The Option Investor Newsletter Sunday 12-21-2003 Copyright 2003, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Going Out At The Top Futures Market: Opex Extravaganza Index Trader Wrap: Rollercoaster Week Editor's Plays: Are We There Yet? Market Sentiment: Ho Ho Ho...Merry Markets! Ask the Analyst: See Note 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 12-19 WE 12-12 WE 12-05 WE 11-28 DOW 10278.22 +236.06 10042.1 +179.48 9862.68 + 80.22 +153.93 Nasdaq 1951.02 + 2.02 1949.00 + 11.18 1937.82 - 22.44 + 66.38 S&P-100 540.26 + 8.48 531.78 + 8.27 523.51 + 2.77 + 8.97 S&P-500 1088.66 + 14.52 1074.14 + 12.64 1061.50 + 3.30 + 22.92 W5000 10579.42 +114.94 10464.4 +111.88 10352.6 + 0.38 +253.34 RUT 546.88 - 0.71 547.59 + 8.58 539.01 - 7.50 + 20.58 TRAN 2987.43 + 4.02 2983.41 + 72.83 2910.58 - 10.65 + 75.91 VIX 16.42 + 0.01 16.41 - 0.68 17.09 + 0.79 - 2.68 VXO 16.05 + 0.10 15.95 - 1.39 17.34 + 0.63 - 3.18 VXN 24.89 - 0.97 25.86 - 1.19 27.05 + 1.44 - 3.47 TRIN 1.02 1.02 1.86 1.04 Put/Call 0.80 0.75 0.84 0.69 ****************************************************************** Going Out At The Top by Jim Brown If you had asked any market pundit last March how they would have liked the markets to finish the year I doubt you would have gotten our current results from anybody. Any professional who suggested on March 12th (7416) that we would see a +40% gain in the Dow by year end would have been laughed off the planet. Well at Friday's close we are up +38.59% from that March low. Add in a +55% jump in the Nasdaq and you have a spectacular year in normal market terms. Nothing like finishing the year on a high note and going out at the top. Wait, you mean the year is not over yet? Dow Chart - Daily Nasdaq Chart - Daily While the year is not over according to the calendar it is over as far as traders are concerned. The option expiration climax last week was the crowning touch. On Friday the Dow came VERY close to 10300 (10293) and very close to not only the very optimistic upper end of my range but well over most estimates for the year. Remember our Guess the Dow contest last January? The average entry for the high of the year was 9878. Pretty close on the surface but the range of estimates was from 6970 to 13000. 40% of the readers had estimates for the year's high over 10,000 and only 13% had estimates under 9000. Over 45% of our readers expected a close under 9000 on 12/31/03. Only 14% expected a year-end close over 10,000. Any way you cut it the end of 2003 has definitely surprised the majority of investors. Nobody is complaining but the next question is where are we going in 2004? The short story from the bullish analysts you see on TV is a gain of +10% to +12% for the year. With the Dow at 10275 today that would give us a range from 11,300 to 11,700 for the end of 2004. I don't know about you but that +1000 to +1400 point gain would be very boring after the gains in 2003. Assuming the Dow went straight up it would only need to gain 5.5 points per day to hit the 11,700 level by year end. Obviously this is not going to happen. To put this in perspective the average gain since March 12th 2003 has been 12.3 points per day and the markets have been very bullish. For 2004 bullish analysts are looking for a +4.5% GDP and about a +12% earnings growth for Q1 and Q2. Those earnings estimates are trending down slightly. They are also well below the Q4-2003 estimates of +21.7%. Get the picture? The bearish commentators range from a 7500 Dow close for 2004 and 9000. I do not believe anybody has a crystal ball that allows them to see in the future so it is up to us to decide what we believe. I think the key above is the 4.5% GDP and 12% quarterly earnings. Compared to this year those earnings are positively sparse. The last two quarters we have been growing at +16% (Q3) to +21% (Q4) for the quarter. How? Because the comparisons to 2002 were so bad. Any improvement over 2002 where losses instead of earnings were common produced a strong percentage gain. With the strong bounce in 2003 Q3/Q4 it is going to be very hard to produce any strong gains in 2004 Q3/Q4. It will be easier in the other quarters but the bar is still a lot higher. The main things investors are going to be focused on in 2004 is the economy and the Fed. According to all the recent reports the economy is alive and well and actually picking up speed. We just do not know if this is seasonal 4Q speed or a real pickup in the economy. Neither does the Fed. Based on their latest statement they are far from convinced the economy is exploding. The comments about no sustained pickup in employment until late 2005 is very telling. The considerable period statement has moved the potential for a rate hike to June according to the Fed Funds Futures. The Fed has effectively stepped aside and turned us loose to make it on our own. Just like a dad running beside a kids bicycle the first time without the training wheels they have turned us loose. It is up to business now to maintain balance and speed. The administration has provided us one last burst of momentum with the $165 billion tax stimulus in the Q1-2004. The equivalent of the dad pushing us off over the top of a hill to help with our momentum. It is entirely up to us to add enough to that momentum to climb the next hill. Tthe range of movement from last year is probably a larger range than we could expect for 2004 but at least a starting place. 2002 closed at 8341. We are up +23% from that close and at the lows were down -11%. Considering it was the end of a bear market that -11% drop was not bad. If we were to see a corresponding -11% drop in 2004 that would target 9144 as a low using Friday's close as a starting point. A 23% intra year bounce would take us to 12,638. I think even the most ardent bulls do not expect another +23% after our +38% rebound from the lows already. (+23% for the year). I also think all but the most leading edge prognosticators also expect that we could see more than -11% downside on a temporary basis. Normal bull markets have normal corrections of -5% or more on a routine basis. We have not had a -5% correction in more than ten months. We are long over due for any serious profit taking. Using the estimates above and assuming that most analysts hedge on the upside and downside to avoid looking stupid later we can speculate on the ranges. The -11% drop in 2003 was the last gasp of a three-year bear market where we were already way oversold. This suggests that a profit taking correction at the end of a long bull run could be as much as 12%-15% of the index. The normal retracement level for a strong bullish run is -38.2% of the run. Using Friday's close a -12% dip would take us back to 9042. Using the -38.2% retracement bracket of the gains since the March low takes us to 9194. It should be stressed that any dip of that magnitude is still just a correction and not a failure of the new bull market. We are just speculating in order to avoid being surprised. If analysts are hedging their bets on the upside then +12% may be light. Using a +15% gain from Friday's close puts us at 11,800. This may be very optimistic. Making statistical projections is one thing but when you compare them to the charts a different reality appears. That reality based on the charts shows 11000 to be very strong resistance. It held for over a year in 2000 with only three short spikes to about 11300 during that period. To move up from here the Dow has to break the resistance at 10300 and then even stronger resistance at 10650. Breaking through that 10650 barrier could be very hard and we should not expect a serious attempt until late March or early April at best. If it happens sooner then we are living a charmed life. Dow Prediction Chart - Weekly Merging the analysts estimates and the historical charts we end up with some glaring targets. It appears the downside risk should be contained in the Dow 9000-9200 range. The upside may be capped in the 11000-11300 range. Using the outside ranges that is a 2300 point spread. That is nearly double the average analyst estimate of the gain (+1200) for the year. Having the range at twice the gain makes perfect sense to me. Unfortunately the markets rarely make perfect sense and if it makes sense there is something wrong. The anchor on the upside is the election. Investors are cautious in second term election years because they are afraid of changes after the election. This historical trend for this predicts a flat to slightly up market for 2004. The offset for this trend is the strong economic reports of late and the Fed blessing for 2004. If the 1Q earnings in April are strong (over the +12% estimate) then the election curse could be broken. If they are only "ok" then the curse will probably prevail. Investors are aggressive when there are potential rewards. They tend to be conservative when the rewards are muted. Many class the 2003 bull market as a flight to garbage rally. The stocks with the largest gains were the low priced, highly leveraged issues. Many of those were up +200% to +400% for the year. The blue chips did not join the rally until just recently, some as late as October. This cyclical rally added the extra boost we needed to break over the small cap resistance seen at 500 on the Russell-2000. The last three weeks the small and midcaps have been lagging the blue chips as funds rotate into the more liquid blue chips for year end statements and January exits. Still the Russell has not died. It is only slightly off its highs and still very healthy. The value stocks are strong, cyclicals are strong and market breadth refuses to fade. We are only five real trading days from year end and four of those days are normally bullish. The Dow only tacked on +30 points on Friday but was up +236 for the week. Compared to the weak performance for the Nasdaq at +2 and -1 for the Russell it was an amazing showing. The close at 10275 is right on the edge of my 10000-10300 range I was expecting for the rest of the year. With four of the remaining days (24th, 26th, 29th and 30th) bullish 65% of the time we "should" remain close to these highs. Dec-31st has seen the Nasdaq up 29 of the last 31 years but the Dow down 5 of the last 6 years. The wild cards here are Monday and Tuesday. The last two days were up strongly on option expiration events with a help from some strongly bullish economic reports. Monday has no economic reports. Typically expirations with an upward bias tend to produce weak Mondays. Tuesday has a raft of economic reports including Chain Store Sales, GDP, Personal Income, Consumer Sentiment and Monthly Mass Layoffs. This suggests we could see some weakness on Monday that is bought on Tuesday in advance of the four bullish days to come. The key will be the depth of any weakness. I doubt we will drop far and would be surprised if we broke 10100. A word of caution however. There were multiple terror threat warnings on Friday. Warnings against the northeast, including NYC and Boston. Warnings against the Vatican where intelligence suggests there will be an attack on Christmas. More warnings in Turkey and Saudi Arabia. The US is offering free flights out of Saudi for American government employees and recommending all Americans leave the country. Late this afternoon the number two man in Al-Queda released a tape claiming a major attack was coming on the American homeland. Analysts suggested this was more of a propaganda move than reality but you never know. What we do know is there is an attack in our future and the longer we go without one the closer it gets. I mention this because it could drag on the holiday markets. I do not expect it to push them down but it could keep them from moving up strongly. We are setting up for a classic January move. The markets are poised to see some profit taking on Monday and then move up into the end of the year. Year-end retirement cash will begin to flow and hit the markets on the 4th-5th. This should setup a new market high the first week of January. The only reason it would fail to occur would simply be the acceleration of profit taking ahead of the normal average start on the 5th trading day of the year. Institutions count on this cash inflow to offset their profit taking and ease the impact of their exits. We have planned the trades in the Top-50 Stocks CD to take advantage of this dip as a buying opportunity. I heard 2004 referred to by one analyst as the "Year of Living Dangerously". Most feel a lot of good news is already priced into the market and they are looking at January as a barometer of the rest of the year. According to statistics the first six weeks of the year normally sees the markets gain +3%. A remarkable achievement considering the average drop from the January opening high is -750 points over the last six years. Still +3% is +308 points over the next six weeks and that puts us right at 10600 with 10650 as strong resistance as we near the end of the Q4 earnings cycle. I have vastly overstayed my welcome today and I am sure the numbers have all run together by now. I am not trying to scare anyone or produce a bearish outlook because that is not my desire. I am only trying to lead you through the possible outcomes for 2004 and more importantly the first six weeks because that is where the next money will be made or lost. Once into February we will begin speculating on March-April. You can't go on a road trip without a map. It is also foolish to worry about what turn you make onto aunt Martha's street when you are still 2000 miles away. Let's keep our eyes on the road immediately ahead and focus more on avoiding the potholes and finding the next scenic turnout than worrying about the +15% gain for the year. If you have not signed up for the Top-50 Stocks for 2004 and the Top-20 Lottery Picks before close of business on Monday you will not receive them before the holidays. You will also miss out on an excellent chance to profit from the January dip/rebound. Do it today! Enter Very Passively, Exit Very Aggressively! Jim Brown ***************************** 2003 Year End Renewal Special ***************************** TOP 50 STOCKS for 2002 SPECIAL INVESTOR GUIDE What better bonus could we give you than the potential to double or triple your money in 2004? Each Option Investor analyst picked their favorite stocks for 2004 out of our universe of 4500 and applied their technical and analytical skills to deciding how best to profit from them. Some will be straight stock ownership, some long term calls or puts and some with various combinations of strategies. There are actually more than 50 stocks presented as there were so many profitable picks we added a few extra. As an additional bonus Jim has put together his TOP 20 LOTTERY PICKS FOR 2004 These are cheap options with great potential for achieving a profit of 200%, 300% or much more. Also included are options on stocks he feels are take over candidates in 2004. TIMING IS CRITICAL The Special Investor Guide will be provided on CD and will be mailed by priority mail to you before Christmas. Because we at Option Investor feel strongly that there will be a significant dip in January we have planned these strategies to capitalize on that dip. We want you to have plenty of time to review the stocks and strategies including the full color charts and graphs over the holidays. We want you to be prepared to take advantage of the January dip and start 2004 off from a profitable position. Don't miss out on this highly profitable renewal bonus. Additional Bonuses Every annual renewal subscriber will also receive: TWO 2004 Option Expiration Calendar Mousepads One for home and one for the office. Also available are the: 2004 Stock Traders Almanac Video on Successful Option Trading By James Bittman In order to get your The TOP 50 STOCKS for 2004 Special Investor Guide before the holidays you MUST renew immediately. Do not miss out on these profitable opportunities! Click here to renew: https://secure.sungrp.com/04renewal/ We are not responsible for late delivery of the Special Investor Guide for renewals after December 20th. We will still send it Priority Mail but you will not receive it until three days after your subscription is received. ************** FUTURES MARKET ************** Opex Extravaganza Jonathan Levinson Friday's pre-cash open saw some of the most violent equity price action I've seen in a long time, with the YM gapping 20 points in either direction within split-seconds. A gap and crap open ensued, and the indices bled lower throughout the day until a short cycle bottom printed just after 2PM. Treasuries rose slightly, gold declined slightly, and the US dollar index moved back above 88. For the week, treasuries were bullish, equities bullish, the US Dollar Index mixed but printing a possible double bottom, with gold a possible double top. 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 continues to benefit from the universal consensus that it is going substantially lower. This type of unanimity of sentiment tends to occur at significant turning points, and combined with the weekly double bottom in the 88 area, the probability of a bounce from here is good. I say this fully ignoring fundamental and technical arguments to the contrary, and my own feeling is that any bounce from here should be corrective. The price action in gold looks as toppy as the dollar looks bottomy. The CRB dropped .30 to close at 260.84, with strength in lean hogs, cotton, coffee and copper futures. Daily chart of February gold I never thought I'd be harping on weakness in gold above 410, and given that it’s among the sole assets about which I have truly bullish fundamental feelings, readers should note my diligent professional and technical detachment. The daily cycle oscillators have been bumping and grinding their way along the top of their ranges as price extends in a well developed bearish rising wedge. Support is now at 408 (tested Friday), resistance 415 for the February contract. It lost 1.40 to close at 409.70, still within the wedge but nearing its apex. The lack of loft on the lower trendline has me expecting a gap down move, and combined with Friday's bounce in the dollar, Monday could see it break. Daily chart of the ten year note yield Ten year bonds have been behaving relatively predictably, just advancing day after day. The weekly print for the ten year note yield (TNX) was bearish, confirming the daily cycle oscillator downphase in progress. The TNX dropped .8 bps to close at 4.133% on Friday, targeting 4.1% support. Daily NQ candles The NQ resumed its position as the laggard among equities after having led to the upside on Thursday as the rotation out of the speculative darlings continued. The NQ dropped 4.50 points, a small correction following Thursday's upside blowout. The small gain left a bearish tint to an otherwise bullish doji, retracing roughly half of Thursday's move and bouncing to close higher. The drop was insufficient to reverse the bullish kiss printed on the daily cycle oscillators, but a new buy signal was not issued either. Assuming more pinning of price for the unwinding of December options on Monday morning, we could see more churning before the market gives us an indication as to the direction of its next big move. On the daily chart, there is little to persuade me strongly in either direction. 30 minute 20 day chart of the NQ The NQ provided relatively little selling on its 30 minute cycle downphase commencing from Thursday afternoon, and while downside at the open looks most likely for Monday, the Macd shows signs of turning up from above the zero line. With price wedging itself into a pennant, this cyclic ambiguity is not surprising. Given the force of the upside and downside moves seen this week, new positions at current levels are speculative in the extreme, and while the market feels awfully toppy to me, the technical picture is not nearly so clear. Pennant resistance is at 1445, support at 1400, with shorter term resistance at 1433, support at 1425. Daily ES candles The ES printed a doji on Friday, revealing a lack of commitment on the part of both buyers and sellers. The intraday high, a 52 week high, was at 1090.25 in the early going, and the ES bled from there. However, it bounced nicely off the upper wedge trendline, now support at 1082, a stunning show of strength after the week's rise from 1064 support. The daily cycle oscillators are toppy and trying to move higher, but until 1090 falls, bulls will have to wait it out. 20 day 30 minute chart of the ES The chop has become unreadable to me, and the clearest pattern is the rising channel I've overlaid on the 30 minute ES. The 30 minute cycle downphase delivered shockingly little downside, and whether this strength persists once the op-ex influence is removed remains the main technical question for the weekend. The 30 minute cycle downphase projects more selling for Monday, as does the toppy short cycle upphase on the 150-tick ES chart below. 150-tick ES The entire picture since Thursday looks suspiciously head and shoulders-esque to me, and 1082 should be point of no return for bulls. Again, however, the picture this week has been many things, but it has not been clear. Daily YM candles The daily YM shows Friday's touch of the upper flag resistance line, as well as the bounce from its lows above 10,200. Price continues to hug the upper Bollinger band, and bull or bear, it looks due for a correction. 20 day 30 minute chart of the YM Zooming in on the bear flag, we see the same trendline touch and failure. However, the 30 minute cycle hesitated in the last hour on Friday, and Monday morning will tell us whether that cycle is going to test the lower support line or not. Seasonality would dictate a Santa Claus rally. The stratospheric gains from Thursday approaching op-ex Friday could imply further upside as call writers square their positions. That said, the gains since Dow 10K was crossed were quick and violent, and a pullback could be equally so. With low volume price swings expected and the national terror alert level raised, Monday will be a great day to be patient and careful. ******************** INDEX TRADER SUMMARY ******************** Rollercoaster Week Jonathan Levinson The week opened with a Sunday night upside explosion following a day's worth of "We got him" bytes, followed by a selloff that lasted the day, followed by a tentative bounce that erupted into hysterical buying on Thursday and Friday morning. The remainder of Friday was spent churning along near the recent top. 52 week highs were printed by the Dow and SPX, while the Nasdaq was the notable laggard. The Dow gained 30 points or .3% on Friday, a 2.4% gain on the week and 23.2% for the year. The SPX was down .52 of a point on Friday, a 1.4% gain for the week and 23.7% gain for the year, while the Nasdaq dropped 5.16 points Friday or .3%, a .1% gain for the week and a 46.1% gain on the year. The volatility indices provided plenty of action during this op- ex week, with the VXO crashing to new lows in the mid 14's on Thursday. The VIX printed similarly outrageous lows, while the QQV and VXN were merely very oversold. The exceptionally low volatility raises the question of whether a severe market correction is lurking behind the next sell program, or whether a new bull market is in progress. I do not believe that we are, but many no doubt will disagree. Weekly COMPX candles The weekly view of the Nasdaq shows the index holding above the lower rising wedge trendline by the skin of its teeth. For the past two weeks, we've had false breaks below it, always within the context of a negative oscillator divergence on the 10 week stochastic. By the same token, those doji hammers are bullish reversal candles along rising support, and so until the 1930 level is broken on a closing basis, the trend remains up. The oscillators are toped out and bending lower, but a clear, unequivocal, short-n-hold sell signal has yet to be given. Weekly INDU candles The weekly chart of the Dow, however, is an entirely different kettle of fish: wedge breakout or wedge fakeout? Throwover or bull? The week's strong break above the rising trendline we've been using for months can mean different things to different traders. It's either a breakout or it isn't, and that's the best we can conclude for now. The weekly oscillators ticked higher, trending in overbought, and while the Macd is no long diverging, the 10 week stochastic is still at a lower high than it was at in June. If next week is positive, then 10,450, followed by 10,600 is the next stop. I sold out of equities at Dow 10,600 in early 2002, and I never thought we'd see those levels again. It's only fitting that I raise the possibility of its occurring so soon thereafter. Daily OEX candles The daily chart of the OEX shows Friday's fractional pullback to close at 540.26. The sweeping rise along the top of the upper Bollinger band is most impressive and most due for a pullback. The daily cycle oscillators are overbought and running out of racetrack, but they're not in a downphase yet either. 535 is first support, and any pullback needs to break through that level in order to initiate a new downphase. 20 day 30 minute chart of the OEX The 30 minute OEX has been accelerating to the upside in a rising channel for the past three weeks, and the exhaustion of more than half of the 30 minute cycle downphase on Friday for less than a 1 point correction is very bullish. However, the closing candle leaves the slight suggestion of the right side of a head and shoulders top, and for that reason, Monday's open will be crucial. Any further downside from the 30 minute downphase could trigger the head and shoulders breakdown to the 535-6 area, while more upside could abort the downphase and imply a test back above the 540 level. Daily QQQ candles QQQ has been much weaker than the OEX for the past two weeks, and for that reason the daily cycle is not only not toppy, but is in fact verging on a new upphase from a higher low. The lower rising support line has been in play far more than for the OEX, but it has held without serious challenge. 36 is Bollinger band and confluence resistance, and I don't expect to see it fall without a fight. 34.80 is downside support. 20 day 30 minute chart of the QQQ QQQ is coiling into a neutral pennant, also sporting a remarkably week 30 minute cycle downphase. Another uptick on Monday morning could kick off a run to 35.80-36 resistance, while a move lower will challenge 35.20 support on the way to 34.80. The cyclical picture is mixed, and it's at times like these that patience is a trader's best friend. A new rally from here should have good upside, while a breakdown should be good for a very substantial correction. With the weekly, daily and 30 minute cycles all in states of varying uncertainty following this epic op-ex week, it's far wiser to wait for support or resistance to fail before committing to a direction. Happy holiday season to all, and we'll see you on Monday. ************************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 ************** Are We There Yet? You probably did not even need to open this article today to know what I am planning. I had several readers email me on Thr/Fri asking if it was time yet. We should be very close to a market top. Very close but there are still several normally bullish days ahead. Four of the next seven days are typically bullish. Add in the first couple days of January and that is a lot of buying pressure even in a very overbought market. I want to play a laddered DJX put but the options are too expensive today. With expiration Friday behind us we need a couple days of market activity for the prices to stabilize. I suspect Monday will be flat to down so that should give us the cooling off period we need. I am looking at the Feb-100 puts, DJV-NV, currently $1.60. With the Dow at 10278 today we could see those decline to $1.40 next week. However, that decline may be offset by any decline in the market. The beauty here is the potential for a rebound on Tuesday that continues for a week. I can't believe those words are flowing from my fingers as I type this. With only three red candles since Nov-24th and the Dow at new 52-week highs it is almost inconceivable that we will go higher BUT we have a very good track record for the next seven days. With the Dow at 10278 I would hope for a dip under 10200 and then a rebound. I doubt we will be that lucky. Probably the best we can hope for is a dip under 10250 before the dip buyers arrive. I want to use 10250, 10300, 10350, 10400 as the trigger points. I would find it very unlikely we hit 350 and 400 but if we do I want to add to my short position. I am looking to end up with a total of 10 contracts if we do hit the 400 level. Here are the trigger levels but it is important to remember we only want to enter the trade at 102.50 after a dip below and a rebound to that level. We do not want to enter it on a drop. Put premiums increase when the index is dropping and decrease when rising. If we do not dip below that 102.50 level on Monday and move higher instead then I would reluctantly enter the higher triggers as hit. Hopefully it will not happen that way. I am hoping we do not hit 10300 until Wednesday or later. Buy 3 DJX 100 puts DJV-NV with a trade at 102.50 Buy 3 DJX 100 puts DJV-NV with a trade at 103.00 Buy 2 DJX 100 puts DJV-NV with a trade at 103.50 Buy 2 DJX 100 puts DJV-NV with a trade at 104.00 I am not putting a stop loss on this trade so don't buy more than you can afford to lose. If we blow out the top we may not get back to 10000 before the premium decays. With the average January drop at -750 points a bounce to 10500-10600 would nearly negate the play potential. This is very unlikely considering the current over extension but anything is possible. Heck they might capture Osama. If the Dow moves down from here and never rebounds we will just be out of luck with no entries. The exit target will be Dow 9700. Optimistic? Yes, but well within range assuming Osama does not surrender. I will update this play in the market monitor as it progresses. DJX Chart - Daily DJX Chart - Weekly ******************************** Play Recaps Priceline.com (PCLN) Put play $17.33 Despite the bullish week in the markets PCLN finished the week right where it started and up only +30 cents for the week. The holiday season is a peak travel and booking time for PCLN and 4Q earnings will be critical. This is an April Put with plenty of time to run. http://members.OptionInvestor.com/editorplays/edply_121403_1.asp Powerball The profit taking in the Nasdaq continues to shrink our profits with another decline across the board. With the last four days of the year normally bullish for the Nasdaq I am hoping for a rebound in some of the ITM positions. If you have these positions I would make sure your stop losses are in place and do not let this decline any further. We have already seen the profit drop from $1175 three weeks ago to only $370 this week. That is a serious decline and I hope most of you have already taken profits. 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 The profit high of $1175 was hit on Friday November 28th. ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Ho Ho Ho...Merry Markets! - J. Brown The Santa Claus rally has come early this year. Traditionally investors look for the markets to rise in the last two weeks of the year and the first two weeks of the year. The latter half of this move is traditionally part of the January effect. Contributing to this historical trend of a Santa Claus rally is the fund industry's need to appease their current customers and that means window dressing. Money managers are going to be dressing up their portfolios for the year-end statements. That means selling the losers and buying the winners. Thus we can probably expect current trends to merely extend their runs toward December 31st. Then of course we have the early January flush of cash for the industry as investors dump what's left over from their Christmas bonuses into their 401(k)s. Overall this is the premium time to be a bull within the best six months of the year. However, astute traders might make a note in the sudden sentiment change evidenced in the COT report (see below). After weeks of just churning sideways both commercial and small traders have opened their wallets to open new positions. There has been a flush of new long and new shorts but the most striking development is the flip flop in commercial trader's e-mini positions, which have reversed from net long to net short. This could be indicative of the professional traders also expecting a first quarter pull back of significant size. We'll also note that small traders have suddenly turned very bearish on the DJ futures. Sounds like someone is trying to pick a top. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10293 52-week Low : 7416 Current : 10278 Moving Averages: (Simple) 10-dma: 10068 50-dma: 9823 200-dma: 9149 S&P 500 ($SPX) 52-week High: 1091 52-week Low : 788 Current : 1088 Moving Averages: (Simple) 10-dma: 1073 50-dma: 1053 200-dma: 983 Nasdaq-100 ($NDX) 52-week High: 1453 52-week Low : 795 Current : 1426 Moving Averages: (Simple) 10-dma: 1408 50-dma: 1411 200-dma: 1259 ----------------------------------------------------------------- No change. The volatility indices remain near multi-year lows, which of course signals a market top being formed (eventually). CBOE Market Volatility Index (VIX) = 16.42 +0.26 CBOE Mkt Volatility old VIX (VXO) = 16.05 -0.20 Nasdaq Volatility Index (VXN) = 24.89 +0.36 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.80 988,767 792,798 Equity Only 0.61 791,236 481,898 OEX 0.80 72,757 57,998 QQQ 2.51 42,937 107,891 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 75.3 + 0 Bull Confirmed NASDAQ-100 65.0 - 2 Bear Confirmed Dow Indust. 80.0 + 0 Bull Correction S&P 500 81.2 + 0 Bull Confirmed S&P 100 81.0 + 1 Bull Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.92 10-dma: 1.01 21-dma: 1.04 55-dma: 1.07 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 1424 1449 Decliners 1384 1640 New Highs 417 152 New Lows 14 17 Up Volume 943M 816M Down Vol. 901M 992M Total Vol. 1876M 1838M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 12/16/03 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 Finally! The commercials are finally putting some money to work and we're seeing strong increases in both long and short positions. New longs soared about 50K contracts while new shorts jumped about 40K contracts. Overall, commercials remain net short. Small traders have also increased their net short positions but remain net long. Commercials Long Short Net % Of OI 11/18/03 393,893 414,442 (20,549) (2.5%) 12/02/03 394,531 414,223 (19,692) (2.4%) 12/09/03 396,882 420,859 (23,977) (2.9%) 12/16/03 448,103 460,670 (12,567) (1.4%) 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 11/18/03 147,842 80,047 67,795 29.7% 12/02/03 154,788 85,776 69,012 28.7% 12/09/03 172,178 99,484 72,694 26.8% 12/16/03 172,947 113,704 59,243 20.7% 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 We are seeing the same surge of activity in the e-minis. Commercial traders opened another 35K long contracts but opened 72K new short contracts, tipping the scales from long to short. In contrast the retail traders reduced their shorts and opened another 35K longs. Commercials Long Short Net % Of OI 11/18/03 249,286 264,083 (14,797) (2.9%) 12/02/03 283,199 268,833 14,366 2.6% 12/09/03 294,006 288,385 5,621 1.0% 12/16/03 330,273 361,316 (31,043) (4.5%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 11/18/03 95,119 61,975 33,144 21.1% 12/02/03 119,555 77,609 41,946 21.3% 12/09/03 142,173 76,171 66,002 30.2% 12/16/03 177,193 73,694 103,499 41.3% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Again, we're seeing new money from the commercial traders. NDX futures have seen a bump in net longs and net shorts from both professionals and small traders. Commercials remain net short and small traders remain net long. Commercials Long Short Net % of OI 11/18/03 35,608 49,689 (14,081) (16.5%) 12/02/03 35,569 48,552 (12,983) (15.4%) 12/09/03 39,612 51,443 (11,831) (13.0%) 12/16/03 61,343 73,153 (11,810) ( 8.8% 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 11/18/03 32,034 10,356 21,678 51.3% 12/02/03 21,594 9,429 12,165 39.2% 12/09/03 25,842 10,228 15,614 43.3% 12/16/03 28,676 15,197 13,479 30.7% 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 Commercials are hedging their bets on the DJ futures. Both longs and shorts saw a bump of about 3K contracts each. Meanwhile, small traders have turned decidedly bearish. The surge of new shorts has produced the most bearish reading in the DJ futures since 2001. Commercials Long Short Net % of OI 11/18/03 20,746 11,080 9,666 30.4% 12/02/03 21,128 12,379 8,749 26.1% 12/09/03 20,378 11,934 8,444 26.1% 12/16/03 23,509 13,880 9,629 25.8% 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 11/18/03 5,655 8,607 (2,952) (20.7%) 12/02/03 6,667 9,302 (2,635) (16.5%) 12/09/03 6,858 12,006 (5,148) (27.3%) 12/16/03 9,497 19,633 (10,136) (34.8%) Most bearish reading of the year: (10,136) - 12/16/03 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 *************** Due to technical difficulties, the Ask the Analyst column will be posted on Monday, December 22nd, 2003. ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ARRO Arrow International Mon, Dec 22 -----N/A----- N/A CAG ConAgra Foods, Inc. Mon, Dec 22 Before the Bell 0.49 RIMM Research In Mtn Lmtd Mon, Dec 22 After the Bell 0.17 SVU Supervalu Inc. Mon, Dec 22 Before the Bell 0.42 ------------------------- TUESDAY ------------------------------ AM American Greetings Tue, Dec 23 Before the Bell 0.70 MU Micron Technology Tue, Dec 23 After the Bell -0.06 ----------------------- WEDNESDAY ----------------------------- None ------------------------- THUSDAY ----------------------------- None ------------------------- FRIDAY ------------------------------- None ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable SSYS Stratasys Inc. 3:2 Dec 22nd Dec 23rd EDMC Education Management Corp 2:1 Dec 22nd Dec 23rd DFG Delphi Financial Grp, Inc 3:2 Dec 22nd Dec 23rd NEOG Neogen Corporation 5:4 Dec 31st Jan 2nd KSWS K-Swiss Inc 2:1 Dec 31st Jan 2nd ACET Aceto Corporation 3:2 Jan 2nd Jan 5th AAP Advance Auto Parts Inc 3:2 Jan 2nd Jan 5th JCI Johnson Controls, Inc 2:1 Jan 2nd Jan 5th CLBK Commercial Bankshares Inc 2:1 Jan 2nd Jan 5th -------------------------- Economic Reports This Week -------------------------- Christmas week is here and the U.S. markets will close early on both Wednesday and Friday. Look for a flurry of economic reports just before the holiday with personal income and spending, new Michigan sentiment numbers, durable orders and new home sales. ============================================================== -For- ---------------- Monday, 12/22/03 ---------------- None ----------------- Tuesday, 12/23/03 ----------------- Personal Income (BB) Nov Forecast: 0.4% Previous: 0.4% Personal Spending (BB) Nov Forecast: 0.7% Previous: 0.0% GDP-Final (BB) Q3 Forecast: 8.2% Previous: 8.2% Chain Deflator-Final (BB) Q3 Forecast: 1.7% Previous: 1.7% Mich Sentiment Rev (DM) Dec Forecast: 91.0 Previous: 89.6 ------------------- Wednesday, 12/24/03 ------------------- Durable Orders (BB) Nov Forecast: 0.6% Previous: 3.3% Initial Claims (BB) 12/20 Forecast: N/A Previous: 353% New Home Sales (BB) Nov Forecast: 1110K Previous: 1105K ------------------ Thursday, 12/25/03 ------------------ None ---------------- Friday, 12/26/03 ---------------- 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. 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 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 12-21-2003 Sunday 2 of 5 In Section Two: Watch List: Gifts for Bulls and Bears Call Play of the Day: GD Dropped Calls: QLTI Dropped Puts: FD ************************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 ********** Gifts for Bulls and Bears Amgen Inc - AMGN - close: 61.85 change: +0.26 WHAT TO WATCH: Is this an entry point for aggressive bulls in biotech giant AMGN? The stock has broken out of its most recent bearish trend of lower highs and lower lows. However, while it has climbed back above the $60 level, shares still have resistance at 62.50 and the simple 200-dma just overhead. Chart= --- Quest Diagnostic - DGX - close: 69.00 change: -1.19 WHAT TO WATCH: DGX failed twice at the $75 level in early December and it's been a steady trend downward ever since. Buyers mounted another rally mid-month but couldn't break back above the $73 level. Now DGX has broken support at $70 and looks headed for the $65 mark. Watch out for its 50-dma near $68.50 Chart= --- Entergy Corp - ETR - close: 56.40 change: +0.48 WHAT TO WATCH: ETR is an electric utility that's seen is stock power higher after bottoming near $51 in mid-November above its 200-dma. Now the stock has broken above very strong resistance at $55.00 and pushed to what looks like new all time highs. The stock does have a dividend yield of 3.2% and could account for investors' interest in the stock. Chart= --- Kohl's Corp - KSS - close: 45.06 change: -0.99 WHAT TO WATCH: After two months of declines it looked like the bearish trend was finally broken Wednesday-Thursday of last week. Unfortunately for shareholders KSS rolled right back over at the $46 level. Bears might want to consider new short positions again if KSS breaks $45.00. Chart= --- Wyeth - WYE - close: 41.00 change: +0.53 WHAT TO WATCH: Drug stock WYE appears to be on the rebound. The last week and a half have produced a steady trend of higher lows and it has broken its trend of lower highs. WYE is approaching its descending 50-dma as well as minor resistance near $42. Traders should also watch for the 200-dma near 43.00. There is plenty of resistance above it but a breakout could send shorts covering. Chart= ---------------------------- RADAR SCREEN - more to watch ---------------------------- MRK $44.36 - Look for a breakout above $45 and its 50-dma. Bears might want to consider new shorts under $43.00. INTC $30.57 - Despite the strength in the SOX recently, INTC looks like a put play. Watch for a breakdown under $30.00. GDT $60.28 - There is plenty of strength here in medical device maker GDT. A bounce from the $58 level might be buyable. HSY $76.05 - Shares of Hershey appear to be melting. The rally has slowly eroded and now HSY looks ready to test the 200-dma. AAPL $19.70 - The break under the $20 mark is a definite psychological blow to investors. Watch for AAPL to break its 200-dma just below before initiating short positions. ************************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: ********************* General Dynamics - GD - close: 88.78 chg: +0.20 stop: 83.00 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 ^^^^^ QLT Inc - QLTI - close: 18.59 chg: +0.06 stop: 17.67 QLTI did bounce like we were expecting it too but not enough. We've been cautious on this play since it failed strongly at $20 a several days ago. Since then we're seeing a trend of lower highs develop. We'd rather exit here and put our money to work somewhere else. Picked on December 07 at $18.86 Change since picked: - 0.27 Earnings Date 10/23/03 (confirmed) Average Daily Volume: 1.1 million Chart = PUTS ^^^^ Federated Dept. Stores - FD - cls: 45.90 chg: -0.43 stop: 47.51 We're feeling a little gun shy with FD. The stock has not stopped us out yet and shares did slip back under the $46 level on Friday, which means it could be building a trend of lower highs. Our concern is that next week, the Christmas holiday week, is normally a bullish one. Retail investors will be focused on Christmas shopping and retail stocks might get a boost, whether they deserve it or not. If you're still interested in following FD, look for a drop back under the $45 or $44 levels. Picked on December 15 at $44.95 Change since picked: + 0.95 Earnings Date 11/12/03 (confirmed) Average Daily Volume: 1.7 million Chart = *********** 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 12-21-2003 Sunday 3 of 5 In Section Three: Current Calls: ADI, HOV, QCOM New Calls: GD, GILD Current Put Plays: CTSH, NSM, XL New Puts: None ! Holiday Schedule Notice ! Please note that the Option Investor Newsletter will not be publishing any new option plays or updated option plays on Thursday, December 25th through Sunday, December 28th. ************************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 ****************** Analog Devices - ADI - close: 44.35 change: -0.77 stop: 43.00 Company Description: Analog Devices is a leading maker of analog (linear and mixed- signal) and digital integrated circuits (ICs), including digital signal processors. The company's broad line of ICS incorporate analog, mixed-signal and digital signal processing technologies that translate real-world phenomena such as pressure, temperature, and sound into digital signals. ADI's products are used in communications equipment (40% of sales), computers and peripherals, and medical and scientific instruments. Among ADI's more notable customers are Motorola, Dell, Lucent, and Sony. Why we like it: The past two days' action in the Semiconductor sector (SOX.X) appears to have been strongly influenced by options expiration. Thursday's sharp rally took ADI back over the $45 level, but that move was quickly reversed on Friday, with the stock trading below $44 on an intraday basis before bouncing a bit at the close. The stock still managed to hold inside the rising channel, but Friday's action was disappointing. This is why we initiated coverage with a $45.75 trigger. If Thursday's bounce was a fluke, then the stock would have a hard time satisfying that trigger, just as we saw on Friday. ADI could still pull off the rally that we're expecting, so we'll follow the same plan of action. Wait for the trigger to be hit and then take momentum entries on the initial breakout or wait for a subsequent pullback near $44 to provide entry. The reason we want to wait for the pullback is that we want to force the stock to prove that it has the strength to move higher. Keep stops set at $43. Suggested Options: Shorter Term: The January 45 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the March 50 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 looking for more insulation from time decay will want to use the March 45 Call. Our preferred option is the January $45 strike. BUY CALL JAN-45*ADI-AI OI=5251 at $1.75 SL=0.80 BUY CALL JAN-50 ADI-AJ OI=2906 at $0.40 SL=0.00 BUY CALL MAR-45 ADI-CI OI=1353 at $3.40 SL=1.75 BUY CALL MAR-50 ADI-CJ OI=1472 at $1.55 SL=0.75 Annotated Chart of ADI: Picked on December 18th at $45.12 Change since picked: -0.77 Earnings Date 2/17/04 (unconfirmed) Average Daily Volume = 3.30 mln --- Hovnanian - HOV - close: 88.25 change: -0.15 stop: 82.50 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: Homebuilders have been big winners for investors in 2003 and expectations are for a strong performance in 2004 as well. Investors have been constantly willing to buy the dips. Fortunately, with the leaders in the group still trading with P/E's in the 10 to 13 range there is room for more price appreciation. We like HOV not only for its strong trend (and earnings to back up that trend) but they've also announced a 2-for-1 split recently. The split should take place in March. We are a tad bit disappointed that HOV didn't display more strength this week with the DJIA and S&P 500 hitting new highs but the DJUSHB index remains perched just under resistance at 600. Likewise, HOV is just under resistance at 90. More conservative traders might do best waiting for HOV to trade above the $90 mark before opening any positions. More aggressive traders can look for another bounce from is rising 50-dma. Suggested Options: Bullish traders should probably consider the January and February calls. Our time frame is short-term, just 2-3 weeks, so our choice is the January 90's. BUY CALL JAN 85 HOV-AQ OI= 896 at $5.90 SL=3.25 BUY CALL JAN 90*HOV-AR OI=1347 at $3.20 SL=1.60 BUY CALL JAN 95 HOV-AS OI= 968 at $1.45 SL=0.75 Annotated Chart: Picked on December 16 at $87.49 Change since picked: + 0.76 Earnings Date 12/08/03 (unconfirmed) Average Daily Volume: 827 thousand Chart = --- Qualcomm, Inc. - QCOM - cls: 51.03 chng: -0.45 stop: 48.00 Company Description: Based on its proprietary CDMA technology, QCOM is engaged in developing and delivering digital wireless communications services. The company's business areas include integrated CDMA chipsets and system software and technology licensing. QCOM owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by the worldwide standards-setting bodies. Currently, QCOM has licensed its CDMA patent portfolio to more than 80 telecommunications equipment manufacturers around the world. Why we like it: Helped along by the broad market rally on Thursday, shares of QCOM came roaring back from the sharp drop on Monday, using the 10-dma ($49.78) as the springboard for that advance. That rally brought the stock right back to the top of its rising channel and with options expiration clouding the picture on Friday, QCOM stalled at the upper channel line. Volume is likely to be light next week, but with the bulls feeling frisky, the stock just might be able to give us an early Christmas present of a breakout through that resistance. Momentum traders can consider new positions on a breakout over $52, while those looking for a better entry can target a dip and rebound from the $49-50 area, which should now be solid support. With the possibility that price action will be muted during the holiday-shortened week, we'll keep our stop set at $48. Suggested Options: Shorter Term: The January 50 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the April 55 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 April 50 Call. Our preferred option is the January $50 strike. BUY CALL JAN-50*AAO-AJ OI=18804 at $2.80 SL=1.40 BUY CALL JAN-55 AAO-AK OI=10137 at $0.65 SL=0.30 BUY CALL APR-50*AAO-DJ OI= 7875 at $4.90 SL=3.00 BUY CALL APR-55 AAO-DK OI=14783 at $2.65 SL=1.25 Annotated Chart of QCOM: Picked on December 11th at $50.14 Change since picked: +0.89 Earnings Date 2/04/04 (unconfirmed) Average Daily Volume = 9.23 mln ************** NEW CALL PLAYS ************** General Dynamics - GD - close: 88.78 chg: +0.20 stop: 83.00 Company Description: General Dynamics, headquartered in Falls Church, Va., employs approximately 66,900 people worldwide and anticipates 2003 revenues of $16.1 billion. The company has leading market positions in mission-critical information systems and technologies, land and amphibious combat systems, shipbuilding and marine systems, and business aviation. (source: company press release) Why We Like It: The recent headlines about renewed fears regarding potential terrorist attacks over the holiday season might be drawing some investor attention back to the military/defense sector. GD should grab their eye with a low P/E near 14 and a string of positive announcements regarding new deals over the last couple of months. The stock is also getting some positive analyst attention. In early December Bank of America upgraded GD to a "buy" from "neutral" and raised their price target to $95. The analyst at BAC was encouraged by recent improvements in GD's used business jet and strong potential revenue upside for its military-related divisions. We also like the strong price action as GD has broken out above resistance in the $87.75-88.00 region. Meanwhile, GD's point- and-figure chart is showing a fresh triple-top breakout and a price objective near $118. We see the next resistance is the $96 to $100 range. We like the stock at current levels but traders have various strategies they can employ. The easiest is to wait for GD to trade over the $90 level. An alternative, should there be any profit taking, would be to buy a dip in the $87-88 range. We're going to start the play with a stop loss at 83.00 and raise it as GD moves higher. Suggested Options: We like the January and February strikes. Our favorite would be the January 85 calls. BUY CALL JAN 85 GD-AQ OI=3964 at $4.70 SL=2.50 BUY CALL JAN 90 GD-AR OI=3055 at $1.60 SL=0.80 BUY CALL FEB 85 GD-BQ OI=1025 at $5.60 SL=3.00 BUY CALL FEB 90 GD-BR OI= 680 at $2.60 SL=1.30 Annotated Chart: Picked on December 21 at $88.78 Change since picked: + 0.00 Earnings Date 01/21/04 (unconfirmed) Average Daily Volume: 1.0 million Chart = --- Gilead Sciences - GILD - close: 59.40 change: +0.65 stop: 55.00 Company Description: Gilead Sciences, Inc. is a biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases worldwide. The company has seven commercially available products. Its research and clinical programs are focused on anti- infectives, including anti-virals and anti-fungals. GILD endeavors to grow its existing portfolio of products through proprietary clinical development programs, internal discovery programs and an active product acquisition and in-licensing strategy. Products include Viread, Emtriva, AmBisome, Hepsera, Tamiflu, DaunoXome and Vistide. Why we like it: Beginning with a JP Morgan downgrade in the middle of September, GILD gapped sharply lower and then spent the next 2 months working its way lower. The 200-dma ($54.99) finally provided some solid support near $50 in late October, and then again in early November near $52 before the stock actually staged a decent rally up to the $60 area. At that point, it was still a bit too early for the stock to reverse directions, but here at the end of the year, the picture has changed significantly. Since the end of September, we can see on the chart below that there is a classic Head & Shoulders pattern at work and on Friday, GILD closed right at the descending trendline from the 9/19 high. Then there's the ascending trendline connecting the lows from the late October, early November and the past week and we have a nice neutral triangle that looks ready to pop to the upside. But it gets better. The late November rally generated a PnF Buy signal with a bullish price target of $80. If this pattern resolves to the upside (as we expect) then GILD ought to have easy upside to the $65-66 area, with solid potential to continue up to the $69-70 area where the stock stalled out last summer. Normally, we'd use a trigger above $60 to get us into the play, but the potential for a better entry on a pullback before the breakout is too good to pass up. The breakout entry can still work for momentum traders, but we're also going to recommend entering the play on a pullback and bounce in the vicinity of $57-58. Note the convergence of moving averages (10-dma at $56.95, 20-dma at $57.81, 50-dma at $56.83) which ought to work together to provide strong support. One thing working against momentum entries is resistance near $61.50, which coincides nicely with the bearish resistance line on the PnF chart at $62. We'll probably see GILD struggle a bit getting through that level, and it will be easier to ride out the volatility if we've managed an entry at a significantly lower level. On the PnF chart, it would take a print at $55 to create a new Sell signal, providing nice confirmation of the 200-dma as critical support. Set stops at $55. Suggested Options: Shorter Term: The January 60 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the February 65 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 looking for more insulation from time decay will want to use the March 60 Call. Our preferred option is the January $60 strike. BUY CALL JAN-60*GDQ-AL OI=7608 at $2.10 SL=1.00 BUY CALL JAN-65 GDQ-AM OI=4635 at $0.70 SL=0.35 BUY CALL FEB-60 GDQ-BL OI=7410 at $3.30 SL=1.75 BUY CALL FEB-65 GDQ-BM OI=1212 at $1.50 SL=0.75 Annotated Chart of GILD: Picked on December 21st at $59.40 Change since picked: +0.00 Earnings Date 1/27/04 (unconfirmed) Average Daily Volume = 4.23 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 ***************** Cognizant Tech. - CTSH - cls: 42.40 chng: -1.13 stop: 46.50*new* Company Description: Cognizant Technology Solutions Corporation delivers full lifecycle solutions to complex software development and maintenance problems that companies face as they transition to e- business. These information technology (IT) services are delivered through the use of a seamless on-site and offshore consulting project team. The company's solutions include application development and integration, application management and re-engineering services. Among CTSH's prominent clients are ACNielsen Corporation, ADP, Inc., Brinker Int'l, Computer Sciences, The Dun & Bradstreet Corporation, First Data Corporation and Nielsen Media Research. Why we like it: Volatility was the name of the game for CTSH last week, as the stock kicked off the week with a sharp plunge below support near $44. That drop found buyers near the $41 level and by early Friday, the stock was back to testing $44 again, this time as new resistance. That resistance held (reinforced by the 10-dma) and CTSH fell to close near its low of the day, giving up more than 2.5% on Friday. Even if the bulls can push through that resistance next week, they'll have to deal with the 50-dma ($44.75) and then the 20-dma ($45.41). So a failed bounce in the $44-45 area looks like an attractive entry proposition ahead of more anticipated weakness. Entering on a breakdown under last week's lows does not appear to be an advisable strategy, with near-term support likely to be found at the 100-dma ($39.87). Lower stops to $46.50. Suggested Options: Aggressive short-term traders can use the January 40 Put, while those with a more conservative approach will want to use the January 45 put. Our preferred option is the January 45 strike, as it is already in the money. BUY PUT JAN-45*UPU-MI OI=1912 at $3.90 SL=2.50 BUY PUT JAN-40 UPU-MH OI=1080 at $1.55 SL=0.75 Annotated Chart of CTSH: Picked on December 16th at $42.70 Change since picked: -0.30 Earnings Date 1/20/04 (unconfirmed) Average Daily Volume = 997 K --- National Semiconductor - NSM - cls: 38.76 chng: -0.62 stop: 41.40 Company Description: National Semiconductor Corporation designs, develops, manufactures and markets an array of semiconductor products, including a line of analog, mixed-signal and other integrated circuits (ICs). These products address a variety of markets and applications, including amplifiers, personal computers, power management, local and wide area networks (LANs and WANs), flat panel and cathode ray tube displays and imaging and wireless communications. The Company's operations are organized in five groups: the Analog Group, the Displays Group, the Information Appliance and Wireless Group, the Wired Communications Group and the Custom Solutions Group. Why we like it: Between the action on Monday and Thursday, the Semiconductor index (SOX.X) was really the leader of the weakness and then strength in the overall Technology market. By early Tuesday, the SOX had broken below the $475 support and the bears were drooling. But just like so many times in the past several months, the bulls bought enough to provide support and then charged forward on Thursday, bowling the bears over as the SOX ran right up to the 50-dma. What's interesting this time around is that the 50-dma ($497.56) acted as resistance for the past two days. This is the first time we've seen bullish price action held back by the 50-dma since early March. Mimicking the action in the SOX, NSM plunged on Monday, hit a new recent low near $36 and then rebounded into the end of the week. The difference is that price action didn't get anywhere near the 50-dma, which is up at $40.56. Instead, price action stalled at the 10-dma ($39.30) and price action is looking weak despite the fact that daily oscillators have started to turn up. Another failed bounce below the 50-dma can be used for fresh entries. Look for confirmation of weakness with the SOX rolling below its own 50- dma. Maintain stops at $41.40. Suggested Options: Aggressive short-term traders can use the January 35 Put, while those with a more conservative approach will want to use the January 40 put. Our preferred option is the January 40 strike, as it is already in the money. BUY PUT JAN-40*NSM-MH OI=2936 at $2.85 SL=1.25 BUY PUT JAN-35 NSM-MG OI=1668 at $0.85 SL=0.40 Annotated Chart of NSM: Picked on December 9th at $38.70 Change since picked: +0.06 Earnings Date 3/04/04 (unconfirmed) Average Daily Volume = 3.87 mln ---- XL Capital - XL - close: 74.52 change: +0.46 stop: 75.51 Company Description: XL Capital Ltd, through its operating subsidiaries, is a leading provider of insurance and reinsurance coverages and financial products to industrial, commercial and professional service firms, insurance companies, and other enterprises on a worldwide basis. As of September 30, 2003, XL Capital Ltd had consolidated assets of approximately $39.6 billion and consolidated shareholders' equity of approximately $7.4 billion. (source: company press release) Why We Like It: It has been a rough couple of quarters for XL. Shares have been stuck in a downtrend since June. Shares were hammered even harder in mid-October when the company issued an earnings warning. The stock did manage to rebound back to the $75 level and tried to fill the gap but was turned back by its simple 200- dma. The very next day XL warned again. Estimates for 2004 had been $9.28 a share. Now those estimates are 9.05 to 9.25. We've been harping on XL's relative weakness in relation to the markets and its peers in the IUX insurance index. Over the last several days the IUX has continued to push to new highs, much like the Industrials. XL has only managed to return to overhead resistance. We've been suggesting that more aggressive traders use a failed rally at the $75.00 mark as a potential entry point for bearish positions. It looks like we just got it. XL traded up to 74.92 and started to roll over on Friday afternoon. Investors might want to wait for XL to trade under $74 to confirm the move. We're still suggesting more conservative traders wait for XL to move back under the $72 level. The recent trading action is starting to look like a head-and- shoulders pattern, with Friday's top being the right shoulder. Should this be the case, then the H&S pattern would be projecting a price target of $67 (once the neckline is broken). This just happens to coincide with our exit range from $65-67. Suggested Options We like the January puts. Our favorite is the January 75s. BUY PUT JAN 75*XL-MO OI=1876 at $2.10 SL=1.10 BUY PUT JAN 70 XL-MN OI=4130 at $0.55 SL= -- Annotated Chart: Picked on December 09 at $72.60 Change since picked: + 1.92 Earnings Date 01/28/04 (unconfirmed) Average Daily Volume: 1.2 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. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** 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 12-21-2003 Sunday 4 of 5 In Section Four: Leaps: Winding Down Traders Corner: Ho-Ho-Ho! More Money For Our Christmas Stocking ************************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 ***** Winding Down By Mark Phillips mphillips@OptionInvestor.com Was I surprised to see that big move upwards in the DOW last week? Yes and no. While I've had it in mind that a rally to the 10,300 area was possible, I really didn't expect to see it happen so quickly. At the same time, the SPX charged to new highs for the year, hitting 1091 on Friday. In both indices, we haven't been here since May of 2002 and we're now starting to come into strong levels of resistance. Of course the bulls have impressed me in recent weeks, with numerous solid resistance levels already scaled. For me, the cornerstone of my market view has changed substantially over the past few weeks, as I have put a lot of effort into looking at the progress of the different indices in terms of currencies other than the dollar. No matter how I look at it, I come away with the same conclusion -- since June, all the gains in the market have been a result of currency action, not from investors giving a higher valuation to the market. Of course, that doesn't mean the trend won't continue with the dollar continuing to weaken and the stock market continuing to rise. But I have the distinct impression that the dollar is due for an oversold bounce up to maybe the $91-92 area, gold is due to correct down near the $390 area and at the same time I think we'll see a topping of this rally. A reader sent me a note last week, complimenting me on the series of articles on the DOW vs. different currencies and noting that similar commentary came from James Dines (the Dines Letter) this spring. Basically Mr. Dines was predicting the relationship that I've been able to identify after the fact. So while it is encouraging to hear that I'm in good company and apparently on the right track, it looks like I've got a fair amount of work yet to do before I can claim to have a functional crystal ball. After the Saddam rally evaporated on Monday, last week was all about options expiration and I have to say I'm impressed with the strength shown on Thursday and the lack of weakness on Friday. Next week will essentially be about unwinding any remaining positions from December's expiration and then squaring up any remaining positions to head into the holiday flat or hedged. We're likely to see an upward bias, but I doubt we'll be able to push through any substantial resistance levels with volume expected to be light. On the other hand, there's unlikely to be much weakness either, once again due to the light volume. As I've been saying for the past couple weeks, beginning with Monday's trading, it is time to start turning our focus on other issues for the remainder of the year. Light volume always makes for more difficult trading due to the fact that the market can be moved more easily on a Buy or Sell program of any decent size. If you must focus on the market over the next two weeks, then my suggestion is to focus your energy on avenues that are the most productive. Among these are reflecting on trading performance from 2003 and making decisions about what to continue doing in 2004 and what to change. Another great use of the time would be in looking more at the big picture and thinking about where things appear to be headed for the year ahead. Along those lines, I'll leave you with the following chart, which I've shared on several occasions in the past, updating it as necessary. Monthly Chart of the S&P 500 This bearish divergence on the SPX is just getting wound tighter and tighter with the monthly Stochastics getting pushed deeper into overbought territory. We see much the same picture with the DOW as well. The key will be to see how much upside is in store next year. If the SPX can take out the 1175 resistance level, then the bearish divergence will be nullified. Similarly, if the DOW can push through 10,700, the bearish divergence will be eliminated as a factor. While both scenarios are certainly possible, I do not give them a high degree of likelihood, at least not until we see a substantial pullback -- something we have not seen since March. With the VIX pushing to new multi-year lows every week, it is hard to see how sentiment can get much more bullish. I'll spend some time looking at the big picture for our visit next weekend, but for now I think we need to wrap this up and get to the plays. There's a lot of territory to cover there this week and I better get to it. Portfolio: WMT - In terms of price action, I couldn't be happier with our WMT play, as we entered near the top of the large neutral wedge pattern and the stock obliged by breaking down hard. The late November bounce rolled over just below the 20-dma (currently $53.41) and it looks like we're getting another rollover below that average right now. Since the sharp drop in early December, WMT hasn't been able to move above $54, so it seems sensible to lower our stop to that level. In a couple more days, we'll have the 30-dma ($54.38) below that level, reinforcing resistance in our favor. Last week's sharp plunge below the $51 level had me hoping for a break below the ascending trendline (now right at $50), but it wasn't to be. If WMT can hold below our stop on this upward correction (that already seems to be running out of steam), then we'll look for a favorable exit in the $48-50 area on the next downward cycle. As I've noted on several occasions, WMT has been a big disappointment to me in terms of the price performance of the LEAPS. With more than a $5 move in our favor and our chosen LEAPS now in the money, all I can conclude is that the price on those LEAPS was artificially high when we initiated our position. SBUX - Can you say boring? SBUX certainly isn't setting any speed records, but the stock is holding up fairly well, as the 50-dma is drawing near to give us another bump upwards. Steady as she goes is the way to play this one. Dips near the $31 level can still be used for entry. Note that we're raising our stop to $27.50 this weekend. That's a bit above both the 200-dma and the bottom of the channel, but both of those measures of support should catch up long before any price action could threaten them. QQQ - This is precisely why I didn't want an entry on a breakdown. After last week's drop that gave us our entry, the QQQ managed to pull itself together and is once again lurking just below strong resistance at $36. There's definitely an upside bias into the end of the year and all we can do is hope that resistance holds until the bears come out of hibernation in January. The first clear sign of weakness will come from the QQQ breaking its rising trendline connecting the lows of the past 3 months, which is currently at $34.50. Isn't it interesting how the "breakdown" that gave us our entry saw a bounce the next day right on that trendline? Next up after that violation will be the 100-dma, which is currently just under $34. If you're still looking for an entry, I would feel good about an entry on a failure to push above $36 over the next couple weeks. DJX - To say I'm chagrined over my DJX play would be a bit of an understatement. No sooner do we get into the play than it explodes upwards. Are the "big boys" reading my column and taking advantage of me? GRIN In all seriousness, I'm looking at the rally last week as a real gift. I'm personally in the process of building a substantial DJX put position in my own accounts, looking for a substantial decline following the first full week of January. Part of my expectations come from the historical pattern of January weakness for the broad markets and part comes from an expectation of a bounce in the dollar. If you've read my recent musings on the DOW rally, I feel it is primarily a currency-driven rally. Unwind the currency weakness and you unwind the rally, right? I don't expect any strong rebound in the dollar, just enough to work to our benefit, as the $91-92 area for the DX00Y should be rock-solid resistance. So my recommendation is to take advantage of the current strength in the DJX to initiate new bearish positions into the end of the year - all the way up to $103.50 if necessary. For those of you that have followed Jim's ladder plays on the DJX in the past, I strongly suspect he'll be setting another one up in the Editor's Play column this weekend. This is one of those rare times when I think that strategy could work very well in a LEAPS play as well, as the historical resistance in the $102.50-103.50 should be very strong. I'll maintain a stop at $104 and abide by it if hit. But my inclination following that unfortunate (and surprising) event will be to look for an even better entry in the $105-106 area. Watch List: SMH - The sharp move upwards out of the gate last Monday almost gave us an entry into our bearish SMH play. In all honestly, I'm glad it didn't push a little higher before the melt-down, as the SMH came back strong on Thursday and with the daily Stochastics looking strong, I think we'll get another run at resistance, which should start to get strong in the $42.50 area. We're looking to target an entry in the $42-43 area, so provided the rally continues into the holiday but without any real strength, odds are good that we'll get our entry point before the year is out. After entry, initial stops will be placed at $46, which is far enough over the recent highs that it should be out of reach unless the Semiconductor stocks have another major upward leg in store for early in 2004. NEM - After the initial dip back near $45, NEM consolidated throughout the week right up until Friday. While there wasn't much weakness in the price of gold heading into the weekend (the February contract is holding just below $410), NEM shed a healthy 2.72%, right in line with the 2.67% slide in the XAU index. Remember that gold stocks have been outperforming the metal in recent months, so it is entirely sensible for the gold stocks to see more weakness than the actual metal -- this is entirely normal in terms of profit taking and we wouldn't even get concerned about the health of the trend until we saw both the XAU and NEM violate their 200-dmas. For the XAU, that would be down at $84 (versus Friday's $102.49 close), while NEM would have to break below $35.44 to call its trend into question. In the meantime, we'll keep our eye out for more weakness between now and mid-January to drop NEM into our desired target zone, the top of which is at $40. Take note of the fact that weekly Stochastics are just starting to decline from overbought territory. They may not make it to oversold, but while they are pointing down, it is a safe bet that we've got the right focus by looking to buy in on a dip and bounce from support. QCOM - There's just too much strength in shares of QCOM for us to get a chance at an entry yet. Even last week's dip found strong support above the midline of the rising channel. Oscillators are looking extended and with the 200 week moving average looming just overhead at $53.67, chasing to the upside would not be prudent. I'm still willing to play the upside, but only if we can get a pullback to the bottom of the channel near $46. Otherwise we'll just have to let it go without us. Note that we're unlikely to get a solid pullback between now and the first full week in January. But a profit-taking drop after that point in time could be just what we need to get that entry point. After entry, we'll place our stop at $43, as that is the level that would have to be traded to generate a PnF Sell signal. Radar Screen: GENZ - With another rebound off the 200-dma and a move through the 50-dma, GENZ looks like it could make a solid run at that $52 resistance, right at the bottom of the channel that was broken to the downside back in late October. More important than the actual price action - which currently looks bullish - is the picture on the weekly chart, where both the Stochastics and MACD have turned bullish. I still want to see how the stock performs as it approaches that $52 resistance level, but for right now, I'm cooling on the idea of playing it to the downside. Closing Thoughts: With the exception of the possibility for a continued upward drift into the end of the year, I think we can safely say that 2003 is in the bag. I've got 2 more days in my personal trading calender. After 12/23, I won't be opening a broker applet again until the date ends with 2004. I think the best trade suggestion I can offer for the next 2 weeks for those that really want to play is to take advantage of any continued broad market strength to build a DJX put position. Beyond that, I hope you are all planning on stepping completely away from the screens for a few days during the holidays. Volume will be light and action is likely to be a bit artificial. Besides that, no amount of profit can replace the opportunities we lose by not giving our loved ones the time and attention they deserve. That is the most important thing any of us can do over the next couple weeks. At least in my never-to-be- humble opinion. Those of you that know me, know that I practice what I preach. After I finish writing on Wednesday, I'll be offline until Monday, December 29th. That means that I'll be writing next week's LEAPS column on Wednesday. In order to meet the publishing schedule, it will be a bit on the light side. That's a big part of why I went so hog wild with new Watch List plays this weekend. None of the plays listed should be actionable before next year rolls around, but I wanted you to have plenty of time to chew on them before we need to take action. I frequently opine the frustration of finding good LEAPS plays, due to the fact that so many of the really exciting growth stories in the current market do not offer LEAPS. So I don't mind telling you that putting together a more varied list for the End-of-Year Renewal project was refreshing. I can't speak for the other writers, but I actually found some stocks that look really attractive to me, each on their own merits. I'm sure each of the other contributors managed to find a nice selection of winners as well. Those of you that have been with me for awhile will be astounded to note that of my 10 selections, there isn't a short play in there! That ought to knock more than a couple of you back on your heels. At any rate, if you haven't signed up for the annual renewal package, let me encourage you to do so this weekend. I think it will be the best Christmas present you can give yourself for 2004. Merry Christmas To All! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: SBUX 11/24/03 '05 $ 30 ZOS-AF $ 4.30 $ 5.00 +16.28% $27.50 '06 $ 30 WSP-AF $ 6.40 $ 6.90 + 7.81% $27.50 Puts: WMT 10/03/03 '05 $ 55 ZWT-MK $ 5.10 $ 6.10 +19.61% $ 54.00 '06 $ 55 WWT-MK $ 7.20 $ 7.70 6.94% $ 54.00 DJX 12/09/03 '04 $ 96 YDK-XR $ 5.70 $ 4.20 -26.32% $104.00 '05 $ 96 ZDK-RR $ 7.10 $ 5.60 -21.13% $104.00 QQQ 12/09/03 '05 $ 32 ZWQ-MF $ 2.65 $ 2.15 -18.87% $ 38.00 '06 $ 32 WD -MF $ 3.70 $ 3.30 -10.81% $ 38.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: NEM 10/05/03 $40 JAN-2005 $ 40 ZIE-AH CC JAN-2005 $ 35 ZIE-AG JAN-2006 $ 40 WIE-AH CC JAN-2006 $ 35 WIE-AG QCOM 11/16/03 $45 JAN-2005 $ 45 ZLU-AI CC JAN-2005 $ 40 ZLU-AH JAN-2006 $ 45 WLU-AI CC JAN-2006 $ 40 WLU-AH SNDK 12/21/03 $50-51 JAN-2005 $ 45 XWS-AK CC JAN-2005 $ 40 XWS-AJ JAN-2006 $ 45 YSD-AK CC JAN-2006 $ 40 YSD-AJ PUTS: SMH 08/24/03 $42-43 JAN-2005 $ 40 ZTO-MH JAN-2006 $ 40 YRH-MH EK 12/21/03 $27 JAN-2005 $ 25 ZEK-ME JAN-2006 $ 25 WEK-ME HD 12/21/03 $37-38 JAN-2005 $ 35 ZHD-MG JAN-2006 $ 35 WHD-MG New Portfolio Plays None New Watchlist Plays EK - Eastman Kodak Company $24.56 **Put Play** It is hard to find a clearer example of a company that squandered its industry dominance over the past several years than EK. Losing major battles on 2 critical fronts, the company is quite simply fighting for its survival. Grossly underestimating the potential of digital photography to cut into their bread and butter business, the company failed to devote the necessary resources to carve out their own niche in this industry that is now growing at a rapid pace. EK is now desperately trying to play catchup, but they are several steps behind the competition and now needing to establish a market-leading presence. It will be a steep uphill battle, with entrenched goliaths like Sony, Panasonic and Canon already sitting pretty. The other major front that has created problems for EK is in its battle to be the dominant provider of print film. Their primary competition has come from Fuji and in terms of market share and quality of product, Fuji has not been an easy mark. If anything, we can say that EK has lost significant ground and is desperately trying not to lose any more. For a steadily growing enterprise, I'd say EK's P/E of 19.6 is reasonable, but EK is not a growth story - it is stagnant to shrinking. Looking at the price chart, we can see the stock has been in a persistent downtrend since late 1998, with each rally being turned back at the descending trendline, now just below $31. For nearly 2 years, the stock found steady support in the $26-27 area, so September's sharp break below that level was a serious blow. We can now look for that former support to now be strong resistance, which also coincides with the top of the late- September gap at $27. For the past several weeks, EK has been trading in gently sloping downtrend and it had the look of a bull flag. Sure enough, that flag broke to the upside on Friday on strong volume. My hope is that this bullish move will have enough follow-through to get up to our desired entry target at $27. If we can get it, that entry should provide a nice ride down to at least $20 by the end of 2004. It won't be a quick move and it won't be without the volatile bullish moves to undo the severe near-term oversold conditions. But we've certainly got a good technical and fundamental basis for playing the downside here. After entry, we'll use a fairly wide initial stop at $31 and trail it just above that descending trendline until the stock breaks back under $23, at which point we can start to get more aggressive with the stop. BUY LEAP JAN-2005 $25 ZEK-ME BUY LEAP JAN-2006 $25 WEK-ME HD - Home Depot, Inc. $35.50 **Put Play** Amazing as it may seem in light of the astounding rally in Housing stocks over the past year, shares of HD have been in a broadly descending trend since early 2000. That's right, on the weekly chart, HD has yet to come anywhere near breaking the pattern of lower highs and lower lows, as it continues to move within its descending channel. The upper edge of that channel is just dropping below $39 and is fast approaching the November highs near $38. Pulling out the retracement brackets, we can see that the 62% retracement of the decline from February-2002 to January 2003 comes in at $40.19. The 38% retracement of the decline from the January 2000 high comes in at $39.07. So with all those levels of potential resistance converging in the $38-40 area, and weekly Stochastics (10,5,3) already into bearish decline along with bearish divergence (higher price highs and lower price highs), this looks like an excellent place to stake a claim on a bearish position. That said, it won't be an easy downward path, as there is some solid support near $34 and then stronger support in the $30-31 area, with the 200-dma now rising to just below $32. But this is one that I think has the potential to really move big in our favor for two reasons. Consumers are going to have to come to terms with declining disposable income next year and there will be no new wave of refinancing at new low interest rates to fuel liquidity. That will put downward pressure on all home- improvement related expenditures. But the other factor is that HD is no longer what we would call a growth story - that role has been taken over by Lowe's. HD is barely managing to keep growth in double digits, while Lowe's is running at close to 25% growth year-over-year. If things slow down, I expect HD to get hit the hardest. We'll target entry in the $37-38 area and set stops at $41. While I'd like to target a decline to the midline of the descending channel (currently $26), I think that may be a bit too aggressive, so we'll take our cues from the retracements of the 2003 rally. The 50% retrace is at $29 and the 62% retrace is at $26.90. So let's set our target at $28-29, as $28 seems to be a strong level of support as well. This is another play that has the potential to deliver nicely in the year ahead, but we're likely to have to endure a fair amount of volatility on the way down. BUY LEAP JAN-2005 $35 ZHD-MG BUY LEAP JAN-2006 $35 WHD-MG SNDK - Sandisk Corporation $60.99 **Call Play** To say this is an aggressive bottom-fishing play would be a gross understatement. There, now that I've gotten that out of the way, let's talk about the merits of this play. SNDK was one of the leading stocks throughout 2003, rising more than five-fold from the $15 area to the mid $80s in an amazing near-vertical channel. That channel broke to the downside in late November and then really got moving to the downside in early December. Let's look at some background -- SNDK is in a firm leadership role in the rapidly growing flash memory market and with the rapid adoption of all kinds of consumer electronics devices (PDAs, digital cameras, MP3 players, etc.) that require flash memory cards, SNDK rode that wave higher throughout the year. It appears that much of the catalyst for the severe profit taking was due to some negative comments from INTC on their flash memory business (which I consider to be irrelevant) and talk of slowing demand and increased price competition in this arena. That sent the stock tumbling on huge volume down to the $53 area. Call me crazy, but I still think we are in the early stages of the adoption of digital devices that will require the flash memory SNDK provides. With revenue growth running at close to 100% year-over-year, SNDK appears to have lots of upside potential and I think we'll easily see $100/share in 2004 and once that century mark is reached, I think we can look for a split announcement. In strong growth stocks like SNDK, we hope and pray for major downside corrections like we've seen in the past month, as they give us entry points with manageable risk. Believe it or not, I don't think the downside has completely run its course, but we're close. Looking at the daily chart, we can see that the 200-dma is looming just below $50, and the 50% retracement of the April-November rally is at $51.84. The stock staged an impressive rebound last week, but clearly the trend is still down. Note that the weekly Stochastics are still headed straight down and there ought to be at least one more leg to the decline before the stock manages to put in a bottom for the next upward leg. I'm looking for an entry off of a bounce in the $50-51 area, but only after the weekly Stochastics (10,5,3) enter oversold territory and at least begin to slow their descent. If price falls through our target before the Stochastics bottom, then we'll simply look for a lower entry point. We're playing for a major gain next year, so we're going to start out with a wide stop at $43.50, just under the 62% retracement of this year's rally. That's a much wider stop than I normally advocate, but given the potential for a home run, I think the risk is warranted. I told you it was going to be an aggressive play! BUY LEAP JAN-2005 $55 XWS-AK BUY LEAP JAN-2005 $50 XWS-AJ **Covered Call** BUY LEAP JAN-2006 $55 YSD-AK BUY LEAP JAN-2006 $50 YSD-AJ **Covered Call** Drops AIG - $64.57 That was quick! It was only a couple short weeks ago that I rotated AIG onto the Watch List for a bearish play. Fortunately, we never got the entry signal I was looking for because the stock blasted higher just over a week ago, moving through its long-term descending trendline. I didn't drop the play last week on the thought that perhaps this would be a bull- trap move, ending with a quick reversal back under the trendline. Clearly that didn't happen, as the bulls propelled the entire market higher and AIG is now right on the verge of taking out another important resistance level at $65. With weekly Stochastics now launching higher due to the strong price rise of the past couple weeks, bearish positions at this point would clearly be fool-hardy. We'll drop the play this weekend and keep our eye out for a more favorable spot to play next year. ************************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 ************** Ho-Ho-Ho! More Money For Our Christmas Stocking By Mike Parnos, Investing With Attitude They say money can't buy love, but it comes in a close second. So, until Halle Berry shows up on my doorstep wearing only a smile, I'm very happy with another month of CPTI profits. Besides, unless Cupid plans to fling arrows in my direction, the only reason to have a relationship is to be able to drive in the carpool lane. Countin' The Cash The December option cycle was the second cycle in the second year of tracking our Couch Potato Trading Institute portfolio. This month we get to add $1,740 to last month's $4,690 for a two month total of $6,430. Not bad considering we've been fighting a trending market with neutral positions. We took a few losses this month (QQQ & BBH), but we exercised some patience and discipline and kept the losses small. It's not easy to wait for your profits. Plus, it's even tougher to pull the trigger and take the losses. Good money management skills go a long way to becoming a successful well-rounded trader. Keep in mind that delayed gratification is the definition of maturity. Was I kidding about Halle Berry? Not in the least, but I like to keep an open mind. Julie Bowen or Kelly Ripa would also make my heart (among other things) go pitty-pat. There's plenty of room on my couch for two (or three if Cupid feels generous). Ho-Ho-Ho! _________________________________________________________________ The Index of Indexes Since our CPTI trades focus largely on indexes, I've put together a list of Indexes, their symbols, their settlement style and dates, etc. These are the indexes that we trade most often and would be a good reference sheet for CPTI students to keep handy. It's in the form of a MS Word file and will answer a lot of questions. If you'd like one, send me a note at mparnos@OptionInvestor.com. ______________________________________________________________ Closed December Position Summary: NDX Iron Condor -- $1,620 Profit BBH Baby Condor -- $200 Loss SPX Iron Condor -- $420 Profit QQQ Put Calendar Spread - $100 Loss Total Profit: $1,740 ______________________________________________________________ DECEMBER CPTI PORTFOLIO POSITION SUMMARY SPX Iron Condor – 1088.66 We sold 7 contracts of December 1085 SPX calls and bought 7 contracts of December 1100. Then, we sold 7 contracts of December 1005 SPX puts and bought 7 contracts of December 990 puts. Total credit $2,205. Maximum Max profit potential of $2,205. Position was closed on Thursday when 1085 was violated. Profit: $420. BBH -- Baby Iron Condor - $134.36 We sold 10 contracts of the Dec. BBH $130 calls and bought 10 of the Dec. $140 calls for a credit of about $2.00. Then, we sold 10 contracts of the Dec. BBH $125 puts and bought the $115 puts for a credit of about $1.85. Total credit of $3.85. Closed Thursday for $200 loss. NDX Iron Condor – 1426.17 We sold six December NDX 1325 puts and buy the December NDX 1300 puts, taking in about $1.70. Then, we sold six December NDX 1525 calls and buy the December 1550 calls for a credit of about $1.00. Total credit: $2.70. Closed within range for a profit of $1,620. _____________________________________________________________ ONGOING POSITION QQQ ITM Strangle – Ongoing Long Term -- $35.42 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: October: Oct. $33 puts and Oct. $34 calls – credit of $1,900. November: Nov. $34 puts and calls – credit of $1,150. December: Dec. $34 puts and calls – credit of $1,500. January: Jan. $34 puts and calls – credit of $850. Note: We haven't included any of the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! And it's a great cash flow generating strategy. OEX Credit Spread Boogie – 540.26 We sold 2 December OEX 520 calls @ $9.00 and bought 2 December OEX 545 calls @ $1.55. Total credit of $7.45 ($1,490). Exposure $17.55 ($3,510). Rolled out to five contracts of the January 535/505 bull put spread. In the process we took in an additional $280. __________________________________________________________ JANUARY CPTI POSITIONS Position #1 - NDX – (NASDAQ 100 Index) – Iron Condor – 1426.17 Sell 5 NDX January 1500 calls Buy 5 NDX January 1525 calls Credit: $3.70 (x 5 = $1,850) Sell 5 NDX January 1325 puts Buy 5 NDX January 1300 puts Credit: $2.40 (x 5 = $1,200) Total credit of about: $6.10. Maximum profit range: 1325 – 1500. Potential profit: $3,050. Position #2 – SOX (Semiconductor Index) – Iron Condor – 489.84 Sell 10 SOX January 530 calls Buy 10 SOX January 540 calls Credit: $1.40 (x 10 = $1,400) Sell 7 SOX January 440 puts Buy 7 SOX January 425 puts Credit: $1.35 (x 7 = $945) Total credit of about: $2,345. Maximum profit range: 440 – 530. Potential profit: $2,345. Position #3 – XAU (Gold/Silver Index) – Iron Condor – $102.49 According to the chart, gold seems to be taking a breather in its bull run. Our exposure Sell 10 XAU January $95 puts Buy 10 XAU January $90 puts Credit: $.60 ($600) Sell 10 XAU January $110 calls Buy 10 XAU January $115 calls Credit: $.60 (600) Total credit: $1.20 ($1,200). Maximum profit range: $95 – 110. Potential profit: $1,200. Position #4 -- QQQ Diagonal Calendar Spread -- $35.42 I'm a glutton for punishment, but there's a little voice telling me that we should be positioned to take advantage of a pullback in the market. We tried this in November – January and we ended up losing a dime. Sooner or later we're going to be right. So, let's give it another try. We're going to start out risking a buck and we have two additional months to sell against the March long puts to reduce our cost basis while we wait. It's a cheap speculation. We'll consider this an ongoing position. Buy 10 QQQ March $34 puts for $1.20 Sell 10 QQQ January $33 puts for $.20 Total debit: $1.00 ($1,000) Position $5 – Stay Tuned When the SPX opens some more strike prices in the 1100s, we may venture in with another Iron Condor. _________________________________________________________________ Viagra For Mr. Softee CPTI students who like our QQQ in-the-money strangle cash flow strategy should take a look at the Microsoft chart. For whatever reasons, it's been trading between $22 and $32 since March 2002. Currently MSFT is at $27.36 – a perfect spot for an ITM Strangle. If you were to buy the MSFT 2005 $32.50 puts and the MSFT 2005 $22.50 calls, it would cost about $12.10. You could then sell the January $27.50 puts and calls and take in about $1.25. If MSFT continues to languish in that range, you can continue to sell against the long 2005 puts and calls and generate a nice monthly cash flow. How does this compare to our QQQ ITM Strangle? The positive is that MSFT seems destined to stay in the trading range indefinitely. The negatives are that MSFT offers strike prices in $2.50 increments and is a single stock. The QQQ $1 strike price increments offer a little more flexibility when it's time for the monthly rollout. Also, the QQQs provide the diversity of 100 stocks – which supposedly reduces volatility. This isn't an official CPTI portfolio position – just food for thought. Perhaps a little infusion of Viagra for Mr. Softee might solidify its performance for you. _________________________________________________________________ Those Friendly Reminders December 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 on Monday, 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. Plus, make sure you know the intricacies of any strategy before you trade. ______________________________________________________________ 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. ____________________________________________________________ Get Yours Today! For those investors who prefer longer-term strategies, many OI writers have put together a comprehensive list of 50 stocks they believe will outperform in 2004. All this wisdom has been squeezed onto a single CD. It's a plethora of valuable information. New subscribers and renewal subscriptions will get one – so don't hesitate, take advantage of OI's renewal offer and get yours. It's a bargain! ______________________________________________________________ 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. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://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 12-21-2003 Sunday 5 of 5 In Section Five: Covered Calls: Achieving Success With The OIN's Covered-Calls Naked Puts: Trading The Plan For Profits Spreads/Straddles/Combos: Christmas Arrives Early For "Blue-Chip" Investors Market Posture: Holiday Traveling Underway ************************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: Achieving Success With The OIN's Covered-Calls By Mark Wnetrzak One of the most common concerns among new readers is the lack of specific trading recommendations for positions in this section. The recent rally in equities has brought a number of new readers to the newsletter and because of its familiarity and conservative outlook, many of them focus initially on the strategy of writing covered calls. The type of trading one pursues in the market is a matter of personal philosophy, but our "in-the-money" approach seems to appeal to those investors looking to earn a relatively consistent (moderate) return on investment while maintaining an acceptable margin with regard to preservation of capital. That, in a nutshell, is the goal of this section and we try to fulfill that objective by providing a list of favorable candidates to supplement each reader's search for potential covered-call plays. However, as an information service, the newsletter staff can NOT provide specific instructions or trading advice and I can't make "buy" or "sell" recommendations as I am not a registered broker or certified financial advisor. In the weekly summary narrative, my (often much-delayed) comments are simply a service to help new traders understand when positions might be opened and closed, due to changes in technical character. In most cases, actions taken based on my commentary would be far too late to be effective, thus it is in no way intended to be a substitute for personal portfolio management. In addition, the weekly summary is really nothing more than a static representation of the plays previously offered in the section, thus the primary technique we use when closing a play is to simply buy back the call and sell the stock. This is important because new trader's often assume there is no other (better) way to deal with a declining stock in a covered call position. Of course, that is not the case. If an investor is defensive and desires to lower the cost basis in their covered-call position, they can roll down to a lower strike and/or move forward in time with the sold options. If this is done before expiration, the investor will need to buy back the 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 price to recover. An investor who rolls forward, selling longer-term calls as an adjustment technique, will usually have to move several months into the future (or use LEAPs) in order to obtain a credit in the new position. Occasionally, even the best adjustment will only "lock-in" a loss (until expiration), but that outcome should still be less damaging than the current loss -- if the stock price doesn't drop further. As for timing an exit or adjustment, many professionals will use a strict percentage of one’s overall portfolio value, or a fixed dollar amount, or a technical violation of a key support area (moving average or trend-line), etc. Many stocks will climb too fast and then falter, however their primary technical trend will remain bullish. The questions you should ask are:  Is the stock still above its 30-, 50-, or 150-day MA?  Is the stock simply testing support or has the support area failed and the stock is now in a free fall?  Did negative news or events impact the company's future earnings outlook or significantly change its fundamentals?  What is the overall trend of the underlying sector/industry group and the major equity averages? How will this trend impact your stock in the near-term? And the long-term? These are the types of questions an investor must answer before making an exit or adjustment trade with a covered-call position. Each individual trader must evaluate the risk-reward scenarios for a specific situation and make a decision that is consistent with their trading plan and fits their personal outlook for the underlying equity and stock market. At times, it can be a very difficult process but Larry McMillan's book, "Options: As A Strategic Investment," is an excellent resource for new traders and in Chapter 2, he explains the many strategies and possible adjustments involved in writing covered-calls. In addition, Stan Weinstein's book, "Secrets for Profiting in Bull and Bear Markets," provides a simple, easy-to-use (layman's) approach to technical analysis. Trade Wisely! 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 ARIA 7.70 7.50 DEC 7.50 0.80 0.60 7.6% GSS 5.90 6.50 DEC 5.00 1.25 0.35* 6.5% PAAS 12.57 12.51 DEC 12.50 0.70 0.63* 5.8% ISSI 16.33 15.41 DEC 15.00 1.90 0.57* 4.3% MMR 16.30 19.00 DEC 15.00 2.00 0.70* 4.3% CLHB 6.12 8.00 DEC 5.00 1.35 0.23* 4.2% INSP 24.39 23.69 DEC 22.50 2.70 0.81* 4.1% ESPR 22.21 22.70 DEC 20.00 2.90 0.69* 3.9% CANI 14.05 13.77 DEC 12.50 1.95 0.40* 3.6% IM 15.06 16.00 DEC 15.00 0.30 0.24* 3.5% TLAB 8.08 7.81 DEC 7.50 0.80 0.22* 3.3% NTPA 15.30 14.28 DEC 15.00 1.30 0.28 2.9% NEOL 18.32 16.61 DEC 17.50 1.40 -0.31 0.0% IMMU 5.35 4.25 DEC 5.00 0.60 -0.50 0.0% SLNK 20.61 18.14 DEC 20.00 1.25 -1.22 0.0% IBIS 16.12 10.88 DEC 15.00 1.45 -3.79 0.0% WIND 7.48 8.04 JAN 7.50 0.50 0.52* 6.5% CE 13.50 13.97 JAN 12.50 1.80 0.80* 5.9% TKTX 15.35 15.05 JAN 15.00 1.25 0.90* 5.5% NTIQ 12.53 12.87 JAN 12.50 0.85 0.82* 5.1% VTS 10.05 10.71 JAN 10.00 0.55 0.50* 4.6% CNH 15.27 17.02 JAN 15.00 0.95 0.68* 4.1% EMBT 15.98 15.64 JAN 15.00 1.65 0.67* 4.1% MYGN 12.76 12.31 JAN 12.50 0.95 0.50 3.1% MYGN 12.75 12.31 JAN 12.50 0.85 0.41 3.0% XING 10.66 8.94 JAN 10.00 1.35 -0.37 0.0% * Stock price is above the sold striking price. Comments: The reversal in the NASDAQ on Monday after Saddam's capture was a bit worrisome though the DJ-30 and SP-500 managed to lead the market higher as the week wore on. Did Santa come early this year? Only time will tell. As for the covered call portfolio, Ibis Technology (NASDAQ:IBIS) was this month's party-pooper as the stock dropped sharply Monday on concerns that ongoing patent negotiations with International Business Machines (NYSE:IBM) will hurt its year-end sales projections. The stock acted horridly before it was halted shortly before Monday's close, and anyone using a violation of the 30- or 50-day MA would have avoided the loss listed in the summary. Spectralink (NASDAQ:SLNK) is another stock that suffered from Monday's worrisome reversal, though it has remained above its 150-DMA. Definitely time to re-evaluate any positions you may own as well as the market in general, and act accordingly. As for January, hopefully the Ibis warning isn't an omen of the future. Positions Previously Closed: Brocade (NASDAQ:BRCD), Kmart (NASDAQ:KMRT), Ixia (NASDAQ:XXIA), Avi Biopharma (NASDAQ:AVII), Mobility Electronics (NASDAQ:MOBE) and TiVo (NASDAQ:TIVO). 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 SANM 12.56 JAN 12.50 SQN AT 0.70 8558 11.86 28 5.9% PCS 5.06 JAN 5.00 PCS AA 0.30 39386 4.76 28 5.5% SKX 7.54 JAN 7.50 SKX AU 0.40 359 7.14 28 5.5% UTHR 23.20 JAN 22.50 FUH AX 1.75 50 21.45 28 5.3% UAIR 6.20 JAN 5.00 UWS AA 1.40 165 4.80 28 4.5% CHTT 18.06 JAN 17.50 HQT AW 1.20 19 16.86 28 4.1% RHAT 17.49 JAN 15.00 RCV AC 3.00 1273 14.49 28 3.8% 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). ***** SANM - Sanmina-SCI $12.56 *** 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. Raymond James upgraded SANM this week and the stock price reacted by hitting a new 2003 high. Investors who like the outlook for the company can establish a conservative cost basis in the issue with this position. JAN-12.50 SQN AT LB=0.70 OI=8558 CB=11.86 DE=28 TY=5.9% ***** PCS - Sprint PCS Group $5.06 *** Technical Break-Out! *** Sprint PCS Group (NYSE:PCS) includes Sprint's wireless operations. As of December 31, 2002, the PCS Group, together with third-party affiliates, operated PCS systems in over 300 metropolitan markets. The PCS Group has licenses to serve the entire U.S. population, including Puerto Rico and the U.S. Virgin Islands. The PCS Group supplements its own network through affiliation arrangements with other companies that use CDMA. The PCS Group also provides PCS services to companies that resell PCS services to their customers on a retail basis under their own brand. Shares of PCS broke out of a recent slump Friday after the company announced expanded its relationship with the Blue Cross and Blue Shield through a new, multi-million dollar agreement for Cisco Systems customer premise equipment and maintenance. The agreement basically allows Sprint to provide "one-stop" shopping for equipment as well as voice and data solutions to the BCBSA group and investors appear happy with the news. Reader who agree with a positive outlook for PCS can establish a low-risk cost basis in the issue with this position. JAN-5.00 PCS AA LB=0.30 OI=39386 CB=4.76 DE=28 TY=5.5% ***** SKX - Skechers $7.54 *** Bottom-Fishing! *** Skechers U.S.A. (NYSE:SKX) designs and markets a collection of branded contemporary footwear for men, women and children, as well as a designer line for women branded separately. Their product line consists of over 1,500 styles that are organized in 11 distinct collections. Skechers pursues its retail store strategy through 3 integrated retail formats, the concept store, the factory outlet store and the warehouse outlet store. The Warehouse Outlet Stores enable the company to liquidate excess merchandise, discontinued lines and odd-size inventory. As of December 31, 2002, Skechers operated 34 concept stores, 34 factory outlet stores and 23 warehouse outlet stores in the United States. Shares of SKX closed at a near-term high Friday and the heavy-volume buying pressure suggests a possible change in (technical) character for the range-bound issue. Traders can speculate conservatively on continued upside activity with this position. JAN-7.50 SKX AU LB=0.40 OI=359 CB=7.14 DE=28 TY=5.5% ***** UTHR - United Therapeutics $23.20 *** Rally Mode! *** United Therapeutics (NASDAQ:UTHR) is a biotechnology company focused on the development and commercialization of therapeutics to treat chronic and life-threatening diseases in 3 therapeutic areas: cardiovascular medicine, infectious disease and oncology. It has 5 therapeutic platforms: Prostacyclin analogs are stable synthetic forms of a molecule that has effects on blood-vessel health and function; Remodulin has been approved in the United States for the treatment of pulmonary arterial hypertension in patients with New York Heart Association Class II-IV symptoms; Immunotherapeutic monoclonal antibodies are antibodies that activate patients' immune systems to treat cancer; Glycobiology anti-viral agents are a class of small molecules that may be effective as an oral therapy for hepatitis C and other infections, and Telemedicine involves portable digital devices that enable physicians to remotely monitor patients' bodily measurements. UTHR rallied on Wednesday after some positive news from both Switzerland's drug regulatory agency and Australia's Drug Evaluation Committee. The volume-supported move is bullish and investors with an optimistic outlook for UTHR can "target-shoot" an entry point in the issue with this position. JAN-22.50 FUH AX LB=1.75 OI=50 CB=21.45 DE=28 TY=5.3% ***** UAIR - US Airways $6.20 *** Pure Speculation! *** US Airways Group (NASDAQ:UAIR) owns a group of air carrier and airline service subsidiaries. The company owns US Airways, Allegheny Airlines, Piedmont Airlines, PSA Airlines, MidAtlantic Airways, US Airways Leasing and Sales, Material Services Company, and Airways Assurance Limited. In connection with the agreement between US Airways and its pilots, UAIR expects to structure MidAtlantic as a division of US Airways rather than as a separate subsidiary. In August 2002, the company filed a petition for protection under Chapter 11 of the United States Bankruptcy Code. In March 2003, the company emerged from Chapter 11 protection. US Airways has been forging a Stage I base and speculators who want to "bottom-fish" in the airline sector should consider this position. JAN-5.00 UWS AA LB=1.40 OI=165 CB=4.80 DE=28 TY=4.5% ***** CHTT - Chattem $18.06 *** Lawsuit Settlement *** Chattem (NASDAQ:CHTT) is a marketer and manufacturer of a broad portfolio of branded OTC healthcare products, toiletries and dietary supplements in such categories as topical analgesics, skin care products, appetite suppressants, medicated dandruff shampoos, dietary supplements, internal analgesics and seasonal and other products. The company's product portfolio includes brands such as Icy Hot, Aspercreme and Flexall topical analgesics; Gold Bond medicated skin care powder, cream, lotion and spray products; Phisoderm medicated acne treatment products and skin cleansers; Dexatrim appetite suppressants, and Selsun Blue medicated dandruff shampoos. The company's customers consist of mass merchandisers, drug and food retailers in the United States, including Wal-Mart Stores, Walgreen Co. and Kroger. Chattem announced this week that the company agreed to settle lawsuits over its Dexatrim diet drug and sees related charges of $12.8 million to $16.5 million in fiscal 2004. The stock soared on the announcement and now appears to be completing a year-long consolidation. This position offers reasonable speculation at the "risk" of owning CHTT near technical support. JAN-17.50 HQT AW LB=1.20 OI=19 CB=16.86 DE=28 TY=4.1% ***** RHAT - Red Hat $17.49 *** Earnings Rally! *** Red Hat (NASDAQ:RHAT) provides an enterprise-operating platform based on open source technology for the IT infrastructure of the Global 2000. The company applies its technology to create its enterprise operating platform, Red Hat Enterprise Linux, and related layered infrastructure technology solutions, based on open source technology. Red Hat's enterprise solutions meet the functionality requirements and performance demands of the large enterprise and the third-party computer hardware and software applications that are critical to enterprises. The company also creates additional products, including Red Hat Linux and related tools, and open source software applications. Red Hat's professional services offerings, principally directed toward its large enterprise customers and strategic partners, include technical support and maintenance, custom development, consulting, training and education and hardware certification. Investors were obviously pleased with Red Hat's earnings as the stock rallied on heavy volume to a 52-week high. This position offers a reasonable entry point for investors who agree with a bullish outlook for RHAT. JAN-15.00 RCV AC LB=3.00 OI=1273 CB=14.49 DE=28 TY=3.8% ***** ***************** 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 LTXX 15.13 JAN 15.00 UXT AC 1.05 61 14.08 28 7.1% TKTX 15.05 JAN 15.00 UFT AC 0.95 392 14.10 28 6.9% PAAS 12.51 JAN 12.50 USP AV 0.75 2675 11.76 28 6.8% ELNK 10.08 JAN 10.00 MQD AB 0.65 6453 9.43 28 6.6% STEL 10.32 JAN 10.00 URU AB 0.80 30 9.52 28 5.5% DNDN 8.00 JAN 7.50 UKO AU 0.85 730 7.15 28 5.3% SGMO 5.09 JAN 5.00 USJ AA 0.30 20 4.79 28 4.8% ASPT 15.70 JAN 15.00 SQR AC 1.30 127 14.40 28 4.5% MMR 19.00 JAN 17.50 MMR AW 2.20 111 16.80 28 4.5% MESA 12.90 JAN 12.50 EAQ AV 0.90 40 12.00 28 4.5% SOV 23.59 JAN 22.50 SOV AX 1.95 9030 21.64 28 4.3% ADCT 2.71 JAN 2.50 TLQ AZ 0.30 36405 2.41 28 4.1% GNSS 16.59 JAN 15.00 QFE AC 2.10 97 14.49 28 3.8% IPXL 13.93 JAN 12.50 UPR AV 1.85 8 12.08 28 3.8% MERX 24.45 JAN 22.50 KXQ AX 2.70 55 21.75 28 3.7% ***************** NAKED PUT SECTION ***************** Options 101: Trading The Plan For Profits By Ray Cummins One of the most important requirements for new participants in the options market is the need to develop a trading plan. There are two main goals in a trading plan. The first objective is to outline a strategy that has profit potential in a specific situation. The second purpose is to establish a format that will help you execute the strategy correctly, and in a timely manner. A trading plan will also help you remain focused on the principal factors that affect a portfolio position and avoid a number of common pitfalls in the financial markets. If you are a beginning trader, developing a trading plan should be one of the first tasks you undertake and the following guidelines will provide a basis for this process: 1) Determine the maximum potential exposure of your portfolio. A conservative trader should risk only a small proportion of their total capital, perhaps 5%-10%, in any one position and those who participate in speculative strategies should only use money they are prepared to lose. In addition, remember that uncovered short positions require collateral or initial margin and additional funds may be required if the underlying issue moves adversely. For this reason, some experts suggest that you have a reserve capital balance of at least twice the initial margin requirement for any uncovered short position. 2) Establish a basis for trading decisions, whether fundamental or technical. Fundamental analysis is the process where one attempts to predict the future share value of a company by evaluating their future earnings, which are based on market share, product revenues, pricing structure, and operating margins, as well as various other financial components of the company's business. Technical analysis, which is the study of historical share values, directional trends and patterns in price charts, has nothing to do with the profitability of the company. Rather, it is a technique used to forecast the future direction and magnitude of a stock’s movement based on its past price activity. Although each style is often viewed as less than adequate by the opposing group, there is value in both methods and in many cases, each approach can produce favorable results. 3) Study and become completely familiar with the form of analysis you favor most, until you can consistently identify potentially profitable trading opportunities. Technical analysis is more suitable to short-term trading, since it offers a very accurate method for establishing entry and exit points. Fundamental analysis can often provide a more precise picture of the long range outlook, but it is woefully inefficient for predicting the near-term movement of stock prices. However, analyzing the value of a company can help to forecast potential profits or losses and since earnings significantly affect share values at least once every three months (quarterly reports), it is important to have complete and accurate knowledge of a company's financial condition when ever you trade its stock or options. 4) Trade with the trend or character of the market and if in doubt, stay out! If the primary market trend is poorly defined and prices are fluctuating within a small range, it is probably not a good time to initiate a directional trade. At the same time, a strongly biased market would not favor delta-neutral positions such as debit straddles or credit strangles. The simplest way to profit in the financial markets is to identify the current trend and establish positions with the appropriate (technical or fundamental) outlook, in a timely manner. If this process can't be completed successfully under the current conditions, wait until a more favorable opportunity exists before trading. 5) Identify the actions to take when a specific profit (or loss) occurs, as well as any potential adjustments that will be made to reduce losses or increase gains in a position. The options market can move very quickly and profits can be lost or large draw-downs can occur in a short period, due to the combination of option leverage and the volatility of stocks. One of the attributes of successful traders is the ability to limit losses in unsuccessful positions and this task is best accomplished through the use of trading stops. The most important objective of the stop is to preserve capital if the play goes badly and yet provide every opportunity for the position to achieve its potential. Most traders use major trend-lines, minor lows and current support/resistance areas to help identify the correct stop-order placement. Although "slippage" will occur in some transactions, the stop order will limit a position's downside in all but the most volatile (gapping) situations. 6) Above all, stick to the plan! A successful trader will be to recognize early on when they have made an incorrect forecast but the key to success is learning to close-out the position before it deteriorates further. In contrast, positions with large upside potential (speculative calls or puts) should be allowed to run their "full course" before profits are taken. Experienced traders know it is necessary to maximize gains on profitable plays to offset the losses that inevitably occur in losing positions. The biggest hurdle to overcome in trading is making emotional decisions. Greed, hope, and fear affect your thinking process and acting on these emotions reduces the probability of a profitable outcome. Remember, the enemy is not the market, it is YOU, and that one of the primary reasons why a trading plan is so essential to long-term success. A trading plan is essential for new market participants, as it can provide a system for position management that will increase profits and minimize losses. In addition, it will improve the level of discipline and curb emotional reactions during periods of volatile market activity. Regardless of the style of trading you favor, a methodical approach is highly recommended in any financial market and the best way to accomplish this task is through the use of a trading plan. 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 RMBS 29.30 26.37 DEC 25.00 0.40 0.40* 3.5% 11.1% RMBS 30.00 26.37 DEC 25.00 0.55 0.55* 3.3% 10.6% MMR 18.95 19.00 DEC 17.50 0.30 0.30* 3.8% 10.1% RDWR 26.84 27.15 DEC 25.00 0.60 0.60* 3.6% 9.2% RDWR 23.46 27.15 DEC 20.00 0.65 0.65* 2.9% 8.6% QLTI 18.86 18.59 DEC 17.50 0.25 0.25* 3.1% 8.4% USNA 34.39 31.40 DEC 30.00 0.35 0.35* 2.6% 7.8% SANM 11.11 12.56 DEC 10.00 0.25 0.25* 2.8% 7.6% APPX 32.62 33.75 DEC 25.00 0.45 0.45* 2.0% 7.0% APPX 32.29 33.75 DEC 25.00 0.55 0.55* 2.0% 6.8% AEIS 26.30 25.15 DEC 22.50 0.45 0.45* 2.2% 6.8% NTE 36.99 30.62 DEC 22.50 0.35 0.35* 2.3% 6.5% ONXX 27.63 27.66 DEC 25.00 0.25 0.25* 2.2% 6.3% DIGE 38.50 38.10 DEC 35.00 0.35 0.35* 2.2% 6.2% MEDI 27.04 25.75 DEC 25.00 0.25 0.25* 2.2% 6.0% FFIV 25.07 24.36 DEC 22.50 0.55 0.55* 2.2% 6.0% XMSR 22.10 22.80 DEC 17.50 0.25 0.25* 1.6% 5.8% APPX 36.04 33.75 DEC 30.00 0.35 0.35* 1.7% 5.8% PDII 25.97 25.61 DEC 22.50 0.45 0.45* 1.8% 5.3% ALTR 23.93 22.41 DEC 22.50 0.50 0.41 2.0% 5.2% MGAM 42.90 41.67 DEC 35.00 0.45 0.45* 1.4% 5.0% NPSP 29.26 30.32 DEC 25.00 0.35 0.35* 1.5% 4.9% SOV 23.70 23.59 JAN 22.50 0.90 0.90* 3.6% 8.5% SLXP 21.50 21.10 JAN 20.00 0.60 0.60* 2.7% 6.8% NPSP 32.64 30.32 JAN 30.00 0.80 0.80* 2.4% 6.2% BLTI 14.01 14.45 JAN 12.50 0.30 0.30* 2.1% 5.9% RMBS 30.66 26.37 JAN 20.00 0.40 0.40* 1.8% 5.3% AAII 25.01 24.53 JAN 22.50 0.45 0.45* 1.8% 4.9% EMMS 27.17 27.37 JAN 25.00 0.50 0.50* 1.8% 4.7% * Stock price is above the sold striking price. Comments: The "Santa Claus Rally" continued this week with all of the major equity averages enjoying gains. In addition, Friday ended the fourth straight "up" week for both the Dow and the S&P 500, and the second week of gains for the NASDAQ, so the holiday season has definitely been a "merry" one. The only issue on the "watch" list is NPS Pharmaceuticals (NASDAQ:NPSP), however we will also monitor Rambus (NASDAQ:RMBS) on a daily basis, in light of the recent volatile activity. Previously Closed Positions: Flextronics (NASDAQ:FLEX) and Sierra Wireless (NASDAQ:SWIR), both of which are profitable, and ADE Corp. (NASDAQ:ADEX) and eCollege.com (NASDAQ:ECLG). 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 PDLI 16.65 JAN 15.00 PQI MC 0.45 536 14.55 28 3.4% 9.0% PLMD 26.45 JAN 22.50 PM MX 0.50 565 22.00 28 2.5% 7.6% MERX 24.45 JAN 20.00 KXQ MD 0.40 110 19.60 28 2.2% 7.6% IPG 15.45 JAN 15.00 IPG MC 0.40 4380 14.60 28 3.0% 7.1% JNS 15.91 JAN 15.00 JNS MC 0.35 193 14.65 28 2.6% 6.6% WEBX 20.18 JAN 17.50 UWB MW 0.30 101 17.20 28 1.9% 5.7% PENN 25.20 JAN 22.50 UQN MX 0.35 1496 22.15 28 1.7% 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). ***** PDLI - Protein Design Labs $16.65 *** Biotech Speculation! *** Protein Design Labs (NASDAQ:PDLI) is engaged in the discovery and development of humanized monoclonal antibodies for the treatment of various diseases. The firm's areas of disease focus include oncology and inflammatory and autoimmune diseases and the company has several humanized antibodies in clinical development for inflammatory bowel disease, psoriasis and asthma. PDLI is fully integrated from research through clinical development and it conducts many activities in support of the clinical development program, including pre-clinical studies, process development and antibody manufacturing. The company also has significant research activities aimed at the discovery of new antibodies that may be useful for the treatment of certain cancers and autoimmune and inflammatory diseases. PDLI recently settled a patent dispute with Genentech (NYSE:DNA) related to a licensing master agreement signed between the two firms in 1998 and the current stock price reflects the renewed optimism among investors since that event. Traders who think the upside activity will continue for the next few weeks can profit from that outcome with this position. JAN-15.00 PQI MC LB=0.45 OI=536 CB=14.55 DE=28 TY=3.4% MY=9.0% ***** PLMD - PolyMedica $26.45 *** Medicare Optimism! *** PolyMedica (NASDAQ:PLMD) is a provider of direct-to-consumer medical products and services, conducting business through its Chronic Care, Professional Products and Consumer Healthcare segments. The firm sells diabetes supplies and products, and provides services to Medicare-eligible seniors suffering from diabetes and related chronic diseases through its Chronic Care segment. Through its Professional Products segment, it provides direct-to-consumer prescription respiratory supplies and services to Medicare-eligible seniors who are suffering from chronic obstructive pulmonary disease. It also markets, manufactures and distributes a broad line of prescription urological and suppository products. PolyMedica markets prescription oral medications not covered by Medicare to its existing customers through its Professional Products segment. PLMD shares rebounded last week amid speculation that recently enacted changes to the U.S. Medicare program could have a positive effect on its diabetes test kit business by providing reimbursement for earlier diagnosis of diabetes. PLMD is certainly volatile but this position offers a reasonable risk/reward outlook for traders who like "premium-selling" plays. JAN-22.50 PM MX LB=0.50 OI=565 CB=22.00 DE=28 TY=2.5% MY=7.6% ***** MERX - Merix $24.45 *** Multi-Year High! *** Merix Corporation (NASDAQ:MERX) is a manufacturer of electronic interconnect solutions for use in sophisticated equipment. The company's main products are complex multi-layer printed circuit boards, which are platforms used to interconnect microprocessors, integrated circuits and other components that are essential to the operation of electronic products and systems. Merix focuses on providing its solutions to manufacturers of technologically advanced electronic products within selected high-growth markets in the electronics industry, including communications, high-end computing and test and measurement. It provides its customers with an integrated interconnect manufacturing solution including quick-turn prototypes, pre-production and volume production of printed circuit boards and backplanes. The company also renders design assistance and engineering services in the early stages of product development. MERX shares soared last week after the firm posted a surprise quarterly profit, reversing a loss from the year before, on robust product demand and increasing profit margins. Investors who like the outlook for the stock should "target-shoot" a slightly higher premium in the position to improve its potential profit. JAN-20.00 KXQ MD LB=0.40 OI=110 CB=19.60 DE=28 TY=2.2% MY=7.6% ***** IPG - Interpublic Group $15.45 *** Break-Out Coming? *** Interpublic Group of Companies (NYSE:IPG) is a collection of advertising and specialized marketing and communication services companies. The company provides its clients with communications expertise in four areas: Advertising, which includes advertising and media management; Marketing Communications, which includes direct marketing and customer relationship management, public relations, sales promotion, event marketing, online marketing, corporate and brand identity and healthcare marketing; Marketing Intelligence, which includes market research, brand consultancy and database management, and Marketing Services, which includes sports and entertainment marketing, corporate meetings and events, retail marketing and other marketing and business services. This stock has been trading comfortably in a range between $13 to $15 for almost a year but the recent buying pressure suggests it may be destined for higher prices. JAN-15.00 IPG MC LB=0.40 OI=4380 CB=14.60 DE=28 TY=3.0% MY=7.1% ***** JNS - Janus Capital Group $15.91 *** Recovery Underway! *** Janus Capital Group (NYSE:JNS) sponsors, markets and provides investment advisory, distribution and administrative services, primarily to mutual funds, in both domestic and international markets. The company manages assets across multiple investment disciplines through subsidiaries and equity investees such as Janus Capital Management, Bay Isle Financial, Enhanced Investment Technologies, Berger Financial Group and DST Systems. The firm offers three distinct mutual fund families: Janus Investment Fund, Janus Adviser Series and Janus Aspen Series. Mutual funds have taken a beating in recent months but here's one that seems to be emerging from the ashes. Investors who want to speculate on the future recovery of this past industry leader should consider this position. JAN-15.00 JNS MC LB=0.35 OI=193 CB=14.65 DE=28 TY=2.6% MY=6.6% ***** WEBX - WebEx Communications $20.18 *** Bottom-Fishing Only! *** WebEx (NASDAQ:WEBX) develops and markets services that allow users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard Web browser. Integrated telephony and Web-based audio and video services are also available using telephones, computer Web-cameras and microphones. The company's activities have been focused on continuing to enhance and market its WebEx Interactive Services and its WebEx Multimedia Switching Platform, developing and deploying new services, expanding its sales and marketing organizations and deploying its global WebEx Media Tone Network. The company sells WebEx Meeting Center, WebEx Meeting Center Pro, WebEx Training Center, WebEx Support Center, WebEx OnStage and WebEx Enterprise Edition. It also provides a service called WebEx Business Exchange to existing customers. WEBX emerged from a search of "bottom-fishing" candidates and investors who believe the worst is over for this popular provider of video-meeting and web-conferencing services can speculate on that outcome with this position. JAN-17.50 UWB MW LB=0.30 OI=101 CB=17.20 DE=28 TY=1.9% MY=5.7% ***** PENN - Penn National Gaming $25.20 *** A Christmas Bonus! *** Penn National Gaming (NASDAQ:PENN) is a multi-jurisdictional owner and operator of gaming properties, as well as horse racetracks and associated off-track wagering facilities. Penn National owns or operates gaming properties located in Canada, Colorado, Louisiana, Mississippi and West Virginia that are focused primarily on serving customers within driving distance of the properties. The company also owns two racetracks and 11 OTWs in Pennsylvania, and operates a racetrack in New Jersey through a joint venture. PENN received a Christmas bonus Thursday when the company was awarded a $4 million payment to settle a business-interruption claim regarding a tornado that delayed the opening of its Hollywood Casino Shreveport in 2000. The firm's legal counsel also received $750,000 to cover litigation fees, so investors certainly had a reason to drive the share value up over 10% during the week. Traders who wouldn't mind owning the issue can establish a conservative cost basis in the stock with this position. JAN-22.50 UQN MX LB=0.35 OI=1496 CB=22.15 DE=28 TY=1.7% 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 GPRO 32.31 JAN 30.00 PSU MF 1.20 32 28.80 28 4.5% 11.0% FWHT 18.53 JAN 17.50 HFQ MW 0.70 98 16.80 28 4.5% 10.7% GTI 13.01 JAN 12.50 GTI MV 0.45 17 12.05 28 4.1% 9.5% RDWR 27.15 JAN 25.00 AUD ME 0.65 120 24.35 28 2.9% 7.5% ATVI 18.44 JAN 17.50 AQV MW 0.45 113 17.05 28 2.9% 7.1% VRTY 15.99 JAN 15.00 YQV MC 0.35 1331 14.65 28 2.6% 6.6% TEK 31.05 JAN 30.00 TEK MF 0.70 0 29.30 28 2.6% 6.3% STAR 22.54 JAN 22.50 OUE MX 0.55 45 21.95 28 2.7% 6.3% JOYG 25.76 JAN 25.00 JQY ME 0.55 0 24.45 28 2.4% 5.9% UTHR 23.20 JAN 20.00 FUH MD 0.30 78 19.70 28 1.7% 5.1% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Christmas Arrives Early For "Blue-Chip" Investors By Ray Cummins The Dow Jones Industrial Average finished Friday's session up 30 points at 10,278, its highest level in almost 2 years, on strength in "old-economy" issues. The best performing Dow components were Eastman Kodak (NYSE:EK) and Alcoa (NYSE:AA). In the technology segment, the NASDAQ Composite Index slumped 5 points to 1,951, despite strength in Internet-related shares. The S&P 500 Index closed relatively unchanged as gains in aluminum, lodging, steel, and consumer finance stocks offset losses in airline, restaurant, and gold issues. Losing stocks outpaced winning stocks by a small margin on both the Big Board and the technology exchange. Volume was 1.6 billion on the NYSE and 1.9 billion on the NASDAQ. In the U.S. bond market, the yield on the 10-year note closed at 4.13%. Happy Holidays! ***************** 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 MGAM 41.45 41.67 DEC 30 35 0.45 34.55 0.45 Closed ANPI 48.77 45.35 DEC 35 40 0.45 39.55 0.45 Closed PFE 34.08 34.27 DEC 30 32 0.25 32.25 0.25 Closed PHS 58.10 66.67 DEC 47 50 0.30 49.70 0.30 Closed SII 39.07 41.40 DEC 35 37 0.45 37.05 0.45 Closed IVGN 64.85 64.39 DEC 55 60 0.50 59.50 0.50 Closed NTLI 58.96 67.01 DEC 45 50 0.45 49.55 0.45 Closed NVLS 42.54 40.32 DEC 35 37 0.25 37.25 0.25 Closed HOV 92.25 88.25 DEC 80 85 0.55 84.45 0.55 Closed IMCL 39.29 40.76 DEC 30 35 0.55 34.45 0.55 Closed MATK 60.74 62.25 DEC 50 55 0.45 54.55 0.45 Closed CME 70.63 71.97 JAN 60 65 0.50 64.50 0.50 Open NCEN 39.62 38.45 JAN 30 32 0.45 32.93 0.45 Open SII 40.22 41.40 JAN 35 37 0.25 37.25 0.25 Open CYBX 32.70 31.78 JAN 25 30 0.50 29.50 0.50 Open INTU 52.16 51.27 JAN 45 47 0.25 47.25 0.25 Open TRN 31.36 31.75 JAN 25 30 0.75 29.25 0.75 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss Microstrategy (NASDAQ:MSTR), although profitable at expiration, was previously closed to preserve capital. CALL CREDIT SPREADS ******************* Symbol Pick Last Month LC SC Credit CB G/L Status CCMP 54.16 48.98 DEC 65 60 0.50 60.50 0.50 Closed KKD 41.85 37.50 DEC 50 45 0.60 45.60 0.60 Closed MRVL 38.90 36.75 DEC 45 43 0.30 42.80 0.30 Closed MHK 72.08 70.15 DEC 80 75 0.45 75.45 0.45 Closed TTWO 33.10 28.31 DEC 37 35 0.25 35.25 0.25 Closed CECO 38.45 36.78 DEC 50 45 0.40 45.40 0.40 Closed S 48.96 44.84 DEC 55 50 0.50 50.50 0.50 Closed SNDK 64.35 60.99 DEC 75 70 0.60 70.60 0.60 Closed CERN 39.22 40.39 JAN 50 45 0.55 45.55 0.55 Open MDC 64.06 65.10 JAN 70 65 0.60 65.60 0.50 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Both spreads in Synopsis (NASDAQ:SNPS) ended the December period profitable, however that was not the case with previously closed positions in AIG Int'l Group (NYSE:AIG), Qualcomm (NASDAQ:QCOM), BJ Services (NYSE:BJS) and Intermune (NASDAQ:ITMN). CALL DEBIT SPREADS ****************** Symbol Pick Last Month LC SC Debit B/E G/L Status VLO 44.00 46.80 DEC 37 40 2.20 39.70 0.30 Closed ADRX 21.66 23.39 DEC 17 20 2.15 19.65 0.35 Closed ELAB 48.17 54.45 DEC 40 45 4.50 44.50 0.50 Closed ANPI 49.32 45.35 DEC 40 45 4.50 44.50 0.50 Closed OSX 89.45 93.93 JAN 80 85 4.40 84.40 0.60 Open ACDO 31.77 31.16 JAN 25 30 4.40 29.40 0.60 Open DRIV 25.01 22.73 JAN 20 22 2.15 22.25 0.35 Open? LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss PUT DEBIT SPREADS ***************** Symbol Pick Last Month LP SP Debit B/E G/L Status CTMI 16.08 16,03 DEC 20 17 2.25 17.75 0.25 Closed SYMC 32.42 33.59 JAN 37 35 2.15 35.35 0.35 Open The bearish spread in Apria Healthcare (NYSE:AHG) has previously been closed for a small loss. SYNTHETIC (BULLISH) ******************* Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status IDCC 19.00 19.58 JAN 25 15 0.20 0.45 Closed ELX 29.50 25.80 APR 35 25 0.10 0.00 Closed NE 36.09 36.40 JAN 37 35 0.10 0.50 Open? PTEN 31.34 33.11 JAN 32 30 (0.10) 0.90 Open? CE 13.50 13.97 JAN 14 12 0.00 0.00 No Play SHFL 32.93 35.55 JAN 35 30 0.00 0.00 No Play A resolution concerning the merger involving Concord EFS (NYSE:CE) was announced on Monday before the opening bell, thus there was no position available in the issue. Shufflemaster (NASDAQ:SHFL) also gapped higher on Monday morning, preventing a viable entry in the bullish play. Patterson-UTI Energy (NASDAQ:PTEN) has reached the exit target and Noble (NYSE:NE) achieved a favorable "early-exit" profit in less than one week. SYNTHETIC (BEARISH) ******************* No Open Positions CALENDAR & DIAGONAL SPREADS *************************** Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status SCRI 20.52 27.05 FEB-22C DEC-25C 1.40 2.10 Closed OIH 58.73 62.05 JAN-60C DEC-60C 0.80 1.20 Closed EBAY 57.68 61.37 JAN-60C DEC-60C 1.20 1.75 Closed CEPH 46.34 46.92 FEB-50C JAN-50C 0.70 1.00 Open The bullish positions in eBay (NASDAQ:EBAY) and the Oil Service Holders (AMEX:OIH) both offered favorable short-term profits for speculative traders. Cephalon (NASDAQ:CEPH) has been "rolled" to January options in the short (JAN-$50C) portion of the spread. DEBIT STRADDLES *************** Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status FCEL 12.56 12.05 DEC 12 12 0.85 1.50 Closed MACR 20.22 18.00 DEC 20 20 2.20 3.00 Closed ATN 17.93 18.89 JAN 17 17 2.40 2.75 Open MYL 25.32 25.42 JAN 25 25 2.25 2.10 Open Fuelcell Energy (NASDAQ:FCEL) was our "big winner" this month, offering a gain of almost 100% in only three days. Macromedia (NASDAQ:MACR) achieved the initial profit target ($0.70) in two weeks. CREDIT STRANGLES **************** No Open Positions Questions & comments on spreads/combos to Contact Support ************* NEW POSITIONS ************* This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance, and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. ************** CREDIT SPREADS ************** These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its outcome. ***** AA - Alcoa $37.30 *** Leading The Blue-Chip Rally! *** Alcoa (NYSE:AA) is a producer of primary aluminum, fabricated aluminum and alumina and is also active in technology, mining, refining, smelting, fabricating and recycling. Aluminum and alumina represent approximately two-thirds of the company's revenues. Its non-aluminum products include precision castings, industrial fasteners, vinyl siding and various consumer products, foodservice and flexible packaging products, plastic closures, fiber-optic cables and electrical distribution systems for cars and trucks. North America is Alcoa's largest regional market, with 67% of its revenues. Europe is also a significant market, with 21% of its revenues. Alcoa has a variety of investments and activities in Asia and Latin America, which presents many opportunities for growth, particularly in Brazil, China and Korea. AA - Alcoa $37.30 PLAY (less conservative - bullish/credit spread): BUY PUT JAN-32.50 AA-MZ OI=2674 ASK=$0.20 SELL PUT JAN-35.00 AA-MG OI=11900 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$34.70 ***** MTH - Meritage $65.37 *** Near "All-Time" Highs! *** Meritage (NYSE:MTH) is a designer and builder of single-family homes in the Sunbelt states of Texas, Arizona, California and Nevada. The firm operates in Texas as Legacy Homes, Monterey Homes and Hammonds Homes; in Arizona as Monterey Homes, Meritage Homes and Hancock Communities; in Northern California as Meritage Homes, and in Nevada as Perma-Bilt Homes. The company is actively selling homes in over 120 communities, with base prices ranging from $92,000 to $910,000. The company is the general contractor for projects and typically hires subcontractors to complete the construction at a fixed price. The company usually enters into agreements with subcontractors and materials suppliers after receiving competitive bids on an individual basis. MTH - Meritage $65.37 PLAY (conservative - bullish/credit spread): BUY PUT JAN-55.00 MTH-MK OI=20 ASK=$0.45 SELL PUT JAN-60.00 MTH-ML OI=50 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$59.50 ***** NFLX - Netflix $51.07 *** Next Leg Up? *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website (www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to the company at their convenience using prepaid mailers. Once a title has been returned, Netflix mails the next available title in a subscriber's queue. NFLX - Netflix $51.07 PLAY (conservative - bullish/credit spread): BUY PUT JAN-40.00 QNQ-MH OI=1055 ASK=$0.45 SELL PUT JAN-42.50 QNQ-MT OI=2413 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.25-$0.35 POTENTIAL PROFIT(max)=11% B/E=$42.25 ***** SCHN - Schnitzer Steel $59.28 *** Steel Sector Leader! *** Schnitzer Steel Industries (NASDAQ:SCHN) collects, processes and recycles metals by operating a metals recycling business in the United States. The company also owns a chain of self-service auto parts stores in the United States, operating under the name of Pick-N-Pull, and is also a maker of finished steel products at its technologically advanced steel mini-mill. As a result of its vertically integrated business, Schnitzer is able to transform obsolete or wrecked auto bodies and other unprocessed metals into finished steel products. In addition, it is a partner in joint ventures that are either in the metals recycling business or are suppliers of unprocessed metals. The company owns interests in five joint ventures that are engaged in buying, processing and selling primarily ferrous metal. Another joint venture is an industrial plant demolition contractor that dismantles industrial plants, performs environmental remediation and sells recovered metals and machinery. SCHN - Schnitzer Steel $59.28 PLAY (conservative - bullish/credit spread): BUY PUT JAN-45.00 SQQ-MI OI=341 ASK=$0.45 SELL PUT JAN-50.00 SQQ-MJ OI=358 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$49.50 ***** CL - Colgate-Palmolive $49.19 *** Earnings Warning *** Colgate-Palmolive (NYSE:CL) is a consumer products firm whose products are marketed in over 200 countries and territories worldwide. The firm manufactures and markets a variety of products in the United States and worldwide in two business segments: oral, personal, household surface and fabric care and pet nutrition, which are manufactured and marketed by a subsidiary, Hill's Pet Nutrition. CL - Colgate-Palmolive $49.19 PLAY (speculative - bearish/credit spread): BUY CALL JAN-55.00 CL-AK OI=3578 ASK=$0.10 SELL CALL JAN-50.00 CL-AJ OI=2551 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$50.65 ***** KLAC - KLA Tencor $55.55 *** Revenge Play! *** KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. The company's large portfolio of products, software, analysis, services and expertise is designed to help integrated circuit manufacturers manage yield throughout the entire wafer fabrication process, from research and development to final mass production yield analysis. The company offers a broad spectrum of products and services that are used by every major semiconductor manufacturer in the world. These customers turn to the company for in-line wafer defect monitoring; reticle and photomask defect inspection; CD SEM metrology; wafer overlay; film and surface measurement; and overall yield and fab-wide data analysis. KLAC - KLA Tencor $55.55 PLAY (conservative - bearish/credit spread): BUY CALL JAN-65.00 KCQ-AM OI=2731 ASK=$0.20 SELL CALL JAN-60.00 KCQ-AL OI=12978 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$60.55 ************* RIMM - Research In Motion $44.77 *** Pure Premium-Selling! *** Research In Motion Limited (NASDAQ:RIMM) is a designer, builder, and marketer of wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, the firm provides solutions for seamless access to time-sensitive information and communications, including e-mail, telephone, messaging and Internet- and intranet-based applications. The company's technology also enables a broad array of third-party developers and manufacturers around the world to enhance their own products and services with wireless connectivity. RIM's portfolio of products includes a family of wireless handhelds, the BlackBerry wireless e-mail solution, embedded radio modems and a suite of software development tools. RIMM - Research In Motion $44.77 PLAY (less conservative - bearish/credit spread): BUY CALL JAN-55.00 RUL-AK OI=1242 ASK=$0.40 SELL CALL JAN-50.00 RUL-AJ OI=3653 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$50.60 ************* 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. ***** IMCL - ImClone $40.76 *** Consolidation Complete? *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. IMCL - ImClone $40.76 PLAY (less conservative - bullish/debit spread): BUY CALL JAN-30.00 QCI-AF OI=2452 ASK=$11.30 SELL CALL JAN-35.00 QCI-AG OI=2651 BID=$6.70 INITIAL NET-DEBIT TARGET=$4.45-$4.50 POTENTIAL PROFIT(max)=11% B/E=$34.50 ***** MCHP - Microchip Technology $32.90 *** Uptrend Intact! *** Microchip Technology (NASDAQ:MCHP) develops and manufactures specialized semiconductor products used by its customers for a wide variety of embedded control applications. The company's product portfolio comprises field-programmable RISC-based microcontrollers that serve 8- and 16-bit embedded control applications, and a broad spectrum of high-performance linear and mixed-signal, power and thermal management devices. The company also offers complementary microperipheral products, including interface devices, serial EEPROMS, and its patented KEELOQ security devices. The firm markets its products to the automotive, communications, computing, consumer and industrial control markets. MCHP - Microchip Technology $32.90 BUY CALL JAN-25.00 QMT-AE OI=1652 ASK=$7.80 SELL CALL JAN-30.00 QMT-AF OI=10386 BID=$3.40 INITIAL NET-DEBIT TARGET=$4.30-$4.40 POTENTIAL PROFIT(max)=14% B/E=$29.40 ******************* SYNTHETIC POSITIONS ******************* These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. ***** UTHR - United Therapeutics $23.20 *** Drug Speculation! *** United Therapeutics (NASDAQ:UTHR) is a biotechnology company focused on the development and commercialization of therapeutics to treat chronic and life-threatening diseases in 3 therapeutic areas: cardiovascular medicine, infectious disease and oncology. It has 5 therapeutic platforms: Prostacyclin analogs are stable synthetic forms of a molecule that has effects on blood-vessel health and function; Remodulin has been approved in the United States for the treatment of pulmonary arterial hypertension in patients with New York Heart Association Class II-IV symptoms; Immunotherapeutic monoclonal antibodies are antibodies that activate patients' immune systems to treat cancer; Glycobiology anti-viral agents are a class of small molecules that may be effective as an oral therapy for hepatitis C and other infections, and Telemedicine involves portable digital devices that enable physicians to remotely monitor patients' bodily measurements. UTHR - United Therapeutics $23.20 PLAY (less conservative - bullish/synthetic position): BUY CALL MAY-30.00 FUH-EF OI=10 ASK=$0.95 SELL PUT MAY-17.50 FUH-QW OI=250 BID=$0.70 INITIAL NET-DEBIT TARGET=$0.10-$0.15 INITIAL TARGET PROFIT=$0.90-$1.30 Note: Using options, this position is similar to being long the stock. The minimum initial margin/collateral requirement for the sold option is approximately $550 per contract. However, do not open this position if you can not afford to purchase the stock at the sold put strike price ($17.50). **************** 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. ***** FISV - Fiserv $38.28 *** Cheap Speculation! *** Fiserv (NASDAQ:FISV) is a provider of integrated data processing and information management systems to the financial industry. The company's operations have been classified into two business segments. The financial institution outsourcing, systems and services business segment provides a wide variety of account and transaction processing solutions and services to institutions and other financial intermediaries. The securities processing and trust services business segment provides securities processing solutions and retirement plan administration for brokerage firms, investment advisers and financial institutions. The company also provides plastic card issuance, design, personalization and other services such as mailing and document solutions. FISV - Fiserv $38.28 PLAY (very speculative - bearish/calendar spread): BUY PUT MAR-35.00 FQV-OG OI=489 ASK=$1.00 SELL PUT JAN-35.00 FQV-MG OI=75 BID=$0.25 INITIAL NET DEBIT TARGET=$0.65-$0.70 INITIAL TARGET PROFIT=$0.35-$0.70 *********************** 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. ***** ACL - Alcon $59.19 *** Probability Play! *** Alcon (NYSE:ACL) is a research and development-driven, global medical specialty company focused on eye care. The company conducts its global business through two business segments: Alcon United States and Alcon International and each business segment markets and sells products principally in three major product categories of the ophthalmic market: pharmaceutical (prescription ophthalmic drugs), surgical equipment and devices (cataract, vitreoretinal and refractive) and contact lens care (disinfecting and cleaning solutions), and other vision care products (artificial tears). Alcon markets its products to eye care professionals, as well as to the direct purchasers of its products, such as hospitals, managed care organizations, and government agencies/entities. ACL - Alcon $59.19 PLAY (very speculative - neutral/debit straddle): BUY CALL JAN-60.00 ACL-AL OI=110 ASK=$1.20 BUY PUT JAN-60.00 ACL-ML OI=40 ASK=$2.00 INITIAL NET-DEBIT TARGET=$2.90-$3.00 INITIAL TARGET PROFIT=$0.85-$1.40 ***** ************************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 *************************************************************** ************** MARKET POSTURE ************** Holiday Traveling Underway by - Nich Sheldon While the INDU was able to tack on 30 points and closed at a new 52-week high, only a handful of indices were able to move more than a half a percentage point, in either direction. In fact today's quadruple-witching expiration (stock options, index options, futures, and index futures) made it extremely difficult for the indexes to get moving. We suspect that today's volume, or lack thereof, was mostly due to traders preparing for their holiday traveling. The biggest loss, and the only index to move more than one percent on Friday was seen in the XAU Gold and Silver Index, which dropped -2.67 percent. The index has been in a tight descending regression channel since the beginning of December, and has produced lower lows and lower highs consistently for the past five trading sessions. Fortunately, for gold bugs this looks more like short-term profit taking. The longer-term bullish trend is still very much intact. Optimistic metal investors might expect a bounce from the 50-dma near the 100 level. The biggest gainer on the day (if you could call a gain of +0.89 percent a big gain!) was seen in the DDX Disk Drive Index. Today marked the third consecutive day of gains for the index and a crossover into bullish territory has begun to formulate on the MACD indicator. There were 17 indexes in the red today, and only ten in the green. ********** 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
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "email@example.com"
Option Investor Inc