The Option Investor Newsletter Sunday 02-01-2004 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: Surprise, Surprise Futures Market: What next? Index Trader Wrap: Down week Editor's Plays: Crashing to Earth Market Sentiment: So Goes January Ask the Analyst: Out the gate they go! 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 01-30 WE 01-23 WE 01-16 WE 01-09 DOW 10488.07 - 80.22 10568.3 - 32.22 10600.5 +141.62 + 49.04 Nasdaq 2066.15 - 57.72 2123.87 - 16.59 2140.46 + 53.54 + 80.24 S&P-100 560.31 - 5.10 565.41 + 0.69 564.72 + 8.17 + 6.56 S&P-500 1131.13 - 10.42 1141.55 + 1.72 1139.83 + 17.97 + 13.38 W5000 11029.20 -127.58 11156.8 + 40.74 11116.0 +187.04 +151.14 RUT 580.76 - 15.38 596.14 + 5.73 590.41 + 15.21 + 14.35 TRAN 2885.96 -186.99 3072.94 + 36.66 3036.28 + 47.34 - 19.22 VIX 16.63 + 1.79 14.84 - 0.16 15.00 - 1.75 - 1.47 VXO 17.05 + 2.18 14.87 - 0.40 15.27 - 0.67 - 2.00 VXN 25.06 + 3.79 21.27 + 1.03 20.24 - 2.77 - 1.50 TRIN 1.00 1.15 0.47 1.63 Put/Call 0.81 0.77 0.51 0.65 ****************************************************************** Surprise, Surprise by Jim Brown The wheels came off the whisper number bus Friday when the GDP failed to reach even the weakest estimates of 4Q growth. All the analysts quoting obscene growth numbers were left to sift positive component numbers out of the overall report in an effort to justify their missed estimates. The market behaved very well considering the negative news. Dow Chart - Daily Nasdaq Chart - Daily The New York NAPM jumped to 257.3 from 242.6 and showed that while the recovery may be slow across the country the New York area is roaring out of the 2001 recession. Manufacturing conditions improved with the quantity of purchase component jumping from 40 to 61. This is a huge gain but the majority of the other components were mixed. The headline number is up a whopping +13.2% since November and may be experiencing some rally fatigue soon. The non-manufacturing activity jumped to 78.5 due to a rebound in financial services and is near its highest levels since 2000. Considering manufacturing is not a major part of the New York economy this suggests the rest of the area economy could be growing at an even faster rate. Switching to the center of the country the Chicago PMI soared to 65.9 and well over the estimates for a decline to 60.0. Except for employment the report was very strong. Production jumped to 76.5 from 68.9, backlogs to 57.3 from 52.2. Employment fell slightly to 48.3 from 49.6 and inventory fell to 37.4 from 42.2. A negative component was the jump in prices paid to 67.8 from 57.3. This is a huge one-month jump and suggests that inflation may be closer than we think. A +10 point jump in prices was a +18% gain in one month. This one component weighed heavily on the positive initial reaction to the headline number. Offsetting the jump in prices was the inventory contraction at the fastest rate in the last two years. Despite the good news the report also stretched to three months the continuing layoffs in the manufacturing sector. Consumer Sentiment edged up only slightly for the final January revision to 103.8 and a +11 point gain for the month. Analysts suggest that severe weather in December could have impacted the December decline but we have had very cold weather the last four weeks as well. I suspect the December decline was simply due to holiday depression and financial stress. We are clearly out of the dip and moving to higher ground and part of the higher sentiment is probably due to new highs on the Dow. With massive tax refunds on tap for the next three months those warm feelings should continue but the gains could slow without a real pickup in hiring. The Michigan Sentiment number is also much higher than the Conference Board and Money Magazine indexes. This suggests the difference in polling questions could be adding to the positive responses. The biggest disappointment for Friday was the Q4-GDP which came in at a bland +4.0% compared to huge whisper estimates. The gains were wide spread but emphasize the slow growth thought process rather than the exploding economy. Through out the day on Friday the whisper numbers slowly declined from the +6.5% Thursday level to only +5.0% by the close on Friday. That 1.5% difference simply went up in smoke once reality appeared. The last article I found Friday night was comparing the 4.4% official estimate to the wildly optimistic "5%" whisper. Obviously expectations, or at least those willing to admit their expectations after the fact, imploded in the white light of day. The 4Q growth of +4.0% was being called "decent" by some and "strong" by others when compared to the +3.1% total for all of 2003. That makes you realize how weak the first two quarters really were at +2.0% and +3.1%. The 4Q slowdown was being called "inline with expectations" by Friday night. It appears in hindsight that the 3Q explosion was due to exactly the reasons we have been claiming in these pages. It was due to the last round of home refinancing with ten year rates hitting 3.25% lows in June. This prompted two months of massive cash generation and a serious upgrade cycle for homeowners. Adding even further to the economic explosion was a tax rebate, tax cut program that gave billions of dollars back to consumers. They immediately spent it all as evidenced by the sales slowdown in the 4Q to only +2.6% growth. Government spending in the 4Q at +0.8% was less than half the pace of the 3Q. Housing continued to be strong and the weaker dollar continued to add to the bottom line. Inventory rebuilding added +.60 basis points to the 4Q number with IT equipment spending up +10%. Make no mistake, this was not a shabby quarter. It simply did not live up to the overly optimistic expectations and proved that the 3Q spike was just a spike and not a lasting trend. The "lasting recovery" is still in doubt as the slowdown in Durable Goods Orders earlier this week suggested. The good news in the GDP report is actually the lack of a blowout number. This decent growth is right on track and it means the Fed is on hold for a much longer period. The fears from Wednesday that the Fed could be ready to pull the rate hike trigger as early as May were totally groundless. There is nothing in the GDP that would suggest the economy is running wild or even that the economic recovery is self sustaining. The Fed statement that they were still worried about the potential for deflation confirms they did see this coming. Without a massive jump in jobs soon we are going into the summer doldrums at probably a +3.5% GDP rate. That is actually a normal GDP target for steady growth. It is just far shy from the overly optimistic estimates. No overheating economy and no rate cut in sight and bonds rose on Friday once that reality struck home. This means interest rates will stay low though the spring home buying season and tax refunds will keep the economy running for the next six months. With no real economic worries the stock market recoiled from the initial GDP announcement but the drop was very short lived. Sellers knocked the Dow back to Thursday's closing support at 10450 on the GDP news but bargain hunters jumped on the dip. It was a low volume seesaw for the rest of the day but 10450 support held for the second day. The Dow wandered back to 10500 resistance by day's end on short covering but was unable to beak that current resistance barrier with Super Bowl event risk looming large in our future. Russell 2000 Chart - Daily The Russell was the strongest index once again and closed the day positive and suggests that bargain hunters were hoping for an oversold gap up on Monday. The Nasdaq traded in positive territory most of the day despite some lowered guidance from Thursday night tech reports. The SOX also closed positive and rebounded back to 514 and the current 50 dma. SOX Chart - Daily The market action or actually lack of action on Friday was encouraging. With the already negative tone for the week the GDP could have sent it into a death spiral. When the initial dip was quickly bought the potential sellers had to rethink their actions. The lure of a potentially positive Jobs Report next Friday is a powerful incentive to hang on as long as the market is not self destructing. Friday turned into a consolidation day and traders left early for the weekend. I suspect it would have ended differently were it not for the Super Bowl event risk. The Dept of Homeland Security did not change the threat level but the actual site security is extremely high. With Osama vowing to go out a martyr and according to some reports has said he would die in an attack in the United States this is a very high profile target. 135 million viewers will be watching in the U.S. and over 1 billion worldwide. Think that would not be a tempting target for a crazed terrorist wanting to go out with a bang? This week was also the start of the Muslim Hajj Pilgrimage where over two million Muslims fulfill a central duty of Islam. For 14 centuries countless millions have made the trek to Makkah to fulfill one of the five pillars of Islam. This is a very high profile event and a period that could produce extra terrorist activity. News reports out at 8:PM Friday night said there was a sudden surge in intelligence communication and the emphasis was on airliners flying into the U.S. from other countries. So far no flights were reported cancelled but you can bet any arriving around Super Bowl time will be very heavily screened. Let's hope that this event ends peacefully as have all the other potential events like New Years Eve in New York. The one fly in the ointment to suggesting a potential rebound next week is the crash in the transportation sector. The transportation index has fallen -6.5% in just the last week. For Dow theorists a falling transportation index would prevent any meaningful rally in the Dow. The index was only 12 points away from its 100 dma at the lows on Friday. Despite the rebound in the broader indexes the TRAN lost -86 points or nearly -3% for the day. There are various reasons for the wreck and YELL was a big reason on Friday. Yellow Roadway missed estimates and lowered guidance. What really worried traders was lack of shipment growth. YELL shipments rose only +1.1% in the 4Q and Roadway shipments actually dropped -14% during the quarter. What worries traders is the drop in shipments in an economy that is supposedly growing. If it is growing then shipments should be increasing. YELL dropped -$5 on the news. Another company that is involved in shipping, GATX Corp (GMT) dropped -15% or -$4.15 on a -5% drop in revenues during the same period. The transportation drop is further complicated by the slowdown in airline passenger traffic while airlines are racing to add capacity. Fare wars are increasing and the business traveler has not come back yet. This suggests the broader market and the economy is not yet out of the woods. Why fear? The S&P closed the month with a gain and that almost guarantees a gain for the year. Since 1950 that January barometer has a very impressive record of 91% accuracy. The S&P closed up about +20 points for the month and theoretically gives us a 91% chance of closing the year in the black. Of course what the statisticians don't tell you is that the barometer failed two of the last three years. There is also another catch that we don't always hear. If the S&P closed the year today at 1131 the record would be intact. Just closing the year anywhere in positive territory keeps the statisticians happy. While we do not care about keeping the statistics guys happy we do need to keep mom and pop investor happy. The bean counters reported on Friday that 2003 saw an inflow of $152.8 billion into equity funds. This was the fifth largest inflow on record with 2000 being the highest. There is currently $7.4 trillion being held in all funds including money markets. Those investors should be happy with their gains over the last twelve months but that brings up the performance issue once again. Those burned in the worst bear market since the great depression have put their faith back into Alan Greenspan and the stock market while moving full speed into the election cycle. If your fund was up +30% to +50% in 2003 then what are you expecting for 2004? I would bet it is not +10% and the consensus market projections for the rest of the year. For the next 90 days I would suspect those investors are going to be sitting on pins and needles until we get a resumption of the bullish trend and over the current highs. I think the potential for that to happen is very good. I know there were some setbacks this week with several high profile techs not living up to the standard of the majority of prior announcers. FDRY, GILD, NVLS, LEXR, RNWK, SNDK and PSFT are just a handful of the most recent disappointments. If only a handful per week is all we have to worry about then I do not think it is a problem. We know from past history that the deeper we get into the earnings cycle the weaker the results because the quality of the companies begins to decline. With earnings currently running at +25% growth for the 4Q there is plenty of room for weaker results ahead and still have a great earnings cycle. The bottom line is still a growing economy, albeit slow growing but still growing. Add in the massive tax refund stimulation that will hit over the next three months and the markets have plenty of room to grow. It is what will happen after April that worries me. The comparisons to 2003 earnings will become progressively tougher and if the economy does continue to grow the Fed will eventually start the next rate hike cycle. The deficit is growing and expected to be over $500 billion in 2004 and over $1 trillion soon. The Fed actually expressed concern over the deficit in the December FOMC minutes. But in the scope of our current view that is still a long way off. The average investor operates on a quarter by quarter basis. With 4Q earnings about over the investing public is pocketing their winnings and trying to decide who will be the big winners for Q1. The forecast based on the current guidance is for another great quarter. Investors should be examining their portfolios now and cutting back on those companies with lackluster results. That cash should be used to buy on any pullback those who raised their guidance. This portfolio rotation is just beginning for this quarter and those companies that did disappoint have been severely punished. With one more week of decent earnings volume and a flurry of critical economic reports the odds are good we will see some erratic market moves. Larry Ellison is planning ahead for this exact plan. He announced at 9:PM Friday night that he was selling $1.67 billion in ORCL stock starting on March 4th. It is a planned sale program to diversify his holdings according to the press release. While that should depress ORCL stock on Monday I would not feel too sorry for him. He still has nearly 1.3 billion shares left. Interesting timing on the announcement. Assuming a successful Super Bowl weekend we should see some month end cash flows put to work early next week. Unless there is some real economic disaster we will probably continue to trade in a range until after the Jobs report on Friday. That range is probably between Dow 10300-10650 and is wide enough to drive a truck through. The Nasdaq range is probably between 2000-2150 and considering we have had more than a 100 point move last week we are real close to exactly in the middle. I am basing the lower end of my estimates on the oversold conditions in the SOX. We saw it test 500 on Thursday and rebound but I suspect we could see another dip to the 490 level and the 100 dma. I do expect that level to hold. If the semis quit falling so will the Nasdaq. That does not leave much more downside assuming we don't have any negative surprises in our future. Buy the dip! Assuming we do not have a black hole in our economic future I would suggest buying the next dip. My target for conservative traders would be Dow 10300 and Nasdaq 2000 but recognizing we may not reach them. Over the next couple weeks look for a sharp dip brought on by some yet unknown event that drops us close to those levels. If we pause at the lows and consolidate on high volume I would enter partial positions. Once we get a close above the prior days highs I would add to those positions on any future dip. I fully expect to see new highs before April-15th but that forecast and a $5 bill will get you a cup of expensive coffee and a newspaper. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** What next? Jonathan Levinson The various markets spent the latter half of the week trying to find their footing in the aftermath of the expression by the FOMC of the very thought that the current low rate environment might not last as long as previously expected. Treasury rates and the US Dollar Index spiked and then pulled back, gold and foreign currencies dived and pulled up, equities dived and spent Friday trading both sides of unchanged. 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. Chart of the US Dollar Index The US Dollar Index traded lower on Friday in the 87.25 area, selling off on disappointing GDP data on Friday morning. The move caused a rollover on the 10 day stochastic while finding support at 87, the primary descending channel trendline violated following the FOMC announcement earlier this week. For the day, precious metals, miners and the CRB finished higher, with the CRB adding 1.91 to close at 262.58, led by cotton, lean hog and corn futures. Daily chart of February gold Just as the USD Index gave its first sell signal of the current bounce, February gold, with its small upside correction of yesterday's washout, gave its first buy signal. Gold rose 1.80 to finish at 400.80, holding a higher low of 398 and lower high of 402. XAU added 1.63% to close at 95.58, HUI added 1.15% to close at 215.63. Friday was first notice day for February futures contracts, and as of Monday I'll be covering April contracts. 405 is now "the scene of the crime", and bulls need to see gold not fail at that level. 392 support has not been tested, and I view any correction that stays north of that level to be confirmation of the daily cycle bottom trying to form here. Daily chart of the ten year note yield Bonds had a good day on Friday, the ten year note yield dropping 5.9 basis points to close at 4.138%, a 1.41% move for the day. Friday's yield drop extended Thursday's but still traversed only half the range printed on FOMC Wednesday. Bonds closed near unchanged for the week after covering a wide range, with the help of extensive Fed intervention via open market ops throughout the week. Friday was the exception, with a modest 2B net drained via expiring overnight repos. Despite the 2 day correction in the yield, the stronger moves have been to the upside since the 3.92% bottom held, and the daily cycle oscillators remain in an upphase. Descending trendline resistance moved to 4.3% on the TNX. Daily NQ candles The NQ dropped 7 points to close at 1492.50, a .47% move on the day and once again a weak showing from the NQ relative to its peers. The move engulfed yesterday's candle body, but was mostly directionless, with listless trading throughout Friday's session despite respectable Nasdaq volume of 1.94B shares, following Thursday's 2.6+B share blowout. It remains entirely uncertain as to whether the current post-FOMC range is a distribution or accumulation phase at the bottom of the week's steep selloff. One the bullish side, we have Thursday's heavy volume doji hammer, while on the bearish, today's lack of bounce and ongoing daily cycle downphase. Resistance remains 1507, followed by more significant confluence at 1515-1520. Support is 1492, followed by 1482. 30 minute 20 day chart of the NQ Friday was a great day during which to meditate. The 30 minute cycle upphase went nowhere at the open, and the ensuing 30 min cycle downphase was similarly weak. The downphase was far weaker than the preceding upphase in terms of price traction, and as Keene noted in the morning, it felt corrective rather than impulsive. 1488 is weaker downside support, but at Friday afternoon's rate, it could put a floor under the current decline. Given the ongoing daily cycle downphase, I expect any bounce to fail at a lower high, as has been the case since last week. A higher low on the current 30 minute cycle downphase would, however, be the first sign of light for bulls as to the validity of Thursday's 1476 bottom. Daily ES candles ES added half a point to close at 1130.75, having been in native territory as of the cash close (on the basis of which the current chart is generated). The fact that this is relevant gives some indication of how excruciatingly boring Friday was. But that benefits ES bears for a change, because the daily cycle downphase, so long in coming, developed further on Friday, and on the daily chart appears to be setting up an imminent test of 1115-18 support. It's worth repeating, however, that the ES, and all equity contracts for that matter, remain in a very strong overall uptrend. Below 1060, it will be more appropriate to discuss "reversals" and such, but for leveraged traders, this week's decline was nevertheless substantial. Resistance is between 1133-5, support 1115-18, followed by 1125-6. 20 day 30 minute chart of the ES The afternoon's drift higher was sufficient to whipsaw the 30 minute cycle oscillator, but 1133-5 resistance remains unchallenged and the daily cycle oscillators are downphasing. Best to wait for a break of 1126 support or 1135 resistance before choosing a direction while bulls and bears committed to different timeframes continue to battle it out. 150-tick ES Friday's endless drift left the various short cycle oscillators almost perfectly discombobulated, with no direction evident here. 1126-35 remains the range to watch. Daily YM candles YM traded up in the final minutes to close a few points north of unchanged. The big news is that the upper rising primary channel trendline at 10350 held as support on a downside spike off the Friday GDP release. The daily cycle downphase whipsawed but reasserted itself, and a retest of that level appears imminent on the daily chart. 20 day 30 minute chart of the YM YM most closely resembles ES- nothing to add on the 30 minute timeframe. The strongest move of the week was without doubt the Wednesday afternoon-Thursday post-FOMC aftermath. That period saw a perfect reversal of the intermarket trends that brought us the rally of 2003, with the dollar rising and every other asset class falling. The fact remains that there is developing an almost universal bearishness on the US Dollar, and in the mainstream, a bullishness on everything else. The FOMC reaction saw that momentarily and explosively reversed. How far this correction of the 2003 trend goes is anyone's guess, and I suspect that it was that uncertainty that gave us a lackluster Friday across all markets. I look forward to next week to provide us with more clues for what to expect in February. See you there. ******************** INDEX TRADER SUMMARY ******************** Down week Jonathan Levinson The major averages closed lightly negative on Friday, capping off the second consecutive week of losses for equities. The Dow lost 22.22 to close at 10,488.07, the SPX lost 2.98 to close at 1131.13, and the Nasdaq dropped 2.08 to close at 2066.15. For the week, the Dow fell 0.8%, the SPX .9% and the Nasdaq 2.7%. Notwithstanding these losses, all 3 indices are in the green for the year today, the Dow +0.4% for the month, the SPX +2% and the Naz +3%. For the past 52 weeks, it's +29.3% for the Dow, +30.9% for the SPX and +52.1% for the Naz. As discussed in the Futures Monitor, the big news was the FOMC announcement that struck fear into the hears of dollar bears/ equity-bond-commodity bulls, and the trading following the midweek drop has uncertain and rangebound. Volatility boomed higher, and the Dow Transports closed the week below 3,000, dropping 2.9% or 86.04 to close at 2,885.95. While the FOMC drop buried the intraday oscillators in oversold, it precipated only the beginnings of sell signals on the longer timeframes. The OEX volatility index, the VXO, finished the week 2 or more than 10% points higher than where it began, closing at 17.05, while the NDX volatility index, QQV, nearly 3 points higher at 23.14. Weekly COMPX candles As noted above, the selling this week did little damage on the longer timeframes, and while this week brought the Nasdaq it's longest red candle in months, the weekly cycle oscillators barely twitched. Trendline support in the 2040 area held, and until that level falls, there's no indication of any damage to the solid uptrend off the March '03 lows. If you squint, you can even see a small doji shadow at the bottom of this week's candle, indicating the disappearance of sellers at the lower rising trendline. The setup is nevertheless bearish, displaying downside acceleration below the mid-January high, but until the trendline cracks, it's just a correction in the rally uptrend. Weekly INDU candles We see a similar picture on the Dow, with the decline respecting the lower rising trendline but in this case with a bearish engulfing candle. There were new rally highs printed prior to the FOMC announcement, setting this up as a key reversal week. The last few "key reversal" signals on the daily charts have failed, though as Linda points out, Professor Pring prizes these among the strongest of technical indicators. A break of the lower rising trendline at 10400 will be the first indication of trouble in this extended paradise. The weekly cycle oscillators continue to trend up. Daily OEX candles The OEX gave and confirmed sell signals this week on the daily candle chart, with the daily cycle oscillators rolling over and following through as the week progressed. Channel support is 11 points south at 549, with primary channel support next at 535. The daily cycle downphase has yet to do any significant technical damage, and until the weekly cycle turns down, downside support levels should be good for a strong battle from bulls. If 535 fails, I expect that to affect the weekly cycle upphase and possibly introduce the first hint of longer term bearishness into an otherwise bullish-corrective picture. 20 day 30 minute chart of the OEX Zooming in further to the 30 minute chart, we see the daily cycle downphase producing a trend of lower highs since Tuesday. Support is next at 558, followed by 556 and 553. The end of day upward drift produced the first suggestion of a whipsaw in the 300 minute stochastic, while the Macd remains in a hesitant oversold bounce. The descending trendline at 563 should cap the current bounce under the steep daily cycle downphase, above which 566 is the next resistance level. Daily QQQ candles QQQ rolled over as well and saw intense selling this week, resulting in a more advanced daily cycle downphase than we see on the OEX. By the same token, the uptrend is far from being threatened so far, and secondary support projects to just south of 36, with price confluence beginning at 36. Given the positioning of the Nasdaq at its rising weekly trendline, a washout below 36 could be the start of a more significant correction, but given the progress of the daily cycle downphase, it's not unreasonable to expect that level to hold. If Friday's waffling was any indication of things to come, we can expect the current daily cycle downphase to begin hesitating. Bulls can look to buy dips around 36, but should be attentive to the risk of holding through a failure of that level given the weekly support lines in play. 20 day 30 minute chart of the QQQ The 30 minute cycle downphase did not whipsaw for the Qubes as it did on the OEX. The sideways drift violated the steep downtrend line from Tuesday's high, but the Qubes closed lower by .70% and were less than inspiring in either direction on Friday. Support is at 36.65, followed by 36.20 and 36. Currently, the 30 minute and daily cycle oscillators remain in synchronous downphases, favoring a test of lower support. Traders are fortunate to have the indices closed on key weekly support, as it sets the stage for some clarity on Monday morning. Any upside implies a bounce, and downside risks failure. Traders remain in a state of high anxiety, as we saw with the massive QQQ volume on Thursday. Better to show some patience and wait for the direction to assert itself. Let the market decide which way it wants to go. See you on Monday. ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Crashing to Earth On Thursday the XMSR satellite completed its crash back to reality with a drop to the 100 dma at $21.27. We instituted the put play last Sunday at $26.02 after they announced they were going to offer 16 million insider shares to the public. For whatever reason the play actually went as diagrammed and hit our exit point at $22.50 by Wednesday morning. Mark that one down as a winner and let's move on. In keeping with the high risk scenario that worked so well last week I really wanted to buy puts on TASR in advance of their earnings on Tuesday but unfortunately they do not have options. I would try to short it but with more than 50% of the float already short that is like playing Russian Roulette with only one empty chamber. Pass on that idea. I also looked at MSTR, which is up +12.00 from Thursday's lows. Unfortunately the March options were grossly expensive. The March $60 puts were $3.70 and I could not bring myself to suggest the February puts with only three weeks left. This stock could be very volatile and I really wanted more time. I decided to go with VSEA, which rocketed from $42.50 on Thursday to $51 on Friday on short covering after their earnings. It settled at $48.75 and just below long term resistance at $50.00. I expect one more dip on the SOX to 475-490 and profit taking in VSEA could see it drop back to the 100 DMA at $45.00. This is very high risk because once the SOX "dip" is assumed to be over we could be rocketing off to new highs before Q1 earnings. This is simply a reaction play to an over reaction to the earnings. I personally like the March $45 put UES-OI for $2.10. I would set a stop loss at $51.00 and a profit target at $46.00. VSEA Chart ******************************** Play Recaps DJX Puts I am still holding despite the drop just in case we trip over an economic report like the ISM or Jobs next week. The dip encouraged me and I came very close to dumping when the Dow neared 10400 on Thursday. I have mentally written this position off so anything I can get from it now is a bonus. Initial play description December 21st http://members.OptionInvestor.com/editorplays/edply_122103_1.asp ******************** Remember, these are high risk plays and should only be made with risk capital. Good Luck Jim Brown **************** MARKET SENTIMENT **************** So Goes January - J. Brown Maybe you've heard the old Wall Street maxim, "so goes January, so goes the year". Another way to say it is if January is an up month then we'll have an up year and if January is down, well you get the idea. According to the Stock Traders Almanac by Hirsch, this market barometer has a pretty incredible track record. There have only been 5 misses in the last 50 years giving it a 90% accuracy rating for predicting the market's direction. That's a pretty good record and fortunately it corresponds with most market prognosticators for a bullish 2004. As Jim pointed out in his wrap this weekend many reports fail to mention that two of those five misses have occurred in the last three years. That's definitely not a positive trend. Of course there were extenuating circumstances like the 9/11 attacks during one of those years. For the record the Dow Jones Industrial Average is up 0.3%, the S&P 500 is up 1.7% and the tech-heavy NASDAQ is up 3.1% for the year. Driving these early gains has been a pretty strong earnings season. Just over half of the S&P 500 companies have reported their December quarter and earnings growth is coming in up 25% from the same period a year ago. Leading the way has been technology, which has been averaging closer to 50% gains in net income. We still have a couple of weeks to go before Q4 earnings finally wind down. Typically the second and third tier companies report later in the cycle and then tend to under perform the rest of the market. An exception this year will probably be the retailers. The GDP number may have missed the whisper number on Friday but analysts still expect retail sales to be high resulting from one of the best Christmases in recent memory. Speaking of the GDP, the report out on Friday was both disappointing and encouraging. Economic growth for the fourth quarter of 2003 came in at 4.0%, which was well below the expectations for 5.0-6.0% or better growth. A disappointing miss? Yes, but it also quieted investor concerns that the Fed might raise interest rates too early. As long as the economy is growing and not overheating then the Fed should stand still on interest rates. Some FOMC commentators believe the Fed will stand pat on rates until we see several months of strong job growth no matter what kind of economic numbers we see. Earnings haven't been the only thing rising. Merger & Acquisition activity has boomed. The month of January saw more than $70 billion in M&A deals announced versus something in the neighborhood of $220 billion for all of 2003. Speculation of more M&A activity this year, fueled by the expectation that business are ready to open their checkbooks is a big positive for market momentum. Another momentum driver is consumer confidence. There were a number of confidence numbers released last week and the general consensus is that consumer confidence remains high despite the lack of job growth. As we mentioned before the historically low interest rates, a rising stock market and rising home appreciation is going to boost confidence. A confident consumer spends money and that's essential for the economy to recover. One of the challenges we face next is the rising market. It can't rise forever. We've talked about a correction or a consolidation for a while now and it just doesn't seem to occur. This last week's decline is the closet thing we've had to a pull back in weeks and traders bought the dip Thursday and Friday. The NYSE bullish percent data is at 13-year (bullish) extremes. I've never seen it this high. The DJIA bullish percent data is at eight-year highs. The S&P 500 and S&P 100 bullish percent data are both at eight-year extremes. Combine this with the volatility indices at multi-year lows (despite this last week's gain) and everything still screams a market top. Of course it's been flashing a market top for weeks. What is a trader to do? Play the trend, of course. Until it reverses we can only play what the market gives us. Trying to call a top can be painful. However, that doesn't mean we can't use stop losses to protect ourselves and our trading capital! Assuming there are no terrorist events over the weekend, next week is looking bullish. Wall Street will have a number of economic reports to digest and the earnings parade is still in full swing. Look for the ISM report on Monday and the ISM Services index on Wednesday as potential market movers. However, the big report is Friday's nonfarm payrolls numbers. Traders will also want to hear from Cisco Systems (CSCO), the big tech stock earnings event of the week. CSCO is due to report on Tuesday after the bell. Estimates are for 17 cents a share and what they have to say about the current quarter could do a lot to shape the NASDAQ's direction mid-week. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10701 52-week Low : 7416 Current : 10488 Moving Averages: (Simple) 10-dma: 10572 50-dma: 10223 200-dma: 9458 S&P 500 ($SPX) 52-week High: 1155 52-week Low : 788 Current : 1131 Moving Averages: (Simple) 10-dma: 1140 50-dma: 1095 200-dma: 1018 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 795 Current : 1493 Moving Averages: (Simple) 10-dma: 1526 50-dma: 1459 200-dma: 1322 ----------------------------------------------------------------- We have seen a strong rise in volatility over the last week but all of these indices remain near very low levels, which continue to suggest the market is oversold and investors are too complacent. CBOE Market Volatility Index (VIX) = 16.63 -0.51 CBOE Mkt Volatility old VIX (VXO) = 17.05 -0.06 Nasdaq Volatility Index (VXN) = 25.06 -0.14 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.81 702,516 568,347 Equity Only 0.71 580,051 409,448 OEX 1.12 17,433 19,488 QQQ 4.52 22,963 103,698 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 76.9 + 0 Bull Confirmed NASDAQ-100 74.0 - 1 Bull Correction Dow Indust. 90.0 + 0 Bull Confirmed S&P 500 87.0 + 0 Bull Confirmed S&P 100 87.0 + 0 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.97 10-dma: 0.95 21-dma: 0.98 55-dma: 1.03 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 1451 1635 Decliners 1363 1405 New Highs 217 161 New Lows 15 7 Up Volume 1126M 936M Down Vol. 891M 932M Total Vol. 2050M 1900M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 01/27/04 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 Commercials are beginning to hedge their bullishness from two weeks ago but the changes are mild. In the mean time small traders have become even more bullish with a strong decline in open short positions. Commercials Long Short Net % Of OI 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% 01/27/04 417,089 410,930 6,159 0.7% Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 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% 01/27/04 143,089 87,828 55,261 23.9% 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 In contrast to the larger S&P contracts above, commercial traders dramatically increased their long positions in the e-minis but remain overall net short. Small trader pared back some of their exuberance from the previous weeks. Commercials Long Short Net % Of OI 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%) 01/27/04 291,166 334,618 (43,452) ( 6.9%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 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% 01/27/04 154,485 60,556 93,929 43.7% 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 little change to report in the commercial positions while small traders are hedging their bets almost 50/50. Commercials Long Short Net % of OI 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% 01/27/04 43,704 40,951 2,753 3.3% 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 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%) 01/27/04 10,137 10,715 ( 578) ( 2.8%) 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 have reached their most bullish stance in four weeks on the Dow and in perfect timing the small traders are at their most bearish over the last month. Commercials Long Short Net % of OI 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% 01/27/04 16,536 8,404 8,162 32.7% 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 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%) 01/27/04 7,240 12,372 ( 5,132) (26.2%) 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 ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Out the gate they go! This year's 2004 Dow dogs are out of the gate with 2 of this year's "little dogs" leading the pack, while one of the "big dogs" looks to be running the wrong way. But it's a long race until the pack of this year's dogs reach the December 30, 2004, finish line, so investors won't be too quick to discard their tickets as the race is still young. I've had several requests for an update on this year's Dow Dog bullish investment strategy as well as an update on the investment strategy of buying last years (2003) 5 worst performing Dow Industrials components. LEAPS option investors have also asked to see an update on how a LEAPS portfolio has been performing after the first month of the 2004 comes to a close. In the January 4, 2004 Ask The Analyst column "Dow Dogs Barked Loud in 2003" we reviewed the 2003 Dow Dogs, and introduced this year's 10 highest dividend yielding Dow components, which make up 2004's pack of dogs. We also made note of the strategy of buying 2003's worst performing Dow components, where after a bullish 2003, this strategy plays on the thought that those underperformers might outperform in 2004. With one month of trade complete, the Dow Dogs (all 10) are up a modest 0.37%, just barely edging out the Dow Industrials Average ($INDU) gain of 0.33%. It's the little dogs that look to be pulling the sled, with a 1.52% gain for the month of January. The 5-worst performers of 2003 may indeed be deemed "undervalued" as this group of stocks shows a 2.12% gain as January comes to an end. Dow Dogs and 2003's 5-Worst Performers - I finally got around to putting together a portfolio tracker of this years Dow Dogs and divided them between the low priced "little dogs" and high priced "big dogs." I once again placed a hypothetic $1,000 toward each stock. I didn't use fractional shares, so rounded down to have cost just below $1,000 for each component. After one-month of trade General Electric (NYSE:GE) and JP Morgan (NYSE:JPM) are leading the pack's list of gainers, while General Motors (NYSE:GM) looks to be running the wrong way, perhaps exhausted after that 24.8% jump in December 2003. The lower portion of my QCharts portfolio tracker shows last years 5-worst performing Dow components, where investors look hopeful that last year's 26.7% decline in Eastman Kodak (NYSE:EK) can see a turnaround in 2004 as the company looks to restructure its business. On the far right of the above portfolio, I also calculated what a 10% stop loss level of trade would be, based on those stocks' December 31, 2003 closing value. I should note that the column labeled "Dividend" is that stock's dividend YIELD, and not the actual dollar dividend. Due to horizontal space limitations, I had to narrow some of the columns widths. Some investors expressed an interest in these various longer-term investment strategies, but for various reasons (limited capital, wanted full year exposure, etc.) wanted to see a LEAPS portfolio. There were also multiple questions regarding how a LEAPS portfolio should be designed. I'll address some of those questions after we take a quick look at LEAPS options for these types of longer-term investment strategies. Dow Dogs and 2003's 5-Worst Performers - LEAPS Options What I did was place one in the money LEAPS option contract in each of the stocks, where "Basis" was taken from the opening tick on January 2, 2004. On 12/31/03, Altria (MO) closed at $54.42, so I did select the out the money $55 January 2005 call. You will see from the Subtotals, that less capital would be needed for the Dow Dog strategy, the "little dog" strategy or the 5-worst performing strategy. An investor with a longer-term investment horizon would also fully comprehend TOTAL risk with a LEAPS investment strategy, which is defined by the "Cost" of each LEAPS option. Under some catastrophic type of world event, risk might be reduced with a LEAPS option strategy, than holding the underlying stocks themselves. Options were created for the purpose of risk management. One of the most frequently asked questions regarding the design of a LEAPS option portfolio was, "how should it be weighted?" When we compare the LEAPS portfolio to than of the portfolio holding the underlying stocks themselves, you can see how it becomes VERY difficult, to equally weight a leaps portfolio. While the underlying stock portfolio shown at the top was based on a $1,000 investment in each stock, you can see that no position would have had the investor purchasing more than 100 shares (one option contract is equal to 100 shares). However, a LEAPS portfolio might be weighted should a larger sum of capital be placed in one of the Dow Dog strategies, or 5-worst performing Dow component strategies. For example: An investor that would normally be willing to expose $100,000.00 to the Dow Dog strategy (all 10 stocks), but preferred to limit their risk with the use of LEAPS options could do this. Pretend to split the $100,000.00 equally among the 10 Dow dogs underlying stocks, or $10,000 in each component's stock. A lower priced stock like AT&T (NYSE:T) at $20.30 would equate to 492 shares. This would then equate to 4 LEAPS contracts (represents 400 shares), or maximum of 5 LEAPS contracts (represents 500 shares). A higher priced stock like Altria Group (NYSE:MO) at $54.42 would equate to 183 shares. This would then equate to 1 LEAPS contract (represents 100 shares) or maximum 2 LEAPS contracts (represents 200 shares). This would be the PROPER way to weight a LEAPS portfolio under the terms of risk management. It would be INCORRECT to place an equal dollar amount of capital in each LEAP. Another question asked was "what would you do today if I wanted to still participate in this strategy, but didn't at the beginning of January?" First thing I would do is remember that the strategies discussed are "value" oriented strategies, and NO TIMING of purchase is used. That is, the investment discipline is based on the thought that a the Dow Dogs, or those with higher dividend yields are thought to hold value, based largely on the higher dividend yield of each stock. The usual implementation for the strategy is to buy the basket of stocks at the same time. The 5-worst performers of 2003 is also a value-based strategy, where a blue chip Dow component that under performed last year, may be deemed undervalued in 2004, and its price would appreciate as its value becomes recognized versus its peers. Here too, the strategy is to purchase the basket on the same date, with no real timing involved. As such, one idea an investor looking to incorporate the Dow Dog strategy at this point in time, would be the following. General Motors (NYSE:GM) $49.68 has fallen 6.97% for the month of January. I would use this $49.69 level as the "basis" point for buying its shares, with the thought that its shares now hold greater value today, than they did on December 31, 2003 at a higher price of $53.40. $1,000.00 dollars would buy 20 round numbered shares today, where on December 31, 2003, 18 shares would have been purchased. General Electric (NYSE:GE) $33.63 has risen 8.55% for the month of January. Here I would also suggest using current price as the cost basis where $1,000 would equate to 29 shares. I would NOT suggest buying 32 shares at current price, as this would have the base value weighting of the portfolio, for this strategy then out of balance. The question of rebalancing a Dow Dog strategy at each quarter was also asked. I would once again point out that the Dow Dog strategy, or even that of the 5-worst performing strategy is what many consider to be "random" stock selection strategies, where "value" is based either on dividend yield, or prior year under performance. These strategies are also very narrow in focus among just 5 or 10 stocks, where prior discussions regarding rebalancing was based on broader market averages, or asset classes. As such, the strategies discussed here and in the 01/04/04 "Dow Dogs Barked Loud in 2003" article, may find that rebalancing may indeed have the investor selling too much of one of this years biggest winners, while buying one of this years biggest losers. In the most basic form, the Dow Dogs strategy and 5-worst performing stock strategy is that of "buy and hold." Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ACDO Accredo Health Mon, Feb 2 Before the Bell 0.40 ASX Advanced Semi Engin Mon, Feb 2 -----N/A----- 0.08 AFL AFLAC Incorp Mon, Feb 2 After the Bell 0.50 AMX Am Movil, S.A. de C.V Mon, Feb 2 After the Bell 0.47 ANDW ANDREW CORP Mon, Feb 2 Before the Bell 0.07 BBV Bnc Blb Vizcaya ArgentMon, Feb 2 -----N/A----- N/A BSX Boston Scientific CorpMon, Feb 2 Before the Bell 0.16 GIB CGI Grp Mon, Feb 2 -----N/A----- N/A DNB D&B Mon, Feb 2 After the Bell 0.98 EDMC Education Management Mon, Feb 2 After the Bell 0.43 ETR Entergy Mon, Feb 2 Before the Bell 0.37 RE Everest Re Grp, Ltd. Mon, Feb 2 After the Bell 2.15 FMC FMC Corp Mon, Feb 2 After the Bell 0.67 FDG Fording Inc. Mon, Feb 2 -----N/A----- N/A GCI Gannett Mon, Feb 2 Before the Bell 1.31 HCN Health Care REIT, Inc.Mon, Feb 2 Before the Bell 0.74 HUM Humana Inc. Mon, Feb 2 Before the Bell 0.40 IP Intl Paper Co. Mon, Feb 2 Before the Bell 0.18 JP Jefferson-Pilot Mon, Feb 2 After the Bell 0.91 KZL Kerzner Intl Limited Mon, Feb 2 Before the Bell 0.12 MXRE Max Re Capital Ltd. Mon, Feb 2 Before the Bell 0.47 NFS Nationwide Finl Serv Mon, Feb 2 After the Bell 0.71 ONNN ON Semi Corp Mon, Feb 2 After the Bell -0.07 PCAR Paccar Mon, Feb 2 Before the Bell 1.25 PPDI Pharm Prod. Dvlpmnt Mon, Feb 2 After the Bell -0.29 PXD Pioneer Natl Res Co Mon, Feb 2 Before the Bell 0.56 PBI Pitney Bowes Inc. Mon, Feb 2 After the Bell 0.66 RTP Rio Tinto PLC Mon, Feb 2 Before the Bell 2.30 SPP Sappi Limited Mon, Feb 2 Before the Bell -0.04 SRA Serono S.A. Mon, Feb 2 After the Bell 0.19 SOHU SOHU.com Mon, Feb 2 After the Bell 0.27 SPF Standard Pacific Corp.Mon, Feb 2 Before the Bell 2.04 TIN Temple-Inland, Inc. Mon, Feb 2 Before the Bell 0.20 PFG The Principal Finl GrpMon, Feb 2 After the Bell 0.32 TWTC Time Warner Telecom Mon, Feb 2 -----N/A----- -0.24 VMC Vulcan Materials Mon, Feb 2 After the Bell 0.59 ------------------------- TUESDAY ------------------------------ AKZOY Akzo Nobel N.V. Tue, Feb 3 -----N/A----- N/A AEP Am Electric Power Tue, Feb 3 -----N/A----- 0.39 AVZ AMVESCAP PLC Tue, Feb 3 Before the Bell 0.24 AXE Anixter Intl Inc. Tue, Feb 3 Before the Bell 0.27 AVCT Avocent Corp Tue, Feb 3 Before the Bell 0.34 AVP Avon Prod.s Inc. Tue, Feb 3 Before the Bell 1.04 SAN Banco Santander-Chile Tue, Feb 3 -----N/A----- 0.49 BOX BOC Grp PLC Tue, Feb 3 Before the Bell N/A BG BUNGE LIMITED Tue, Feb 3 Before the Bell 0.67 CHRW C.H. Robinson Wrldwde Tue, Feb 3 After the Bell 0.34 CECO Career Education Tue, Feb 3 After the Bell 0.47 CMX CareMark Rx, Inc. Tue, Feb 3 Before the Bell 0.31 CBL CBL & Associates Prop Tue, Feb 3 4:00 pm ET 1.21 CME CHICAGO MERCANTILE Tue, Feb 3 Before the Bell 0.89 CB Chubb Corp Tue, Feb 3 After the Bell 1.28 CSB Ciba Specialty Chem Tue, Feb 3 Before the Bell 0.54 CSCO Cisco Systems Tue, Feb 3 -----N/A----- 0.17 CL Colgate-Palmolive Tue, Feb 3 -----N/A----- 0.63 CU CoCervecerias Unidas Tue, Feb 3 -----N/A----- 0.29 EXBD Corporate Exec Board Tue, Feb 3 After the Bell 0.31 CVH Coventry Health Care Tue, Feb 3 Before the Bell 1.13 EW Edwards Lifesciences Tue, Feb 3 After the Bell 0.41 EMR Emerson Electric Tue, Feb 3 Before the Bell 0.57 EC Engelhard Corp Tue, Feb 3 Before the Bell 0.49 EPD Ent Prod. Partners Tue, Feb 3 Before the Bell 0.17 ERES eResearch Tech Tue, Feb 3 After the Bell 0.13 FDC First Data Tue, Feb 3 Before the Bell 0.54 FSH Fisher Scientific IntlTue, Feb 3 After the Bell 0.53 FLS Flowserve Corp Tue, Feb 3 Before the Bell 0.32 GBP Gables Residl Trust Tue, Feb 3 After the Bell 0.54 GP Georgia-Pacific Tue, Feb 3 Before the Bell 0.47 HCA HCA Tue, Feb 3 Before the Bell 0.60 ICOS ICOS Corp Tue, Feb 3 After the Bell -0.53 N Inco Tue, Feb 3 -----N/A----- 0.33 MAT Mattel Tue, Feb 3 Before the Bell 0.50 MBI MBIA Inc. Tue, Feb 3 Before the Bell 1.22 MKSI MKS Instruments Tue, Feb 3 After the Bell 0.08 MLI Mueller Ind Inc. Tue, Feb 3 Before the Bell 0.31 NBL Noble Energy, Inc. Tue, Feb 3 Before the Bell 0.51 SPOT PanAmSat Tue, Feb 3 -----N/A----- 0.14 PDX Pediatrix Medical Grp Tue, Feb 3 Before the Bell 0.96 PFGC PERFORMANCE FOOD GRP Tue, Feb 3 Before the Bell 0.28 PRGO Perrigo Tue, Feb 3 Before the Bell 0.25 RNR RenaissanceRe Hldgs Tue, Feb 3 After the Bell 1.81 SINA SINA CORP Tue, Feb 3 After the Bell 0.24 PCS Sprint Corp Tue, Feb 3 Before the Bell -0.12 FON Sprint FON Grp Tue, Feb 3 Before the Bell N/A TCO Taubman Centers Tue, Feb 3 After the Bell 0.52 TMX Telefonos De Mexico Tue, Feb 3 After the Bell 0.87 JOE The St. Joe Co Tue, Feb 3 Before the Bell 0.25 TBL The Timberland Co Tue, Feb 3 Before the Bell 0.95 RIG Transocean Inc. Tue, Feb 3 Before the Bell 0.03 TRMB Trimble Navigation Tue, Feb 3 After the Bell 0.26 TYC Tyco Intl Tue, Feb 3 Before the Bell 0.32 UCL Unocal Tue, Feb 3 -----N/A----- 0.62 VOLVY Volvo AB Tue, Feb 3 Before the Bell N/A WHR Whirlpool Corp Tue, Feb 3 Before the Bell 1.75 WTM White Mountains Ins. Tue, Feb 3 After the Bell 5.80 ------------------------ WEDNESDAY ----------------------------- NDN 99 CENTS Only Wed, Feb 4 Before the Bell 0.24 ABN ABN Amro Hldgs Wed, Feb 4 Before the Bell N/A ACE ACE LTD Wed, Feb 4 After the Bell 1.08 AKAM Akamai Tech Inc. Wed, Feb 4 After the Bell -0.01 AXL Am Axle & Manu Hldgs Wed, Feb 4 Before the Bell 0.96 BUD Anheuser-Busch Co, IncWed, Feb 4 -----N/A----- 0.36 WTR Aqua Am Wed, Feb 4 Before the Bell 0.20 ARI Arden Realty Inc Wed, Feb 4 After the Bell 0.63 ASTSF ASE Test Limited Wed, Feb 4 After the Bell 0.09 ASL Ashanti Goldfields Wed, Feb 4 Before the Bell 0.17 BCE BCE Wed, Feb 4 Before the Bell N/A BYD Boyd Gaming Wed, Feb 4 After the Bell 0.19 CFFN Capitol Federal Finl Wed, Feb 4 -----N/A----- 0.11 CD Cendant Corp Wed, Feb 4 After the Bell 0.27 CERN Cerner Corp Wed, Feb 4 After the Bell 0.43 CINF Cincinnati Finl Corp Wed, Feb 4 Before the Bell 0.58 CCK CROWN HLDGS INC Wed, Feb 4 After the Bell -0.11 DCX DaimlerChrysler Wed, Feb 4 -----N/A----- 0.81 ELE Endesa, S.A. Wed, Feb 4 Before the Bell N/A EQR Equity Residential Wed, Feb 4 Before the Bell 0.49 ESS Essex Property Trust Wed, Feb 4 After the Bell 0.98 FLIR FLIR Systems, Inc. Wed, Feb 4 -----N/A----- 0.40 FLR Fluor Corp Wed, Feb 4 After the Bell 0.57 FBR Friedman Bllngs RamseyWed, Feb 4 After the Bell 0.46 GXP Great Plains Energy Wed, Feb 4 After the Bell 0.26 HET Harrah's EntertainmentWed, Feb 4 -----N/A----- 0.53 HIT Hitachi Limited Wed, Feb 4 -----N/A----- N/A LIN Linens 'n Things Inc. Wed, Feb 4 Before the Bell 1.01 MLM Martin Marietta Mat Wed, Feb 4 Before the Bell 0.56 MX Metso Corp Wed, Feb 4 -----N/A----- N/A MCO Moody's Corp Wed, Feb 4 After the Bell 0.53 MPS MPS Grp Wed, Feb 4 Before the Bell 0.04 MUR Murphy Oil Corp Wed, Feb 4 After the Bell 0.58 NOC Northrop Grumman Wed, Feb 4 Before the Bell 1.10 DCM NTT DoCoMo Wed, Feb 4 -----N/A----- N/A OHP Oxford Hlth Plns, Inc Wed, Feb 4 Before the Bell 1.07 PNR Pentair, Inc. Wed, Feb 4 Before the Bell 0.66 PAS PepsiAms Wed, Feb 4 Before the Bell 0.19 PIXR Pixar Animation Stdio Wed, Feb 4 After the Bell 1.23 RL Polo Ralph Lauren CorpWed, Feb 4 Before the Bell 0.47 PP Prentiss Prop Wed, Feb 4 After the Bell 0.75 PLD ProLogis Trust Wed, Feb 4 Before the Bell 0.71 RSG Republic Serv, Inc. Wed, Feb 4 After the Bell 0.35 RMD ResMed Inc. Wed, Feb 4 After the Bell 0.38 RG Rogers Comms Inc. Wed, Feb 4 After the Bell N/A RCN Rogers Wireless Comms Wed, Feb 4 After the Bell N/A ROH Rohm and Haas Co Wed, Feb 4 Before the Bell 0.43 SPI ScottishPower Wed, Feb 4 Before the Bell N/A SEM Select Medical Corp Wed, Feb 4 After the Bell 0.20 SNA Snap-on Incorp Wed, Feb 4 Before the Bell 0.38 SUG Southern Union Co Wed, Feb 4 Before the Bell 0.44 STLD Steel Dynamics Wed, Feb 4 After the Bell 0.20 SEO Stora Enso Wed, Feb 4 -----N/A----- 0.04 TDS Telephone Data Wed, Feb 4 Before the Bell 0.47 ALL The Allstate Corp Wed, Feb 4 After the Bell 1.04 BCO The Brink's Co Wed, Feb 4 Before the Bell 0.32 CAKE The Cheesecake FactoryWed, Feb 4 After the Bell 0.30 TMO Thermo Electron Corp Wed, Feb 4 After the Bell 0.34 TOM Tommy Hilfiger Wed, Feb 4 -----N/A----- 0.13 TMIC Trend Micro Wed, Feb 4 -----N/A----- N/A USM U.S. Cellular Wed, Feb 4 Before the Bell 0.25 UMC United MicroElec Corp Wed, Feb 4 Before the Bell 0.04 UNTD United Online Inc. Wed, Feb 4 Before the Bell 0.17 UNM UnumProvident Corp Wed, Feb 4 After the Bell 0.42 WSH Willis Grp Hldgs Lmtd Wed, Feb 4 After the Bell 0.63 ------------------------- THUSDAY ----------------------------- RKY Adolph Coors, Co. Thu, Feb 5 Before the Bell 0.67 AES AES Corp Thu, Feb 5 Before the Bell N/A AG AGCO Thu, Feb 5 -----N/A----- 0.35 ALA Alcatel Thu, Feb 5 Before the Bell 0.22 APCC Am Power Convers Corp.Thu, Feb 5 After the Bell 0.27 AN AutoNation Thu, Feb 5 Before the Bell 0.28 AVE Aventis Thu, Feb 5 -----N/A----- 0.97 BRL Barr Pharmaceuticals Thu, Feb 5 Before the Bell 0.73 BWA BorgWarner, Inc. Thu, Feb 5 Before the Bell 1.74 BPO BROOKFIELD PPTYS CORP Thu, Feb 5 -----N/A----- 0.56 BOBJ Business Objects Thu, Feb 5 After the Bell 0.27 CPT Camden Property Trust Thu, Feb 5 After the Bell 0.83 CSL Carlisle Co Thu, Feb 5 Before the Bell 0.52 CRE CarrAm Realty Corp. Thu, Feb 5 After the Bell 0.75 CNH CNH Global N.V. Thu, Feb 5 Before the Bell 0.16 CTB Cooper Tire & Rubber Thu, Feb 5 Before the Bell 0.41 TEU CP Ships Thu, Feb 5 Before the Bell 0.35 DASTY Dassault Systemes SA Thu, Feb 5 -----N/A----- 0.58 DB Deutsche Bank Thu, Feb 5 -----N/A----- N/A DVN Devon Energy Corp Thu, Feb 5 Before the Bell 1.45 DTE DTE Energy Co Thu, Feb 5 After the Bell 0.98 EDS Electronic Data Sys Thu, Feb 5 After the Bell 0.11 ENDP Endo Pharmaceuticals Thu, Feb 5 Before the Bell 0.22 EOG EOG Resources Thu, Feb 5 Before the Bell 0.61 EPC Epcos Thu, Feb 5 Before the Bell N/A EOP Eq Office Prop Trust Thu, Feb 5 Before the Bell 0.70 FOE Ferro Corp Thu, Feb 5 Before the Bell 0.11 FLO Flowers Foods Thu, Feb 5 Before the Bell 0.23 IT Gartner Thu, Feb 5 Before the Bell 0.17 GYI GETTY IMAGES INC Thu, Feb 5 After the Bell 0.28 GR Goodrich Corp Thu, Feb 5 Before the Bell 0.26 THX Houston Exploration Thu, Feb 5 Before the Bell 0.87 IDA Idacorp Hldg Thu, Feb 5 Before the Bell 0.19 IGL IMC Global Thu, Feb 5 Before the Bell -0.17 ICI Imperial Chem Ind Plc.Thu, Feb 5 Before the Bell N/A JHF John Hancock Finl ServThu, Feb 5 After the Bell 0.78 JRN Journal Comms, Inc. Thu, Feb 5 Before the Bell 0.21 KSE KeySpan Thu, Feb 5 Before the Bell 0.82 LAF Lafarge North Am Thu, Feb 5 -----N/A----- 1.04 LVLT Level 3 Comms Thu, Feb 5 -----N/A----- -0.32 LPX LP Corp Thu, Feb 5 Before the Bell 1.09 MFC Manulife Finl Corp Thu, Feb 5 During the Market 0.62 MXIM Maxim Integrated Prod.Thu, Feb 5 After the Bell 0.27 MTD Mettler-Toledo Intl Thu, Feb 5 After the Bell 0.71 MHK Mohawk Industries, IncThu, Feb 5 After the Bell 1.42 MWI Moore Wallace Incorp Thu, Feb 5 After the Bell 0.33 NVO Novo-Nordisk Thu, Feb 5 -----N/A----- N/A NUS Nu Skin Thu, Feb 5 -----N/A----- 0.30 ORH Odyssey Re Hldgs Corp.Thu, Feb 5 After the Bell 0.47 IX Orix Corp Thu, Feb 5 -----N/A----- N/A PNP Pan Pacific Retail Thu, Feb 5 -----N/A----- 0.84 PEP PepsiCo Thu, Feb 5 Before the Bell 0.52 POT Potash Corp SaskatchwnThu, Feb 5 During the Market 0.40 PRTL PRIMUS Tlcm Grp Thu, Feb 5 After the Bell 0.12 O Realty Income Corp Thu, Feb 5 -----N/A----- 0.77 DNY RR Donnelley Thu, Feb 5 After the Bell 0.53 R Ryder System, Inc. Thu, Feb 5 Before the Bell 0.57 SC Shll Trnsprt Trdng Co Thu, Feb 5 Before the Bell 0.73 SHW Sherwin-Williams Thu, Feb 5 -----N/A----- 0.45 SPG Simon Property Grp Thu, Feb 5 After the Bell 1.24 SBGI Sinclair Broadcast GrpThu, Feb 5 Before the Bell -0.01 SNN Smith & Nephew Thu, Feb 5 Before the Bell 0.79 HOT Starwood Htls Rsrts Thu, Feb 5 Before the Bell 0.32 TE TECO Energy Inc. Thu, Feb 5 -----N/A----- 0.13 NZT Tlcm Crp New Zealand Thu, Feb 5 -----N/A----- N/A MNY The MONY Grp Inc. Thu, Feb 5 Before the Bell 0.08 TM Toyota Motor Corp Thu, Feb 5 -----N/A----- N/A TQNT TriQuint Semi Thu, Feb 5 After the Bell -0.01 WPI Watson PharmaceuticalsThu, Feb 5 After the Bell 0.48 ------------------------- FRIDAY ------------------------------- BLC Belo Fri, Feb 6 Before the Bell 0.36 CI CIGNA Fri, Feb 6 Before the Bell 1.40 ECL Ecolab Inc. Fri, Feb 6 Before the Bell 0.25 ERICY Ericsson LM Telephone Fri, Feb 6 -----N/A----- -0.09 FFH Fairfax Finl Hldgs Fri, Feb 6 After the Bell 4.22 HME Home Prop, Inc. Fri, Feb 6 Before the Bell 0.76 LZ Lubrizol Fri, Feb 6 Before the Bell 0.41 NTE Nam Tai Elec, Inc. Fri, Feb 6 After the Bell N/A IQW Quebecor World Fri, Feb 6 -----N/A----- 0.43 SILI Siliconix Fri, Feb 6 Before the Bell 0.40 SKM SK Telecom Fri, Feb 6 -----N/A----- N/A SUP Superior Industries Fri, Feb 6 Before the Bell 0.85 VSH Vishay Intertech, Inc.Fri, Feb 6 Before the Bell 0.09 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable HOFT Hooker Furniture Corp, Inc2:1 Jan 30th Feb 2nd RMCF Rocky Mountain Chocolate N/A Feb 1st Feb 2nd PROV Provident Finl 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 DCAI Dialysis Corporation 3:2 Feb 9th Feb 10th MSCC Commercial Capital Bancorp2:1 Feb 9th Feb 10th TASR TASER International, Inc. 2:1 Feb 10th Feb 11th ONFC Onedia Financial Corp 3:1 Feb 10th Feb 11th NFLX Netflix Inc. 2:1 Feb 11th Feb 12th -------------------------- Economic Reports This Week -------------------------- The first week of February is a busy one with a very full week of economic reports. Plus investors will still be digesting more corporate earnings reports. ============================================================== -For- ---------------- Monday, 02/02/04 ---------------- Personal Income (BB) Dec Forecast: 0.2% Previous: 0.5% Personal Spending (BB) Dec Forecast: 0.5% Previous: 0.4% Construction Spending (DM) Dec Forecast: 0.8% Previous: 1.2% ISM Index (DM) Jan Forecast: 64.0 Previous: 63.4 ----------------- Tuesday, 02/03/04 ----------------- Auto Sales (NA) Jan Forecast: 5.9M Previous: 5.8M Truck Sales (NA) Jan Forecast: 7.9M Previous: 8.9M ------------------- Wednesday, 02/04/04 ------------------- ISM Services (DM) Dec Forecast: 60.0 Previous: 58.0 Factory Orders (DM) Dec Forecast: 0.3% Previous: -1.4% ------------------ Thursday, 02/05/04 ------------------ Initial Claims (BB) 01/30 Forecast: 342K Previous: 342K Productivity-Prel (BB) Q4 Forecast: 3.4% Previous: 9.4% ---------------- Friday, 02/06/04 ---------------- Nonfarm Payrolls (BB) Jan Forecast: 180K Previous: 1K Unemployment Rate (BB) Jan Forecast: 5.7% Previous: 5.7% Hourly Earnings (BB) Jan Forecast: 0.2% Previous: 0.2% Average Workweek (BB) Jan Forecast: 33.8 Previous: 33.7 Consumer Credit (DM) Dec Forecast: $6.5B Previous: $4.0B Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 02-01-2004 Sunday 2 of 5 In Section Two: Watch List: Mostly Three-lettered Stocks Dropped Calls: CSC, MBI Dropped Puts: ADBE, NSM ************************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 ********** Mostly Three-lettered Stocks ___________________________________________________________________ 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. ___________________________________________________________________ UnitedHealth Group - UNH - close: 60.88 change: -0.03 WHAT TO WATCH: We strongly considered adding UNH to the OI call list this weekend. The only reason it didn't make was due to time constraints. The stock has been very strong, building on a series of higher lows. The recent bounce from its 10-dma has pushed it to new all-time highs. After the company's recent upside earnings guidance shares are likely to attract steady buying interest. Its P&F chart suggests a $77 price target. Chart= --- Aetna Inc - AET - close: 70.00 change: +0.01 WHAT TO WATCH: AET is another play in the insurance sector that short-term traders may want to watch. We like the bounce from previous resistance at $68.00 and the stock could produce a pre- earnings run up ahead of its February 12th announcement. Chart= --- Dow Chemical - DOW - close: 41.95 change: +0.69 WHAT TO WATCH: Technical oscillators are turning bullish on this issue after its recent earnings report. Shares have bounced from the $40 level, just above its simple 50-dma. Traders might want to consider a trigger above $42.00 or 42.50 as a bullish entry point. Chart= --- Golden West Financial - GDW - close: 103.73 change: +0.79 WHAT TO WATCH: GDW has been consolidating under resistance at 104 for three months. The stock pierced this resistance on Wednesday but couldn't hold it. Now, after Thursday's bounce from the simple 50-dma, GDW looks ready for another try. Traders can use a move over $104 as a trigger to go long. More conservative traders may want to wait for a move over $105.30. Chart= --- Yahoo! - YHOO - close: 46.98 change: +0.89 WHAT TO WATCH: Tech traders might want to give YHOO another look. JPM just upgraded the stock on Friday to an "over weight" and added it to their Focus list. We like the big intraday bounce from Thursday's low off its simple 50-dma. This looks like a bullish entry point but if you're looking for more momentum wait for YHOO to clear the $48.00 or 48.50 level. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- PD $75.67 +2.27 - The rebound on Friday looks like a tradable entry point for a run back towards the $80 level. Friday's move is also a bullish engulfing candlestick. DVA $40.12 +0.18 - The bullish wedge and slow trend of lower highs is trying to produce a bullish breakout over 40.00-40.50. Look for a possible pre-earnings run ahead of its Feb. 11th announcement. AIG $69.45 +0.18 - AIG is another insurance stock that has been offering traders decent relative strength. A move over $70.75 would be a strong breakout over resistance. Look for earnings on Feb. 11th. ************************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 ^^^^^ Computer Sciences Corp - CSC - cls: 44.65 chng: -0.60 stop: 43.50 The past week has been pretty disappointing for CSC bulls, as the stock surged higher on Monday and has been steadily losing ground ever since. We had expected the $44.50-45.00 area to be strong support, but the bounce off the lows on Friday (near $44.25) was far too feeble to be of much encouragement. By the end of the day, CSC couldn't even get back to $45 and with the close under the 20-dma ($45.06), it looks like a serious test of the $43.50 lows from earlier in the month is in the cards. Basically, the stock is showing more weakness than we like to see from our bullish plays, so we're going to cut our losses early. Any rebound on Monday should be used to effect a more favorable exit from the play. Picked on January 25th at $46.54 Change since picked: -1.89 Earnings Date 2/11/04 (confirmed) Average Daily Volume = 1.22 mln --- MBIA Inc. - MBI - close: 63.00 chg: +0.27 stop: 59.99 We are a little surprised that MBI never dipped back toward previous resistance at $60.00-61.00 but the lack of weakness may be a good sign for investors. Unfortunately, as traders (not investors) we're going to exit the play ahead of MBI's February 3rd earnings report. However, keep an eye on MBI and the rest of the insurance group, which has been one of the better performers this past week. MBI's estimates are for $1.22 a share Picked on January 20 at $62.93 Change since picked: + 0.07 Earnings Date 02/03/04 (confirmed) Average Daily Volume: 572 thousand Chart = PUTS ^^^^ Adobe Systems - ADBE - close: 38.30 change: +2.17 stop: 39.50 The raised guidance Thursday night was just too much for the bears and ADBE rose right up to the $39 level before settling back a bit at the end of the day to close just over $38. The bearish trend was looking pretty encouraging at the close on Thursday with the close at new multi-month lows. But Friday's action looks like a potential change in trend as ADBE closed above the 20-dma for the first time in more than 3 weeks. Rather than risk a real breakout next week, let's pull the plug now and focus our efforts elsewhere. Picked on January 11th at $37.12 Change since picked: +1.18 Earnings Date 3/11/04 (unconfirmed) Average Daily Volume = 3.44 mln Chart = --- National Semiconductor - NSM - cls: 38.47 chng: +1.56 stop: 39.00 Doing an abrupt about-face on Friday, NSM erased all its losses from the rest of the week, ending back over $38 after tacking on more than 4%. We set our entry trigger below the $36 level to avoid just such an adverse move after the play went live. Taken together with the daily Stochastics now starting to turn up from deep within oversold territory, Friday's price action looks like a strong statement that our anticipated breakdown is not going to materialize. We're dropping coverage this weekend and since it is untriggered, we can do so knowing nobody got hurt. Picked on January 27th at $36.73 Change since picked: +1.74 Earnings Date 3/04/04 (unconfirmed) Average Daily Volume = 3.40 mln Chart = *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 02-01-2004 Sunday 3 of 5 In Section Three: Current Calls: DHR, ESRX, GENZ, HSIC, MWD New Calls: ABK, IBM, IMDC Current Put Plays: KSS, QLGC New Puts: EASI ************************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 ****************** Danaher Corp - DHR - close: 91.55 cls: +1.57 stop: 87.99 Company Description: Danaher, a leading industrial company, designs, manufactures, and markets innovative products, services and technologies with strong brand names and significant market positions. Driven by strong core values and a foundation provided by the Danaher Business System, Danaher's associates are pursuing a focused strategy aimed at creating a premier global enterprise. (source: company website) Why We Like It: (original play from Thursday's newsletter) Danaher, Danaher...hmm...probably not familiar with its name but you might know Danaher for its Craftsman tool line it makes for Sears. The company announced earnings this morning and they were better than expected. Net income was $1.06 a share but after backing out a one-time 9-cent gain its 97 cent results beat estimates by 2 cents. Revenues were up nearly 17% to $1.49 billion, also better than estimates. We normally don't like to play a stock this close to earnings, even after the report, but shares offered a perfect bounce from the bottom of its rising channel, technical support at its 50-dma and price support at $88.00. What could propel investors to buy the stock now that the earnings news is out? DHR plans to complete its acquisition of two medical device companies in the first quarter (Radiometer and Gendex) and the company raised its earnings guidance for the first quarter. DHR had previously guided Q1 earnings to 72-77 cents a share. Analysts had them pegged at 78 cents. Now DHR believes its first quarter net income will be in the 76 to 81 cent range. We do feel the need to mention that while this looks like a relatively lower risk entry near support DHR's P&F chart isn't offering the bulls much to go on. Its bullish vertical count of $87 has already been met and its P&F chart is showing a bearish high-pole warning. We want to protect ourselves and make sure we're catching DHR on a bounce so we plan to use a TRIGGER at $91.01 to open the play. Until DHR trades at or above this level we'll remain on the sidelines. Once activated we'll start the play with a stop loss just below today's low at $87.99. Our first target is $96 but if the channel holds up DHR might be able to hit $100. FYI: DHR's last split was in June of 1998. Shares are well above their previous split price so there is the possibility of DHR's management announcing a split as it approaches $100. Weekend Update: DHR is following our script with a strong rebound on Friday to confirm Thursday's bounce off its 50-dma and the $88.00 level. The move up and through the $91.00 level hit our TRIGGER and opened the play. Our stop loss is effectively under Thursday's low. The stock still looks good here but if the markets show any weakness on Monday a dip to $90 might offer a slightly improved entry point. Suggested Options: Short-term traders can choose the February or March options and longer-term players might want to look at June or Septembers. Our preferred strikes would be the March calls with the March 90s as our favorite. BUY CALL FEB 90 DHR-BR OI=1269 at $3.60 SL=1.80 BUY CALL MAR 90*DHR-CR OI= 863 at $4.90 SL=2.50 BUY CALL MAR 95 DHR-CS OI= 864 at $2.35 SL=1.15 Annotated Chart: Picked on January 30 at $91.01 Change since picked: + 0.54 Earnings Date 01/29/04 (confirmed) Average Daily Volume: 841 thousand Chart = --- Express Scripts - ESRX - close: 69.18 change: -0.31 stop: 65.00 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: The price action in shares of ESRX has been frustratingly slow over the past two weeks, as the stock continues to grind its way higher. The good news is that the small-range up and down action is continuing in the right direction - up. Support appears to be firming up nicely in the $67.50-68.00 area and a dip and rebound from that level looks good for new entries into the play. The fact that price hasn't been able to sustain a move over $70 though, leaves us with the nagging concern that perhaps a pullback to strong support in the $66.50 area may be necessary to recharge the bulls' batteries. We're still leaning to entering on pullbacks rather than breakouts. So long as the dip is met by buying interest and is above critical support at $66, the trend still looks bullish. Maintain stops at $65, right at the 50-dma. 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. 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= 917 at $5.00 SL=3.00 BUY CALL FEB-70 XTQ-BN OI=1940 at $1.70 SL=0.75 BUY CALL MAR-70*XTQ-CN OI= 348 at $2.65 SL=1.25 Annotated Chart of ESRX: Picked on January 13th at $68.32 Change since picked: +0.86 Earnings Date 2/24/04 (confirmed) Average Daily Volume = 1.21 mln --- Genzyme Corp. - GENZ - close: 54.78 change: -0.88 stop: 52.00 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: What is it about that $55 price level? GENZ seems determined to see just how many times it can cross over that threshold before making up its mind about which way to go next. Support looks firm at $54, with buyers eagerly supporting the stock on pullbacks to that area. But at the same time, resistance seems equally firm near $56, with each foray to that level meeting with selling pressure. Eventually this range will break, and we think it will be to the upside -- otherwise, what would be the point of continuing coverage? Note how the last dip found solid support at the 10-dma ($53.98)-- another dip to that average certainly seems viable as a fresh entry. We still don't like the idea of momentum entries into strength due to solid resistance in the $57-58 area. Buy the dip and hold on through the gyrations as GENZ makes its way through that resistance. There's just under 3 weeks until the company reports earnings, so if the bulls are serious about taking the stock higher ahead of that report, they'll have to get moving next week. Maintain stops at $52. 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=2410 at $1.80 SL=0.90 BUY CALL FEB-60 GZQ-BL OI= 884 at $0.30 SL=0.00 BUY CALL MAR-55*GZQ-CK OI= 414 at $2.70 SL=1.25 BUY CALL MAR-60 GZQ-CL OI= 608 at $0.95 SL=0.50 Annotated Chart of GENZ: Picked on January 20th at $53.00 Change since picked: +1.78 Earnings Date 2/19/04 (unconfirmed) Average Daily Volume = 2.84 mln --- Henry Schein - HSIC - close: 70.15 chg: -0.42 stop: 67.50 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: We still believe that HSIC is ready for its next leg higher. After weeks of consolidation between $65 and $70 the stock finally broke out to the upside above resistance several days ago. Now all we need to see is some follow through by investors. The recent acquisition news for some European dental product distributors was accepted well by the markets and the company signed another distribution deal just this past week. The play is not without its caveats. We did note that Bank of America had downgraded the stock to a "neutral" upon hitting its $70 price target. Coincidentally (or not) that also happened to be HSIC's p&f chart vertical price objective ($70). Conservative traders can look for a little more momentum and wait for HSIC to trade back above the $71.00 or 71.50 levels. 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 $5.60 SL=3.25 BUY CALL FEB 70 HQE-BN OI=541 at $1.75 SL=0.90 BUY CALL MAR 65 HQE-CM OI= 0 at $6.10 SL=4.00 BUY CALL MAR 70 HQE-CN OI= 19 at $2.65 SL=1.30 BUY CALL MAR 75 HQE-CO OI=102 at $0.75 SL= -- BUY CALL APR 70*HQE-DN OI=542 at $3.30 SL=1.65 BUY CALL APR 75 HQE-DO OI=258 at $1.25 SL=0.65 Annotated Chart: Picked on January 22 at $70.65 Change since picked: - 0.50 Earnings Date 03/04/04 (unconfirmed) Average Daily Volume: 334 thousand Chart = --- Morgan Stanley - MWD - close: 58.21 chg: +0.37 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: Whew! It's been a tough couple of weeks for MWD but support at its simple 50-dma held up and shares look poised for another rally higher. The XBD broker-dealer index, which had been exceptionally strong for so long, finally hit some profit taking in the last several days and that weighed heavily on MWD. Fortunately, the M&A speculation that sparked the most recent MWD breakout should become a year-long undercurrent for the markets. In Thursday's newsletter we made note of the media buzz over American Express and MBNA in a credit card deal. Last September 17th a court ruled on an anti-trust case against Visa and Mastercard saying they could not prevent their member banks from issuing competitors cards. The AXP-MBNA deal was news because it was the first of probably several rollouts for AXP and its signature credit card, which means more licensing revenues. What many reporters failed to mention is that MWD has a competing credit card with its Discover operations. This means MWD should also benefit from this new outlet of banks looking to flesh out their credit business. Of course Visa and MC are appealing the September decision so the battle isn't over yet. The recent pull back in shares of MWD is offering a decent entry point for new bullish positions for anyone brave enough to take it. If you prefer to see a bit more momentum before committing any capital look for MWD to trade back above the $59.00 level. We're going to leave our stop loss at 56.75. 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= 1320 at $3.80 SL=2.10 BUY CALL FEB 60 MWD-BL OI= 8423 at $0.75 SL= -- BUY CALL MAR 55 MWD-CK OI= 314 at $4.50 SL=2.25 BUY CALL MAR 60 MWD-CL OI= 1538 at $1.60 SL=0.80 BUY CALL APR 60 MWD-DL OI=21266 at $2.05 SL=1.05 BUY CALL APR 65 MWD-DM OI=10082 at $0.60 SL= -- Annotated Chart: Picked on January 15 at $59.81 Change since picked: - 1.60 Earnings Date 03/18/04 (unconfirmed) Average Daily Volume: 3.8 million Chart = ************** NEW CALL PLAYS ************** Ambac Financial Group - ABK - close: 74.77 chg: +1.18 stop: 71.99 Company Description: Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, a leading guarantor of public finance and structured finance obligations, has earned triple-A ratings, the highest ratings available from Moody's Investors Service, Inc., Standard & Poor's Ratings Services, Fitch, Inc. and Rating and Investment Information, Inc. (source: company press release) Why We Like It: January aside, the last several months for ABK have been nothing but boring! The stock traded sideways for six months after a strong six-month run in the first half of 2003. It appears that ABK has finished digesting its 2003 gains and its ready to make some for 2004. The stock sprang to life in mid-January after rival MGIC announced earnings that were much better than expected. Investors suddenly ramped up shares of ABK in anticipation of stronger earnings but the stock failed at resistance of $75.00 just as the major averages were slowing down their own ascents. Fortunately the company didn't disappoint and beat earnings estimates by 5 cents. Net income more than doubled from last year with $1.44 a share versus 59 cents. Revenues soared last quarter, up 92% to $338 million, which is above the $318 million estimate. The company said it expects to keep a 14-16 percent growth rate. With strong earnings news and a strong sector (IUX) to back it up we think ABK can run. Currently its P&F chart is projecting an $89 price target. We're going to target a quick move to $80 and then re-evaluate. Please note that we would normally use a trigger above resistance in the 75.00-75.20 range but this time we're going to rely on the bull flag breakout as our signal. Feel free to use a trigger to confirm the breakout if that suits your risk tolerance. We're going to initiate the play with a stop loss at $71.99. Suggested Options: Short-term traders can use February or March strikes. February calls expire in three weeks so we're going to suggest the March calls. The March 70s and 75s are our favorites. BUY CALL FEB 70 ABK-BN OI=658 at $5.00 SL=3.25 BUY CALL FEB 75 ABK-BO OI=333 at $1.20 SL=0.65 BUY CALL MAR 70 ABK-CN OI= 0 at $5.50 SL=3.50 BUY CALL MAR 75 ABK-CO OI= 67 at $2.00 SL=1.00 Annotated Chart: Picked on February 1 at $74.77 Change since picked: + 0.00 Earnings Date 01/28/04 (confirmed) Average Daily Volume: 476 thousand Chart = --- Int'l Bus. Machines - IBM - cls: 99.23 chng: +1.22 stop: 95.50 Company Description: International Business Machines uses advanced information technology to provide customer solutions. The company provides value to its customers through a variety of solutions including technologies, systems, products, services, software and financing. IBM's three hardware product segments are comprised of Technology, Personal Systems and Enterprise Systems. Other major operations consist of a Global Services segment, a Software segment, a Global Financing segment and an Enterprise Investments segment. Why we like it: It has been a very constructive month for shares of Big Blue. After consolidating the initial breakout over $90 in September, IBM broke over $90 in a very enthusiastic acceptance of the company's earnings report in mid-January. And the bulls didn't quit running until creeping within inches of the $100 level on Monday. After closing at $99.85, IBM succumbed to some profit taking with the rest of the broad market and pulled back all the way to the 10-dma ($97.32) before yesterday's rebound and today's strong rally that took the stock back over $99. What's encouraging about the bounce is that it occurred near the top of the gap from April of 2000. That's right, IBM has closed that big gap and is now finding support at the bottom of that gap. Big Blue looks ready to run and the first push through the century mark will be the equivalent of the starter's gun. We'll use an entry trigger at $100 and recommend entries on the initial breakout. Of course, a subsequent pullback to confirm support in the $98-99 area looks good as an entry point as well. Once solidly over $100, there's some mild resistance near $103 and then stronger resistance near $106. But our goal will be for a move to really strong resistance at $110. Taking a look at the PnF chart, we can see just how strong that breakout over the $94- 95 resistance was, as it created a triple top breakout. Looking a bit further back, we can see that big vertical column of X's from August and September that gives a bullish vertical count of $122, so apparently we aren't being overly aggressive with our $110 target. We'll place our initial stop at $95, which will be under the 20-dma ($94.82) by Monday. Suggested Options: Shorter Term: The February $100 Call will offer short-term traders the best return on an immediate move, as it will be at the money when the play is triggered. Longer Term: Aggressive longer-term traders can use the March $100 Call, while the more conservative approach will be to use the March $95 strike. Our preferred option is the March $100 strike, which will be at the money and should provide sufficient time for the play to move in our favor. BUY CALL FEB- 95 IBM-BS OI=17298 at $4.70 SL=2.75 BUY CALL FEB-100 IBM-BT OI=30309 at $1.30 SL=0.60 BUY CALL MAR- 95*IBM-CS OI= 1569 at $5.50 SL=3.50 BUY CALL MAR-100 IBM-CT OI= 7113 at $2.40 SL=1.25 Annotated Chart of IBM: Picked on February 1st at $99.23 Change since picked: +0.00 Earnings Date 4/15/04 (unconfirmed) Average Daily Volume = 5.51 mln --- Inamed Corp - IMDC - close: 51.54 chg: +1.21 stop: 48.00 Company Description: Inamed is a global healthcare company with over 25 years of experience developing, manufacturing and marketing innovative, high-quality, science-based products. Current products include breast implants for aesthetic augmentation and for reconstructive surgery; a range of dermal products to treat facial wrinkles; and minimally invasive devices for obesity intervention, including the LAP-BAND. System for morbid obesity. (source: company press release) Why We Like It: Bears are having a hard time keeping this stock down. IMDC was a huge winner in 2003 as the stock soared on higher and higher revenues. The improving economy and a confident consumer rekindled the fire for cosmetic surgery and breast augmentation. IMDC made a number of headlines in October of last year after presenting data to an FDA panel for the reintroduction of silicone implants. After much controversy the FDA panel decided it needed more information and shares of IMDC deflated. After weeks of consolidation the stock gapped even lower on January 8th after receiving a "not approvable" letter from the FDA for its premarket approval application. As many analysts pointed out this didn't kill the company's chances for approval but merely sent them back to the starting line. Since most analysts had not yet begun to assume any revenues from silicone implants in their 2004 estimates for IMDC investors suddenly realized that shares looked attractive. The "not approvable" gap down on January 8th found support near $42.00 just above its simple 200-dma. The stock tested it again two days later when it issued an earnings warning for fiscal 2004. Surprisingly shares rebounded and several days later IMDC has completely recouped its losses and was struggling to breakout above resistance at $50.00 and its 50-dma. Three days ago IMDC broke out above this level after its rival Mentor Corp (MNT) announced earnings that were much better than expected. At least one analyst is now raising estimates due to renewed growth in the breast implant market. The breakout for IMDC looks very tempting and shares could produce their own pre-earnings run up, especially after MNT's positive surprise. We do expect resistance near the 55.00-55.25 region but bulls have more than three weeks to break through it. Currently its P&F chart points to a $70.00 price target but we'd be happy with a move toward its old highs near 59.00. We'll start the play with a stop loss at 48.00, although more conservative traders might be able to get away with a tighter stop. Suggested Options: We don't plan to hold over the Feb. 24th earnings report but that date is not confirmed. We suggest the March or April calls. Our favorites are the March 50s and 55s. BUY CALL MAR 50 UZI-CJ OI=2503 at $4.00 SL=2.20 BUY CALL MAR 55 UZI-CK OI=5020 at $1.60 SL=0.80 BUY CALL APR 50 UZI-DJ OI= 514 at $4.90 SL=2.70 BUY CALL APR 55 UZI-DK OI= 479 at $2.60 SL=1.35 Annotated Chart: Picked on February 01 at $51.54 Change since picked: + 0.00 Earnings Date 02/24/04 (unconfirmed) Average Daily Volume: 682 thousand Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Kohls Corp - KSS - close: 44.30 change: +0.90 stop: 45.05 Company Description: Based in Menomonee Falls, Wisconsin, Kohl's is a family-focused, value-oriented specialty department store offering moderately priced national brand apparel, shoes, accessories and home products. The company operates 542 stores in 36 states. (source: company press release) Why We Like It: Our bearish technical play in KSS was moving in our direction until one analyst suggested "aggressive accumulation" on Friday. Comments like that tend to get in the way of any big declines. We originally picked KSS last Tuesday because shares were failing at the top of its descending channel once again. It offered a lower-risk entry point at resistance and the stock was moving as planned. Unfortunately an Oppenheimer analyst was quoted on Friday with bullish comments for Kohl's. His belief was that KSS might turn things around this spring and its terrible performance last year will give it easy year over year comparisons. KSS popped higher on Friday morning but stalled at $44.81, near its high from Tuesday. So the question now is will investors buy the stock on hopes of a spring turnaround? Or will they continue to sell strength. Right now KSS still has price resistance at $45 and technical resistance at its declining 50-dma. We're going to keep the play open but if you're feeling cautious consider waiting for a move back below the $43.50 level. Suggested Options: KSS earnings are in late February and we don't plan to hold over the event. That being said our favorite strikes would be the February puts but March and Aprils are available. BUY PUT FEB 45*KSS-NI OI= 8307 at $1.85 SL=0.95 BUY PUT FEB 40 KSS-NH OI=11794 at $0.30 SL= -- BUY PUT MAR 45 KSS-OI OI= 1375 at $2.65 SL=1.35 BUY PUT MAR 40 KSS-OH OI= 1684 at $0.80 SL= -- Annotated Chart: Picked on January 27 at $44.05 Change since picked: + 0.25 Earnings Date 02/26/04 (unconfirmed) Average Daily Volume: 4.6 million Chart = --- QLogic Corp. - QLGC - close: 44.99 change: +0.51 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: As we reflected on Thursday, the $44 level appeared on second glance to be a more formidable support area than we had at first assumed. Sure enough, QLGC caught a bounce off of that level on Friday coming right back up to former support near $45 by the end of the day. A look at the intraday chart shows the stock trading in a steady descending channel since the sharp post-earnings drop a couple weeks ago. That gives us another way to gauge entries into the play on the failed bounces. The top of that channel is at $45.60, helping to explain why Friday's bounce attempt ran into resistance very near that level before drifting lower into the close. The best approach for new entries will be to target rollovers near the top of this channel (below $46) ahead of a renewed assault on the $44 support level. Once that support gives way, then we can start looking for a drop to the $41-42 area. We're cautiously lowering our stop to $47.50, which is just above last Monday's intraday high and what should be strong resistance at $47. 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=6001 at $1.65 SL=0.75 BUY PUT FEB-42 QLC-NV OI=2442 at $0.75 SL=0.40 BUY PUT MAR-45*QLC-OI OI= 424 at $2.60 SL=1.25 BUY PUT MAR-42 QLC-OV OI= 717 at $1.55 SL=0.75 Annotated Chart of QLGC: Picked on January 22nd at $45.25 Change since picked: -0.26 Earnings Date 4/14/04 (unconfirmed) Average Daily Volume = 3.95 mln ************* NEW PUT PLAYS ************* Eng. Support Systems - EASI - cls: 50.00 chng: +1.09 stop: 54.00 Company Description: Engineered Support Systems, Inc. is a holding company for a group of subsidiaries that operate as suppliers of military electronics, equipment and logistics services. It has nine wholly owned subsidiaries: Systems and Electronics Inc., Engineered Air Systems, Inc., Keco Industries, Inc., Radian Inc., Engineered Coil Company, Engineered Electric Company, Universal Power Systems, Inc., ESSIbuy.com and Engineered Specialty Plastics, Inc. In April 2003, the Company sold its plastic products segment to a private equity group. The company supplies high-tech integrated military electronics, support equipment and logistics services to the United States armed forces and certain foreign militaries. EASI also engineers and manufactures air- handling and heat-transfer equipment, and material-handling equipment. Products are manufactured within three operating segments: light military support equipment, heavy military support equipment and electronics and automation systems. Why we like it: Despite beating earnings estimates in early December and raising guidance, EASI has had a pretty miserable six weeks since then. Gapping higher on the news initially, the stock probed above the $60 level and then got hit with a serious round of selling on 12/15-16, resulting in an intraday selloff that took price nearly $11 below its peak on December 15th. That two day selloff broke the back of the bullish trend that had prevailed up until that point and the stock has been mired in a persistent downtrend ever since. The next blow to the bulls came on January 12th, as the stock broke down through the 50-dma on a strong rise in volume. But the bulls did step in to prop the stock up just above $48, preventing a more severe selloff. It looks like that more severe selloff may be at hand though. EASI got pummeled lower on Wednesday and Thursday last week, hitting an intraday low of $48.58, just above the 100-dma ($48.08) before giving a feeble bounce on Friday. So far, support is holding, but it really looks like it is only a matter of time until it gives way, especially with all the shorter-term moving averages perched overhead as resistance. Once EASI breaks its 100-dma, things could get ugly in a hurry, a story that is reflected on the PnF chart as well. EASI is already on a Sell signal with a $40 price target, but a trade of $48 would generate a fresh Sell signal and remove the last line of support until $45. That support can be seen on the standard price chart as well, but it is clear that the stronger support level is at $40 -- the same level as the PnF bearish price target. We'll use a trigger on the play at $48, and recommend entries on the initial breakdown. Should EASI bounce after that breakdown, a rollover from below $50 would make for a solid entry as well. Our initial stop is set at $54, so as to keep the stop from being hit until after our trigger is satisfied. Once triggered, we'll lower the stop to $52.50, just above what should then be firm overhead resistance at $52. Suggested Options: Aggressive short-term traders can use the February 45 Put, while those with a more conservative approach will want to use the February 50 put. Our preferred option is the March 45 strike, as it provides more time until expiration. BUY PUT FEB-50 UFE-NJ OI=381 at $2.10 SL=1.00 BUY PUT FEB-45 UFE-NI OI=270 at $0.65 SL=0.30 BUY PUT MAR-45*UFE-OI OI=167 at $1.45 SL=0.75 Annotated Chart of EASI: Picked on February 1st at $50.00 Change since picked: +0.00 Earnings Date 3/09/04 (unconfirmed) Average Daily Volume = 375 K ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 02-01-2004 Sunday 4 of 5 In Section Four: Leaps: Was That It? Traders Corner: Sitting Bull Ain’t Gettin’ Up Real Soon ************************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 ***** Was That It? By Mark Phillips mphillips@OptionInvestor.com It felt like a pullback in the overall market was never going to arrive, as the rally that began in late November just seemed to have more lives than my cat. But Tuesday's measured pullback the day after the DOW notched another new high turned into a real selloff on Wednesday following the Fed's change of language with respect to interest rate policy. Whether the market reaction was overdone or not remains to be seen, but the interpretation was definitely a shortening of the period of time that we can expect to see interest rates remaining at their current multi-decade lows. The slight change in language didn't just roil the equity markets, as there were shifts all across the spectrum. Gold and gold shares got sold heavily on Thursday, and the Dollar Index (DX00Y) actually surged almost to the 88 level, putting pressure on foreign currencies. The reaction in the bond market may have been the most violent, with the initial reaction to the FOMC release producing a more than 2 point plunge in the 30-year bond price, resulting in the yield spiking from 4.9% to as high as 5.06% -- all in the space of 15 minutes. These extreme moves all relaxed somewhat into the end of the week and we're now left with the question of "What next?" Clearly, the earnings season has progressed quite nicely for the bulls, despite the realization that a lot of the improvements have come from currency translation. There is no question the economy has improved, at least according to the official statistics. The nagging problem is still on the employment front and all eyes will be on next Friday's jobs report to see if the government has been able to resurrect those missing jobs from last month's report. Call my a cynic, but even if they don't exist, I expect to see them show up in the report on Friday. If they don't, the market reaction could be unpleasant. Speaking of unpleasant, Friday's GDP report certainly didn't inspire the bulls, coming in short of official estimates by more than 20% and way short of the overly optimistic whisper numbers. There's no doubt in my mind that the economy HAS improved over the past 12 months and that has clearly been reflected in the rise in the markets. Where I disagree with the market is in its degree of enthusiasm. Valuations are back at nosebleed levels in terms of P/E ratios and dividend yields, yet I sure wouldn't call this a robust or vibrant economy. It is just slowly improving and I think the market action has dramatically overshot the mark to the upside. But so long as the FED remains accommodative and they keep running the printing presses night and day, liquidity will continue to fuel the market's rise. As a side note, it should be clear that it is this liquidity that is at the very heart of the continued housing boom (the recent statistics notwithstanding) and the torrid pace at which home prices continue to rise. I've made no secret of the fact I believe there's a major day of reckoning ahead for equities, bonds and real estate and the tipping point may come when interest rates begin their inevitable ascent. The long-term picture is that equities are in a secular bear market, but short-term we're in a cyclical bull market -- one that is far more powerful than I initially expected. I've seen numbers floating around over the past week that call for the NASDAQ back over 3000 and the DOW breaking over 12,000 by the end of the year. Do I believe it? No. But then a few short months ago, I didn't believe the DOW could better its 2002 highs either. The moral of the story is that the market can remain irrational far longer than we can remain solvent. I'll continue to take bullish and bearish trades as they appear, but until the VIX shakes off its lethargy and climbs well above 20, I'll view the bullish case as very much intact. That means I'll play more cautiously on the bearish side of the ledger and be more stingy with my stops and more aggressive with harvesting gains. For me, the real measure of a significant change in the character of the market will be found at the 50-dma. When the DOW, NASDAQ and S&P 500 all close below their respective 50-dmas, we'll have confirmation that the tide has changed. Until that happens, we can play both sides, but with a bias towards buying the dips on bullish play candidates. Portfolio: SBUX - Alright, this is just starting to get a bit eerie, don't you think? SBUX gets downgrades and it rallies to new highs. It announces earnings and rallies to new highs. The broad market sees its best bout of profit taking in months and SBUX rallies to new highs, and on very strong volume too. We're getting very close to that initial target of $37, and conservative traders should be looking at harvesting some gains up here. It doesn't mean you can't buy back in on the next dip, but this is just a matter of money management with our 2005 LEAP now up almost 100%. This rally in SBUX has essentially continued without a serious pullback since last May, and I can't shake the feeling that it could be lurking just around the corner. Without question, if SBUX continues its rally up to the $40 level before a serious correction, we'll be taking a pro-active exit into that strength. Note that our stop creeps up to $33 this weekend, which will be under the 50-dma on Monday. Traders unwilling to give that much back if some weakness does appear might want to use a tighter stop just under $35. DJX - As though the pros were gunning for our stops, DJX closed a nickel over its stop on Monday -- just before the bottom fell out. Why is that? Needless to say, DJX is a drop this weekend. SMH - We're finally starting to see a bit of favorable price action in the SMH, as the Semiconductor sector really took it on the chin last week, leading the weakness on the NASDAQ. SMH has now fallen back to/just below its 50-dma, just as it did in December and September. The big question is whether this time we'll decisively break that average or if it will result in another rebound and trip to new highs. I think it is different this time for a couple of reasons. First, the 50-dma has finally turned down, something that hasn't happened since last April. Additionally, the weekly Stochastics is starting to tip over at a much lower high than the last time, and in conjunction with the higher high in price, we're presented with a clear case of bearish divergence. That said, we need to see significantly more price weakness before the PnF chart will give us the 'all clear' signal. It will take a trade at $38 (breaking the December lows) to generate a PnF Sell signal, meaning that we still have not broken the bullish trend. But there are some encouraging signs. We need to maintain a liberal stop for now and I still feel the $46 level is where it belongs. Should we see a rebound from the 50-dma, new positions can be considered on a rollover below $44-45, which should now be resistance if the trend is in the process of changing. NEM - As expected, the dollar has finally gained a bit of traction and rebounded solidly off its recent lows. That has put pressure on every other currency, including gold. The change of statement from the Fed on Wednesday really rocked the gold market on Thursday, with the price of the yellow metal finally cracking under the $400 level. Remember, we're looking at strong support for gold at $390, the XAU at $94-95 and NEM in the $38-40 area. This is just the normal correction in the bull market in gold that we've been waiting for. We may have taken our entry a bit early, but I still view dips near support for NEM to be attractive long- term entry points. I wouldn't rule out a test of the 200-dma (now $38.18) before the uptrend resumes, and this is the part where we'll need to be patient. Traders concerned about downside risk should buy some insurance in the form of a March put to hedge that risk, as noted in the original Portfolio Play writeup a couple weeks ago. Watch List: QCOM - Across the market, the 50-dma will be an important technical level where the current dip should find support and the bulls can rebuild their strength for the next push upwards. QCOM has been amazingly strong, only offering a dip to the top of the early January gap near $56 last week before the bulls bought the dip. That isn't enough of a pullback to tempt me, especially with the 50-dma clear down at $52.46. I like the long-term bullish prospects for QCOM and the PnF chart does nothing to dissuade me from that view. But we need a better entry point if we are going to have any hope of managing risk and reward. But with the ability to hedge risk with a protective put, I do think we can reactivate the play this weekend. Let's set our entry target now at $53-54 and hope for a deeper pullback in the near term, before a breakout to new highs. My current view is for upside potential as high as $68-70, which is in line with the PnF bullish price target of $67. That makes for a viable play if we can get the pullback, but it is questionable from current levels. At entry, let's use the April $50 put (AAO-PJ) for insurance. HD - There's really nothing new to report on HD. Price is indeed starting to creep ever so slightly higher, but our $37-38 target has so far remained out of reach for the bulls. The dominant descending channel that has been in place since early 2000 continues its gradual drop and eventually the top of the channel and price action are destined to meet. That will be the point where we gain a true picture of the stock's strength/weakness. The top of the channel is now exactly $38 and as though that wasn't stiff enough resistance, there's the 200-week moving average coming in at $40.07. I think we need to remain patient with our entry here and let it set up the way we want it or let it alone. I have added a Protective Call to the play this weekend in keeping with our new form of risk control. Use the May $40 Call (HD-EH), currently priced at only $0.40. SNDK - Ouch! SNDK is looking really ugly here, slicing right through the 200-dma on Friday, ending very close to the December lows. Technically, price ended at our entry target, but as we've established here in the past, we don't enter just because the price level has been reached. We need a bounce off of support and not only did that not happen, but it doesn't look like it is going to happen in the near-term. After looking at the PnF chart this weekend (UGLY!) the Sell signal and corresponding $35 bearish price target tells me that we're playing with fire right now. I'm not quite ready to drop the play, but we definitely want a better technical setup before playing. SNDK is on hold until further notice. Radar Screen: WMB - As I mentioned last week, I really like the bullish prospects for WMB over the long term, but near-term the weekly chart really has me feeling cautious. It looks like the weekly Stochastics are starting to roll over and if they do so here, will leave us with a clear case of bearish divergence. That tells me caution is warranted, as we may be treated to a more favorable entry point if we just exercise a bit more patience. I wouldn't rule out a pullback to the 200-dma, which is below $9 at this time. We'll keep our eye on WMB and move it onto the Watch List if everything lines up right. Closing Thoughts: That was certainly an exciting week we just closed out! The DOW notched a fresh 2-year high and then the broad market saw its biggest selloff in months. Whether the pullback is over or there's another down-leg in store, I think we should now be looking for entry points on bullish candidates, rather than trying to play the downside in stocks that are already showing significant weakness. There's really no indication yet of the bullish trend of the past 10 months having changed and the first real test will arrive when those 50-dmas come into play. With a full slate of economic reports and more earnings this week, it isn't likely to be a boring week! Admin Note: As you can see from the playlists below, I am making progress on integrating the use of the protective puts/calls into our strategy here, but the Portfolio list is still causing some issues. There's just too much information and too little space to work with. I have no doubt that a solution is forthcoming and I'll endeavor to discover and finalize it by next week so our transition will be complete. Note the new notations in the Watch List and this week's new Watch List plays. PC stands for Protective Call and PP stands for Protective Put. 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 $ 8.40 +95.35% $ 33.00 '06 $ 30 WSP-AF $ 6.40 $10.20 +59.38% $ 33.00 NEM 01/18/04 '05 $ 40 ZIE-AH $ 8.20 $ 7.30 -10.98% $ 37.00 '06 $ 40 WIE-AH $10.20 $ 9.90 - 2.94% $ 37.00 Puts: SMH 12/30/03 '05 $ 40 ZTO-MH $ 4.90 $ 4.50 - 8.16% $ 46.00 '06 $ 40 YRH-MH $ 6.60 $ 6.30 - 4.55% $ 46.00 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: QCOM 11/16/03 $53-54 JAN-2005 $ 55 ZLU-AK CC JAN-2005 $ 50 ZLU-AJ JAN-2006 $ 55 WLU-AK CC JAN-2006 $ 50 WLU-AJ PP APR-2004 $ 50 AAO-PJ SNDK 12/21/03 HOLD JAN-2005 $ 45 XWS-AK CC JAN-2005 $ 40 XWS-AJ JAN-2006 $ 45 YSD-AK CC JAN-2006 $ 40 YSD-AJ CHK 02/01/04 $11.50 JAN-2005 $ 12 XHV-AV CC JAN-2005 $ 10 XHV-AB JAN-2006 $ 12 WZY-AV CC JAN-2006 $ 10 WZY-AB PP APR-2004 $ 10 CHK-SB MLNM 02/01/04 $16.50 JAN-2005 $ 17 XVX-AW CC JAN-2005 $ 15 XVX-AC JAN-2006 $ 17 YDA-AW CC JAN-2006 $ 15 YDA-AC PP APR-2004 $ 15 QMN-QC PUTS: HD 12/21/03 $37-38 JAN-2005 $ 35 ZHD-MG JAN-2006 $ 35 WHD-MG PC MAY-2004 $ 40 HD -EH New Portfolio Plays None New Watchlist Plays CHK - Chesapeake Energy Corporation $12.46 **Call Play** The longer I look at the fundamental picture for Natural Gas, the better I like the bullish prospects in that industry. We're continuing to use more and more of it to meet our energy needs and the environmental lobby has solidified that trend by making it untenable to consider new power plants in this country fueled by anything other than natural gas. Increasing demand is one thing, but if supply can be ramped up at the same or greater rate, then the equation remains balanced. Unfortunately, we aren't able to increase our supplies at anywhere near the rate of increased demand and importing natural gas from anywhere other than Canada is not really feasible. To make matters worse, Canada is retaining a larger percentage of their excess gas for domestic uses. This bullish supply/demand relationship has not been lost on the futures market, with the price of the futures contract routinely pushing into the $5-7 area and I believe in the not too distant future we'll see prices in the double digits. Most recently, the March contract (NG04H) surged as high as $7.50, but in recent weeks has been falling back to earth and we ought to see support building in the $5 area. CHK is a major domestic player in the production of natural gas and quite reasonably priced with a P/E ratio of about 11. As prices for the gas rise, so does CHK, and we've seen the stock on a strong bullish run for the past several months, rising from just over $9 to its December high near $14. Last week finally saw the multi-month ascending channel break and this sets the stage for a more substantial drop back to support, at which point long-term bullish positions will make a lot of sense. Support is rock-solid at $11, reinforced by the 200-dma ($10.95). I really don't expect to see CHK fall that far in the near-term, but it would certainly make for a gift of an entry point. Weekly Stochastics have just given their first Sell signal in over 6 months, so there's definitely some more downside potential in store. I'm going to err on the side of caution and set our entry target $11.50 for new entries, splitting the difference between strong support at $11 and Friday's intraday low just over $12. We'll use a liberal stop at $9, which is just under the low from last July. The PnF chart is still quite bullish with a price target of $23.50 and it would currently take a trade at $9 to nullify that bullish view. To mitigate risk, let's use a July $10 (CHK-SB) protective put. BUY LEAP JAN-2005 $12 XHV-AV BUY LEAP JAN-2005 $10 XHV-AB **Covered Call** BUY LEAP JAN-2006 $12 WZY-AV BUY LEAP JAN-2006 $10 WZY-AB **Covered Call** BUY Put JUL-2004 $10 CHK-SB **Insurance Put** MLNM - Millennium Pharmaceuticals $17.60 **Call Play** I've had my eye on MLNM for several months now, and I continue to be amazed at two things. The stock is trading in a very methodical manner, building a nice pattern of higher lows and higher highs. But the other thing that I've noticed is that it doesn't appear to be overly sensitive to the gyrations of the overall market and that makes it a good candidate for a methodical bullish play. Fundamentally, MLNM has a nice pipeline of products and product candidates targeted at the cancer and cardiac treatment industries and while the company hasn't yet become profitable, there appears to be good upside potential if and when one or more of these candidates achieves the regulatory and market acceptance to move those products into production. Biotechnology is always a more speculative arena in which to play, so I would classify this play as more aggressive than our normal fare. The late December surge over $19 put MLNM back on a PnF Buy signal, and the current vertical count is $28.50. Looking at the daily chart, we can see how MLNM has continued to find solid support every time it tests its ascending trendline, which began last February. That trendline currently rests just over $16, so that seems a good point to enter the play. We'll start with our entry target at $16.50 and set our protective stop at $14, just below the November low. We can see from the weekly chart that there is significant resistance that comes into play near $20, so clearly we'll need to be patient as we wait for the stock to work through all that overhead supply. In terms of risk management, I'm suggesting the use of a May $15 Put (QMN-QC) as insurance. BUY LEAP JAN-2005 $17 XVX-AW BUY LEAP JAN-2005 $15 XVX-AC **Covered Call** BUY LEAP JAN-2006 $17 YDA-AW BUY LEAP JAN-2006 $15 YDA-AC **Covered Call** BUY Put MAY-2004 $15 QMN-QC **Insurance Put** Drops DJX - $107.05 If ever there was proof that the market makers are reading my column and gunning for my stops, this play is it. I set the stop at $107, and last Monday the DJX closed at $107.05. That was the day before the profit taking began and the DJX fell back near the $104 support area. In hindsight the stop might have been a bit too tight, but it did make sense technically. Sometimes this is just the way a trade goes and I offer no regrets or apologies on this one. For traders that may have cheated and not exited on Monday's strength, I would recommend holding open positions here with the thought that the 50-dma (now at $102.18) may still be in play. The key to dropping down to that area will be a break below the $104 level next week. ************************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 ************** Sitting Bull Ain’t Gettin’ Up Real Soon By Mike Parnos, Investing With Attitude Once upon a time there were three bulls. Momma bull, papa bull and baby bull. Now, if you ask me, that’s a lot of bull. As we all know, the only bull that remains is what is shoveled regularly by wishful thinking talking heads on CNBC. If you’re a papa bull, and you think you’re going to wake up and find a nubile young Goldilocks next to you, think again. All that’s next to you is undoubtedly a bulimic brokerage account that keeps upchucking your money. How’s that for a mental image? There are still some CPTI students who have a bullish outlook on the market – not now, but perhaps for a year from now. (They’re in therapy, but that also takes a while). In the meantime, how can we take advantage of that projected scenario and risk very little? _________________________________________________________________ The “Oldies But Goodies” Portfolio The market leaders of years past have been beaten down. It’s been brutal. Even at these “bargain basement” prices, they still have huge market caps. They’re still functioning and making money. Some analysts believe they are undervalued. While a small army of eternal optimists are waiting for the genie to pop out of a bottle (usually of Jack Daniels) and grant three wishes, here’s how you can participate in a market rebound in a few of these companies. A positive aspect of this strategy is that CPTI students, who cannot do spreads in their brokerage accounts, will be able to participate in this strategy – in both regular brokerage and many IRA accounts. Let’s start with an old favorite – SUNW (Sun Microsystems) – currently trading at $3.10. Buy 1,000 shares of SUNW @ $3.10 Buy 10 contracts of SUNW January 05 $5.00 put at $2.55 Your total out of pocket investment is $5.65. For the next 22 months, your total risk is only $.65. Let’s look at a few “what if” scenarios which will show you why your risk for two years is only $.65 and how you can profit. What if . . . in 10 months SUNW is 7.50? The January 2005 $5 put would still have a value of about $.50 and the stock would be worth $7.50 – for a total of $8.00. Your cost was $5.65, so your profit would be $2.35 with 12 more months until January 2005 expiration. What if . . . in 10 months SUNW is $2.50? The January 2005 $5 put would have a value of about $2.70 and the stock would be worth $2.50 – for a total of $5.10. With a cost of $5.65, you would have a paper loss of $.55 with 12 more months until January 2005 expiration. What if . . . at January 2005 expiration SUNW is $4.25? The January 2005 $5 put would have a value of $.75 and the stock would be worth $4.25 – for a total of $5.00. With a cost of $5.65, you would have incurred the maximum loss of only $.65. What if . . . at January 2005 expiration SUNW is $10? The January 2005 $5 put will expire worthless, but the stock would be worth $10. With a cost of $5.65, your profit is $4.35. Take a look at the SUNW January 2005 $5 call options. You could buy it for just $.80. Is that a better deal? After all, you be tying up only $800 for two years instead of $5,600 (for 10 contracts). Well, if you’re right – and that’s a big “if” – owning the stock enables you to participate penny for penny as SUNW moves up. The delta on the January 2005 $5 call is only 52%. It’s your call. Below is a list of a few other “Oldies But Goodies(?)” that could rise from the ashes and put some bucks in your pocket. NT (Nortel). Trading at $2.37. The January 2005 NT $2.50 put is $.90. Total cost is $3.27. Risk is $.77. LU (Lucent). Trading at $1.86. The January 2005 LU $2.50 put is $1.30. Total cost is $3.16. Risk is $.66. GTW (Gateway). Trading at $2.62. The January 2005 GTW $5.00 put is $3.00. Total cost is $5.62. Risk is $.62. AMR (American Airlines). Trading at $2.90. The January 2005 AMR $5.00 put is $3.40. Total cost is $6.30. Risk is $1.30. MOT (Motorola). Trading at $7.98. The January 2005 MOT $10 put is $3.70. Total cost is $11.68. Risk is $1.68. COMS (3 Com). Trading at $4.23. The January 2005 COMS $5.00 put is $1.90. Total cost is $6.13. Risk is $1.13. A lot can happen in two years – good and bad. These beaten down companies were among those that led the markets higher during the tech bubble of a few years ago. There still may be some wind in their sails, some bananas in their split, some pings with their pongs, some stiff in their upper lips. Then again, maybe not. So, if you’re one of those glass is “one-quarter full” as opposed to “three-quarters empty,” you can put your money where your milk should be. You may end up with a delicious milkshake or some two-year-old cottage cheese. Dairy products can be tricky. They’re not for the meek, though the risk is small. If you believe in mama bull, papa bull and baby bull, go for it! If you believe that the only bull we’re going to see for a long time is what is served between the buns at Burger King, this is not for you. ______________________________________________________________ CPTI PORTFOLIO POSITION UPDATE Position #1: BBB Iron Condor – Closed Friday at $88.70. An Iron Condor is a credit position consisting of both a bull put spread and a bear call spread. The collected premium will come into your account the very next business day. The objective is for the underlying, at expiration, to finish anywhere within the $85-$95 range. Position #2: MMM Iron Condor – Closed Friday at $124.55. The support at $120 once again seems strong, as does the resistance at $130. Enough. That should give MMM enough room (10 points) to bounce around for the next four weeks. Position #3: SMH Straddle – Closed Friday at $21.50. We bought the SMH May $22.50 puts and calls and spent $5,850 on 10 contracts. But, since we’re going to stay in this position only for the February option cycle (5 weeks), we’ll only be risking about $.85 ($850). We’re looking for a big move for the semiconductors and we don’t care which way. Position #4: QQQ ITM Strangle – Closed Friday at $24.44. This is a long-term position to generate a monthly cash flow. We own the January 2005 $21 LEAPS call and the January 2005 $29 LEAPS puts. We’ve sold the February $29 calls and February $21 puts. Position #5A: XAU Condor – Closed Friday at $77.00. This is a longer term trade expiring in March. There is a $20- point range and we took in a credit of $1.40. We want XAU to finish anywhere between $70 and $90. Position #6A: MMM Condor – closed Friday at $124.55. This is a longer term more conservative trade expiring in March. There is a $20-point range and we took in a credit of $1.20. We want MMM to finish anywhere between $115 and $135. Position #7A: QQQ 2-Month Baby ITM Strangle – closed Friday at $24.44. Bought March QQQ $26 puts & Buy March QQQ $24 calls for total debit of $4.20. There is $2 of intrinsic value and only $2.20 of risk. We’re looking for a 3-4 point move in the QQQs. After the move, we want the successful long option to pay for both options. Then we’re left with a “free” long option and waiting for the market to reverse. ______________________________________________________________ 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 Instructor ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 02-01-2004 Sunday 5 of 5 In Section Five: Covered Calls: A System For Success! Naked Puts: Who's In Charge Anyway? Spreads/Straddles/Combos: How Will The "January Effect" Affect The Market In 2004? ************************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: A System For Success! By Mark Wnetrzak One of the most difficult skills new traders must develop is the ability to follow a trading plan. Using a trading plan is an excellent way to enhance your profits in the market because it removes emotion and instinct from the activity and allows the mechanics of the trade to work for you. At first glance, it seems like a fairly uncomplicated proposal. All you have to do is outline a system; a specific approach that requires you to make decisions based on a particular strategy or technique for managing positions, and then follow that plan. But, the next phase; executing the plan, is where the trouble usually begins. In fact, many experts say this step is one of the worst obstacles new participants will encounter when learning how to trade profitably. Everyone agrees that precision and consistency are necessary in a successful trading system but few people realize how difficult it is to follow a pre-determined plan when the elements of fear, hope and greed enter the equation. We all begin with the best intentions, knowing that a mechanical and disciplined method is the easiest way to achieve profits on regular basis. Somewhere along the way, we become sidetracked. News and outside events conspire to derail our scheme at almost every opportunity. Of course, we know that allowing the market to make the trading decision is much more precise than relying on our complex human intuition. Unfortunately, the pressure of the moment is often too great and we find ourselves changing designs prematurely, usually eliminating any opportunity for a profitable outcome. The problem is a common one. New investors generally begin with a great work ethic and most have a relatively worthy idea of how they expect to manage a particular issue. Then they get diverted by an unexpected event such as an analyst upgrade or a news story about the outlook for the company or its products. At that point, a change occurs. But it’s generally not in the company or its fundamental condition. In reality, the change takes place in the mind of the trader; an adjustment in perception as opposed to a physical alteration. Anyone who has participated in the stock market will recognize this unwanted transformation as a universal weakness that occasionally overwhelms all traders. The primary reason for this occurrence is lack of discipline. The need for instant gratification prevents the majority of investors from exercising the patience necessary to be successful. Indeed, we all know that surviving the "learning curve" to eventually profit in the market is not easy, but too many people quit after a few losing plays, long before they have time to develop the various skills required for profitable trading. Once the rules are understood and a personal strategy is defined and tested, the mechanics of the game become relatively simple. The key is to remember that the primary goal of every system is to limit losses and maximize profits. Professionals utilize a number of trading systems and position management strategies to govern their portfolios. They know that when emotion enters the equation, a trader's judgment becomes clouded and the alternatives appear limited. As the trader begins to focus on the performance of an individual play, his anxiety increases exponentially but a a decision must eventually be made: "Do you remain in the position, close it, or make and adjustment?" What if the technical outlook is ambiguous or the overall market trend is in opposition to your position? When you trade without a definite plan it's amazing how confusing the situation can become, and once you have committed portfolio capital, you are playing by somebody else's rules. A system of structured and pre-planned moves is the only solution. Each and every day, you have to make a judgment: "Take the profit, take the loss, or let it run?" It really doesn't matter which exit system is used, the key is that all the decisions are made well in advance. Obviously, you don't want to create a battle plan in the middle of a campaign. After you take a position, you should know exactly what you would do in any circumstances that may develop. While it is of utmost importance to execute the plan precisely, it is also essential to remain flexible and be ready to change one’s direction or strategy when the need arises. This concept may appear contradictory but it makes perfect sense when the change in tactics or attitude is based on a revised outlook, either technical or fundamental, for the underlying issue. In any type of financial market, the conditions are constantly changing and to be successful, a trader must adapt accordingly. New trends and unexpected economic events must be interpreted decisively, but with an open mind and in every case, an adjustment should be initiated only after considering all the facts at hand. 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 15.10 FEB 10.00 1.80 0.87* 6.9% SIRI 3.15 2.70 FEB 2.50 0.80 0.15* 5.7% VXGN 10.92 10.01 FEB 10.00 1.40 0.48* 5.5% ALVR 13.09 13.77 FEB 12.50 1.45 0.86* 5.4% ZIXI 14.67 15.10 FEB 12.50 2.70 0.53* 4.8% NEOL 19.10 18.79 FEB 17.50 2.30 0.70* 4.5% CREE 20.49 25.07 FEB 20.00 1.65 1.16* 4.5% CHINA 11.05 11.08 FEB 10.00 1.60 0.55* 4.2% NANX 12.39 12.96 FEB 10.00 2.90 0.51* 3.9% CLTK 8.54 8.22 FEB 7.50 1.35 0.31* 3.9% SCMR 5.63 5.59 FEB 5.00 0.80 0.17* 3.8% ATSN 10.90 10.62 FEB 10.00 1.30 0.40* 3.7% SEAC 18.40 20.18 FEB 17.50 1.75 0.85* 3.7% GSF 27.77 27.30 FEB 27.50 1.35 0.88 3.6% WEBM 10.93 10.70 FEB 10.00 1.25 0.32* 3.6% LTXX 19.12 17.30 FEB 17.50 2.45 0.63 3.4% CTLM 7.30 4.90 FEB 5.00 2.50 0.10 2.3% CIEN 7.97 7.25 FEB 7.50 0.85 0.13 1.6% PAAS 16.10 14.41 FEB 15.00 1.95 0.26 1.3% ADPT 10.50 9.32 FEB 10.00 1.10 -0.08 0.0% * Stock price is above the sold strike price. Editor's Comments: Investors Cautious As January Ends... The major averages continued to consolidate this week as traders further digested earnings and economic reports. Caution appears warranted in the next few days as the near-term action is a bit worrisome and a move towards 50-day MAs (or lower) could be next. It's time to monitor positions closely and evaluate their bullish strength as they drift back towards support areas. Centillum Communications (NASDAQ:CTLM) dropped rather horridly after a disappointing earnings report on Thursday and will be shown closed next week. Others issues on the early-exit watch list include: Vaxgen (NASDAQ:VXGN), Alvarion (NASDAQ:ALVR), Celeritek (NASDAQ:CLTK), Artesyn Technologies (NASDAQ:ATSN), Ltx Corp. (NASDAQ:LTXX), Ciena (NASDAQ:CIEN), Adaptec (NASDAQ:ADPT), and Pan American Silver (NASDAQ:PAAS). 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 ACLS 12.60 FEB 12.50 ULS BV 0.65 830 11.95 21 6.7% TKLC 20.35 FEB 20.00 KQ BD 1.20 445 19.15 21 6.4% CNET 10.75 FEB 10.00 QKW BB 1.15 990 9.60 21 6.0% AFFX 31.23 FEB 30.00 FIQ BF 2.35 2182 28.88 21 5.6% NANO 20.14 FEB 17.50 QNK BW 3.20 11 16.94 21 4.8% IPXL 18.90 FEB 17.50 UPR BW 1.95 2491 16.95 21 4.7% TIVO 10.75 FEB 10.00 TUK BB 1.05 15459 9.70 21 4.5% 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). __________________________________________________________________ ACLS - Axcelis $12.60 *** Rally Mode! *** Axcelis Technologies (NASDAQ:ACLS) is a worldwide producer of ion implantation, dry strip, thermal processing and photostabilization equipment used in the fabrication of semiconductor chips in the United States, Europe and Asia Pacific. In addition to equipment, the company provides extensive aftermarket service and support, including spare parts, equipment upgrades, maintenance services and customer training. Investors were apparently pleased with the company's earnings report this week as the stock rallied higher on Friday supported by heavy volume. This position offers investors a method to profit from the current bullish trend. FEB-12.50 ULS BV LB=0.65 OI=830 CB=11.95 DE=21 TY=6.7% __________________________________________________________________ TKLC - Tekelec $20.35 *** Next Leg Higher? *** Tekelec (NASDAQ:TKLC) designs, manufactures, markets and supports network systems products and selected service applications for telecommunications networks and contact centers. The company's customers include telecommunications carriers, network service providers and contact center operators. Its network systems products help direct and control voice and data communications. They enable carriers to control, establish and terminate calls as well as to offer intelligent services including any services other than the call or data transmission itself. The company's products provide workforce management and intelligent call routing systems for single and multiple-site contact centers. Tekelec sells its contact center products primarily to customers in industries with significant contact center operations such as financial services, telecommunications and retail. TKLC pleased investors this week and the stock broke to a new 2-year high on Friday. Investors who remain bullish on the telecom sector can use this position to speculate on the near-term activity in the group. FEB-20.00 KQ BD LB=1.20 OI=445 CB=19.15 DE=21 TY=6.4% __________________________________________________________________ CNET - CNET Networks $10.75 *** Rally Resumes! *** CNET Networks (NASDAQ:CNET), a global media company informing and connecting buyers, users, and sellers of technology, produces a branded, global Internet network, print publications and a technology product database for both businesses and individuals. Using unbiased content as its platform, the company has built marketplaces for technology and consumer products, and, through its CNET Channel division, is a provider of standardized product information. CNET obviously pleased investors this week as the stock exploded higher on Friday to a 2-year high. Our outlook is also bullish, due to the recent technical strength and this position offers a reasonable cost basis in the issue. Target shooting a lower "net-debit" will increase the potential yield and downside protection in the position. FEB-10.00 QKW BB LB=1.15 OI=990 CB=9.60 DE=21 TY=6.0% __________________________________________________________________ AFFX - Affymetrix $31.23 *** Breaking Out! *** 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 Affymetrix broke through near-term resistance after Wednesday's earnings report. The move higher on heavy volume suggests further upside potential. Investors can use this position to speculate on that outcome at the risk of owning AFFX near $29.00. FEB-30.00 FIQ BF LB=2.35 OI=2182 CB=28.88 DE=21 TY=5.6% __________________________________________________________________ NANO - Nanometrics $20.14 *** Buying Opportunity? *** Nanometrics (NASDAQ:NANO) designs, manufactures, markets and supports the thin film metrology systems for the semiconductor, flat panel display and magnetic recording head industries. In addition, the company has both integrated and standalone optical critical metrology systems to measure critical dimensions of patterns on semiconductor wafers. The company also manufactures a line of optical overlay registration systems that are used to determine the alignment accuracy of successive layers of semiconductor patterns on wafers in the photolithography process. The company's products can be divided into 3 groups: automated systems, integrated systems and tabletop systems. Nanometrics has pulled back towards its 30-day MA but the overall uptrend remains intact. Investors who remain bullish on the company's future can use this position to establish a cost basis near the 50-day MA and the December highs. FEB-17.50 QNK BW LB=3.20 OI=11 CB=16.94 DE=21 TY=4.8% __________________________________________________________________ IPXL - IMPAX Laboratories $18.90 *** Favorable Decision! *** IMPAX (NASDAQ:IPXL)) is a unique, technology-based pharmaceutical firm focused on the development and commercialization of generic and brand name pharmaceuticals, utilizing its controlled-release and other in-house development and formulation expertise. In the generic pharmaceuticals market, IMPAX is primarily focusing its efforts on selected controlled-release generic versions of brand name pharmaceuticals. The firm is also developing other generic pharmaceuticals that present one or more competitive barriers to entry, such as difficulty in raw materials sourcing, complex formulation or development characteristics, or special handling requirements. In the brand-name pharmaceuticals market, IMPAX is developing products for the treatment of central nervous system disorders. IMPAX received some favorable legal news this week regarding a patent appeal and we like the bullish chart pattern that depicts a strong Stage II chart (jinx?). Investors can use this position to speculate on the trend continuing with a cost basis closer to technical support. FEB-17.50 UPR BW LB=1.95 OI=2491 CB=16.95 DE=21 TY=4.7% __________________________________________________________________ TIVO - TiVo $10.75 *** The New VCR! *** TiVo (NASDAQ:TIVO) is a provider of television services for digital video recorders (DVRs), a growing consumer electronics category. Its subscription-based TiVo Service provides consumers with a way to record, watch and control television. It offers advertisers, content creators and television networks a platform for promotions, content delivery and audience research. The company's revenues come from three different sources: It receives revenues from providing the TiVo Service; It receives licensing and engineering professional services revenues; and from the sale of DVR hardware. TiVO broke above its down-trend this month which suggests a positive change of character. We simply favor the recent bullish signals and investors can use this position to establish a reasonable cost basis in the issue. FEB-10.00 TUK BB LB=1.05 OI=15459 CB=9.70 DE=21 TY=4.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ASIA 7.70 FEB 7.50 EUJ BU 0.60 1834 7.10 21 8.2% HLIT 10.59 FEB 10.00 LOQ BB 1.05 2718 9.54 21 7.0% NOVL 12.68 FEB 12.50 NKQ BV 0.75 14968 11.93 21 6.9% ADIC 17.87 FEB 17.50 QXG BW 1.15 296 16.72 21 6.8% ABTL 12.57 FEB 12.50 BCU BV 0.60 900 11.97 21 6.4% XING 13.20 FEB 12.50 QAE BV 1.20 1619 12.00 21 6.0% SEAC 20.18 FEB 20.00 UEG BD 0.80 175 19.38 21 4.6% WEBM 10.70 FEB 10.00 UUW BB 1.00 644 9.70 21 4.5% PDII 27.46 FEB 25.00 PKU BE 3.10 423 24.36 21 3.8% PMCS 21.85 FEB 20.00 SQL BD 2.35 3222 19.50 21 3.7% PVN 13.69 FEB 12.50 PVN BV 1.50 7087 12.19 21 3.7% SWIR 27.14 FEB 25.00 IYQ BE 2.75 411 24.39 21 3.6% ---------- NAKED-PUTS ---------- Options 101: Who's In Charge Anyway? By Ray Cummins A lot has been said about the power that Fed Chair Alan Greenspan wields when it comes to the U.S. economy. Most people believe the President is the ultimate authority in the U.S. government, but those of us who follow the financial markets know that the Chairman of the Federal Reserve Board is really the person in charge of making and implementing the country’s monetary policy. The methods he uses are very simple and in most cases, he relies on adjustments to short-term interest rates which in turn, establish the cost of credit to businesses and consumers all across America. Of course, his goal is to promote high employment, stable prices and sustainable growth, however his influence extends much further and just a few select words from the Fed Chief can send the market into a tumble or start a rally of "irrational exuberance." Just who is this man that can affect the lives of everyone in the United States with nothing more than an offhand comment about cost pressures or rising demand? The son of a stockbroker and retail employee, Alan Greenspan rose from a Depression-era childhood to the pinnacle of the financial world. Not surprisingly, his background is filled with periods of austerity and affluence. He dropped-out of a Columbia University doctoral program due to lack of funds, but eventually founded a prosperous economic consulting firm. He was asked by President Gerald Ford to chair the Council of Economic Advisers during the woeful mid-'70s, and achieved much notoriety during that period of financial adversity, only to reach his current station mere months before the stock market crash of 1987. His economic and political acumen stood the test of four presidencies and he also witnessed one of the greatest rallies in the history of the market. If experience is a prerequisite for controlling U.S. monetary policy, Greenspan certainly has it, though what makes this man so successful is his calming prudence and a preference for subtle, not sweeping, economic adjustments. The Federal Reserve chairman has long been known for making intrepid decisions that appear, at first glance, to conflict with traditional policy guidelines. In fact, one of Alan Greenspan's most memorable proclamations in the early 1990s was his contention that industrial productivity was climbing faster than official statistics indicated, thus suggesting that the economy could be allowed to grow at a more rapid rate without concerns of additional inflation. In hindsight, that conclusion, while certainly irregular, proved to be not only accurate, but also eventually led to the economic prosperity that lasted throughout the decade. Unfortunately, "all good things must come to an end" and the same holds true for economic cycles, where a a recession almost always follows a period of extreme growth. The Fed Chief has tried to fight this trend by lowering interest rates to their lowest level in four decades and a number of analysts say the results are finally starting to uphold his actions. At the same time, Greenspan has come under fire for not adhering more to formal rules for decision-making and some experts say U.S. monetary policy is too dependent on the instincts of the chairman and not anchored in economic principles. Regardless of your opinion of the man, it's obvious he has become an icon of financial stability, despite all the chaos in the world, and by and large, he has made some good decisions when it really counted. As Bob Woodward commented in his recent book on the Federal Reserve chairman, we depend on him because "He has become both a symbol and a means of explaining and understanding the economy." Maybe that's not the best state of affairs for a country with the most complex economic system on the planet but until someone with a better plan emerges, it may be prudent to stick with Greenspan. 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 16.80 16.10 FEB 12.50 0.40 0.40* 3.6% 11.6% ADAT 16.95 16.10 FEB 12.50 0.40 0.40* 3.0% 9.4% SEPR 27.99 26.98 FEB 22.50 0.65 0.65* 2.7% 9.1% XING 12.80 13.20 FEB 10.00 0.35 0.35* 2.6% 8.7% IMCL 43.41 40.96 FEB 35.00 0.75 0.75* 2.4% 8.4% NEOL 18.26 18.79 FEB 15.00 0.40 0.40* 2.5% 8.1% OPWV 15.18 14.83 FEB 12.50 0.40 0.40* 2.4% 7.6% PMCS 23.80 21.85 FEB 20.00 0.50 0.50* 2.3% 7.2% SEPR 27.25 26.98 FEB 22.50 0.65 0.65* 2.2% 6.9% ASKJ 23.83 21.66 FEB 20.00 0.60 0.60* 2.2% 6.9% BLTI 21.14 19.30 FEB 17.50 0.30 0.30* 1.9% 6.4% SPRT 16.40 13.45 FEB 12.50 0.25 0.25* 1.8% 6.3% NKTR 17.12 17.01 FEB 15.00 0.45 0.45* 2.2% 6.3% IDCC 24.46 24.36 FEB 20.00 0.50 0.50* 1.9% 6.2% ATRS 37.40 36.00 FEB 30.00 0.45 0.45* 1.7% 6.1% RMBS 34.60 31.16 FEB 25.00 0.50 0.50* 1.8% 6.0% JNPR 22.00 28.83 FEB 20.00 0.55 0.55* 2.0% 5.4% AFFX 28.29 31.23 FEB 25.00 0.50 0.50* 1.8% 5.2% AFFX 28.40 31.23 FEB 25.00 0.40 0.40* 1.8% 5.2% RDWR 30.73 32.17 FEB 25.00 0.35 0.35* 1.3% 4.5% RETK 11.37 9.67 FEB 10.00 0.45 0.12 1.4% 3.6% WFII 17.80 14.31 FEB 15.00 0.40 -0.29 0.0% 0.0% UTHR 24.25 20.85 FEB 22.50 0.70 -0.95 0.0% 0.0% * Stock price is above the sold strike price. Editor's Comments: Another Buying Opportunity? The "necessary consolidation" we spoke of in last week's summary commentary came to pass on Wednesday after the specter of higher interest rates emerged from the FOMC meeting. The Fed replaced its pledge to keep rates low for a "considerable period" with a promise to "be patient" before initiating the first rate hike in over three years. The news did not sit well with investors and unless there are some stellar profit reports in the coming week, equities could be in for further declines. With that outlook in mind, traders should extra diligent in their portfolio management and consider new (bullish) positions only in the most favorable issues. Last week's "early-exit" candidate, Wireless Facilities (NASDAQ:WFII) has been closed, along with United Therapeutics (NASDAQ:UTHR) and Retek (NASDAQ:RETK). Next on the "watch" list are Supportsoft (NASDAQ:SPRT) and AskJeeves.com (NASDAQ:ASKJ). PMC-Sierra (NASDAQ:PMCS) also has our full and complete attention, as does Biolase Technology (NASDAQ:BLTI). 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 NGEN 12.59 FEB 10.00 QEM NB 0.30 1070 9.70 21 4.5% 15.4% RMBS 31.16 FEB 25.00 BNQ NE 0.45 8451 24.55 21 2.7% 9.7% INSP 34.15 FEB 30.00 IOU NF 0.55 430 29.45 21 2.7% 7.9% SINA 45.69 FEB 35.00 NOQ NG 0.45 2738 34.55 21 1.9% 6.8% MU 16.11 FEB 15.00 MU NC 0.25 9542 14.75 21 2.5% 6.5% IDCC 24.36 FEB 20.00 DAQ ND 0.25 2133 19.75 21 1.8% 6.4% ERICY 23.01 FEB 20.00 RQC ND 0.25 1820 19.75 21 1.8% 5.6% 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). __________________________________________________________________ NGEN - Nanogen $12.59 *** The "NANO" Craze! *** Nanogen (NASDAQ:NGEN) develops and commercializes molecular diagnostics products and tests for the gene-based testing market for sale primarily in the United States, Europe and the Pacific Rim. By integrating microelectronics and molecular biology into a core proprietary technology platform, Nanogen seeks to establish the open-architecture design of its primary products, the NanoChip Molecular Biology Workstation and the NanoChip Cartridge (collectively, the NanoChip System) as the standard platform for molecular identification and analysis. The firm also develops specific reagents and other commercial applications for the NanoChip System. The company continually conducts research and development by itself and also with its subsidiary and third parties, to improve the NanoChip System and to extend its technology to other applications such as biodefense, forensics and drug discovery (protein kinases). Investors have been focused on Nanogen since the company said it received a patent for a method to build nanodevices; atom or molecule-sized electronic devices. Investors who want a "relatively" conservative entry point in a company that may profit from the "NANO" craze should consider this position. FEB-10.00 QEM NB LB=0.30 OI=1070 CB=9.70 DE=21 TY=4.5% MY=15.4% __________________________________________________________________ RMBS - Rambus $31.16 *** Pure Premium-Selling! *** Rambus (NASDAQ:RMBS) designs, develops and markets "chip-to-chip" interface solutions that enhance the performance and effectiveness of its client's chip and system products. These solutions include multiple chip-to-chip interface products, which can be grouped into two categories: memory interfaces and logic interfaces. Rambus' memory interface products provide an interface between memory chips and logic chips. In addition, the firm's logic interface products provide an interface between two logic chips. Rambus has two major memory interface products: Rambus dynamic random access memory and Yellowstone. Additionally, it offers a logic interface product for high-speed serial chip-to-chip communications between logic chips in a range of computing, networking and communications applications. Rambus has been a popular issue among "premium-sellers" in recent weeks and the share-price volatility has inflated option premiums in the near-term. Traders who expect additional upside activity in the issue should consider this position. FEB-25.00 BNQ NE LB=0.45 OI=8451 CB=24.55 DE=21 TY=2.7% MY=9.7% __________________________________________________________________ INSP - InfoSpace $34.15 *** Up, Up & Away! *** InfoSpace (NASDAQ:INSP) develops and delivers a wireless and Internet platform of software and application services to a range of customers that span each of its wireline, merchant and wireless business units. Many of the company's products and application services are offered to its customers, which, in turn, offer these products and application services to their customers as their own solutions. InfoSpace provides its services across multiple platforms, including personal computers and non-PC devices. INSP soared to a new two-year high this week after the wireless and Internet software firm raised its growth estimates for 2004. The company said it expected first-quarter earnings of $3-$5 million on revenues of $44-$47 million, which was well above consensus estimates of $36 million. Investors can establish a cost basis below $30 in the issue with this position. FEB-30.00 IOU NF LB=0.55 OI=430 CB=29.45 DE=21 TY=2.7% MY=7.9% __________________________________________________________________ SINA - SINA Corporation $45.69 *** China-based Internet *** SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an online media company and value-added information service provider for China and the global Chinese communities. With a branded network of localized Websites targeting China and overseas Chinese, the company provides an array of services to its users including region-focused online portals, search, directory, interest-based and community-building channels, free and premium e-mail, wireless short messaging, online games, virtual Internet service provider, classified listings, e-commerce, e-learning, and enterprise e-solutions. In turn, SINA generates revenue through advertising, fee-based services, e-commerce and enterprise services. Shares of China-based Internet stocks are still among the best performing issues in the technology segment and traders who want to speculate on one of the more volatile issues (with correspondingly large option premiums) should consider this position. FEB-35.00 NOQ NG LB=0.45 OI=2738 CB=34.55 DE=21 TY=1.9% MY=6.8% __________________________________________________________________ MU - Micron Technology $16.11 *** New Trading Range? *** Micron Technology (NYSE:MU) is one of the world's leading providers of advanced semiconductor solutions. Through its global operations, Micron manufactures and markets DRAMs, Flash memory, CMOS image sensors, and a range of other semiconductor components and memory modules for use in leading-edge computing, consumer, networking, and mobile products. Shares of MU have moved into a new trading range in recent weeks and the company appears to have returned to favor among investors and analysts. Traders who agree with a bullish outlook for the issue should consider this position. FEB-15.00 MU NC LB=0.25 OI=9542 CB=14.75 DE=21 TY=2.5% MY=6.5% __________________________________________________________________ IDCC - InterDigital Comm. $24.36 *** Low Risk - Low Reward *** InterDigital Communications (NASDAQ:IDCC) specializes in the architecture, design and delivery of wireless technology and product platforms. Over the course of its corporate history, the company has amassed a substantial and significant library of digital wireless systems experience and know-how, and holds an extensive worldwide portfolio of patents in the wireless systems field. InterDigital markets its technologies and solutions primarily to wireless communications equipment producers and related suppliers. In addition, the company licenses its Time Division Multiple Access and Code Division Multiple Access patents to equipment manufacturers worldwide. Shares of IDCC have traded in a relatively small range near $24 for almost a month and it seems as if the issue is building a "comfort zone" near that price. Traders who wouldn't mind owning the issue at a basis near $20 can profit from continued lateral activity in the stock with this position. FEB-20.00 DAQ ND LB=0.25 OI=2133 CB=19.75 DE=21 TY=1.8% MY=6.4% __________________________________________________________________ ERICY - LM Ericsson $23.01 *** Nortel Rally Boosts Telecoms! *** LM Ericsson (NASDAQ:ERICY) is a global supplier of mobile systems. The firm provides total communications solutions from systems and applications to services and core technology for mobile handsets. Ericsson has been active since 1876 with products such as mobile systems, multi-service networks, enterprise services, transmission and transport technologies, general packet radio services (GPRS), third generation mobile telephony, advisory services, management and optimization services, multimedia messaging services, and a variety of Bluetooth wireless technologies. With Sony Ericsson, it also is a supplier of complete mobile multimedia products. The rally in Nortel following a surprisingly improved earnings report gave a boost on Friday to prices of telecommunications equipment vendors. ERICY was one of the best performers in that group and traders who think the bullish trend will continue should consider this position. FEB-20.00 RQC ND LB=0.25 OI=1820 CB=19.75 DE=21 TY=1.8% MY=5.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 MXT 6.04 FEB 5.00 MXT NA 0.25 2198 4.75 21 7.6% 22.3% ZIXI 15.10 FEB 12.50 HQU NV 0.50 849 12.00 21 6.0% 18.4% CHINA 11.08 FEB 10.00 UIH NB 0.35 2825 9.65 21 5.3% 13.7% SWC 11.46 FEB 10.00 SWC NB 0.25 314 9.75 21 3.7% 10.7% ZRAN 19.18 FEB 15.00 ZUO NC 0.25 383 14.75 21 2.5% 8.9% NEOL 18.79 FEB 17.50 UOE NW 0.40 1628 17.10 21 3.4% 8.7% PSSI 12.70 FEB 12.50 PYQ NV 0.30 136 12.20 21 3.6% 8.4% CREE 25.07 FEB 22.50 CQR NX 0.45 1463 22.05 21 3.0% 8.2% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER IN SECTION ONE ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************ SPREADS/STRADDLES/COMBOS ************************ How Will The "January Effect" Affect The Market In 2004? By Ray Cummins Stocks finished lower Friday but the major equity averages posted gains in January, an event that historically bodes well for share values in the coming year. Despite 52-week highs from blue-chip bellwethers Procter & Gamble (NYSE:PG) and American Express (NYSE:AXP), the Dow closed down 22 points at 10,488. The NASDAQ Composite drifted 2 points lower to 2,066 even as networking stocks were bolstered by Nortel Networks (NYSE:NT), which was among the biggest percentage gainers after posting stronger-than-expected earnings and its first full-year profit since 1997. The Standard & Poor's 500 index ended down 2 points at 1,131 with biotech, auto, and airline shares enduring the worst losses. Breadth was surprisingly positive on the major exchanges with advancers ahead of decliners by a small margin on the Big Board and the NASDAQ. Volume reached 1.63 billion on the NYSE and 1.91 billion on the technology exchange. The benchmark 10-year Treasury note soared in the wake of the GDP report, but eventually retreated to close up 10/32 with its yield at 4.13%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 01/30/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 Positions in Cabot Micro (NASDAQ:CCMP) and Lam Research (NASDAQ:LRCX) have previously been closed. 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 47 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 Adobe Systems (NASDAQ:ADBE) is on the "watch" list. CALL DEBIT SPREADS Symbol Pick Last Month LC SC Debit B/E G/L Status BRCM 36.78 40.59 FEB 30 32 2.20 32.30 0.30 Open CREE 25.85 25.07 FEB 20 22 2.20 22.20 0.30 Open TEVA 61.75 62.59 FEB 55 60 4.45 59.45 0.55 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 44.77 FEB 47 45 2.20 45.30 0.30 Open QLGC 47.16 44.99 FEB 55 50 4.20 55.80 0.80 Open NVLS 39.89 34.03 FEB 45 42 2.20 42.80 0.30 Open LP = Long Put SP = Short Put B/E = Break-Even G/L = Gain/Loss Michael's Stores (NYSE:MIK) is on the "watch" list after the rally in retail shares. A close above the recent resistance area near $45.50 would be an obvious exit signal in the bearish position. SYNTHETIC (BULLISH) Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Call Put Credit Value Status UTHR 23.20 20.85 MAY 30 17 (0.10) 0.40 Closed CEPH 52.50 54.41 FEB 60 45 0.10 1.00 Open? EYE 25.30 19.97 MAR 30 20 0.00 0.25 Closed 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. The recent activity in United Therapeutics (NASDAQ:UTHR) and Visx (NYSE:EYE) suggests that an early exit is prudent in those plays. SYNTHETIC (BEARISH) Stock Pick Last Expir. Long Short Initial Max. Play Symbol Price Price Month Put Call Credit Value Status DD 42.72 43.90 MAR 40 45 0.00 0.00 Open Dupont (NYSE:DD) surprised almost everyone with a bullish profit report and subsequent rally. However, the overhead supply near the sold (call) strike at $45 is formidable and with any luck, the issue will remain below that price for three more weeks. CALENDAR & DIAGONAL SPREADS Stock Pick Last Long Short Current Max. Play Symbol Price Price Option Option Debit Value Status FISV 38.28 37.37 MAR-35P FEB-35P 0.30 0.40 Open AMHC 27.08 27.58 MAY-30C FEB-30C 1.25 1.20 Open ABGX 15.60 15.57 APR-17C FEB-17C 0.60 0.60 Open Fiserve (NASDAQ:FISV) is finally moving in the right direction and the speculative position may yet provide a favorable profit. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status MATK 65.74 65.07 MAR 65 65 9.40 9.00 Open BSC 84.10 82.35 MAR 85 85 5.25 5.40 Open New straddles in Nam Tai Electronics (NYSE:NTE) and Petrochina (NYSE:PTR) were not available due to pre-market volatility on the first trading day after the positions were offered. 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. __________________________________________________________________ ADI - Analog Devices $47.85 *** Earnings Speculation! *** Analog Devices (NYSE:ADI) designs, manufactures and markets high performance analog, mixed-signal and digital signal processing integrated circuits used in signal processing for industrial, communication, computer and consumer applications. Across the range of its signal processing ICs are general-purpose products used by a variety of customers and applications as well as many application-specific products designed for specific clusters of customers in vertical markets. The firm's products play a role in converting real-world phenomena such as temperature, motion, pressure, light and sound into electrical signals to be used in an array of electronic equipment ranging from industrial process control, factory automation systems equipment, smart munitions, base stations, central office equipment, wireless telephones, computers, automobiles, CAT (Computer Aided Tomography) scanners, digital cameras and DVD players. The company's quarterly report is due on or about 2/12/04. ADI - Analog Devices $47.85 PLAY (less conservative - bullish/credit spread): BUY PUT FEB-40.00 ADI-NH OI=2020 ASK=$0.15 SELL PUT FEB-45.00 ADI-NI OI=3221 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$44.40 __________________________________________________________________ KOSP - KOS Pharmaceuticals $51.00 *** Uptrend Intact! *** KOS Pharmaceuticals (NASDAQ:KOSP) is a fully integrated specialty pharmaceutical firm engaged in developing and commercializing a range of proprietary prescription products for the treatment of chronic cardiovascular and respiratory diseases. The firm makes the two products that it markets, Niaspan and Advicor. Developed for mixed lipid disorders, Niaspan is a once-daily formulation of a product that has niacin as the active ingredient. Advicor is a solid-dose drug containing Niaspan and lovastatin, which is a cholesterol-lowering drug that will be used to treat mixed lipid disorders. The firm cardio-metabolic products under development consist of controlled-release, once-a-day, oral dosage products. KOSP - KOS Pharmaceuticals $51.00 PLAY (conservative - bullish/credit spread): BUY PUT FEB-40.00 KQW-NH OI=1421 ASK=$0.25 SELL PUT FEB-45.00 KQW-NI OI=1438 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$44.50 __________________________________________________________________ MSTR - MicroStrategy $62.40 *** Earnings Surprise = Rally! *** MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly critical business intelligence software market. Large and small firms alike are harnessing MicroStrategy's business intelligence software to gain vital insights from their data to help them proactively enhance cost-efficiency, productivity and customer relations and optimize revenue-generating strategies. The firm's business intelligence platform offers exceptional capabilities that provide organizations, in virtually all facets of their operations, with user-friendly solutions to their data query, reporting, and advanced analytical needs, and distributes valuable insight on this data to users via Web, wireless, and voice. MSTR - MicroStrategy $62.40 PLAY (conservative - bullish/credit spread): BUY PUT FEB-50.00 EOU-NJ OI=442 ASK=$0.30 SELL PUT FEB-55.00 EOU-NK OI=258 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$54.45 __________________________________________________________________ AVCT - Avocent $36.56 *** In A Trading Range? *** Avocent Corporation (NASDAQ:AVCT), together with its wholly owned subsidiaries, designs, manufactures and sells analog and digital KVM (keyboard, video and mouse) switching systems, as well as serial connectivity devices, extension and remote access products and also display products for the computer industry. The firm's switching and connectivity solutions offer information technology managers with access and control of multiple servers and network data centers from any location. Earnings are due Tuesday, 2/3/04. AVCT - Avocent $36.56 PLAY (conservative - bearish/credit spread): BUY CALL FEB-42.50 QVX-BV OI=232 ASK=$0.25 SELL CALL FEB-40.00 QVX-BH OI=599 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=11% B/E=$40.25 __________________________________________________________________ OVTI - OmniVision $48.48 *** Downtrend Resumes! *** 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 $48.48 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-60.00 UCM-BL OI=3864 ASK=$0.50 SELL CALL FEB-55.00 UCM-BK OI=3592 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$55.65 __________________________________________________________________ LLY - Eli Lilly $68.04 *** Consolidation Underway? *** Eli Lilly & Co (NYSE:LLY) discovers, develops, manufactures and sells pharmaceutical products. The company manufactures and distributes its products through owned or leased facilities in the U.S., Puerto Rico and 19 other countries. Over all, Eli Lilly's products are sold in approximately 150 countries. Most of the products the company sells were discovered or developed by its own scientists and its success depends to a great extent on its ability to continue to discover and develop new pharmaceutical products. Eli Lilly directs its research efforts primarily toward the search for products to diagnose, prevent and treat human diseases. The company also conducts research to find products to treat diseases in animals and to increase the efficiency of animal food production. LLY - Eli Lilly $68.04 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-75.00 LLY-BO OI=2940 ASK=$0.10 SELL CALL FEB-70.00 LLY-BN OI=6105 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$70.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ INTU - Intuit $50.37 *** Tax Season Approaches! *** Intuit (NYSE:INTU) is a provider of business tax preparation and personal finance software products and Web-based services that simplify complex financial tasks for consumers, small businesses and accounting professionals. The company's principal products and services include Quicken, QuickBooks, Quicken TurboTax, ProSeries, Lacerte and Quicken Loans. Intuit offers products and services in five principal business divisions, which include Small Business, Tax, Personal Finance, Quicken Loans and Global Business. INTU - Intuit $50.37 PLAY (less conservative - bullish/debit spread): BUY CALL FEB-45.00 IQU-BI OI=193 ASK=$5.60 SELL CALL FEB-47.50 IQU-BW OI=735 BID=$3.40 INITIAL NET-DEBIT TARGET=$2.15-$2.20 POTENTIAL PROFIT(max)=14% B/E=$47.20 __________________________________________________________________ AVID - Avid Technology $47.04 *** Post-Earnings Slump? *** Avid Technology (NASDAQ:AVID) develops, markets, and supports a wide range of software, and hardware and software systems, for digital media production, management and distribution. Avid Technology participates in two principal markets transitioning from well-established analog content-creation processes to digital content-creation tools. Both of these markets, video and film editing and effects and professional audio, are using the worldwide web to collaborate and distribute video and audio content. The company's products, which are categorized into the two principal markets in which they are sold, are used worldwide in production and post-production facilities, film studios, network, affiliate, independent and cable television stations, recording studios, advertising agencies, government and also educational institutions, corporate communication departments, and by game developers and Internet professionals. AVID - Avid Technology $47.04 PLAY (less conservative - bearish/debit spread): BUY PUT FEB-55.00 AQI-NK OI=98 ASK=$8.10 SELL PUT FEB-50.00 AQI-NJ OI=233 BID=$3.70 INITIAL NET-DEBIT TARGET=$4.35-$4.40 POTENTIAL PROFIT(max)=14% B/E=$50.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ MXT - Metris Companies $6.04 *** Cheap Speculation! *** Metris Companies (NYSE:MXT) operates with its subsidiaries to provide financial products and services throughout the United States. MCI's principal subsidiaries are Direct Merchants Credit Card Bank, National Association (Direct Merchants Bank), Metris Direct, and Metris Receivables. The company issues credit cards, and thereby generates consumer loans through, Direct Merchants Bank, which obtains information about prospective customers from credit bureau information, as well as from other third-party sources including other companies' customer lists and databases. Metris also offers consumers a variety of enhancement services products, including credit protection, membership program and warranty products, third-party insurance and list syndication. MXT - Metris Companies $6.04 PLAY (very speculative - bullish/synthetic position): BUY CALL MAR-7.50 MXT-CU OI=73 ASK=$0.35 SELL PUT MAR-5.00 MXT-OA OI=40 BID=$0.35 INITIAL NET-CREDIT TARGET=$0.05-$0.10 INITIAL TARGET PROFIT=$0.25-$0.35 Note: Using options, this position is similar to being long in the stock. The minimum initial margin/collateral requirement for the sold (short) option is approximately $175 per contract. However, do not initiate this position if you can not afford to purchase the stock at the sold call strike price ($5.00). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ SONS - Sonus Networks $8.54 *** Speculators Only! *** Sonus Networks (NASDAQ:SONS) is a leading provider of packet voice infrastructure solutions for wireline and wireless service providers. With its Open Services Architecture, Sonus delivers end-to-end solutions addressing a full range of carrier applications, including trunking, residential access and Centrex, tandem switching, and IP voice termination, as well as enhanced services. Sonus' award-winning voice infrastructure solutions, including media gateways, softswitches and network management systems, are deployed in service provider networks worldwide. SONS - Sonus Networks $8.54 PLAY (speculative - bullish/calendar spread): BUY CALL JUL-10.00 UJS-GB OI=4534 ASK=$1.40 SELL CALL FEB-10.00 UJS-BB OI=18038 BID=$0.35 INITIAL NET DEBIT TARGET=$0.95-$1.00 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. __________________________________________________________________ FRX - Forest Labs $74.49 *** Probability Play *** Forest Laboratories (NYSE:FRX) develops, manufactures and sells both branded and generic forms of ethical drug products that require a physician's prescription, as well as non-prescription pharmaceutical products sold over-the-counter. The company's most important U.S. products consist of branded ethical drug specialties marketed directly, or "detailed," to physicians by its Forest Pharmaceuticals, Therapeutics and Specialty sales forces. The company's many products include those developed by Forest and those acquired from other pharmaceutical companies and integrated into Forest's marketing and distribution systems. FRX - Forest Labs $74.49 PLAY (speculative - neutral/debit straddle): BUY CALL MAR-75.00 FRX-CO OI=473 ASK=$3.10 BUY PUT MAR-75.00 FRX-OO OI=363 ASK=$3.50 INITIAL NET-DEBIT TARGET=6.40-$6.50 INITIAL TARGET PROFIT=$2.90-$4.10 __________________________________________________________________ ************************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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