The Option Investor Newsletter Sunday 01-18-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: One Down, Two To Go Futures Market: Summit Trade Index Trader Wrap: Higher Highs Editor's Plays: When All Else Fails Market Sentiment: Sentiment Rising Ask the Analyst: 5-DRT retracement technique and January's First 5 Days 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 01-16 WE 01-09 WE 01-02 WE 12-26 DOW 10600.51 +141.62 10458.9 + 49.04 10409.8 + 85.18 + 46.45 Nasdaq 2140.46 + 53.54 2086.92 + 80.24 2006.68 + 33.54 + 22.12 S&P-100 564.72 + 8.17 556.55 + 6.56 549.99 + 7.21 + 2.52 S&P-500 1139.83 + 17.97 1121.86 + 13.38 1108.48 + 12.21 + 7.61 W5000 11116.04 +187.04 10929.0 +151.14 10777.9 +115.48 + 82.96 RUT 590.41 + 15.21 575.20 + 14.35 560.85 + 5.75 + 8.22 TRAN 3036.28 + 47.34 2988.94 - 19.22 3008.16 + 8.49 + 12.24 VIX 15.00 - 1.75 16.75 - 1.47 18.22 + 0.83 + 0.97 VXO 15.27 - 0.67 15.94 - 2.00 17.94 + 1.36 + 0.53 VXN 20.24 - 2.77 23.01 - 1.50 24.51 + 0.56 - 0.94 TRIN 0.47 1.63 1.01 0.79 Put/Call 0.51 0.65 0.76 0.86 ****************************************************************** One Down, Two To Go by Jim Brown With January half over we have one significant earnings week behind us and two monster weeks ahead. The majority of 4Q earnings from U.S. companies will be released over the next two weeks. Over 800 major companies and 75% of the S&P will confess their sins, brag about their successes and try to artfully craft a bullish outlook while avoiding blatant lies. I love earnings season! Consumers cheered the coming of January it appears with the Michigan Consumer Sentiment coming in at a whopping 103.2 compared to the paltry 92.6 in December. Looks like the holiday cheer is still flowing in many areas. The expectations component rose from 89.8 to 99.5 and the present conditions component soared to 108.9 from 97. Must have been a lot of gift cards under the tree to generate that kind of euphoria. The bounce completely erases memory of the December decline and according to analysts was due to the rising stock market, availability of bargains for holiday shopping and no holiday terror event. Life is good in America. If this number continues to rise we would expect consumers to part with more money at the register and start looking at new homes again. The perception is for positive jobs market despite the lack of any proof. Business Inventories rose +0.3% in November, which was inline with consensus estimates. Because it was a November number it was considered old news. The best part of the equation was the inventory to sales ratio at 1.35 and the second month at a record low. This continues to suggest there is an inventory building period in our near future. Industrial Production rose at a much slower rate in December then expected. It rose +0.1% when consensus was for a +0.4% gain. Many of the components actually declined with only construction materials and supplies showing gains. If you remember November showed a huge spike of +1.0% in productivity and way out of context with the average gains of +0.4%. This spike has now been negated and the steady progress continues. Capacity Utilization remained low at 75.8 for the second month. This lack of utilization should continue to prevent any inflationary pressures for the near future. The picture is clear for the 2004 economy. Despite various weak components in the majority of the different economic reports the overall trend is still an improving recovery. The market continues to rise in anticipation of even stronger gains ahead and interest rates are slowly falling again. The job market is seeing very small signs of improvement but at least it is heading in the right direction. There are estimates starting to appear for a +7.0% GDP for the 4Q-2003. The initial GDP release is Jan-30th. Based on the guidance from the companies already public there is an outside chance the 1Q could be as high as +6%. This chain of successes is nearly unheard of in modern times. This suggests the economy is not only recovering but is about to explode. The stock market is reacting to this news with great enthusiasm. The outlook is not for a cooling off period as expected after the +8.2% tax rebate spike in the 3Q but for continued expansion all the way into late 2005. I personally think extending the forecast past the election is asking for trouble but I am willing to let others take the lead. The big name on the earnings front on Friday was GE which reported 45 cents per share and inline with estimates. GE can do no wrong in the eyes of investors. They failed to reach their stated goal and post double digit gains for the second consecutive year. No problem for investors for GE promised to hit that goal and do +10% in 2005. Hurray! GE rose +1.35 on the news. Actually I am poking fun at them and I do like them as a company. The reason GE was up had more to do with stemming losses in a couple of its divisions and some very positive guidance. Chairman Jeff Immelt said industrial orders were at their strongest level since 2000. This is a dramatic turnaround from somebody that did not see a recovery in progress just three months ago. That statement from Immelt is the story in a nutshell for this earnings season. Almost every major company that has reported has said they were seeing a pickup in economic activity, industrial orders and IT spending. This expectation is what investors have been buying for the last three months. The JNPR guidance upgrade Thursday night was like a chain reaction through the tech sector. Gains in chip, telecom and computer stocks pushed the Nasdaq to new 30 month highs. Investors were delirious despite CNBC running an interview with the JNPR CEO expressing negative comments. He said there was not a broad based recovery underway and the JNPR gains were company specific. He said they were at the right place at the right time with the right product mix. Nobody seemed to care. The JNPR earnings and guidance added tens of billions in market cap to Nasdaq stocks despite a definite disconnect. JNPR only had profits of $14 million for the quarter. This is not a big deal. Their closest competitor Cisco, will report earnings of more than $1 billion for the same period. CSCO has a PE of 47 on a trailing twelve month basis and JNPR has a TTM PE of 236. It drops to 115 using estimated 2005 earnings if you are into forecasting the future. Obviously the roughly +$50 billion in market cap the Nasdaq gained on Friday as a result of JNPR earnings is a complete disconnect from reality. It is a result of investors hearing what they wanted to hear to justify their bullish view. Is that wrong? If the economy is really growing as fast as the earnings guidance from everyone including JNPR has indicated then the gains are ok. My only question is what changed from the Intel, YHOO, QLGC, AAPL, SUNW earnings earlier this week? They said business was good, but not great. Guidance was positive just not overly optimistic. Those companies with the exception of QLGC are bigger than JNPR with a broader customer base. Why did their guidance not matter and Juniper's is so critical. It is simple. Investors were looking for a white knight to carry their flag forward. JNPR was the hero of the day and was rewarded with a +$7.00 jump in the stock price on volume of 76 million shares. The Nasdaq traded 2.6 billion shares with the average share gain of +0.81%. In the rest of the world WCOM announced it was cutting another -1700 jobs on top of the -22,000 they have already cut. Home Depot restated its 2003 guidance to suggest the 4Q was a drag and that same store sales would be lower than expected. They raised earnings estimates slightly based on cost cuts and technology upgrades. They warned that growth in 2004 would be slower than previously expected and HD was going to cut its pace of new store openings. Abbot Labs (NYSE:ABT) posted solid profits for the 4Q but warned that profits for 2004 would fall below estimates. JNJ dropped on Friday after several brokers issued reports predicting a dramatic drop in revenue. QCOM was downgraded by Morgan Stanley on fears the most optimistic of conditions were already priced into the stock. There were plenty of those Friday. Downgrades and warnings got very little air time with all press going to GE, we will grow in a couple years, and JNPR, no broad based recovery in sight, leading the charge upward. Cynical? No, but I find it strange how the market chooses what it wants to focus on based on the bias of the herd. That herd trampled resistance on all but the Dow. The Dow managed to close .51 over 10600 and it did it after the close as final orders were settled. The Dow has now stretched its string of winning weeks to eight and a feat not seen since the rebound out of the October dip in 2002. The S&P also stretched its string to eight weeks and a streak not seen since 1998. The Nasdaq only completed six positive weeks but set a new 30 month high. The volume was very strong across the board with up volume 4:1 over down. Over 1000 stocks set new 52-week highs. Was all this bullishness related to JNPR and GE? Not entirely. Friday was options expiration for January and much of the volume, like in December, was option related. Like I speculated on Thursday night it appeared that many option sellers who were trapped in December either rolled those positions over into January or reinstated new ones to recover December losses. The lack of the expected January dip buried those seller once again and the race was on to cover those shorts. After the initial opening dip on Friday there was a bid under the market all day and volume was very strong. Market on close orders were very large. The one thing I was watching was the lack of real movement. We watched the heavy volume flow through during the day but there was not any real price movement until after 2:PM. I have mentioned this before but it sure looked like there were a lot of sellers feeding stock to those that were short. I keep thinking we are seeing distribution on every bounce near the 10600 level. We are at a critical point in this process. The Nasdaq has blown through the roof and is dragging the Wilshire with it. Both are over all critical resistance with plenty of room to run. The Russell is rocking and at 590 is only 24 points away from its all time high at 614. The retail investor is alive and well and they are buying small caps and techs like there is no tomorrow. Nasdaq Chart- Daily Russell 2000 Daily Wilshire 5000 Weekly That was the good news. The bad news comes from the Dow, S&P and SOX. Just like the little train that thought it could the Dow inched up to close .51 over 10600 after struggling since Jan-8th to move over 10590. By settling over 10600 after the close the Dow managed to avoid any sell programs trigging on that level and set up a potential gap open on Tuesday. Regardless of the open or any programs that appear the Dow is finally entering the critical resistance band from 10600-10650. This is the highs for 2002. The Nasdaq finally broke that same level at 2100 this week and is forging higher. Can the Dow equal this feat? That remains to be seen but investors have been eagerly buying every minor dip. Dow Weekly Chart The more critical index is the S&P because it is the favorite target of program traders. The S&P is rapidly approaching its 2001-2002 resistance highs at 1175. The S&P failed in the 1170-1175 range four separate times in 2001-2002. This is very strong support and it is looming in our path. Adding to this resistance is the 50% retracement level at 1161. Together this is going to be very tough to break. Timing is also going to be key. At an average of +7 points a day the S&P could hit 1161 in three days, 1175 in five. With the Nasdaq in breakout mode the techs in the S&P are helping this process. The wildcard is the Dow at 10600. Can it plow through those next 50 points of resistance with the S&P moving up even faster? Either way both should reach what I am going to call terminal resistance sometime near the end of next week if the trend continues. Earnings will be half done with most of the large companies already reported. The breakout over this resistance will have to come on the earnings from next week. S&P Weekly Chart The SOX is nearing the spot where it could become the Nasdaq anchor. It is nearing the highs from last week at 560 but still below the 2002 resistance from 618-642. The chip sector is up +166% from the 209 SOX low in Oct-2002, +116% from the Feb-2003 lows. Using any investing metric this is a very strong run. Analysts are increasing their caution about too much good news already priced into this sector. This is especially critical with news that Intel is going to spend less on CapEx in 2004 than previously expected. If this trend is system wide then chips could be in for a slowdown. Intel also said flash memory sales were flat. All cracks in the SOX foundation supporting an ever growing high. I am not saying it is going to crash but just suggesting the 600+ level could be tough to crack. SOX Weekly Chart So where do we go from here? Monday is a holiday and provides a shortened week where more than 35% of the S&P will post earnings. There is no way to list the hundreds of companies but the most notable for Tuesday are MMM, AMD, ACS, C, MOT and a dozen chip and networkers. Wednesday has EBAY, QCOM, SYMC and nearly 200 others. Thursday AMGN, ADP, EMC, TLAB, MSFT, T, EK, F, FER, NOK, PFE and over 200 more. Needless to say it will be a busy week. Will they tell us anything we do not already know? Probably not. The economic schedule is light with many filler reports but nothing earth shaking. That leaves us to trade on sentiment and stock news. If the end of week rally was really option related again then Tuesday could be crazy as those expired option trades are settled. Traders waking up Tuesday with stock in their accounts that they did not expect or missing some they did not think would be called away will be scrambling to make adjustments. This is both a positive and negative impact to the markets and could provide heavy volume and heavy volatility without much actual movement by the close. We will also get to see if there are any program trades as a result of the Dow moving over 10600. The eight consecutive weeks of Dow gains will eventually end. The only question is when. For nine months the 50 dma has provided strong support as each streak came to an end and I suspect it will again. Dow Chart - Daily The keys to watch are the 10600-10650 level on the Dow and the 1160-1175 level on the S&P. Until those levels are broken any upside on non tech stocks could be limited. The bulls are in control and there are plenty of buyers waiting in the wings. Worry over the January-27th Fed meeting should not begin until late in the week and bonds are showing no fear. Enjoy the holiday because the rest of the week could be very hectic. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Summit Trade Jonathan Levinson Equities reached new highs and struggled to hold them, as the dollar capped off the first positive week in recent memory. Gold cracked on Thursday and drifted lower Friday, despite a strong retracement off the lows for silver. Treasuries declined, retracing part of Thursday's and Wednesday's advance but nevertheless completing a strongly positive week. 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. Daily chart of the US Dollar Index The administration has been paying lip service to its alleged support of an ostensible "strong dollar policy" for many months, and this week was no different. What was different was that the dollar did not fall precipitously to new hand-wringing, eye- popping lows. Sunday night saw the US Dollar Index break to 84.80, and the bounce started from there, picking up strength as the week progressed. Friday saw a move to the high 87's, and while the daily cycle oscillators are in a steep upphase, price confluence and descending channel resistance line up between 88 and 89. Predictably, precious metals had a bad week in US Dollar terms, as did most foreign currency pairs. Friday saw the CRB advance, however, closing higher by 3.47 at 267.88 on strength in heating oil, crude oil and wheat futures. Daily chart of December gold The flip side of a plunging dollar was soaring precious metals, albeit "soaring" from and at relatively low levels, and the spike in the USD hurt gold and silver valued in that currency. In foreign currencies, the gold rally had been much more muted, and so was this week's decline, but for US Dollar-denominated holders of gold, the week was no fun at all. The bear wedge finally delivered the anticipated break, and the daily cycle decisively commenced an overdue downphase. Support at 420 and 412 broke, and the low for the move was 405.80 on Friday. Support at 400, followed by 392, 388, 375-8, and 368 are the levels to watch. For the day, February gold dropped 3 points to close at 406.20. Daily chart of the ten year note yield Ten year notes reversed Thursday's gains and retraced part of Wednesday as well, with the yield adding 4.3 basis points or 1.08% to close at 4.014%. The steep decline in the yield lined kicked off prior to the start of the dollar rally and continued for most of the move, and Friday's reversal is frankly puzzling, having moved countertrend to both the oscillator downphase and the prevailing intermarket relationship seen this week. One can argue either for or against a continued treasury rally at this point, and so I'm merely following the charts. For the time being, 3.9% appears to be key support under the yield, which remains in a daily cycle downphase. Daily NQ candles The NQ broke the top of its 1515-1550 range on Friday, giving the first indication that the week's ambiguous sideways move within the rising daily channel was in fact a bull flag. On Thursday, I discussed the uncertainty of a dollar bounce for equities, which had rallied strongly on the dollar's decline through most of 2003. The upside break of the range was expect to spark a furious short covering / momentum breakout, but the move failed at 1554, and traded both sides of 1550 for the remainder of the session. The put to call ratio dove below .60, and those of us who still wonder about such things couldn't decide whether the move was a fakeout / throwover, destined to fail when trading resumes Tuesday, or whether it was merely contained for op-ex week purposes. Unfortunately, we won't know the answer until Tuesday. For the day, NQ added 16 points to close at 1553.50, up 1.04%. The daily cycle downphase that had been in the process of commencing on Thursday aborted with the break to new highs. 30 minute 20 day chart of the NQ Prophetcharts was not providing intraday Globex data today, and so I've jury-rigged 30 minute charts from Quote.com. Hopefully Prophet will have its act back together on Tuesday. The break above the 1550 range limit on Friday took the shape of a bearish rising wedge projecting to the lower range support at 1515. This would be far more important a year ago, but we've seen so many bear wedges fail during recent months that I hesitate to mention this one. Nevetheless, it could account for the uncertainty at the 52 week high above 1550. The cycle oscillators on the 30 minute chart are obviously maxxed out and trending, as are those on the daily chart. If 1550 does not get broken immediately on Monday night or Tuesday morning, the next leg up within the daily rising channel will be underway. Daily ES candles The ES made a new intraday high, but it couldn't break 1340 resistance, stopping at a high of 1139 before commencing a light pullback. That said, the move looks like the start of a flag breakout on the daily candles, and the daily cycle downphase reversed back up, as it did on the NQ. Any upside followthrough on Tuesday should close the deal. Downside support, which barely feels worth mentioning, is 1130, 1124 and, most significantly, 1115. ES closed higher by 5.5 points at 1138.75, +.49%. 20 day 30 minute chart of the ES The 30 minute ES shows the same bear wedge, with an apex projected approximately to the 1140 area. As with the NQ, the ES wedge projects clear down to range support at 1115, although 1130 is looking pretty strong from here. The 300 minute stochastic isn't as toppy on ES as it is on NQ, but just as this upper end of the price range has been compressing the price moves, so has it been causing the oscillators to trend higher within their range. A break of 1140 is less likely with the oscillators overbought, but the fact of steadily rising oscillator lows increases the likelihood of a breakout. Tuesday will tell the tale. Daily YM candles YM spent most of the week in a daily cycle downphase, but Friday's failed run to the rally highs were sufficient to abort it after all of 3 days. 10600 has been a brick wall above the YM, and overhead supply from early 2002 is no doubt in play. Whether those sellers decide to hold out for higher prices or press it lower will have to be seen, but the fact remains that YM, which led its peers in December and early January, was the weakest equity contract on Friday. Support at 10340 is the lower end of the range. For the day, YM gained 27 points to close at 10579. 20 day 30 minute chart of the YM YM's weakness is most pronounced on the 30 minute chart, with the 300 minute stochastic showing a bearish divergence through the duration of Friday afternoon. All week, we've been following the US Dollar Index' advance and attempting to correlate it with the different markets we follow. The decline in metals is a pure currency trade, while the advance in bonds can be explained on the basis of increased foreign demand for bonds, particularly in light of the outrageously large Bank of Japan intervention in support of the USD. Equities have and continue to be the wildcard, and if they continue to advance alongside bonds on an upleg in the dollar, we could see significantly more of this equity rally than logic would otherwise suggest or tolerate. With all of the old mania stocks rallying like it were not just 1999 but in fact 2000, volatility plunging, we'll be wondering how much of this week's strength was to butter the bread of option writers, and how much was indicative a sustainable new wave of demand. Fortunately, next week should enlighten us. Have a great weekend. ******************** INDEX TRADER SUMMARY ******************** Higher Highs Jonathan Levinson Another day of heavy volume capped off a strong week for the indices, with the Dow closing higher by 46.66 points at 10,600.51, the S&P 500 by 7.78 points at 1139.83, and the Nasdaq by 31 points at 2,140.46 on volume of 2.65B shares. NYSE volume was 1.72B for the day, very heavy volume ahead of a 3 day weekend lining up with op-ex Friday. For the week, the Dow gained 1.4%, bringing its 52-week gain to 21.5%. The SPX was up 1.6% for the week, 6.7% for the month, and 24.1% for the past 52 weeks, while the Naz was up 2.6% for the week, 11.6% for the month and 48.8% for the past 52 weeks. Volatility remained in extremely low territory throughout the week, with the OEX volatility index (VXO, the old VIX) breaking below 15 again on Friday afternoon as the put to call ratio fell back below .60 and closed at its session low at .52, an extremely unbalanced reading on the call side. These numbers are best taken with a grain of salt at the tail end of option expiration week, but on the other hand, the Friday-afternoon breaks coincided with upside resistance breaks on the indices. Huge gains were seen in the speculative darlings of bubbles past, with JNPR up 28.3% on Friday (not a typo), CIEN +19.2%, NT and GLW up nearly 8%, JDSU up nearly 16%, Novell up 7.07%, Tellabs up 12%+... you get the idea. CSCO and GE also posted breakout moves, and so there's ample evidence on which to argue for either a manic, speculative blowoff or the beginning of the next wave up in the Rally of 2003. Weekly COMPX candles The 2.6% move higher in the Naz leaves the 2000 level in the dust with a close at 2140. The lower wedge trendline break was a throwunder in retrospect, as were the sell signals on the overbought weekly cycle oscillators. The new closing high above the March lows is slightly above the upper wedge trendline, either in breakout territory or not, as trendline drawing is anything but an exact science. I personally am watching Tuesday before making up my mind. A positive close on Tuesday should seal this week's breakout, and lend credence to the buy signals printed on the weekly oscillators. That said, a negative close for Tuesday and next week could be bad news, as the weekly cycle oscillators are still at lower highs against the higher price highs, setting up a potential bearish oscillator divergence. Combined with the echoes of the Y2K blowoff, with stuff like JDSU leading the way, there's plenty of evidence in both directions. But, until we see a decisive break to this iron-clad price trend, the burden of proof is not on the bulls. Weeky INDU candles The INDU whipsawed this week, printing a spike low that resolved itself into a doji hammer for the weekly print. The weekly cycles continued to trend higher, and the Dow closed right at the critical 10600 level. The transports held 3000 support and close at 3036.28 on Friday. Again, as with the Nasdaq, there are compelling arguments on both sides of the trade, but those with a bullish bias have been winning with particular panache for the past two months. I count 8 up weeks in a row just completed, with the Dow rising when the dollar collapsed, then rising when it bounced. Bull or bear, you have to respect the price action, and until it corrects for longer than an hour or a day, this remains a market that can only be shorted on an aggressive scalp basis, preferably with very strong coffee and a few tabs of Immodium close at hand. Daily OEX candles Turning to our trading vehicles, the snarling mug of The Teflon Market can be inspected more closely. The OEX closed at 564.72, up 4.3 or .77%. The daily cycle downphase aborted after all of 3 days after 2 months of upside, with the lower rising channel trendline never seriously challenged. Upside resistance, if such a word is even still applicable, should be at the top of the channel, currently just north of 570. 20 day 30 minute chart of the OEX Whether the break above 563 was just an op-ex related short- covering throwover or the start of another bear purge will be seen in short order when the markets open on Tuesday. I can't add much, as the 30 minute cycle has been almost useless all week, aborting each downphase in the very early going as the price squeezed higher. Please note the failure of yet another head and shoulders formation off Tuesday's low, and I suspect that traders ten or even 2 years hence will shake their heads in disbelief at the thought that we ever made money following "chart patterns". Bulkowski's "Encyclopedia of Chart Patterns" for which I paid north of $70 will be used for party laughs or possibly coloring practice by the kids. I digress. Support is currently at 563, followed by 560, 556 and 553. Daily QQQ candles QQQ closed 7 cents below its new 52 week high at 38.63, atop what may or may not be a bull flag. So long as 38.40 holds as support, I vote for the bullish interpretation. Forget the daily cycle downphase, which aborted hours after it issued its first sell signal, and ressitance above is next at 39, with upper channel resistance another 50 cents north of that. Support is at 38.40, 37.70, 37.20 and 36. 20 day 30 minute chart of the QQQ Nothing to add on the 30 minute chart of QQQ, with the flag breakout clearly depicted with a move above 38.40. The upper break was not as explosive as one might have expected, but with op-ex complicating the picture, Tuesday's trading will provide us with either positive or negative confirmation quickly enough. ************************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 ************** When All Else Fails Sometimes the best laid plans of mice and men simply go astray. The DJX put play has gone astray. The Dow (DJX) has managed to stretch its consecutive weekly winning streak to eight weeks. The January dip is rapidly running out of time and so are we. When I started this play a month ago the Dow was 10250 and the weekly winning streak was at four weeks and leading up to the historically risky month of January. Well as of today the six year streak for the January dip failed instead of the eight week streak on the Dow. As Mike Parnos so aptly puts it "things happen". I received numerous emails this week asking if I had capitulated. Did I still own my puts? Did I still think we were going to have a dip? If we are going to have a dip where will it stop? I will try to cover all of them. Yes, I still have my puts. I told everyone last week I was in it until the bitter end. Yes I still think we will have a dip. It is only a matter of time. No streak runs forever but time is running out for us. It is not a question of will we have a dip. It is a question of when and from how high. If we were to dip on Monday then the "average" dip of -550 points would take us back to exactly the 50 dma at 10050 or so. While that looks and sounds good I would be even more surprised if it happens. The bullishness is so extreme that I cannot conceive of a drop that far. While it is historical, technical and well over due there are far too many buyers who have been expecting it. They are chomping at the bit to get in this bull market and I do not blame them. I am one of them. I have a couple dozen stocks/options I want to buy but refuse to do it at these exorbitant prices. (They are always exorbitant when you are not an owner. If you owned them then they would have plenty of room to run.) Current support is 10400, 10300 and 10100. I could easily see 10400 being tested. That is only -200 points. That makes 10300 the key. That is Christmas week support. If that breaks then 10100 should be the target and I would gladly bail at that level. If 10300 is tested and we move back over 10400 I would also bail for scrap value. The next dip is going to be the one that counts. If it only hits 10400 and rebounds back over 10500 then it is all over. The Dow has serious resistance beginning at 10600 through 10650. We closed at 10600 on Friday and only after the bell. Sell programs were prohibited from executing because of the lateness of the day. I would not be surprised to see an attempt to take it down on Tuesday when the market opens. Anywhere between 10600-10650 we could stall and the profit taking could begin. We have a lot of earnings next week with Microsoft on Thursday. MSFT actually traded flat for the entire year. There is a concentrated effort to replace Microsoft software at the enterprise level with several different operating systems and desktop suites. They are not in any danger but they are seeing increased competition. They could soften their guidance next week and it could be ugly. I would give this play one more week. If we have not had a significant dip or at least a declining trend by close of business on Monday the 26th I will probably exit. The Fed meeting is a two-day affair starting on the 27th. If they change the bias statement to cool off the current irrational exuberance then the market could drop like a rock on interest rate worries. If they leave the statement alone then the sky's the limit and the April earnings run will begin early. I will decide on Monday if I want to roll the dice. I am not any happier about this play than you are but we have to play the cards we are dealt. Sometimes you get a full house, sometimes you get nothing. Right now we have a four card straight. Our bets have been placed and we are not going to fold without seeing the last card. I am exiting with a Dow close over 10650. My current (optimistic) target is 10100. Monday the 26th is my drop dead date. Feel free to exit at any time. You are not required to remain in the play just because I am. DJX Chart - Daily Initial play description December 21st http://members.OptionInvestor.com/editorplays/edply_122103_1.asp ******************************** Play Recaps Priceline.com (PCLN) Put play $19.20 Priceline has not taken part in the Nasdaq rally and is only slightly above the price when the play started. Once the Nasdaq cools I am confident PCLN will cool more. Earnings could be a problem for them but they are not until the first week in February. The terror alert in December may have hurt them significantly. This is an April play so we have plenty of time. Here is a recent news story on them. http://biz.yahoo.com/smart/031231/20031212saywhat_14.html http://members.OptionInvestor.com/editorplays/edply_121403_1.asp Powerball I Am Really Crying Now Having the Nasdaq set a new 30-month high on expiration Friday is enough to make me cry. I closed the Powerball portfolio two weeks ago for a fraction of the current value. When I saw the update this week I had to post it. +152%, $1910 profit. Who knew the Nasdaq would go this high in January? Obviously not me. Powerball Chart ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** Sentiment Rising - J. Brown Call it the energizer bunny. Call it a Teflon market (nothing sticks to it). Call it a runaway train. Whatever adjective best suits your market bias it's hard to ignore that the path of least resistance is still up. The Dow Jones Industrials and the S&P 500 have turned in eight consecutive weeks of gains. That's quite a feat. I thought I heard one TV commentator say the markets have not done that in more than 10 years. Investors seem anything but cautious and the plummeting volatility indices continue to reinforce a lack of fear. Normally when everyone is running the same direction it is a sign to start looking for the exits but until the trend changes all we can do is play what the market gives us. Driving these exceptional moves are strong corporate earnings and encouraging economic data. Friday revealed that consumers were very confident. The Michigan sentiment index soared to a surprising 103.2 in January when estimates were only pointing to a small rise to 94.0. The last reading was 92.6 in December making this the biggest jump since November 1992. So what's making the consumer feel so secure? A stock market with its first gain in three years doesn't hurt. Nor does rising home prices and low mortgage rates (which dropped again last week). Signs, albeit slow ones, that the job market is improving is probably the biggest reason that consumers are feeling upbeat. A confident consumer spends more money and that will keep this economy on the road to recovery. Meanwhile investors are feeling pretty confident themselves. The latest round of earnings reports were generally to the upside. Junpier Network's (JNPR) positive earnings report on Friday morning set the networking/telecom sectors spinning higher again and JNPR's stock exploded for a 30% gain. Overall market internals were very bullish. The NYSE reported advancers pushing past decliners 4 to 3. Winners overwhelmed losers 19 to 11 on the NASDAQ. Up volume was more than 3 times down volume on the NYSE and more than four times down volume on the NASDAQ. Monday is a market holiday and the earnings parade gets started bright and early on Tuesday morning. Several Dow components are scheduled to announce (MMM, C, GM, JNJ, and UTX). These earnings reports will heavily influence market direction. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10600 52-week Low : 7416 Current : 10600 Moving Averages: (Simple) 10-dma: 10115 50-dma: 10084 200-dma: 9365 S&P 500 ($SPX) 52-week High: 1139 52-week Low : 788 Current : 1139 Moving Averages: (Simple) 10-dma: 1127 50-dma: 1079 200-dma: 1006 Nasdaq-100 ($NDX) 52-week High: 1553 52-week Low : 795 Current : 1553 Moving Averages: (Simple) 10-dma: 1524 50-dma: 1441 200-dma: 1300 ----------------------------------------------------------------- Once again enthusiastic traders have pushed the market higher and volatility lower. Definitely no fear in the markets yet. CBOE Market Volatility Index (VIX) = 15.00 -0.56 CBOE Mkt Volatility old VIX (VXO) = 14.88 -1.35 Nasdaq Volatility Index (VXN) = 20.24 -2.40 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.66 1,083,341 715,875 Equity Only 0.52 843,879 442,894 OEX 0.93 50,558 46,803 QQQ 2.20 42,812 93,989 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 77.5 + 0 Bull Confirmed NASDAQ-100 81.0 + 0 Bull Confirmed Dow Indust. 86.7 + 0 Bull Confirmed S&P 500 87.6 + 1 Bull Confirmed S&P 100 85.0 + 0 Bull Confirmed 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: 0.95 21-dma: 0.92 55-dma: 1.04 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 1616 1907 Decliners 1235 1160 New Highs 384 407 New Lows 8 5 Up Volume 1726M 2066M Down Vol. 526M 469M Total Vol. 2282M 2577M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 01/13/04 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 We don't have much more to report on for commercial traders this week other than slightly increased positions on both sides of the fence. Small traders followed suit. Commercials Long Short Net % Of OI 12/16/03 448,103 460,670 12,567 1.4% 12/22/03 400,066 405,240 (5,174) (0.6%) 01/06/04 403,721 408,729 (5,008) (0.6%) 01/13/04 405,558 411,361 (5,803) (0.7%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 12/16/03 172,947 113,704 59,243 20.7% 12/22/03 147,537 81,596 65,941 28.8% 01/06/04 142,844 83,518 59,326 26.2 01/13/04 149,057 90,571 58,486 24.4% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 The e-minis are seeing more action than the full contracts represented above. Commercial traders added more than 20K contracts to both longs and shorts but they remain net bearish. Small traders were more enthusiastic with a large increase in long positions, outpacing the increase in short positions. Contrarians might view this as a bearish development. Commercials Long Short Net % Of OI 12/16/03 330,273 361,316 (31,043) (4.5%) 12/22/03 128,801 213,021 (84,220) (24.6%) 01/06/04 175,489 240,865 (65,376) (15.7%) 01/13/04 196,858 263,845 (66,987) (14.5%) 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 12/16/03 177,193 73,694 103,499 41.3% 12/22/03 125,248 43,482 81,766 48.5% 01/06/04 139,433 51,909 87,524 45.7% 01/13/04 191,241 62,711 128,530 50.6% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Ho-hum...commercial traders are still asleep at the wheel in the NDX futures. Meanwhile small traders have reduced their outstanding shorts. Commercials Long Short Net % of OI 12/16/03 61,343 73,153 (11,810) ( 8.8% 12/22/03 40,277 36,452 3,825 5.0% 01/06/04 42,892 37,801 5,091 6.3% 01/13/04 41,829 38,547 3,282 4.1% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 9,068 - 06/11/02 Small Traders Long Short Net % of OI 12/16/03 28,676 15,197 13,479 30.7% 12/22/03 22,656 14,544 8,112 21.8% 01/06/04 8,035 17,911 ( 9,876) (38.1%) 01/13/04 9,705 12,539 ( 2,834) (12.7%) 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 There isn't much to report in the DJ futures either. It looks like commercials are just shuffling money around but the net result was a slightly more bullish stance on the Dow. In mirror-like precision small traders have slowly become more bearihs. Commercials Long Short Net % of OI 12/16/03 23,509 13,880 9,629 25.8% 12/22/03 14,088 9,998 4,090 17.0% 01/06/04 15,697 9,497 6,200 24.6% 01/13/04 16,501 8,724 7,777 30.8% 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 12/16/03 9,497 19,633 (10,136) (34.8%) 12/22/03 6,915 8,983 ( 2,068) (13.0%) 01/06/04 5,713 8,105 ( 2,392) (17.3%) 01/13/04 6,496 9,970 ( 3,474) (21.1%) 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 *************** 5-DRT retracement technique and January's First 5 Days Hi Jeff, The Stock Trader's Almanac notes the importance of the first 5 days in predicting the direction of the markets for the coming year. And that reminds me of your 5-MRT technique. Think a "5- DRT" would be applicable, and if so, would you start it last Friday (01/02/04) or use the first full week -- this one ending tomorrow? Thanks, -Matt That's it. Matt has lost his mind. How could anyone possibly think that a trader or investor could possibly take the range of the first 5 trading days of the year, and actually think that the market would trade those levels? Please Matt. Get some type of help from a head Doctor as you have lost your mind. Or has he? All he's trying to do is establish some levels, which allows a trader/investor to incorporate some type of discipline in their account management, and let the market tell him if it is bullish or bearish. According to the Stock Trader's Almanac the market action during the first five trading days of the month often serves as an excellent "early warning" system for the year as a whole. Early January gains since 1950 (excluding 1994) were matched by whole- year gains with just three war-related exceptions: Vietnam military spending delayed the start of 1966 bear market; ceasefire imminence in early 1973 raised stocks temporarily; and Saddam Hussein turned 1990 into a bear when Iraq invaded Kuwait. Even though Matt has lost his mind, and there's no way this would work, I thought I'd show Matt how far off base he was, so he could go to the head Doctor as soon as possible. For those not familiar with what we've started calling the "5- MRT," this was an intra-day trading technique, where we used a Fibonacci Retracement tool, to simply measure the range of the first 5-minutes of trade, to derive some intra-day levels from. The 5-MRT technique and explanation can be found in the Ask the Analyst column dated 09/21/2003 "Day trader's 5-minute bar technique." What Matt is asking is if it would be plausible to think that we could use the first 5-days of the year as a pulse for the year, but then use retracement to measure that pulse and define levels, where we could apply systematic rules to let the market tell us what to do. I wanted to at least back test Matt's idea and to try and answer his question of whether we should use the first 5 days of trade or the first full week of trade, I tested both. I'm kind of old fashioned when it comes to using market history, so I would have preferred to use the first 5-days as noted in the Stock Trader's Almanac. I tested both the first 5-days and first full week, and just about fell out of my chair, or into Freud's couch when I looked at how the Dow Industrials traded in 2003 using the unconventional "5-DRT" fitted to the first 5-days of trade. Here's a chart of the Dow Industrials (INDU) with WEEKLY intervals using a "5-DRT." All I did was "fit" a blue retracement from 0% to 19.1% from the first 5-day's low/high, and then "fit" a lower red retracement from its 100% to 80.9% from the same first 5-day's low/high. Dow Industrials (INDU) - Weekly Intervals (2003 5-DRT) The first 5-days of 2003 saw the Dow Industrials trade a low/high of 8,342.38-8,802.64. The Dow opened for trading at 8,342.38 on January 2nd, and closed at 8,595.31 on the 5th day of trade. The comparison of the open and close suggested a bullish year for 2003. Now I couldn't get my inner retracement to the exact fraction of the first 5-day's of trade in the INDU, but got as close as I could. What I then did is established a "bias" based on a WEEKLY close. If I start out as "neutral" (8,342-8,802.64) and then let the weekly close tell me if I should have been bullish or bearish, we would see that our first bias in 2003 would have been BEARISH when the INDU closed below 8,342.38 and assessed further downside to the next level lower of 7,886.79 and I would NOT be bullish unless the INDU showed a WEEKLY close back above the next level higher 8,800. I thought to myself... "Wow! Look at how the INDU wanted to hover around the 7,886.79 level several weeks later." It's tough to see on the above chart, but the INDU did see a weekly close below that 7,886.79 level, which may have had the investor/trader developing a further bearish bias, with downside risk assessed to 7,604.65. A bullish bias would now not be established until the INDU closed above the next level higher of 8,343.47 (8,345 for round number). The INDU did fall to 7,604.65, but never saw a weekly close below that level, which I've labeled #3 in red. Suddenly... the INDU whips back higher and sees a weekly close above 8,343.47! Maybe I should be BULLISH!. Something has changed. Buy some INDU the next day (March 24, 2003) at 8,514.82 opening bell, and keep a BULLISH bias until the INDU closes below the next level lower (7,886.79). Weeks later, in late May, the INDU sees a weekly close above 8,800 and further BULLISH bias is built by the trader investor (check out the point and figure chart!!!!) Do you see how bulls have been "walking the dog" higher? The pattern has been, when the Dow sees a weekly close above the next level higher, it hasn't closed below the next level lower. Only when it does, would a BEARISH bias be taken. INDU 9,255 seemed to find some resistance, but once that level was broken to the upside, it quickly became support didn't it? While Matt is thinking outside the box, it may have some merit. Look at how the INDU has really packed on some weight since it showed a weekly close above 9,820. OK, that was then, this is now. I'm going to slap a "5-DRT" on the INDU. Hey! 2004 might be a bullish year as the first 5-days of the year have been BULLISH. Dow Industrials (INDU) Chart - Weekly Intervals (2004 5-DRT) Here's a INDU chart with a "5-DRT" and should have traders and investors holding out a bullish bias until it sees a WEEKLY close below 10,384.44, where downside risk becomes 10,176.26. Last year, the INDU traded to RED #3 and surpassed BLUE #5. Just for grins, I back tested a 5-DRT on the NASDAQ-100 Tracking Stock (AMEX:QQQ) based on its first 5-day's trade for 2003. In the early part of the year, it did see a weekly close above BLUE #1 and then turned lower to see a weekly close below RED #1, then whipped back higher to see a weekly close above BLUE #1, and just like the INDU, each time it saw a WEEKLY close above the next level higher, it hasn't seen a WEEKLY close below the next lower level. The QQQ closed at $36.46 on December 31, 2003, which was between its 5-DRT BLUE #5 ($34.95) and BLUE #6 ($37.44). Hmmmmm...... Here's a 5-DRT on the QQQ for 2004. NASDAQ-100 Tracker (AMEX:QQQ) - Daily Intervals (2004 5-DRT) Here's a 5-DRT on the QQQ. Friday's close, the weekly close was above BLUE #1. "Hook'em horns" as they say in Austin, TX. As long as the QQQ holds a WEEKLY close above $36.20. Ooops! I know we've got some subscriber's that might not be all that fond of the University of Texas. How about... Go Colorado Buffalos! Actually, I'm a CSU Ram fan, but a "ram market?" That doesn't sound right. Enjoy your 3-day weekend. Remember that Monday is Martin Luther King Jr. Day and markets are closed here in the U.S. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- CXP Centex Const Prod Mon, Jan 19 After the Bell 0.98 IFX Infineon Tech AG Mon, Jan 19 Before the Bell 0.04 KEM Kemet Mon, Jan 19 After the Bell -0.11 LEE Lee Enter, Incorp Mon, Jan 19 Before the Bell 0.55 LOGI Logitech Intl Mon, Jan 19 After the Bell 0.81 OCENY Oci N.V. Mon, Jan 19 -----N/A----- N/A SWBT Southwest Bank Texas Mon, Jan 19 After the Bell 0.47 ------------------------- TUESDAY ------------------------------ MMM 3M Co Tue, Jan 20 Before the Bell 0.76 AMD Advanced Micro DevicesTue, Jan 20 After the Bell 0.04 ACS Affiliated Comp Serv Tue, Jan 20 -----N/A----- 0.63 AMTD Ameritrade Hldng Corp.Tue, Jan 20 Before the Bell 0.16 AMCC App Micro Circuits CrpTue, Jan 20 After the Bell -0.02 ONE Bank One Tue, Jan 20 Before the Bell 0.80 BNK Banknorth Grp Inc. Tue, Jan 20 Before the Bell 0.56 BJS BJ SVCS CO Tue, Jan 20 Before the Bell 0.38 BRE BRE PROPERTIES INC Tue, Jan 20 After the Bell 0.51 EAT Brinker Intl Tue, Jan 20 Before the Bell 0.44 CX CEMEX S.A. Tue, Jan 20 Before the Bell 0.53 CTX Centex Corp Tue, Jan 20 After the Bell 2.83 CF Charter One Finl Tue, Jan 20 After the Bell 0.69 CKFR CheckFree Tue, Jan 20 After the Bell 0.23 C CitiGrp Inc. Tue, Jan 20 Before the Bell 0.90 CBSS Compass Bancshares Tue, Jan 20 -----N/A----- 0.68 CAL Continental Airlines Tue, Jan 20 Before the Bell -0.81 DPH Delphi Tue, Jan 20 Before the Bell 0.21 ETH Ethan Allen Interiors Tue, Jan 20 Before the Bell 0.60 FBC Flagstar Bancorp Tue, Jan 20 Before the Bell 0.56 FRX Forest Laboratories Tue, Jan 20 Before the Bell 0.58 FCX Frprt-McMRn Cppr Gld Tue, Jan 20 Before the Bell 0.10 FULT Fulton Finl Tue, Jan 20 -----N/A----- 0.32 GM General Motors Corp. Tue, Jan 20 Before the Bell 1.22 HE Hawaiian Electric Tue, Jan 20 Before the Bell 0.75 HMA Health Mgmt Assoc, IncTue, Jan 20 Before the Bell 0.29 HUBb Hubbell Incorporated Tue, Jan 20 During the Market 0.54 HU Hudson United Bancorp Tue, Jan 20 After the Bell 0.66 ICBC Independence Comm BankTue, Jan 20 After the Bell 0.64 JKHY Jack Henry & Assoc Tue, Jan 20 Before the Bell 0.16 JNJ Johnson & Johnson Tue, Jan 20 Before the Bell 0.56 MATW Matthews Intl Tue, Jan 20 -----N/A----- 0.33 MEL Mellon Finl Corp Tue, Jan 20 During the Market 0.43 MOT Motorola Inc. Tue, Jan 20 After the Bell 0.13 PRK Park Natl Tue, Jan 20 -----N/A----- 1.75 PH Parker Hannifin Corp. Tue, Jan 20 Before the Bell 0.45 PMCS PMC-Sierra, Inc. Tue, Jan 20 After the Bell 0.02 BPOP POPULAR INC Tue, Jan 20 -----N/A----- 0.83 PTZ Pulitzer Inc. Tue, Jan 20 Before the Bell 0.64 RFMD RF Micro Devices, Inc.Tue, Jan 20 After the Bell 0.10 SANM Sanmina-SCI Corp. Tue, Jan 20 After the Bell 0.04 STX Seagate Tech Tue, Jan 20 After the Bell 0.45 SONS Sonus Networks Tue, Jan 20 After the Bell 0.02 SOV Sovereign Bancorp Tue, Jan 20 After the Bell 0.37 TRBS Texas Regional Tue, Jan 20 Before the Bell 0.51 TDW Tidewater Tue, Jan 20 Before the Bell 0.25 TSCO Tractor Supply Co Tue, Jan 20 -----N/A----- 0.37 TRST Trustco Bank Tue, Jan 20 -----N/A----- 0.19 TRMK Trustmark Corp Tue, Jan 20 -----N/A----- 0.50 TSS TSYS Tue, Jan 20 -----N/A----- 0.20 USB U.S. Bancorp Tue, Jan 20 Before the Bell 0.51 UIS Unisys Tue, Jan 20 Before the Bell 0.31 UTX United Tech Tue, Jan 20 Before the Bell 1.13 WM Washington Mutual Tue, Jan 20 After the Bell 0.89 WFC Wells Fargo & Co Tue, Jan 20 Before the Bell 0.95 WABC Westamerica BanCorp Tue, Jan 20 During the Market 0.73 ------------------------ WEDNESDAY ----------------------------- ACXM Acxiom Wed, Jan 21 After the Bell 0.19 ADTN ADTRAN, Inc. Wed, Jan 21 Before the Bell 0.24 APD Air Prod and Chem Inc Wed, Jan 21 Before the Bell 0.56 DOX Amdocs Limited Wed, Jan 21 -----N/A----- 0.24 APH Amphenol Wed, Jan 21 Before the Bell 0.67 AMR AMR Corp Wed, Jan 21 -----N/A----- -1.01 AOT Apogent Tech Wed, Jan 21 After the Bell 0.34 AVB Avalonbay Communities Wed, Jan 21 After the Bell 0.80 BXS BancorpSouth, Inc. Wed, Jan 21 After the Bell 0.39 BSG BISYS Grp INC Wed, Jan 21 After the Bell 0.18 BLK BlackRock, Inc. Wed, Jan 21 Before the Bell 0.63 BOKF BOK Finl Wed, Jan 21 -----N/A----- 0.65 BR Burlington Resources Wed, Jan 21 After the Bell 1.06 CAI CACI Intl Wed, Jan 21 After the Bell 0.46 CWG CanWest Global Commu Wed, Jan 21 -----N/A----- N/A COF Capital One Finl Corp Wed, Jan 21 After the Bell 1.00 CDWC CDW Comp Centers, Inc Wed, Jan 21 Before the Bell 0.58 CHZ Chittenden Wed, Jan 21 After the Bell 0.53 CTXS Citrix Sys Wed, Jan 21 After the Bell 0.19 COH Coach, Inc. Wed, Jan 21 Before the Bell 0.49 CA Comp Assoc Intl Wed, Jan 21 After the Bell 0.15 CVG Convergys Corp Wed, Jan 21 -----N/A----- 0.32 DHI D.R. Horton Wed, Jan 21 After the Bell 0.62 DV DeVry Wed, Jan 21 After the Bell 0.22 DNEX Dionex Wed, Jan 21 After the Bell 0.45 ET E*TRADE Grp, Inc. Wed, Jan 21 Before the Bell 0.17 ETN Eaton Wed, Jan 21 Before the Bell 1.37 EBAY eBay Wed, Jan 21 -----N/A----- 0.22 FNM Fannie Mae Wed, Jan 21 Before the Bell 1.75 FMBI First Midwest Bancorp Wed, Jan 21 Before the Bell 0.51 FTN First Tennessee Natl Wed, Jan 21 Before the Bell 0.90 GD General Dynamics Wed, Jan 21 Before the Bell 1.37 GBBK Greater Bay Bancorp Wed, Jan 21 Before the Bell 0.37 GPT GreenPoint Finl Wed, Jan 21 Before the Bell 0.86 HDI Harley-Davidson Wed, Jan 21 Before the Bell 0.58 JPM J.P. Morgan Chase & CoWed, Jan 21 Before the Bell 0.77 JEF Jefferies Grp Wed, Jan 21 Before the Bell 0.39 JCI Johnson Controls Wed, Jan 21 Before the Bell 0.84 KELYA Kelly Serv, Inc. Wed, Jan 21 Before the Bell 0.04 KMI Kinder Morgan Wed, Jan 21 After the Bell 0.86 KRI Knight Ridder Wed, Jan 21 Before the Bell 1.21 LRCX Lam Research Wed, Jan 21 -----N/A----- 0.05 LM Legg Mason Wed, Jan 21 Before the Bell 0.99 LU Lucent Tech Inc. Wed, Jan 21 Before the Bell -0.01 MACR Macromedia Wed, Jan 21 After the Bell 0.14 MXO Maxtor Corp Wed, Jan 21 After the Bell 0.23 MERQ Mercury Interactive Wed, Jan 21 -----N/A----- 0.26 MER Merrill Lynch Wed, Jan 21 Before the Bell 1.00 MODI Modine Manu Co Wed, Jan 21 After the Bell 0.31 NATI Natl Instruments Wed, Jan 21 After the Bell 0.23 NFLX NetFlix.com Wed, Jan 21 After the Bell 0.16 NSCN NetScreen Tech Wed, Jan 21 After the Bell 0.12 NCEN New Century Finl Corp Wed, Jan 21 After the Bell 1.74 NTRS Northern Trust Wed, Jan 21 Before the Bell 0.54 JNC Nuveen Investments Wed, Jan 21 Before the Bell 0.41 PKG Packaging Corp of Am Wed, Jan 21 After the Bell 0.07 PMTC PARAMETRIC Tech CORP Wed, Jan 21 Before the Bell -0.13 PNC PNC Finl Serv Grp Wed, Jan 21 Before the Bell 0.99 PGN Progress Energy Wed, Jan 21 Before the Bell 0.76 PFGI Provident Finl Grp Wed, Jan 21 Before the Bell 0.57 QCOM QUALCOMM Inc. Wed, Jan 21 After the Bell 0.47 RDN Radian Grp Wed, Jan 21 After the Bell 1.14 RGS Regis Corp Wed, Jan 21 Before the Bell 0.57 SNDK SanDisk Corp. Wed, Jan 21 After the Bell 0.78 SEBL Siebel Sys Wed, Jan 21 After the Bell 0.08 SSTI Silicon Storage Tech Wed, Jan 21 After the Bell 0.06 SBUX Starbucks Wed, Jan 21 After the Bell 0.26 SYMC Symantec Wed, Jan 21 After the Bell 0.29 SNV Synovus Finl Corp. Wed, Jan 21 After the Bell 0.34 TTEK Tetra Tech Wed, Jan 21 After the Bell 0.23 BK The Bank of New York Wed, Jan 21 Before the Bell 0.44 PGR The Progressive Corp Wed, Jan 21 After the Bell 1.52 REY Reynolds & Reynolds CoWed, Jan 21 Before the Bell 0.30 UNP Union Pacific Wed, Jan 21 Before the Bell 1.18 UB UnionBanCal Wed, Jan 21 After the Bell 1.02 UBSI United Bankshares Wed, Jan 21 Before the Bell 0.50 WFSI WFS Finl Wed, Jan 21 -----N/A----- 0.67 WTNY Whitney Holding Corp Wed, Jan 21 -----N/A----- 0.61 WIT Wipro Limited Wed, Jan 21 -----N/A----- 0.23 XLNX Xilinx, Inc. Wed, Jan 21 Before the Bell 0.18 ------------------------- THUSDAY ----------------------------- AAI AirTran Hldg, Inc. Thu, Jan 22 Before the Bell 0.17 ACV Alberto-Culver Co. Thu, Jan 22 -----N/A----- 0.67 ALEX Alexander & Baldwin Thu, Jan 22 After the Bell 0.53 ATK Alliant TechSys Inc. Thu, Jan 22 Before the Bell 0.88 AMX America Movil Thu, Jan 22 -----N/A----- 0.44 ACF AmeriCredit Corp. Thu, Jan 22 After the Bell 0.28 AMGN Amgen Thu, Jan 22 -----N/A----- 0.48 ASBC Associated Banc-Corp Thu, Jan 22 -----N/A----- 0.74 AF Astoria Finl Corp Thu, Jan 22 Before the Bell 0.54 T AT&T Thu, Jan 22 Before the Bell 0.41 ATML Atmel Corp Thu, Jan 22 After the Bell -0.03 ALV Autoliv Thu, Jan 22 Before the Bell 0.64 ADP Automatic Data Proc Thu, Jan 22 Before the Bell 0.37 BLS BellSouth Corp Thu, Jan 22 Before the Bell 0.51 BMS Bemis Co, Inc. Thu, Jan 22 Before the Bell 0.76 BCC Boise Cascade Thu, Jan 22 Before the Bell 0.25 BGG Briggs & Stratton CorpThu, Jan 22 Before the Bell 0.63 CBT Cabot Thu, Jan 22 After the Bell 0.43 CCMP Cabot MicroelectronicsThu, Jan 22 Before the Bell 0.43 ELY Callaway Golf Thu, Jan 22 After the Bell -0.29 CAH Cardinal Health, Inc. Thu, Jan 22 Before the Bell 0.86 CEN Ceridian Thu, Jan 22 -----N/A----- 0.29 CHKP Check Pnt Sftwr Tech Thu, Jan 22 Before the Bell 0.24 CPS ChoicePoint, Inc. Thu, Jan 22 Before the Bell 0.35 CIT CIT Grp Thu, Jan 22 -----N/A----- 0.72 CPWR Compuware Corp Thu, Jan 22 After the Bell 0.01 ED Consolidated Edison Thu, Jan 22 -----N/A----- 0.61 CBE Cooper Industries Ltd.Thu, Jan 22 Before the Bell 0.76 GLW Corning Thu, Jan 22 After the Bell 0.04 CR Crane Thu, Jan 22 After the Bell 0.53 CY Cypress Semiconductor Thu, Jan 22 -----N/A----- 0.13 CYT Cytec Industries Inc. Thu, Jan 22 After the Bell 0.41 EWBC East West Bancorp Thu, Jan 22 Before the Bell 0.63 EK Eastman Kodak Co Thu, Jan 22 Before the Bell 0.52 EMC EMC Corp Thu, Jan 22 Before the Bell 0.07 EEP Enbridge Energy Part Thu, Jan 22 After the Bell 0.56 ENH Endurance Spec Hldg Thu, Jan 22 After the Bell 0.86 EFX Equifax Inc. Thu, Jan 22 Before the Bell 0.40 FILE FileNet Thu, Jan 22 Before the Bell 0.12 F Ford Motor Co Thu, Jan 22 Before the Bell 0.28 BEN Franklin Resources Thu, Jan 22 -----N/A----- 0.64 GDW Golden West Finl Thu, Jan 22 -----N/A----- 1.84 GGG Graco Thu, Jan 22 After the Bell 0.46 HP Helmerich & Payne, IncThu, Jan 22 Before the Bell 0.08 HCBK Hudson City Bancorp Thu, Jan 22 After the Bell 0.28 HYSL Hyperion Thu, Jan 22 After the Bell 0.21 IEX Idex Thu, Jan 22 Before the Bell 0.47 INGP Instinet Grp Incorp Thu, Jan 22 Before the Bell 0.01 ICST Integrated Circuit SysThu, Jan 22 Before the Bell 0.26 IDTI Integrated Device TechThu, Jan 22 After the Bell 0.02 ISCA Intl Speedway Thu, Jan 22 Before the Bell 0.61 IGT Intl Game Tech Thu, Jan 22 Before the Bell 0.29 IVC Invacare Thu, Jan 22 -----N/A----- 0.69 IFIN Investors Finl Serv Thu, Jan 22 Before the Bell 0.41 ESI ITT Educational Serv Thu, Jan 22 -----N/A----- 0.49 JEC Jacobs Engineering GrpThu, Jan 22 Before the Bell 0.58 KLAC KLA-Tencor Thu, Jan 22 After the Bell 0.19 NITE Knight Trading Grp Thu, Jan 22 Before the Bell 0.20 KRB MBNA Thu, Jan 22 After the Bell 0.53 MCK McKesson Corp Thu, Jan 22 After the Bell 0.50 MDU MDU Resources Thu, Jan 22 -----N/A----- 0.40 MCHP Microchip Tech Thu, Jan 22 After the Bell 0.19 MSFT Microsoft Thu, Jan 22 After the Bell 0.30 MTX MINERALS TECH INC Thu, Jan 22 After the Bell 0.66 NOK Nokia Thu, Jan 22 Before the Bell 0.31 NVS Novartis Corp Thu, Jan 22 Before the Bell 0.54 OXY Occidental Petroleum Thu, Jan 22 -----N/A----- 1.02 ONB Old Natl Bancorp Thu, Jan 22 Before the Bell 0.32 OSK Oshkosh Truck Thu, Jan 22 Before the Bell 0.49 PTV Pactiv Thu, Jan 22 After the Bell 0.41 PCL Plum Creek Timber Thu, Jan 22 After the Bell 0.28 PFS Provident Finl Serv Thu, Jan 22 After the Bell 0.15 RESP Respironics, Inc. Thu, Jan 22 Before the Bell 0.48 RYL Ryland Grp Thu, Jan 22 Before the Bell 2.90 TSG Sabre Hldg Corp. Thu, Jan 22 Before the Bell 0.08 SAP SAP AG Thu, Jan 22 Before the Bell 0.44 SLE Sara Lee Thu, Jan 22 Before the Bell 0.39 SAY Satyam Comp Serv Lmtd Thu, Jan 22 -----N/A----- 0.18 SFA Scientific-Atlanta IncThu, Jan 22 After the Bell 0.28 SEPR Sepracor Thu, Jan 22 Before the Bell -0.73 SI Siemens AG Thu, Jan 22 -----N/A----- N/A SKYF Sky Finl Grp Thu, Jan 22 Before the Bell 0.45 SWKS Skyworks Thu, Jan 22 After the Bell 0.01 SOTR SouthTrust Thu, Jan 22 -----N/A----- 0.54 LUV Southwest Airlines Thu, Jan 22 Before the Bell 0.08 STE Steris Thu, Jan 22 Before the Bell 0.35 STK Storage Tech Thu, Jan 22 Before the Bell 0.54 SUN Sunoco Thu, Jan 22 Before the Bell 0.75 TLAB Tellabs Thu, Jan 22 Before the Bell -0.03 SSP The E.W. Scripps Co Thu, Jan 22 Before the Bell 0.93 TKR The Timken Co Thu, Jan 22 Before the Bell 0.12 THER Therasense, Inc. Thu, Jan 22 -----N/A----- 0.08 TMA Thornburg Mortgage Thu, Jan 22 After the Bell N/A UNH UnitedHealth Grp Inc. Thu, Jan 22 Before the Bell 0.79 UTSI UTStarcom Thu, Jan 22 After the Bell 0.51 VTSS Vitesse Semiconductor Thu, Jan 22 After the Bell -0.01 WBS Webster Finl Corp. Thu, Jan 22 Before the Bell 0.89 WDC Western Digital Corp. Thu, Jan 22 -----N/A----- 0.29 WY Weyerhaeuser Co. Thu, Jan 22 Before the Bell 0.51 WYE WYETH Thu, Jan 22 Before the Bell 0.66 ------------------------- FRIDAY ------------------------------- AT ALLTEL Corp. Fri, Jan 23 Before the Bell 0.77 CIN Cinergy Corp. Fri, Jan 23 -----N/A----- 0.65 D Dominion Resources IncFri, Jan 23 Before the Bell 1.02 FO Fortune Brands Fri, Jan 23 Before the Bell 1.03 FPL FPL Grp Fri, Jan 23 Before the Bell 0.74 ITT ITT Industries Fri, Jan 23 Before the Bell 1.04 NE Noble Corp Fri, Jan 23 -----N/A----- 0.31 NWAC Northwest Airlines CrpFri, Jan 23 Before the Bell -1.59 PGL Peoples Energy Corp. Fri, Jan 23 Before the Bell 0.87 SLB Schlumberger Fri, Jan 23 Before the Bell 0.43 UST UST Inc. Fri, Jan 23 Before the Bell 0.76 VC Visteon Corp Fri, Jan 23 Before the Bell -0.53 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable FRK Florida Rock Industries 3:2 Jan 16th Jan 19th SWWC Southwest Water Company 2:1 Jan 20th Jan 21st PHS PacifiCare Health Systems 5:4 Jan 20th Jan 21st MRX Medicis Pharmaceutical 3:2 Jan 23rd Jan 26th THO Thor Industries Inc 2:1 Jan 26th Jan 27th CHDX Chindex International Inc 2:1 Jan 26th Jan 27th MSA Mine Safety Appliances Co 3:1 Jan 28th Jan 29th YAJC YAK Communications, Inc 2:1 Jan 29th Jan 30th HOFT Hooker Furniture Corp, Inc2:1 Jan 30th Feb 2nd -------------------------- Economic Reports This Week -------------------------- This week it's all about the earnings! The Q4 earnings season is in full swing and announcements and guidance will dominate the headlines and market direction. ============================================================== -For- ---------------- Monday, 01/19/04 ---------------- None ----------------- Tuesday, 01/20/04 ----------------- None ------------------- Wednesday, 01/21/04 ------------------- Housing Starts (BB) Dec Forecast: 1.983M Previous: 2.070M Building Permits (BB) Dec Forecast: 1.860M Previous: 1.863M ------------------ Thursday, 01/22/04 ------------------ Initial Claims (BB) 01/16 Forecast: N/A Previous: 343K Leading Indicators (DM) Dec Forecast: 0.2% Previous: 0.3% ---------------- Friday, 01/23/04 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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The Option Investor Newsletter Sunday 01-18-2004 Sunday 2 of 5 In Section Two: Watch List: Watch Those Earnings Dates Dropped Calls: None Dropped Puts: None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Watch Those Earnings Dates ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ 3M Co - MMM - close: 85.48 change: +1.18 WHAT TO WATCH: One of the strongest components in the Dow Jones Industrials is MMM. This last week has seen a ramp up in price ahead of its Tuesday, Jan. 20th earnings announcement. The breakout over $85 looks good but wait to hear what MMM has to say about next quarter's guidance. Estimates are for 76 cents a share. Chart= --- Tech Data Corp - TECD - close: 41.82 change: +1.25 WHAT TO WATCH: Poised to breakout to new highs again is TECD. The computer hardware-related issue has been consolidating sideways for a couple of weeks but sprang higher on Friday after Morgan Stanley initiated coverage with an "over weight". Earnings are not until late February so there's plenty of time to follow it for a potential breakout. A trigger over $42.00 might work with a target near $46-47. Chart= --- Northrop Grumman - NOC - close: 100.29 change: +1.56 WHAT TO WATCH: There has been some excitement building in the defense stocks for a potentially very strong December quarter and NOC has run from $95 to breakout over the $100 mark. There is going to be several major earnings announcements for the sector this week. That means volatility and potential opportunities abound. NOC doesn't report until Feb. 4th so we'll be looking for a dip to the $97.50 level. Chart= --- Fedex Corp - FDX - close: 69.94 change: +0.62 WHAT TO WATCH: Shares of FDX are back! A week ago they looked poised for a massive breakdown under the $65 level but an upgrade from Bear Stearns reversed the stock's direction. Now FDX is poised to breakout over the $70 mark. Look for strong volume on the move because FDX is going to need some momentum to get past its 50-dma still overhead. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- EL $40.67 +1.99 - Earnings for Estee Lauder aren't till Jan. 29th but the stock is breaking out over the $40 level of resistance on decent volume due to an upgrade from Deutsche to a "buy". SLAB $49.30 -0.22 - Earnings for SLAB are expected on Jan. 26th and that only leaves four trading days for any sort of pre- earnings ramp up. Look for a move over $50.00. CAT $84.14 +0.76 - CAT is a Dow component and will probably be influenced by the numerous earnings announcements expected on Tuesday. We'll be watching for a breakout over the $85 mark. ************************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 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. 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. 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The Option Investor Newsletter Sunday 01-18-2004 Sunday 3 of 5 In Section Three: Current Calls: AMZN, APOL, DGX, GD, GILD, MWD, MXIM, STJ New Calls: ESRX, MBI Current Put Plays: ADBE, DIA New Puts: None ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Amazon.com - AMZN - close: 55.72 chg: -0.46 stop: 51.25 Company Description: Amazon.com, a Fortune 500 company based in Seattle, opened its virtual doors on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and sellers list millions of unique new and used items in categories such as apparel and accessories, sporting goods, gourmet food, electronics, computers, kitchenware and housewares, books, music, DVDs, videos, cameras and photo items, toys, baby items and baby registry, software, computer and video games, cell phones and service, tools and hardware, travel services, magazine subscriptions and outdoor living items. (source: company press release) Why We Like It: It has been a busy week for shares of AMZN. The stock soared from the $49 level on Jan. 9th as investors hungrily bid up shares of internet stocks in front of YHOO's earnings announcement last Wednesday. Despite a sell the news effect for shares of YHOO after its announcement its strong revenues renewed hopes that AMZN would do the same. Considering that 2003 online sales during the holiday shopping were well above general estimates AMZN really does have an opportunity to deliver. The ramp up in AMZN shares has not only broken through price resistance at $55.00 but has also produced a fresh double-top breakout on its point-and-figure chart. We like the stock at current levels but if the major indices pull back traders can look for a dip to the $54 region. Keep in mind that AMZN is due to announce earnings on January 27th and we do not plan to hold over the event. This short time span (five more trading days) may be inappropriate for some investors. We're going to keep our stop loss at 51.25. Suggested Options: We really don't plan to hold over AMZN's earnings report on Jan. 27th so our preference is the February strikes. The February 55's are probably the best bet. BUY CALL FEB 50 ZQN-BJ OI=2668 at $6.90 SL=4.50 BUY CALL FEB 55 ZQN-BK OI=8817 at $3.60 SL=1.85 BUY CALL APR 55 ZQN-DK OI=5288 at $5.30 SL=3.25 Annotated chart: Picked on January 14 at $55.01 Change since picked: + 0.71 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 10 million Chart = --- Apollo Group - APOL - close: 74.14 change: +0.17 stop: 70.00 Company Description: The Apollo Group provides higher education to working adults. The company operates through its subsidiaries, The University of Phoenix, Inc., Institute for Professional Development, The College for Financial Planning Institutes Corporation and Western International University, Inc. APOL offers its programs and services at 58 campuses and 102 learning centers in 36 states, Puerto Rico, and Vancouver, British Columbia. Why we like it: APOL didn't waste any time after we began coverage on Tuesday, probing through our $73.25 trigger the very next day. It took until Thursday for a close over that level and then on Friday we were handed a close over $74. APOL is once again setting new highs on a daily basis and we can only wonder how long this trend can continue. Until some contrary evidence appears, we'll go with the assumption that there is more upside in store. Momentum traders got their opportunity to go long on the break above resistance last week and dip buyers will get their chance on a pullback to confirm support near $72, reinforced by the 10-dma ($72.19). The overall market is still acting quite bullish and the Education stocks are all looking strong, with APOL leading the pack. What more can we ask for? We'll ride the trend as long as it lasts, using the 20-dma ($70.31) as last ditch support on a more substantial pullback. Maintain stops at $70. Suggested Options: Shorter Term: The February $75 Call will offer short-term traders the best return on an immediate move, as it is just slightly out of the money. Short term traders with a less aggressive stance will want to use the ITM February $70 call. Longer Term: Aggressive longer-term traders can use the May $80 Call, while the more conservative approach will be to use the May $75 strike. Our preferred option is the February $75 strike, which is at the money and should provide sufficient time for the play to move in our favor. BUY CALL FEB-70 QAQ-BN OI=4399 at $5.60 SL=2.75 BUY CALL FEB-75*QAQ-BO OI=1016 at $2.15 SL=0.75 BUY CALL MAY-75 QAQ-EO OI=1553 at $4.90 SL=3.00 BUY CALL MAY-80 QAQ-EP OI= 296 at $2.90 SL=1.50 Annotated Chart of APOL: Picked on January 13th at $72.63 Change since picked: +1.51 Earnings Date 3/18/04 (unconfirmed) Average Daily Volume = 2.05 mln Chart = --- Quest Diagnostic - DGX - close: 76.81 chg: +0.03 stop: 72.95 *new* Company Description: Quest Diagnostics Incorporated is the nation's leading provider of diagnostic testing, information and services, providing insights that enable physicians, hospitals, managed care organizations and other healthcare professionals to make decisions to improve health. The company offers the broadest access to diagnostic laboratory services through its national network of laboratories and patient service centers. Quest Diagnostics is the leading provider of esoteric testing, including gene-based medical testing, and empowers healthcare organizations and clinicians with state-of-the-art connectivity solutions that improve practice management. (source: company press release) Why We Like It: We've also seen a strong week for shares of DGX. The stock finally finished its consolidation and produced the upside breakout we've been looking for. Now that DGX has broken resistance at $75 is should become our first line of new support. The lack of profit taking from the Wednesday-Thursday rally is very encouraging. Unfortunately, this does create a short-term overbought condition and may not be productive for new positions. This is especially true considering our short time frame. DGX is due to announce earnings on Jan. 27th and we do not plan to hold over the event. Aggressive traders nimble enough to jump in and out might want to consider buying dips to $75 but do so carefully. We are going to raise our stop loss to break even at $72.95. Fortunately, there is no resistance between here and the $80 mark for DGX. Suggested Options: We're cautious on new plays but bullish traders can probably best play DGX with February strikes. BUY CALL FEB 70 DGX-BN OI=1792 at $6.90 SL=4.50 BUY CALL FEB 75 DGX-BO OI= 808 at $3.60 SL=1.75 BUY CALL MAY 75 DGX-EO OI=2023 at $5.30 SL=3.25 Annotated chart of DGX Picked on December 30 at $72.95 Change since picked: + 3.86 Earnings Date 01/27/03 (confirmed) Average Daily Volume: 836 thousand Chart = --- General Dynamics - GD - close: 93.78 chg: +1.45 stop: 91.75 *new* 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: Investors might want to consider GD the little engine that could. Or maybe the little submarine or tank that could is a better analogy. Shares of GD have been climbing a narrow channel for weeks now and this past week was no different. At $93.78 we're up $5.00 from our picked price and approaching our initial target at $96.00. Driving the defense stocks is a strong expectation for outstanding fourth quarter earnings. A Reuters article recently stated that military investment had climbed to $12.6 billion in December, the highest level in years. The same article reported that Bank of America had named GD as its top defense pick based on the company's strong cash flow. We reported a week ago that BAC has reiterated its "buy" rating on GD. We are very encouraged by the rising channel but our time is short for this play in GD. The company announces earnings on Wednesday, Jan. 21st and we do not plan to hold over the event. This means we will be closing the play at Tuesday's closing bell. In order to protect some of our current gains we're going to raise our stop loss to 91.75. On the chance that GD should spike higher on Tuesday we're going to set an official exit price at $96.00. If GD trades there intraday we're out. Due to the short time left in this strategy we are not going to suggest new positions. An alternative for traders looking to play the defense sector is Northrop Gruman (NOC). However, we would probably look for a dip in shares of NOC before initiating any new positions. Earnings for NOC should be Feb. 4th. Actually, this coming week we'll hear from several major defense companies. It will be interesting to see what kind of guidance they offer for the next quarter. Suggested Options: There is no time left before GD's Wednesday earnings report and we are not suggesting new positions. Annotated Chart: Picked on December 21 at $88.78 Change since picked: + 5.00 Earnings Date 01/21/04 (confirmed) Average Daily Volume: 1.0 million Chart = --- Gilead Sciences - GILD - cls: 63.39 chng: +1.44 stop: 60.00*new* 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: After its strong breakout on January 7th, GILD has just been marking time in a consolidation pattern from $60.50-63.00 with a couple brief forays over the top of that zone. We've stated that it had the look of a bullish continuation flag, and if Friday's price action is to be believed, then it looks like we were right. GILD rebounded from the 10-dma on Thursday and continued that strength with a push through and close above $63 for the first time since the September gap. Note however, that the stock was unable to push through the $64 level, which will be necessary if GILD is going to move into that gap and reach our first target at $66. Traders looking to enter on strength will want to wait for a move through $64 before playing. The best dip-buying entries are likely behind us on this play, but another pullback near the 10-dma ($61.28) is a viable entry point. We are starting to run short on time for this play, as the company is set to report earnings on January 29th, so hopefully we'll get that follow- through into the gap early next week. Raise stops slightly to $60 this weekend, which is just below the 20-dma ($60.06). Suggested Options: Shorter Term: The February 65 Call will offer short-term traders the best return on an immediate move, as it is just slightly out of the money. Longer Term: Aggressive traders looking to capitalize on an extended rally will want to look to the May 65 Call. This option is currently slightly 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. Our preferred option is the February $65 strike. BUY CALL FEB-60 GDQ-BL OI=8758 at $5.00 SL=3.00 BUY CALL FEB-65*GDQ-BM OI=6412 at $2.35 SL=1.25 BUY CALL MAY-65 GDQ-EM OI= 949 at $4.60 SL=2.75 Annotated Chart of GILD: Picked on December 21st at $59.40 Change since picked: +3.99 Earnings Date 1/29/04 (confirmed) Average Daily Volume = 3.73 mln Chart = --- Morgan Stanley - MWD - close: 60.43 chg: +0.62 stop: 56.75 Company Description: Morgan Stanley is a global financial services firm and a market leader in securities, investment management and credit services. With more than 600 offices in 28 countries, Morgan Stanley connects people, ideas and capital to help clients achieve their financial aspirations. (source: company press release) Why We Like It: (Original Update from Thursday below) The JPMorgan (JPM) and Bank One (ONE) merger has set the financial and broker-dealer sectors on fire. Okay, "on fire" may be melodramatic but there were a large number of new highs and breakouts today after last night's announcement. As a matter of fact the XBD broker-dealer index closed near its all-time highs. Pacing the leaders is MWD who broke out of its recent consolidation. The revival of M&A activity has been a cash cow for the major Wall Street firms like MWD and the momentum appears to be picking up steam. Case in point, China plans to have 9 IPOs this year worth upwards of $13 billion and MWD is considered a front runner for the underwriting. Plus, investors might be feeling a bit "safer" with MWD after the company's $50 million settlement last November with the SEC over some fraud charges. Those familiar with the case will remember that MWD failed to disclose some promotional "arrangements" with 16 funds in its Partners plan. We like the breakout today on strong volume and believe MWD can trade to the $65 level before hitting any major resistance. We'll start the play with a stop loss at $56.75. Weekend Update: So far so good. Shares of MWD are seeing some follow through by investors on the Thursday breakout and the close above the $60 level is very encouraging. Following along with the thought process above with M&A activity and new IPOs as a source of income for MWD, recent headlines report that a Japanese bank plans to IPO in February and MWD is one of the underwriters. Suggested Options: We like the February and April 55 and 60 calls but our favorite is the February 55's. BUY CALL FEB 55*MWD-BK OI= 769 at $5.90 SL=3.55 BUY CALL FEB 60 MWD-BL OI= 5299 at $2.00 SL=1.00 BUY CALL FEB 65 MWD-BM OI= 1621 at $0.35 SL= -- BUY CALL APR 60 MWD-DL OI=19515 at $3.20 SL=1.60 BUY CALL APR 65 MWD-DM OI= 9336 at $1.05 SL=0.55 Annotated Chart: Picked on January 15 at $59.81 Change since picked: + 0.62 Earnings Date 03/18/04 (unconfirmed) Average Daily Volume: 3.8 million Chart = --- Maxim Integrated - MXIM - cls: 55.38 chg: -0.14 stop: 51.45 Company Description: Maxim Integrated Products is a leading international supplier of quality analog and mixed-signal products for applications that require real world signal processing. (source: company press release) Why We Like It: The semiconductor sector just keeps going and going and going. There was a strong push higher ahead of Intel's earnings announcement last week followed by some minor profit taking but the SOX looks poised to charge higher yet again. Hopefully, MXIM will also continue to follow the sector index higher. Shares of MXIM enjoyed a strong, volume powered surged to new highs but has spent the last four sessions digesting its gains in a sideways fashion. You've no doubt heard it a dozen times already but expectations for chip sales in 2004 are very high. In the next two weeks we'll hear earnings announcements from a number of chip companies. How they guide for the next quarter should confirm or undermine those 2004 expectations and influence the direction of the SOX. Traders might want to be patient for new entries in MXIM and look for dips to the $53.50-54.00 range. We're going to keep our stop at 51.45 for the moment. Suggested Options: Our preference is the February or May strikes. Our favorite is the February 50's, especially on a dip. BUY CALL FEB 50*XIQ-BJ OI=2320 at $6.20 SL=3.75 BUY CALL FEB 55 XIQ-BK OI=2643 at $2.70 SL=1.35 BUY CALL MAY 55 XIQ-EK OI=1321 at $4.80 SL=2.50 Annotated Chart: Picked on January 06 at $51.89 Change since picked: + 3.49 Earnings Date 02/05/04 (unconfirmed) Average Daily Volume: 5.4 million Chart = --- Saint Jude Medical - STJ - cls: 64.62 chg: +0.99 stop: 61.00*new* Company Description: St. Jude Medical, Inc. (www.sjm.com) is dedicated to the design, manufacture and distribution of innovative medical devices of the highest quality, offering physicians, patients and payers unmatched clinical performance and demonstrated economic value. (source: company press release) Why We Like It: Finally! STJ has finally produced a breakout over $64.00 that has stuck. Volume was only a little better than average but we won't complain. If you remember last week we added STJ as a technical play with a good fundamental story. Medical device stocks have been very strong performers this last year and the same is expected for this year. STJ is expecting the FDA to offer an approval for their Epic HF implantable heart-failure device in May. As soon as it is approved it will be competing with Medtronic and Guidant in a very lucrative industry. At least one Wall Street firm is positive on the company as a J.P.Morgan analyst picked STJ as one of its two top stocks for 2004 in the medical device field. On top of a potential new product launch in May a Reuters article also revealed that the JPM analyst believes STJ is a takeover candidate in 2004 and Boston Scientific and Johnson & Johnson are top contenders to acquire the company. Now that STJ has finally closed over the $64 mark we can look for some follow through on the cup-and-handle formation. Unfortunately, we don't have too much time left before STJ's Jan. 28th earnings announcement. We're going to raise our stop loss to $61.00, under what should be support at 61.50. Suggested Options: We like the February and April 60s and 65s. Our favorite is the February 60s. BUY CALL FEB 60*STJ-BL OI= 155 at $5.60 SL=3.25 BUY CALL FEB 65 STJ-BM OI=1128 at $2.35 SL=1.15 BUY CALL APR 65 STJ-DM OI= 459 at $3.70 SL=1.95 Annotated chart: Picked on January 12 at $64.01 Change since picked: + 0.61 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 1.4 million Chart = ************** NEW CALL PLAYS ************** Express Scripts - ESRX - close: 68.32 change: +1.62 stop: 63.00 Company Description: Express Scripts provides health care management and administration services on behalf of clients that include health maintenance organizations, health insurers, third-party administrators, employers and union-sponsored benefit plans. The company's fully integrated pharmacy benefit management services include network claims processing, mail pharmacy services, benefit design consultation, drug utilization review, formulary management, disease management, medical information management services and informed decision counseling services through its Express Health Line division. Why we like it: Following a double top last summer, shares of ESRX fell into a persistent downtrend that lasted all the way into the end of October, with a low for the move near $52. The stock quickly bounced back to strong support at $55 and after basing just above that level for a couple weeks, the stock began to see renewed buying interest. There didn't seem to be any company-specific news to explain it but ESRX blasted higher in mid-November, most likely as investors expected the Bush administration's Medicare prescription drug plan to be a positive. The initial surge took the stock up to the $64 level and price then spent the next 2 months building a new base from which to advance to higher levels. The pattern has been bullish with price finding support near the 200-dma ($63.07). The past week has seen ESRX on the move again after Monday's rebound from just above the 200-dma. Friday's session was the clincher, as the stock broke above its recent highs and topped the $68 level on a closing basis for the first time since the big gap down in July. Based just on the price action, ESRX looks poised to at least fill that gap up to the $71.50 area and most likely test its summer highs near $75. The PnF chart paints an even more bullish picture, with the November Buy signal giving a bullish price target of $93! Obviously we're not going to shoot for those lofty heights in this play, but it does show the upside potential. Friday's Ascending Triple Top breakout just reinforces the bullish picture. We'll set the $75 level as our initial target on the play and see how much more upside looks reasonable once that target has been reached. The ideal entry point would now come on a pullback to confirm support at former resistance near $66, while momentum entries are possible on a breakout over Friday's high. ESRX does have the potential to be a bit volatile, so we're going to start with a rather broad stop at $63. That is just below the 50-dma ($63.30), which is just crossing over the 200-dma. Additionally, it would take a trade of $63 to turn the PnF chart bearish. Suggested Options: Shorter Term: The February $70 Call will offer short-term traders the best return on an immediate move, as it is just slightly out of the money. Short term traders with a less aggressive stance will want to use the ITM February $65 call. Longer Term: Aggressive longer-term traders can use the May $75 Call, while the more conservative approach will be to use the May $70 strike. Our preferred option is the February $70 strike, which is just slightly out of the money and should provide sufficient time for the play to move in our favor. BUY CALL FEB-65 XTQ-BM OI=2123 at $5.00 SL=3.00 BUY CALL FEB-70*XTQ-BN OI=2556 at $1.75 SL=0.75 BUY CALL MAY-70 XTQ-EN OI= 257 at $4.30 SL=2.75 BUY CALL MAY-75 XTQ-EO OI= 34 at $2.40 SL=1.25 Annotated Chart of ESRX: Picked on January 13th at $68.32 Change since picked: +0.00 Earnings Date 2/24/04 (confirmed) Average Daily Volume = 1.29 mln Chart = --- MBIA Inc. - MBI - close: 62.92 chg: +0.51 stop: 59.00 Company Description: MBIA Inc., through its subsidiaries, is a leading financial guarantor and provider of specialized financial services. MBIA's innovative and cost-effective products and services meet the credit enhancement, financial and investment needs of its public and private sector clients, domestically and internationally. MBIA Inc.'s principal operating subsidiary, MBIA Insurance Corporation, has a financial strength rating of Triple-A from Moody's Investors Service, Standard & Poor's Ratings Services, Fitch Ratings, and Rating and Investment Information, Inc. (source: company press release) Why We Like It: We realize the insurance sector looks a little extended as seen by the steady trend in the IUX insurance index, but the sector's breakout over the 300 level is a major turning point for the group. We like MBI because the stock could be poised to play "catch up" with its peers. MBI has been consolidating sideways in the $55 to $60 range for four months. This last week it has broken out above resistance at $60 to hit new all-time highs. We tried to find the catalyst for the high-volume breakout but the only news on Jan. 12th was a press release that MBIA's Vice Chairman Richard Weill would retire and Mitchel Sonkin would be named the head of its portfolio management unit. It's very common for stocks to pull back and retest a broken resistance level as support. MBI did just that the day after its breakout and investors bought the dip. We like the stock at current levels and any dips above $61 sound like entry points to us. MBI is due to announce earnings on Feb. 3rd and we're not currently planning to hold over the event. We'll start the play with a stop loss at $59.00. Suggested Options: We have a short time frame for this play with earnings on Feb. 3rd so our preference is for the February strikes. Our favorite is the Feb. 60. BUY CALL FEB 60 MBI-BL OI=877 at $4.00 SL=2.25 BUY CALL FEB 65 MBI-BM OI=950 at $1.15 SL=0.60 BUY CALL MAY 65 MBI-EM OI=732 at $2.95 SL=1.50 Annotated Chart: Picked on January 20 at $62.93 Change since picked: + 0.00 Earnings Date 02/03/04 (confirmed) Average Daily Volume: 572 thousand Chart = ************************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 ***************** Adobe Systems - ADBE - close: 38.30 change: -0.15 stop: 40.00 Company Description: A long-time leader in desktop publishing software, ADBE provides graphic design, publishing, and imaging software for Web and print production. Offering a line of application software products for creating, distributing, and managing information of all types, the company generates nearly 75% of sales through publishing software products such as Photoshop, Illustrator, and PageMaker. Its Acrobat Reader, which uses portable document format (PDF) is popping up all over the Internet, as businesses shift from print to digital communications. In addition, ADBE licenses its industry standard technologies to major hardware manufacturers, software developers, and service providers, as well as offering integrated software solutions to businesses of all sizes. Why we like it: Defying the odds, shares of ADBE did not follow through on their break below the 200-dma ($37.41) a week ago and instead were magnetized to that average for most of the week before Thursday's strong rebound. Fortunately for us, ADBE once again underperformed on Friday, rolling over at the converged 20-dma ($38.97) and 30-dma ($39.03) and falling back near $38 in the afternoon. ADBE still looks weak, but it is rather puzzling that there wasn't any follow-through from the break of the 200-dma. Aggressive traders could have taken advantage of Friday's rollover, but we'd feel a lot better about such a strategy if price would have dropped back under $38 support. Since that didn't happen, caution is the watchword. Traders looking to enter on further weakness will need to wait for last week's intraday low ($36.36 to be broken before playing). Maintain stops at $40, a resistance level that will soon be reinforced by the falling 50-dma ($40.15). Suggested Options: Aggressive short-term traders can use the February 35 Put, while those with a more conservative approach will want to use the February 40 put. Trader looking for greater insulation against time decay will want to consider the April 35 Put. The February $40 strike is our preferred option. BUY PUT FEB-40*AEQ-NH OI=1179 at $2.75 SL=1.25 BUY PUT FEB-35 AEQ-NG OI=1611 at $0.60 SL=0.30 BUY PUT APR-35 AEQ-PG OI=2702 at $1.50 SL=0.75 Annotated Chart of ADBE: Picked on January 11th at $37.12 Change since picked: +1.18 Earnings Date 3/11/04 (unconfirmed) Average Daily Volume = 3.24 mln --- Diamonds Trust - DIA - cls: 106.12 chng: +0.16 stop: 106.25 Company Description: DIAMONDS represent ownership in the DIAMONDS, Trust Series 1, a unit investment trust established to accumulate and hold a portfolio of the equity securities that comprise the Dow Jones Industrial Average. DIAMONDS seek investment results that, before expenses, generally correspond to the price and yield performance of the DJIA. There is no assurance that the price and yield performance of the DJIA can be fully matched. Why we like it: Going out at new recent highs is not a good sign for our bearish DIA play. We got one mild downward move early in the week, and the dip buyers showed up in sufficient numbers to drive price right back to resistance. While an argument could be made that a part of the strength is attributable to options expiration, that doesn't change the fact that technically DIA is looking much stronger than it was a week ago. Barring early weakness on Tuesday, it seems inevitable that our $106.25 stop will be hit early next week. When we initiated the play, we did so knowing that it was high time for some significant profit taking in the DIA, but so far it really hasn't come to pass. New positions are not really advisable at this point, as we need to see some tangible weakness first. Even aggressive traders will want to see a break back under the $105.50 level and preferably $105 before playing. Of course, the problem with that strategy is the potential for the 20-dma ($104.59) to once again provide support as it did last Tuesday. So more conservative traders will want to wait for the 20-dma to break before playing. If our stop is hit, we'll move to the sidelines and wait for a better opportunity to play the downside. Suggested Options: With strikes at one point intervals, the DIA gives us plenty of choices, from in the money to out of the money. Aggressive traders can consider the $103 or even the $102 strike, while those with a more cautious approach can select either the $104 or $105 strikes. Our preferred option is the $104 strike. BUY PUT FEB-105 DIA-NA OI=6192 at $1.40 SL=0.75 BUY PUT FEB-104*DIA-NZ OI=6729 at $1.10 SL=0.50 BUY PUT FEB-103 DIA-NY OI=7930 at $0.85 SL=0.40 BUY PUT FEB-102 DIA-NX OI=2093 at $0.65 SL=0.30 Annotated Chart of DIA: Picked on January 8th at $104.69 Change since picked: +1.43 Earnings Date N/A Average Daily Volume = 5.67 mln 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 01-18-2004 Sunday 4 of 5 In Section Four: Leaps: Expiration At The Highs Traders Corner: Sometimes You Get The Bull - Sometimes The Bull Gets You ************************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 ***** Expiration At The Highs By Mark Phillips mphillips@OptionInvestor.com Once again, the bulls dashed any hopes the bears had of any broad market weakness, bringing to 8 the number of consecutive positive weeks for the DOW. All of the major indices ended the week at new correction highs and it seems there is no resistance level strong enough to hold back the market's advance. The DOW ended right at 10,600 on expiration Friday, but it was the laggard, as the SPX pushed through its 200-week moving average to close just below 1140. The real strength once again was found in the Technology sector, with the NASDAQ Composite tacking on 1.48% to end at 2140, a level last seen in July of 2001. The COMPX also moved through its 200-week moving average on Friday. The market was overdue for a pullback as the calendar rolled over 2004 and with all of the major indices substantially higher, that pullback is just that much more overdue. Last week's dip was almost negligible, particularly in the COMPX and the SPX and we really have to wonder how much higher it can go. That said, it obviously isn't working to try to pick a top in the market, as I've proven quite well with our attempted bearish plays on the DJX, QQQ and SMH. Defying the odds, the VIX closed at yet another multi-year low of 15.00 on Friday and the NASDAQ-100 Volatility Index dropped to 20.24, losing more than 10% on Friday alone! Bullish sentiment is clearly over the top, with sentiment indicators showing bullish extremes that haven't been witnessed in many years. How much longer can it go on? When confronted by this question, I always hearken back to the adage that "the market can remain irrational longer than I can remain solvent." Or put another way, if at first you don't succeed, try, try again. Then give up -- there's no sense being a damn fool about it. That is once again the position I find myself in with respect to trying to pick a top in this market. Numerous attempts have all failed and the only explanation is that there is just no inclination to sell. My failed bearish trade attempts aside, this continued (irrational) rally causes me deep concern because we are once again building up the kinds of excesses witnessed in early 2000. I've run down the whole punch list of problems before -- excessive debt at all levels from consumer up to the Federal Government, a very inflationary monetary policy, a complete dearth of domestic job creation, equity valuations once again reaching nosebleed levels and investor complacency reaching historic highs -- so there is no need to belabor the point here. I really am NOT a dyed in the wool bear. I like to go long as much as the next guy, but it is becoming increasingly difficult to do so for any reason other than the expectation that some other fool will later pay more for the same stock. In the mania leading up to the top in late 1999/early 2000, equities ceased being treated as pieces of an underlying business and began trading as little more than speculative pieces of paper. The "Greater Fool" theory reigned supreme. The bear market that began in early 2000 was inevitable, but the unprecedented stimulus from both the Bush administration and the Federal Reserve have kept the necessary purging from running its course. Stocks continue to be valued as speculative pieces of paper a fact borne out by Warren Buffett's statements that he can no longer find any values in the U.S. markets, either in stocks or bonds. Few (if any) investors can go toe-to-toe with the Oracle of Omaha, and I'd be the last one to line up for the attempt. But I like to think I'm smart enough to pay attention to what he has to say. Why is it after these many decades of successful investing, that Mr. Buffett has begun investing in foreign currencies? The answer is simple -- because he sees the monetary creation here in the U.S. as being long-term very detrimental to the dollar and to the value of his many domestic investments. He's trying to mitigate his risk. I think it would be very interesting indeed to find out Mr. Buffett's stance on precious metals and mining stocks. To me, there are two pivotal issues upon which the direction of the market's hinge in the long term. The first is the health of the dollar and the second is the trend of employment in the U.S. The trend of the dollar is clearly down and the bounce last week in the US Dollar index (DX00Y) is little more than an oversold rebound. It will be nigh impossible to reverse the bearish trend of the dollar so long as the Fed prints money like it is Monopoly money and the Bush administration continues to spend money like a bunch of drunken sailors. Those trends are not sustainable without a major drop in the value of the dollar. I know, you're wondering what we just witnessed over the past 2 years. The opening act. From here on out it has the potential to get very ugly, as all this stimulus has been injected under the premise that once the economy begins growing in a robust manner, it will bolster the government's tax receipts and we'll move back into an expansionary phase. That's a nice story, but somehow I don't think it is going to play out that way. The "Salvation Through Economic Growth" hinges on one very important factor, domestic job growth. In short, it isn't happening, and I think the recent employment statistics really bear that out. Forget about the headline number from the recently disappointing Jobs report (which was abysmal) and look under the surface of the jobs being created. That's where the picture turns truly ugly. From August through November, payrolls have increased by only 328,000 workers, a mere 82,000 per month. That's not even close to the 250,000 per month that we should be seeing if economic recovery were progressing at a normal rate. But it is the mix of jobs being created that should really cause us concern. More than 80% of the total are being added in four of the least productive areas -- Temporary Staffing, Healthcare, Education and Government. Where are the new jobs in Technology, Manufacturing or even Retail sectors? With consumers counting for the lion's share of money spent in the economy and debt levels running at all-time highs, we are forced to ask the question, "If jobs are not being created, what happens to the economy when the current round of stimulus has run its course?" Sadly, I fear it is going to end quite badly. For all those that point at rally in the equity market as signs of economic recovery, I will point them towards our neighbors to the West, Japan. There were numerous stupendous rallies in the Nikkei on its way to the lows of last year and each one was only a precursor to lower lows ahead. What became painfully clear was that no amount of stimulus was sufficient to stay the normal market forces. I won't make the argument that the US market will follow the course of Japan's market, because there are numerous internal differences. But I feel we must continue to be aware that Japan's course over the past decade is perfectly capable of being repeated here at home. This is all very interesting and quite possibly a reality we must consider in the distant (or maybe not-so-distant) future, but for now, it is not something with which the majority of investors are particularly concerned. As long as the stimulative monetary environment persists and selling pressure remains low to nonexistent, we can look for the market to churn higher or at worst consolidate in a healthy manner. That means we can look for bullish plays to be in favor. The troublesome task we have is in identifying where significant upside exists and then getting an entry point early in that trend. Portfolio: WMT - The more I watch the price action in WMT, the more convinced I become that the stock is building a new base and getting ready to move higher. Since the play has never really worked in our favor - at least in terms of the LEAPS prices - I'm pulling the plug this weekend. Better a near-breakeven trade than a loser if the stock breaks out next week. SBUX - In defiance of the recent valuation downgrade, SBUX built a new base near $33 and launched higher last week, closing at a new all-time high of $34.56. We don't know how high this run can go, but certainly it shows no signs of slowing right now. The stock has been trading consistently within its aggressive rising channel that began back in June and has now consolidated its breakout over the top of the longer-term rising channel, the top of which is at that $33 level. With lots of support at $32 and then $30, it no longer seems necessary to hold such a wide stop, so we'll raise it to $29.50 this weekend. More conservative trader can even raise their stop to ensure a break even trade at worst, perhaps setting the stop at $32, just under the 50-dma. A break below the 50-dma would also violate the bottom of the current channel and would be the first tangible sign of weakness. With weekly Stochastics once again turning solidly higher and completing yet another short- cycle reversal, it certainly looks like higher levels are in store. Our initial target is $37 and our optimistic target is up at $40. If that higher level is reached, then we'll have to give serious consideration to just exiting on strength. QQQ - Sigh...Well, another bearish play bites the dust, as the QQQ rose through our stop on Friday. This play rose further than I thought possible, but that doesn't invalidate the move. We have no choice but to drop the play this weekend. DJX - Last Friday's drop was indeed a sign of things to come and we got some real weakness on Tuesday, that dropped the DJX all the way to its 20-dma (then $103.72) before the buyers appeared. And the didn't let up from that point all the way to the closing bell on Friday. The DJX ended at $106.01 and is now just a stone's throw away from taking out the 2002 highs in the $106.50-106.75 area. As unbelievable as it seems, the DJX looks destined to take out that resistance, quite possibly next week, despite the fact that the VIX ended the week at yet another new closing low of 15.00. At this point, I expect our stop to be taken out and putting us on the sidelines just about the time the real decline gets underway. That said, I do NOT advise holding this position if our stop is hit. Capital preservation is the key and if this play is stopped out, then we'll just have to wait for the market to demonstrate some real weakness before attempting to play the downside again. SMH - The theme remains the same and that is that any no bearish position trades are working right now. After breaking out the week before last, the SMH dipped back to $44 on very mild profit taking and is once again surging higher. As was the case last week with our QQQ play, I expect the SMH to take out our $46 stop next week and we could be looking at a rally that continues right up to $50 or higher. Fundamentally justified? Not in my opinion. But it really doesn't matter what I think. The only important measure is price action and so far the SMH continues to act in a bullish manner. Honor your stops and if stopped out, we'll leave this one alone until we see weakness proven with a break below the 100-dma. Should our stop survive by some miracle, we'll need to see the SMH break the 50-dma (at a minimum) before we can have any confidence of sustained weakness. NEM - The profit taking we've been waiting for in the Gold stocks arrived with a vengeance last week, driving shares of NEM right down to the top of our targeted entry zone. Finally, we get to move this play onto the Portfolio and I couldn't be happier. Full details below. Watch List: QCOM - Since reaching the $60 level, shares of QCOM have been consolidating their recent rise, and given the complete lack of price weakness, I have to say this looks like a healthy consolidation. That said, there are some important things that need to take place before we consider taking an entry, not the least of which is filling in the early January gap down to the $55.75 level. Until we see some real profit taking we must leave this play on HOLD. There's simply too much potential downside risk with banging into strong resistance near the highs from late 2001 and weekly Stochastics buried deep in overbought. EK - We shouldn't have any illusions about the expected decline in EK to unfold rapidly or dramatically. The stock just finished a very healthy and necessary oversold rebound, which fortunately took the stock right to our $27 entry target. Since that was also the site of the 200-dma, the price weakness over the past week is entirely normal. But that doesn't mean the bulls are done with the stock just yet. Weekly Stochastics are starting to weaken near overbought territory and that is a good sign. We'll feel much better though when they give that bearish cross and begin their downward trek, as that will leave behind a very clear bearish divergence, caused by higher Stochastics highs and lower price highs, as compared to the peak in early September. There are no adjustments to be made here, as our stop is in the right location and now we just wait for gravity to take its effect. HD - With the Home Builders index ($DJUSHB) continuing to suffer mild weakness despite the fall in interest rates last week, HD actually held up fairly well, continuing its consolidation between $34.50-36.00. But with the continued strength in the overall market and the DOW threatening to challenge its 2002 highs, I'm still expecting HD to make a run at the top of its long-term descending channel. We've got our entry target set just above the current consolidation at $37-38 and a failed rally near that area still looks quite good for new positions. SNDK - Helped by the remarkable strength in the rest of the Technology sector, SNDK hasn't come anywhere close to giving us our desired entry point. The 50% retracement of the decline off the November highs is $69.75 and it is notable that the stock pushed through that level briefly on Tuesday only to spend the remainder of the week below that level. The other important technical measure is the 50-dma, and it helped to turn the stock back on Tuesday. I'm still expecting a significant pullback before the stock can manage a sustained rally back to its 2003 highs, but waiting for the December lows to be revisited is probably too aggressive. Let's go ahead and get more aggressive with our entry, targeting a dip and rebound from the $59-60 area. There's definitely the possibility for SNDK to challenge its highs from last year over the next 12 months, so we'll start with a stop at $53, just below both the December low ($53.20) and the 200-dma ($54.06). Radar Screen: GENZ - Last week's rally in GENZ gave us the answer we've been waiting for, as the stock decisively broke out over the $52 resistance level and continued soaring from there. The stock is looking very strong, and buying volume is running well above the ADV. Clearly we no longer have a bearish case to make for GENZ, especially with the BTK index moving up to its best levels since early 2002. Let's consider ourselves lucky to have dodged this bullet. MLNM - I've had my eye on the Biotechnology stock for several months now and I think it is high time that we add it to our Radar Screen. Following the low posted last Spring, the stock has been trending higher in a methodical fashion. There are some very basic fundamental drivers that could send the stock up into the mid-$20s to as high as the mid-$30s in the year ahead. Our approach will be to nab an entry point on a pullback near the trendline connecting the lows (currently just below $16) in the weeks ahead and then let the trend be our friend. CHK - I've been searching for a viable way to play the very bullish trend in the price of Natural Gas for some time now and the challenge has been in finding a stock tied to that sector that has both a bullish trend, but also has not become too extended. CHK fits that bill quite nicely, as it has been working its way higher in a steady rising channel since August. With the price of Natural Gas taking a hit last week, so did the stock, but that has only dropped it back to its 50-dma and price action is still well within the rising channel. I plan on capitalizing on the current weakness and riding the stock up towards the $20 level as the very bullish trend in this sector plays out throughout the year. WMB - This is another gas tied to the Natural Gas market that I think has great upside prospects. After being sold into oblivion in 2002, the stock has been building a very nice rising trend. Currently stalled near $11, I really like the prospects for a rally to at least $15 and quite possibly $20 over the course of the next year. We'll look for a pullback near the $9-10 area to provide an attractive entry point. Closing Thoughts: I must admit, writing this column this weekend was a struggle, primarily because of a nasty head cold that has sapped my strength. But it is also difficult to discern where the market might go next. It SHOULD reverse in the near term and I still expect to see a substantial pullback across the market. But that doesn't mean it will come to pass. If it fits your risk profile, I still like the odds for bearish plays on the major indices from current levels. But I'm having a harder time making a technical case for such a move. Given the very bullish action we've seen for the first two weeks of the year, it seems likely that the balance of the year will have a bullish resolution. Technically and fundamentally, I cannot justify such a development, but it is hard to argue with the historical precedent of the year following the trend of the first 5 days of January. Barring a substantial change in market sentiment, the best course of action will be to seek out bullish trends that we can enter on measured pullbacks to support. Have a great week! 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 $ 6.40 +48.84% $ 29.50 '06 $ 30 WSP-AF $ 6.40 $ 8.30 +29.69% $ 29.50 NEM 01/18/04 '05 $ 40 ZIE-AH $ 8.20 $ 8.60 + 4.88% $ 37.00 '06 $ 40 WIE-AH $10.20 $11.20 + 9.80% $ 37.00 Puts: SMH 12/30/03 '05 $ 40 ZTO-MH $ 4.90 $ 3.50 -28.57% $ 46.00 '06 $ 40 YRH-MH $ 6.60 $ 5.30 -19.70% $ 46.00 DJX 01/05/03 '04 $100 DJV-XV $ 4.50 $ 4.00 -11.11% $107.00 '05 $100 YDK-XV $ 6.80 $ 6.20 - 8.82% $107.00 EK 01/09/03 '05 $ 25 ZEK-ME $ 2.60 $ 2.95 +13.46% $ 31.00 '06 $ 25 WEK-ME $ 3.70 $ 4.10 +10.81% $ 31.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: QCOM 11/16/03 HOLD JAN-2005 $ 50 ZLU-AJ CC JAN-2005 $ 45 ZLU-AI JAN-2006 $ 50 WLU-AJ CC JAN-2006 $ 45 WLU-AI SNDK 12/21/03 $54-55 JAN-2005 $ 45 XWS-AK CC JAN-2005 $ 40 XWS-AJ JAN-2006 $ 45 YSD-AK CC JAN-2006 $ 40 YSD-AJ PUTS: HD 12/21/03 $37-38 JAN-2005 $ 35 ZHD-MG JAN-2006 $ 35 WHD-MG New Portfolio Plays NEM - Newmont Mining $42.59 **Call Play** It was bound to happen eventually and last week, the bullish trend in gold and the bearish trend in the US Dollar finally gave us the reversals we were waiting for. The root cause of the reversals is really unimportant, as the overall fundamental picture remains unchanged. The dollar will continue to be weak and gold will remain strong so long as the Fed continues its stimulative policy. We didn't want to chase NEM higher due to the strong rally it had enjoyed these past many months. The sharp selloff last week gave us the entry point we were looking for, as NEM fell to tap the top of our $40-42 entry zone on Thursday ahead of Friday's slight rebound. With weekly Stochastics early in their rollover from overbought territory, there is the distinct possibility that we'll see lower levels in NEM before the inevitable rebound begins. There is definitely support near $42, as demonstrated by the initial rebound in the stock, but stronger support doesn't come in until the $40 level, extending down to $38. So traders with greater patience may want to wait for a decline near that area before entering the play. Another approach would be to enter partial positions near current levels and then round out to a full position if/when we see a decline to that stronger support in the $38-40 area. I'm actually going to recommend a different approach, which I will expound on at greater length in an article next week. To protect ourselves from further downside, in addition to the purchase of the LEAP call, let's buy an insurance put to protect against negative price action. My recommendation would be to purchase the March $37 put NEM-OU (currently priced at $0.95). In this manner, we mitigate the potential downside of a substantial fall in NEM from the point of entry, as while the LEAP Call loses value, the insurance put will appreciate in value. Once NEM stabilizes and builds a new base, the first upside target will be for a run back to recent resistance at $50 and then a breakout to new multi-year highs from there. Next resistance comes in near $54 and then at $60, the site of the 1996 highs. We can use both the price of gold and the action in the XAU index as confirmation before entry. Gold should find strong support near $390 at the site of the long-term rising trendline and the XAU should find strong support first at $95 and then again near $90. We'll initially place our stop at $37, just below that strong $38 support, as well as the 200-dma, which is currently at $37.42. BUY LEAP JAN-2005 $40 ZIE-AH $ 8.20 BUY LEAP JAN-2006 $40 WIE-AH $11.20 New Watchlist Plays None Drops QQQ - $38.57 Forget about the overextension of the market, plunging volatility and the need for a serious correction, because the bulk of market participants certainly have. Following just enough weakness to trip our lower entry trigger in early December, the trajectory for the QQQ has been straight up. Resistance at 2000 for the NASDAQ and then 2100 were little more than speedbumps and on Friday the QQQ pushed through the $38.50 level to hit our revised stop. There's no way for me to build a bearish case for the NASDAQ, and it seems this rally will power right through the March 2002 highs near $39 and we could be headed for next major resistance near $42. Friday's close marks a 65% advance since the March 2003 lows and a more than 90% gain since the bear market lows. Make no mistake, with the NASDAQ volatility index (VXN.X) dropping to new all-time lows again and no major corrections in the QQQ since March, this market is due for a serious pullback. But I'm done searching for it until we see the trend of higher lows AND the 100-dma broken on a closing basis. Until that point, long is the only way to play except on a very short-term basis. WMT - $53.48 While WMT has not violated our stop yet, I just can't see the merit in continuing to keep the play open. After one brief foray down below $51, the stock has been building a solid base near $52 and price action is beginning to look stronger. Note that the 50-dma has now crept below $54 and it "should" provide a solid barrier. But the way this market has been ignoring what it should do, my expectations are that we will see a breakout above that line of resistance, perhaps as soon as next week. Take note of the fact that weekly Stochastics have now emerged from oversold and look headed back towards the top of their range, a bullish development. As noted on several occasions throughout the duration of this play, I've been exceedingly frustrated by the fact that price action has worked in our favor, but the options have not followed suit. Collapsing volatility certainly has played a part in that equation, but I can't escape the thought that perhaps there is something more at work. For several weeks now, our listed options have been stalled near break even and I believe the prudent move is to take an exit from the play while that is still the case. A breakout through resistance could have a significantly negative impact on those options. ************************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 ************** Sometimes You Get The Bull - Sometimes The Bull Gets You By Mike Parnos, Investing With Attitude Are we in a new bull market? Maybe. Maybe not. Maybe it's just a baby bull, but we got gored a little. Nothing major. It was just a flesh wound. Let's not be like the idiots who run with the bulls in Barcelona. We should either get on their back or step out of the way. As neutral strategy traders, "caution" is the word of the day in this trending market. Make sure your risk is defined. If you want to take a chance, let your kid pick the flavors at Baskin Robbins. Countin' The Cash The January option cycle was the third cycle in the second year of tracking our Couch Potato Trading Institute portfolio. This month we took a small step backwards, taking a loss of $2,035. We now have a three-month total of $4,395. It could have been a lot worse. We got out of our two losing positions early enough to avoid serious losses. Our decision to trade only five contracts of the NDX proved to be a wise one. Not bad considering we've been fighting a trending market with neutral positions. I know it's tough to pull the trigger and take the losses, but those good money management skills are a must if you want to become a successful, well-rounded trader. I've said it before, and I'll say it again -- delayed gratification is the definition of maturity. Summary Of Closed Trades for January NDX Iron Condor - $1,700 Loss SOX Iron Condor - $3,255 Loss XAU Iron Condor - $1,200 Profit OEX Credit Spread Boogie - $1,720 Profit Total: $2,035 Loss After our review January's trades, you'll see some "hypothetical" trades for the February (five-month) cycle. The market is trending. This is not an ideal environment for neutral trading strategies. Just because I've come up with trades for you to study, make sure you're comfortable with the strategies you're trading. There's nothing wrong with taking a month off. The market will always be there. Let your risk tolerance be your guide. ______________________________________________________________ You Can't Please Everybody! There was an old man, a boy, and a donkey. They were going to town and it was decided that the boy should ride. As they went along they passed some people who thought that it was a shame for the boy to ride and the old man to walk. The old man and boy decided that maybe the critics were right, so they changed positions. Later, they passed some more people who thought that it was a real shame for that man to make such a small boy walk. The two decided that maybe they both should walk. Soon they passed some more people who thought that it was stupid to walk when they had a donkey to ride. The man and the boy decided maybe the critics were right so, they decided that they both should ride. They soon passed other people who thought that it was a shame to put such a load on a poor little animal. The old man and the boy decided that maybe the critics were right, so they decided to carry the donkey. As they crossed a bridge they lost their grip on the animal and he fell into the river and drowned. The moral of the story: If you try to please everyone, you will eventually lose your ass. ______________________________________________________________ JANUARY CPTI POSITIONS Position #1 - NDX – (NASDAQ 100 Index) – Iron Condor – 1532.00 We sold 5 NDX January 1500 calls and bought 5 NDX January 1525 calls for a credit of $3.70 (x 5 = $1,850). Then we sold 5 NDX January 1325 puts and bought 5 NDX January 1300 puts for a credit of $2.40 (x 5 = $1,200). The total credit was $6.10. Maximum profit range: 1325 – 1500. Potential profit: $3,050. Closed for $1,700 loss. Position #2 – SOX (Semiconductor Index) – Iron Condor – 550.65 We sold 10 SOX January 530 calls and bought 10 SOX January 540 calls for a credit of $1.40 (x 10 = $1,400). Then we sold 7 SOX January 440 puts and bought 7 SOX January 425 puts for a credit of $1.35 (x 7 = $945). Our total credit was $2,345. Maximum profit range: 440 – 530. Potential profit: $2,345. Closed for $3,255 loss. Position #3 – XAU (Gold/Silver Index) – Iron Condor – $97.34 We sold 10 XAU January $95 puts and bought 10 XAU January $90 puts for a credit of $.60 ($600). Then we sold 10 XAU January $110 calls and bought 10 XAU January $115 calls for a credit: $.60 (600). Our total credit was $1.20 ($1,200). Maximum profit range: $95 – 110. Potential profit: $1,200. Expired for $1,200 profit. Position #4 -- OEX Credit Spread Boogie – 560.42 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. Maximum potential profit of $1,770. We wanted the OEX to finish above 535. Expired for $1,770 profit. _____________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $38.14 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. February: Feb. $34 calls and $36 puts – credit of $750. 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. Position #4 -- QQQ Diagonal Calendar Spread -- $38.14 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'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. We bought 10 QQQ March $34 puts for $1.20 and sold 10 QQQ January $33 puts for $.20. We rolled out to the February $34 puts and our total debit is now only $.70. _____________________________________________________________ NEW FEBRUARY CPTI POSITIONS Position #1 -- OEX – Credit Spread Boogie – 564.72 Our last CS Boogie worked out quite well. So, with the market trending, let's not fight the tape. We'll make the market prove us wrong. We're going to establish a bull put spread, take in some premium, and ride the wave into shore. Sell 3 OEX February 565 puts, and Buy 3 OEX February 540 puts Total credit: About $6.80 (x 3 contracts = $2,040) This strategy will require $25 x 3 contracts = $7,500. We're only trading three contracts because, if the market reverses significantly, it might become necessary to close the bull put spread and establish a bear call spread that may be wider and would require more contracts. We need to preserve our money for a potential maintenance requirement. In mid-2003 we went over this strategy at length. Review the old columns and go back over the risks and rewards. It's a good strategy that can be very profitable if you have the necessary patience and the maintenance. Position #2 – MNX (mini NDX index) – Iron Condor -- 155.36 This is the index I stumbled across recently that seems substantially safer than the highly volatile NDX. We're going to put on an Iron Condor with limited exposure. Because the market is trending, we're going to skew the strike prices slightly so that we have a little more cushion on the upside. Sell 10 MNX February 165 calls Buy 10 MNX February 170 calls Net credit of about $.40 x 10 contracts = $400 Sell 10 MNX February 150 puts Buy 20 MNX February 147.50 puts Net credit of about $.50 x 20 contracts = $1,000 Total credit of about $1,400 Our maximum profit range is 150 to 165. Our exposure is only $3,600 ($5,000 less $1,400). Maximum profit: $1,400. Position #3 – XAU (Gold/Silver Index) – Iron Condor -- $98.52 The XAU has been tempermental of late. This is a low risk and relatively safe play with a wide range. Maybe we can make a couple of bucks. Sell 10 XAU February 90 puts Buy 10 XAU February 85 puts Net credit of about $.70 (x 10 contracts = $700) Sell 10 XAU February 110 calls Buy 10 XAU February 115 calls Net credit of about $.45 (x 10 contracts = $450) Our maximum profit range is $90 to $110 – a 20-point range. Our exposure is $3,850 ($5,000 less $1,150). Maximum profit: $1,150. Position #4 – OSX (Oil Service Sector Index) - $95.78 We're being cautious again here. We're reducing our potential income by expanding our safety range. Sell 10 OSX February 105 calls Buy 10 OSX February 110 calls Net credit of about $.45 Sell 10 OSX February 90 puts Buy 10 OSX February 85 puts Net credit of about $.75 Total net credit of about $1.20 (x 10 = $1,200) Maximum profit range is 90 to 105 – a 15-point range. Our exposure is $3,800 ($5,000 less $1,200). Maximum profit: $1,200. _____________________________________________________________ Fools Rush In Where Traders Should Fear To Tread You'll notice how I've stayed away from trading the larger indexes. Those are the ones that have, in the past, generated the most rewards. However, they're also the riskiest. It's nice to get big returns, but let's not put the family jewels out there. ____________________________________________________________ Those Friendly Reminders February is a five-week option cycle. The premiums quoted on the above educational trades are based on Friday's closing bid/ask prices. On Tuesday the premiums will likely be different due to market movement and/or the additional three days of time erosion. In a few instances, when the bid/ask spread is wide, we figure you may be able to shave off a nickel here and there. Be careful. If a stock gaps up or down, it may change the entire dynamic of the trade. Don't skydive without a parachute. Just because you have a pulse and evidence of brain activity doesn't mean you a trader. And make sure you thoroughly know the intricacies of a strategy before you trade. The money you save may be your own. __________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, look under "Education" on the OI home page and click on "Traders Corner." They're waiting for you 24/7. ____________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP _____________________________________________________________ Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. 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The Option Investor Newsletter Sunday 01-18-2004 Sunday 5 of 5 In Section Five: Covered Calls: Our Approach To Covered-Calls Naked Puts: Position Adjustment With Naked Puts Spreads/Straddles/Combos: Another Great Week! ************************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: Our Approach To Covered-Calls By Mark Wnetrzak The ideal investment offers limited risk and a good probability of making a profit. Our goal in this section of the newsletter is to provide plays that achieve acceptable returns while affording an above-average amount of downside protection. The technique we use to achieve this conservative outlook is the "in-the-money" covered call. All covered-calls involve selling a call against stock that is owned. The buyer of the call option has right to "call" the stock at a specific price because he pays the writer of the option a premium for agreeing to provide the underlying shares, when and if the option is exercised. Because the call writer delivers the shares from his or her portfolio holdings, he or she is "covered." This means there is no risk to the call writer of being forced to buy (and subsequently sell) shares of a stock at a premium, after it has experienced a substantial increase in value. While the covered-call writer has no risk of losing money if the stock increases in value, there is a risk of missing out on large gains. The reason is obvious: if a stock moves above the strike price of the sold options and remains there until the expiration date, the calls will be exercised and the covered-call writer will be forced to deliver the underlying shares. The difference between the value of the stock at expiration and the sold option's strike price is the amount of upside potential lost in the strategy. At the same time, when stock declines, the covered writer will offset part of his loss by the amount of the premium received in the sale of the options. The most common approaches to the strategy are the "in-the-money" (ITM) covered-call and the "out-of-the-money" (OTM) covered-call. Many investors prefer to strive for higher potential returns with an aggressive outlook, writing out-of-the-money calls on stocks in their portfolios. These positions offer greater rewards but also have less downside protection. The maximum potential profit of an OTM position, while generally greater than that of an ITM position, will always require an increase in price by the underlying stock. Thus, by using an OTM option, the success of the overall position depends more on the movement of the stock price and less on the benefits of writing the call. In addition, the premium generated from the sale of the call is also much smaller, so the combined position will be more susceptible to loss if the stock declines. Covered-writes using ITM options are more defensive, offering less risk with a smaller reward potential. This conservative approach appeals to those investors who are attempting to earn a relatively consistent return while striving for preservation of capital. In spite of having a smaller profit potential, the ITM approach can be very attractive on a percentage return basis, especially when the stock is held in a margin account. The cost of the underlying issue is substantially reduced and even if the stock declines, the position can still return a profit. Traders who use the strategy in this manner consider both downside protection and potential profit. The combined position (both stock and options) is viewed as a single entity and the investor is not overly concerned with long-term ownership of the underlying issue. This "total return concept" represents the true focus of most successful covered call writers. Regardless of the approach you favor, a comparison should always be made with regard to the various option strikes and premiums. Investors who plan to sell OTM calls should concentrate on the "return not called." This is the return on investment that one would achieve even if the stock price were unchanged when the sold option expires. One can compare potential plays more fairly using this method, since no assumption is made about price appreciation in the underlying issue. In our conservative portfolio, we search for positions that offer a minimum return on investment of 3-5% per month with downside protection of at least 10% of the current stock price. Any position constructed using these guidelines will have comparatively low risk, regardless of the volatility of the underlying stock, since the levels of protection are substantial and there is still the expectation of a reasonable return. Since the primary objective of covered-call writing is increased income though stock ownership, the amount of downside protection and the return on investment are both important considerations in determining which approach to use. Considering the potential for volatility during the earnings season, any strategy that offers moderate profit potential and relatively low risk is appealing. While deciding what constitutes a minimally acceptable return is a matter of personal preference, the advantages of the "Total Return Concept" can be very attractive to many investors. 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 NGEN 7.50 11.80 JAN 7.50 0.90 0.90* 19.8% PLUG 7.48 9.55 JAN 7.50 0.30 0.32* 9.7% ARRS 7.52 10.14 JAN 7.50 0.30 0.28* 8.4% NEOL 17.71 18.26 JAN 17.50 1.00 0.79* 6.8% CHU 10.05 11.23 JAN 10.00 0.35 0.30* 6.7% WIND 7.48 9.18 JAN 7.50 0.50 0.52* 6.5% FMKT 7.74 8.54 JAN 7.50 0.45 0.21* 6.3% DGIN 25.08 27.07 JAN 25.00 1.10 1.02* 6.2% CE 13.50 14.31 JAN 12.50 1.80 0.80* 5.9% SANM 12.56 14.99 JAN 12.50 0.70 0.64* 5.9% NGEN 11.69 11.80 JAN 10.00 1.95 0.26* 5.8% ACF 15.58 17.94 JAN 15.00 1.15 0.57* 5.7% HPC 12.58 12.85 JAN 12.50 0.40 0.32* 5.7% ELNK 10.33 10.98 JAN 10.00 0.70 0.37* 5.6% PCS 5.06 7.51 JAN 5.00 0.30 0.24* 5.5% SKX 7.54 7.91 JAN 7.50 0.40 0.36* 5.5% XING 10.66 14.26 JAN 10.00 1.35 0.69* 5.4% UTHR 23.20 22.80 JAN 22.50 1.75 1.05* 5.3% NTIQ 12.53 13.80 JAN 12.50 0.85 0.82* 5.1% VTS 10.05 12.10 JAN 10.00 0.55 0.50* 4.6% RHAT 18.88 20.49 JAN 17.50 1.90 0.52* 4.4% MYGN 12.75 15.67 JAN 12.50 0.85 0.60* 4.4% MYGN 12.76 15.67 JAN 12.50 0.95 0.69* 4.2% CNH 15.27 17.13 JAN 15.00 0.95 0.68* 4.1% CHTT 18.06 19.00 JAN 17.50 1.20 0.64* 4.1% EMBT 15.98 15.41 JAN 15.00 1.65 0.67* 4.1% RHAT 17.49 20.49 JAN 15.00 3.00 0.51* 3.8% OSTK 20.90 18.12 JAN 17.50 3.80 0.40* 3.4% UAIR 6.20 4.91 JAN 5.00 1.40 0.11 2.5% TKTX 15.35 13.32 JAN 15.00 1.25 -0.78 0.0% ZIXI 10.93 12.57 FEB 10.00 1.80 0.87* 6.9% ALVR 13.09 13.98 FEB 12.50 1.45 0.86* 5.4% CREE 20.49 25.85 FEB 20.00 1.65 1.16* 4.5% PAAS 16.10 15.05 FEB 15.00 1.95 0.85* 4.4% CHINA 11.05 11.43 FEB 10.00 1.60 0.55* 4.2% NANX 12.39 13.60 FEB 10.00 2.90 0.51* 3.9% SEAC 18.40 17.72 FEB 17.50 1.75 0.85* 3.7% * Stock price is above the sold strike price. Editor's Comments: NASDAQ Bulls Lead The Stampede! What an exciting end for the January options expiration! But will the NASDAQ continue to lead the major averages higher? So far, anyone who has doubted the Bulls resolve has been trampled. As always, time will tell. Trying to remained disciplined will be the biggest challenge as the bullish exuberance increases! Positions Previously Closed: None ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL 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 SIRI 3.15 FEB 2.50 QXO BZ 0.80 6445 2.35 34 5.7% ADPT 10.50 FEB 10.00 APQ BB 1.10 634 9.40 34 5.7% CIEN 7.97 FEB 7.50 EUQ BU 0.85 6593 7.12 34 4.8% LTXX 19.12 FEB 17.50 UXT BW 2.45 521 16.67 34 4.5% PSEM 12.77 FEB 12.50 PSQ BV 0.80 34 11.97 34 4.0% CLTK 8.54 FEB 7.50 UCK BU 1.35 60 7.19 34 3.9% ATSN 10.90 FEB 10.00 UAT BB 1.30 126 9.60 34 3.7% Legend (for play description below) LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ____________________________________________________________ SIRI - Sirius $3.15 *** Cheap Speculation *** Sirius Satellite Radio (NASDAQ:SIRI) broadcasts digital-quality audio from 3 orbiting satellites throughout the continental U.S. The company delivers 60 streams of 100% commercial-free music in virtually every genre and over 40 streams of news, sports, weather, talk, comedy, public radio and children's programming. Sirius' broad range of music, as well as its news, sports and entertainment programming, is not available on conventional radio in any market in the United States. The company holds one of only 2 licenses issued by the FCC to operate a national satellite radio system. Its satellite radio system consists of its FCC license, satellite system, national broadcast studio, terrestrial repeater network and satellite telemetry, tracking and control facilities. Traders can speculate on whether there is room for 2 satellite radio companies (XMSR being the other) with this position. FEB-2.50 QXO BZ LB=0.80 OI=6445 CB=2.35 DE=34 TY=5.7% ____________________________________________________________ ADPT - Adaptec $10.50 *** Next Leg Up? *** Adaptec (NASDAQ:ADPT) designs, manufactures and sells end-to-end storage infrastructure solutions that reliably move, manage and protect critical data and digital content. Their software and hardware solutions for storage connectivity and data protection, storage networking and networked storage subsystems are sold through OEMs and distribution channel partners to a variety of end users. Adaptec operates 3 segments: Storage Solutions Group (SSG), which provides interface products that enable the movement, storage and protection of data; Desktop Solutions Group (DSG), which provides high-performance I/O connectivity and digital media solutions, and Storage Networking Group (SNG), which provides storage connectivity solutions for servers, storage devices, fabric switches and NAS devices. Adaptec recently took out the resistance level near $9 and now appears ready to move higher. Investors who agree can speculate conservatively on that outcome with this position. FEB-10.00 APQ BB LB=1.10 OI=634 CB=9.40 DE=34 TY=5.7% ____________________________________________________________ CIEN - Ciena $7.97 *** On The Move! *** Ciena (NASDAQ:CIEN) is a global provider of network solutions to telecommunications service providers and enterprises worldwide. The company's networking product portfolio, which is targeted at the critical areas of its customers' networks, includes: core networking systems, metropolitan networking systems, multiservice networking systems and the LightWorks ON-Center Management Suite. These intelligent networking solutions are designed to enable service providers to transition from inefficient, legacy, voice-centric networks to more efficient, data-friendly networks. Ciena's systems and their intelligent networking software address the network scalability and capital spending challenges and the escalating operational costs faced by service providers. Ciena also markets third-party products and provides a comprehensive portfolio of service and support offerings for its products. Juniper's (NASDAQ:JNPR) earnings has spurred the telecom sector higher and investors who believe Ciena will also report strong earnings can use this position to "target-shoot" an entry point in the issue. FEB-7.50 EUQ BU LB=0.85 OI=6593 CB=7.12 DE=34 TY=4.8% ____________________________________________________________ LTXX - LTX Corp. $19.12 *** Break-Out! *** LTX (NASDAQ:LTXX) designs, manufactures, markets and services semiconductor test solutions. The company offers its customers the LTX Fusion platform, a solution for testing the full spectrum of non-memory devices, consisting of system-on-a-chip, mixed signal and digital devices. The Fusion test platform is designed to provide customers with reliable test performance and cost-efficiency in their efforts to accelerate their time to market for these devices. The Fusion test platform combines LTX's test station hardware with its enVision++ software, and is available in Fusion HFi, Fusion HF and Fusion CX configurations. These configurations depend primarily on the digital complexity of the device to be tested. The company also provides global applications consulting, repair services and operational support to over 100 customers in more than 15 countries. LTXX has moved above the resistance area near $17 on heavy volume and appears destined to advance further. Reasonable speculation with a cost basis closer to near-term technical support. FEB-17.50 UXT BW LB=2.45 OI=521 CB=16.67 DE=34 TY=4.5% ____________________________________________________________ PSEM - Pericom $12.77 *** Rally Mode! *** Pericom Semiconductor (NASDAQ:PSEM) designs, manufactures and markets high-performance interface integrated circuits used for the transfer, routing and timing of digital and analog signals within and between computer, networking, datacom and telecom systems. Its interface products increase system bandwidth in applications such as notebook computers, servers, network switches and routers, storage area networks and wireless base stations. The company has evolved from one product line in fiscal 1992 to four developed and growing product lines: SiliconSwitch, SiliconInterface Logic, SiliconClock and SiliconConnect, aimed at providing an increasing breadth of interface IC solutions to the company's customers. Pericom has a portfolio of products, including 77 new products that were introduced during the fiscal year ended June 28, 2003. Its worldwide customers include OEMs, contract manufacturers and distributors. Pericom moved up sharply this week on heavy volume and has achieved another 52-week high. Investors can speculate on the company's future share value with this play. FEB-12.50 PSQ BV LB=0.80 OI=34 CB=11.97 DE=34 TY=4.0% ____________________________________________________________ CLTK - Celeritek $8.54 *** Dividend Rally! *** Celeritek (NASDAQ:CLTK) designs and manufactures gallium arsenide GaAs) semiconductor components and GaAs-based subsystems used in the transmission of voice, video and data over wireless networks and systems. The company's semiconductor products are designed to facilitate broadband voice and data transmission in mobile handsets and wireless communications network infrastructure. The focus of the GaAs semiconductor components has been mainly on power amplifier modules for mobile handsets, which employ CDMA wireless technology. The GaAs-based subsystems are used in a variety of defense applications, including tactical aircraft, ground-based and shipboard radar, electronic countermeasures and satellite communications systems. Celeritek rallied sharply this week after the company declared an extraordinary dividend. We simply favor the bullish move that suggests the stock is completing a Stage I base. FEB-7.50 UCK BU LB=1.35 OI=60 CB=7.19 DE=34 TY=3.9% ____________________________________________________________ ATSN - Artesyn $10.90 *** New 2-Year High! *** Artesyn Technologies (NASDAQ:ATSN) provides power conversion equipment and real-time subsystems to the computing, storage and communications industries. The firm is primarily engaged in the design, development, manufacture and sale of electronic products, power supplies, power conversion products and power subsystems. It operates in two segments, Power Conversion and Communications Products. The Power Conversion business offers customers AC/DC power supplies, as well as advanced DC/DC and isolated and non-isolated point-of-load (POL) converters for distributed power architectures. The Communications Products business offers its customers central processing unit (CPU) boards, wide area network interfaces and protocol software solutions. ATSN is another bullish stock displaying strong technical indications, which suggests higher future prices. FEB-10.00 UAT BB LB=1.30 OI=126 CB=9.60 DE=34 TY=3.7% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 DCGN 10.35 FEB 10.00 QDB BB 1.30 663 9.05 34 9.4% TRPH 8.14 FEB 7.50 TQV BU 1.25 2113 6.89 34 7.9% PWER 12.89 FEB 12.50 OGU BV 1.15 90 11.74 34 5.8% XING 14.26 FEB 12.50 QAE BV 2.50 1556 11.76 34 5.6% SPRT 16.40 FEB 15.00 RQJ BC 2.25 250 14.15 34 5.4% PMCS 23.80 FEB 22.50 SQL BX 2.55 3328 21.25 34 5.3% CRY 7.99 FEB 7.50 CRY BU 0.90 249 7.09 34 5.2% DITC 22.62 FEB 20.00 QZD BD 3.70 471 18.92 34 5.1% ATYT 17.55 FEB 17.50 QFY BW 0.95 5230 16.60 34 4.9% RDWR 30.73 FEB 30.00 AUD BF 2.25 56 28.48 34 4.8% SEPR 27.99 FEB 25.00 ERQ BE 4.20 8574 23.79 34 4.6% IBIS 14.32 FEB 12.50 UIB BV 2.35 441 11.97 34 4.0% CMOS 15.96 FEB 15.00 CQS BC 1.60 1037 14.36 34 4.0% NWAC 13.31 FEB 12.50 NAQ BV 1.35 1173 11.96 34 4.0% ********** NAKED PUTS ********** Options 101: Position Adjustment With Naked Puts By Ray Cummins One of the most common questions among new readers concerns exit and adjustment strategies. First, before I elaborate on some common techniques for closing or adjusting naked put positions, let me say that in all cases, you should never sell puts on stocks you don't want to own. That may sound like an extreme statement (and it is!), but the truth is that most of the stocks I have been assigned in the past were not the best choices for a long-term portfolio. I did not follow the #1 rule in this strategy because the idea of selling "premium" simply overcame my good judgment during the initial decision-making process. Please don't make the same mistake -- it can be costly! Most questions about exit techniques or position adjustments come after the stock price has dropped significantly on unexpected news. Unfortunately, at this point, there are no magic answers to solve the situation. Any action relative to a closing or "roll-out" strategy is best initiated before the issue moves below the sold strike price. Obviously, this is not always possible, especially in the case of a sudden (sharp) decline. If this situation occurs, the alternatives are based simply on your outlook for the stock. The most obvious choices options are: close the play for a loss, roll down to a lower strike and/or forward to a future expiration date, or plan to accept assignment of the underlying shares in anticipation of future upside potential (which may also include writing covered-calls). Of course there are other, more complex adjustment strategies but they usually include too much downside risk to warrant their use. As far as simple roll-outs (forward/downward adjustments) in a bullish (short) put position, it is probably best to transition to the closest available month, so that you can sell the highest relative premium and not commit to a long-term position. If you do not want to take a loss in the near term, roll-out as far as necessary to achieve a credit in the trade. However, I caution against using this technique on issues that are not high quality (long-term) portfolio companies, as you can quickly run out of downside margin if the stock declines further. When the issue has moved well below the sold strike, this technique is not viable (you have waited too long to act) and another form of loss control is necessary. Most importantly, you should understand that the success of a limited-risk strategy such as selling naked puts is based (in the long run) on limiting losses to a minimum. As I have said many times before, "There are never any big winners to offset the big losers, so there simply can't be any big losers. Occasionally, a losing trade will wipe out a large portion of your gains and there is nothing you can do about it. But, at the same time, you must attempt to manage every other play in your portfolio effectively or there will be no profits to offset the rare (catastrophic) losers." Some readers worry about the possibility of "early" assignment and while it is a concern, only in rare cases will the stock be "put" to you prior to expiration. Beyond the occasional random assignment, the underlying issue for a sold put would have to be deep in-the-money before there was a significant probability of early exercise. By that time, adept position management would have forced you to exit or cover the play to avoid large losses. Of course, there is always the occasional "gap-down" issue which simply can't be avoided, and that is why you are required to have a specific amount of money in your account; for the obligation of purchasing the stock if it becomes necessary. However, you are more likely to use the funds to close the position under adverse circumstances. In addition, there are other ways of offsetting a "short" stock position if you are assigned and a personal broker can often help you resolve a condition that requires additional funds to close a particular "play gone bad." Regardless of the approach you favor, make sure you completely understand the manner in which your broker handles early exercise and assignment. This will allow you to make timely decisions, before the price of the underlying issue changes for the worse. 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 JNPR 19.68 29.93 JAN 19.00 0.40 0.40* 4.7% 11.4% PDLI 18.42 19.36 JAN 17.50 0.35 0.35* 4.4% 11.2% MERX 24.75 28.04 JAN 22.50 0.60 0.60* 4.0% 10.5% THER 18.77 26.57 JAN 17.50 0.45 0.45* 3.8% 9.5% PDLI 16.65 19.36 JAN 15.00 0.45 0.45* 3.4% 9.0% SIL 21.10 20.85 JAN 20.00 0.30 0.30* 3.3% 8.5% SOV 23.70 24.51 JAN 22.50 0.90 0.90* 3.6% 8.5% PLMD 26.45 25.90 JAN 22.50 0.50 0.50* 2.5% 7.6% MERX 24.45 28.04 JAN 20.00 0.40 0.40* 2.2% 7.6% BLTI 17.19 20.30 JAN 15.00 0.25 0.25* 2.5% 7.3% SMMX 21.15 26.01 JAN 20.00 0.25 0.25* 2.8% 7.2% SHRP 32.39 31.68 JAN 30.00 0.55 0.55* 2.7% 7.2% IPG 15.45 16.98 JAN 15.00 0.40 0.40* 3.0% 7.1% IMCL 40.01 42.89 JAN 35.00 0.55 0.55* 2.3% 6.9% SLXP 21.50 23.00 JAN 20.00 0.60 0.60* 2.7% 6.8% ATVI 18.65 18.59 JAN 17.50 0.30 0.30* 2.5% 6.6% JNS 15.91 16.68 JAN 15.00 0.35 0.35* 2.6% 6.6% NPSP 32.64 34.96 JAN 30.00 0.80 0.80* 2.4% 6.2% BLTI 14.01 20.30 JAN 12.50 0.30 0.30* 2.1% 5.9% WEBX 20.18 21.99 JAN 17.50 0.30 0.30* 1.9% 5.7% AAII 25.00 29.47 JAN 22.50 0.30 0.30* 2.0% 5.6% RMBS 30.66 34.60 JAN 20.00 0.40 0.40* 1.8% 5.3% AAII 25.01 29.47 JAN 22.50 0.45 0.45* 1.8% 4.9% EMMS 27.17 26.64 JAN 25.00 0.50 0.50* 1.8% 4.7% BDY 26.72 23.49 JAN 25.00 0.35 -1.16 0.0% 0.0% XING 12.80 14.26 FEB 10.00 0.35 0.35* 2.6% 8.7% OPWV 15.18 15.23 FEB 12.50 0.40 0.40* 2.4% 7.6% SEPR 27.25 27.99 FEB 22.50 0.65 0.65* 2.2% 6.9% ASKJ 23.83 23.48 FEB 20.00 0.60 0.60* 2.2% 6.9% NKTR 17.12 19.31 FEB 15.00 0.45 0.45* 2.2% 6.3% IDCC 24.46 24.80 FEB 20.00 0.50 0.50* 1.9% 6.2% WFII 17.80 16.51 FEB 15.00 0.40 0.40* 2.0% 6.1% JNPR 22.00 29.93 FEB 20.00 0.55 0.55* 2.0% 5.4% * Stock price is above the sold strike price. Editor's Comments: The Bulls Run Again! Every year, thousands of visitors from around the world arrive in Pamplona, Spain, to join in the annual spectacle known as the "running of the bulls." But there is no need to pack your bags this year because you can witness a similar event (in name only) right here in America. Indeed, the recent bullish activity has boosted equity values to two-year highs with the Dow and S&P 500 advancing for the eighth straight week. With that fact in mind, traders should be wary of a necessary consolidation and initiate new naked-put plays only in the strongest (technically) issues. The "watch" list position in Brady Pharmaceuticals (NYSE:BDY) was closed early in the week for a smaller-than-published loss. Positions Previously Closed: China Yuchai (NYSE:CYD) ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 NAKED-PUT 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 ADAT 16.95 FEB 12.50 HAU NV 0.40 220 12.10 34 3.0% 9.4% SEPR 27.99 FEB 22.50 ERQ NX 0.65 844 21.85 34 2.7% 9.1% NEOL 18.26 FEB 15.00 UOE NC 0.40 497 14.60 34 2.5% 8.1% PMCS 23.80 FEB 20.00 SQL ND 0.50 3850 19.50 34 2.3% 7.2% SPRT 16.40 FEB 12.50 RQJ NV 0.25 46 12.25 34 1.8% 6.3% RMBS 34.60 FEB 25.00 BNQ NE 0.50 6177 24.50 34 1.8% 6.0% AFFX 28.29 FEB 25.00 FIQ NE 0.50 498 24.50 34 1.8% 5.2% RDWR 30.73 FEB 25.00 AUD NE 0.35 26 24.65 34 1.3% 4.5% Legend (for play descriptions below) 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), ____________________________________________________________ ADAT - Authentidate Holding $16.95 *** New All-Time High! *** Authentidate Holding (NASDAQ:ADAT) develops security software technology, document imaging software products and systems integration services and products. The firm's products include DocStar document imaging software products, the Authentidate authentication and security software products and system integration services and products through its DJS Marketing Group subsidiary. AHC also offers, through the Trac Medical Solutions subsidiary, the CareCert Internet-based medical forms processing service. The company's subsidiary, DJS, is also an authorized sales and support provider for software products such as Microsoft Solutions and Lotus Notes. DJS sells computer hardware and provides software and integration services to businesses to meet their data management needs. Web security and digital document processing and certification are necessary services for almost all Internet users and this company has some unique solutions to those needs. Traders who agree with an optimistic outlook for the company can speculate on its future share with this position. FEB-12.50 HAU NV LB=0.40 OI=220 CB=12.10 DE=34 TY=3.0% MY=9.4% ____________________________________________________________ SEPR - Sepracor $27.99 *** Earnings Speculation! *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical firm dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. Shares of SEPR are "on the rebound" and traders say the catalyst may be the company's upcoming earnings report. SEPR will announce its fourth quarter and full-year 2003 financial results next week and traders who believe the outcome will be favorable should consider this position. FEB-22.50 ERQ NX LB=0.65 OI=844 CB=21.85 DE=34 TY=2.7% MY=9.1% ____________________________________________________________ NEOL - NeoPharm $18.26 *** Drug Speculation *** NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged in the research, development and commercialization of drugs for the treatment of various cancers. The firm has built its drug portfolio based on its novel proprietary technology platforms, the proprietary NeoLipid liposomal drug delivery system and a tumor-targeting toxin platform. NeoPharm has several promising compounds in various stages of development. The company's lead compound is IL13-PE38, a tumor-targeting toxin being developed as a treatment for glioblastoma multiforme, a deadly form of brain cancer. NEOL shares have traded in a relatively stable uptrend since early 2003 and the technical support near the cost basis offers a viable risk/reward outlook in this speculative position. FEB-15.00 UOE NC LB=0.40 OI=497 CB=14.60 DE=34 TY=2.5% MY=8.1% ____________________________________________________________ PMCS - PMC-Sierra 23.80 *** Networking-Equipment Rally! *** PMC-Sierra (NASDAQ:PMCS) designs, develops, sells and supports a broad range of high-performance integrated circuits primarily used in the telecommunications and data networking industries. The company has more than 120 different semiconductor devices that are sold to equipment manufacturers, who in turn supply their equipment principally to communications network service providers and enterprises. The firm also provides semiconductor solutions for customers by leveraging its intellectual property, design expertise and systems knowledge across a broad range of applications. Stocks in the networking-equipment group have been in "rally mode" since last week's strong earnings report from Juniper Networks (NASDAQ:JNPR) and PMCS was also upgraded by Merrill Lynch. Investors who think the bullish trend will continue can establish a low risk cost basis in the issue with this position. FEB-20.00 SQL ND LB=0.50 OI=3850 CB=19.50 DE=34 TY=2.3% MY=7.2% ____________________________________________________________ SPRT - SupportSoft $16.40 *** Up, Up, And Away! *** SupportSoft (NASDAQ:SPRT) provides service and support automation software solutions that are designed to help corporations automate, manage and personalize the service and support they provide to their employees, customers and partners. The company's software helps streamline the service and support process by solving and managing problems associated with the use of various types of computing endpoints and related technologies such as personal computers, network servers, operating systems, software, hand-held devices and wired/wireless networks. The firm has comprehensive software application suites to address the unique needs of various market requirements. Shares of SPRT are soaring ahead of the upcoming earnings report and traders say its because the firm was among only a handful of firms which consistently increased their revenue growth during the recent slump in the IT industry. Traders who believe the quarterly numbers will reflect increasing profits should consider this position. FEB-12.50 RQJ NV LB=0.25 OI=46 CB=12.25 DE=34 TY=1.8% MY=6.3% ____________________________________________________________ RMBS - Rambus $34.60 *** Pure Premium-Selling! *** Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip" interface solutions that enhance the performance and effectiveness of its client's chip and system products. These solutions include multiple chip-to-chip interface products, which can be grouped into two categories: memory interfaces and logic interfaces. Rambus' memory interface products provide an interface between memory chips and logic chips. In addition, the firm's logic interface products provide an interface between two logic chips. Rambus has two major memory interface products: Rambus dynamic random access memory and Yellowstone. Additionally, it offers a logic interface product for high-speed serial chip-to-chip communications between logic chips in a range of computing, networking and communications applications. Rambus has been a popular issue among "premium-sellers" in recent weeks and the share-price volatility has inflated option premiums in the near-term. Traders who expect additional upside activity in the issue should consider this position. FEB-25.00 BNQ NE LB=0.50 OI=6177 CB=24.50 DE=34 TY=1.8% MY=6.0% ____________________________________________________________ AFFX - Affymetrix $28.29 *** A Big Day! *** Affymetrix (NASDAQ:AFFX) is engaged in the development, sale and service of systems for genetic analysis in life sciences. The firm has developed and intends to establish its GeneChip system and related microarray technology as the platform of choice for acquiring, analyzing and managing complex genetic information. The company's integrated platform consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays, as well as software to analyze and manage genetic information from the probe arrays. Shares of AFFX jumped almost 10% on Friday with much of the activity attributed "short-covering" after the company inadvertently disclosed some favorable earnings data in a web-cast. Traders who want a speculative position in the biotech segment should consider this position. FEB-25.00 FIQ NE LB=0.50 OI=498 CB=24.50 DE=34 TY=1.8% MY=5.2% ____________________________________________________________ RDWR - Radware $30.73 *** New Multi-Year High! *** Radware (NASDAQ:RDWR) is dedicated to providing Intelligent Application Switching, guaranteeing the best operation and servicing of IP applications and enterprise traffic across the Internet. Radware aligns application needs with the network infrastructure to seamlessly allocate resources, optimize application operations and extend security, ensuring the integrity of critical business processes. Radware's unique solutions address the needs of corporate enterprises, service providers, and e-commerce business through one or more of their award winning products including: Web Server Director (WSD), Cache Server Director (CSD), Content Inspection Director (CID), FireProof, LinkProof, Peer Director, CertainT 100. The firm's comprehensive suite of products service end-to-end application operations, providing robust and scalable network traffic assurance. This week, RDWR climbed to a multi-year high with much of the activity attributed to its upcoming earnings report. Last quarter, the company reported record revenues and traders who believe the company's fundamentals will continue to be favorable should consider this position. FEB-25.00 AUD NE LB=0.35 OI=26 CB=24.65 DE=34 TY=1.3% MY=4.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ZIXI 12.57 FEB 10.00 HQU NB 0.50 479 9.50 34 4.7% 14.8% CAMP 15.12 FEB 12.50 CQI NV 0.40 17 12.10 34 3.0% 9.3% NTPA 18.62 FEB 15.00 NQD NC 0.40 192 14.60 34 2.5% 8.5% TNOX 19.49 FEB 17.50 TMQ NW 0.60 10 16.90 34 3.2% 8.4% NTGR 19.35 FEB 17.50 TUD NW 0.60 0 16.90 34 3.2% 8.3% AMD 16.76 FEB 15.00 AMD NC 0.45 18631 14.55 34 2.8% 7.5% NANX 13.60 FEB 10.00 NSY NB 0.25 117 9.75 34 2.3% 7.5% RHAT 20.49 FEB 17.50 RCV NW 0.45 1677 17.05 34 2.4% 7.1% NEWP 21.33 FEB 20.00 NZZ ND 0.60 106 19.40 34 2.8% 6.9% DITC 22.62 FEB 17.50 QZD NW 0.35 259 17.15 34 1.8% 6.4% SOHU 37.98 FEB 30.00 UZK NF 0.45 1204 29.55 34 1.4% 5.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ DISCLAIMER ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This newsletter is a publication dedicated to the education of stock & option traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock, but an information resource to aid the investor in making an informed decision regarding trading in stocks. It is possible at this or some subsequent date, the editors and staff of OptionWriters.com may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. OptionWriters.com staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control. ************************ SPREADS/STRADDLES/COMBOS ************************ Another Great Week! By Ray Cummins Stocks closed higher Friday as favorable earnings from a number of bellwether issues prompted investors to add new holdings to their portfolios. The NASDAQ Composite led the way, up 31 points at 2,140 amid a surge in networking and semiconductor shares. The Dow industrial average added 46 points to end at 10,600 on strength in General Electric (NYSE:GE). The S&P 500 rose 7 points to 1,139, its best close since April, 2002, on widespread buying pressure. Trading volume was heavy at 1.7 billion shares on the Big Board and 2.6 billion shares on the technology exchange. Winners ousted losers by roughly 3 to 2 on both the NASDAQ and the NYSE. In the bond market, the benchmark 10-yr note was off 16/32 with its yield up to 4.03%. The stock market will be closed on Monday in observance of the late civil rights leader Martin Luther King Jr.'s birthday. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 01/17/03 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position 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 CME 70.63 79.70 JAN 60 65 0.50 64.50 0.50 Closed NCEN 39.62 44.24 JAN 30 33 0.45 32.93 0.45 Closed SII 40.22 42.50 JAN 35 38 0.25 37.25 0.25 Closed CYBX 32.70 37.92 JAN 25 30 0.50 29.50 0.50 Closed INTU 52.16 49.92 JAN 45 48 0.25 47.25 0.25 Closed TRN 31.36 33.82 JAN 25 30 0.75 29.25 0.75 Closed AA 37.30 35.04 JAN 33 35 0.30 34.70 0.30 Closed MTH 65.37 62.06 JAN 55 60 0.45 59.55 0.45 Closed NFLX 51.07 65.56 JAN 40 43 0.25 42.25 0.25 Closed SCHN 59.28 45.90 JAN 45 50 0.55 49.45 (3.55) Closed SINA 37.90 47.69 JAN 30 35 0.60 34.40 0.60 Closed SOHU 32.70 37.98 JAN 25 30 0.65 29.35 0.65 Closed YHOO 45.40 48.11 JAN 40 43 0.25 42.25 0.25 Closed LRCX 34.59 34.24 FEB 25 30 0.55 29.45 0.55 Open OHP 46.69 49.12 FEB 40 43 0.30 42.20 0.30 Open NBR 44.11 41.80 FEB 38 40 0.30 39.70 0.30 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss The "watch" list position in Schnitzer Steel (NASDAQ:SCHN) should have been closed Thursday, for a much smaller than published loss, when the issue dropped sharply to the sold (put) strike at $50. CALL CREDIT SPREADS Symbol Pick Last Month LC SC Credit CB G/L Status CERN 39.22 38.50 JAN 50 45 0.55 45.55 0.55 Closed MDC 64.06 62.75 JAN 70 65 0.60 65.60 0.60 Closed CL 49.19 51.23 JAN 55 50 0.65 50.65 (0.58) Closed CTX 104.40 101.40 JAN 115 110 0.50 110.50 0.50 Closed IACI 33.26 34.88 JAN 38 35 0.25 35.25 0.25 Closed RYL 85.08 74.62 JAN 95 90 0.45 90.45 0.45 Closed ADBE 37.12 38.30 FEB 45 40 0.55 40.55 0.55 Open TBL 51.13 49.82 FEB 60 55 0.65 55.65 0.65 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss Clorox (NYSE:CL) moved from the "watch" list to the "early-exit" category on Thursday's rally. Bearish positions in Research in Motion (NASDAQ:RIMM) and KLA-Tencor (NASDAQ:KLAC) have previously been closed. CALL DEBIT SPREADS Symbol Pick Last Month LC SC Debit B/E G/L Status OSX 89.45 95.78 JAN 80 85 4.40 84.40 0.60 Closed ACDO 31.77 34.28 JAN 25 30 4.40 29.40 0.60 Closed IMCL 40.76 42.89 JAN 30 35 4.50 34.50 0.50 Closed MCHP 32.90 33.87 JAN 25 30 4.40 29.40 0.60 Closed ATRS 36.84 39.01 JAN 30 35 4.45 34.45 0.55 Closed BRCM 36.78 41.97 FEB 30 32 2.20 32.30 0.30 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss The bullish debit-spread in Digital River (NASDAQ:DRIV), which has previously been closed, is now profitable. PUT DEBIT SPREADS Symbol Pick Last Month LP SP Debit B/E G/L Status AMZN 51.90 55.72 JAN 60 55 4.45 55.45 (0.27) Closed MIK 41.42 43.31 FEB 47 45 2.20 45.30 0.30 Open The position in Symantec (NASDAQ:SYMC) 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 24.80 JAN 25 15 0.20 0.40 Closed NE 36.09 36.83 JAN 37 35 0.10 0.80 Closed PTEN 31.34 33.21 JAN 32 30 (0.10) 1.75 Closed UTHR 23.20 22.80 MAY 30 17 (0.10) 0.10 Open CEPH 52.50 56.59 FEB 60 45 0.10 1.00 Open? EYE 25.30 26.07 MAR 30 20 0.00 0.20 Open The new position in Cephalon (NASDAQ:CEPH) was a big winner this week, offering up to a $1.00 credit after only five days in the play. Patterson-UTI Energy (NASDAQ:PTEN) and Noble (NYSE:NE) achieved favorable "early-exit" profits long before the January options expiration. SYNTHETIC (BEARISH) No Open Positions CALENDAR & DIAGONAL SPREADS Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status FISV 38.28 37.48 MAR-35P FEB-35P 0.30 0.35 Open XMSR 26.80 26.79 FEB-30C JAN-30C 0.85 1.15 Closed As noted previously, the bullish spread in Cephalon (NASDAQ:CEPH) achieved maximum profit with the issue near the sold strike at $50 and the position was closed the first week in January to "lock-in" gains. The recent position in XM Satellite Radio (NASDAQ:XMSR) offered a favorable "early-exit" profit after only three days in the play. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status ATN 17.93 17.79 JAN 17 17 2.40 2.75 Closed ACL 59.19 60.44 JAN 60 60 3.00 2.80 Closed MATK 65.74 67.20 MAR 65 65 9.40 9.00 Open PTR 54.08 47.53 FEB 55 55 0.00 0.00 No Play The new straddle in Petrochina (NYSE:PTR) was not available due to the "gap-down" opening on Monday. Traders who initiated the play at the $50 strike also have a favorable risk/reward outlook but we will not track that position. The straddle on Mylan Labs (NYSE:MYL) has been previously closed for a small loss. 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. __________________________________________________________________ BIIB - Biogen Idec $43.19 *** Rally Mode! *** Biogen Idec (NASDAQ:BIIB) is a biopharmaceutical company engaged in the research, development, manufacture and commercialization of targeted therapies for the treatment of cancer and autoimmune and inflammatory diseases. The firm's lead products are Avonex and Rituxan. Its pipeline of products in development includes Antegren (natalizumab), which, in partnership with Elan Corp. plc, is in Phase III clinical studies for the treatment of multiple sclerosis and Crohn's disease; Rituxan is in Phase III trials for rheumatoid arthritis and other cancer indications; the company's second-generation oral fumarate, which is in Phase III clinical trials in Europe, and an anti-CD23 antibody, which will enter Phase II trials for chronic lymphocytic leukemia (CLL). BIIB - Biogen Idec $43.19 PLAY (conservative - bullish/credit spread): BUY PUT FEB-35.00 IDK-NG OI=379 ASK=$0.15 SELL PUT FEB-40.00 IDK-NH OI=1753 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$39.45 __________________________________________________________________ CCMP - Cabot Microelectronics $56.24 *** Break-Out? *** Cabot Microelectronics is a supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit devices, within a process called chemical mechanical planarization. CMP is a polishing process used by integrated circuit (IC) device manufacturers to planarize or flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. Planarization is the polishing process that levels and smooths, and removes the excess material from the surfaces of these layers. CMP slurries are unique liquid formulations that facilitate and enhance this polishing process and usually contain engineered abrasives and proprietary chemicals. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. CCMP - Cabot Microelectronics $56.24 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-45.00 UKR-NI OI=559 ASK=$0.55 SELL PUT FEB-50.00 UKR-NJ OI=1232 BID=$1.25 INITIAL NET-CREDIT TARGET=$0.75-$0.80 POTENTIAL PROFIT(max)=18% B/E=$49.25 __________________________________________________________________ GENZ - Genzyme General $54.26 *** On The Move! *** Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme Corporation, a biotechnology and human healthcare company that develops products and provides services for unmet medical needs. Genzyme General develops and markets therapeutic products and diagnostic products and services with an emphasis on genetic disorders and other chronic debilitating diseases with defined patient populations. The company is organized into two segments, Therapeutics, which focuses on developing and marketing products for genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and specialty therapeutics, and Diagnostic Products, which develops, markets and distributes in vitro diagnostic products. The company also operates a wholly owned subsidiary, GelTex Pharmaceuticals. GENZ - Genzyme General $54.26 PLAY (conservative - bullish/credit spread): BUY PUT FEB-47.50 GZQ-NS OI=309 ASK=$0.40 SELL PUT FEB-50.00 GZQ-NJ OI=433 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$49.70 __________________________________________________________________ ABT - Abbott Laboratories $43.25 *** Mediocre Outlook! *** Abbott Laboratories (NYSE:ABT) is mainly engaged in the discovery, development, manufacture and sale of a broad and diversified line of healthcare products. Abbott has five primary revenue segments: Pharmaceutical Products, Diagnostic Products, Hospital Products, Ross Products and International. The Pharmaceutical Products segment offers a line of adult and pediatric pharmaceuticals. The company's Diagnostic Products markets diagnostic systems and tests. The Hospital Products segment offers drugs and delivery systems, perioperative and intensive care products, cardiovascular products, products for treating pain, renal products, oncology products, as well as intravenous and irrigation solutions and related manual and electronic administration equipment. ABT - Abbott Laboratories $43.25 PLAY (conservative - bearish/credit spread): BUY CALL FEB-47.50 ABT-BW OI=5203 ASK=$0.15 SELL CALL FEB-45.00 ABT-BI OI=9598 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$45.25 __________________________________________________________________ POWI - Power Integrations $32.05 *** A Key Moment! (150-DMA) *** Power Integrations (NASDAQ:POWI) designs, develops, manufactures and markets proprietary, high-voltage, analog integrated circuits for use primarily in alternating current to direct current power conversion. The firm's products address market segments including communications, consumer, computer and industrial electronics. The company's high-voltage power conversion ICs include TOPSwitch, TinySwitch, LinkSwitch and DPA-Switch. Since introducing its TOPSwitch family of products in 1994, the company has shipped into the market approximately 890 million ICs. These ICs achieve a high level of system integration by combining a number of electronic components into a single IC. POWI - Power Integrations $32.05 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-40.00 QPW-BH OI=79 ASK=$0.30 SELL CALL FEB-35.00 QPW-BG OI=216 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.75-$0.80 POTENTIAL PROFIT(max)=18% B/E=$35.75 __________________________________________________________________ SCHN - Schnitzer Steel $45.90 *** Sell-Off In Progress! *** 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 $45.90 PLAY (conservative - bearish/credit spread): BUY CALL FEB-60.00 SQQ-BL OI=1096 ASK=$0.35 SELL CALL FEB-55.00 SQQ-BK OI=1307 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$55.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ CREE - Cree Incorporated $25.85 *** Choice Chip Stock! *** Cree (NASDAQ:CREE) is engaged in the development and manufacture of compound semiconductor materials and electronic devices made from silicon carbide (SiC), and a developer and manufacturer of optoelectronic and electronic devices made from gallium nitride and related materials. The company also produces radio frequency power transistor components and modules for wireless infrastructure applications using silicon-based bipolar and laterally diffused metal oxide semiconductor process technologies. Cree operates its business in two segments, the Cree segment, which consists of its SiC-based products and research contracts, and the Cree Microwave segment that consists of RF transistors and RF transistor modules based on a silicon platform. CREE - Cree Incorporated $25.85 PLAY (conservative - bullish/debit spread): BUY CALL FEB-20.00 CQR-BD OI=3603 ASK=$6.00 SELL CALL FEB-22.50 CQR-BX OI=3244 BID=$3.80 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$22.20 __________________________________________________________________ QLGC - QLogic $47.16 *** New Downtrend Underway? *** QLogic Corporation (NASDAQ:QLGC) designs and supplies storage network infrastructure components and software for server and storage subsystem manufacturers. The company's products are based on SCSI, iSCSI, Fibre Channel and Infiniband standards. The company is the only end-to-end supplier of Fibre Channel network infrastructure components that aid in the transfer and acquisition of data within the SAN. Their products include its SANblade HBAs, SANbox Fibre Channel Switches and SANsurfer Tool Kit management software. QLogic is the only HBA vendor that supports SCSI, Internet Protocol, Virtual Interface and FICON protocols with the same Fibre Channel HBA. In addition, the company designs and supplies controller chips used in a variety of hard drives and tape drives as well as enclosure management and baseboard management chip solutions that monitor the health of the physical environment within a server or storage enclosure. QLGC - QLogic $47.16 PLAY (less conservative - bearish/debit spread): BUY PUT FEB-55.00 QLC-NK OI=2425 ASK=$8.20 SELL PUT FEB-50.00 QLC-NJ OI=3904 BID=$4.00 INITIAL NET-DEBIT TARGET=$4.15-$4.20 POTENTIAL PROFIT(max)=19% B/E=$50.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ AMHC - American Healthways $27.08 *** Near All-Time Highs! *** American Healthways (NASDAQ:AMHC) is the nation's leading and largest provider of specialized, comprehensive care enhancement services to hospitals, physicians and health plans. In addition, American Healthways is the only company in its industry whose programs are designed to meaningfully address the needs of 100% of its customer populations. The clinical excellence of the firm's programs have been reviewed and approved by Johns Hopkins, and their quality has been recognized by the National Committee on Quality Assurance, the Joint Commission on Accreditation of Health Care Organizations, and the American Accreditation Health Care Commission, making American Healthways the first and only care enhancement provider in the nation to be accredited or certified by all three organizations. American Healthways contracts to provide disease and care management programs to health plans with members in all 50 states, the District of Columbia and Puerto Rico. The firm also operates diabetes management programs in hospitals nationwide. AMHC - American Healthways $27.08 PLAY (speculative - bullish/calendar spread): BUY CALL MAY-30.00 QMH-EF OI=68 ASK=$1.65 SELL CALL FEB-30.00 QMH-BF OI=18 BID=$0.40 INITIAL NET DEBIT TARGET=$1.15-$1.20 INITIAL TARGET PROFIT=$0.45-$0.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ NTE - Nam Tai Electronics $30.44 *** Earnings Speculation! *** Nam Tai Electronics (NYSE:NTE) is a electronics manufacturing and design services provider to original equipment manufacturers of telecommunication and consumer electronic products. Through its electronics manufacturing services operations, the company makes electronic components and subassemblies, including liquid crystal display panels, transformers, LCD modules, and radio frequency modules. The firm also manufactures finished products, including cordless phones, palm-sized personal computers, personal digital assistants, electronic dictionaries, calculators & digital camera accessories for use with cellular phones. In addition, the firm assists its OEM customers in the design and development of their products and furnishes full turnkey manufacturing services. The company's services include hardware/software design, component purchasing, assembly into finished products or subassemblies and post-assembly testing. The company's quarterly earnings report is due on or about 2/6/04. NTE - Nam Tai Electronics $30.44 PLAY (speculative - neutral/debit straddle): BUY CALL FEB-30.00 NTE-BF OI=1912 ASK=$2.70 BUY PUT FEB-30.00 NTE-NF OI=307 ASK=$2.20 INITIAL NET-DEBIT TARGET=4.75-$4.80 INITIAL TARGET PROFIT=$1.90-$2.75 ************************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 *************************************************************** ********** 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
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