantly below those of the prior two weeks, and the weekly oscillators are rolling over on strong sell signals that were confirmed this week. The lower wedge support line was decisively broken. 30 minute 20 day chart of the NQ The short term frames offer the most hope to bulls, as the 30 minute candles attest. The triple bottom held on Thursday and Friday, and a gap up open could kick off a bull wedge breakout projecting potentially back to the 52 week high. The 30 minute cycle oscillators are in upphases, and if nothing blows up over the weekend, a post-opex relief rally could ensue. If so, it could convert the daily cycle oscillators above onto a new upphase. On the other hand, the 300 minute stochastic on this timeframe got poor price traction on Friday afternoon, and the weekly oscillators (not shown) are not only topped out but now downphasing. The bears could have done better by cracking support on Friday morning, but so it goes. The daily cycle downphase is still active, lower support now at 1400 will be very difficult to crack, volatility has risen, and bulls are no longer laughing out loud at bearish arguments. Next week will be very educational. Despite Friday's 1.06% gain, bulls are no longer enjoying the wind at their backs. Resistance is currently at 1380, followed by 1392 and 1400. Support is at 1355-58. Daily ES candles The ES gained 4.50 or .44% on Friday, bouncing from support at 1030, gaining ground but nevertheless setting a lower high and lower low. The cycle downphase on the daily chart has plenty of room to run, but like the NQ hesitated with the tenacity of the morning bounce. It will take a move back to 1048 level to abort this downphase, but the doji bounce from the trendline at 1030 is a step in the right direction. 20 day 30 minute chart of the ES That step in the right direction exhausted most of the intraday energy that the bulls could must off a triple bottom low, supported by opex pinning of prices around the projected 1035 level. It did not strike me as a particularly bullish day, but if bulls can clear 1040, they have a chance at a bull wedge breakout. I expect the 300 minute stochastic to be in topping territory by then, and so for the moment, indecision reigns. Always barring a terror attack or other such external calamity, I expect followthrough to the current upphase, likely to encounter resistance at 1038. If it fails there, then look for a move to 1027-8. If it breaks out, 1046-48 is the next confluence zone. It should fail there, but if not, then the daily cycle oscillator will have turned up, in which case the bulls will have the ball, with an eye to the year highs. I don't expect that to happen, but the market will tell us. 150-tick ES The two day 150-tick ES shows the pinned prices on Friday. The short cycle oscillators are in an upphase, supporting a good open on Monday barring any untoward surprises. Daily YM candles Same view on the YM as on the ES. 20 day 30 minute chart of the YM On Monday, the 9570-9660 range will be key for YM. I believe that the real story this week was the strength in treasuries, as equities sputtered and gasped. Forgetting how extended equities appear to be, both technically and fundamentally, the strength in treasuries at every equity downtick should have bulls sleeping with one eye open. The real story in the economy is debt, and the Fed will stop at nothing to prevent an "unwelcome" rise in rates. If that means crashing stocks, I don't believe they'd hesitate for an instant. Bernanke could not have intended to support the share prices of SINA and SOHU or NTES and the current account deficit when he spoke so flippantly about his printing presses and the value of the dollar. I believe that we saw the writing on the wall this week. However, it was opex week, and anything can and routinely does happen during such times. Next week is a holiday, traditionally bullish as Jim has told us, and there will end-of-month windows for fun(d) managers to dress. There are technical factors to justify a bounce. So, either way, flexibility and meticulous stops are the strategy for traders in either direction. See you in the Futures Monitor. ******************** INDEX TRADER SUMMARY ******************** Standoff Jonathan Levinson Bulls and bears came nose-to-nose this week, and it wasn't pretty. Fear, notably absent last week, returned with the VXO making all the way up to 19.89 as of Friday's close, QQV 26.95 and VXN 29.08. The tape gave both sides of the market cause for cheer. Volatility was way up this week, and those sub-17 VXO readings faded quickly into the rearview mirror. The VXN made it back above 30 on Thursday, the VXO above 20. These are still laughably low volatility levels, and while the cycles don’t rule out the possibility of even a retest of the rally highs, it appears clear that all will not go according to the bullish plan. No matter how much the likes of Ruckheyser may wink and insinuate, this is and continues to be one very toppy market for equities, and the lessons of 1999-2000 are still with many of us. The Dow advanced 0.1% or 9.1 points to close at 9628 on Friday, the S&P 500 +.2% or 1.63 to close at 1035.28, and the Naz added 6% or 11.96 to close at 1893. For the week, the Dow and S&P were down 1.4% each, the Nasdaq -1.9%. For the year, the Dow is up 15.4%, the S&P 17.7%, and the Naz 41.8%. The decline for this week compounded that last week to cause some significant technical damage on the charts we've been following: Weekly COMPX candles The apparently endless weekly top gave us some confirmation this week, with a sell signal printed on the 10 week stochastic and Macd. But the break of the rising bear wedge trendline, so long awaited, was the real news. This is the first break of that rising trendline since March '03, and brings into play our downside projection of 1270. That said, the price trend is still obviously higher, but traders will want to see the rising trendline regained before taking aggressive bullish bets. A return to the scene of the crime will see resistance at 1930 tested, which is the current level of the trendline. Weekly INDU candles We got the same sell signal and trendline breajk on the Dow, with 9750 the current level of trendline resistance. This break implies a trip to the March lows, ultimately, but we can be sure that it will be a fascinating journey in the meantime. Once again, caution is warranted on this long timeframe, but this week was unquestionably a victory for bears. Daily OEX candles We approach the daily charts from the perspective of the weekly downphase now in progress and the first bullish blood now drawn on a closing basis. On the day charts, we saw the OEX hold trendline support above 510, and while we're a long way from the highs at 525, the daily cycle downphase achieved poor price traction this week, exhausting much of its energy without being able to crack 510. If 510 holds next week, I expect to see a new upphase on the daily cycle oscillator. Such implies a possible retest of the rally highs- the top of that daily cycle upphase will tell us volumes about the future of this year's rally. If the upphase fails from here, 500 is the next support to watch. If it bounces and fails at a lower high, then the weekly downphase is dominating and 500 should be the next significant support. If it makes a higher high, the weekly downphase could abort. I consider this latter scenario to be the least likely of the three. 20 day 30 minute chart of the OEX The 30 minute chart shows the wide swings of the past two weeks, and the persistence of 510 support. It looks vaguely like a head and shoulders-esque topping formation, neckline either at 510, 512 or 516. In any event, the 30 minute chart oscillators he gave us bullish divergences this week, and commenced an upphase on the move off the Friday morning low. A break back above 515 will set up a possible bull wedge breakout targeting the rally high just above 525. However, the cycle configuration is such that I expect 515 to find significant resistance and the move could well fail there. Next week will tell the story. Daily QQQ candles The Qubes look a lot worse than the OEX on a daily basis, with the rising trendline decisively broken. 33.60 is key support under this move, 35 now resistance at the "scene of the crime". The daily cycles look bottomy here, and as with the OEX, the next upphase, if it arrives on time, will tell us all we need to know about this rally. I expect any real bounce here to fail from a lower high, and that failure should be an ideal place for QQQ shorts to enter as it will represent the top of the daily cycle, failing in gear with the weekly downphase. 20 day 30 minute chart of the QQQ The 30 minute QQQ is also sporting a bullish divergence, with a higher oscillator low against lower price lows. Barring any weekend disasters, the next move should be to the upside, and if so, we'll have a bull wedge breakout printed. 34.60-34.80 is the next major confluence zone, and it should coincide with a 30 minute cycle top. If that resistance doesn't hold, I expect the daily cycles to turn back up, and the showdown between bulls and bears will be on. I expect the bullish raving to reach a crescendo at the top of the next daily cycle upphase if one kicks off next week. Things always look brightest at the top, and with the weekly cycle rolling over, it's very possible that we've either seen the top already, or that we'll see it on this next daily cycle upphase. Of course, this assumes that the market doesn't simply get sold on Monday, which is a distinct possibility. See you at the bell! ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Clear Signal At least it is clear to me. If you read my market wrap today you know that I am expecting a rebound next week. The Dow has traded above the 9600 level for a week and appears ready to rally if there are no terrorist events this weekend. This suggests that a short-term call play could have a decent chance of success. The index I want to use is the DJX since I am keying off the Dow 9600 level. I am seeing resistance at the 9725 level and would be thrilled to see a move above that. Thrilled and surprised. The Dec 97-DJX Call closed on Friday at 1.20 x 1.35 and depending on Monday's open we should get it for 1.35 or possibly a little cheaper. If we do see a bounce to Dow 9725 we should see the DJX 97 call rise to $1.95. Check out the DJX 96 call currently with the Dow at 9625. This is going to be a really simple play. If there is no terrorist event over the weekend buy the call at the open on Monday with the Dow in the 9625 range. If there is an event that knocks the Dow down then buy the dip and try to stay one strike over the Dow low. If we got knocked back to 9500 then buy the DJX 96 call. We are looking for a 50-60 cent profit. If the market does bounce and continues up then follow the call up with a trailing stop. Let the market take you out when it rolls over. We want to risk only about 35 cents. Once you enter the position set a stop about 35 cents below your entry. If we get any decent bounce then 9725 should be the target. If the bounce has legs then 9750 could be the next pause point. If we got a wildly bullish bounce I would not hesitate to exit in the 9800-9850 range. (don't hold your breath on that possibility) Play it conservatively and exit on any weakness. Dec DJX $97.00 Call DJV-LS DJX Chart ******************************** Play Recaps SUNW Lottery Play For those that bought the 20 cent announcement call, Scott McNealy did not have an ace up his sleeve and it was mostly hype. SUNW sold off on the news on Monday but then rallied strong on Tuesday on the China initiative. If you had bought the Monday call you would have been happy to exit for a breakeven on Tuesday. http://members.OptionInvestor.com/editorplays/edply_111603_1.asp Powerball The significant drop in tech stocks over the last week knocked out portfolio back about -$300 but we were expecting that based on the market conditions. Still two months to go and we need to start hoping for a real 4Q rally to appear. Each down day from here could really impact the value in January. We need to launch from this level and press Nasdaq 2000 once again. It would have taken $1,255 to buy one contract of each on January-2nd. Any bets on what this will be worth on 12/31/03 Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Event Risk - J. Brown Economic recovery, expansion, corporate earnings and jobs have been the main concerns influencing investor sentiment for months. Now an old foe has risen again and investors have to readjust their risk management and style to consider the possibility of terrorism. It has been more than two years since the 9/11 attack on America. We've seen the creation of the Department of Homeland Defense. We've been witness to both a war in Afghanistan and Iraq. Television has brought us numerous reports of terrorist bombings across the world. Yet so far there has not been another "event" on our home soil. A couple of weeks ago major news media shied away from a new threat that terrorists would strike the U.S. during the holy month of Ramadan. Maybe they didn't want to lend credence to the threat by airing it but word got around anyway. The two recent bombings in Turkey suddenly refocused our attention on a possible attack here at home. The U.S. government has asked citizens to be extra alert this weekend as we near the end of Ramadan this Tuesday. Some of you might be thinking "enough already, how does this apply to the stock market?" Fair enough. Terrorism concerns have been hampering an already weak dollar, which hit all time lows against the euro and new five year lows against the yen this last week. As the dollar falls some investors have chosen to hedge their bets by buying gold, which has been flirting with $400 an ounce. There has been a pick up in bonds as some choose to move money to the perceived safety of U.S. debt (at least safer than stocks). The recent threat last weekend from Al Qaeda about bombing Tokyo should Japan send troops to Iraq sent the NIKKEI reeling. If an event does occur here at home there won't be a rush to the exits. It will be a stampede and plenty of investors will get hurt. Countless funds and money managers are looking at very good gains this year after three years of losses and they'll do whatever they can to try and lock in those gains. This concern about locking in gains could easily keep the markets in a sideways trading range. There is nothing to inspire buyers to chase stocks higher when they're too focused on avoiding losses through the year-end. That's not to say that some stocks won't maintain their bullish trajectories but the rally may narrow as we head into what has been traditionally one of the most bullish seasons of the year. Hopefully, the Islamic month of Ramadan ends peacefully and Wall Street can do its best to stir up a good old-fashioned Santa Claus rally. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 9903 52-week Low : 7197 Current : 9628 Moving Averages: (Simple) 10-dma: 9722 50-dma: 9656 200-dma: 8949 S&P 500 ($SPX) 52-week High: 1063 52-week Low : 768 Current : 1035 Moving Averages: (Simple) 10-dma: 1045 50-dma: 1036 200-dma: 961 Nasdaq-100 ($NDX) 52-week High: 1453 52-week Low : 795 Current : 1373 Moving Averages: (Simple) 10-dma: 1398 50-dma: 1390 200-dma: 1219 ----------------------------------------------------------------- The surge in amount and premium for put buying appeared to falter on Friday as the VIX and VXO both pulled back from the 20 level. Together they are still at extremely low readings, which suggests the markets are vulnerable. However, it would not surprise us to see the markets bounce higher again and send the volatility indices back toward their recent extremes. CBOE Market Volatility Index (VIX) = 18.98 -0.50 CBOE Mkt Volatility old VIX (VXO) = 19.61 -0.59 Nasdaq Volatility Index (VXN) = 29.08 -1.41 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.80 856,787 689,308 Equity Only 0.66 693,747 461,316 OEX 1.15 59,472 68,207 QQQ 1.01 46,942 47,295 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.5 + 0 Bull Confirmed NASDAQ-100 68.0 - 1 Bear Confirmed Dow Indust. 80.0 + 0 Bull Correction S&P 500 78.8 + 0 Bull Confirmed S&P 100 78.0 + 0 Bull Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.41 10-dma: 1.27 21-dma: 1.15 55-dma: 1.16 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals -NYSE- -NASDAQ- Advancers 1711 1657 Decliners 1088 1356 New Highs 123 104 New Lows 22 15 Up Volume 838M 888M Down Vol. 618M 662M Total Vol. 1489M 1594M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 11/18/03 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Will it never end? The commercial traders refuse to move any positions or make any more big bets in the full S&P futures contracts. They've been oscillating in the current range for weeks. Small traders have bumped up both their short and long positions but they remain relatively equidistance from each other. Commercials Long Short Net % Of OI 10/28/03 391,596 412,498 (20,902) (2.6%) 11/04/03 391,079 415,136 (24,057) (3.0%) 11/11/03 389,965 415,259 (25,294) (3.1%) 11/18/03 393,893 414,442 (20,549) (2.5%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 18,486 - 6/17/03 Small Traders Long Short Net % of OI 10/28/03 137,791 76,791 61,000 28.4% 11/04/03 137,829 78,206 59,623 27.6% 11/11/03 136,072 74,249 61,823 29.4% 11/18/03 147,842 80,047 67,795 29.7% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 The e-minis are seeing some action. Commercials upped their short positions but not by too much. Small traders also raised their short positions by 10K contracts (almost 20% of outstanding shorts). Commercials Long Short Net % Of OI 10/28/03 220,171 260,644 (40,473) ( 8.4%) 11/04/03 242,409 270,785 (28,376) ( 5.5%) 11/11/03 249,864 258,503 ( 8,639) ( 1.7%) 11/18/03 249,286 264,083 (14,797) ( 2.9%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 10/28/03 123,569 59,742 63,827 34.8% 11/04/03 135,525 63,006 72,519 36.5% 11/11/03 94,649 51,815 42,834 29.2% 11/18/03 95,119 61,975 33,144 21.1% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders are still stuck in limbo with outstanding longs and shorts in NDX futures barely budging the last few weeks. Meanwhile small traders have turned more bullish with a nice jump in outstanding long positions. Commercials Long Short Net % of OI 10/28/03 36,168 46,272 (10,104) (12.3%) 11/04/03 34,159 48,293 (14,134) (17.1%) 11/11/03 35,889 49,201 (13,312) (15.6%) 11/18/03 35,608 49,689 (14,081) (16.5%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 10/28/03 21,640 8,830 12,810 42.0% 11/04/03 24,132 9,703 14,429 42.6% 11/11/03 26,212 10,730 15,482 41.9% 11/18/03 32,034 10,356 21,678 51.3% Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Ditto here as well...commercials are not making any new big bets and keeping the number of long and short contracts relatively unchanged. Small traders appeared to have scaled back on longs and inched up their shorts. Commercials Long Short Net % of OI 10/28/03 20,504 11,366 9,138 28.7% 11/04/03 21,756 11,903 9,853 29.3% 11/11/03 20,209 11,660 8,549 26.8% 11/18/03 20,746 11,080 9,666 30.4% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 10/28/03 5,295 8,864 (3,569) (25.2%) 11/04/03 5,099 9,160 (4,061) (28.5%) 11/11/03 6,105 8,201 (2,096) (14.7%) 11/18/03 5,655 8,607 (2,952) (20.7%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Trading a hedge when times are uncertain Your comments in the Market Monitor about creating a short-term hedge with the SPX put option and a QQQ long sounds interesting. I'm rather torn between the strengthening economy here in the U.S. still giving further upside to stocks, but with the dollar falling and potential trade wars with China developing, not to mention terrorist bombings, I can see stocks going either way. My question is... how does a trader control this type of hedge? This is just one of several questions I received from traders on Wednesday, but I've also received multiple questions on hedging larger portfolios of stocks against a decline. In today's column, my main point of emphasis I will want to get across, is that any time a trader or investor develops a hedge, your MAIN FOCUS is on the bottom line of the account. In essence, what a hedge trader MUST do is monitor how the trade is working as it relates to the REASON the hedge was initiated. Before we begin, some background is needed for this article to make sense. On Tuesday, November 18th, I profiled a bearish trade for the S&P 500 Index (SPX.X) when the index itself was trading at approximately 1,042 in the December 1,040 puts (SPQXH). After having seen some of the major indices trade down to their WEEKLY S2s in the Pivot Matrix, and seeing the U.S. Dollar Index (dx00y) falling rather precipitously to new lows, I thought a bearish trade in the SPX was warranted, "just in case" Asian markets unraveled when they opened for trading on Wednesday, November 19th, and if so, might have U.S. markets potentially gapping lower when they opened for trade on Wednesday, November 19, 2003. A trader or investor may have had to weigh the risk/reward of a gap lower event as it related to either a trade, or even a bullish portfolio of stocks. With the information at hand, and seeing the dollar falling to new lows, I felt a December SPX put trade made sense. When markets opened for trading here in the U.S. on November 19, 2003, it was reported that the Bank of Japan had intervened in the currency markets by buying dollars and selling yen, which did seem to have the major U.S. Indices (like the SPX) opening marginally higher, from its November 18 close of 1,034.15. This had me thinking (I didn't predict that Japan would intervene in the currency markets) that U.S. equity markets might rebound. Instead of closing out the SPX December 1,040 Put(s) why not create a short-term hedge, by trading a higher volatility security like the QQQ from the long side, but instead of trading an option, where my intention for creating the hedge was now from a shorter-term perspective, buy the underlying QQQ. (A trader/investor already long/bullish a portfolio of stocks, was already hedged if he/she had just purchased the SPX December 1,040 put option). At 10:34:28 AM EST (11/19/2003) I began setting up a short-term trade in the QQQ with a bullish action point at $34.24, with a bounce target level of $34.57. It was at that time that I also mentioned that those traders that may have taken my 11/18/2003 bearish trade in the SPX December 1,040 put(s) might like the QQQ as a short-term bullish trade. Later that day (11/19/03) the QQQ did indeed trade the $34.24 price level (approx. 01:31 PM EST). I went back to an intra-day chart of the SPX and on 11/19/03 at approximately 01:31 PM EST, the SPX was trading 1,040. This was COMPLETE COINCIDENCE that the SPX was trading at the same level as the profiled SPX December 1040 put strike. But what better example to begin benchmarking this type of hedge trade from! This is where the real work and managing of a hedge comes into play. One question that I have a very difficult time answering, based on lack of knowledge, is "how much" of a put option is needed in order to hedge against a basket of stocks. There are various calculations out there that will portend to tell a trader/investor just how many puts you need to hedge a portfolio of stock, but what is rarely discussed is how Market Volatility, which changes minute my minute, hour by hour, day by day, and week by week can impact an option's price. Sure, there's this think called "implied volatility," but volatility can change quickly and premiums can escalate or collapse quickly. Where a trader gets in trouble with a hedge, is when he/she doesn't monitor how the hedge is performing. When a trader or investor thinks simplistically about a hedge, two basic question should first be ask. How will the hedge perform if everything falls to zero (max decline). How will the hedge perform if everything rises to infinity (max advance). The very BASIC rule/test for a hedge, is that at the extremes, the hedge should either break even, or produce a gain for the trader/investor. In the following tables, you're going to see first hand, on a very short-term basis how a hedge can perform. Please do NOT think that you have to monitor a hedge hour by hour as is shown below, but do take note of how I've set up this portfolio, which my trading software QCharts, allows me to do in real-time. Traders/investors that hold several stocks will find this feature very useful when tracking and monitoring their trades/investments. Here is a snapshot of the SPX December 1040 put (SPQXH) where the trade was initiated when profiled (11/18/2003), and the underlying bullish position in the QQQ when profiled and triggered long at $34.24 (11/19/2003) at the close of trade on November 19, 2003. SPX put versus QQQ underlying long - Market close 11/19/03 At the top of my portfolio, I wanted to take note of the Market Volatility Index (VIX.X), where in general terms as the number increases, option premiums should be expect to be increasing (during market hours, this will update in real time). Make note here that Market Volatility, which can impact option premium is a VARIABLE, which can change markedly over time and any time you have a VARIABLE in an equation, this can create complexities difficult to project into the future. As a check against this logic, I also added the SPX.X and it last trade (which is updated with each trade during market hours). At the close of trade on November 19, you will note that the SPX Dec. 1,040 put (SPQZH) where I paid $18.70 for 1 contract (100 share equivalent) was right back to roughly break-even (only if taken from the Best Ask) a day after I had purchased it. I've then subtotaled the SPX put and placed the text "Bearish" by that subtotal, only to note this is the bearish part of the hedge. Working lower I've place 500 shares of QQQ that were purchased long at $34.24. Only for educational purposed did I add the NASDAQ-100 Volatility Index (VXN.X), where an options trader might see how this volatility tool changes and can impact option prices. As I monitor this hedge, I can see that a "perfect" hedge by the close is not found as the trade is running a $75.00 loss, but a $75.00 loss represents a rather fractional -0.39% margin of error based on the November 19, 2003 close. Now, that was boring! Let's add some overnight terrorist attacks in Turkey, and evacuate the White House and see if things don't liven up a bit, and begin testing and MONITORING this hedge. Does it work under times of uncertainty? Below is a snapshot of the hedge on Thursday morning at approximately 09:54 AM EST. SPX Put vs. QQQ long - 11/20 09:54: After White House evacuation Quick analysis and focus on the BOTTOM LINE (Total) looks to have the hedge working nicely if PRICES are FALLING. If the trade were closed out at this snapshot a $115.00 gain (less commissions) would be found. Note how both the Market Volatility Index (VIX.X) and NASDAQ-100 Volatility Index (VXN.X) have risen. Another note could be made that since the prior session's close, the SPX itself has fallen 6.54 points (1,042.44 - 1,035.90 = 6.54) and would represent a $654.00 price move if I had shorted the SPX itself. However, options, which were designed as a tool to manage RISK (expose less capital) show a more modest $210.00 gain. This makes sense as it relates less risk/less reward. OK, there's an example of some "bad news" and a market reaction. How about some "good news" and a better than forecasted October Leading Indicators report? SPX Put vs. QQQ long - 11/20 10:05: After Leading Indicators Quick analysis and focus on the BOTTOM LINE (TOTAL) now clearly shows this hedge becomes vulnerable on a price advance. Boom! In just 11-minutes, a TOTAL $115.00 profit now shows just a $40.00 profit for the hedge. Market Volatility (VIX.X) is little changed during this 11-minute time span, while the NASDAQ-100 Market Volatility Index (VIX.X) has slipped lower. The SPX itself has risen 4-points and while this would have equated to a -$400 erosion in profit for and SPX short in just 11-minutes, the put option, which is a tool for limiting risk has lost a more modest $180 in the last 11-minutes. The table that follow was taken 10-minutes after the October Leading Indicators report, which should now have given enough time for a market reaction. SPX Put vs. QQQ long - 11/20 10:15: 10-min After L.I Hey... look there! Quick analysis and focus on the BOTTOM LINE (TOTAL) now shows an $80 profit. Both the SPX and QQQ were little changed, but the slight up-tick in the SPX put option (SPQXH) gives a little pop to the hedge portfolio. In the table below, I took a snapshot of the hedge portfolio just prior to another economic release and the November Philadelphia Fed Survey. Prior to Philadelphia Fed - SPX/QQQ Both trade WEEKLY S1s Just about an hour and 45-minutes later, the hedge portfolio is back to unchanged. But now the higher beta of the QQQ has kicked in, where the QQQ has risen $0.30 per share, and while the SPX has risen 5-points and Market Volatility (VIX.X) has fallen the hedge seems to be working almost to perfection with a $0.00 TOTAL BOTTOM LINE result showing. I highlighted in PINK the SPX and QQQ trades here as both were trading right at their WEEKLY S1s in their WEEKLY Pivot matrix. One question here. Now that the QQQ has traded my original bullish short-term target of $34.57, do I remove the hedge? Do I lock in the $170 gain, and look for the WEEKLY R1 to find selling? That's a tough answer to come up with just 1-minute to go until the Philadelphia Fed Survey is due to be released. Let's give the hedge portfolio another test as the Philadelphia Fed Survey is set to be released in 1-minute. After Philadelphia Fed - market responds to new information I let 10-minutes pass when the above table of the hedge portfolio was captured. Hey look at that BOTTOM LINE with a $65.00 profit showing and I haven't decided at this point to sell the QQQ in the hedge portfolio. However, at 12:11:34 PM EST, I did profile a day trade short in the QQQ at $34.52, stop $34.65 and target of $34.30. All be darned if the QQQ didn't trade may stop at $34.65 and trade higher to its DAILY S2 of $34.68. Good thing I kept the QQQ long trade in the hedge portfolio wasn't it? Keep reading! I then turned and profiled a bullish trade at 01:02:50 PM EST, with instruction that the QQQ must show a 5-minute bar chart interval close ABOVE $34.68, and if it did would then bid the QQQ at $34.69, stop $34.55, and target $34.99. I was beginning to think the QQQ could rally to an option expiration peg level of $35.00. All be darned if $34.68 didn't turn out to be the session high. Now we scroll forward to 03:45 PM EST. By now, Michael Jackson has arrived at the Santa Barbara airport and turned himself into authorities, the OptionInvestor.com Market Monitor server has crashed, Drake the dog (my yellow Labrador Retriever) has just chewed a laptop computer cord in half, and all heck has broken loose intra-day. SPX Put vs. QQQ long - 11/20 03:45 PM EST Drake the dog is locked in his sky kennel, the OptionInvestor.com Market Monitor is up and running, but now the web site server where I'm trying desperately to upload the OI 03:15 Update isn't working. I've just gotten off the phone with the IT department and problems look to be resolved. Hey! Look there. The BOTTOM LINE (Total) is back in positive territory, and the hedge portfolio looks to be doing OK again. I've just about made it through another day, but there's 30- minutes still left to go. What else can be thrown at us before the closing tick in the QQQ of 04:15 PM EST? SPX Put vs. QQQ long - 11/20 04:15 PM EST We're closed! And the despite a rather full day of news and volatility, the hedged portfolio didn't perform all that bad at the BOTTOM LINE (Total) settled with a $180 gain by the close. Now all of the above was an intra-day observation of a hedge portfolio, but if an investor were to pretend that each of the screen captures of the hedged portfolio was a screen capture of each day at the close, or each week at the close, they could begin to envision how a hedged portfolio could be monitored and adjustments made. What do we KNOW about the hedged portfolio? It performs "best" in a downward or BEARISH market environment, but seems to perform OK in an upward moving environment. With just one SPX put option, the hedge portfolio CANNOT have any BEARISH part of the hedge being removed, so we KNOW that the QQQ position, with 500 shares becomes the "tuning fork" for the hedged portfolio. I KNOW that if the markets decline, the QQQ is going to be a drag on results. Just like a mechanic will tweak a few screws on a car's carburetor or fuel injection systems to get the engine running just right, in the above portfolio, the QQQ can be leaned back (sold) or enriched (bought) to have the portfolio fine tuned. But just as a mechanic will hook up a car to a computer diagnostics machine to get readings on how efficiently an engine is running, and to try and pinpoint areas that aren't working correctly, the trader/investor performs similar task by checking in on things from time to time. An investor that might hold 10 bullish positions in his/her account that uses an index option as a hedge should KNOWS that the index option is about as fine tuned as it is going to get, as the index option should represent the index, where the only real inefficiency is the VARIABLE knows as premium, which we have little control over, but understand that PREMIUM erodes as option expiration nears. It's the 10 bullish positions that must be fine tuned, and just as a car mechanic looks to fix what appears to be broken, it is often times the portfolio manager that needs to either "fix" the stock (sell it) if it is the broken part of the portfolio. This is where the relative strength of a stock versus the INDEX is would most closely be associated with can become important. A trader/investor that has purchased a put option on the SPX, which then represent the BEARISH part of a hedge portfolio, will most likely use that index (the SPX) as the index from which to measure relative strength against. An investor/trader that doesn't want to sell a weak stock that is falling faster, or falling faster than the hedge the SPX put can provide, the investor/trader has only one alternative. The trader/investor must then purchase a greater portion of the BEARISH hedge instrument (SPX Put). This can be analogous to throwing good money at an investment to try and save a bad investment (the weak stock). We certainly hope that NOBODY thought the way to save a hedged portfolio that has a weak stock in it, is to buy more of the weak stock! Oh but you'd be surprised at the number of investors and traders that buy more shares in a falling stock. The inverse is true where a trader/investor will sell short more and more of a strong stock that keeps moving against them. After reading the above article, I could generate multiple question that still need to be answered. One would be... if the markets continue to decline, at what point do you call it quits in some of the QQQ? (Think about using the NASDAQ-100 Bullish %) Ideally, when the bullish is at 0% you wouldn't have wanted to have a single share of QQQ, if it had been at 100% months ago. What if a the bullish % were at 80% one week, and 75% the next week? What's 100% minus 75%? I come up with 25%. Maybe I could fine tune the QQQ by reducing my 500 initial long position by 25%, or cut/sell 125 shares from the account. I'd certainly want to monitor the BOTTOM LINE (Total) over the next week or two to see how things are running. Another question is... That December option is going to expire on December 19, and that's not too far away. How does this short time frame come into play? With a December option, you are correct that this is a very short time frame and must be monitored on a more frequent basis as the passage of time eats away at the options premium faster with time decay. A shorter- term trader that buys a near-month expiration has to be willing to spend more time monitoring the BOTTOM LINE, which can easily be tracked at the close of each trading day. Some shorter-term hedge traders will actually hand chart the end of day account value using a point and figure chart. All that is needed is a piece of graph paper and a pencil. A horizontal line is drawn in the middle of the page, with base value of $0.00 (zero) and each day, the end of day portfolio BOTTOM LINE (Total) could be charted. What will most likely be found is the chart will begin producing MAX inflexion points of profitability or loss for the hedge portfolio. It is the MAX profit that keeps showing up, which becomes the trader/investor's clue that a max point of efficiency or profit has been obtained from the hedge. It is at that observation when a SELL AT OPEN on the put is placed with the broker, and a new put, with extended duration can then be purchased in order to once again establish a hedged portfolio. If you can think of any other questions, I'd love to try and address them in a future column. Traders/investors trying to get comfortable with this type of strategy can easily establish a "paper trade" portfolio to star out with. Place your stocks in a portfolio tracker and begin testing it NOW! If you have an Excel spreadsheet, you can also build a quick portfolio tracker of your own if you don't have trading software like QCharts that has a portfolio tracker built in. Then, either each night, ever other day, or once a week, sit down at your computer and simply update the closing values of your stocks, and the put option you have selected. You may find you become more intimate with your holdings and get a feel for how the market and your stocks are trading. Wow! That's a lot to digest isn't it? Again... send me some questions you might have. I don't know everything, but I'll try to answer those that I can. Drake! Don't chew on that ..... Bzzzzzzzzzzzzz Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- CPB Campbell Soup Mon, Nov 24 -----N/A----- 0.49 DY Dycom Industries Mon, Nov 24 After the Bell 0.25 SMTC Semtech Mon, Nov 24 After the Bell 0.11 VAL Valspar Mon, Nov 24 Before the Bell 0.73 ------------------------- TUESDAY ------------------------------ ADI Analog Devices Inc. Tue, Nov 18 After the Bell 0.23 BMO Bank Of Montreal Tue, Nov 25 -----N/A----- N/A BFb Brown-Forman Corp Tue, Nov 25 Before the Bell 1.39 DE Deere & Company Tue, Nov 25 Before the Bell 0.18 DLTR Dollar Tree Stores Tue, Nov 25 After the Bell 0.31 EV Eaton Vance Corp. Tue, Nov 25 Before the Bell 0.43 HRB H&R Block, Inc. Tue, Nov 25 After the Bell -0.06 HNZ H.J. Heinz Company Tue, Nov 25 Before the Bell 0.54 HUG Hughes Supply Tue, Nov 25 After the Bell 0.75 KWD Kellwood Company Tue, Nov 25 1:00 pm ET 1.07 MIK Michaels Stores Tue, Nov 25 After the Bell 0.48 NPSN NASPERS LTD Tue, Nov 25 Before the Bell N/A RY ROYAL BK CDA MONTREAL Tue, Nov 25 -----N/A----- N/A SIGY Signet Group Tue, Nov 25 07:00 am ET N/A TECD Tech Data Corporation Tue, Nov 25 After the Bell 0.43 ----------------------- WEDNESDAY ----------------------------- BCM Canadian Impl Bank ComWed, Nov 26 Before the Bell N/A OTE Hellenic Telecomm Wed, Nov 26 Before the Bell N/A HRL Hormel Foods CorporationWed, Nov 26 Before the Bell 0.49 AHO Koninklijke Ahold NV Wed, Nov 26 -----N/A----- N/A TD Toronto Dominion Bank Wed, Nov 26 -----N/A----- N/A ------------------------- THUSDAY ----------------------------- None ------------------------- FRIDAY ------------------------------- None ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable DIOD Diodes Inc 3:2 Nov 25th Nov 26th JAH Jarden Corporation 3:2 Nov 26th Nov 27th MFLR Myflwr Co-operative Bank 3:2 Nov 28th Dec 1st LABL Multi-Color Corporation 3:2 Nov 30th Nov 31st NFI NovaStar Financial, Inc 2:1 Dec 1st Dec 2nd MMSI Merit Medical Systems Inc 4:3 Dec 2nd Dec 3rd MRTN Marten Transport, Ltd 3:2 Dec 5th Dec 8th CRRC Courier Corporation 3:2 Dec 5th Dec 8th -------------------------- Economic Reports This Week -------------------------- The Thanksgiving holiday is Thursday and Wall Street has a lot of economic reports to digest both Tuesday and Wednesday. GDP, consumer confidence, personal income & spending, durable orders and more. ============================================================== -For- ---------------- Monday, 11/24/03 ---------------- None ----------------- Tuesday, 11/25/03 ----------------- GDP-Prel. (BB) Q3 Forecast: 7.3% Previous: 7.2% Chain Deflator Prel.(BB) Q3 Forecast: 1.7% Previous: 1.7% Consumer Confidence (DM)Nov Forecast: 82.8 Previous: 81.1 Existing Home Sales (DM)Nov Forecast: 6.50M Previous: 6.69M ------------------- Wednesday, 11/26/03 ------------------- Initial Claims (BB) 11/22 Forecast: N/A Previous: 355K Personal Income (BB) Oct Forecast: 0.3% Previous: 0.3% Personal Spending (BB) Oct Forecast: 0.0% Previous: -0.3% Durable Orders (BB) Oct Forecast: 0.5% Previous: 0.8% Mich Sentiment-Rev (DM) Nov Forecast: N/A Previous: 93.5 Help-Wanted Index (DM) Oct Forecast: 38 Previous: 37 New Home Sales (DM) Oct Forecast: 1133K Previous: 1145K Chicago PMI (DM) Nov Forecast: 56.5 Previous: 55.0 Fed's Beige Book (DM) ------------------ Thursday, 11/27/03 ------------------ None ---------------- Friday, 11/28/03 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************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. 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The Option Investor Newsletter Sunday 11-23-2003 Sunday 2 of 5 In Section Two: Watch List: Call Play of the Day: UTX Dropped Calls: APA Dropped Puts: AVID, AZO ************************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 ************************************************************** ********** Watch List ********** Potential Trades Developing Saint Jude Medical - STJ - close: 59.85 change: +0.48 WHAT TO WATCH: Shares of STJ have slowly been edging higher and after bouncing from 58.50 near its 21-dma the stock looks poised to rally higher. Traders might want to use a trigger above $60.50 or 60.55 to open the play and target a move to the $65.00 area. STJ's point-and-figure chart shows a bullish catapult breakout so the upside could be even higher. Chart= --- Sealed Air Corp - SEE - close: 50.45 change: +0.09 WHAT TO WATCH: SEE may be hinting at an entry point soon. The stock burst out over resistance in mid-October but found the $54 level too tough to break. The recent consolidation has brought it back to the psychological round-number level at $50 and its 50-dma. Bulls might want to consider plays on a move up and through the 51.50 area. Bear might want to consider plays on a drop below its 100-dma near 49.50. A bearish target would be the $45 mark near its 200-dma. Chart= --- Briggs Stratton - BGG - close: 66.26 change: +2.71 WHAT TO WATCH: We mentioned BGG as a potential bullish trade in the MarketMonitor on Thursday and it looks like someone was listening. Investors bought the dip and BGG added 4.26% on strong volume Friday. The strong close over $66 looks tempting but conservative traders may not want to chase it. A short-term bullish target would be $70. Watch out for resistance at $68. Chart= --- Harrah's Entertainment - HET - close: 45.60 change: +0.53 WHAT TO WATCH: HET broke out over resistance at $45 two weeks ago and traded to $48 in short order. Since then it has pulled back only to bounce at $45 again. Bullish traders might want to use a trigger over $46.00 or 46.05 to open new long positions. A tight stop under the 21-dma should limit risk. Chart= --- Bard C.R.Inc - BCR - close: 74.35 change: -0.43 WHAT TO WATCH: BCR has reversed its momentum and Friday's session confirmed the breakdown under its simple 50-dma. Volume was strong on Friday at 530K. There is some support near 72.50 but bearish traders could target the $70.00 or 200-dma near $68. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- AHC $47.02 -0.60 - AHC recently failed at the $50 level and the ensuing sell-off was powered on big volume. Friday's drop under the 200-dma looks bad but support is only $2.00 away at $45.00. NSM $39.90 +0.18 - Shares of chip stock NSM have been hovering around the 40 mark for five days now. Bears can go short under $39.00. Bulls can go long over 41.25. WEN $37.40 +0.41 - Wendy has been bouncing off its simple 30-dma for months now and bulls are getting another shot to buy the dip. Use a tight stop under Thursday's low. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************** THE PLAY OF THE DAY ******************** Call Play of the Day: ********************* United Technologies - UTX - cls: 83.90 chng: +0.60 stop: 82.00 See details in play list ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Apache Corp. - APA - close: 69.41 change: -0.89 stop: 70.00 Our APA play capped off a disappointing week on Friday by falling through our $70 stop in the first hour of trade. While weakness in energy prices certainly played a role, APA's weakness was greater than should have been warranted by the mild pullback in the price of crude oil and natural gas. Our stop had been placed just below the initial breakout level, so APA's break and close below there (not to mention the 50-dma) is an ominous sign. Needless to say, we're dropping the play now that it has come back near where we initiated coverage nearly 3 weeks ago. Any rebound early next week should be used as a gift of an exit point on any remaining open positions. Picked on November 2nd at $69.72 Change since picked: -0.31 Earnings Date 1/22/04 (unconfirmed) Average Daily Volume = 1.29 mln PUTS ^^^^ Avid Technology - AVID - cls: 49.46 chg: +0.31 stop: 51.26 We're going to throw in the towel on AVID. We haven't been stopped out and the stock's weekly and P&F charts still look very bearish. Yet something doesn't sit right with us and we've been looking for a breakdown that has yet to materialize. If you're willing to take the heat a stop loss at $51.00 should keep the pain to a minimum. Even a stop at 50.25 wouldn't hurt since the stock hasn't traded above $50 in a week. We will keep an eye on it and we might bring AVID back to the play list on a move below 48.00-47.50. Good luck. Picked on November 16 at $48.45 Change since picked: + 1.01 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 637 thousand Chart = --- AutoZone, Inc. - AZO - close: 92.95 change: +1.59 stop: 94.00 After plunging from its lofty height above $100 in late October, AZO looked like a great breakdown play. Unfortunately, every bearish push lower was met with eager buyers just above the $90 support level. When the first rebound failed, it looked like the stock really was ready to head south. Alas, it wasn't to be, and the rebound over the past couple sessions definitely looks bullish with buying volume starting to increase again. Friday's close just below the $93 resistance level, and at the high of the day looks like the precursor to a breakout over that resistance and the 50-dma early next week. We're not going to take that chance though, and are closing the play this weekend near where we initiated coverage a couple weeks ago. If not closing out positions at the open on Monday, make sure to keep stops in place just over the 50-dma. Picked on November 9th at $93.30 Change since picked: -0.35 Earnings Date 12/22/04 (unconfirmed) Average Daily Volume = 1.13 mln *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 11-23-2003 Sunday 3 of 5 In Section Three: Current Calls: DGX, HOV, MME, PGR New Calls: DHR, UTX Current Put Plays: GDW, MXIM, NFLX New Puts: None ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Quest Diagnostics - DGX - cls: 71.60 chng: +0.39 stop: 68.40*new* Company Description: Quest Diagnostics was the result of a 1996 Corning spinoff, and currently holds the title of the world's #1 clinical laboratory. DGX performs more than 100 million routine tests annually, including cholesterol, HIV, pregnancy, alcohol, and pap smear tests. Operating laboratories throughout the US and in Brazil, Mexico, and the UK, DGX also performs esoteric testing (complex, low-volume tests) and clinical trials. The company serves doctors, hospitals, HMOs, and other labs as well as corporations, government agencies, and prisons. Why we like it: After its initial breakout over $70, DGX has been consolidating in a very clear continuation "flag" pattern between $70.25-72.00. Friday's session continued that pattern and the push to close near the high of the day looks decidedly bullish. The stock appears about ready to break that pattern to the upside and when it does, it should provide a solid opportunity to initiate new momentum-based positions. Since the break above the flag should initiate a move of roughly the same magnitude as that which preceded the consolidation, we're looking for roughly a $5 move above the $72 breakout level. Actually, in an effort to not get too greedy, we've set our target a bit lower at the $75 level. In the event of one more dip towards the bottom of the range before the actual breakout, new positions can be taken on a rebound from above the bottom of the flag. We're still giving DGX some room to move in the event of a slightly deeper dip, steadily raising our stop just below the 20-dma ($68.49). So our stop now rises to $68.40. Once DGX breaks out above $72, the stop will rise to just below $70. Suggested Options: Shorter Term: The December 70 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the December 75 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders will want to use the January 70 Call. BUY CALL DEC-70*DGX-LN OI=1180 at $3.40 SL=1.75 BUY CALL DEC-75 DGX-LO OI= 475 at $1.15 SL=0.50 BUY CALL JAN-70 DGX-KN OI=2046 at $4.00 SL=2.50 BUY CALL JAN-75 DGX-AO OI= 384 at $1.70 SL=0.75 Annotated Chart of DGX: Picked on November 13th at $69.46 Change since picked: +2.14 Earnings Date 1/20/04 (unconfirmed) Average Daily Volume = 876 K --- Hovnanian Enterprises - HOV - cls: 86.50 chg: +1.99 stop: 81.99 Company Description: Hovnanian Enterprises, Inc. was founded in 1959 by Kevork S. Hovnanian, Chairman, and is headquartered in Red Bank, New Jersey. The Company is one of the nation's largest homebuilders with operations in Arizona, California, Maryland, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia. The Company's homes are marketed and sold under the trade names K. Hovnanian, Washington Homes, Goodman Homes, Matzel & Mumford, Diamond Homes, Westminster Homes, Fortis Homes, Forecast Homes, Parkside Homes, Brighton Homes, Parkwood Builders, Summit Homes and Great Western Homes. As the developer of K. Hovnanian's Four Seasons communities, the Company is also one of the nation's largest builders of active adult homes. (source: company press release) Why We Like It: (Original write up from Thursday) Wow! It's hard to pick another sector that has been as strong or resilient as the homebuilders. The group has been hot, hot, hot and shows no signs of slowing down. Historically low mortgage rates have been drawing more and more homebuyers and the 30-year mortgage just dipped again last week to levels not seen since mid-summer. I know that many had been calling an end to the run in homebuilders, claiming these stocks would collapse under their own weight. Shoot, I may have said that myself at one time or another. Evidently, there is an insatiable appetite for these stocks, especially with the Fed still quoting their "considerable period of time" mantra (for keeping interest rates low). Of course mortgage rates aren't just affected by the Fed. If stock's sell off and investors run to bonds it will drive yields lower, which will drive mortgage rates lower and should push homebuilders even higher. If stocks run higher it will probably be due to a renewed encouragement for the economy and homebuilders should run with them. The caveat there is that rising bond yields, as money rotates from bonds back to stocks, may slow the homebuilders' ascent. Recently, rival homebuilder Centex (CTX) said things look very favorable not just through 2004 but through 2005. The company (CTX) also announced a 2-for-1 stock split. We think HOV might be a good candidate for a stock split as it approaches its early December earnings announcement. The last time HOV split its stock was a 2-for-1 back in 1987. I know many traders are too wary to chase a stock that is up more than 160% this year alone. I would be too. However, despite the price appreciation HOV still has a P/E under 13. In a recent interview a senior director for Standard & Poor's portfolio advisers said they like HOV and had a 12-month price target of $96 for the stock. We think if HOV can break $90 it will head straight to $100. ! Weekend Update: Excellent! Shares of HOV powered higher and broke out above short-term resistance at $85.50. This means our call play was triggered at 85.51 with a stop at 81.99. We're going to leave the stop in place for the moment. Fortunately, the stock didn't run too far and still looks appealing for new bullish positions. Checking the P&F chart shows that HOV did confirm the bullish triangle breakout - a very successful pattern to trade. Suggested Options: Short-term traders can probably do well using December strikes while longer-term traders can look over the February '04 strikes. We like the 80s, 85s and 90's. We realize ATM strikes have the highest premium but the DEC 85 looks like the best pick. BUY CALL DEC 80 HOV-LP OI= 514 at $8.30 SL=5.25 BUY CALL*DEC 85 HOV-LQ OI= 996 at $4.90 SL=2.50 BUY CALL DEC 90 HOV-LR OI= 665 at $2.55 SL=1.20 BUY CALL DEC 95 HOV-LS OI= 469 at $1.15 SL= -- BUY CALL FEB 85 HOV-BQ OI= 273 at $8.10 SL=6.00 BUY CALL FEB 90 HOV-BR OI= 407 at $5.70 SL=3.65 Annotated Chart: Picked on November 21 at $85.51 Change since picked: + 0.99 Earnings Date 12/08/03 (unconfirmed) Average Daily Volume: 827 thousand Chart = --- Mid Atlantic Med. - MME - cls: 59.30 chng: +0.60 stop: 57.75*new* Company Description: Mid Atlantic Medical Services is a holding company for subsidiaries active in managed healthcare and other life and health insurance related activities. MME and its subsidiaries offer a broad range of managed healthcare coverage and related ancillary insurance and other products and deliver these services through health maintenance organizations, a preferred provider organization, and a life and health insurance company. MME owns a home healthcare company, a pharmaceutical services company and a hospice company. The company also owns a collections company and maintains a partnership interest in an outpatient surgery center. Why we like it: The past week has certainly been favorable for our MME play, as we've gamed the rebound off of strong support just below $56. The stock gained a bit of ground early in the week, but it really got a shot in the arm on Wednesday when UNH made bullish comments about its outlook for 2004. Recall that the two stocks are now linked due to the pending merger and what is good for UNH is also good for MME. With UNH breaking above the $50 resistance level, MME shot higher, tagging $59 and holding onto that level into the end of the week. Our target for the play is $60-61 in an expected return to the late October highs and that target is looming nearer by the day. We're no longer advocating new positions as our focus is now turning to maximizing gains in the play. In order to keep our risk to reward ratio roughly balanced from here on out, we're raising our stop to $57.75, which is just below where the 10-dma ($57.72) will be on Monday. Should the bulls start the week out in a jaunty mood, we're advocating exits on a rally into our $60-61 target zone. Suggested Options: With the rapid approach of our exit target, we are not recommending new positions in MME. Annotated Chart of MME: Picked on November 11th at $56.65 Change since picked: +2.65 Earnings Date 2/04/04 (unconfirmed) Average Daily Volume = 713 K --- Progressive - PGR - close: 77.02 chg: +0.28 stop: 74.99 Company Description: The Progressive group of insurance companies ranks third in the nation for auto insurance based on premiums written, offering its products by phone at 1-800-PROGRESSIVE, online at progressive.com and through more than 30,000 independent insurance agencies. (source: company press release) Why We Like It: PGR has thus far performed as expected but trading it has been a test of patience. The upside breakout took longer to develop than we had hoped and so far the bounce from $76 has yet to appear. Looking back we see the surge higher a week ago from Friday. That 4% jump was fueled by news from PGR that October 2003 results were outstanding. Net premiums had jumped 21% over the previous year and net income had soared 53%. A couple of analysts came out with positive comments and PGR was off to the races. Then last weekend there were the two bombings in Turkey and it sucked the air from the market's sails. Profit taking was the name of the game last week and PGR was not immune. Fortunately, the pull back in PGR has been orderly and is setting up for another bullish entry point above the $76 level. However, we'd like to see a bounce higher before initiating any new long positions. A move over $77.50 might suffice or maybe $78 for the more conservative hearted. We will leave our stop loss at 74.99. Suggested Options: Short-term traders can choose from the December options while longer-term traders can look over the February or May strikes. We like the 75's and 80s but our suggested call is the DEC 75. BUY CALL DEC 75*PGR-LO OI= 87 at $3.40 SL=1.75 BUY CALL DEC 80 PGR-LP OI=169 at $0.80 SL= -- BUY CALL FEB 80 PGR-BP OI=404 at $2.40 SL=1.35 BUY CALL FEB 85 PGR-BQ OI=151 at $0.85 SL= -- Annotated Chart: Picked on November 07 at $76.25 Change since picked: + 0.77 Earnings Date 10/22/03 (confirmed) Average Daily Volume: 654 thousand Chart = ************** NEW CALL PLAYS ************** Danaher Corp - DHR - close: 81.95 chg: +1.41 stop: 79.50 Company Description: Danaher, a leading industrial company, designs, manufactures, and markets innovative products, services and technologies with strong brand names and significant market positions. The company was previously known as DMG Inc. In addition to process/ environmental tools the company also supplies aircraft safety equipment. Its general-purpose tools include hand tools, ratchets, sockets, wrenches and more. Why We Like It: Dip buying is still a popular past time these days on Wall Street and investors are fond of playing the game in shares of DHR. The stock has done very well since late summer and strong earnings in October, where DHR beat by 3 cents, didn't hurt. The recent profit taking in DHR has brought the stock back to round-number support near $80 and its simple 50-dma. We mentioned DHR as a stock to watch as a bullish play in the MarketMonitor on Thursday and sure enough the stock bounced higher Friday from support. DHR's MACD is suggesting we're a little early for new long positions but its stochastics, RSI and momentum indicators are already turning positive. Conservative traders might want to use a trigger above $82.00 or 82.50 but we like the stock at current levels and won't use a trigger. Our initial stop loss will be at the 50-dma ($79.50). Short-term traders just looking for a quick move can target $85.00 but we think DHR can make it to the $87.50-90.00 region. The stock is a split candidate. DHR last split 2-for-1 on June 1st, 1998 at the $72 level. Suggested Options: Traders can choose from the December, January or March options. We like the December 80s and 85s but will suggest the DEC 80 strike as our favorite. BUY CALL DEC 80*DHR-LP OI= 769 at $3.60 SL=1.80 BUY CALL DEC 85 DHR-LQ OI= 756 at $1.00 SL= -- BUY CALL JAN 80 DHR-AP OI= 557 at $4.40 SL=2.40 BUY CALL JAN 85 DHR-AQ OI=1222 at $1.75 SL=0.90 Annotated Chart: Picked on November 23 at $81.95 Change since picked: + 0.00 Earnings Date 10/16/03 (confirmed) Average Daily Volume: 829 thousand Chart = --- United Technologies - UTX - cls: 83.90 chng: +0.60 stop: 82.00 Company Description: As a diversified manufacturing company, UTX has four principal operating segments: Otis (elevators and escalators), Carrier heating, ventilation and air conditioning systems), Pratt & Whitney (aircraft engines and space propulsion), Flight Systems helicopter electrical systems). Between the Pratt & Whitney and Flight Systems divisions, UTX participates in virtually all aspects of the design and manufacture of aircraft propulsion systems, from engines and their associated flight controls to auxiliary power units, compressors and instrumentation. Why we like it: Ever since bottoming near $54 in early March, UTX has been marching steadily higher on the premise of economic recovery later this year and into 2004. So strong has been the rally, that in early November the stock came within a nickel of $88, eclipsing the prior all-time high of $87.50, set back in early 2001. A measured pullback certainly makes sense after that feat and that's precisely what transpired, with the stock falling back to the 50-dma (now at $82.72) earlier this week. The early August and late September pullbacks also found support right at the 50-dma before UTX rebounded and went on to set new 52-week highs. Until price action proves otherwise, we're going to set our sights on a continued rebound and a rally to new all-time highs over the next couple weeks. While the PnF chart is still quite bullish, it is really no help in picking a price target as the first buy signal in this series gave a target of $85, which has already been exceeded. We'll pick $90 as our target, although it's a safe bet the bulls will have their work cut out for them as UTX nears the $88 level. Clearly, the ideal entry point into the play would have been yesterday's rebound from the 50-dma, which just happens to be right on top of the upward-sloping (and therefore supportive) lower Bollinger band ($82.66). Adding to the support near this level is the dip back to just above $82 in late October before the rebound and run to new highs earlier this month. Another dip and rebound from the vicinity of the 50-dma would be ideal for entry into the play, but more realistically, we'll have to settle for an entry near current levels. More conservative traders may want to wait for a break above the 30-dma ($84.65) before playing, as that would also get the stock over the $84.50 resistance level from mid-October. It may seem a bit tight, but we're setting our stop initially at $81.25, which is below several layers of support, including the 50-dma, and support from early October. Suggested Options: Shorter Term: The December 85 Call will offer short-term traders the best return on an immediate move, as it is just slightly out of the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the January 90 Call. This option is currently out of the money, but should provide sufficient time for the stock to move higher without time decay becoming a dominant factor over the short run. More conservative long-term traders will want to use the January 85 Call. BUY CALL DEC-80 UTX-LP OI= 376 at $4.80 SL=2.75 BUY CALL DEC-85 UTX-LQ OI=2077 at $1.45 SL=0.75 BUY CALL JAN-85 UTX-AQ OI=1367 at $2.45 SL=1.25 BUY CALL JAN-90 UTX-AR OI=4370 at $0.75 SL=0.30 Annotated Chart of UTX: Picked on November 23rd at $83.90 Change since picked: +0.00 Earnings Date 1/15/04 (unconfirmed) Average Daily Volume = 1.84 mln ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Golden West Fincl - GDW - cls: 100.18 chg: -0.09 stop: 101.75*new* Company Description: Headquartered in Oakland, California, Golden West is one of the nation's largest financial institutions with assets of over $75 billion as of October 31, 2003. Currently operating 476 savings and lending offices in 38 states under the World name, the Company has one of the most extensive thrift branch systems in the country. (source: company press release) Why We Like It: We are feeling a lot more cautious on GDW than we did just a couple of days ago. Initially, we wrote GDW to capture any profit taking as it and the BIX and BKX banking indices looked poised to breakdown. That breakdown has not yet occurred. While GDW still looks weak with a short-term trend of lower highs the BIX and BKX actually look ready to bounce. If the weekend survives without any major terrorist incident the broader markets could easily bounce higher taking the financials with them. We strongly considered closing GDW but its trend of lower highs still makes it a tempting short play. We are NOT going to suggest any new bearish positions in GDW until the stock trades back below the $99.00 mark. In the meantime we ARE going to lower our stop loss to $101.75. That way if the market does bounce and GDW with it we'll be taken out of the play somewhat quickly. Take note...there is the potential risk that GDW could surprise us with a split announcement. The company last announced a 3- for-1 split on Nov. 2nd, 1999 when shares were trading near $114. We do *not* feel it's a very high risk for our short-term trade but it does exist and a good reason to use a stop loss. Suggested Options: Stocks tend to fall faster than they rise so we like the December puts but longer-term traders can mull over the February '04 strikes. We hate to suggest the ATM strike but the DEC 100 looks the best. BUY PUT DEC 95 GDW-XS OI= 82 at $0.75 SL= -- BUY PUT DEC 100*GDW-XT OI= 64 at $2.40 SL=1.20 BUY PUT DEC 105 GDW-XA OI= 7 at $5.40 SL=3.50 Annotated Chart: Picked on November 18 at $99.54 Change since picked: + 0.64 Earnings Date 10/21/03 (confirmed) Average Daily Volume: 608 thousand Chart = --- Maxim Int. Prod. - MXIM - close: 50.36 change: +1.21 stop: 52.30 Company Description: MXIM designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high- frequency design processes and capabilities that can be used in custom design. MXIM's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. Why we like it: Going down? Or is it going up? Both the Semiconductor index (SOX.X) and our MXIM play have had a hard time making up their minds over the past few days. The SOX has been oscillating around the $500 support/resistance level and MXIM has been playing the same game around the $50 level. Part of this lack of conviction could be related to option expiration on Friday, but now that it is out of the way, the true direction should reveal itself early next week. Friday's rebound from the $49 level looks like a convincing bullish move and along with the SOX closing back over $500, our play may be in trouble. We're counting on the top of the channel (now at $51.00) and the 10-dma ($51.09) to provide resistance and to send the stock back down towards our target at the 50-dma ($45.89). But with daily Stochastics attempting to turn back up from oversold, the best approach for new entries will be to wait for a break below $49 with the SOX dropping below the $495 level that has been acting as support. Maintain stops at $52.30. Suggested Options: Aggressive short-term traders will want to focus on the December 50 Put, as it will provide the best return for a short-term play. Longer term traders will want to look to the January 45 Put, as it should provide ample time for MXIM to move in our favor without time decay becoming a major factor. BUY PUT DEC-50*XIQ-XJ OI=1911 at $2.00 SL=1.25 BUY PUT DEC-45 XIQ-XI OI=1259 at $0.50 SL=0.40 BUY PUT JAN-45 XIQ-MI OI=1789 at $1.20 SL=0.60 Annotated Chart of MXIM: Picked on November 18th at $49.89 Change since picked: +0.44 Earnings Date 1/27/04 (unconfirmed) Average Daily Volume = 6.43 mln --- Netflix Inc - NFLX - close: 45.65 change: +0.09 stop: 48.50 Company Description: Launched in 1998, Netflix is the world's largest online movie rental service, providing more than one million subscribers with access to a comprehensive library of more than 15,000 DVD titles. For $19.95 a month, Netflix subscribers can rent as many DVDs as they want, with three movies out at a time, and keep them for as long as they like. There are no due dates and no late fees. DVDs are delivered directly to the subscriber's address by first-class mail from shipping centers throughout the United States. Netflix can reach more than seventy percent of its subscribers with generally overnight delivery. The Company also provides background information on DVD releases, including critic reviews, member reviews and ratings and personalized movie recommendations. (source: company press release) Why We Like It: The tug-of-war at $45 for NFLX continues. We initially added NFLX as a speculative put play two weeks ago due to its incredible gains (it was $5 about a year ago) and technical reversal pattern. The profit taking continued for a couple of days before NFLX found support at its simple 50-dma and the $45 mark. We new this level would be a fight between the bulls and the bears and the struggle continues today. Traders might be a little perplexed. A potentially negative article in the WSJ mid-week and a new broker "buy" rating on Friday have failed to produce any moves in NFLX. Bullish traders might be encouraged by its inability to drop bears are noting the trend of lower highs. Its simple 10-dma continues to be overhead resistance, which is good news for the shorts. We're still suggesting that new trades are probably best considered on a move below the $44.00 mark but more aggressive traders might want to make that judgment call if NFLX trades under $45 again. Remember, this is more of a speculative technical play. There are a lot of fans out there and the company has a very strong growth rate. Traders should note that this is an aggressive play and not for everyone. NFLX typically carries an EXTREMELY high amount of short-interest and when they cover it gets painful. The need for good stop loss is important. Plus, after such a strong rise from its IPO price less than two years ago there is the remote risk of a stock split announcement. Suggested Options: The December 50s and 45s have the better open interest but our favorite is probably the DEC 47.50. BUY PUT DEC 50.00 QNQ-XJ OI=1365 at $6.40 SL=3.85 BUY PUT DEC 47.50*QNQ-XS OI= 825 at $4.70 SL=2.50 BUY PUT DEC 45.00 QNQ-XI OI=1860 at $3.40 SL=1.75 BUY PUT DEC 42.50 QNQ-XT OI= 654 at $2.20 SL=1.10 Annotated chart: Picked on November 13 at $48.50 Change since picked: - 2.85 Earnings Date 10/15/03 (confirmed) Average Daily Volume: 1.7 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 11-23-2003 Sunday 4 of 5 In Section Four: Leaps: Ready For The Rebound? Traders Corner: Ka-Ching, Ka-Ching, Ka-Ching – The Sweet Sound of CPTI Profits ************************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 ************************************************************** ***** LEAPS ***** Ready For The Rebound? By Mark Phillips mphillips@OptionInvestor.com Finally, the floodgates opened and we got some selling in these pesky markets. To be sure it was orderly and relatively mild, accomplishing the task it needed to -- that of taking the overbought edge off of this market. But the beginning of a major downleg? I'm sorry, but I'm having a hard time with that idea. Don't get me wrong, this market is overvalued by at least 30-40%, and I'm not excited about much it has to offer on the long side. However, I also understand that sentiment is still strongly biased towards the bulls. The Fed wants the market to go up and has been fueling its rise with monetary creation. Regardless of what shows up in the official government propaganda, er I mean reports, there is significant inflation occurring right now. The CRB index is very near 7 year highs and looking quite strong. Copper, platinum, gold, silver and numerous other commodities are hitting multi-year highs, along with many agricultural and energy sector commodities like cattle, soybeans, crude oil and natural gas. Each of these commodities are surging higher for their own individual reasons. Cattle prices have seen a boost due to the Canadian beef ban, and natural gas is running higher due to the reality of a changed supply/demand dynamic. Copper prices are a good measure of increasing business in the technology arena and right now the price of the orange metal is testing the 2000 high and then will be into territory not seen since 1997. The interesting thing about this dynamic is that it is clearly and unequivocally inflationary. Commodities respond to global demand, not just demand here in the U.S. So trying to connect the dots and say that strong demand for copper means that the domestic technology sector is improving is a nonsequitor that requires a real knot in the space time continuum. It's the equivalent of this bit of "logic" -- olives are black, I do not like olives, so therefore I do not like anything black. The GLOBAL economy is where the growth is, -- most of it in Asia. Fed-induced liquidity has fueled that growth via the law of unintended consequences. In its attempt to reignite business growth here at home, the Fed has pumped up several foreign economies and built twin housing and debt bubbles here at home. Those bubbles WILL pop -- it's just a matter of when. Until they do, the market and the economy can go merrily along its way. Just remember that playing bullish right now is just like going ice-skating as the spring thaw approaches. There are now thin patches and cracks are beginning to appear. Fun can still be had, but we need to be extra vigilant in looking out for new cracks nearby. How did we get here? Aaah yes, the market was due for a correction. But that's all I believe this little dip is. All the major indices broke their respective 50-dmas last week, but we've seen this before -- in early August and then again in late September. There was an intraday break of the 50-dmas in late October, but that really isn't the same thing, now is it? Let's take a look at some of the signs we're looking for. Has the market broken the months-long pattern of higher highs and higher lows? No. Have we seen a surge in volume on this downward move of the past week? No. Are bellwether stocks like MSFT, CSCO, DELL, INTC etc. seeing heavy selling pressure and violating important support levels? Well, MSFT is, but then it has been trading poorly for most of the past year. CSCO is near multi-year highs, DELL has just pulled back to support and INTC is just below its recent highs, having not touched its 50-dma since June. Another metric we can use is the Russell 2000 index, and in contrast to the other major indices, the RUT rebounded from its own 50-dma ($520) last week. In every way I can look at it, the broad market has simply gone through the latest correction in its bull run off the March lows. The volatility indices VIX/VXO/VXN reflect this reality as well. While they're off their multi-year lows of a few weeks ago, they are all still very low on a historical basis. The market still looks bullish, even though this months-long upward move does look a bit long in the tooth. The underlying problems still exist -- record budget and trade deficits, the dollar continues to drill to multi-year lows (a direct indication of the liquidity induced asset inflation that is ongoing) and signs of a strong recovery in business spending are still largely absent. But sentiment is still rampantly bullish and that will likely keep the broad market from experiencing a dramatic fall through the end of the year. Bullish percent readings are still holding very near their cycle highs and the weekly Stochastics on the major indices are still holding in or near overbought territory, just as they have since the end of April. Absent a sharp change in sentiment, I think we are destined to maintain the upward trend for now. That said, we are near enough to major resistance levels and there is enough of a lack of upside pressure to make failed rallies in the current environment attractive for the initiation of longer- term bearish positions. At the same time, there are stocks that will likely continue to behave in a bullish manner, even if we do see some renewed weakness in the overall market. Our job in the near-term is to take advantage of the dips to establish those bullish positions and failed rallies to establish bearish positions in anticipation of the broad market heading lower next year and a few individual issues continuing higher. So let's take a look and see what developed over the past week with respect to our listed plays. Portfolio: WMT - After the post-earnings drop, WMT has held up remarkably well, with the $55 level acting as a price magnet. That magnetism should come as no surprise, with support coming in the form of the 200-dma ($55.14) and expiration shenanigans keeping the stock pinned to that level through Friday. But that artificiality will be gone next week and with Friday's close back under the 200-dma, conditions look ripe for another leg down the chart. Note that the weekly Stochastics is really starting to make some definite downward progress and at the current rate, we could be looking at it bottoming in oversold sometime in the next 2-4 weeks. The key metric to watch will be whether price action heads south in concert with the Stochastics or if support holds firm in the $53- 54 area. We're still looking for a decline down to the $48-50 area, but at this juncture, new positions do not make sense. Maintain stops at $58.50. Watch List: QQQ - Last week's decline was definitely the most convincing bout of weakness yet witnessed in the NASDAQ since the rebound off the March lows got underway. Monday's drop under the bottom of the rising channel was underscored by Tuesday's violation of the 50- dma in the QQQ and then the stock spent the rest of the expiration week hovering near $34. So was that breakdown our best entry into the play? I sincerely doubt it. The weekly Stochastics (10,5,3) are just starting to poke down out of overbought (long-term bearish), but at the same time, the daily Stochastics are bottoming in oversold and getting ready to turn up (near-term bullish). There should now be solid resistance near $35.00, getting even stronger up at $36. That means we want to take advantage of the next failed rally on the daily chart (preferably in the $35.00-35.50 area) to initiate new positions. One other note that I think is pertinent has to do with the broken channel. There have been a lot of stocks that have broken down out of their rising channels lately, only to rebound right back into them on the first bounce. So we're going to want to be on the lookout for similar behavior from the QQQ. Ideally, the stock should rebound to the bottom of the channel (currently $35.25) and rollover, providing our ideal entry point. If the QQQ shoots right back inside the channel though, we'll have our warning that we still may be a bit too early on this bearish play. Either way, the next week or two should prove interesting and enlightening. If we do get an entry, then we'll use a fairly tight initial stop at $37, which is safely above the recent highs. SMH - Despite the weakness last week, I remain wholly unconvinced as to the downside potential in the SMH over the near term. While I could make a fundamental case for the downside, the bottom line is that bullish sentiment is still strong. Technically, price is still above the channel that held until the upside break in late August. Since early August, the SMH has been trading in an even steeper ascending channel, the bottom of which is right at $40 support. Additionally, this is just below the top of the initial channel and then there is additional support coming in from the 50-dma ($39.39) and the lower Bollinger band (daily) at $39.65. Taken all together, it makes the odds of a major downside break pretty slim, especially with last week's Semiconductor book-to- bill number coming in at 1.0. I don't want to eject the play from consideration, but neither do I want to place money at risk in the play until we see some real sign of weakness in the form of a significant support break. We'll continue to monitor the SMH, but for now, this play remains on hold. NEM - With the dollar continuing to plunge relative to other currencies, it is really no great surprise to see gold holding just below the $400 level. As long as the price of the yellow metal holds up, the chances of a significant pullback in NEM are pretty low. But I sense that we're nearing a significant correction in both the price of gold and gold stocks, most likely during the month of December. I'm still kicking myself for hanving missed the entry point last spring before this powerful rally took off, but I'm hesitant to chase it higher, especially with NEM coming into strong historical resistance in the $45-47.50 area. Given the global financial picture, I continue to believe gold is headed much higher over the next few years, but we need to establish our positions on the elusive and infrequent pullbacks. Support for NEM should be solid in the $40 area, becoming formidable down at $38. So those remain our lines in the sand, where we'll look to get onboard. Once filled, we'll use a wide stop at $35, as I think it is very likely that NEM will take out its 1996 highs near $60 next year. SBUX - I vacillated back and forth for the last three days of last week about whether to take an entry into our SBUX play. Our initial entry target never arrived, as we were looking for a rebound from the $28 area. Over the past week, the stock has finally felt a bit of selling pressure, coming right down to the $30 level, at the upper edge of raised targeted entry zone. That's the good news, but the bad news is that you've got to squint pretty hard (even on the intraday charts) to call it a bounce. More than anything, the action of the past few days looks like typical option expiration monkey business and I'd prefer to wait for clarity next week and see what price action transpires. SBUX is now back inside its ascending channel, and resting right on the 50-dma ($30.53). Right now, I've got my eye on a continued slide down to the center of the rising channel at $29, as a rebound from that level would be preferable to an entry at Friday's closing price. However, if SBUX does rebound from the $30 level early next week, we will take that as an entry point. In either case, our initial stop will be set rather wide at $26.50, just below both the bottom of the channel and the 200-dma ($26.53). DJX - Just like the other major indices, the DOW had a rough time last week, breaking down below the 50-dma. The all-important question is whether this is the beginning of a major trend change or just the latest buying opportunity in this cyclical bull market. I happen to think it is a little bit of both. I expect this dip below the 50-dma to be bought just like the ones from early August, late September and late October. But I'm also looking for the next rally attempt to fail at a lower high, giving us a potential H&S top formation. I still think the DOW is destined to tap that 10K level, but just in case I'm wrong, I've decided to lower that entry target just a bit. Let's lower our entry target on the DJX to $98.50-99.00 and then we'll let the chips fall where they may. I expect we may have to take some heat up to the $100-101 area, but that's about it. More conservative traders might opt to open a half position at the listed target and then round out to a full position on a run into the $100-101 area. Remember, we're using a wide stop on this play up at $104 to prevent getting stopped out before the larger decline we expect gets underway. QCOM - Just like clockwork! I finally add QCOM to our Watch List and then the stock sees some weakness. The past two days have been particularly ominous, with QCOM breaking both the bottom of the channel and the 50-dma and closing under the $44 level for the first time in nearly a month. I'll stick with the play and the entry target in the $42-43 area. But we'll need to see a convincing bounce to enter the play. This is not one in which we'll want to take a chance at catching a falling knife. I like the underlying fundamentals at QCOM, but when the PE ratio is north of 40, anything can happen. Remember, there's strong support near $42 and the PnF chart shows that if the uptrend still has life in it, buying should appear in the $42-43 area. We've picked the right point to take action on this pullback and we can play it with a reasonably tight stop at $39.50. If QCOM prints $40, that will give a new PnF Sell signal, obliterating the current bullish price target and have us dropping the play like a hot potato. Radar Screen: AIG - As it should, AIG lost more ground last week, finally closing below the 200-dma ($57.00) on both Thursday and Friday. That definitely looks bearish, but I wouldn't advocate new positions on weakness, especially with strong support in the $54- 55 area. After looking at the charts in greater detail, I'm more convinced that the only way to play it is on a failed rally. With strong resistance at the descending trendline just over $61 and the 50-dma at $59.90, I think a failed bounce in the $59-60 area is a good target to shoot for. It is unlikely to occur during the holiday shortened week just ahead, but the first couple weeks of December hold promise. Look for AIG to hit the Watch List next week. AMGN - The more I looked at it last week, the less I liked AMGN as a long-term bearish play. While the price action has certainly been weak, look at how well the $58 support level was defended. And that is before we get to really strong support at $55. There are better bearish candidates out there, so we'll remove AMGN from our radar screen this week. GENZ - Look at that support at the 200-dma! GENZ has been bouncing from the 200-dma for close to 2 weeks now, with little to show for the effort. The stock has been unable to either penetrate the 200-dma or to bounce significantly, as weekly Stochastics are now nearing oversold. I expect we'll see another solid rebound in the weeks ahead and the actionable play will be on a failed rally, ideally near the bottom of the broken channel. We might not get quite that high, but perhaps a failure at the 50- dma near $47 would do the trick. In either case, I would be very surprised if anything transpires in the next 3 days, and quite honestly two weeks from now may be an ambitious time target. But with the PnF chart giving us a $33 price target, this one definitely bears watching. MEL - Isn't it amazing with all that weakness in the overall market that MEL just held onto $28 support last week and actually rebounded on Friday? This Financial stock does look to have some attractive potential from the bearish side, but I want to see how this bounce plays out before adding it to our Watch List. MEL should now find formidable resistance near $30. If it doesn't, then we'll be looking at a double bottom at $28 and have to concede that a run back to the recent highs in the $33-34 area is likely. Watch and wait here too. EK - Is there any enterprise out there that is more doomed than EK? The company completely failed in its attempt to compete in the digital camera industry, ignoring that clear and present danger, instead focusing its efforts on going head to head with competition (namely Fuji) in the film business. Having lost on both fronts, the company is trying to regroup and make another stab at the digital camera industry. I'm not holding my breath for success, as this one seems destined for the scrapheap. That said, the price action has been impressively resilient in recent years, despite continuing to fall to multi-year lows. There have been several occasions where I've tried to play the downside with long-term positions and been stymied on most of them. But I think the charts may be setting us up for an opportunity that is too good to pass up. The top of the late September gap will soon line up with the 200-dma near $27 and if price can claw its way up to that level, it looks like a high-odds short that we can hold onto as the stock continues to drill down to new lows. It won't be a fast-moving play and we'll have to exercise a lot of patience, but isn't that what LEAPS are designed for? Closing Thoughts: I've spent a lot of time reading in the past few weeks, trying to gain a clearer perspective on the market. In short, I've found that there are as many opinions on what we should expect over the next week/month/year as there are analysts. And the opinions run the gamut from "Run for the hills, the sky is falling" to "Buy now, because the presidential election cycle is going to drive the DOW to new all-time highs". I fall somewhere in the middle -- I see huge problems for the market and the economy, but I don't see the bottom falling out and sending the market to new lows anytime soon. I have no doubt that before this secular bear market is over, both the DOW and the S&Ps will hit new lows (I'm not sure about the NASDAQ), but I don't see that in the next few months. The markets are still being held up by hype, hope and liquidity. Until one and preferably two of the legs on that stool give way, any meaningful downside action is more likely to be a buying opportunity rather than the beginning of a major decline. There are lots of tools we can use to measure what is happening in the market -- some give evidence of overt strength/weakness, while others tell us where the bulk of the risk lies. Right now (and for the past several months) these barometer-type indicators have told us that the bulk of the risk is being carried by the bulls. At the same time, the indicators that show actual strength/weakness have failed to show an imminent end to the bullish party. It is when both sets of data are in alignment that powerful market moves can unfold. In the meantime, we have to carefully pick and choose. Choose carefully! Have a great week! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: None Puts: WMT 10/03/03 '05 $ 55 ZWT-MK $ 5.10 $ 5.20 + 1.96% $58.50 '06 $ 55 WWT-MK $ 7.20 $ 6.90 - 4.17% $58.50 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: NEM 10/05/03 $37-38, $40 JAN-2005 $ 35 ZIE-AG CC JAN-2005 $ 30 ZIE-AF JAN-2006 $ 35 WIE-AG CC JAN-2006 $ 30 WIE-AF SBUX 10/12/03 $29-30 JAN-2005 $ 30 ZIE-AG CC JAN-2005 $ 25 ZIE-AF JAN-2006 $ 30 WIE-AG CC JAN-2006 $ 25 WIE-AF QCOM 11/16/03 $42-43 JAN-2005 $ 45 ZLU-AI CC JAN-2005 $ 40 ZLU-AH JAN-2006 $ 45 WLU-AI CC JAN-2006 $ 40 WLU-AH PUTS: QQQ 08/10/03 $35.00-35.50 JAN-2005 $ 32 ZWQ-MF JAN-2006 $ 32 WD -MF SMH 08/24/03 HOLD JAN-2005 $ 35 ZTO-MG JAN-2006 $ 35 YRH-MG DJX 11/02/03 $98.50-99.00 DEC-2004 $ 96 YDK-XR JUN-2005 $ 96 ZDK-RR New Portfolio Plays None New Watchlist Plays None Drops None ************************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 ************** Ka-Ching, Ka-Ching, Ka-Ching – The Sweet Sound of CPTI Profits By Mike Parnos, Investing With Attitude Calculating This Month's CPTI Booty Again, this is the fun part of our monthly summary column. It would have been even more fun if I didn't have a lapse of stupidity and put on the directional OEX position a few months back. Oh, WTF? We still came out smelling sweet despite stepping in a pile of it on the way. Let's scrape it off our shoe and get back to the calculations. When all is said and done, our Couch Potato Trading Institute portfolio register rang up "hypothetical" profits of $4,690 ($6,850 if you didn't get into the directional trade). That will buy some nice "hypothetical" toys for the kids – and mommy and daddy too! Now, if we can just figure out a way to fit Heather Locklear into my Christmas stocking . . . Adding It Up A brief review of our CPTI portfolios tells us that, in our first year, we generated over $33,000. This month's $4,690 is a nice start on our new fiscal year (Nov. to Nov.). _____________________________________________________________ November Position Synopsis – Total Profit: $4,690 BBH Siamese Condor – Closed for profit of $3,600 SPX Iron Condor – Closed for profit of $2,150 OEX Iron Condor – Closed for profit of $1,800 AFCI Siamese Condor – Closed for loss of $700 OEX Bearish Calendar Spread – Closed for loss of $2,160 (Boo, Hiss) Quickie Position Synopsis – Total Profit: $3,050 SPX Iron Condor – Closed for profit of $2,000 LOW Siamese Condor – Closed for profit of $900 IBM Siamese Condor – Closed for profit of $350 QQQ Lottery Play – Closed for loss of $50 MMM Lottery Play – Closed for loss of $150 ____________________________________________________________ NOVEMBER POSITIONS BBH – Siamese Condor - $126.22 Sold 10 BBH November $130 puts and 10 BBH November $130 calls for about $8.50. Bought 10 BBH November $140 calls and 10 BBH November $120 puts for about $2.40. The net credit was $6.00. We closed the position Thursday at a cost of $2,400. Profit: $3,600. SPX Iron Condor – Trading @ 1035.28 Iron Condor. Range of 985 to 1075 for total net credit of $2,150. SPX closed well within the trading range. Profit: $2,150. OEX Iron Condor (By Request) – 511.77 We sold 10 contracts of the November 490 puts and bought 10 contracts of the OEX November 480 puts. Then, sold 10 contracts of the OEX November 545 calls and buy 10 contracts of the OEX November 555 calls. Total net credit was $1.80. Closed inside the range. Profit: 1,800. OEX – Bearish Calendar Spread – OEX @ $511.77 In September I anticipated a substantial downward move. We put on a calendar spread, sold against it twice. The move didn't happen and we lost our derriere. In some trades we learn what TO do. In other trades we learn what NOT to do. Unfortunately, this was the latter. The loss: $2,160. AFCI Iron Condor – Position closed early for $700 loss. _____________________________________________________________ LONGER TERM POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $34.23 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We're going to make money by selling near term puts and calls every month. Here's what we've done so far – all in 10 contract quantities. October: Sold Oct. $33 puts and Oct. $34 calls -- total credit of $1,900. November: Sold Nov. $34 puts and calls – total credit of $1,150. December: Sold Dec. $34 puts and calls – total credit of $1,500. Note: Each month, near expiration, we buy back the expiring options and sell options for the next option cycle. We haven't included any of the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! QQQ Put Calendar Spread – Ongoing -- Trading @ $34.23 We created a cheap play that will let us take advantage of a nice down move. Meanwhile, we sell against the January puts while we wait. Bought 10 January 04 QQQ $32 puts and sold 10 October 03 QQQ $32 puts for a total debit of $1.00 ($1,000). We rolled out to the November $32 and took in a $.30 credit and then rolled to the December $32 puts for another credit of $.40. Our cost basis is now only $.30. ______________________________________________________________ NOVEMBER QUICKIE RESULTS – Total Profit: $3,050. SPX Iron Condor – 1035.28 Iron Condor. Range of 1030 to 1070 for total net credit of $2,000. SPX closed within the trading range. Profit: $2,000. QQQ Lottery Strangle -- $34.23 Bought 10 Nov. QQQ $34 puts for $.15 and 10 Nov. $36 calls for $.15. Total risk of $.30 ($300). QQQs moved down, but not too far. On Friday, closed position for $250. Loss: $50. IBM Siamese Condor -- $88.63 Sold 10 Nov. IBM $90 puts and 10 Nov. $90 calls for $1.75. Buy corresponding protective $100 calls and $80 puts for $.10. Net credit of $1.65. Friday morning closed position for $1.30. Profit: $350. MMM Lottery Put -- $77.51 Bet $.15 on a longshot. Bought a $75 Nov. put for $.15. It came down, but not far enough to do us any good. Loss: $150. Shoulda bought the $77.50. Woulda made $$$. Don't you just hate those shoulda, woulda, and coulda? LOW Siamese Condor -- $57.51 Sold 10 contracts of Nov. $60 puts and $60 calls for about $3.00. Bought the corresponding protective $50 puts and $70 calls for a total of $.10. Net credit of $2.90. LOW spiked to $58.17 Friday morning. Closed position for $2.00. Profit: $900. _____________________________________________________________ DECEMBER CPTI PORTFOLIO POSITION IDEAS SPX Iron Condor – 1035.28 Sell 10 contracts of December 1075 SPX calls and buy 10 contracts of December 1085 calls for net credit of about $1.35 ($1,350). Then, sell 7 contracts of December 990 SPX puts and buy 10 contracts of December 975 puts for net credit of about $1.40 ($980). Total credit $2,330. Maximum profit range of 990 to 1075. Max profit potential of $2,330. BBH Siamese Condor -- $126.22 It worked nicely for November. Let's dive back in with slightly lower expectations. We'll use $125 as the magic number. So let's sell 10 contracts of BBH December $125 puts and sell 10 contracts of BBH December $125 calls for a credit of $7.30. Now, buy 10 contracts of the BBH December $115 puts and $135 calls for a debit of about $1.70. Our total credit is about $5.60. The closer BBH finishes to $125, the more we make. Our suggested bailout points are $119.40 and $130.60. BBH Alternative Play -- Baby Iron Condor - $126.22 You could sell the $130 calls and buy the $140 calls for a credit of about $2.20. Then, sell the $125 puts and buy the $115 puts for a credit of about $1.65. Total credit and maximum potential profit of $3.85 if BBH finishes between $125 and $130. Safety range and suggested bailout points would be $121.15 and $133.85. With the Baby Iron Condor, our safety range is $1.50 wider than the Siamese Condor. However, the potential profit in the Siamese Condor is $5.60 as opposed to $3.85 in the Baby Iron Condor. DJX Baby Iron Condor - $96.29 The DJX mirrors the DOW 30 stock index. A nice feature about playing the DJX is the $1 price increments. Will the DOW stay within a 500-point trading range? Let's find out. Sell 15 contracts of the December DJX $99 calls and buy 15 contracts of the December DJX $102 calls for a credit of about $.35. Then, Sell 15 contracts of the December DJX $94 puts and buy 15 contracts of the December DJX $91 puts for a credit of about $.45. Our total net credit will be about $.80 or $1,200 ($.80 x 15 contracts). We're only exposed for $2.20 – the $3.00 difference between the strikes less the $.80 we took in. Good risk vs. reward. OEX Credit Spread Boogie - 511.79 We sold 2 December OEX 520 calls @ $9.00 We bought 2 December OEX 545 calls @ $1.55 Total credit and potential maximum profit of $7.45 ($1,490). Exposure $17.55 ($3,510). Maintenance $25.00 ($5,000). Note: We put this trade on last week and things are looking good – so far. If you didn't get in last week, you could enter a new Credit Spread Boogie by selling two contracts of the December OEX 515 calls and buying two contracts of the December OEX 540 calls for a total credit of $7 ($1,400). All the same principles of the trade apply. We will, however, only be monitoring and adjusting (if necessary) the original 520/545 position. _____________________________________________________________ Those Friendly Reminders November is a standard four-week option cycle. The premiums quoted on the above educational trades are based on Friday's closing bid/ask prices. On Monday the premiums may be different due to market movement and/or the additional two days of time erosion. In a few instances, when the bid/ask spread is wide, we figure you may be able to shave off a nickel here and there. Be careful. If a stock gaps up or down, it may change the entire dynamic of the trade. Don't skydive without a parachute. Just because you have a pulse and evidence of brain activity doesn't mean you a trader. And make sure you know the intricacies of a strategy before you trade. __________________________________________________________ A Real Handful As we know, Michael Jackson has a variety of questionable positions. Recently, he's been experiencing a short squeeze. Unfortunately, the shorts may have been worn by a 12-year-old boy. ______________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, look under "Education" on the OI home page and click on "Traders Corner." They're waiting for you 24/7. ___________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP _____________________________________________________________ Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. 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The Option Investor Newsletter Sunday 11-23-2003 Sunday 5 of 5 In Section Five: Covered Calls: More Covered-Call Q&A Naked Puts: Selling "Naked" Puts Spreads/Straddles/Combos: Market Consolidation Continues Amid Global Concerns Updated In The Site Tonight: Market Posture: Options Expirations and Terrorist Threats ************************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 ************************************************************** ************* COVERED CALLS ************* Trading Basics: More Covered-Call Q&A By Mark Wnetrzak One reader asked about adjustment strategies and another reader wants to know why we focus mainly on low-priced stocks for our covered-call plays. Attn: mark@OptionInvestor.com Subject: Covered-calls on cheap stocks Mark, I like the success of your covered-call plays but I noticed that you rarely list stocks that are more than $25. Is this because of the type of people who use your picks - newer investors with less portfolio capital - or is it something about the risk/reward of owning higher priced shares? I would love to see some stable stocks in the mid-cap range that give the same returns. These would be great for long-term portfolios such as my IRA and my kid's college fund. Thanks for excellent service! JW Hello JW, First, let me say that the past few months have provided some of the most productive periods since we began offering covered-calls and naked-puts as part of the regular OIN candidate lists. While we have received far more requests for "premium selling" plays on recent "high-flying" issues (NFLX, PHTN, ERES, MSTR, SINA, MGAM), the motive for any lack of covered-calls on more expensive stocks is simple: the premiums for call options simply won't support our approach, which involves short-term (monthly) positions offering a 4-6% return with at least 10-15% downside protection in the cost basis of the stock. The reason for this situation, of course, is that option premiums in general are at historical lows and until the speculative option buyer returns to the market in earnest, that fact won't change. Some readers have suggested that we pick the best (technically) stocks out of a range such as the $25-$50 group and simply list them with front-month ATM calls for bullish investors. Unfortunately, ideas like that are just not attractive to us because if we don't have complete confidence in the success (which means a profitable outcome) of what we have to offer, it won't be published, and that is the overriding measure of any play listed in our sections of the newsletter. As far as the strategy of selling covered-calls on higher-priced stocks, you could substitute the sale of "naked" puts. I am sure you know that the risk is exactly the same, but with a slightly higher reward as the margin requirement is generally less for writing the put option as opposed to actually owning the stock. Plus, as a put writer, you incur only one commission and when the stock price rallies (as you expected), or falls (due to unexpected news or events), it is far easier to close a naked put play than to close a covered-call position. Now that doesn't mean you should sell puts on every stock you want to use for covered-calls (there are other considerations), just that there are many characteristics of the strategy that favor the put writer. If you can't sell puts in your IRA, you might consider changing brokerages as there are a few who permit that type of trading in retirement accounts. At the same, there is something to be said for "buy-n-hold" investing with covered-calls as a downside hedge and I'll put something together on that subject in the coming weeks. Mark OIN Attn: mark@OptionInvestor.com Subject: Rolling down with covered-calls Mark, If you were to roll-down, is it common for it to not do you any good? Basically you'd be better off closing the play. When you say you should do it before expiration do you mean the day before the third Friday? That way, the call you buy is very low? I've been paper trading the plays which are great but a few are below the cost-basis and when I run the roll-down numbers, they never seem to be worth it. I was thinking maybe with the VXO/VIX so low, that's why the premiums are so low. Just a thought... Thanks for all the top notch info. I look forward to your column every week. KY Hello KY, Covered-calls do hedge against downside movement, however they are not a remedy for protracted bearish activity nor for any catastrophic downside moves due to ill-timed news or events. If an investor's outlook becomes bearish on an issue, exiting the position is usually the only way to prevent further loss. Whether an investor exits a position or opts for an adjustment strategy will depend on their long-term outlook for the stock and their risk-reward tolerance. One must weigh the "cost" of remaining in a position, often times locking-in a (albeit smaller) loss, verses exiting the position; preserving capital for those positions with a higher probability of success. This is a very difficult decision. Generally, if you are defensive and trying to lower your cost basis in your covered-call position, you would roll down and/or forward. If this is done before expiration, you would need to buy back your current "sold" calls, which should be relatively cheap. An investor who remains bullish in the long-term will do this to protect for short-term weakness, but ultimately, he expects the stock to recover. Usually, you will have to move forward several months or use LEAPs in order to obtain a credit in the new position. Of course, in the case of a catastrophic drop in price, the best that can be accomplished is to lock-in a loss (until expiration), which could still be less than the current loss, "if" the stock doesn't drop further. Hope this helps, Mark W. OIN SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Note: Margin not used in calculations. Stock Price Last Option Price Gain Potential Symbol Picked Price Series Sold /Loss Mon. Yield AKAM 10.30 11.37 NOV 10.00 0.75 0.45* 10.2% IDTI 17.60 17.57 NOV 17.50 0.65 0.55* 7.0% MONE 5.14 5.83 NOV 5.00 0.40 0.26* 6.0% TMM 3.44 3.20 NOV 2.50 1.10 0.16* 5.9% PLUG 5.91 5.03 NOV 5.00 1.15 0.24* 5.5% TLAB 7.53 8.08 NOV 7.50 0.30 0.27* 5.4% ALGN 15.60 16.14 NOV 15.00 1.60 1.01* 5.2% PUMA 5.54 5.31 NOV 5.00 0.85 0.31* 4.8% GSS 5.49 7.02 NOV 5.00 0.70 0.21* 4.8% CMNT 9.22 9.70 NOV 7.50 2.10 0.38* 4.6% OXGN 10.51 9.79 NOV 10.00 1.10 0.38 4.4% VECO 25.67 28.65 NOV 25.00 1.85 1.18* 4.3% EMBT 12.90 14.50 NOV 12.50 0.75 0.35* 4.2% CDN 15.39 16.40 NOV 15.00 0.80 0.41* 4.1% CRYP 10.84 12.00 NOV 10.00 1.20 0.36* 4.1% SSTI 11.21 12.55 NOV 10.00 1.65 0.44* 4.0% TLAB 7.83 8.08 NOV 7.50 0.70 0.37* 3.8% BRCD 6.33 5.91 NOV 6.00 0.65 0.23 2.9% QSFT 14.90 14.14 NOV 15.00 0.55 -0.21 0.0% AFFX 25.63 24.11 NOV 25.00 1.30 -0.22 0.0% SGMO 5.10 4.29 NOV 5.00 0.55 -0.26 0.0% BVSN 5.31 4.37 NOV 5.00 0.65 -0.29 0.0% ACN 25.05 24.16 NOV 25.00 0.55 -0.34 0.0% FFIV 25.49 23.44 NOV 25.00 1.25 -0.80 0.0% ITMN 20.03 18.28 NOV 20.00 0.85 -0.90 0.0% ARIA 7.70 7.52 DEC 7.50 0.80 0.60* 7.6% GSS 5.90 7.02 DEC 5.00 1.25 0.35* 6.5% MMR 16.30 17.00 DEC 15.00 2.00 0.70* 4.3% CLHB 6.12 7.00 DEC 5.00 1.35 0.23* 4.2% TIVO 9.02 8.19 DEC 7.50 1.85 0.33* 4.0% AVII 4.99 4.63 DEC 5.00 0.40 0.04 0.8% BRCD 7.63 5.91 DEC 7.00 1.00 -0.72 0.0% * Stock price is above the sold striking price. Comments: The major averages lost some ground this week and are testing a key support area near their 50-day MAs. Was the selling enough of a correction or will more pain be needed? Next week should offer some clues. As for the covered-call portfolio, several positions were closed in the interest of money management though investors with a bullish outlook may have opted to be assigned the stock (to sell calls for next month). Two positions with a December expiration lost some ground on Friday after reporting earnings. Brocade (NASDAQ:BRCD) dropped rather drastically after a disappointing earnings announcement and will be shown closed. TiVo (NASDAQ:TIVO) is also acting rather worrisome after reporting earnings and could also be a candidate for early exit. Positions Previously Closed: Credence Systems (NASDAQ:CMOS), Xoma (NASDAQ:XOMA), Seachange (NASDAQ:SEAC), Viasat (NASDAQ:VSAT), Emisphere (NASDAQ:EMIS), Rudolph Technologies (NASDAQ:RTEC), Alkermes (NASDAQ:ALKS) and Ibis Technology (NASDAQ:IBIS) -- which recovered (Murphy's Law?). NEW CANDIDATES ********* Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield PAAS 12.57 DEC 12.50 USP LV 0.70 353 11.87 28 5.8% MOBE 11.19 DEC 10.00 MUL LB 1.60 219 9.59 28 4.6% ISSI 16.33 DEC 15.00 IUH LC 1.90 158 14.43 28 4.3% INSP 24.39 DEC 22.50 IOU LX 2.70 14 21.69 28 4.1% ESPR 22.21 DEC 20.00 SPU LD 2.90 1118 19.31 28 3.9% CANI 14.05 DEC 12.50 CDU LV 1.95 66 12.10 28 3.6% TLAB 8.08 DEC 7.50 TEQ LU 0.80 4405 7.28 28 3.3% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** PAAS - Pan American $12.57 *** Diversify: Precious Metals! *** Pan American Silver (NASDAQ:PAAS) is principally engaged in the exploration for, and the acquisition, development and operation of, silver properties. PAAS owns and operates the producing Quiruvilca silver mine in Peru, a 99.85% interest in the Huaron silver mine in Peru and the producing La Colorada property. The company mines and sells silver-rich pyrite stockpiles at a small-scale operation in central Peru. Pan American also either holds an interest in or may earn an interest in non-producing silver resource and silver exploration properties in Peru, Argentina, the United States, Russia and Mexico, including the Alamo Dorado deposit in Mexico. Pan American continues to move higher in a strong Stage II climb and investors who want to diversify their portfolio should consider this position. DEC-12.50 USP LV LB=0.70 OI=353 CB=11.87 DE=28 TY=5.8% ***** MOBE - Mobility $11.19 *** Keeps Going Higher *** Mobility Electronics (NASDAQ:MOBE) provides mobile computing solutions for the notebook computer, PDA, pocket PC, tablet PC, smartphone and other mobile computing device users. Mobility's power products include a combination AC and DC power adapter that can be used to simultaneously charge a notebook computer and a cellular telephone or PDA in a vehicle, an airplane, a home or an office; a series of DC to DC or auto/air power adapters, and batteries for notebook computers. Their expansion products include a variety of PCI expansion devices designed to increase the storage capacity and computing capability of notebook or desktop computers. Mobility's accessory products include port replicators based on its Split Bridge technology, monitor stands and a variety of other accessories for the mobile computing device user. Mobility Electronics continues to climb above its 30-day MA and traders can speculate on the near-term performance of the issue with this conservative position. DEC-10.00 MUL LB LB=1.60 OI=219 CB=9.59 DE=28 TY=4.6% ***** ISSI - Integrated Silicon $16.33 *** Breaking Resistance? *** Integrated Silicon Solution (NASDAQ:ISSI) designs, develops and markets memory products for networking, Internet infrastructure, telecommunications, wireless products, handheld devices, computer peripherals and automotive electronics. Its products incorporate circuit design and advanced process technology. The company's high-speed and low-power SRAMs, low- to medium-density DRAMs and its family of electrically erasable programmable ROMs enable designers to meet demanding connectivity, portability and bandwidth requirements. In addition, ISSI has multi-chip packages combining Flash and SRAM (MCP), Bluetooth wireless chipsets and parallel search processors or content addressable memories (CAM) in development. ISSI is moving through a two-year old resistance level which suggests further upside potential in the near-term. Traders who believe the rally will continue can profit from that outcome with this position. DEC-15.00 IUH LC LB=1.90 OI=158 CB=14.43 DE=28 TY=4.3% ***** INSP - InfoSpace $24.39 *** Entry Point? *** 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 soared to a new 52-week high after posting better-than-expected results for the third quarter and issuing a solid fourth-quarter outlook. The recent consolidation could be offering investors who agree with the bullish assessment a chance to own InfoSpace near a cost basis of $22. DEC-22.50 IOU LX LB=2.70 OI=14 CB=21.69 DE=28 TY=4.1% ***** ESPR - Esperion $22.21 *** Pure Speculation *** Esperion Therapeutics (NASDAQ:ESPR) discovers and develops pharmaceutical products for the treatment of cardiovascular disease. Esperion intends to commercialize a novel class of drugs that focuses on a new treatment approach called "HDL Therapy," which is based on the company's understanding of high- density lipoprotein, or HDL, function. HDL is the primary facilitator of the reverse lipid transport, or RLT, pathway by which excess cholesterol and other lipids are removed from artery walls and other tissues and are thus transported to the liver for elimination from the body. Esperion's primary goal is to develop drugs that exploit the beneficial functions of HDL within the RLT pathway and the company currently has four product candidates in clinical development. ESPR is a unique issue, both because of its proprietary drug products and because it is involved in a lawsuit in which a large portion of the common stock float is frozen due to alleged improper trading activity of the Durus Capital Management hedge fund. Investors are advised to investigate this company thoroughly before entering any positions. DEC-20.00 SPU LD LB=2.90 OI=1118 CB=19.31 DE=28 TY=3.9% ***** CANI - Carreker $14.05 *** On The Move! *** Carreker (NASDAQ:CANI) provides payments-related software and consulting solutions to financial institutions and financial service providers. These solutions help the their customers improve operational efficiency in how payments are processed, enhance revenue and profitability from payments-oriented products and services, reduce losses associated with fraudulent payment transactions, and evolve toward next-generation payment practices and technologies. The company is organized into three main operating divisions: Global Payments Technologies, Revenue Enhancement and Global Payments Consulting. Carreker continues to climb higher on heavy volume and has now moved above last year's high, which suggests a bullish future. Investors can use this position to target-shoot a conservative entry point in the bullish issue. DEC-12.50 CDU LV LB=1.95 OI=66 CB=12.10 DE=28 TY=3.6% ***** TLAB - Tellabs $8.08 *** Stage I Speculation *** Tellabs (NASDAQ:TLAB) designs, makes and markets communications equipment to telecommunications service providers worldwide. Their products include optical networking systems, broadband access systems and voice-quality enhancement systems. Tellabs' optical networking systems are designed to help service providers reduce operating costs, generate greater revenues and efficiently manage bandwidth. The company's broadband access systems consist of managed access and transport systems used to deliver wireless and business services. The company's voice-quality enhancement systems consist primarily of the Tellabs 3000 family of broadband and narrowband echo cancellers and its voice-quality enhancement solutions, which enable wireless and landline providers to improve voice quality in long distance, wireless and private networks. Tellabs has been in a Stage I base for almost a year and investors interested in the communications sector can use this position to speculate on the near-term performance of the issue. DEC-7.50 TEQ LU LB=0.80 OI=4405 CB=7.28 DE=28 TY=3.3% ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Target Yield (monthly basis) ***** Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield SSTI 12.55 DEC 12.50 SJV LV 1.05 1760 11.50 28 9.4% UAIR 7.81 DEC 7.50 UWS LU 0.90 56 6.91 28 9.3% NEOL 17.57 DEC 17.50 UOE LW 1.40 580 16.17 28 8.9% SWIR 20.29 DEC 20.00 IYQ LD 1.80 169 18.49 28 8.9% SPRT 12.76 DEC 12.50 RQJ LV 1.15 388 11.61 28 8.3% LTXX 15.50 DEC 15.00 UXT LC 1.30 83 14.20 28 6.1% ELN 5.10 DEC 5.00 ELN LA 0.35 5832 4.75 28 5.7% QLTI 15.94 DEC 15.00 QTL LC 1.60 421 14.34 28 5.0% AKAM 11.37 DEC 10.00 UMU LB 1.80 1576 9.57 28 4.9% ASYT 16.25 DEC 15.00 QQY LC 1.80 482 14.45 28 4.1% VIRL 10.25 DEC 10.00 UVB LB 0.60 120 9.65 28 3.9% MERX 18.90 DEC 17.50 KXQ LW 2.00 224 16.90 28 3.9% NTPA 14.10 DEC 12.50 NQD LV 2.00 438 12.10 28 3.6% ***************** NAKED PUT SECTION ***************** Options 101: Selling "Naked" Puts By Ray Cummins This week's narrative includes some common questions from new readers of this section. One of the most frequent questions among our new readers is how they should approach this section and the different selections. Should they attempt to participate in all of the picks or focus on one or two positions with a larger number of contracts. As you might expect, the first requirement before initiating any new play is comprehensive due diligence and self-study. There are a number of key factors to consider with the most important being the overall condition of the market, and the sector or industry in which the target issue resides. Traders should also clearly understand the risk/reward ratio of this particular strategy and use the technique only when it conforms to their portfolio outlook and personal trading style. As far as opening the positions, our prices are based on Friday's closing quotes, so they may not be the same on Monday morning, or later in the week. Each individual trader must decide which candidates meet their criteria for acceptable profit potential and downside risk, and enter those positions at the appropriate cost basis. Most of our readers use a "limit" order to guarantee a fill only when the position is available at a certain price. After the position is open, money management becomes the key factor to success. Since this is a limited profit strategy, no one can afford to have many losers and that's why it is so important to monitor the plays on a daily basis and exit those issues that experience a significant change in character. Another common inquiry is about the "Supplemental Picks" and why they are not included in the regular group of listed candidates. With regard to these additional plays, the disclaimer offers a general explanation: "The following group of issues is a list of additional candidates to supplement your search for profitable trading positions." For one reason or another, they simply did not make our final play list, which is usually limited to 7 - 10 candidates. However, the process of choosing the "published" plays is highly subjective and quite often there are additional issues that warrant individual consideration. That is why we now include some of the stocks that just missed our final cut (for various reasons), so that our readers can decide if they meet their personal criteria for favorable naked-put plays. Remember, our primary task is to provide a list of potentially profitable positions, greatly reducing the initial research for candidates in this strategy. At the same time, we expect our subscribers to decide which plays meet their risk/reward profile and hopefully, with thorough examination and analysis far beyond that which we can provide in the few hours between Friday's market close and the publishing deadline, they will select only those positions that are winners. One final question (or group of questions) relates to portfolio management, which includes early exits and position adjustments. A "short" put position generally requires the underlying issue to remain above a specific price in order to generate profits. You must be confident of this outcome before initiating any play on our candidate list. In addition, any time you participate in an option trade, you should know at what (stock) price the position will be at "break-even." You should also determine the price the underlying issue would have to reach to generate unacceptable losses. Ideally, you will enter a position and then simply wait for expiration. Unfortunately, it doesn't always work that way. To be successful on a consistent basis, option positions must be closed or adjusted if predetermined exit points are reached. You must be prepared to make these adjustments when they are needed, not after the position has moved beyond a reasonable loss level. This type of money management requires advanced planning and the discipline to execute the necessary exit strategies in adverse conditions, regardless of your emotions or instincts. With this form of trading, there is a large downside potential and and in many cases, failure to adjust a position in a timely manner can lead to catastrophic portfolio losses. We publish the classic "warning" paragraph in the weekend play narrative for that reason alone. The last two sentences are paramount to success: "It is also important that you consider using trading STOPS on any naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a 'buy-to-close' STOP at a price that is no more than twice the original premium from the sold option." It is not uncommon for traders who have enjoyed a long string of winning positions to get "wiped out" by one bad play because they failed to limit their losses when the market moved against them. The problem is, the decision usually has to be made under duress, at the worst possible moment. The only way to avoid this fate is to develop a plan with a target exit (or adjustment) point, and stick to it. This requirement is difficult for new traders to adhere to but the simple fact is, professionals use proven money management techniques to maximize profits and limit losses and that's why they come out ahead in the long run. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. Stock Price Last Option Price Gain Simple Max Symbol Picked Price Series Sold /Loss Yield Yield ONXX 24.76 25.04 NOV 20.00 0.50 0.50* 2.8% 9.6% ESPR 23.02 22.21 NOV 20.00 0.60 0.60* 3.4% 9.6% ONXX 25.93 25.04 NOV 20.00 0.60 0.60* 2.7% 9.0% XMSR 19.10 22.10 NOV 17.50 0.85 0.85* 3.7% 8.9% CYD 27.57 25.75 NOV 22.50 0.50 0.50* 2.5% 8.4% ESPR 23.87 22.21 NOV 20.00 0.35 0.35* 2.6% 8.4% FCEL 14.35 12.98 NOV 12.50 0.50 0.50* 3.0% 8.2% XMSR 20.25 22.10 NOV 17.50 0.30 0.30* 2.5% 7.7% PHTN 40.90 37.99 NOV 37.50 0.45 0.45* 2.6% 7.3% PXLW 12.10 12.95 NOV 10.00 0.30 0.30* 2.2% 7.1% INSP 26.05 24.39 NOV 22.50 0.35 0.35* 2.3% 7.0% FFIV 25.01 23.44 NOV 22.50 0.35 0.35* 2.3% 6.5% MTZ 12.81 12.25 NOV 10.00 0.25 0.25* 1.9% 6.4% NWAC 12.18 11.78 NOV 10.00 0.25 0.25* 1.9% 6.2% SCUR 14.09 13.64 NOV 12.50 0.30 0.30* 2.1% 6.0% ALGN 15.21 16.14 NOV 12.50 0.25 0.25* 1.8% 6.0% FCS 20.04 23.07 NOV 17.50 0.40 0.40* 2.0% 5.9% SCRI 25.49 26.30 NOV 22.50 0.40 0.40* 2.0% 5.7% AVCT 36.00 36.75 NOV 32.50 0.75 0.75* 2.1% 5.6% FCS 22.60 23.07 NOV 20.00 0.25 0.25* 1.8% 5.4% CNX 21.88 20.89 NOV 20.00 0.55 0.55* 2.0% 5.4% IDXC 24.30 23.64 NOV 20.00 0.35 0.35* 1.5% 5.3% SCHN 36.92 44.67 NOV 30.00 0.40 0.40* 1.5% 5.3% CY 20.44 21.80 NOV 17.50 0.40 0.40* 1.7% 5.1% MCD 26.01 24.97 NOV 25.00 0.25 0.22 1.9% 5.0% AFCI 26.70 21.90 NOV 22.50 0.60 0.00 0.0% 0.0% PMCS 22.12 18.84 NOV 20.00 0.40 -0.76 0.0% 0.0% ECLG 25.25 20.57 NOV 22.50 0.25 -1.68 0.0% 0.0% RDWR 23.46 22.35 DEC 20.00 0.65 0.65* 2.9% 8.6% APPX 32.29 32.62 DEC 25.00 0.55 0.55* 2.0% 6.8% SWIR 18.75 20.29 DEC 15.00 0.30 0.30* 1.8% 6.4% FFIV 25.07 23.44 DEC 22.50 0.55 0.55* 2.2% 6.0% ECLG 24.14 20.57 DEC 20.00 0.40 0.40* 1.8% 5.9% PDII 25.97 24.75 DEC 22.50 0.45 0.45* 1.8% 5.3% * Stock price is above the sold striking price. Comments: Friday's bullish bias did little to offset the recent downward trend in equities, which left the major indices nearly 2% lower for the week. As mentioned last Sunday, the bearish activity, even among the best performing groups, suggests a consolidation through the month of November. Based on that outlook, traders are cautioned to initiate bullish plays only when the technical indications are outstanding and monitor current portfolio plays on a daily basis. Among the December positions, eCollege.com (NASDAQ:ECLG) and F5 Networks (NASDAQ:FFIV) are candidates for early exit to limit potential losses. The profitable position in Palm (NASDAQ:PALM) has been removed from the summary due to the complex share value adjustments in the wake of the company's merger with Handspring (NASDAQ:HAND), which produced PalmOne (NASDAQ:PLMO), and also the spin-off of PalmSource (NASDAQ:PSRC). Previously Closed Positions: CV Therapeutics (NASDAQ:CVTX), China Yuchai (NYSE:CYD); $25 and $30 strikes, eResearch Technologies (NASDAQ:ERES), Brightpoint (NASDAQ:CELL), Rudolph Technologies (NASDAQ:RTEC) and Advanced Fibre (NASDAQ:AFCI). WARNING: THE RISK IN SELLING NAKED OPTIONS IS SUBSTANTIAL! ***** The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. MARGIN REQUIREMENTS The Initial Margin is the amount of collateral you must have in your account to initiate the position. In specific terms, margin refers to cash or securities required of an option writer by his brokerage firm as collateral for the writer's obligation to buy or sell the underlying interest if assigned through an exercise. The Maintenance Margin is the amount of cash (or securities) required to offset the changing collateral requirements of the written options in your portfolio. As the price of the option and the underlying stock changes, so does the maintenance margin. With (short) put options, the margin requirements can increase when the underlying stock price declines and also when it rises significantly. The reason is the manner in which the collateral amount is determined (with the formula listed above) and traders should always consider not only the initial margin requirement, but also the maximum margin needed for the life of the position. Option writers occasionally have to meet calls for additional margin during adverse market movements and even when there is enough equity in the account to avoid a margin call, the need for increased collateral will make that equity unavailable for other purposes. Please consider these facts carefully before you initiate any "naked" option positions. For more information on margin requirements, please refer to: http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf MONTHLY YIELD: MAXIMUM & SIMPLE The Maximum Monthly Yield (listed in the summary and with each new candidate) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The Simple Monthly Yield is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the position. NEW CANDIDATES ********* Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield SANM 11.11 DEC 10.00 SQN XB 0.25 401 9.75 28 2.8% 7.6% APPX 32.62 DEC 25.00 AQO XE 0.45 1045 24.55 28 2.0% 7.0% AEIS 26.30 DEC 22.50 OEQ XX 0.45 14 22.05 28 2.2% 6.8% ALTR 23.93 DEC 22.50 LTQ XS 0.50 5018 22.00 28 2.5% 6.3% XMSR 22.10 DEC 17.50 QSY XW 0.25 2496 17.25 28 1.6% 5.8% MGAM 42.90 DEC 35.00 QMG XG 0.45 359 34.55 28 1.4% 5.0% NPSP 29.26 DEC 25.00 QKK XE 0.35 462 24.65 28 1.5% 4.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). ***** SANM - Sanmina-SCI $11.11 *** Favorable Outlook! *** Sanmina-SCI Corporation (NASDAQ:SANM) is an independent global provider of customized, integrated electronics manufacturing services. The company provides these comprehensive services primarily to original equipment manufacturers in the defense and aerospace, communications, computing, multimedia, medical and automotive, and industrial controls industries. The firm's end-to-end services, in combination with its global expertise in supply chain management, enable it to manage its customers' products throughout their life cycles. These services include product design and engineering, including initial development, detailed design and pre-production services; manufacturing of complete systems, components and subassemblies; final system assembly and test; direct order fulfillment, and after-market product service and support. Needham & Co. and Wells Fargo Securities recently upgraded Sanmina-SCI based on early signs of a seasonal up-tick and a lower-than-expected decline in the March quarter. Investors who like the outlook for the company can establish a cost basis below $10 in the issue with this position. DEC-10.00 SQN XB LB=0.25 OI=401 CB=9.75 DE=28 TY=2.8% MY=7.6% ***** APPX - American Pharma Partners $32.62 *** Premium Selling! *** 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. American Pharmaceutical recently received FDA approval to launch their drug Piperacillin for injection, the generic equivalent of Wyeth's Pipracil. The product is an antibiotic for the treatment of serious infections caused by designated susceptible microorganisms. APPX has also been in the news recently with a number of lawsuits concerning the drug Abraxane. More specifically, the complaints alleges that APPX officials made materially false and misleading statements about the product and its potential. Regardless of the ongoing litigation, APPX appears to be poised for further upside movement and speculative traders can profit from that outcome with this position. DEC-25.00 AQO XE LB=0.45 OI=1045 CB=24.55 DE=28 TY=2.0% MY=7.0% ***** AEIS - Advanced Energy $26.30 *** Consolidation Pattern *** Advanced Energy Industries (NYSE:AEIS) designs, manufactures and supports a group of primary components and subsystems for vacuum process systems. The firm's core products are very complex power conversion and control systems. Its products also control the flow of gases into the process chambers and provide them with thermal control and sensing within the chamber. The company's customers use its products in plasma-based thin film processing equipment that is essential to the manufacture of semiconductors; compact discs, DVDs and other digital storage media; flat panel computer and television screens; coatings for architectural glass and optics, and power converters for advanced technology computer workstations and servers. AEIS makes equipment that supports a number of popular consumer products and the demand for high-tech gadgets is growing at a rapid pace. At the same time, the firm has concerns about revenues (flat) in the coming quarter and the technicals suggest a continued consolidation near the current price. Any close below the recent trading-range top at $23-$24 should be a reasonable signal for early exit or adjustment. DEC-22.50 OEQ XX LB=0.45 OI=14 CB=22.05 DE=28 TY=2.2% MY=6.8% ***** ALTR - Altera $23.93 *** 18-Month High! *** Altera (NASDAQ:ALTR) designs, builds and sells high-performance, high-density programmable logic devices; pre-defined design building blocks, known as intellectual property cores, and associated development tools. The company's logic devices, which consist of field-programmable gate arrays and complex programmable logic devices are semiconductor ICs that are manufactured as standard chips that customers program to perform desired logic functions within their electronic systems. Altera's customers can license these IP cores for implementation of standard functions in their PLD designs. Customers develop, compile, verify and program their PLD designs using the Company's proprietary development software, which operates on personal computers and basic engineering workstations. Altera closed at an 18-month high on Friday and much of the activity is due to a Lehman Brothers upgrade. The brokerage raised its rating on the programmable logic device maker, telling clients it sees the communications and enterprise hardware markets "up-ticking." Traders who agree with that optimistic outlook can use this position to establish a conservative entry point in the issue. DEC-22.50 LTQ XS LB=0.50 OI=5018 CB=22.00 DE=28 TY=2.5% MY=6.3% ***** XMSR - XM Satellite Radio $22.10 *** Uptrend Intact! *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service. With nearly 930,000 subscribers, XM is on pace for 1.2 million subscribers later this year. Broadcasting live daily from studios in Washington, DC, New York City and Nashville, Tennessee at the Country Music Hall of Fame, XM provides its loyal listeners with 101 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. In addition, XM is available in more than 80 different 2004 car models. Despite the recent market slump, XMSR is in a long-term uptrend and traders who think the bullish activity will continue in the coming weeks can profit from that outcome with this position. DEC-17.50 QSY XW LB=0.25 OI=2496 CB=17.25 DE=28 TY=1.6% MY=5.8% ***** MGAM - Multimedia Games $42.90 *** Earnings Speculation! *** 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. The quarterly earnings report for MGAM is expected to be issued on Monday, Nov 24, 2003, at 10:00 A.M. EST. Traders who like "premium-selling" plays can speculate on the outcome of the report by trading this position near the opening bell. DEC-35.00 QMG XG LB=0.45 OI=359 CB=34.55 DE=28 TY=1.4% MY=5.0% ***** NPSP - NPS Pharmaceuticals $29.26 ** New Drug Speculation! *** NPS Pharmaceuticals (NASDAQ:NPSP) is engaged in the discovery, development and commercialization of pharmaceutical products. Its product pipeline consists of product candidates in various stages of clinical development and preclinical development. Two of these product candidates, PREOS and cinacalcet HCl, are in Phase III clinical trials. A third product candidate, ALX-0600, has completed a pilot Phase II clinical trial and plans are now underway to commence additional clinical trials. PREOS is NPS' brand name for a recombinant, full-length parathyroid hormone it is developing for the treatment of osteoporosis. ALX-0600 is the company's analog of glucagon-like peptide 2 that it is developing for the treatment of gastrointestinal disorders. Cinacalcet HCl, its orally active, small-molecule compound for the treatment of hyperparathyroidism, is being developed by the company's licensees, Amgen and Kirin Brewery Company. NPSP is another company developing novel drugs and investors who perform the necessary due-diligence may find this position attractive for a speculative portfolio. DEC-25.00 QKK XE LB=0.35 OI=462 CB=24.65 DE=28 TY=1.5% MY=4.9% ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Maximum Yield (monthly basis - margin) ***** Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield ADAT 12.54 DEC 10.00 HAU XB 0.30 95 9.70 28 3.4% 11.6% DGIN 23.33 DEC 22.50 UGU XX 0.90 10 21.60 28 4.5% 10.4% SMTC 24.38 DEC 22.50 QTU XR 0.65 309 21.85 28 3.2% 8.3% WMS 25.82 DEC 25.00 WMS XE 0.70 0 24.30 28 3.1% 7.4% SJR 15.28 DEC 15.00 SJR XC 0.40 60 14.60 28 3.0% 7.0% RMBS 24.99 DEC 20.00 BNQ XD 0.30 1192 19.70 28 1.7% 6.1% ISPH 17.85 DEC 15.00 JPU XC 0.25 78 14.75 28 1.8% 6.0% APCC 21.07 DEC 20.00 PWQ XD 0.40 144 19.60 28 2.2% 5.6% ADSK 22.53 DEC 20.00 ADQ XD 0.25 112 19.75 28 1.4% 4.0% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Market Consolidation Continues Amid Global Concerns By Ray Cummins Even with Friday's gains, the major equity averages finished the week lower due to terrorist attacks in Turkey, rising tension in Iraq, and the falling U.S. dollar. The blue-chip Dow Jones industrial average added 9 points to end at 9,628 with much of the selling pressure attributed to losses in Merck (NYSE:MRK) which abandoned its second experimental medicine this month. The tech-laden NASDAQ Composite Index rose 11 points to finish at 1,893 on strength in software, internet, wireless and semiconductor shares. The broader S&P 500-stock index closed up 1 point at 1,035 on buying pressure in airline, retail, homebuilding, banking and hospital stocks. Advancing issues outpaced decliners nearly 3 to 2 on the New York Stock Exchange where 1.26 billion shares were traded. On the NASDAQ, winners edged past losers by a slim margin with 1.6 billion shares exchanged. In the bond market, the benchmark 10-year note finished unchanged at a yield of 4.15%. For the week, both the Dow and the S&P 500 dropped 1.4%, while the NASDAQ fell 1.9%. ***************** PORTFOLIO SUMMARY ***************** The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position or to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. PUT CREDIT SPREADS ****************** Symbol Pick Last Month LP SP Credit CB G/L Status AET 62.76 61.44 NOV 50 55 0.55 54.45 0.55 Closed MXIM 44.82 50.36 NOV 35 40 0.50 39.50 0.50 Closed PHS 54.50 57.86 NOV 45 47 0.30 47.20 0.30 Closed PIXR 71.56 68.50 NOV 60 65 0.70 64.30 0.70 Closed COH 31.43 36.24 NOV 27 30 0.35 29.65 0.35 Closed CYMI 44.99 43.64 NOV 35 40 0.65 39.35 0.65 Closed SAP 36.00 37.59 NOV 30 32 0.30 32.20 0.30 Closed ICOS 45.42 43.66 NOV 35 40 0.50 39.50 0.50 Closed SMH 38.55 41.72 NOV 32 35 0.20 34.80 0.20 Closed BBY 58.31 58.24 NOV 50 55 0.40 54.60 0.40 Closed CTX 97.50 103.38 NOV 85 90 0.40 89.60 0.40 Closed VSEA 48.40 43.14 NOV 40 45 0.45 44.55 (1.41) Closed LNCR 41.05 33.00 DEC 35 37 0.30 37.20 (1.60) Closed PLMD 31.35 25.77 DEC 27 30 0.30 29.70 (1.45) Closed MGAM 41.45 42.90 DEC 30 35 0.45 34.55 0.45 Open ANPI 48.77 47.00 DEC 35 40 0.45 39.55 0.45 Open PFE 34.08 33.18 DEC 30 32 0.25 32.25 0.25 Open PHS 58.10 57.86 DEC 48 50 0.30 49.70 0.30 Open SII 39.07 37.07 DEC 35 37 0.45 37.05 0.02 Open? LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Lincare (NASDAQ:LNCR) was the big surprise this week as the stock plunged on speculation the company's earnings would be negatively affected by pending legislation, which would allow Medicare to base rates on those used in the Federal Employees Health Benefits Program. Conservative traders should have exited the position on Tuesday (when the issue moved below the sold put strike at $37.50) and the portfolio summary reflects the closing debit on that day. Polymedica (NASDAQ:PLMD) was also a disappointment, dipping below the sold put strike on Wednesday amid selling pressure in medicare suppliers. The summary reflects the position loss as of our exit trade Thursday morning. Varian Semiconductor (NASDAQ:VSEA) became an early exit candidate on Thursday, and Sina Corp. (NASDAQ:SINA) has previously been closed to limit losses. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status CA 23.50 22.55 NOV 30 27 0.35 27.85 0.35 Closed MTG 53.79 50.47 NOV 65 60 0.55 60.55 0.55 Closed BJS 32.50 31.22 NOV 37 35 0.30 35.30 0.30 Closed CEPH 45.77 46.34 NOV 55 50 0.55 50.55 0.55 Closed HDI 47.26 45.14 NOV 55 50 0.50 50.50 0.50 Closed SEPR 26.98 23.05 NOV 35 32 0.25 32.75 0.25 Closed AMZN 54.51 48.58 NOV 65 60 0.50 60.50 0.50 Closed OEX 511.25 511.77 NOV 540 535 0.45 535.45 0.45 Closed EBAY 55.93 51.85 NOV 65 60 0.50 60.50 0.50 Closed FNM 71.69 69.34 NOV 80 75 0.50 75.50 0.50 Closed KSS 56.07 48.88 NOV 65 60 0.40 60.40 0.40 Closed AIG 58.28 56.59 DEC 65 60 0.90 60.90 0.90 Open BJS 32.18 31.22 DEC 37 35 0.30 35.30 0.30 Open SNPS 30.85 29.08 DEC 37 35 0.25 35.25 0.25 Open CCMP 54.16 50.87 DEC 65 60 0.50 60.50 0.50 Open KKD 41.85 40.60 DEC 50 45 0.60 45.60 0.60 Open SNPS 30.28 29.08 DEC 37 35 0.20 35.20 0.20 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Neurocrine Biosciences (NASDAQ:NBIX), which is now profitable, was candidate for early exit last week and conservative traders should have closed the bearish position. Mercury Interactive (NASDAQ:MERQ), which has previously been closed to limit losses, also finished the expiration period profitable. CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status LLTC 40.77 41.17 NOV 35 37 2.20 37.20 0.30 Closed QCOM 47.49 43.92 NOV 42 45 2.25 44.75 (0.33) Closed VLO 44.00 43.00 DEC 37 40 2.20 39.70 0.30 Open ADRX 21.66 20.65 DEC 17 20 2.15 19.65 0.35 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss CV Therapeutics (NASDAQ:CVTX) has previously been closed to limit losses. PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status NPSP 25.45 29.26 NOV 35 30 4.40 30.40 0.60 Closed IACI 37.34 31.70 NOV 42 40 2.25 40.25 0.25 Closed CTMI 16.08 15.00 DEC 20 17 2.25 17.75 0.25 Open Cablevision (NYSE:CVC), which has previously been closed, ended the expiration period profitable. The speculative play in Loews (NYSE:LTR) was closed early to limit potential losses. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status XING 9.13 8.15 DEC 12 7 0.10 0.30 Closed LRCX 24.38 29.49 DEC 30 20 0.15 2.20 Closed PHTN 32.40 37.99 JAN 40 25 0.00 3.40 Closed IDCC 19.00 19.98 JAN 25 15 0.20 0.20 Open Lam Research (NASDAQ:LRCX), Photon Dynamics (NASDAQ:PHTN), and Juniper Networks (NASDAQ:JNPR), which has previously been closed, have provided outstanding profits for speculative traders. SYNTHETIC (BEARISH) ******************* No Open Positions CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status PRU 36.41 37.00 DEC-37C NOV-37C (0.20) 0.50 Closed SCRI 20.52 26.30 FEB-22C DEC-25C 1.40 2.10 Open? GPRO 26.77 32.17 FEB-30C NOV-30C 1.95 2.55 Closed ACS 46.86 49.54 DEC-45P NOV-45P 0.80 0.85 Closed Gen-Probe (NASDAQ:GPRO) was closed for a favorable profit earlier this week as the stock moved through a recent resistance level at $30. Affiliated Computer Services (NYSE:ACS) was not as fruitful, offering only a minimal gain before the issue gapped higher Friday on news of a $1 billion contract from the U.S. Dept. of Education. The diagonal spread in Sicor (NASDAQ:SCRI) is on the "watch" list as the issue needs to remain above $25 to achieve maximum profit. The Microsoft (NASDAQ:MSFT) spread, which offered many profitable opportunities, has previously been closed. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status ADVP 49.05 53.77 NOV 50 50 3.40 6.20 Closed RMBS 24.79 25.00 NOV 25 25 2.50 2.35 Closed VIP 65.11 61.65 NOV 65 65 2.45 6.00 Closed Vimpel Communications (NYSE:VIP) closed out a great month for volatility traders with a one-week profit of over 100%. There were other big winners in the straddle section in November such as AdvancePCS (NASDAQ:ADVP), 4Kids Entertainment (NYSE:KDE) and Priceline.com (NASDAQ:PCLN), which far exceeded all expectations, providing over a 100% gain in the wake of the company's mediocre earnings report. Zimmer Holdings (NYSE:ZMH) was a very profitable straddle and the position in Toyota Motors (NYSE:TM) achieved a small short-term gain. The straddle in Engineered Support Systems (NASDAQ:EASI), which has previously been closed, offered a number of lucrative opportunities. Triad Hospitals (NYSE:TRI), which has never achieved a gain on a simultaneous order basis, has previously been closed to preserve capital. CREDIT STRANGLES **************** No Open Positions Questions & comments on spreads/combos to Contact Support ************** E-MAIL REPLIES ************** Attn: Contact Support Subject: Risk management with spreads Hi again: You helped me a week or two ago with some credit spread questions (very helpful answers, thanks). I was hoping to bother you again... I've done some more reading and paper trading of put-credit spreads. So far, things have done well (but everyone can look good when the market cooperates!). One concern I have with credit spreads as opposed to covered calls (another favorite of mine) is the risk factor. With credit spreads the spread (less the credit)is 100% at risk...if the underlying tanks, the entire investment is at risk. As opposed to CCs, which you still own the stock and can try to repair damage. My question is...what techniques, if any, can be used to limit the risk with credit spreads of a massive breakdown in stock price? So far, the obvious solutions to me are selling OTM spreads on well picked stocks and selling spreads with limited time left (maybe a week or two) as opposed to a full month. But, there's still the risk of total loss if there happens to be a major meltdown of the stock, or possibly the market in general (with all the world news lately, the possibility of a major terrorist strike must at least be considered). My broker (OptionsXpress) doesn't have stop limits for spreads...do others that you're aware of (although even that wouldn't work in a real meltdown)? I was wondering about buying additional puts at a lower strike, but I'm not sure that would help much. Wasn't sure if I was missing any other ideas to limit the risk, just in case something real bad happens. I'm realistic enough to know there's going to be risk, but I'm always looking for ways to limit it, relative to the gain possible. Thanks again for your thoughts! ST Editor's note: Andrew Aronson, option principle and Vice President of Onestopoption.com, a division of Man Financial, has generously offered to share his views on this subject. Hello ST, The first thing that I help my clients develop is risk management. Risk is the only thing we can attempt to control when trading the markets. With the credit spreads, we can determine the worst possible scenario, no matter what happens. As you said, this is simply the difference between the sold and purchased strike price minus any credit received. In other words, we can quantify the risk before we put the trade on. When my clients want to do a certain number of positions, I will inform them of the worst case scenario. If they are uncomfortable with the potential risk, we will do fewer positions until they are comfortable. The strategy of selling "covered" calls offers the ability to hold the stock and sell other options against the stock, however there is no right answer as to which is better. I would point out that in the covered call strategy, you will have to post at least 50% of the value of the stock in order to hold the position. I would then suggest you compare the margin required for the credit spread versus the covered call. Most likely, the better return on margin will be found with credit spreads. Your main question was how to control the risk in credit spreads. I would argue that the risk control would be done before the trade is placed. I fail to see the logic in trying to leg out or cover a credit spread before expiration (unless you are covering the short for a small amount). The main goal is to take the emotion out of the trading decisions. When using the covered calls, you may want to consider purchasing longer term puts to hedge the downside risk. It may take a few months to pay for the puts, but this will remove the risk and hopefully the emotion. As I said before, there is no one strategy that is better than the other. They both offer their own pros and cons. Try to limit the covered call plays to stock that you would not mind owning over the long term. If it is a short term play, consider the puts to hedge so the play does not become a long-term play by accident. Feel free to contact me if you have additional questions. Andrew Aronson Aaronson@OptionInvestor.com (888) 281-9569 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 ************* NEW POSITIONS ************* This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance, and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** IVGN - Invitrogen $64.85 *** Next Leg Up? *** Invitrogen (NASDAQ:IVGN) develops, manufactures and markets more than 10,000 products for the life sciences markets. Invitrogen's products are principally research tools in reagent and kit form, biochemicals, sera, media, and other products and services, which the company sells to corporate, academic and government entities. The company focuses its core business on two principal segments, Molecular Biology Products and Cell Culture Products. Earnings are due in early December. IVGN - Invitrogen $64.85 PLAY (less conservative - bullish/credit spread): BUY PUT DEC-55.00 IUV-XK OI=326 ASK=$0.50 SELL PUT DEC-60.00 IUV-XL OI=877 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$59.45 ***** NTLI - NTL Incorporated $58.96 *** Cable Sector Giant! *** NTL Incorporated (NASDAQ:NTLI) is a broadband communications and broadband services company in the United Kingdom and the Republic of Ireland. The firm's principal lines of business are consumer services, including residential telephony, cable television, Internet access and interactive services and wholesale Internet access solutions for United Kingdom Internet service providers; business services, including data, voice and Internet services; broadcast transmission and tower services, including digital and analog television and radio broadcasting, tower and site leasing, wireless network management, satellite distribution services and radio communications services to the public safety sector; network services, including the management of the firm's United Kingdom national network infrastructure; and carrier services and mobile, including national and international carrier telecommunications services. NTLI - NTL Incorporated $58.96 PLAY (conservative - bullish/credit spread): BUY PUT DEC-45.00 NTL-XI OI=3174 ASK=$0.90 SELL PUT DEC-50.00 NTL-XJ OI=1565 BID=$1.30 INITIAL NET-CREDIT TARGET=$0.50-$0.65 POTENTIAL PROFIT(max)=11% B/E=$49.50 ***** NVLS - Novellus Systems $42.54 *** An Old Favorite! *** 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 $42.54 PLAY (conservative - bullish/credit spread): BUY PUT DEC-35.00 NLQ-XG OI=5344 ASK=$0.30 SELL PUT DEC-37.50 NLQ-XU OI=3819 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$37.25 ***** ITMN - Intermune $18.28 *** Oritavancin NDA Delay! *** InterMune (NASDAQ:ITMN) develops and commercializes products for the treatment of serious pulmonary and infectious diseases and cancer. The company has three marketed products, growing product revenues and advanced-stage clinical programs addressing a range of diseases with attractive markets. Its three marketed products are Actimmune, Infergen and Amphotec. Actimmune is approved in the United States for two rare congenital disorders: chronic granulomatous disease and severe malignant osteopetrosis. ITMN markets Infergen in the U.S. and Canada for the treatment of chronic hepatitis C infections. It markets Amphotec worldwide for the treatment of invasive aspergillosis. ITMN - Intermune $18.28 PLAY (less conservative - bearish/credit spread): BUY CALL DEC-22.50 IQY-LX OI=15 ASK=$0.20 SELL CALL DEC-20.00 IQY-LD OI=319 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$20.25 ***** MRVL - Marvell Technology $38.90 *** Profit-Taking Underway! *** 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 $38.90 PLAY (less conservative - bearish/credit spread): BUY CALL DEC-45.00 UVM-LI OI=1645 ASK=$0.45 SELL CALL DEC-42.50 UVM-LT OI=6602 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$42.80 ***** QCOM - Qualcomm $43.97 *** Consolidation In Progress! *** Qualcomm (NASDAQ:QCOM) is a worldwide developer and supplier of code division multiple access (CDMA)-based integrated circuits and system software for wireless voice and data communications and global positioning system products. Qualcomm offers complete system solutions, including software and integrated circuits for wireless handsets and infrastructure equipment. This complete system solution approach provides customers with their advanced wireless technology, enhanced integration and interoperability, as well as reduced time to market. Qualcomm provides integrated circuits and unique system software to many wireless handset and infrastructure manufacturers. QCOM - Qualcomm $43.97 PLAY (conservative - bearish/credit spread): BUY CALL DEC-50.00 AAO-LJ OI=6090 ASK=$0.20 SELL CALL DEC-47.50 AAO-LW OI=8645 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$47.75 ************* DEBIT SPREADS ************* These candidates offer a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. ***** AHG - Apria Healthcare Group $26.00 *** Medicare Woes? *** Apria Healthcare Group (NYSE:AHG) provides a broad range of home healthcare including respiratory therapy, infusion therapy and medical equipment to patients in 50 states through approximately 425 branches. With over $1.25 billion in annual revenues, Apria is the nation's leading homecare company. In each of its three service lines, the company provides patients with a variety of clinical and ancillary services, as well as related products and supplies, most of which are prescribed by a physician as part of an in-home care plan. These services include providing in-home care, infusion and respiratory pharmacy management and high-tech infusion nursing; educating patients and their caregivers about illnesses and instructing them on self-care and the proper use of products in the home; monitoring patients' individualized treatment plans; reporting patient progress and status to the physician and/or managed care organization; maintaining and repairing equipment and processing claims. AHG - Apria Healthcare Group $26.00 PLAY (less conservative - bearish/debit spread): BUY PUT NOV-30.00 AHG-XF OI=25 ASK=$4.30 SELL PUT NOV-27.50 AHG-XY OI=655 BID=$2.05 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$27.80 ***** ELAB - Eon Labs $48.17 *** Bullish Outlook! *** Eon Labs (NASDAQ:ELAB) is a generic pharmaceutical company engaged in developing, licensing, manufacturing, selling and distributing a range of prescription pharmaceutical products primarily in the United States. The company focuses on drugs in a variety of solid oral dosage forms, utilizing both immediate and sustained release delivery, in tablet, multiple layer tablet, film-coated tablet and capsule forms. The company does not depend on any single drug or therapeutic category for a majority of its sales. ELAB - Eon Labs $48.17 PLAY (moderately aggressive - bullish/debit spread): BUY CALL DEC-40.00 ESQ-LH OI=60 ASK=$8.30 SELL CALL DEC-45.00 ESQ-LI OI=241 BID=$3.90 INITIAL NET-DEBIT TARGET=$4.20-$4.25 POTENTIAL PROFIT(max)=17% B/E=$44.25 **************** CALENDAR SPREADS **************** A calendar spread (or time spread) consists of the sale of one option and the simultaneous purchase of an option of the same type and strike price, but with a future expiration date. The premise in a calendar spread is simple: time erodes the value of the near-term option at a faster rate than the far-term option. The positions in this section are speculative (out-of-the-money) spreads with low initial cost and large potential profit. ***** CEPH - Cephalon $46.34 *** Trading Range? *** Cephalon (NASDAQ:CEPH) is an international biopharmaceutical company dedicated to the discovery, development and marketing of products to treat various sleep disorders, neurological and psychiatric disorders, cancer and pain. In addition to its active research and development program, the company markets three products in the United States and a number of products in various countries throughout Europe. Its biggest products in terms of sales, Provigil, Actiq and Gabitril, comprised approximately 80% of the company's total worldwide net product sales for 2002. Outside the United States, the company's main commercial activities are concentrated primarily in France, the United Kingdom and Germany. CEPH - Cephalon $46.34 *** Trading Range? *** PLAY (speculative - bullish/calendar spread): BUY CALL FEB-50.00 CQE-BJ OI=2625 ASK=$2.05 SELL CALL DEC-50.00 CQE-LJ OI=2192 BID=$0.70 INITIAL NET DEBIT TARGET=$1.20-$1.25 INITIAL TARGET PROFIT=$0.70-$0.95 *********************** STRADDLES AND STRANGLES *********************** Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. ***** ATN - Action Performance $17.93 *** Probability Play! *** Action Performance Companies (NYSE:ATN) is a designer and seller of licensed products related to the National Association of Stock Car Auto Racing (NASCAR), including die-cast scaled replicas of motorsports vehicles, apparel and memorabilia. NASCAR is one of the most popular motorsports sanctioning bodies in the U.S. and sanctions the Winston Cup series of stock car races, which draws millions of fans to events each year. Action also designs and sells products relating to other motorsports, including racing sanctioned by the National Hot Rod Association (NHRA), Formula One, the Indy Racing League (IRL) and the World of Outlaws. ATN - Action Performance $17.93 PLAY (speculative - neutral/debit straddle): BUY CALL JAN-17.50 ATN-AW OI=53 ASK=$1.50 BUY PUT JAN-17.50 ATN-MW OI=638 ASK=$1.10 INITIAL NET-DEBIT TARGET=$2.40-$2.50 INITIAL TARGET PROFIT=$0.85-$1.30 ***** MACR - Macromedia $20.22 *** Volatility Speculation! *** Macromedia (NASDAQ:MACR) is a software company whose software enables business users, developers and designers to create and deliver experiences on the Internet, fixed media, wireless and digital devices. The firm provides three families of products to address this market opportunity: Macromedia MX Products, Information Convenience Products, and Mobile and Device Products. The Macromedia MX family of products provides client software, server and development tools for cost-effectively building Websites and Internet applications that offer highly effective end user experiences. Information Convenience Products enable non-technical business users to create and deliver information without intricate technical training. Mobile and Device Products are targeted at device manufacturers, carriers and media networks. MACR - Macromedia $20.22 PLAY (very speculative - neutral/debit straddle): BUY CALL DEC-20.00 MRQ-LY OI=1498 ASK=$1.25 BUY PUT DEC-20.00 MRQ-XY OI=2188 ASK=$1.00 INITIAL NET-DEBIT TARGET=$2.10-$2.20 INITIAL TARGET PROFIT=$0.70-$1.15 ***** ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... 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