The Option Investor Newsletter Sunday 01-25-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Two Out of Three Futures Market: Al Green's Pocket Rocket Index Trader Wrap: Down Week, Barely Editor's Plays: Sky High Profits Market Sentiment: The Race Continues Ask the Analyst: Rebalancing act 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 01-23 WE 01-16 WE 01-09 WE 01-02 DOW 10568.29 - 32.22 10600.5 +141.62 10458.9 + 49.04 + 85.18 Nasdaq 2123.87 - 16.59 2140.46 + 53.54 2086.92 + 80.24 + 33.54 S&P-100 565.41 + 0.69 564.72 + 8.17 556.55 + 6.56 + 7.21 S&P-500 1141.55 + 1.72 1139.83 + 17.97 1121.86 + 13.38 + 12.21 W5000 11156.78 + 40.74 11116.0 +187.04 10929.0 +151.14 +115.48 RUT 596.14 + 5.73 590.41 + 15.21 575.20 + 14.35 + 5.75 TRAN 3072.94 + 36.66 3036.28 + 47.34 2988.94 - 19.22 + 8.49 VIX 14.84 - 0.16 15.00 - 1.75 16.75 - 1.47 + 0.83 VXO 14.87 - 0.40 15.27 - 0.67 15.94 - 2.00 + 1.36 VXN 21.27 + 1.03 20.24 - 2.77 23.01 - 1.50 + 0.56 TRIN 1.15 0.47 1.63 1.01 Put/Call 0.77 0.51 0.65 0.76 ****************************************************************** Two Out of Three by Jim Brown Two of the top three indexes broke their long running winning streaks. Two of the three busiest weeks in the earnings cycle are now over. While these milestones are noted in passing they have no real impact on our market direction next week. If anything it takes the pressure off the Dow to keep the streak going and gives dip buyers an entry point. Dow Chart - 120 min Nasdaq Chart - 60 min The only economic report on Friday, the ECRI Weekly Leading Index, saw the projected six month growth rate rise to +9.6% after two weeks of declines. Almost all of the index components rose but the +12% gain in mortgage applications had the biggest impact. The strength of the internals suggest that the last two months of sluggishness in the index may be coming to an end. A problem for next week was the huge spike in the ten year note yields on Friday to 4.06% from Friday's low of 3.91%. That may not seem like much but the morning low was a four-month low. The bounce was due to some option expiration worries and news that the G7, meeting Monday, could warn the ECB to reel in the soaring Euro. The prospect of intervention in the currency sent bonds into a spin and helped take stocks with them. In stock news the merger mania is alive and well. Regions Financial (NYSE:RF) and Union Planters (NYSE:UPC) agreed to merge in a nearly $6 billion transaction and create one of the largest banks in the Southeast. It was said this was an offensive strategy to better compete with STI, BBT and WFC in the region. It could also be a defensive strategy to make them less desirable of a target for a big bank to acquire. There was no premium on the deal for UPC which was the acquired entity. UPC was started in 1869 during Civil War reconstruction. They must have seen the bank Yankees from New York coming over the hill to surrender to RF without any recruitment fee. Analysts liked the deal as both stocks rose strongly on the day. The Dow positive string was broken after eight weeks and the Nasdaq string was stopped at six. The S&P is still alive and celebrated its ninth straight week of gains. The gains are being fueled by massive amounts of cash flowing into mutual funds. The S&P is greatly supported by contributions to index funds which do not try to time the market but just invest the cash when it arrives. TrimTabs said $11.5 billion flowed into funds in the first eleven days of January. This was the second highest rate on record with $16 billion in early February 2000 the existing record. AMG Data said $5.6 billion flowed into funds for the week ended Wednesday. This flood of cash always trails market performance. We had a great earnings run that pushed the Dow back over 10,000 and the flashing alert light went on in homes across the country. That triggered the continued flood of cash and until that cash shrinks to a trickle the rally will continue. There is no shortage of cash on the sidelines. Some analysts now estimate that there is as much as 10% cash reserves now in many funds. They are waiting to see what will happen when the winning streak ends before putting all of the inflows to work. With seven trillion dollars in equity funds that is a lot of money regardless of how little you think they are hoarding. Friday's market action did not play out as expected. The tech stocks traded down overseas but our futures rallied before the open and gave us a gap open instead of the gap dawn they were indicating late Thursday night. No problem, we will always take a gap up rather than a gap down. Unfortunately it did not last long and after taking one more shot at 10650 the Dow rolled over and led the broader markets down all day. The Nasdaq tried valiantly to reach for the sky on the better than expected semi earnings but could only make it to 2138 before following the Dow into the depths. The Nasdaq managed to close in positive territory thanks to a strong rebound off 2110 in the last 20 minutes. The S&P broke 1150 and it's nearly two year high once again and struggled to hold near that level but the diving Dow finally sunk it. This is a very tough level for the S&P with 1152 a 50% rebound from the October-2002 lows. 1161 is a 50% retracement from the Jan-2000 to Oct-02 drop and 1173 is the 2002 resistance highs. Very tough territory for the S&P. The strongest index was still the Russell-2000 which closed up +4.41 at 595 thanks to a really strong end of day bounce. The low was 589.92 but the key was the close. It was only .77 below the high for the day. Very strong performance and proof that the retail investor is alive, well and buying the dips with a vengeance despite the very extended indexes. 600 is still very strong resistance and 606 was the all time closing high. Both could be tough levels to break. Russell-2000 Chart - 120 min Microsoft recovered from the bad-mouthing drop Thursday night to spike to a two month high and ended the day up +.47 cents. Volume was 127 million shares. Intel, which should have benefited from Microsoft's prediction of double digit PC growth for the first six months closed only fractionally positive but off its lows. KLAC had great results but got knocked for -2.21 loss. This helped accelerate the $SOX drop which began Wednesday morning. The SOX closed at 526 and well off the high for the week at 558. That is nearly a -6% drop in three days for a sector that has been giving positive guidance and had a book-to-bill number last Monday of 1.20, the highest level since July-2002. This is proof that profit taking sometimes occurs despite good news. Next week is going to be tricky. Monday is a very light day economically but we have the FOMC meeting on Tue/Wed and a strong economic calendar the rest of the week. We have already seen 1/3 of the Dow stocks report and we get another 1/3 next week. Another 143 S&P companies also report earnings. This is a very busy week but the two key points are the Fed announcement on Wed and the GDP on Friday. As I said on Thursday the Fed may take the opportunity of low bond rates and a high stock market to adjust their bias statement and traders could be very cautious into that announcement. The threat of an ECB rate cut could actually be a wild card that could cause a 1/4 point rate hike to show cooperation. While almost nobody expects that the news report on Friday put the possibility in traders minds. The bond market imploded on the potential sending yields soaring. Everyone expects this meeting to be a non event but the rumors are flying. Greenspan will speak in London on Monday and there is always risk when he speaks to an international crowd. With Howard Dean suggesting he be fired there is always the risk Greenspan uses his oratory skills to reinforce his current clout. The other fear is the GDP. I say fear because the GDP expectations are getting out of line. With the ECRI Index showing a growth spurt to +9.6% Friday it just provided more fuel for the GDP whisper number. This could be a big disappointment. On Thursday I suggested a hot number would prompt Fed action and disappoint the markets. The current official estimate is +4.5% and the whisper number +6.5%. The best case would probably be something in the +5.1% range that would be neutral to everyone. The roadmap is clear but the road may be rocky for the next five days. The market conditions are still strong with advancers BEATING decliners 3916 to 3414 despite the Dow and S&P turning in negative performances. Volume was almost perfectly split between up (2.23B) and down (2.31B) and it was still strong although about -10% from the prior levels this week. This suggests that the Dow drop is just a normal pullback on profit taking. If the markets remain bullish the Dow now has breathing room of nearly -100 points from the weeks highs. This will allow some room to consolidate and give dip buyers an entry opportunity if desired. Resistance remains 10650 and support at 10500 then 10400. This is a no risk range for the Dow in front of a rocky week. Plenty of room to wander without having to take out any critical levels. The Nasdaq is in the same shape with resistance at 2150 and support at 2085. That 65-point range will take some of the stress out of trading techs. The key levels are still 1150-1160 on the S&P and 600 on the Russell. Those indexes are still close enough to test those resistance levels and if broken the other indexes would be quick to catch up. My market view for next week would be flat to down Mon/Tue with Wednesday's close dependent on the Fed meeting. Beginning Thursday I am expecting a cautious uptick in anticipation of a positive Jobs report the following Friday. I say cautious because of the GDP time bomb. It could be very bullish, very bearish or a dud. Once that report is over we will review the outlook for the following week. This could be the busiest earnings week for this cycle and there will be no shortage of stock news. The better earnings tend to be reported earlier in the cycle so there is a potential for a few more disappointments. I do not think it will matter. Investors already have their minds made up and they are not going to learn anything new. We are in a momentum market and according to the internals there is no slowdown in sight. That could change abruptly the first time a big dip fails to rebound. Keep those parachutes handy. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Al Green's Pocket Rocket Jonathan Levinson The Fed drained 19.5B on Thursday and 5.75B on Friday via its open market operations as the Fed's 23 dealers returned its maturing intervention money ahead of the weekend, and the markets actually saw some selling. Treasuries advanced right up to double top resistance and then fell sharply, the US Dollar Index bounced, equities, the CRB and gold corrected. 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 US Dollar Index finished the week in negative territory, approaching but never testing the year low at 84.80. Friday saw a huge bullish engulfing move that added nearly 14 bps from trough to intraday peak. The daily cycle upphase nearly aborted but did not, and bulls are pressing for a retest of the descending trendline, now at 87.30. The CRB lost 1.38 to close at 268.26, led by weakness in cocoa, live cattle and wheat futures. Daily chart of February gold February gold put in a lower high on Friday but held support 23.6% below the year high. 406 was support all week following the sharp drop off the highs, and the bounces failed repeatedly in the 413 area. Rising trendline support is just below 406, with confluence support next at 399-400. The daily cycles drifted lower, but with price building a base, the cycle is beginning to look tired. It appears almost too easy that goldbugs will be let off the hook, but until 399 breaks, that appears to be what is setting up here. For the day, February gold futures decline 2.60 to close at 407.50, HUI dropped 1.65% to 222.72, and XAU -1.47% to close at 97.79. Daily chart of the ten year note yield Ten year bonds took a whack on Friday after an early morning rise took the yield down to test the 3.9% support line. The TNX bounced so fast that those who blinked could have missed it, and finished higher by 9.7 bps at 4.066%. The daily cycle downphase is very extended here, and the impulsive feel to the yield's bounce leads me to conclude that the next upphase is imminent and likely kicked off Friday. This meaningful selloff in US bonds coincided with the Fed's draining 19.5B on Thursday and 5.75B on Friday in expiring repos. Whether that liquidity drain was the prime mover or not, the reversal lined up perfectly with cycles and confluence we had been watching all week, and sets up a firm base for the yield at 3.9%. Daily NQ candles The NQ managed to fall apart this week while barely raising eyebrows. The tallest dojis were to the upside, as four days' worth of bulls trapped themselves in daily candle blowoffs. Friday's tame decline off its highs finished with just a fractional loss, but two separate rising trendlines were violated on a closing basis as of Friday, and a new daily cycle downphase at last kicked off. 1538 was the latest rising support line to fail, and while a return-to-the-scene rally to that level would relieve the oversold condition on the 30 minute cycle (below), any failure of that bounce would be a textbook short entry. For the day, NQ dropped 2.5 points to close at 1532. 30 minute 20 day chart of the NQ The NQ's low was printed at 1521, just above Fibonacci, price confluence and rising trendline support at 1518. The move drove the 30 minute cycle oscillators to deep in oversold territory, and while a further washout to 1518 could easily follow this week's losses, I expect to see a weak bounce from that level. With the daily cycle downphase now in progress, however, the "buy all dips" mantra is no longer applicable. Bears want to see a lower high put in at the top of the impending 30 minute cycle upphase, and if that occurs, then the next target will be a break of 1518. Next support is 1504, followed by 1492. Resistance is 1548-50. Daily ES candles The ES declined for the week as well, the first in what feels like forever, and while Friday was a small, almost insignificant point drop, it managed to catch bulls in 3 consecutive daily doji tops that finished in negative territory. What that observation means is that chasing upside breakouts in the ES has been a losing trade 3 days in a row (4 on the NQ). By the same token, however, sellers who piled onto the daily rising support line break got hosed, and it remains a tricky market. The NQ has broken the equivalent of 1130 ES on a closing basis, and if ES doesn't bounce on Monday, then that level's the next bearish target. The daily cycle downphase is still not underway, with the oscillators not so much declining as melting like toffee on a hot summer day. Any further selling will break the first rising trendline and kick off a daily cycle downphase. For the day, ES dropped 4.25 to finish at 1139.75. 20 day 30 minute chart of the ES The ES came to rest on the 23.6% retrace off the rally highs, bouncing from 1135.25. The 30 minute cycle downphase was pausing in oversold territory at the cash close, and again, the easiest directional call from here is a 30 minute cycle bounce. 1142 support is now resistance, and a failure there would constitute the right shoulder of a head and shoulders top, neckline 1135 and projecting to the 1120 area, close enough to my 1115 confluence zone for gubmit work. 1146-50 is the next resistance zone, and a strong 30 minute cycle upphase could easily test it. That's the bull-bear battleground for next week. 150-tick ES The short cycle spent most of Friday trending in oversold territory, with an upphase kicking off in the last half hour, as the entire universe has doubtless come to expect. The flattening of the 35 period Keltners, which I use to approximate the 30 minute cycle channel, lined up with the pause at the bottom of the 300 minute stochastic in the previous chart. If price remains firm on Monday morning, I expect the upphase to strengthen and set up that test of 1142. Daily YM candles The YM dropped 67 points to finish at 10549, the biggest percentage loser of the session for -.63%. That said, its daily cycle downphase has achieved virtually no price traction to the downside, and the rising lower support line hasn't been breached even on a spike. 20 day 30 minute chart of the YM The 30 minute cycle downphase was upticking on the end of session ramp on Friday, and 10500 support held at the low. 10560, followed by 10590 are overhead resistance. This week saw large moves in the US Dollar Index in both directions, but with Friday's impressive bounce retracing only part of the damage. We saw bonds trading inversely to the dollar for a change, and gold traded alongside the dollar until Friday, when it sunk again against a rising dollar. Equities too traded "uncoupled" from the dollar, and until some clear trends assert themselves, I respectfully suggest that traders view their signals with a grain of salt. Gold *should* trade inversely to the dollar, while equities and treasuries have taken both sides of that relationship recently. The 2003 rally was liquidity based, and probably central bank support of the dollar saw bonds, equities and gold rally against the falling dollar. As the dollar attempts to bounce, we've seen equities continue to advance (last week), and fall this week. Until we see a clear trend, it is far better to either ignore the intermarket relationships altogether or keep an eye on them, searching for clues and developments. I believe that the massive draining from the Fed, the return of Al Green's pocket rocket of 25.25B, contributed to the declines in gold, equities and treasuries, lining up with the rise in the dollar, but it's early to tell, and hopefully next week will enlighten us. See you Monday morning. ******************** INDEX TRADER SUMMARY ******************** Down Week, Barely Jonathan Levinson A week that saw new highs and heavy volume finished with the Nasdaq barely in the green and the SPX barely in the red and the Dow leading to the downside. The heavy volume and overall heavy feel to the market suggested distribution taking place at the top, but it could also be base-building consolidation ahead of the next wave up. For the day, the Dow lost 55 points, closing at 10586.29, the SPX lost 2.39 points to close at 1141.55, and the Nasdaq gained 4.86 points, finishing at 2123.87. For the week, the Dow lost .3%, the SPX gained .2% and the COMPX dropped .8%, bringing the 52 week gains to 27% for the Dow, 30% for the SPX and 56.2% for the Naz. Volatility remained low all week, with the OEX volatility index, the "old" VIX now called the VXO, finishing at 14.87, with a bottom having printed at 14.40 on Wednesday. The Nasdaq volatility index, the VXN, printed a record low at 20.1 a week ago but cam close on Thursday's open at 20.4. The NDX volatility index, the QQV, actually broke beneath 19 for a few minutes on Tuesday afternoon, still reflecting the ongoing bear market in fear and option premium that has easily exceeded levels that marked the top in Spring 2000. Bears who aim to survive this rally have learned to take these readings in stride and follow the only indicator that prints on monthly statements, the price. Weekly COMPX candles Prophetcharts is expressing the COMPX's .8% drop to 2123 with a green weekly candle, but the closing print is nevertheless correct. Note that the index has closed for the second consecutive week above the upper rising Bollinger band, which indicates a seriously overbought, upwardly trending market. The 8% correction is minor given the close above the upper band and the trending weekly oscillators. Rising wedge resistance on the weekly chart is now 2170, and support is now 2100, followed by 2025. The weekly cycle oscillators are pointed north on buy signals from deep in overbought, the 10-week stochastic nevertheless at a lower oscillator high. Any decline from here will set up a bearish divergence, but we've been watching that setup since July 2003, as it continues to tell us only that the decline, when it comes, risks been serious as the market trends ever higher. Weeky INDU candles The Dow dropped .3%, closing at 10586, the first weekly decline in 2 months. The weekly cycle oscillators are still well within their bullish uptrend, as is the price within its rising channel. 10500 was spike support, and 10300 is next support, followed more substantial support between 9900 and 10000. The weekly charts remain uniformly bullish, with this week's notable weakness constituting at best a weak correction. Daily OEX candles Turning to our primary trading vehicles, we see some cracks in the bullish armor, and given how overbought the indices had become, one might expect more selling to follow. That may or may not turn out to be the case, but for the moment the price trend on the daily OEX is firm. A daily cycle downphase began last week despite new 52 week highs printing this week. 565 held today, with more significant support below at 560, then 556 and 550. Until 525 breaks, any decline from here should be treated with caution by bears, as that level, once such firm resistance, is now strong support. To the upside, 570-2 is resistance, but a move back to that level could reverse the current daily cycle downphase and likely set off the next short squeeze. 20 day 30 minute chart of the OEX The 30 minute cycle downphase provided a whipsaw on Thursday that was maximally dispiriting to bulls, but it reached deep oversold territory on Friday before the closing bounce. Unless Monday sells off quick and hard, I'd expect the next meaningful move on this cycle to be to the upside. As can be seen over the past 3 weeks, this cycle does not trend in oversold at all, and barely in overbought. A selloff on Monday would indicate trouble in paradise for the first time in many weeks, and will imply that the daily cycle downphase is going to get some price traction after all. Daily QQQ candles I've generated a daily chart for the past 52 weeks, to display the strong uptrend at the expense of some candle clarity. The QQQ is in a daily cycle downphase here, and if 37.40 breaks, next real support comes at 36. The shape of the daily cycle rollover looks good for a move to that level, but this rally has been built on whipsaws and early downphase aborts. Below 36, next stop is 33.50, with minor support at 34.20. 20 day 30 minute chart of the QQQ The 30 minute cycle for QQQ was trending in oversold before the end of session bounce that closed QQQ at a minor loss of 12 cents at 38.03. 37.60 is strong support, and I'd treat a break of that level as a head and shoulders neckline break, projecting 1.2 points lower to 36.40. Given how oversold the 30 minute cycle oscillators have become and the bullish kisses on which they left off, I'll be viewing any upside Monday morning as indicating a new 30 minute cycle upphase. If that upphase fails right away or from a lower high (below 38.80), then the daily cycle downphase will be confirmed, portending a test of 37.60 support. ************************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 ************** Sky High Profits Careful this is risky. Now that I have the disclaimer out of the way let's explore a few facts. Everybody has seen the rocket ride to the stratosphere for XMSR. I am talking about the stock price not the satellites. The stock was selling for $1.70 in Nov-2002 and $30 two weeks ago. I personally feel XMSR will be the survivor of the radio war but recent events suggest we could see a retracement of the stock before the next up leg. On Friday XMSR said they had priced 20 million shares of stock at $26.50. No problem the stock only lost -$1.00 from the day's highs to close at $25.88. Support for the stock is 25.50. This is well off the $30 high from Jan-7th. This suggests to me that the bloom is off the rose. Also, 13 million of those shares are coming from insiders and not the company. Also, insiders have generously offered to sell three million more shares just in case there is too much demand. That is no small pocket change. That is $424 million that insiders have decided to accept in lieu of future gains, if any, if all 16 million shares are tendered. Can't blame them I would be selling those hot potatoes too! It just makes me wonder if reality is about to strike. According to Business Week it may be a long time before XMSR actually makes a profit. A very long time. XM has 1.4 million subscribers and expects to post a -$250 million loss for this year on revenue of $259 million. This cash burn is a very long way from just breaking even much less making a profit. Business Week suggested the initial saturation point for North American subscribers was 3.5 million listeners willing to pay $9.95 a month. That is possible given their current growth rates. The growth rate is expected to slow as the early adopters begin to dissipate and it could take several more years to hit that level. Eventually the numbers work out to where a profit is possible. Here is the catch. In order to finance their startup and growth both XMSR and SIRI have issued tens of millions of shares of stock, warrants, convertibles, options etc. SIRI has enough options outstanding to increase the amount of stock by 1/3. XMSR has been much more liberal in attempting to streak out into the lead and total shares outstanding could more than double over the next couple years if all the options are executed. That does not even assume the issuance of new stock like the company announced on Friday. This means that lenders wanting to be repaid for their investment will be eager sellers and should the stock price begin to fall XM may have to issue more options to attract more lenders and keep the cash drawer full. When earnings do begin to appear the dilution impact of all these additional shares could be extreme. Just going profitable has been the kiss of death for many dot.coms as their mysterious promises turn into minimum returns. Currently the closest mature competitor to XMSR would be Echostar. (DISH) The highest price to sales ratio they have ever seen was 14 and cable TV is much more saleable to normal consumers than satellite radio. We can't use PE ratios since XMSR and SIRI have no earnings. XM currently trades for a price-to-sales ratio of 60 and SIRI is obscene at 392. While I think XMSR will survive and eventually prosper it may be a very long time before it happens. What started me down this research path was the new stock offering and the 16 million shares offered by insiders. If they are that eager to dump and run it might start others to thinking the same thing. They currently have 149 million shares outstanding and a $4 billion market cap. A whopping 33% of the float is currently shorted. (41 million shares) This is a huge number and the number one reason for the meteoric price rise. Every bounce brings another round of short covering and another round of shorts. A vicious circle we have seen time and time again. It eventually ends badly with the sudden decline of the stock once the momentum players decide the ride is finished. Remember ACF back in 2001? Here is the deal. This is a short term play and because of the high short interest I am going to take out insurance in the form of a cheap call. I would not be surprised to see the $25.50 level fail as the new offering news sinks in to the public consciousness. Buy March $30 call QSY-CF currently $0.95 Buy April $25 put QSY-PE currently $2.45 If we get a short covering blowout to the upside the call should cover the loss on the put. If we get any decent move to the downside the put price should cover the loss on the call. The target price to exit for a profit is $22.50. The stop loss is $30.00 If either number is hit close all positions. You could just sell the put on a touch of $30 and take your chances on the call but that is up to you. Likewise if we start to see a steady decline in the stock and the market I might try to squeeze out $20 on the downside. That would be a very slight possibility. The official exit is $22.50/$30.00. I am using the April put to retain the most time premium on any move. You could use the Feb-$30 call for 40 cents but that only gives us four weeks for the play. That may be more than enough but the March call would still have more value if we did hit the targets in the next four weeks. XMSR Chart ******************************** Play Recaps DJX Puts When things go bad they really go bad. The Dow finally spiked to 10650 this week and actually spent part of three days at that level. The bullishness is so rampant that even on Friday when the Dow dropped to 10523, -137 points off its Thursday high, the advancers still beat the decliners and there were over 800 new 52-week highs. I am giving up all but the weakest of hopes that the Dow will retreat any meaningful distance before expiration. Anything is possible and the dip on Friday could be a crack in the foundation but I have my doubts. The 50 dma has climbed to 10146 and every test of this support since March has broken it slightly for a couple days before launching out again. This suggests 10100 is still possible but 10200 is more likely IF we were to get a real bout of profit taking. Currently 10500 and 10400 are decent support levels followed by light support at 10300. The play was predicated on a repeat of the January drop that we have had for the last six years. There has been no drop. The closest thing we got was a dip to 10367 on the 13th which was -221 points from the high three days earlier. If that was it I missed it. The average drop has been -550 points and that was less than half of the average. I am writing this play up as a loss and suggest you cover on any dip to 10400. I am holding on until the bitter end. The current 30-cent value of the Feb-100 puts will not buy much and they are worth the 30 cents to me as a lottery play. My Feb-102 puts are 50 cents today and could still be in play. My personal exit target is 10300 today unless the sentiment changes quickly. Should we see a real dip in progress I will play it by ear. I am not holding my breath but with the Fed, GDP, ISM and Jobs ahead there is plenty of risk for the bulls and little in the way of a catalyst to the upside. Earnings are good just like they expected but that is old news. The biggest factor that could push us up higher is simply the momentum factor. Bulls are in control and in full stampede. Until they come to a cliff there is nothing to stop them. Initial play description December 21st http://members.OptionInvestor.com/editorplays/edply_122103_1.asp ******************************** Priceline.com (PCLN) Put play $20.58 Did you get the number of that truck? I searched everywhere for the reason for the spike on Jan-21st but could not find any news. For some unexplained reason at 12:05 on Wednesday PCLN jumped from $19 to $21.50. That spike stopped us out at $20 and ended the misery. Must have been something Spock did to the warp drive. http://members.OptionInvestor.com/editorplays/edply_121403_1.asp ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** The Race Continues - J. Brown The major indices have been racing higher for several weeks straight and they finally had to pause and catch their breath. This last week ended an eight-week stretch for the Dow Jones Industrials and the S&P 500 and it closed a six-week rally for the NASDAQ. Fortunately for investors the consolidation was pretty mild. Almost too mild. The averages are looking so extended that it's getting tougher to chase them and it's been too dangerous to attempt many bearish plays. No one wants to pick a top but no one appears willing to buy the top either. At least that appears to be a growing feeling among some traders. It could be wrong and this market could take off again despite their increasingly overbought and somewhat bearish technical oscillators. I think the market internals for the last couple of days might be the real clue. The advance-decline line has been weakening and the up-down volume ratios have also been fading from their bullish levels. For weeks you've heard that the markets are due for a pull back. Odds are when it finally comes it will be brief but sharp. This expectation could put the brakes on any new rally attempts. Why buy stocks now when you might get a chance to buy them 5% or 10% cheaper? Let's look at some of the sector indices. Bulls should be happy to see the Dow Transports (TRAN) almost hitting 3-year highs. The group recently broke out above resistance at 3050 despite crude oil prices hitting $35 a barrel. Traditional Dow theory suggests you can't have an extended rally/bull-market without the transports along for the ride. So far so good. The GHA hardware index has pulled back to its support in the 257- 258 range. We might see a bounce here in spite of its bearish technicals. The OSX oil services index was the big winner on Friday with a 3.98% gain. This was sparked by a strong earnings report from Schlumberger (SLB), who turned in 50 cents a share, 7 cents better than expected. SLB was up 7.5% and brokers were upgrading the issue on growing expectations for increased oil exploration and production. Some of the strongest sectors in the market have been the UTY utility index and the XNG natural gas index. They have both traded sideways the past couple of sessions but they are maintaining their gains and new yearly highs. It could be investors chasing those stocks with a higher-dividend yield. I also noticed some minor strength in the RLX retail sector. Category killer Wal-Mart (WMT) broke through resistance at $54 and its simple 50-dma on Friday, giving the group a lift. The XAU gold & silver index continues to look weak. Friday was another close under the 100 level as gold futures dropped another $2 to close at $408. Another group to watch next week may be the Insurance sector. The IUX index has been climbing in a very narrow channel for 9 weeks straight. It just pulled back toward its simple 10-dma and a breakdown here could spark a sharp round of profit taking. Next week investors will have to withstand another flood of earnings on top of several economic reports, not to mention the two-day FOMC meeting. Monday will bring the December existing home sales figures, which are expected to be slightly higher. Tuesday is the Conference Board's consumer confidence report, which is also expected to rise from December. Tuesday night will offer the New Hampshire Democratic primary and if the new front-runner Kerry wins it could cause a stir on Wednesday. Actually, it probably won't matter who wins because the markets don't like uncertainty. Expect some volatility on Wednesday no matter what the primary results are. Plus, we'll have the interest rate decision by the Fed on Wednesday but no one really expects any changes. The rest of the week will bring even more economic reports but earnings will continue to hog the spotlight. Trade carefully! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10660 52-week Low : 7416 Current : 10568 Moving Averages: (Simple) 10-dma: 10540 50-dma: 10146 200-dma: 9411 S&P 500 ($SPX) 52-week High: 1150 52-week Low : 788 Current : 1141 Moving Averages: (Simple) 10-dma: 1134 50-dma: 1087 200-dma: 1012 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 795 Current : 1531 Moving Averages: (Simple) 10-dma: 1534 50-dma: 1447 200-dma: 1307 ----------------------------------------------------------------- The volatility indices continue to offer us little help. They remain near their lows despite the mild weakness in the major averages. CBOE Market Volatility Index (VIX) = 14.84 +0.13 CBOE Mkt Volatility old VIX (VXO) = 14.87 -0.14 Nasdaq Volatility Index (VXN) = 21.27 -0.47 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.77 861,409 665,677 Equity Only 0.60 764,989 456,491 OEX 1.67 13,497 22,561 QQQ 2.85 32,996 98,161 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 78.4 + 0 Bull Confirmed NASDAQ-100 79.0 - 1 Bull Confirmed Dow Indust. 93.3 + 0 Bull Confirmed S&P 500 88.8 + 0 Bull Confirmed S&P 100 88.0 + 1 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: 1.00 10-dma: 1.06 21-dma: 0.97 55-dma: 1.05 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 1529 1766 Decliners 1329 1316 New Highs 398 274 New Lows 7 5 Up Volume 960M 1116 Down Vol. 924M 1072 Total Vol. 1946M 2231M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 01/23/04 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 Wow! We've seen a mild reversal in the commercial traders' positions. They've moved from mildly net short to mildly net long. That's an encouraging sign for more strength in the markets. Small traders have grown a bit more cynical with a slight increase in short positions but they remain net long. Commercials Long Short Net % Of OI 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%) 01/23/04 422,135 407,626 14,509 1.7% 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 12/22/03 147,537 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% 01/23/04 141,107 100,090 41,017 17.0% 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 Commercials are starting to up their bets on the e-minis with almost 40K new longs and 44K new shorts. Small traders in turn reduced their bets but remain net long. Commercials Long Short Net % Of OI 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%) 01/23/04 233,867 307,122 (73,255) (13.5%) 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 12/22/03 125,248 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% 01/23/04 187,270 57,196 130,074 53.2% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is very little change in commercial traders' positions here and the same holds true for the small traders. Commercials Long Short Net % of OI 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% 01/23/04 42,823 39,442 3,381 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 12/22/03 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%) 01/23/04 9,180 11,371 ( 2,191) (10.7%) Most bearish reading of the year: (10,769) - 06/11/02 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercials are also hesitant to make any big changes to their net bullish stance on the Dow. Meanwhile small traders grow a little more bearish. Commercials Long Short Net % of OI 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% 01/23/04 16,403 9,252 7,151 27.9% 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 12/22/03 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%) 01/23/04 6,068 10,183 ( 4,115) (25.3%) 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 *************** Rebalancing act I read with great interest your ask the analyst column from Dec. 28, 2003 regarding the rebalancing of a portfolio. I don't watch the markets on a daily basis and hold a mix of mutual funds, a few individual stocks and like to buy longer-term call options with some of my risk capital. I was rather shocked when I sat down and reviewed my various accounts this past weekend (getting ready for taxes) when I saw just how much things had changed! For the better I might add. Unfortunately, I think, I didn't rebalance right at the beginning of the year, and a precious metals fund I own has given back some gains. Still, the way my other equity funds have done, it looks like I was still able to offset some of recent decline in my precious metals fund. Will you be updating that article, or your benchmark portfolio? I'd like to see how things have done. I was also wondering... It has been just about 1-month, or 1/3 of a quarter since that December 28th Ask the Analyst column titled "Rebalancing Makes Sense," and while the question was asked more than a week ago, I wanted to wait at least one month to allow some time to pass before reviewing what has taken place. Let's quickly look at what the rebalanced portfolio looked like on the December 26, 2003 close, and quickly review what an investor, or even an institutional money manager may have been doing just before the end of the year. Beetle's Balanced Benchmark - 12/26/03 Close (Rebalanced) As a quick review, what we were looking to do is simply bring our various asset classes back into balance. The #shares column with red boxes around those asset classes reflected the partial selling of those assets (which prior to the rebalance were then over weighted on a Value basis) and the capital raised from that selling, was then redistributed to the #Shares column and asset classes with the green box. At the far right of the portfolio, you can see that the Values of each asset class were just about equal, and rebalancing was complete. Please note. This is NOT a recommended asset allocation. The equal distribution of capital is used to simplify the tracking of how each asset class is performing over time, and any impact seen on the TOTAL VALUE of a portfolio versus one that isn't rebalanced. It is also important to try and understand "RISK MANAGEMENT" with what was done when rebalancing. What did an investor do when they sold some of their equity positions (DIA, SPY, QQQ, $HUI.X) which had risen 19.35% from 12/31/02 to 12/26/03, and also sold some of their corporate bond holdings (LQD) and junk bond holdings (PHF), and with those funds bought U.S. dollars (dx00y) which might represent cash you hold in an emergency fund, but may gain/lose purchasing power for foreign goods and services, shorter-dated Treasuries (SHY), intermediate-term Treasuries (IEF) and longer-dated Treasuries (TLT), where these Treasury bonds are backed by the full faith a credit of the U.S. Government? While Treasury bonds will fluctuation in price and can have the investor gaining/losing money after purchase, this asset class is backed by the full faith and credit of the U.S. Government. Corporate bond are backed by the underlying company (if the U.S. Government goes bankrupt, chances are corporate bonds won't be much safer, and if corporate bonds were to default, then the company's stock would be worth little as the company would be in bankruptcy). Here is a comparison of the rebalanced portfolio above, and the same portfolio shown in the December 28, 2003 Ask the Analyst column if we had not rebalanced at all. Comparison of Rebalancing (upper) vs. not Rebalancing (lower) I has been 4-weeks since the article on rebalancing. In PINK, I've highlighted the "Total" of the rebalanced portfolio, and the "Total" for the same portfolio if no rebalancing had taken place. The percentage difference would show the rebalanced portfolio having under performed the unbalanced portfolio by $11.39, or 094% (does not account for dividends or interest received and commissions paid). The BLUE boxes at the "Subtotal" of each asset class ($$ and Bonds) and (Equities) would still have the "riskier" asset class of equities as a whole outperforming $$ and bonds. The RED boxes show those particular asset classes that have under performed in the past 4 weeks (dollar and gold stocks), while the GREEN boxes show those asset classes that have outperformed (junk bonds and large cap tech-growth). Note: While the U.S. Dollar Index (dx00y) has declined -1.12% since 12/26/03, the hypothetical $1,192.91 would still be a cash balance in the account, but the 1.12% decline may be representative of the loss of purchasing power for foreign made goods and services, impact of inflation, etc.. As we can see, there can always be the trade off of risk management, which incorporates the discipline of rebalancing a portfolio from time to time, which may have the trader/investor selling some of their winners and buying a loser. It may also have the investor/trader buying a winner and selling a loser. The trader/investor that asked today's question also went on to ask about how his longer-term call options, where risk capital was used to buy various stocks might be classified in the scope asset allocation. I have some general ideas on that part of the question. I always try to think in very generic terms, and try to think of a stock as it might related to it representation of a major index, or even an industry, but only in the concept of top of mind awareness. Or word association if you will. When I say Intel (NASDAQ:INTC) what do you think of? I think... large cap technology. While Intel is a component of the Dow Industrials (DIA in the portfolio), the S&P 500 (SPY in the portfolio) and the NASDAQ-100 (QQQ in the portfolio), I'd think of a longer-term call option as a portion of a QQQ asset class. When I say Merck (NYSE:MRK), which is also a Dow component and S&P 500 Component, I tend to think MRK as more of an SPX asset class, where the company is more focused on drug manufacturing. Johnson & Johnson (NYSE:JNJ), which has its fingers in everything from consumer products to drugs to healthcare equipment, I might also think SPX asset class. However, if I owned a call option in MRK, then I might make the exception and say JNJ is now a Dow representative, and count it toward my Dow asset class. So... there's a quick update on rebalancing in what I would consider to be a "real life" example, which we can continue to test over time. What are your investment friends saying these days about valuations of stocks? Have you heard from any of your overly pessimistic friends this month that told you at this past year's holiday party to dump all your technology stocks and buy gold stocks? Has your next-door neighbor been letting his dog frequent your front yard of late after you told him to dump everything he owned and stuff it in his mattress? Or has your neighbor brought you homemade bread only because you told him to re-balance his portfolio and he feels like he raised a little cash in his account, and can't wait to rebalance next quarter and snap up some bargains in the precious metals sector? Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ADPT Adaptec, Inc. Mon, Jan 26 After the Bell 0.04 AIN Albany Intl Mon, Jan 26 -----N/A----- 0.58 ALTR Altera Corp Mon, Jan 26 After the Bell 0.11 AXP Amn Express Co Mon, Jan 26 -----N/A----- 0.59 ASD Amn Standard Mon, Jan 26 Before the Bell 1.10 ABC AmeriSourceBergen Mon, Jan 26 Before the Bell 0.94 ASH Ashland Mon, Jan 26 Before the Bell 0.43 STD Bnc Sntndr Cntl Hspn Mon, Jan 26 Before the Bell N/A BOH Bank of Hawaii Corp Mon, Jan 26 Before the Bell 0.65 CSE CAPSOURCE INC Mon, Jan 26 After the Bell 0.22 CNF CNF Inc. Mon, Jan 26 After the Bell 0.49 CGNX Cognex Mon, Jan 26 After the Bell 0.13 CLP Colonial Prop Trust Mon, Jan 26 -----N/A----- 0.98 CUZ Cousins Prop Incorp Mon, Jan 26 After the Bell 0.57 CVD Covance Mon, Jan 26 After the Bell 0.32 DL Dial Mon, Jan 26 Before the Bell 0.35 DOV Dover Corp Mon, Jan 26 After the Bell 0.39 FIC Fair Isaac Corp Mon, Jan 26 After the Bell 0.56 FCNCA First Ctzns BncShrs Mon, Jan 26 After the Bell N/A GGP General Growth Prop Mon, Jan 26 -----N/A----- 0.73 HLT Hilton Hotels Corp Mon, Jan 26 Before the Bell 0.11 IDXX Idexx Laboratories Mon, Jan 26 Before the Bell 0.40 KMB Kimberly Clark Mon, Jan 26 Before the Bell 0.88 LLL L-3 Comm Hldgs Mon, Jan 26 Before the Bell 0.92 LEA Lear Corp. Mon, Jan 26 Before the Bell 1.86 LXK Lexmark Intl, Inc. Mon, Jan 26 Before the Bell 0.92 MCD McDonalds Corp Mon, Jan 26 After the Bell 0.35 MIL Millipore Corp. Mon, Jan 26 After the Bell 0.48 NVLS Novellus Systems, Inc Mon, Jan 26 After the Bell 0.06 PPC Pilgrim's Pride Mon, Jan 26 Before the Bell 0.19 SAFC Safeco Corp. Mon, Jan 26 Before the Bell 0.88 SGP Schering-Plough Mon, Jan 26 Before the Bell 0.04 SLAB Silicon Laboratories Mon, Jan 26 After the Bell 0.32 SYY SYSCO Corp Mon, Jan 26 Before the Bell 0.32 TXN Texas Instruments Mon, Jan 26 After the Bell 0.19 TSN Tyson Foods Mon, Jan 26 Before the Bell 0.26 VLI Valero L.P. Mon, Jan 26 Before the Bell 0.78 ------------------------- TUESDAY ------------------------------ AFCI Advanced Fibre Comm Tue, Jan 27 After the Bell 0.09 ADVP AdvancePCS Tue, Jan 27 After the Bell 0.55 ATE Advantest Corp Tue, Jan 27 -----N/A----- N/A AMZN Amazon.com, Inc. Tue, Jan 27 After the Bell 0.29 ARB Arbitron Inc. Tue, Jan 27 Before the Bell 0.27 ASN Archstone-Smith Trust Tue, Jan 27 Before the Bell 0.42 ARMHY ARM Hldgs Plc. Tue, Jan 27 Before the Bell 0.02 AJG Arthur J. Gallagher Tue, Jan 27 After the Bell 0.53 AV Avaya Tue, Jan 27 After the Bell 0.05 AVY Avery Dennison Corp Tue, Jan 27 During the Market 0.59 AVX AVX Corp Tue, Jan 27 Before the Bell -0.04 BN Banta Corp Tue, Jan 27 After the Bell 0.66 BZH Beazer Homes USA Inc. Tue, Jan 27 Before the Bell 3.17 BMC BMC Software Tue, Jan 27 Before the Bell 0.17 BXP Boston Prop Tue, Jan 27 After the Bell 1.00 BRCM Broadcom Tue, Jan 27 After the Bell 0.16 BNI Brlngtn No Snt Fe Crp Tue, Jan 27 Before the Bell 0.57 CCJ Cameco Tue, Jan 27 -----N/A----- N/A CP Can Pacific Railway Tue, Jan 27 Before the Bell 0.59 CAT Caterpillar Inc. Tue, Jan 27 Before the Bell 0.94 CTC Co de Telede Chile S.ATue, Jan 27 After the Bell 0.05 CFC Countrywide Finl Corp Tue, Jan 27 Before the Bell 2.71 CSX CSX Tue, Jan 27 Before the Bell 0.60 CMI Cummins Inc. Tue, Jan 27 Before the Bell 0.97 CYMI Cymer, Inc. Tue, Jan 27 After the Bell 0.00 XRAY DENTSPLY Intl Inc. Tue, Jan 27 After the Bell 0.59 DJ Dow Jones & Co Inc. Tue, Jan 27 Before the Bell 0.41 DST DST Systems Tue, Jan 27 After the Bell 0.46 DD DuPont Tue, Jan 27 Before the Bell 0.25 ELNK EarthLink Tue, Jan 27 Before the Bell 0.09 ERTS Electronic Arts Tue, Jan 27 After the Bell 1.20 EFII Elec for Imaging Tue, Jan 27 After the Bell 0.25 EOC Empresa Nacl Elect SA Tue, Jan 27 -----N/A----- 0.09 ELX Emulex Tue, Jan 27 After the Bell 0.22 ENB Enbridge Inc. Tue, Jan 27 After the Bell N/A EN Enel S.p.A. Tue, Jan 27 -----N/A----- N/A ESA Extended Stay Am, Inc Tue, Jan 27 After the Bell 0.01 FISV Fiserv Tue, Jan 27 After the Bell 0.42 FLEX Flextronics Tue, Jan 27 After the Bell 0.14 GNTX Gentex Tue, Jan 27 Before the Bell 0.35 HMY Harmony Gold Mining Tue, Jan 27 Before the Bell 0.00 HRS Harris Tue, Jan 27 After the Bell 0.49 HCP Health Care Property Tue, Jan 27 Before the Bell 0.92 IMN Imation Corp. Tue, Jan 27 Before the Bell 0.50 IMO Imperial Oil Limited Tue, Jan 27 -----N/A----- N/A IR Ingersoll-Rand Co Ltd Tue, Jan 27 Before the Bell 1.05 KFT Kraft Foods Tue, Jan 27 After the Bell 0.50 KYPH Kyphon, Inc. Tue, Jan 27 After the Bell 0.07 LMT Lockheed Martin Tue, Jan 27 Before the Bell 0.76 MRO Marathon Oil Corp Tue, Jan 27 Before the Bell 0.68 WFR MEMC Elect Materials Tue, Jan 27 -----N/A----- 0.13 MNT Mentor Tue, Jan 27 After the Bell 0.27 MENT Mentor Graphics Tue, Jan 27 -----N/A----- 0.31 MRK Merck & Co., Inc. Tue, Jan 27 Before the Bell 0.62 MDP Meredith Corp Tue, Jan 27 Before the Bell 0.37 MLNM Millennium Pharm Tue, Jan 27 After the Bell -0.31 NCR NCR Corp Tue, Jan 27 Before the Bell 0.80 NNDS NDS Grp PLC Tue, Jan 27 Before the Bell N/A OI Owens Illinois Tue, Jan 27 After the Bell 0.17 PTNR Partner Comm Tue, Jan 27 Before the Bell N/A PBG Pepsi Bottling Grp Tue, Jan 27 Before the Bell 0.28 PMI PMI Grp Tue, Jan 27 Before the Bell 0.81 PPP Pogo Producing Tue, Jan 27 Before the Bell 0.89 PEG PSEG Tue, Jan 27 Before the Bell 0.68 DGX Quest Diagnostics Tue, Jan 27 Before the Bell 0.99 RJR R.J. Reynolds Tobacco Tue, Jan 27 Before the Bell 1.06 RTN Raytheon Tue, Jan 27 Before the Bell 0.52 RHI Robert Half Intl Tue, Jan 27 After the Bell 0.03 ROK Rockwell Automation Tue, Jan 27 Before the Bell 0.27 COL Rockwell Collins, Inc Tue, Jan 27 Before the Bell 0.32 SBC SBC Communications Tue, Jan 27 Before the Bell 0.34 SSD Simpson Manufacturing Tue, Jan 27 After the Bell 0.52 SLG SL Green Realty Tue, Jan 27 After the Bell 0.88 SSCC Smurfit-Stone Cntnr Tue, Jan 27 Before the Bell -0.08 TSFG South Finl Grp Inc Tue, Jan 27 Before the Bell 0.45 SUSQ Susquehanna Bncshrs Tue, Jan 27 -----N/A----- 0.37 SWFT Swift Transportation Tue, Jan 27 After the Bell 0.31 SY Sybase Tue, Jan 27 Before the Bell 0.31 SYD Sybron Dntl Spcl Tue, Jan 27 Before the Bell 0.28 TECH Techne Tue, Jan 27 Before the Bell 0.29 MHP The McGraw-Hill Co Tue, Jan 27 Before the Bell 0.75 NYT The New York Times Co Tue, Jan 27 Before the Bell 0.70 SMG The Scotts Co Tue, Jan 27 Before the Bell -1.45 TRP TransCanada Corp Tue, Jan 27 -----N/A----- N/A UDI United Defense Ind Tue, Jan 27 Before the Bell 0.50 VLO Valero Energy Corp. Tue, Jan 27 Before the Bell 0.97 EYE VISX Inc. Tue, Jan 27 After the Bell 0.14 XRX Xerox Corp Tue, Jan 27 Before the Bell 0.15 ZION Zions Banc Tue, Jan 27 After the Bell 1.07 ------------------------ WEDNESDAY ----------------------------- ABY Abitibi-Consolidated Wed, Jan 28 Before the Bell N/A ATVI Activision Wed, Jan 28 After the Bell 0.66 AMG Affiliated Mngrs Grp Wed, Jan 28 -----N/A----- 1.29 AFFX Affymetrix Wed, Jan 28 After the Bell 0.23 ATG AGL Resources Wed, Jan 28 -----N/A----- 0.44 ARG Airgas Wed, Jan 28 After the Bell 0.26 AGN Allergan Wed, Jan 28 -----N/A----- 0.67 ADS Alliance Data Sys CorpWed, Jan 28 -----N/A----- 0.24 MO Altria Grp, Inc. Wed, Jan 28 During the Market 1.06 AWC ALUMINA LTD Wed, Jan 28 -----N/A----- 0.29 ABK Ambac Finl Grp Wed, Jan 28 Before the Bell 1.39 AHC Amerada Hess Wed, Jan 28 Before the Bell 0.98 AME AMETEK Inc. Wed, Jan 28 Before the Bell 0.71 AMKR Amkor Technology, Inc Wed, Jan 28 After the Bell 0.10 ABI Applied Biosystems Wed, Jan 28 Before the Bell 0.23 ACI ARCH COAL INC Wed, Jan 28 Before the Bell 0.10 ARM ArvinMeritor, Inc. Wed, Jan 28 Before the Bell 0.30 ASKJ Ask Jeeves Wed, Jan 28 After the Bell 0.11 ACLS Axcelis Technologies Wed, Jan 28 After the Bell 0.02 BCR C.R. Bard, Inc. Wed, Jan 28 After the Bell 1.01 CDN Cadence Design SystemsWed, Jan 28 After the Bell 0.23 CNI Canadian Natl Railway Wed, Jan 28 -----N/A----- 1.10 CRA Celera Genomics Wed, Jan 28 Before the Bell -0.30 CEY Certegy Wed, Jan 28 Before the Bell 0.49 CHIR Chiron Wed, Jan 28 After the Bell 0.29 CNXT Conexant Systems Inc. Wed, Jan 28 After the Bell 0.04 COP ConocoPhillips Wed, Jan 28 Before the Bell 1.43 CNX CONSOL Energy Wed, Jan 28 Before the Bell -0.17 CAM Cooper Cameron Wed, Jan 28 Before the Bell 0.52 COCO Corinthian Colleges Wed, Jan 28 -----N/A----- 0.45 CFR Cullen/Frost Bankers Wed, Jan 28 Before the Bell 0.61 CYTC Cytyc Corp Wed, Jan 28 After the Bell 0.17 DBD Diebold Wed, Jan 28 Before the Bell 0.80 DTC Domtar Inc. Wed, Jan 28 -----N/A----- N/A DCLK DoubleClick Wed, Jan 28 After the Bell 0.02 DRE Duke Realty Corp Wed, Jan 28 After the Bell 0.65 EGN Energen Wed, Jan 28 After the Bell 0.61 ENI Enersis SA ADS Wed, Jan 28 -----N/A----- 0.06 ESV ENSCO Intl Wed, Jan 28 Before the Bell 0.17 EXC Exelon Corp Wed, Jan 28 -----N/A----- 1.08 FHR Farmnt Hot Resrt Inc. Wed, Jan 28 -----N/A----- -0.08 FNF Fidelity Natl Finl Wed, Jan 28 Before the Bell 1.28 FMD First Marblehead Wed, Jan 28 Before the Bell 0.56 FDRY Foundry Networks Wed, Jan 28 -----N/A----- 0.16 FBN Furniture Brands Wed, Jan 28 After the Bell 0.40 GGB Gerdau S.A. Wed, Jan 28 -----N/A----- 0.96 GSF GlobalSantaFe Corp. Wed, Jan 28 Before the Bell 0.07 HAR Harman Intl Ind Wed, Jan 28 -----N/A----- 0.55 HIG Hartford Finl Serv Wed, Jan 28 After the Bell 1.46 HSY Hershey Foods Corp Wed, Jan 28 Before the Bell 1.14 INGR Intergraph Wed, Jan 28 After the Bell 0.08 IFF Intl Flav Fragrances Wed, Jan 28 Before the Bell 0.46 ISIL Intersil Corp Wed, Jan 28 After the Bell 0.18 JDSU JDS Uniphase Corp Wed, Jan 28 After the Bell -0.02 KMT Kennametal Inc. Wed, Jan 28 Before the Bell 0.31 KMG Kerr-McGee Wed, Jan 28 Before the Bell 0.83 LSTR Landstar System Wed, Jan 28 Before the Bell 0.47 LEG Leggett & Platt Wed, Jan 28 After the Bell 0.23 LSI LSI Logic Wed, Jan 28 After the Bell 0.04 MKC McCormick & Co, Inc. Wed, Jan 28 Before the Bell 0.61 MEG Media General Wed, Jan 28 Before the Bell 0.96 MRBK Mercantile Bankshares Wed, Jan 28 Before the Bell 0.68 MEOH Methanex Wed, Jan 28 -----N/A----- 0.22 MGG MGM MIRAGE Wed, Jan 28 Before the Bell 0.29 NJR New Jersey Resources Wed, Jan 28 Before the Bell 0.87 NYB New York Comm Banc Wed, Jan 28 Before the Bell 0.57 NSC Norfolk Southern Corp Wed, Jan 28 Before the Bell 0.37 NCX NOVA Chemicals Wed, Jan 28 Before the Bell -0.28 NFI Novastar Finl Wed, Jan 28 After the Bell N/A OGE OGE Energy Wed, Jan 28 Before the Bell -0.08 PKI PerkinElmer Wed, Jan 28 After the Bell 0.22 PLCM Polycom Incorp Wed, Jan 28 -----N/A----- 0.15 PX Praxair Inc Wed, Jan 28 Before the Bell 0.47 PG Procter & Gamble Co Wed, Jan 28 Before the Bell 1.28 PHM Pulte Homes Inc. Wed, Jan 28 After the Bell 1.88 QSFT Quest Software Inc. Wed, Jan 28 After the Bell 0.09 RYN Rayonier Inc. Wed, Jan 28 After the Bell 0.07 RDA READERS DIGEST ASSN Wed, Jan 28 Before the Bell 0.80 RBK Reebok Wed, Jan 28 Before the Bell 0.41 REG REGENCY CTRS CORP Wed, Jan 28 After the Bell 0.90 SEE Sealed Air Wed, Jan 28 -----N/A----- 0.72 SIRI Sirius Satellite RadioWed, Jan 28 -----N/A----- -0.11 SON Sonoco Products Wed, Jan 28 Before the Bell 0.31 SNE Sony Corp Wed, Jan 28 Before the Bell N/A STTS ST Assembly Test Serv Wed, Jan 28 After the Bell -0.01 STJ St. Jude Medical, Inc Wed, Jan 28 Before the Bell 0.47 STM STMicroelectronics Wed, Jan 28 After the Bell 0.16 TWX Time Warner Inc. Wed, Jan 28 Before the Bell 0.15 TRB Tribune Wed, Jan 28 Before the Bell 0.64 TUP Tupperware Wed, Jan 28 Before the Bell 0.49 UGI UGI Wed, Jan 28 Before the Bell 0.84 VAR Varian Medical Sys Wed, Jan 28 After the Bell 0.37 VARI Varian, Inc. Wed, Jan 28 -----N/A----- 0.40 VVC Vectren Corp Wed, Jan 28 After the Bell 0.58 VRTS VERITAS Software Corp Wed, Jan 28 After the Bell 0.24 WLP WellPoint Hlth Ntwrk Wed, Jan 28 After the Bell 1.71 WGL WGL Hldgs Wed, Jan 28 After the Bell 0.80 WWY Wm. Wrigley Jr. Co. Wed, Jan 28 -----N/A----- 0.53 XEL Xcel Energy Wed, Jan 28 Before the Bell 0.27 ------------------------- THUSDAY ----------------------------- SE 7-Eleven Thu, Jan 29 Before the Bell 0.05 ALB Albemarle Corp Thu, Jan 29 -----N/A----- 0.38 ALGN Align Technology Thu, Jan 29 Before the Bell 0.04 AC Alliance Cap Mgmt HldgThu, Jan 29 After the Bell 0.61 AFC Allmerica Finl Thu, Jan 29 After the Bell 0.28 ATH Anthem, Inc. Thu, Jan 29 Before the Bell 1.38 APA Apache Corp Thu, Jan 29 Before the Bell 0.84 ASCL Ascential Software Thu, Jan 29 After the Bell 0.08 AZN AstraZeneca PLC Thu, Jan 29 Before the Bell 0.40 AVID Avid Technology, Inc. Thu, Jan 29 After the Bell 0.46 AVT Avnet Thu, Jan 29 After the Bell 0.18 BLL Ball Corp Thu, Jan 29 Before the Bell 0.71 BOL Bausch & Lomb Thu, Jan 29 Before the Bell 0.79 BAX BAXTER INTL INC Thu, Jan 29 Before the Bell 0.61 BDX Becton, Dickinson Thu, Jan 29 Before the Bell 0.47 BDK Black & Decker Corp Thu, Jan 29 Before the Bell 1.27 BOW Bowater Incorp Thu, Jan 29 Before the Bell -0.76 BMY Bristol-Myers Squibb Thu, Jan 29 -----N/A----- 0.39 BC Brunswick Corp Thu, Jan 29 Before the Bell 0.39 CZR Caesars Entertainment Thu, Jan 29 -----N/A----- 0.05 CAJ Canon Thu, Jan 29 Before the Bell N/A CLS Celestica Thu, Jan 29 After the Bell -0.04 CELG Celgene Corp. Thu, Jan 29 Before the Bell 0.06 CHRT Chartered Semi Manu Thu, Jan 29 After the Bell -0.16 CNET CNET Networks Thu, Jan 29 After the Bell 0.02 CCE Coca-Cola Enterprises Thu, Jan 29 Before the Bell 0.13 COLM Columbia Sportswear Thu, Jan 29 -----N/A----- 0.77 CFB Commercial Federal Thu, Jan 29 Before the Bell 0.50 CPO Corn Products Intl Thu, Jan 29 Before the Bell 0.54 COT Cott Corp Thu, Jan 29 Before the Bell 0.21 DHR Danaher Thu, Jan 29 Before the Bell 0.95 DLX Deluxe Corp Thu, Jan 29 Before the Bell 0.82 DO Diamnd Offshre Drllng Thu, Jan 29 Before the Bell -0.03 DUK Duke Energy Corp Thu, Jan 29 Before the Bell 0.13 DQE Duquesne Light Hldgs Thu, Jan 29 After the Bell 0.18 DYN Dynegy Inc. Thu, Jan 29 Before the Bell -0.15 EMN Eastman Chemical Co Thu, Jan 29 After the Bell 0.02 LLY Eli Lilly Thu, Jan 29 Before the Bell 0.67 XOM ExxonMobil Corp Thu, Jan 29 -----N/A----- 0.58 FTI Fmc Technologies, Inc Thu, Jan 29 After the Bell 0.36 GTW Gateway, Inc. Thu, Jan 29 After the Bell -0.15 GILD Gilead Sciences Thu, Jan 29 After the Bell 0.42 GSPN GlobespanVirata, Inc. Thu, Jan 29 -----N/A----- 0.06 GFI Gold Fields Limited Thu, Jan 29 -----N/A----- 0.08 GLK Great Lakes Chemical Thu, Jan 29 -----N/A----- 0.05 GDT Guidant Thu, Jan 29 Before the Bell 0.58 HAL Halliburton Co Thu, Jan 29 Before the Bell 0.32 HSC Harsco Corp Thu, Jan 29 Before the Bell 0.57 HHS Harte-Hanks Thu, Jan 29 Before the Bell 0.28 HR Healthcare Realty TrstThu, Jan 29 After the Bell 0.69 HON Honeywell Thu, Jan 29 Before the Bell 0.47 HON Honeywell Thu, Jan 29 Before the Bell 0.47 IKN Ikon Office Solutions Thu, Jan 29 Before the Bell 0.19 ITW Illinois Tool Works Thu, Jan 29 Before the Bell 0.91 IGL IMC Global Thu, Jan 29 Before the Bell -0.17 NDE IndyMac Banc, Inc. Thu, Jan 29 Before the Bell 0.76 IRF Intl Rectifier Thu, Jan 29 After the Bell 0.34 JBLU JetBlue Airways Thu, Jan 29 Before the Bell 0.17 K Kellogg Co. Thu, Jan 29 Before the Bell 0.46 KRON Kronos Incorp Thu, Jan 29 After the Bell 0.23 LANC Lancaster Colony Corp Thu, Jan 29 Before the Bell 0.75 LEXR Lexar Media Thu, Jan 29 After the Bell 0.16 LYO Lyondell Petrochem Co Thu, Jan 29 Before the Bell -0.42 MMP Mglln Mdstrm Part L.P.Thu, Jan 29 Before the Bell 0.72 MAN Manpower Thu, Jan 29 Before the Bell 0.53 MKL MARKEL CORP Thu, Jan 29 -----N/A----- 4.14 MEE Massey Energy Co Thu, Jan 29 After the Bell -0.19 MYG Maytag Thu, Jan 29 Before the Bell 0.52 MWV MeadWestvaco Thu, Jan 29 Before the Bell 0.05 MEDI MedImmune Thu, Jan 29 Before the Bell 0.33 MCRL Micrel Semi Thu, Jan 29 After the Bell 0.03 MYL Mylan Laboratories Thu, Jan 29 Before the Bell 0.28 NFG Natl Fuel Gas Co Thu, Jan 29 After the Bell 0.51 NIPNY NEC (ADR) Thu, Jan 29 -----N/A----- N/A NWL Newell Rubbermaid Thu, Jan 29 Before the Bell 0.38 NMR Nomura Hldgs, Inc. Thu, Jan 29 -----N/A----- N/A NT Nortel Networks Thu, Jan 29 -----N/A----- 0.02 NBP Northern Border Part Thu, Jan 29 After the Bell 0.63 NUE Nucor Thu, Jan 29 Before the Bell 0.15 ORI Old Republic Intl Thu, Jan 29 -----N/A----- 0.63 OLN Olin Thu, Jan 29 After the Bell -0.04 PCBC Pacific Cap Banc Thu, Jan 29 Before the Bell 0.38 PTEN Patterson-UTI Energy Thu, Jan 29 -----N/A----- 0.24 BTU Peabody Energy Corp. Thu, Jan 29 Before the Bell 0.36 PSFT PeopleSoft Thu, Jan 29 After the Bell 0.20 PCZ Petro-Canada Thu, Jan 29 -----N/A----- 1.06 PD Phelps Dodge Thu, Jan 29 Before the Bell 0.70 PNW Pinnacle West Cap CorpThu, Jan 29 -----N/A----- 0.53 PII Polaris Ind Inc. Thu, Jan 29 Before the Bell 1.66 PWER Power-One Thu, Jan 29 During the Market -0.06 PCO Premcor Inc. Thu, Jan 29 Before the Bell 0.21 RNWK RealNetworks Thu, Jan 29 After the Bell -0.03 RGA Rensrnc Grp of Am, IncThu, Jan 29 After the Bell 0.84 RCL Ryl Crbbn Cruises Ltd Thu, Jan 29 -----N/A----- -0.07 RSAS RSA Security Thu, Jan 29 After the Bell 0.10 S Sears, Roebuck and Co Thu, Jan 29 -----N/A----- 2.02 SEIC SEI Investments Thu, Jan 29 Before the Bell 0.33 SO Southern Co Thu, Jan 29 Before the Bell 0.17 SFG StanCorp Finl Grp Inc Thu, Jan 29 Before the Bell 1.28 STN Station Casinos Thu, Jan 29 Before the Bell 0.40 SYK Stryker Thu, Jan 29 After the Bell 0.66 SLF Sun Life Finl Inc. Thu, Jan 29 -----N/A----- 0.51 SU Suncor Energy Thu, Jan 29 Before the Bell 0.44 TDK TDK Thu, Jan 29 -----N/A----- N/A TKLC Tekelec Thu, Jan 29 After the Bell 0.10 TNE Tele No Leste PartS.A Thu, Jan 29 Before the Bell 0.16 TXT Textron Inc. Thu, Jan 29 Before the Bell 0.87 BA The Boeing Co Thu, Jan 29 Before the Bell 0.46 DOW The Dow Chemical Co Thu, Jan 29 Before the Bell 0.29 EL The Estie Lauder Co Thu, Jan 29 Before the Bell 0.48 G The Gillette Co Thu, Jan 29 Before the Bell 0.35 MNI The McClatchy Co Thu, Jan 29 Before the Bell 0.92 SPC The St. Paul Co Inc. Thu, Jan 29 Before the Bell 1.03 SWK The Stanley Works Thu, Jan 29 Before the Bell 0.70 WPO The Washington Post CoThu, Jan 29 -----N/A----- 7.55 TAC TRANSALTA CORP Thu, Jan 29 Before the Bell N/A TSM TSMC Thu, Jan 29 -----N/A----- 0.11 TLRK Tularik Inc. Thu, Jan 29 Before the Bell -0.45 UMBF UMB Finl Thu, Jan 29 -----N/A----- 0.64 UPS UNITED PARCEL SERVICE Thu, Jan 29 Before the Bell 0.69 USTR United Stationers Inc Thu, Jan 29 After the Bell 0.63 UPM UPM-Kymmene Grp Thu, Jan 29 Before the Bell 0.17 USFC USFreightways Corp. Thu, Jan 29 After the Bell 0.49 VSEA Vrn Semi Eqpmnt Assoc Thu, Jan 29 After the Bell 0.10 VRSN VeriSign, Inc. Thu, Jan 29 After the Bell 0.13 VZ Verizon Thu, Jan 29 Before the Bell 0.56 VVI Viad Corp Thu, Jan 29 -----N/A----- 0.22 WPL W.P. Stewart & Co Thu, Jan 29 Before the Bell 0.28 WDR Waddell & Reed Finl, Thu, Jan 29 Before the Bell 0.32 WAT Waters Corp Thu, Jan 29 Before the Bell 0.47 WPS WPS Resources Thu, Jan 29 After the Bell 0.70 YELL Yellow Roadway Corp Thu, Jan 29 After the Bell 0.78 ------------------------- FRIDAY ------------------------------- ALE Allete Fri, Jan 30 Before the Bell 0.37 LNT Alliant Energy Fri, Jan 30 Before the Bell 0.53 APC Anadarko Petroleum Fri, Jan 30 Before the Bell 1.17 AU Anglogold Limited Fri, Jan 30 Before the Bell 0.32 ADM Archer Daniels MidlandFri, Jan 30 Before the Bell 0.26 BEC Beckman Coulter Fri, Jan 30 Before the Bell 0.90 CVX ChevronTexaco Fri, Jan 30 Before the Bell 1.58 CEG Cnstlltn Energy Grp Fri, Jan 30 Before the Bell 0.60 EQT Equitable Resources Fri, Jan 30 Before the Bell 0.78 FUJIY Fuji Photo Film Fri, Jan 30 -----N/A----- N/A GMT GATX Corp Fri, Jan 30 Before the Bell 0.31 HEW Hewitt Assoc Fri, Jan 30 Before the Bell 0.30 KYO Kyocera Corp Fri, Jan 30 -----N/A----- N/A MXICY Macronix Intl Fri, Jan 30 -----N/A----- N/A HCR Manor Care Inc Fri, Jan 30 Before the Bell 0.42 NBR Nabors Ind Fri, Jan 30 Before the Bell 0.42 NHP Nationwide Hlth Prop Fri, Jan 30 Before the Bell 0.41 NI NiSource Fri, Jan 30 Before the Bell 0.56 OCENY Oci N.V. Fri, Jan 30 -----N/A----- N/A PIO Pioneer Corp Fri, Jan 30 -----N/A----- N/A SII Smith Intl, Inc. Fri, Jan 30 Before the Bell 0.39 TROW T. Rowe Price Fri, Jan 30 -----N/A----- 0.52 X United States Steel Fri, Jan 30 -----N/A----- -0.31 WFT Weatherford Intl Fri, Jan 30 Before the Bell 0.35 WEN Wendy's Intl Fri, Jan 30 -----N/A----- 0.54 WIN Winn-Dixie Stores Fri, Jan 30 Before the Bell 0.09 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable MRX Medicis Pharmaceutical 3:2 Jan 23rd Jan 26th THO Thor Ind Inc 2:1 Jan 26th Jan 27th CHDX Chindex Intl 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 RMCF Rocky Mountain Chocolate N/A Feb 1st Feb 2nd PROV Provident Financial Hldgs 3:2 Feb 2nd Feb 3rd PCAR Paccar Inc 3:2 Feb 5th Feb 6th JST Jinpan Intl Limited 2:1 Feb 6th Feb 9th -------------------------- Economic Reports This Week -------------------------- This coming week is all about earnings as the downpour becomes a monsoon of announcements. Wall Street will also have to digest a two-day FOMC meeting and a handful of economic reports. ============================================================== -For- ---------------- Monday, 01/26/04 ---------------- Existing Home Sales (DM) Dec Forecast: 6.10M Previous: 6.06M ----------------- Tuesday, 01/27/04 ----------------- Consumer Confidence (DM) Jan Forecast: 95.1 Previous: 91.3 ------------------- Wednesday, 01/28/04 ------------------- Durable Orders (BB) Dec Forecast: 2.0% Previous: -2.5% New Home Sales (DM) Dec Forecast: 1100K Previous: 1082K FOMC Meeting (DM) ------------------ Thursday, 01/29/04 ------------------ Initial Claims (BB) 01/23 Forecast: N/A Previous: 341K Employment Cost Index (BB) Q4 Forecast: 0.9% Previous: 1.0% Help Wanted Index (DM) Dec Forecast: 40 Previous: 39 ---------------- Friday, 01/30/04 ---------------- GDP-Adv. (BB) Q4 Forecast: 4.7% Previous: 8.2% Chain Deflator-Adv. (BB) Q4 Forecast: 1.3% Previous: 1.6% Mich Sentiment-Rev. (DM) Jan Forecast: 102.5 Previous: 103.2 Chicago PMI (DM) Jan Forecast: 61.7 Previous: 59.2 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. 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You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 01-25-2004 Sunday 2 of 5 In Section Two: Watch List: Watch Those Rallies Dropped Calls: DGX 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 Rallies ___________________________________________________________________ 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. ___________________________________________________________________ Intl Business Machines - IBM - close: 97.90 change: +0.39 WHAT TO WATCH: IBM has been a big performer after its very positive earnings announcement two weeks ago. The challenge now is that shares are looking pretty overbought from its lows near $89 on January 13th. We would look for the $100 level to offer short-term resistance. It's the perfect place for traders to do some profit taking and then we can gauge a potential new entry point on a pull back to the $95-97 range. Chart= --- Factset Research - FDS - close: 38.18 change: +1.45 WHAT TO WATCH: FDS appears to be rallying on news that the company purchased 2 million shares from its co-founder. Unfortunately for shareholder this strength was met with selling as FDS approached its 40-dma. The chart suggest this is the upper trendline of lower highs and Friday's failed rally looks like an entry point for shorts to target a move to support at $35. Chart= --- Deluxe Corp - DLX - close: 42.47 change: +1.25 WHAT TO WATCH: We couldn't find any news to explain the 3% jump on Friday but the stock looks ready to try and breakout above its simple 200-dma again. Both its daily and weekly chart suggest that DLX has found a new bottom and the trend of higher lows from November might finally produce a move we can trade. There is some resistance at $44 but bulls can look for some pre-earnings momentum next week. DLX is due to report on Jan. 29th. Chart= --- Infosys Technologies - INFY - close: 93.85 change: +3.02 WHAT TO WATCH: The bounce on Friday might be an entry point for short-term traders to scalp a run towards $100 again. INFY had hit the $101 level in early January and then slowly faded back towards its simple 50-dma, where traders bought the dips in November and December. This technical support held again this week and the stock popped 3.3% on Friday. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- BWA $97.70 -0.01 - Shares of BWA have been in a non-stop rally since January 2nd. Traders appear dead-set on hitting the $100 mark. We would expect some profit taking once shares reach this psychological round number. NEM $42.25 -0.55 - The price movement in NEM continues to suggest more weakness is in store. The oversold bounce rolled over at resistance near $45. HAR $77.40 -1.21 - HAR appears to be struggling with resistance at $80. Bullish traders might look for support in the 75 range or near its 40-dma near 73.00. Watch for earnings on Jan. 28th. ************************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 ^^^^^ Quest Diagnostic - DGX - close: 77.90 chg: -0.52 stop: 76.60 We're going to take our own advice and exit DGX above the $77.50 level. Shares have been exceptionally strong, especially this week as the major averages churned sideways to down. We're encouraged by its mild dip on Friday but with earnings approaching on Tuesday morning we don't feel like tempting fate. More aggressive traders might want to keep the play open through Monday but we would not hold over the Tuesday, pre-market earnings report. Post-earnings we might look for a dip and bounce above the $75 level. Picked on December 30 at $72.95 Change since picked: + 4.95 Earnings Date 01/27/03 (confirmed) Average Daily Volume: 836 thousand Chart = 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. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 01-25-2004 Sunday 3 of 5 In Section Three: Current Calls: AMZN, APOL, ESRX, GENZ, HSIC, MBI, MWD, MXIM, STJ New Calls: CSC Current Put Plays: ADBE, QLGC 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: 57.11 chg: -0.07 stop: 55.00*new* 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: This is it. We've got two more trading days left for AMZN to make a move before its Tuesday earnings report due out after the closing bell. Right now the plan is to exit at the close on Tuesday. If the market is done with its extremely mild consolidation then AMZN might just yet offer a pre-earnings ramp up, much like YHOO did two weeks ago. However, because we are almost out of time we would not suggest new bullish positions. Plus, we would not recommend holding over the earnings report despite expectations for strong numbers due to the surge in online sales this holiday season. As a matter of fact we're going to raise our stop loss to breakeven at $55.00 (almost breakeven). Suggested Options: Due to the short amount of time left in this play we are not suggesting any new bullish positions. Annotated chart: Picked on January 14 at $55.01 Change since picked: + 2.10 Earnings Date 01/27/04 (confirmed) Average Daily Volume: 10 million Chart = --- Apollo Group - APOL - close: 72.56 change: -0.22 stop: 71.00 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: After a very nice breakout over $72.50 and rally up to the $75 level, shares of APOL have pulled back in a perfect "return to the scene of the crime". Lacking the buying interest to propel the stock higher last week, APOL was due for a bit of retracement and it looks like we're going to find out just how strong support now is at the former resistance in the $72.00-72.50 area. With the past two days closing under the 10-dma ($73.18), we now have to acknowledge the possibility of a dip to the 20-dma ($71.40) before being rewarded with the rebound we expect. In light of the volume last week that remained below the ADV, this pullback has the look of simple profit taking, meaning that we can expect to see that rebound from support. The cleanest entries will come from above $72, while more aggressive traders could target shoot entries down to the 20-dma. Below there, we'd stand aside though, as we'll be getting awfully close to our $71 stop. 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 March $75 Call, while the more conservative approach will be to use the May $75 strike. Our preferred option is the March $75 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-70 OAQ-BN OI=4538 at $4.00 SL=2.50 BUY CALL FEB-75 OAQ-BO OI=1291 at $1.20 SL=0.60 BUY CALL MAR-75*OAQ-CO OI= 9 at $2.30 SL=1.25 BUY CALL MAY-75 OAQ-EO OI=1564 at $4.00 SL=2.50 Annotated Chart of APOL: Picked on January 13th at $72.63 Change since picked: -0.07 Earnings Date 3/18/04 (unconfirmed) Average Daily Volume = 1.86 mln Chart = --- Express Scripts - ESRX - close: 68.05 change: -0.77 stop: 64.00 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: Proving that our initial assessment was correct, ESRX seems to have exhausted its supply of eager buyers at this level and is finally beginning that pullback to support. Recall that we eschewed momentum entries on the play from the beginning, preferring to wait for a pullback near the $66 support level. After a couple of attempts at pushing through the $69 level last week, Friday's bearish engulfing candle points to a pullback and with daily oscillators about to tip over in bearish alignment, that development seems all the more likely. The 20-dma ($66.18) has now risen into our targeted entry zone at $66.00-66.50 and that level should now prove to be strong support. ESRX should continue its pattern of higher lows and higher highs after coming back to confirm that support and our target for the next upward swing in the $72 area still seems reasonable. With earnings near the end of February, there's plenty of time for that next rally leg to materialize. Maintain stops at $64, which is now solidly below the 50-dma ($64.27). 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 March $70 Call, while the more conservative approach will be to use the May $70 strike. Our preferred option is the March $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=2153 at $4.50 SL=2.75 BUY CALL FEB-70 XTQ-BN OI=1754 at $1.60 SL=0.75 BUY CALL MAR-70*XTQ-CN OI= 71 at $2.45 SL=1.25 BUY CALL MAY-70 XTQ-EN OI= 277 at $4.00 SL=2.50 Annotated Chart of ESRX: Picked on January 13th at $68.32 Change since picked: -0.27 Earnings Date 2/24/04 (confirmed) Average Daily Volume = 1.23 mln Chart = --- Genzyme Corp. - GENZ - close: 55.00 change: -0.18 stop: 51.00 Company Description: Genzyme General, a division of Genzyme Corporation, is focused on developing innovative products and services to solve major unmet medical needs. GENZ has nearly 600 products and services on the market and a strong pipeline of therapeutic products for the treatment of rare genetic diseases. The Diagnostics business unit develops, markets and distributes in vitro diagnostic products and genetic testing services. With a solid, profitable revenue base, this research is intended to maintain the company’s high rate of earnings growth. Why we like it: Shooting higher than we anticipated on its rally last week, GENZ finally found resistance at the $57 level at the bottom edge of strong resistance. Ending again on Friday right at $55, GENZ looks like it is finally set to begin the pullback to support in the $52-53 area that we were looking for when we initiated coverage last week. After the initial surge through $52 resistance, GENZ found support near $52.50-53.00 before continuing up to its $57 high. Now we're looking for a pullback into that support area to provide entry ahead of a continued rally up near the $60-61 area. The fact that the stock couldn't push through the $57-58 resistance on the first attempt points to the likelihood of that pullback before the bulls make another strong upward move. Maintain stops at $51. Look for GENZ to find support near its 10-dma ($52.23) concurrently with the BTK index finding support at its own 10-dma (currently $508.65) and that will be the point where it makes sense to enter new positions. Suggested Options: Shorter Term: The February $55 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive longer-term traders can use the March $60 Call, while the more conservative approach will be to use the March $55 strike. Our preferred option is the March $55 strike, which is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL FEB-55 GZQ-BK OI=1446 at $2.20 SL=1.00 BUY CALL FEB-60 GZQ-BL OI= 450 at $0.55 SL=0.25 BUY CALL MAR-55*GZQ-CK OI= 227 at $3.00 SL=1.50 BUY CALL MAR-60 GZQ-CL OI= 250 at $1.10 SL=0.50 Annotated Chart of GENZ: Picked on January 20th at $53.00 Change since picked: +2.00 Earnings Date 2/19/04 (unconfirmed) Average Daily Volume = 2.78 mln Chart = --- Henry Schein - HSIC - close: 70.65 chg: +0.00 stop: 67.00 Company Description: Henry Schein, Inc. is the largest distributor of healthcare products and services to office-based practitioners in the combined North American and European markets. Recognized for its excellent customer service and low prices, the Company's four business groups--Dental, Medical, International and Technology-- serve more than 400,000 customers worldwide, including dental practices and laboratories, physician practices and veterinary clinics, as well as government and other institutions. The Company's sales reached a record $3.1 billion for the twelve months ended September 27, 2003. With a presence in 14 countries, Henry Schein's International Group posted sales of over $500 million for the same period. The Company operates through a centralized and automated distribution network, which provides customers in more than 125 countries with a comprehensive selection of over 90,000 national and Henry Schein private-brand products. (source: company press release) Why We Like It: (This is original play from Thursday) HSIC turned out to be a big performer for investors in 2003. Shares rallied from their February '03 lows near $35 to end the year near $66. Now it looks like the stock is ready for its next leg higher. HSIC did have some recent news when the company announced a $328 million acquisition for a handful of European dental product distributors. Fortunately, from the bullish reaction in the stock price, Wall Street appears to agree with HSIC's management that there is little risk in the acquisition that will be immediately accretive to earnings. However, we will note that Bank of America did recently downgrade the stock from "buy" to "hold" based on valuation claiming it was near their $70 price target. Coincidentally HSIC's current point-and-figure price target is $70 and that target has been met. Technically this raises the risk level for the play. The vertical price objectives forecasted by P&F analysis are not always met and can be exceeded but P&F fans should be extra cautious here. Chart readers will also notice that HSIC appears to be breaking out of a mult-week consolidation. We do like the bullish breakout over the $70 level on a day where the major averages were lower. HSIC's MACD is in a bullish buy signal while its other oscillators are also pointing higher. Our first target is the $75 mark but we believe HSIC can actually trade beyond this level. We'll start the play with a stop loss at $67.00, just under its simple 50-dma at 67.36. On a side note...HSIC does not appear to have any sort of stock split history but shares are at an all-time high. Weekend Play Update: HSIC held up okay, closing unchanged on Friday as the major indices generally traded sideways to down. Traders appeared to buy the dip towards $70 so we'll look for some follow through on this week's breakout next week. Suggested Options: Traders have plenty of options to choose from. HSIC has February, March, April and July strikes. We're prone to use the February and March calls. Our favorite would be the March 70s but there is little open interest. The April 70s will have to work. BUY CALL FEB 65 HQE-BM OI= 35 at $6.60 SL=4.00 BUY CALL FEB 70 HQE-BN OI=652 at $2.30 SL=1.15 BUY CALL MAR 65 HQE-CM OI= 0 at $6.80 SL=4.40 BUY CALL MAR 70 HQE-CN OI= 12 at $3.20 SL=1.65 BUY CALL MAR 75 HQE-CO OI= 11 at $1.05 SL= -- BUY CALL APR 70*HQE-DN OI=540 at $3.90 SL=2.00 BUY CALL APR 75 HQE-DO OI=146 at $1.50 SL=0.75 Annotated Chart: Picked on January 22 at $70.65 Change since picked: + 0.00 Earnings Date 03/04/04 (unconfirmed) Average Daily Volume: 334 thousand Chart = --- MBIA Inc. - MBI - close: 62.58 chg: -0.49 stop: 59.99 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: Traders who have been waiting to jump in MBI on a dip back toward the 60-61 region might have their patience rewarded soon. The stock is slipping backward after valiantly trying to breakout over the $63.50 level during a week the major indices traded sideways to down. We initially added MBI to the OI call list because the strong breakout over three-month resistance at $60 and a very strong, rising sector sounded like a winning combination. Now that sector, via the IUX insurance index, is pulling back toward its simple 10-dma. This could be where investors step up to by the dip. If not, then we might suggest caution on any new bullish positions in MBI. Technical oscillators on MBI look tired and are starting to roll over. Fortunately, volume has been slipping a bit during the last few sessions. What we don't want to see are big declines in big volume. We suggest that traders step back to wait and see where MBI bounces. If it bounces above $60 then great, otherwise we'll be stopped out soon. 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= 910 at $3.60 SL=1.80 BUY CALL FEB 65 MBI-BM OI=1066 at $0.90 SL= -- BUY CALL MAY 65 MBI-EM OI= 734 at $2.70 SL=1.40 Annotated Chart: Picked on January 20 at $62.93 Change since picked: - 0.35 Earnings Date 02/03/04 (confirmed) Average Daily Volume: 572 thousand Chart = --- Morgan Stanley - MWD - close: 59.29 chg: -0.57 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: It has been an interesting week even if MWD and the major averages have done nothing but slip sideways. Actually, it has been the first week in several that the XBD broker-dealer index actually slowed its rapid advance. Maybe this is the pause that refreshes before the rally continues. We initially added MWD to the list after the JPMorgan (JPM) and Bank One (ONE) merger news reignited the financials and the broker-dealers. Banking stocks rose on speculation that the merger would start a new wave of consolidation and brokers like MWD rose because that means a wave of M&A activity to cash in on. At the same time news that China has plans to IPO several companies this year was also boosting shares of MWD since the firm is a lead contender to due the lucrative underwriting. As we suggested early this week MWD has pulled back to the $59.00 level and bounced there late in Friday's session. The question for us is will this support hold. More patient traders might want to wait and see if MWD pulls back toward its simple 50-dma (currently near 56.90). We'd actually prefer to see MWD rebound from its current position as an indication of strength. That may depend where the XBD index leads next week. On a side note there have been some headlines for MWD. Most of them are regarding a defamation suit that MWD lost to LVMH. LVMH, a maker of the Louis Vuitton brands and other luxury goods, claimed that MWD's negative and critical comments about their company were influenced by MWD's banking relationship with rival luxury goods maker Gucci. The fine really shouldn't affect Wall Street's view on MWD who turned in a net profit of more than $1 billion last quarter. 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= 991 at $4.80 SL=2.75 BUY CALL FEB 60 MWD-BL OI= 8630 at $1.25 SL=0.65 BUY CALL FEB 65 MWD-BM OI= 2648 at $0.15 SL= -- BUY CALL APR 60 MWD-DL OI=20411 at $2.50 SL=1.25 BUY CALL APR 65 MWD-DM OI= 9534 at $0.75 SL= -- Annotated Chart: Picked on January 15 at $59.81 Change since picked: - 0.52 Earnings Date 03/18/04 (unconfirmed) Average Daily Volume: 3.8 million Chart = --- Maxim Integrated - MXIM - cls: 53.71 chg: +0.09 stop: 52.49*new* 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: Hold that line! The semiconductor sector was overdue for some profit taking and we're starting to see it after several chip companies announced their December quarter numbers. MXIM has not been immune to the pull back either but it is holding support at $52.60. Shares have bounced there three days in a row and the longer this level holds the stronger it should become. We initially added MXIM to the call list on a strong bullish breakout from what appeared to be a bull flag pattern as well as a break above the $50 mark. Chip stocks were soaring on the expectation that global sales would soar 20-25% in 2004. Some of the recent earnings reports have let a little steam out of those lofty expectations but Wall Street analysts are still enthusiastic for the group. Last week S&P announced that its researchers published a 52-page report stating their reasons why they believe semiconductor stocks could see a 20-25% appreciation in price despite their already price valuations (see Thursday's update for more details on what S&P said). We're willing to hold on to MXIM as long as it holds the $52.60 level. Thus we're raising our stop loss to $52.49. However, less aggressive traders may want to wait for MXIM to trade up and through the $54 or $55 levels again before considering new bullish positions. If we are stopped out you can bet we'll keep our eyes on the group for the next entry point (in either direction). 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=2453 at $4.70 SL=2.45 BUY CALL FEB 55 XIQ-BK OI=3218 at $1.60 SL=0.85 BUY CALL MAY 55 XIQ-EK OI=1337 at $3.80 SL=2.00 Annotated Chart: Picked on January 06 at $51.89 Change since picked: + 1.82 Earnings Date 02/05/04 (confirmed) Average Daily Volume: 5.4 million Chart = --- Saint Jude Medical - STJ - cls: 64.80 chg: -1.58 stop: 62.75 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: Uh-oh! Friday's action was not good news for the bulls in STJ. We only have two more trading days before STJ's earnings report. That means we have to close the play on Tuesday afternoon assuming we aren't stopped out first. The good news is that Friday's profit taking, while breaking under the $65 level (not good), did not break the simple 10-dma. Plus, STJ should still have very formidable support at the $64 area but that's not very encouraging given our short time frame. We initially added STJ to the call list because the stock was hinting at a bullish breakout from a cup-and-handle formation as well as a very attractive fundamental story for a new ICD product to be launched in May. Investors may still have an opportunity to play both but we suggest waiting until after the company's Wednesday morning report to consider any new positions. Suggested Options: We are not suggesting any new bullish positions ahead of STJ's earnings report. Annotated chart: Picked on January 12 at $64.01 Change since picked: + 0.79 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 1.4 million Chart = ************** NEW CALL PLAYS ************** Computer Sciences Corp - CSC - cls: 46.54 chng: +0.93 stop: 43.50 Company Description: As a world leader in the information technology (IT) services industry, CSC helps its clients use IT more efficiently to improve their operations and profitability. The company offers a broad array of professional services to clients in the commercial and government markets. Its service offerings include outsourcing, systems integration, IT and management consulting, and other professional services, including e-business solutions. Why we like it: Ever since being turned back near the $45 level in early September, CSC has been building up for a solid breakout move. The steady advance over the past four months has seen the stock tapping out higher highs and higher lows. We can draw a pretty clean bullish ascending triangle connecting those lows with a horizontal top at $45. Earlier this month, there was a brief push through the top of that triangle, but price fell back to drift along just under that level until late last week. Thursday's session saw a break back over $45 and on Friday CSC pushed through $46 to close at its best level since the summer of 2002. The past two days have seen robust buying volume and it is encouraging to see how price rebounded last week off of the 20- dma ($44.79), another sign of strength. The move through $45 generated a fresh PnF Buy signal and Friday's trade at $46 just solidified that move, removing the potential for a bear trap. With about 2 1/2 weeks until the company releases its earnings, CSC looks poised to continue its upward journey, with $50 resistance a very viable target. But the way the bulls have been sending stocks to test their 2002 highs, we think CSC has a shot at revisiting its own 2002 highs near $53. Obviously a pullback and rebound from the $45 area would make for the ideal entry as former resistance is confirmed as new support. But entering on strength can work as well. If choosing that strategy, look for a move through $46.85 to trigger entry. Since late December, CSC has been finding support just above $43.50, and with the 30-dma now above that mark at $43.85, we can feel safe placing our stop at $43.50. On a more severe dip, aggressive traders can consider entries as low as $44, but make sure to wait for the rebound to commence before playing. Suggested Options: Shorter Term: The February $45 Call will offer short-term traders the best return on an immediate move, as it is in the money. Longer Term: Aggressive longer-term traders can use the March $50 Call, while the more conservative approach will be to use the March $45 strike. Our preferred option is the March $45 strike, which is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL FEB-45 CSC-BI OI= 846 at $2.65 SL=1.25 BUY CALL FEB-50 CSC-BJ OI= 788 at $0.60 SL=0.30 BUY CALL MAR-45*CSC-CI OI=1408 at $3.40 SL=1.75 BUY CALL MAR-50 CSC-CJ OI=1625 at $1.05 SL=0.50 Annotated Chart of CSC: Picked on January 25th at $46.54 Change since picked: +0.00 Earnings Date 2/11/04 (confirmed) Average Daily Volume = 1.21 mln 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: 38.04 change: +0.84 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: Back and forth, the tug of war continues, with buyers stepping in to prop up shares of ADBE every time it dips below the 200-dma (now at $37.55) and sellers leaning on the stock whenever resistance near the 20-dma ($38.63) is tested. The range is continuing to narrow with a break from the ever-tightening range likely to occur very soon. The PnF chart is still on a Sell signal and price ended on Friday right at the $38 bullish support line. Taking the bearish vertical count of $32 off the PnF chart, our lower target of $32 is still in play. But first, ADBE will need to produce a convincing break below the $36 support level, something that it has so far been unable to achieve. Aggressive entries can still be taken on failed rebounds below the 20-dma, while the more conservative approach will be to wait for the break under $36 before playing. Maintain stops at $40, a level that should not be reachable with the 50-dma now solidly below there at $39.60. 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. Traders looking for greater insulation against time decay will want to consider the March 35 Put. The February $40 strike is our preferred option. BUY PUT FEB-40*AEQ-NH OI=1461 at $2.75 SL=1.40 BUY PUT FEB-35 AEQ-NG OI=1807 at $0.55 SL=0.25 BUY PUT MAR-35 AEQ-OG OI= 139 at $1.15 SL=0.60 Annotated Chart of ADBE: Picked on January 11th at $37.12 Change since picked: +0.92 Earnings Date 3/11/04 (unconfirmed) Average Daily Volume = 3.41 mln Chart = --- QLogic Corp. - QLGC - close: 45.45 change: +0.20 stop: 48.50 Company Description: QLogic Corporation designs and develops storage networking infrastructure components sold to original equipment manufacturers (OEMs), resellers and system integrators. The company's products include the SANblade host bus adapters (HBAs), SANbox Fibre Channel Switches and SANsurfer Management Suite HBA and Switch management software. QLGC's Fibre Channel HBAs support small computer systems interface (SCSI) protocol, Internet protocol (IP), virtual interface (VI) and fiber connection (FICON) protocol. In addition, the company designs and supplies controller chips used in 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. Why we like it: The first day out of the gate was rather a non-event for our QLGC play, as price held above $45 support, but was unable to stage much of a recovery either, trading in a less than $1 range for the entire day. Strong resistance should be found now near $47 as broken support transforms to resistance and that is a good spot for aggressive traders to look for new entries. Those looking to enter on weakness will still do well to wait for the break under $45 before playing. With the Semiconductor index (SOX.X) still looking rather weak, the path of least resistance for QLGC still appears to be down. Once under $45, look for next support near $41-42, the site of the August lows. A drop to that level will make a good exit point for conservative traders, while those with a more aggressive approach can target a drop to the $39-40 area. Maintain stops at $48.50, just over the recent rebound high. Suggested Options: Aggressive short-term traders can use the February 42 Put, while those with a more conservative approach will want to use the February 45 put. We've also listed March strikes for those traders desiring greater insulation from time decay. Our preferred option is the March 45 strike, as it is currently at the money and provides more time until expiration. BUY PUT FEB-45 QLC-NI OI=5932 at $1.75 SL=0.80 BUY PUT FEB-42 QLC-NV OI=1953 at $0.85 SL=0.40 BUY PUT MAR-45*QLC-OI OI= 254 at $2.50 SL=1.25 BUY PUT MAR-42 QLC-OV OI= 623 at $1.50 SL=0.75 Annotated Chart of QLGC: Picked on January 22nd at $45.25 Change since picked: +0.20 Earnings Date 4/14/04 (unconfirmed) Average Daily Volume = 3.88 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 01-25-2004 Sunday 4 of 5 In Section Four: Leaps: Still On Course Traders Corner: It's Inevitable -- A Large QQQ Movement ************************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 ***** Still On Course By Mark Phillips mphillips@OptionInvestor.com Despite a bit of weakness in Technology shares last week, the market is still on its relentless course towards its 2002 highs, with the NASDAQ having already achieved that goal. At the same time, the VIX continues to drill to ever lower levels and one might ask out of curiosity whether we'll ever see a VIX reading over 20 again. I remember having the opposite conversation some months back, wondering if the VIX would ever drop as low as 20 again. The answer to both questions is an unequivocal "yes". It's in determining the timing of such a development that the true difficulty lies. Right now, there is virtually no selling pressure in the market and this is reflected in the almost ludicrous levels of volatility, which are really telling us that there is almost no fear of the downside. Eventually that dynamic will change, the VIX will head significantly higher and the markets will begin to challenge and break significant levels of support. But that time is not yet here as investors continue to focus on positive earnings reports and the continued flow of economic data that both indicate that the economy is improving. Never mind that the market has already priced in far more improvement that actually exists and that valuations are once again approaching nosebleed levels. In the near-term, it is still "full bull" ahead and that isn't likely to change in the next week. There are significant support levels on all the major indices that must be broken before we can even start to measure the weakness necessary to have winning bearish plays. The overwhelming bullishness of the current market environment is perhaps best encapsulated in the response to EK's earnings report on Thursday. Sure the company beat estimates handily on both the revenue and EPS fronts, but when looking at the overall message presented by the company, I was astounded at the magnitude of the price rise. The company will be instituting massive layoffs in their restructuring efforts of the next 3 years, de-emphasizing their film business and finally placing their focus on the digital side of the business where it should have been for the past 5 years! The positive action in the stock is a direct reflection of investors' optimism that the company will be able to pull off the ambitious restructuring plan, while at the same time pulling off strong growth, the likes of which haven't been seen at this company for many moons. Time will tell, but I place myself firmly in the skeptic camp. As noted below, our bearish play on EK is a drop this weekend, but what I want to discuss here is the way in which we could have mitigated the damage felt on the play by taking advantage of the simple strategy I introduced last weekend and expanded on in this past week's Options 101 article "The Light Finally Goes On". If you missed it, then head on over using the link below and catch up with the rest of us. http://members.OptionInvestor.com/options101/opt_012204_1.asp As an example, I want to look at our short-lived EK play and demonstrate how the results would have been different if we had used a protective call. For our example, let's just focus on the case where we would have bought the 2005 $25 LEAP Put (ZEK-ME) for $2.60. At the close of trading this past Thursday, the price of that LEAP was only $1.20, resulting in a loss of 53.85%. Ouch!! But if at the same time that we had purchased the LEAP, we also purchased a slightly OTM $30 April Call (EK-DF) for $0.60, the results would have been far less painful. While the LEAP lost $1.40 during the course of the play, the protective Call rose to close on Thursday at $2.20. Doing some quick math, the LEAP declined from $2.60 to $1.20 for a loss of $1.40. But the Insurance Call rose from $0.60 to $2.20 for a gain of $1.60. That's right, we were dead wrong on the direction for EK, but implementing it with the insurance policy would have resulted in a net gain of $0.20. The downside to implementing this strategy is that our cost basis is a bit higher, and that means the stock has to move a bit further in our direction to get us into profitable territory, but I think it is worth the additional cost, especially in this market. Remember, insurance costs money, but it is designed to protect against a catastrophic loss. It certainly did its job in this case. I'm still struggling with finding a way to put all the pertinent information into the column in place of the current Portfolio playlist, but hopefully I'll have all the kinks worked out by next week and we can then we can move forward from there and have a profitable 2004. In the meantime, let's quickly peruse the current plays and see what meaningful action transpired in the week just past. Portfolio: SBUX - Who is drinking all that coffee? SBUX just keeps soaring higher and last week crested the $36 level for the first time ever. If you recall, our initial target was for a rise to the $37 level, with expectations for a continued rally towards $40 by the end of the year. Clearly, we're making significant progress far ahead of schedule. It only makes sense at this point to get more aggressive with our stop, and I'm raising the official stop to $32.50, just below the 50-dma ($32.54). Any sharp pullback from current levels should find initial support near $34.50 and strong support near $33. SBUX hasn't closed under the 50-dma since last June, so clearly if it were to do so, we'd want to be out of the play. Conservative traders should consider harvesting gains on a near-term push above $37, as the stock is becoming quite extended, having now pushed through the top of its aggressive rising channel. Barring a break below our stop, we'll endeavor to remain on board right up to that $40 target. One interesting development last week was the fact that the '06 LEAP actually lost ground. This has the familiar scent of our WMT play, with option pricing starting to act a bit peculiar. This could just be a one-time glitch, but I'll be watching carefully to see if the normal pricing relationship is restored. The reason it catches my attention is that the '05 LEAP made another upward move in price and I would have expected the '06 LEAP to have followed suit, since they are both at the same strike price. DJX - The DJX continues to flirt with major resistance and on Thursday came within spitting distance of its 2002 highs. We have still not seen any meaningful signs of weakness as even Friday's dip failed to even challenge the 20-dma (now at $104.99) before the afternoon rebound. Weekly Stochastics are buried deep on overbought and the daily is hinting at a rollover from overbought as well. But still the bulls are completely in control. This is the place to initiate a bearish position trade on the index, and all we can do from here is wait to see if support at $104 will give way first or if a breakout over the 2002 highs is in store. If currently in the play, make sure to keep that stop in place at $107, as a breakout could generate significant follow-through, whether it makes sense or not. Now that the 50-dma has pushed over $101, we must concede that it will be difficult for the DJX to break much below $101 unless something significant changes in terms of market sentiment. At a minimum, we would need to see the VIX make some upward progress above the 20 level. SMH - It seems like we've been here before, doesn't it? The Semiconductors appear to be losing their relative strength and the SMH cracked below the $43 level on Friday, almost touching the 50- dma ($42.41) before the afternoon rebound. That's just the first level of support that must be dealt with though as the more important test will come at the 100-dma ($40.45). Remember the SMH hasn't touched the 100-dma since last April, so we're likely to see a rebound if that average is touched. The key will be the strength of that rebound. Ideally, we'll see a weak rebound and then rollover to take out $39 support and get things moving towards the 200-dma, now just above $35. Maintain stops at $46, just above the recent highs. NEM - Gold stocks delivered a feeble rebound last week and then rolled over in what looks like solid bearish action. With the rebound in the dollar, we're probably looking at a drop to test major support levels before the uptrend can continue. For the XAU index, that strong support is found in the $94-95 area, for gold it is found first at $400 and then at $390 (right on the ascending trendline from the April lows) and for NEM the strong support is found first at $40 and then at $38, which just happens to be the site of the 200-dma ($37.78). For traders that didn't take the plunge on the first drop to $42, I still favor long-term entries in the $38-40 area if we can get it, using a stop at $37. EK - Investors cheered EK's earnings report on Thursday, sending the stock soaring above the $31 level and triggering our stop. Details can be found below in the Drop section, but I think what is important to take note of here is the way in which we could have significantly mitigated the damage by following the strategy of buying a short-term insurance call at the same time as the LEAP Put was purchased. Hopefully the details of that strategy as laid out above help to show the value of such a strategy. Watch List: QCOM - In light of the strong gains in recent months, I've actually been astounded at how well QCOM has held up over the past couple weeks, giving only a mild pullback to the top of the 1/08/04 gap and finding support at the 20-dma. I still expect to see further weakness in the weeks ahead, with a strong likelihood of a test of the rising 50-dma ($51.41). That's still quite a drop from current levels and with weekly Stochastics just starting to curl over from deep within overbought, I'm not in a hurry to move the play back onto the active Watch List. Let's leave it on hold for at least one more week. HD - Am I the only one that is intrigued by the way HD has shown a complete lack of strength over the past month? Despite the strength in the overall market and a rebound in the Housing sector, shares of HD have hardly budged, as strong resistance is being found near $36. I still think we've got the right approach though, waiting for a test of resistance at $37-38 before entering the play, with strong resistance at the top of the multi-year descending channel coming in just above there at $38.50. With the persistence of the long-term downtrend, I would strongly encourage traders to use a protective call on this play when purchasing the LEAP put. My choice for a protective call would be the May $40 call (HD-EH), currently priced at $0.45. That should effectively protect against a dramatic breakout from the channel if HD should pull a stunt similar to what EK delivered last week. SNDK - Now that is precisely why we didn't want to chase SNDK higher over the past several weeks! Despite a solid earnings performance for the past quarter, the company raised concerns about additional competition and pricing pressures in 2004 and 2005. Investors couldn't hit the sell button fast enough and the stock promptly fell back to strong support in the $59-60 area on Thursday, where it remained heading into the weekend. We're still looking for a pullback to the $54-55 area, supported by the 200- dma (now at $55.02) to provide our entry into the stock. Despite concerns about pricing and margins, I expect to see SNDK trading up near its 2003 highs before the year is out, as the company is still the de facto leader in the Flash Memory market. Sure there is extra supply that will be coming to market, but the big question is whether that will do anything more than just help to satisfy the still growing demand from consumers for all those little electronic gadgets we just "have to have". Due to the current uncertainty in the marketplace, I think it would be a prudent move to purchase a protective put when initiating the bullish position. My choice would be the April $50 Put (SWQ-PJ), currently priced at $2.25. Radar Screen: MLNM - Spending most of last week in consolidation mode has given us a bit of breathing room for targeting an entry on MLNM. I'm still looking for a pullback to the rising trendline near $16 as the best shot at a winning play. We'll gain some further insights this week as the company is set to deliver its earnings report on Tuesday. Perhaps after that event, price action will deliver us a viable entry point in the weeks ahead. CHK - The weakness in the price of Natural Gas over the past week certainly hasn't had a deleterious effect on shares of CHK, as the stock once again rebounded into the upper half of its rising channel on Friday. Barring a break from the channel in the week ahead, I'll be adding the stock to the Watch List next weekend, with an entry target of $13, which is currently just above the 50- dma and the bottom of the channel. WMB - Last week's strength in the Utility sector finally gave WMB the breakout over the $11 level, but there wasn't really any follow through and it looks like the bulls need to gather more strength before sustaining a breakout. That process will likely involve a mild pullback to stronger support near $10 and that's where we'll want to think about adding new positions. WMB is a slow mover and there's no reason to get overly excited and think we need to chase the stock higher. Closing Thoughts: I've had to keep this column concise this weekend due to the bug that has now developed into Bronchitis, but I wanted to provide some necessary updates this weekend. The big picture hasn't changed, with the overall market quite extended, but still refusing to give up much ground. Bearish plays make the most sense up here, but a solid pullback to lower levels of support will likely set up some interesting bullish plays as well. I look forward to getting back to full strength next week and repopulating those playlists! 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 $ 7.50 +74.42% $ 32.50 '06 $ 30 WSP-AF $ 6.40 $ 8.20 +28.13% $ 32.50 NEM 01/18/04 '05 $ 40 ZIE-AH $ 8.20 $ 7.80 - 4.88% $ 37.00 '06 $ 40 WIE-AH $10.20 $10.30 + 0.98% $ 37.00 Puts: SMH 12/30/03 '05 $ 40 ZTO-MH $ 4.90 $ 4.10 -16.33% $ 46.00 '06 $ 40 YRH-MH $ 6.60 $ 6.00 -10.00% $ 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 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 None New Watchlist Plays None Drops EK - $30.95 Proving that the response to earnings is all about perception, EK skyrocketed above our $31 stop following its earnings report on Thursday. The strong price action is interesting in that investors apparently liked the fact that the company has finally admitted that it can't compete in the traditional film business and as a part of the dramatic restructuring will finally place the appropriate focus on the digital side of the business. Despite a lack of details on the restructuring plan, investors bought the story of hope for the future. Several analysts voiced their skepticism over the firm's ability to grow its digital business by 26% in an industry that is already seeing falling prices and margins. A further sign of the admission of its prior missteps, EK will be slashing 12,000-15,000 workers (20% of its workforce) over the next 3 years. I personally wouldn't even consider buying the stock here, but investors were in an optimistic mood and bought the story of hope. Despite the fact that the stock did close a nickel below our stop, with the intraday move above $31, the PnF chart issued a new Buy signal and we must drop the play this weekend. ************************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 ************** It's Inevitable -- A Large QQQ Movement By Mike Parnos, Investing With Attitude Are we on the cusp of witnessing proof that the “Greater Fool” theory is a reality? The NASDAQ has been over extended. Fools have rushed in all the way up expecting that GREATER fools will buy their shares at a higher price. The economy is improving a little, but investor IQ points haven't budged at all – unless they became CPTI students. Time will tell. Right or wrong, up or down, foolish or genius, it’s likely that the QQQs are going to move. Optimists will go toe-to-toe with pessimists. We just want to be in a position to take advantage of the resulting move. Many CPTI traders have been using the QQQ Baby Strangle very successfully over the past year. It's time to take a few minutes to review the basics of the strategy. It’s also an opportunity to introduce the Baby Strangle to the many new CPTI students who have joined us in the recent months. ______________________________________________________________ The QQQ Baby Strangle We’re going to use the QQQs, one of my favorite trading vehicles, because of the $1.00 strike price increments and high liquidity. Those factors offer greater flexibility in putting on new and smaller spreads that, in turn, result in larger profits (or smaller losses). The QQQs have, along with the rest of the market, been working their way up for a long time. Some believe it follow Jack up the beanstalk all the way to the sky. Those same people are still holding Nortel at $4 and have memorized the "Mary Poppins" soundtrack. Some analysts believe the QQQs will return to $30. In either case, it's not unreasonable to anticipate a substantial move. We're basing this strategy on the fact that there has seldom been a two month period when the QQQs have not moved at least three points in one direction or the other. Our risk will be about $250-300 per month for a year - or a total of about $3,000 (based on a 10 contract position). Don't worry. It's likely we'll make it back 10 times over. The Position Step 1 - It's January 25th and the QQQs are trading at $38.01 1. Buy March $37 calls @ $2.05 2. Buy March $39 puts @ $1.85 Total invested: $3.90 There is $2.00 of intrinsic value in this position. The actual risk is only $1.90. We're waiting for the QQQs to move about three points. It normally takes less than a month. Let's say that Julie Andrews' hills are still alive (they probably have some mileage left) with the sound of music and, in three weeks, the QQQs hit $41. The $37 calls will be worth approximately $4.15 ($4.00 intrinsic value + .15 time value). Time to possibly liquidate the calls and put the $4.15 in your pocket - for the moment. Since the cost of the position was only $3.90, we’ve already made $.25. Now, with the QQQs at $41, where do we stand? We have the March $39 put at a cost of ZERO. If the QQQs reverse and tank back to $35 in the days left to March expiration, you just made $4.25. Remember, the cost of the $39 put is ZERO. You will have made $4.00 when you liquidate the $39 put plus the $.25 you made on the $37 call. Nice return. There are occasions where it may not take the full eight weeks (two option cycles) for both the movements to happen. Maybe it takes only five weeks. Let's do it again. It's early March and the QQQs are now trading at $35. Buy May 34 calls @ $2.15 Buy May 36 puts @ $2.20 Total invested: $4.35 Again, we have the $2.00 of intrinsic value in the position. As you can see, the numbers will be basically the same – perhaps slightly higher because we're buying a few weeks of time (10 instead of 8). Increases or decreases in volatility may result in minor fluctuations in the time premium. If it varies by a nickel or a dime, it's no big deal. The risk is $2.35 and we're awaiting the next move. In another three weeks, the QQQs go from $35 to $38. The $34 puts are worth $4.30 ($4.00 intrinsic value + $.30 in time value). We sell the calls. This time we profited by $.05. Now, where do we stand? a) There are still five weeks left before May expiration. b) We are still long the May $36 puts. Every time a move is made, and a long position liquidated, another similar position is established around the QQQs. You can continue this indefinitely. Eventually, the QQQs will go down quicker than a political groupie. Or, it will run up faster than your wife's credit card bill. That's when all your patience will pay off and you'll ring up serious profits - so you can pay that credit card bill. See the pattern? What we're trying to accomplish is to have long puts (or calls) at little or no cost with time left before expiration. Whenever we liquidate a long position on one side, we are left with a long position in the opposite direction with virtually no cost. When The Original Move Continues . . . There are times, as it has recently, that the QQQs do not stop with just a three-point move in one direction. Then, it makes no sense to close out the long call (or put) simply because the QQQs have generated enough money to cover the cost of the original spread. If it looks like there is still strength in the move, hang on and ride the wild surf – but with sensible stops. We’re not picky. It doesn’t matter which way we profit. If the move does continue up another few points – it’s all profit. Once we cover the original cost of the position, we’re home free. What is the maximum risk? The original $1.90 ($3.90 less the $2.00 intrinsic value). If the QQQs begin to appear range-bound and haven’t moved in 3-4 weeks, you have the choice of abandoning the position and perhaps losing only half of the $1.90 risk. This seems like complicated stuff, but requires only minimal monitoring - maybe once a day. Re-read the strategy again and look at the possibilities. You know that what goes up must come down – sooner or later. If you don't believe me, ask Isaac Newton, Lenny Fibonacci, and all buy and hold investors. They'll tell you. It would just be nice to be in a position with a long put or call (at little or no cost) when that reversal begins. ____________________________________________________________ FEBRUARY CPTI POSITIONS Position #1 -- OEX – Credit Spread Boogie – 565.41 With the market trending, let's not fight the tape. We're going to establish a bull put spread, take in some premium, and ride the wave into shore. We sold 3 OEX February 565 puts, and bought 3 OEX February 540 puts for a total credit of $6.80 (x 3 contracts = $2,040). This strategy requires $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. Position #2 – MNX (mini NDX index) – Iron Condor – 153.12 This index 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 skewed the strike prices slightly so that we have a little more cushion on the upside. We sold 10 MNX February 165 calls and bought 10 MNX February 170 calls for a net credit of $.40 x 10 contracts = $400. Then we sold 20 MNX February 150 puts and bought 20 MNX February 147.50 puts for a net credit of $.50 x 20 contracts = $1,000. Our total credit is $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 -- $97.79 The XAU has been temperamental of late. This is a low risk and relatively safe play with a wide range. Maybe we can make a couple of bucks. We sold 10 XAU February 90 puts and bought 10 XAU February 85 puts for a net credit of about $.70 (x 10 contracts = $700). Then we sold 10 XAU February 110 calls and bought 10 XAU February 115 calls for a 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) - $102.82 We're being cautious again here. We're reducing our potential income by expanding our safety range. We sold 10 OSX February 105 calls and bought 10 OSX February 110 calls for a net credit of about $.45. Then we sold 10 OSX February 90 puts and bought 10 OSX February 85 puts for a net credit of about $.75. Our total net credit is about $1.20 (x 10 = $1,200). Our 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. _____________________________________________________________ ONGOING POSITION QQQ ITM Strangle – Ongoing Long Term -- $38.01 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. Total credit: $6,150. 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. ___________________________________________________________ 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 01-25-2004 Sunday 5 of 5 In Section Five: Covered Calls: Covered-Call Fundamentals Naked Puts: Strategy Selection Spreads/Straddles/Combos: Correction Looming On The Horizon? ************************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: Covered-Call Fundamentals By Mark Wnetrzak One of the most common questions we receive from new subscribers concerns our approach to this strategy: short-term, in-the-money covered calls. The covered-call writer is always striving to find positions that offer a balance between minimally acceptable returns and downside protection. Most experienced traders say a conservative covered call portfolio should contain a variety of positions that provide yields of 1%-2% per month (with the stock price unchanged) and a downside margin of at least 10%. Using these criteria, a covered call writer is usually going to be limited to selling at-the-money (ATM) or in-the-money (ITM) calls. In addition, the risk-reward outlook (limited profit-unlimited loss) with this type of strategy advocates using a relatively short-term time frame for each play, because an investor is not so interested in stock ownership, but rather in achieving a consistent monthly yield. With that concept in mind, a conservative investor would consider longer-term options only when rolling forward and/or down in an attempt to rescue a "losing" position. Of course, more aggressive traders may prefer "out-of-the-money" covered-writes in situations where the technical outlook or the available cost basis warrants additional risk. According to Larry McMillan, noted option guru and author of "Options: As a Strategic Investment," there is some mathematical basis to believe, in the long run, that moderately OTM covered-writes will perform better than ITM writes. But, even though both ITM and OTM covered-call positions outperform outright stock ownership in a flat or down market, the OTM writer has far greater risk than the ITM writer. Obviously, the allure of an OTM covered call is that in a rising market, the investor doesn't limit his upside potential as much as with ITM options, but his yield still depends on favorable stock movement. Also, the OTM covered-call position will, by virtue of its dependence on stock movement, be more volatile on a regular basis. In all cases, the covered-write strategy is viable only when there is a neutral to slightly bullish outlook on the stock (as well as the market in general) as this condition increases the probability of a successful outcome. When comparing different time frames and strikes in a covered-write position, it is important to calculate the yield based on the stock remaining unchanged. Using this method, there is no assumption on stock movement and a more accurate month-to-month annualized return can be calculated (and compared). Investors who want higher yields may decide to sell a combination of both ITM and OTM covered-calls. However, this approach will generate higher transaction costs and occasionally, some interesting (and often complex) adjustments if the stock doesn't perform as expected. In the end, determining the most appropriate option (strike) to sell in a covered-call play is simply a matter of identifying your personal risk-reward tolerance. Keep in mind though, no matter which method is eventually employed, success usually depends more on maintaining a disciplined approach and using proven money-management techniques to limit losses when they occur. 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 ZIXI 10.93 14.67 FEB 10.00 1.80 0.87* 6.9% SIRI 3.15 3.14 FEB 2.50 0.80 0.15* 5.7% ADPT 10.50 10.48 FEB 10.00 1.10 0.60* 5.7% ALVR 13.09 14.12 FEB 12.50 1.45 0.86* 5.4% CREE 20.49 25.67 FEB 20.00 1.65 1.16* 4.5% LTXX 19.12 18.20 FEB 17.50 2.45 0.83* 4.5% CHINA 11.05 11.48 FEB 10.00 1.60 0.55* 4.2% PSEM 12.77 13.05 FEB 12.50 0.80 0.53* 4.0% NANX 12.39 12.37 FEB 10.00 2.90 0.51* 3.9% CLTK 8.54 8.49 FEB 7.50 1.35 0.31* 3.9% ATSN 10.90 11.19 FEB 10.00 1.30 0.40* 3.7% SEAC 18.40 18.20 FEB 17.50 1.75 0.85* 3.7% PAAS 16.10 14.82 FEB 15.00 1.95 0.67 3.4% CIEN 7.97 7.35 FEB 7.50 0.85 0.23 2.9% * Stock price is above the sold strike price. Editor's Comments: The Market Pauses On Earnings... The DJ-30 and NASDAQ were flat while the S&P-500 and Russell-2000 ended positive this week as investors digested a slew of earnings. The bullish fever continues and it appears that any pullback is bought quickly. How long can it last? Well, next week should offer some more clues and another barrage of earnings. 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 VXGN 10.92 FEB 10.00 UWG BB 1.40 4834 9.52 28 5.5% ZIXI 14.67 FEB 12.50 HQU BV 2.70 3091 11.97 28 4.8% CTLM 7.30 FEB 5.00 UUM BA 2.50 50 4.80 28 4.5% NEOL 19.10 FEB 17.50 UOE BW 2.30 852 16.80 28 4.5% GSF 27.77 FEB 27.50 GSF BY 1.35 7607 26.42 28 4.4% SCMR 5.63 FEB 5.00 SMZ BA 0.80 1585 4.83 28 3.8% WEBM 10.93 FEB 10.00 UUW BB 1.25 468 9.68 28 3.6% 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). __________________________________________________________________ VXGN - VaxGen $10.92 *** Bio-Terror Play *** VaxGen (NASDAQ:VXGN) is a biopharmaceutical company engaged in the development, manufacture and commercialization of biologic products for the prevention and treatment of human infectious disease. The company is developing preventive vaccines against anthrax, smallpox and HIV/AIDS and is the largest shareholder in Celltrion Inc., a joint venture to build biopharmaceutical manufacturing operations. Celltrion was formed by VaxGen and certain South Korean investors to provide manufacturing of complex proteins made through mammalian-cell fermentation. This type of manufacturing is used to make many of the drug products developed by the biotechnology industry, including monoclonal antibodies and therapeutic proteins. Products under development by VaxGen include an anthrax vaccine, a smallpox vaccine and the AIDSVAX AIDS vaccine. VaxGen has once again moved back above its 150-day MA and this position offers investors a reasonable cost basis from which to speculate on the company's future share value. FEB-10.00 UWG BB LB=1.40 OI=4834 CB=9.52 DE=28 TY=5.5% __________________________________________________________________ ZIXI - ZixCorp $14.67 *** Stepping Higher! *** Zix Corporation (NASDAQ:ZIXI) is a global provider of e-messaging management and protection services. Its services offer a range of managed onsite and hosted e-messaging solutions to securely exchange Internet communications with any e-mail user and protect organizations from viruses, spam and electronic attack, while delivering the ability to enforce corporate policies. Their advisory services and comprehensive e-messaging solutions enable organizations of any size to streamline operations, mitigate the risks associated with obsolescence, negligence and a series of e-mail-borne threats, as well as leverage the cost and time efficiencies of e-messaging. ZixCorp solutions are managed policy-driven services for analyzing and encrypting Internet communications and for addressing anti-virus, anti-spam, content filtering, reporting and archiving needs. They also provide related advisory, consulting, installation, customization and training services. ZixCorp signed some new contracts over the past few weeks and pleased investors have sent its shares to a new 52-week high. The stock continues to jump higher on heavy volume which suggests further upside potential. Investors who agree with a bullish outlook can use this play to target-shoot an entry point in the issue. FEB-12.50 HQU BV LB=2.70 OI=3091 CB=11.97 DE=28 TY=4.8% __________________________________________________________________ CTLM - Centillium $7.30 *** On The Rebound! *** Centillium Communications (NASDAQ:CTLM) is a provider of highly integrated silicon solutions that enable broadband communications for homes and business enterprises. CTLM designs, develops and supplies communications semiconductor solutions for applications in the DSL and voice over packet (VoP) markets. The company's DSL and VoP products include the CopperFlite CO (Central Office), CopperFlite CPE (Customer Premises Equipment), Optimizer, Palladia and Entropia families of products. The company's DSL products are based on a type of DSL technology known as asymmetrical DSL (ADSL). ADSL technology provides substantially faster transmission of data from the network to the end user than from the user to the network. The company's VoP products, Entropia CO and Entropia CPE, are positioned to support current and evolving VoP applications. The chart of Centillium continues to show improvement and the recent move back above the 150-day MA on heavy volume bodes well for the near term. This position offers reasonable speculation on a recovering stock. FEB-5.00 UUM BA LB=2.50 OI=50 CB=4.80 DE=28 TY=4.5% __________________________________________________________________ NEOL - NeoPharm $19.10 *** 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-17.50 UOE BW LB=2.30 OI=852 CB=16.80 DE=28 TY=4.5% __________________________________________________________________ GSF - GlobalSantaFe $27.77 *** Drillers Are Hot! *** GlobalSantaFe (NYSE:GSF) is an international oil and gas-drilling contractor, owning or operating a fleet of over 100 marine and land drilling rigs. It has three lines of business, comprised of contract drilling, drilling management services and oil and gas. Its contract drilling business provides crewed, mobile offshore and land drilling rigs to oil and gas operators on a daily rate basis. The drilling management services business designs, develops and executes specific offshore drilling programs. GlobalSantaFe's oil and gas business participates in exploration and production activities, principally in order to facilitate the acquisition of turnkey contracts for its drilling management services operations. Its fleet includes 13 floating rigs, 44 cantilevered jack-up rigs, 31 land rigs and one platform rig. The Oil and Gas Drillers sector is catching fire as investors speculate on rising energy prices and increased demand. GSF has just broken out of a Stage I base on heavy volume and investors who are interested in a long-term portfolio position in the oil sector may consider this play. FEB-27.50 GSF BY LB=1.35 OI=7607 CB=26.42 DE=28 TY=4.4% __________________________________________________________________ SCMR - Sycamore $5.63 *** Government Contract! *** Sycamore Networks (NASDAQ:SCMR) develops and markets intelligent optical networking products that enable telecommunications service providers to cost-effectively transform the capacity created by their fiber-optic networks into usable bandwidth to deliver a broad range of telecommunications services. Its intelligent optical networking product portfolio includes fully integrated edge and core optical switching products, network management products and network design and planning tools. Sycamore also offers engineering, furnishing, installation and testing services, as well as customer support from multiple locations worldwide. Shares of Sycamore Networks have rallied strongly recently on news that the company may have won a portion of a government contract worth as much as $900 million over two years. This position offers investors a method to target-shoot an entry point closer to technical support. FEB-5.00 SMZ BA LB=0.80 OI=1585 CB=4.83 DE=28 TY=3.8% __________________________________________________________________ WEBM - WebMethods $10.93 *** Bottom Fishing *** WebMethods (NASDAQ:WEBM) is a provider of software and services for comprehensive end-to-end integration solutions. WebMethods' integration platform is a comprehensive solution for linking business processes, enterprise and legacy application software products, databases, human workflows and Web services within and across business enterprises and government organizations. In addition, the company offers a variety of software support and maintenance options designed to meet its customers' varied needs. WebMethods has been forging a Stage I base for over a year with a strong support area near $9. Investors who believe the company's share value will rebound in the future can use this position to profit from that outcome. FEB-10.00 UUW BB LB=1.25 OI=468 CB=9.68 DE=28 TY=3.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Supplemental Covered Calls ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 GT 10.26 FEB 10.00 GT BB 0.95 2292 9.31 28 8.1% OSTK 18.58 FEB 17.50 QKT BW 2.10 1101 16.48 28 6.7% IPXL 17.54 FEB 17.50 UPR BW 1.00 1768 16.54 28 6.3% DYN 5.06 FEB 5.00 DYN BA 0.30 6646 4.76 28 5.5% NGEN 11.46 FEB 10.00 QEM BB 1.90 950 9.56 28 5.0% CLZR 23.50 FEB 22.50 UKZ BX 1.85 340 21.65 28 4.3% DITC 22.57 FEB 20.00 QZD BD 3.30 459 19.27 28 4.1% TNOX 19.04 FEB 17.50 TMQ BW 2.05 44 16.99 28 3.3% SWIR 22.90 FEB 20.00 IYQ BD 3.40 94 19.50 28 2.8% ********** NAKED-PUTS ********** Options 101: Strategy Selection By Ray Cummins One of our readers asked about the differences in the selection process for naked puts and covered calls. Attn: Naked Puts Editor Subject: Covered Calls vs. Naked Puts Hi Ray, I have been following both your comments regarding naked puts and Mark's letters on ITM covered calls. Many of the factors which go towards screening for securities suitable for covered call writing and for selling naked puts clearly are identical or very closely related. However once the basic research is done, is it simply personal preference which tips the scale towards one strategy over the other? Or, am I completely off base here? Your comments on the factors you feel should be considered in choosing one strategy over the other would be greatly appreciated. All the best and many thanks to all of you at OI for the patience you have with those of us who are learning the trade. DO Hello DO, Thanks for the generous comments and indeed, the "factors which go towards screening for securities suitable for covered-call writing and for selling naked puts clearly are identical or very closely related." The reason for the similarity is because the sale of covered calls and the sale of naked puts offer essentially the same capital risk, but with a slightly different reward potential. The reason for the disparity in the return on investment is due to the initial margin requirement (50%) for the stock purchase in a covered-call play, whereas the naked-put collateral is generally closer to 25% of the underlying issue's current value. A second, more important, consideration is that one approach requires you to purchase the stock outright with cash (in a minimum amount of 50% of the current price), while the other strategy involves only the commitment of portfolio securities of a much smaller amount. The last consideration is commissions. A successful naked-put play involves only one transaction; the sale of the uncovered option. However, a successful (ITM) covered-call position requires three separate trades; the purchase of the stock, the sale of the option, and the sale of the stock. So, even though there is no significant difference in the capital risk of the two strategies, the issue of cash versus collateral and the minimum margin requirements, and to a lesser degree, commission costs, suggest that writing naked puts is (theoretically) the more favorable of the two techniques. Since an equivalent uncovered put outperforms a covered call, why would anyone ever use the latter approach? The primary reason is simple: Some investors aren't comfortable writing "naked" options and many have yet to learn that buying and selling derivatives can be more profitable than many strategies which involve ownership in the underlying issue. Brokerages also play a major role in this scenario -- some say to bolster commission fees -- by preventing traders from selling uncovered options until they have acquired a certain (higher) level of experience and established a substantial account balance. Of course, there are other motives in strategy selection and one of the most common examples is the category of investors who are simply looking for conservative techniques to improve the performance of their individual retirement accounts. (The use of margin is not allowed in most IRA's -- so naked puts are prohibited -- but options can be sold against an underlying long position such as stock or in some cases, LEAPS.) With these factors in mind, our goal is simply to provide a range of candidates in both strategies and the only real difference in the selection process is the cost basis that can be achieved with the sale of the (call or put) option. Obviously, "lower is better" when it comes to your cost basis in the underlying and the nature of option pricing is such that superior (theoretical) positions are usually available with deep-out-of-the-money uncovered puts. Most professional traders who use this technique focus on a target gain of no more than 3-4% per month in "premium-selling" plays because a position established within that range will generally require a price change (in the underlying) of nearly two standard deviations to become unprofitable. While that approach certainly applies to writing "naked" puts, I would not regard it as the only qualifier in selecting stocks for the strategy. Indeed, there are numerous occasions when the recent trend of the issue (or tracking stock, holdr, ETF, etc.) dictates that you should avoid a position even when the most robust premiums exist. Reducing the number of (sold) contracts is one way to limit the overall percentage risk to your portfolio, however it will not adequately address the requirement to avoid preventable losses in technically unfavorable candidates. In all cases, remember that option premiums are just one of the components you must evaluate when choosing potential plays; recent price/volume trends (charting) in both the issue and its industry group/sector, and the risk versus reward in the overall position are important factors as well. Hope that helps...and 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 ADAT 16.95 16.80 FEB 12.50 0.40 0.40* 3.0% 9.4% SEPR 27.99 27.54 FEB 22.50 0.65 0.65* 2.7% 9.1% XING 12.80 14.70 FEB 10.00 0.35 0.35* 2.6% 8.7% NEOL 18.26 19.10 FEB 15.00 0.40 0.40* 2.5% 8.1% OPWV 15.18 16.73 FEB 12.50 0.40 0.40* 2.4% 7.6% PMCS 23.80 22.53 FEB 20.00 0.50 0.50* 2.3% 7.2% SEPR 27.25 27.54 FEB 22.50 0.65 0.65* 2.2% 6.9% ASKJ 23.83 23.06 FEB 20.00 0.60 0.60* 2.2% 6.9% SPRT 16.40 14.66 FEB 12.50 0.25 0.25* 1.8% 6.3% NKTR 17.12 17.20 FEB 15.00 0.45 0.45* 2.2% 6.3% IDCC 24.46 24.30 FEB 20.00 0.50 0.50* 1.9% 6.2% WFII 17.80 15.29 FEB 15.00 0.40 0.40* 2.0% 6.1% RMBS 34.60 31.54 FEB 25.00 0.50 0.50* 1.8% 6.0% JNPR 22.00 27.98 FEB 20.00 0.55 0.55* 2.0% 5.4% AFFX 28.29 28.40 FEB 25.00 0.50 0.50* 1.8% 5.2% RDWR 30.73 32.30 FEB 25.00 0.35 0.35* 1.3% 4.5% * Stock price is above the sold strike price. Editor's Comments: Entry Point Or Time To Sell? The majority of stocks drifted lower Friday as buyers weighed the upside potential from current levels and opted to lock-in profits after nearly two months of bullish activity. With the major equity averages at two-year highs and favorable earnings factored into share values, investors should be prepared for a necessary consolidation and maintain extreme diligence in their portfolio management. This week's only "early-exit" candidate is: Wireless Facilities (NASDAQ:WFII). Positions Previously Closed: None ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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) __________________________________________________________________ Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield RETK 11.37 FEB 10.00 QRD NB 0.45 78 9.55 28 5.1% 13.5% ADAT 16.80 FEB 12.50 HAU NV 0.40 608 12.10 28 3.6% 11.6% UTHR 24.25 FEB 22.50 FUH NX 0.70 851 21.80 28 3.5% 8.8% IMCL 43.41 FEB 35.00 QCI NG 0.75 2937 34.25 28 2.4% 8.4% BLTI 21.14 FEB 17.50 BQF NW 0.30 649 17.20 28 1.9% 6.4% ATRS 37.40 FEB 30.00 QJI NF 0.45 128 29.55 28 1.7% 6.1% AFFX 28.40 FEB 25.00 FIQ NE 0.40 1147 24.60 28 1.8% 5.2% 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). __________________________________________________________________ RETK - Retek $11.37 *** Earnings Are Due Tuesday! *** Retek (NASDAQ:RETK) is a provider of software and services to the retail industry. The company provides technology solutions that help retailers create, manage and fulfill consumer demand. The company develops and sells software solutions that support virtually all operational activities of a typical retailer. The company's primary software solutions consist of integrated, but independently deployable groups of products, which are accessed via an Internet browser and can be hosted by a customer or by an outside application service provider. Retek markets a number of unique products for retailers that help them reduce costs while improving customer service and the overall shopping experience. The question is whether demand for Retek's retail solutions will translate to profits when the company posts its annual report on January 27, 2004. Traders who expect favorable earnings should consider this position. FEB-10.00 QRD NB LB=0.45 OI=78 CB=9.55 DE=28 TY=5.1% MY=13.5% __________________________________________________________________ ADAT - Authentidate Holding $16.80 *** Premium Selling! *** 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 Authentidate can speculate on its future share value with this position. FEB-12.50 HAU NV LB=0.40 OI=608 CB=12.10 DE=28 TY=3.6% MY=11.6% __________________________________________________________________ UTHR - United Therapeutics $24.25 *** Drug Speculation! *** United Therapeutics (NASDAQ:UTHR) is a biotechnology company focused on the development and commercialization of therapeutics to treat chronic and life-threatening diseases in 3 therapeutic areas: cardiovascular medicine, infectious disease and oncology. It has 5 therapeutic platforms: Prostacyclin analogs are stable synthetic forms of a molecule that has effects on blood-vessel health and function; Remodulin has been approved in the United States for the treatment of pulmonary arterial hypertension in patients with New York Heart Association Class II-IV symptoms; Immunotherapeutic monoclonal antibodies are antibodies that activate patients' immune systems to treat cancer; Glycobiology anti-viral agents are a class of small molecules that may be effective as an oral therapy for hepatitis C and other infections, and Telemedicine involves portable digital devices that enable physicians to remotely monitor patients' bodily measurements. Shares of UTHR rallied this week on speculation the company's drug Remodulin may soon be approved for marketing in France and other parts of Europe. The issue appears poised for additional upside activity in the coming months and traders can profit from that outcome with this position. FEB-22.50 FUH NX LB=0.70 OI=851 CB=21.80 DE=28 TY=3.5% MY=8.8% __________________________________________________________________ IMCL - ImClone Systems $43.41 *** Erbitux Up For Approval! *** ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company's lead product, Erbitux, is a therapeutic antibody that inhibits stimulation of epidermal growth factor receptor upon which certain solid tumors depend in order to grow. In addition to the development of its lead product candidates, the company conducts research in a number of areas related to its core focus of growth factor blockers, as well as cancer vaccines and angiogenesis inhibitors. IMCL has also developed diagnostic products and vaccines for certain infectious diseases. The U.S. FDA will make a decision about Erbitux in less than a month and analysts expect the drug to be approved, possibly in a limited form or with restrictions. Traders can speculate on the results of the FDA meeting with this position. FEB-35.00 QCI NG LB=0.75 OI=2937 CB=34.25 DE=28 TY=2.4% MY=8.4% __________________________________________________________________ BLTI - Biolase $21.14 *** Speculation Only! *** BioLase Technology (NASDAQ:BLTI) is a medical technology company that designs, develops, manufactures and markets advanced dental, cosmetic and surgical lasers and related products. The company's principal products are water- and laser-based systems focused for use in dentistry. The company holds patents and has received clearances from the United States Food and Drug Administration for applications in other markets such as dermatology. BioLase Technology also manufactures accessories and disposable products for its water- and laser-based systems. Lots of speculation on this unique company after some recent (December) comments in IBD, and investors say Biolase is a market leader with growing sales year-over-year and renewed institutional interest. The trend is bullish in the short-term and traders can profit from additional upside movement in the issue with this position. FEB-17.50 BQF NW LB=0.30 OI=649 CB=17.20 DE=28 TY=1.9% MY=6.4% __________________________________________________________________ ATRS - Altiris $37.40 *** Entry Point? *** Altiris (NASDAQ:ATRS) offers a range of Web-enabled solutions that empower organizations to easily manage desktops, notebooks, handhelds, and Windows, Linux and UNIX servers throughout the IT lifecycle. Altiris provides fully integrated, complete systems management solutions for client and mobile, server, and asset management. The company automates, simplifies, and reduces the cost and complexity of IT lifecycle management with a rapid return on investment. Shares of ATRS consolidated this week after achieving a new "all-time" high and the dip may be just the opportunity traders need to initiate a new (bullish) play in the issue. The company's quarterly earnings report is due after the close of the market on February 2, 2004. FEB-30.00 QJI NF LB=0.45 OI=128 CB=29.55 DE=28 TY=1.7% MY=6.1% __________________________________________________________________ AFFX - Affymetrix $28.40 *** New Trading Range? *** 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 have been in "rally mode" since the company inadvertently disclosed some bullish earnings data in a web-cast, causing an unexpected round of "short-covering." Now that the issue has stabilized in a new price range, traders can establish a relatively conservative position in the biotech segment with consider this position. FEB-25.00 FIQ NE LB=0.40 OI=1147 CB=24.60 DE=28 TY=1.8% MY=5.2% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Supplemental Naked Puts ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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) __________________________________________________________________ Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield NANO 20.79 FEB 17.50 QNK NW 0.55 0 16.95 28 3.5% 10.7% ATSN 11.19 FEB 10.00 UAT NB 0.35 20 9.65 28 3.9% 10.5% SEAC 18.20 FEB 17.50 UEG NW 0.65 78 16.85 28 4.2% 9.8% MSO 13.39 FEB 12.50 MSO NV 0.40 171 12.10 28 3.6% 8.9% AGYS 13.26 FEB 12.50 OQJ NV 0.40 0 12.10 28 3.6% 8.8% FWHT 20.30 FEB 17.50 HFQ NW 0.40 173 17.10 28 2.5% 7.6% PMCS 22.53 FEB 20.00 SQL ND 0.40 4590 19.60 28 2.2% 6.3% ERES 34.90 FEB 30.00 UDB NF 0.50 520 29.50 28 1.8% 5.7% MSCC 32.54 FEB 30.00 QMS NF 0.50 0 29.50 28 1.8% 4.9% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER IN SECTION ONE ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************ SPREADS/STRADDLES/COMBOS ************************ Correction Looming On The Horizon? By Ray Cummins Stocks ended mixed Friday as investors sold for profits in the wake of a ninth straight week of gains for the broader market. The Dow Jones industrial average fell 54 points to 10,568 amid weakness in a number of industry giants including AT&T (NYSE:T), Boeing (NYSE:BA), Dupont (NYSE:DD), Alcoa (NYSE:AA) and Disney (NYSE:DIS). A rally in Microsoft (NASDAQ:MSFT) shares boosted the NASDAQ to a positive close, up 4 points to 2,123, after a day of volatile activity. The Standard & Poor's 500 Index slid 2 points to 1,141 as aerospace, transportation, managed care, gold, and basic materials stocks slumped. For the week, both the Dow and the NASDAQ were slightly lower while the S&P edged higher. Volume was heavy, with over 1.5 billion shares swapped on the New York Stock Exchange and 2.2 billion shares traded on the NASDAQ. Advancers narrowly outpaced decliners on both the Big Board and the technology exchange. In the U.S. bond market, the benchmark 10-year treasury note plunged 30/32, driving its yield up to 4.07%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 01/23/03 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 LRCX 34.59 29.06 FEB 25 30 0.55 29.45 (0.39) Closed OHP 46.69 47.74 FEB 40 42 0.30 42.20 0.30 Open NBR 44.11 45.00 FEB 37 40 0.30 39.70 0.30 Open BIIB 43.19 44.32 FEB 35 40 0.55 39.45 0.55 Open CCMP 56.24 47.59 FEB 45 50 0.75 49.25 (1.66) Closed GENZ 54.26 55.00 FEB 47 50 0.30 49.70 0.30 Open LP = Long Put SP = Short Put CB = Cost Basis G/L = Gain/Loss After months of upside activity, the technology segment is finally showing signs of weakness and semiconductor-related stocks have been among the most active issues during the earnings reporting season. Two of our recent plays in this group were hammered this week, despite apparently favorable reports. The position in Cabot Micro (NASDAQ:CCMP) was closed Thursday morning for a smaller than published loss and Lam Research (NASDAQ:LRCX) became an early-exit candidate on Friday after the stock plunged below the sold (put) strike at $30 on heavy trading volume. CALL CREDIT SPREADS Symbol Pick Last Month LC SC Credit CB G/L Status ADBE 37.12 38.04 FEB 45 40 0.55 40.55 0.55 Open TBL 51.13 49.89 FEB 60 55 0.65 55.65 0.65 Open ABT 43.25 42.97 FEB 48 45 0.25 45.25 0.25 Open POWI 32.05 30.80 FEB 40 35 0.75 35.75 0.75 Open SCHN 45.90 44.24 FEB 60 55 0.50 55.50 0.50 Open LC = Long Call SC = Short Call CB = Cost Basis G/L = Gain/Loss CALL DEBIT SPREADS Symbol Pick Last Month LC SC Debit B/E G/L Status BRCM 36.78 39.02 FEB 30 32 2.20 32.30 0.30 Open CREE 25.85 25.67 FEB 20 22 2.20 22.20 0.30 Open LC = Long Call SC = Short Call B/E = Break-Even G/L = Gain/Loss PUT DEBIT SPREADS Symbol Pick Last Month LP SP Debit B/E G/L Status MIK 41.42 43.85 FEB 47 45 2.20 45.30 0.30 Open QLGC 47.16 45.45 FEB 55 50 4.20 55.80 0.80 Open SYNTHETIC (BULLISH) Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status UTHR 23.20 24.25 MAY 30 17 (0.10) 0.40 Open CEPH 52.50 56.00 FEB 60 45 0.10 1.00 Open? EYE 25.30 25.95 MAR 30 20 0.00 0.25 Open All of our current synthetic positions have achieved profitability but Cephalon (NASDAQ:CEPH) was by far the best performer, offering up to a $0.90 gain in less than one week. SYNTHETIC (BEARISH) No Open Positions CALENDAR & DIAGONAL SPREADS Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status FISV 38.28 37.71 MAR-35P FEB-35P 0.30 0.35 Open AMHC 27.08 27.49 MAY-30C FEB-30C 1.25 1.20 Open DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status MATK 65.74 66.08 MAR 65 65 9.40 9.00 Open NTE 30.44 31.49 FEB 30 30 0.00 0.00 No Play The new straddle in Nam Tai Electronics (NYSE:NTE) was similar to our recent position in Petrochina (NYSE:PTR) as there was little opportunity to initiate the play (with a delta-neutral outlook) due to the "gap-up" opening and subsequent rally on Monday. Some traders may have been able to open the straddle during the first few minutes of trading, and the issue was very volatile, closing the day almost $4 higher. However, it does not appear that the majority of readers could have participated in the play as it was offered, so we will not track it in the future. 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. __________________________________________________________________ AVE - Aventis $73.00 *** Buyout/Merger Coming? *** Aventis (NYSE:AVE) is a pharmaceutical company that discovers, develops, manufactures and commercializes prescription drugs for such therapeutic areas as oncology, cardiology, diabetes and respiratory/allergy, as well as human vaccines. The company's wide range of therapeutic innovations include treatments for lung cancer, breast cancer, thrombosis, seasonal allergies, diabetes and hypertension. AVE - Aventis $73.00 PLAY (conservative - bullish/credit spread): BUY PUT FEB-60.00 AVE-NL OI=557 ASK=$0.30 SELL PUT FEB-65.00 AVE-NM OI=3098 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$64.50 __________________________________________________________________ CI - Cigna $60.55 *** Rally In Progress! *** Cigna Corporation (NYSE:CI) and its subsidiaries are investor- owned employee benefits organizations in the United States. Its subsidiaries are major providers of employee benefits offered through the workplace, including health care products and other services, life, accident and disability insurance, retirement products and services and investment management. CIGNA's main operating divisions include Employee Health Care, Disability and Life Benefits, CIGNA Group Insurance, Employee Retirement, and Investment Services, and International Life, Health and Employee Benefits. CI - Cigna $60.55 PLAY (conservative - bullish/credit spread): BUY PUT FEB-50.00 CI-NJ OI=733 ASK=$0.25 SELL PUT FEB-55.00 CI-NK OI=8836 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$54.45 __________________________________________________________________ DNA - Genetech $96.40 *** Consolidation Complete? *** Genentech (NYSE:DNA) is a biotechnology firm using human genetic information to discover, develop, manufacture and commercialize biotherapeutics for significant unmet medical needs. The company manufactures and commercializes biotechnology products directly in the United States. The company also licenses other products to various partners and its development efforts, including those of its collaborative firms, cover a range of medical conditions, including cancer, respiratory disorders, cardiovascular diseases, endocrine disorders and inflammatory and immune problems. DNA - Genetech $96.40 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-85.00 DNA-NQ OI=10939 ASK=$0.50 SELL PUT FEB-90.00 DNA-NR OI=3519 BID=$1.25 INITIAL NET-CREDIT TARGET=$0.75-$0.80 POTENTIAL PROFIT(max)=17% B/E=$89.25 __________________________________________________________________ OVTI - OmniVision $51.10 *** New Downtrend Underway? *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and sells high performance, high quality and cost efficient semiconductor imaging devices for computing, telecommunications, industrial, automotive and consumer electronics applications. The company's main product, an image sensing device called a CameraChip, is used to capture an image in cameras and camera-related products in a range of imaging applications such as personal computer cameras, digital still cameras, security and surveillance cameras, personal digital assistant cameras, mobile phone cameras, and cameras for automobiles and toys that incorporate both still picture and live video applications. OVTI - OmniVision $51.10 PLAY (conservative - bearish/credit spread): BUY CALL FEB-65.00 UCM-BM OI=2836 ASK=$0.40 SELL CALL FEB-60.00 UCM-BL OI=2779 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$60.50 __________________________________________________________________ VSEA - Varian Semiconductor $45.27 *** Earnings Speculation! *** Varian Semiconductor Equipment Associates (NASDAQ:VSEA) designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. As a supplier of ion implantation systems, the company has shipped over 3,100 systems worldwide. The company's VIISta product line leverages single-wafer processing technology pioneered on its successful E200 and E500 lines of medium current implanters to the full spectrum of energies and implant applications. Single wafer technology is differentiated from batch-type implanters by its processing capabilities, more precise angle control and more improved process yields, allowing processing of 200-millimeter or next-generation 300-millimeter wafers on the same tool. VSEA - Varian Semiconductor $45.27 PLAY (conservative - bearish/credit spread): BUY CALL FEB-55.00 UES-BK OI=438 ASK=$0.30 SELL CALL FEB-50.00 UES-BJ OI=526 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$50.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ TEVA - Teva Pharmaceutical $61.75 *** Next Leg Up? *** Teva Pharmaceutical Industries (NASDAQ:TEVA), headquartered in Israel, is among the top 30 pharmaceutical companies and among the largest generic pharmaceutical companies in the world. The firm develops, manufactures and markets generic and innovative human pharmaceuticals and active pharmaceutical ingredients. The majority of Teva's sales are in North America and Europe. TEVA - Teva Pharmaceutical $61.75 PLAY (conservative - bullish/debit spread): BUY CALL FEB-55.00 TVQ-BK OI=633 ASK=$7.10 SELL CALL FEB-60.00 TVQ-BL OI=4461 BID=$2.65 INITIAL NET-DEBIT TARGET=$4.40-$4.45 POTENTIAL PROFIT(max)=12% B/E=$59.45 __________________________________________________________________ NVLS - Novellus Systems $39.89 *** Trading Range Top? *** Novellus Systems (NASDAQ:NVLS) manufactures, sells and services semiconductor processing equipment. The company's products are comprised primarily of advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface prior to these deposition processes. Novellus is a supplier of high productivity deposition and surface preparation systems used in the fabrication of integrated circuits. Chemical Vapor Deposition systems employ a chemical plasma to deposit all of the dielectric (insulating) layers and certain of the metal (conductive) layers on the surface of a semiconductor wafer. Physical Vapor Deposition systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an aqueous solution. Earnings are due Monday, January 26, 2004. NVLS - Novellus Systems $39.89 PLAY (conservative - bearish/debit spread): BUY PUT FEB-45.00 NLQ-NI OI=265 ASK=$5.50 SELL PUT FEB-42.50 NLQ-NA OI=2693 BID=$3.30 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$42.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SYNTHETIC POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ These stocks have momentum-based trends and favorable option premiums. Traders with a directional outlook on the underlying issues may find the risk-reward outlook in these plays attractive. __________________________________________________________________ DD - Dupont $42.72 *** Pre-Earnings Slump? *** DuPont (NYSE:DD) is a science company. Founded in 1802, DuPont puts science to work by solving problems and creating solutions that make people's lives better, safer and easier. Operating in more than 70 countries, the firm offers a wide range of products and services to various markets including agriculture, nutrition, electronics, communications, safety and protection, home and construction, transportation and apparel. Earnings are due on Tuesday, January 27, 2004. DD - Dupont $42.72 PLAY (very speculative - bearish/synthetic position): BUY PUT MAR-40.00 DD-OH OI=1215 ASK=$0.55 SELL CALL MAR-45.00 DD-CI OI=399 BID=$0.40 INITIAL NET-DEBIT TARGET=$0.00-$0.10 INITIAL TARGET PROFIT=$0.35-$0.65 Note: Using options, this position is similar to being short the stock. The minimum initial margin/collateral requirement for the sold option is approximately $1500 per contract. However, do not open this position if you can not afford to purchase the stock at the sold call strike price ($45.00). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ ABGX - Abgenix $15.60 *** Cheap Speculation! *** Abgenix (NASDAQ:ABGX) is a biopharmaceutical company that is focused on the discovery, development and manufacture of human therapeutic antibodies for the treatment of a variety of disease conditions, including cancer, inflammation, metabolic disease, transplant-related diseases, cardiovascular disease and infectious diseases. Abgenix has proprietary technologies that facilitate rapid generation of highly specific, antibody-therapeutic product candidates that contain fully human protein sequences and that bind to disease targets appropriate for antibody therapy. Abgenix developed its XenoMouse technology, a technology using genetically modified mice to generate fully human antibodies. It also owns a technology that enables the rapid ID of antibodies with desired function and characteristics, referred to as SLAM technology. ABGX - Abgenix $15.60 PLAY (speculative - bullish/calendar spread): BUY CALL APR-17.50 AZG-DW OI=482 ASK=$0.90 SELL CALL FEB-17.50 AZG-BW OI=260 BID=$0.30 INITIAL NET DEBIT TARGET=$0.55-$0.60 INITIAL TARGET PROFIT=$0.35-$0.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ BSC - Bear Stearns $84.10 *** Probability Play *** Founded in 1923, Bear Stearns Companies Inc. (NYSE:BSC) is the parent company of Bear, Stearns & Co. Inc., a leading investment banking and securities trading and brokerage firm. With over $37 billion in total capital, Bear Stearns serves global governments, corporations, institutions and individuals worldwide. The firm's business includes corporate finance and mergers and acquisitions, institutional equities & fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities, it offers financing, securities lending, clearing and technology solutions to hedge funds, broker-dealers and investment advisors. The company's next quarterly earnings report is due in March, 2004. BSC - Bear Stearns $84.10 PLAY (speculative - neutral/debit straddle): BUY CALL MAR-85.00 BSC-CQ OI=121 ASK=$2.30 BUY PUT MAR-85.00 BSC-OQ OI=29 ASK=$3.10 INITIAL NET-DEBIT TARGET=5.20-$5.25 INITIAL TARGET PROFIT=$2.15-$3.60 __________________________________________________________________ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... 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