The Option Investor Newsletter Sunday 04-04-2004 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: Blowout! Futures Market: See Note Index Trader Wrap: Vrrrt, squeak, rivet, crank, tweak.... Editor's Plays: Chip Rally? Market Sentiment: On Your Mark Ask the Analyst: See Note Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 04-02 WE 03-26 WE 03-19 WE 03-12 DOW 10470.59 +257.62 10212.9 + 26.37 10186.6 - 53.48 -355.47 Nasdaq 2057.17 + 97.15 1960.02 + 19.55 1940.47 - 44.26 - 62.90 S&P-100 558.10 + 14.58 543.52 - 0.16 543.68 - 6.24 - 18.53 S&P-500 1141.81 + 33.75 1108.06 - 1.68 1109.74 - 10.83 - 36.29 W5000 11202.42 +362.24 10840.2 - 12.80 10852.9 -115.20 -346.24 SOX 513.86 + 34.61 479.25 + 15.90 463.35 - 21.75 - 19.15 RUT 603.45 + 30.53 572.92 + 2.18 570.74 - 12.10 - 16.70 TRAN 2966.66 +130.76 2835.90 + 49.07 2786.83 - 76.26 - 29.98 VIX 15.64 - 1.69 17.33 - 1.82 19.15 + 0.85 + 3.82 VXO 15.56 - 1.65 17.21 - 1.95 19.16 + 0.44 + 3.92 VXN 21.35 - 1.69 23.04 - 2.95 25.99 + 0.69 + 3.22 TRIN 0.52 0.89 1.93 0.44 Put/Call 0.68 0.77 1.03 1.05 ****************************************************************** Blowout! by Jim Brown The administration finally found all those lost jobs and they eagerly took to the airwaves to pound their economic drum. The markets exploded at the open with new highs for the week across the board. After two attempts to sell off the markets returned to the highs at the close. This was a very bullish end to a bullish week. The big news for the day was of course the blowout Jobs report. The economy added +308,000 jobs in March according to the Dept of Labor. They also conveniently "found" some additional jobs for Jan and Feb. The Feb number was revised up from 21,000 to 46,000 and the January number jumped from 97,000 to 159,000. The total new jobs for this release totaled an amazing +395,000 jobs. This was nearly four times the consensus estimates if you include the revisions. Job Table - last ten months Gains were broad based across all industries with service companies adding +230,000 jobs. The unemployment rate rose to 5.7% because there was a net increase to the unemployed of +182,000 despite the strong job creation. This could be from midterm graduates and returning national guard troops. There were some strange side effects. The hours worked index fell slightly and the Household Employment survey showed a drop in employment for March. This survey has been showing strong gains and the government has been pointing to it as an example of entrepreneur growth. Overall the jobs report was very strong and with the revisions proves the wild whisper numbers were not as wild as analyst's had thought. Now the bad news. The massive jump in jobs wiped out bonds with yields returning to early February levels. The cheap interest rates available to spur home buying and refinancing this spring are now history and the downhill trend was completely erased. The chances for the Fed to reenter the mix have increased dramatically. The Fed Funds Futures are showing the chance of a hike is possible after the May 4th meeting. It could come as early as the two-day meeting on June-29th. The Fed will likely wait for the May Jobs number to see if we get a confirmation. That jobs report is due out on May-7th, three days after the FOMC meeting. If that number is another blowout the odds are good we could see an inter meeting rate hike. This has been a historical pattern when jobs suddenly explode. Economists were quick to point out that the Jobs blowout on Friday was exactly ten years to the day from the jobs blowout in April 1994 when +468,000 jobs ended a long drought. The economy was in the midst of another jobless recovery after the first gulf war and each month analysts were predicting strong gains but each month was a constant disappointment. The April blowout broke the trend and started a long string of months with strong job growth that led into the late 90s economic boom. Investors are hoping this repeat of the 1994 pattern will continue. This was the largest single month job gain since April-2000. One day too late to be another April fools prank MSFT and SUNW kissed and made up. They buried their hatchets and not in each others back. Steve Ballmer and Scott McNealy shook hands and traded jokes at a news conference to announce an end to lawsuits between the two companies and a new ten-year agreement to cooperate. Scott was especially happy from a nearly $2 billion windfall that Microsoft agreed to pay to end the fighting and as an advance on future deals. With SUNW slowly slipping off the technology screen with the advent of Linux and the growing IBM server threat the deal was a life preserver for SUNW. Sun may not be in any financial risk with $7 billion in cash but agreeing to join Microsoft to take on the world was a good move. This puts them on the winning team with the 800lb bully ready to kick dirt on any competitors. The two are stronger together than they are as adversaries and the market celebrated with a +21% jump in SUNW stock. This is even more amazing considering SUNW warned Friday morning that they were not going to hit estimates for the 1Q and would lose -23 to -25 cents when analysts were only expecting them to loss -3 cents. They said they were cutting -3300 employees in a restructuring effort to return to profits. The agreement should improve communications across networks with SUNW servers and Windows PCs. It also removes even more antitrust concerns from the cloud over Microsoft and puts them several steps closer to emerging from the constant threat of litigation. The blowout on Friday was led by techs and the jump in Microsoft and Sun Micro did not hurt. However the gains were very broad based with advancers having better than a 2:1 advantage over decliners. Nasdaq volume was much stronger with 2.1B shares and 6:1 advancing over declining. This was a very strong tech move and the Nasdaq soared to close at the high of the day at 2054. The Dow vaulted back to 10470 and a +97 point gain. This capped a +463 point gain from last weeks lows. Traders were somewhat disappointed with the less than +1% gain on the Dow for the day compared to the +2.1% gain on the Nasdaq and +3.74% gain on the SOX. The NYSE did trade over 2B shares but the A/D numbers were almost equal and the A/D volume was only 2:1. The challenge on the NYSE was the large number of financial and stocks related to home building that took serious hits on the jump in interest rates. A +97 point gain is nothing to sneeze at but the Dow definitely has an uphill battle from here. From the March high at 10753 to the March lows at 10007 the Dow dropped -746 points. Friday's close was exactly to the 61.8% retracement of those gains. For the prior two days we were stuck at the 50% retracement level at 10380 and Friday's news blew that resistance away only to come to a dead stop at the next higher level. For next week we have a light economic schedule and the calendar timing and Good Friday holiday will produce very few earnings. The really heavy news on stocks will not begin until the following week. This sets up next week as a positioning week. With bonds likely to be dead money for the foreseeable future there should be some serious asset allocation back into stocks. What better week to do it than the first week of a quarter with retirement funds flowing into equities and with a real signs the economy is growing. Earnings are still expected to be strong and the positive jobs news will give Bush a boost in the polls. All the stars are aligning for an April rally. What is wrong with this picture? Emotionally nothing but technically it will not be a walk in the park. For the Dow I mentioned the 61% retracement level at 10468 and there is also the 50dma at 10461. There is also strong horizontal resistance at 10525 and the Dow is very extended at +463 off the lows with no real profit taking. Dow Chart - Daily The Nasdaq has exploded off the bottom with a +8.5% gain of +160 points and no material profit taking. The close at 2057 is just below resistance at 2060 with additional resistance at 2085. This sets up a very rough uphill road over the next 30 points. Nasdaq Chart - Daily On the surface it would appear the markets could struggle next week. However there could be a strong bid under the markets from asset allocation and from an affirmation of the economic trend. One of the strongest indexes on Friday was the SOX. The SOX bounce came from the strong year over year gains in the Semiconductor Billings report also on Friday. February billings only rose +0.2% over January but this is normally a declining month. Chips usually decline in Dec/Jan and remain weak due to seasonal patterns making the even the minor gains a welcome change. When viewed on a year over year basis February billings were up +31% and the strongest gain since late 2000. Higher global spending on IT equipment is credited with the surge in billings. There are strong tax incentives that expire this year that allows companies to depreciate an additional 50% of equip and software if purchased by year end. The latest CIO magazine poll showed CIOs plan to increase spending by more than +7% this year and signs of an expanding economy could push it higher. The SOX rallied strongly on the news and this could help keep a bid under techs next week. Also helping keep a bid under the market is the mutual fund quarter end retirement flows and the asset allocation shift out of bonds. This could setup a really strong move. This may sound entirely contrary to the prior resistance paragraphs. However if you think back you will probably remember that some of the strongest gains tend to come when the most factors predict otherwise. Shorts begin loading up on the bearish technical factors and the sudden buying catches them off guard. While everyone is predicting a profit taking pullback the rally just keeps getting stronger. We have seen this numerous times in the past. I remember several vividly as I was one of those ticking off the reasons why the markets "should" be resting. I watched the markets rise into the close on Friday from a position of amazement. We were already severely extended and at resistance with weekend event risk ahead. News reports of terror warnings for the US failed to push anyone to the sidelines. I am sure it was partially due to shorts finally taking their lumps but there were also strong internals suggesting buyers trying to get in ahead of next week. Tuesday is Passover and Good Friday is a market holiday. Volume will be light on Tuesday and Thursday is loaded up with economic reports. This is typically a bullish week but Monday will be the key. We have a strong running start going into Monday and a strong open that does not crumble could set the trend for the entire week. I am definitely not going out on a limb and suggesting that next week is going to see a continuation of the rally but I am not going to bet against it either. For whatever reason we had a normal correction in March and one that was way overdue. This cleared the way for a new leg up if conditions warranted it. This week we had a strong ISM and strong jobs and bullishness is breaking out all over. Next week could be the staging platform for any earnings run and there are no bears in sight. This alone is a prime reason to keep your eyes open for a sudden reversal but don't fight any further gains. Go with the flow not against it. Easy to say, hard to do. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ******************** INDEX TRADER SUMMARY ******************** Vrrrt, squeak, rivet, crank, tweak.... If you've ever been to commercial garage to get the tires rotated, transmission checked, or get your car tuned up, you're probably familiar with various sounds in this weekend's wrap. Listen.... can you hear it? That's the sound coming out of most economist's offices this weekend as they try and fine tune their economic models to adjust for Friday's blockbuster release of nonfarm payroll data, where the Labor Department said the economy generated 308,000 jobs in March, which was well above economists' forecast of 123,000. Before we say "those economist's have their heads in the sand, and wouldn't be able to forecast a rainstorm if it were already raining," the Labor Department added that prior months data was revised higher! How could even the smartest of economists make an accurate prediction when the base numbers, dating back to January, are being revised? Nonfarm Payroll Table - March 2004 thru September 2003. While March's jobs growth was much higher than economists' had forecast, even the Labor Department said it previously released figures from 03/05/04 (February report) and 02/06/04 (January report) were incorrect, and the economy added 87,000 more jobs than was reported in the prior two periods. It's a tough job to try and forecast something, when you base data is constantly being changed. In the larger scope of things, and upward revision of 87,000 jobs in the prior two months is rather insignificant, but it makes an economists, and stock/bond investors rather uncertain as to what they are dealing with. For an economist, they go back to the drawing board, plug in the latest bit of data, rerun their economic models and see if it spits out a relatively close ballpark figure to what was just reported. Investors have to do the same thing, and there was a lot of refiguring, or adjustments being made to some financial models in today's trade, where volumes at both the NYSE and NASDAQ were heavy. Market Snapshot / Internals - 04/02/04 Close The major indices jolted higher at the open, but for the most part, traded what I would consider to be a narrow range from that point forward. While there were some intra-day gyrations, they were rather gradual after the initial bullish response. I never really noticed, until preparing the final Market Snapshot Internals, that while the NYSE Composite showed a growing number of new highs from yesterday's final tally (308), Friday's 27 new lows, in a rather bullish index trade found today's number of new lows somewhat high to yesterday's count of 27. Responses found among interest rate-sensitive sectors had banks and homebuilders trading lower with the S&P Banks Index (BIX.X) 344.51 -1.32% and Dow Jones Home Construction Index (DJUSHB) 644.47 -4.26% diverging from broader equity gains. Treasuries found sharp selling as market participants began wondering if the strong payroll data will have the Fed less patient with its easy monetary policy of low fed funds. 10-year Treasury Bond YIELD ($TNX.X) - 5-minute intervals Treasury bond prices were crushed just after the official release of the nonfarm payroll data. There was suspicious selling just just prior to 08:30 AM EST, where bond traders suspect that somebody may have leaked the nonfarm figures before illegally. Did you know that the Bureau of Labor Statistics doesn't allow the trash collector in its offices for a full week before the release of the nonfarm payroll report? That's how secretive and market moving this data can be. (I didn't know this until today) To put today's Treasury bond action in perspective, the Lehman 7- 10 year iShares (AMEX:IEF) $85.47 -1.84% dropped rather sharply. While not an exact correlation, imagine that an investor BOUGHT a 10-year Treasury bond yesterday with the thought that a 3.9% annual YIELD was a bargain. They'll most likely collect that 3.9% per year, but suffered a -1.84% account loss on Friday. If nothing changes for the next 5-months, then the bond investor that bought yesterday, will be back to break-even in about 5- months after collecting their interest check. S&P Depository Receipts (AMEX:SPY) - 5-minute intervals While Treasuries found selling at the open, then traded rather sideways, the SPY, which tracks the S&P 500 Index (SPX.X) 1,141.81 +0.84% jumped at the open, then traded a range from roughly $114-$114.60 the remainder of the session. We can't tell anything from just one session, but bond and stock market reaction, and remainder of day's trade suggests a MARKET thought that economy is strong (stocks) and that the Fed may now be starting to consider raising its fed funds rate. (DAILY and WEEKLY levels were shown so traders utilizing the Pivot Matrix would have some price/level reference). 10-year YIELD ($TNX.X) Chart - Weekly Intervals It is time to really start monitoring Treasury YIELDS, as rising YIELD could have potential near-term negative impact for equities. At the same time, the selling of Treasuries could have incredibly bullish implications for stocks! First, I would want to be alert to a 10-year YIELD that move above trend. Anytime a longer-term trend is broken (up or down) it signals some type of shift in MARKET thought. Near-term negative implications: Why did Treasuries see a rather sharp round of selling today, and this week? Let's say it was because the economy really looks to be adding jobs and that the MARKET now sees a greater chance of the Fed raising its fed funds rate sooner than some (even the Fed) has been suggesting. The negative implication that I could foresee on a near-term basis, is that Treasury bulls really begin stepping up their selling, and YIELD breaks above longer-term trend, and even the 45.00, or 4.5% level. How much CONFIDENCE do YOU have in the Labor Department's statistics on what type of jobs the economy is really generating? How much CONFIDENCE do YOU have in economists' forecasts, which can be used by market participants when considering what stocks to be buying or selling? Go back and review the nonfarm payroll table to see how much CONFIDENCE anyone can have at this point. To have CONFIDENCE, it usually takes several observations to build a more predictable trend. Right now, I'd have to say the month-to-month nonfarm payroll data is somewhat unpredictable. The economy is generating jobs, and just as President Bush, Fed Chairman Alan Greenspan and Treasury Secretary John Snow predicted (for months) the economy does look to be ramping up some job growth, but I'm not sure how much CONFIDENCE there can be at this point. What it usually takes to overcome higher interest rates, especially in the early stages of economic recovery is CONFIDENCE in many of the various economic trends, where job growth is usually the last indicator to show improvement. Friday's reaction from both the stock and bond markets would appear to show some sign of optimism about jobs growth, which the Fed has said might have it changing its views on the current accommodative monetary policy. Positive implications: The positive implications of rising Treasury YIELDS, which is only brought on by selling in the underlying Treasury, is that the REWARD of owning these bonds isn't worth the RISK, and should there be CONFIDENCE that job growth is in an early ramp up stage, where jobs equals more money available for consumer spending to further grow the economy, then a rising Treasury YIELD, which will raise the borrowing costs for YOU and I, can be absorbed actually offsets each other. June Crude Oil Futures (cl04m) - Daily Intervals I showed the above chart of June Crude Oil Futures (cl04m) in the 03/18/04 Index Trader Wrap after the recent Producer Price Index figures were released, where concern regarding inflation was thought to be responsible for stock's declining. This week, OPEC announced they would cut their daily production quota by 1 million barrels per day. Oil ministers say that prices in the futures market were not accurately depicting the current supply/demand dynamics in the market and that if they didn't cut their oil output, prices were going to fall sharply. It may be hard to believe, but there has been talk for months that Oil and oil futures have been bought to hedge currencies. Despite OPEC announcing production cuts, oil prices in the futures markets actually fell this week. Now get this.... In Friday's Market Monitor, fellow analyst Jonathan Levinson, who is always on the lookout for inflation noted that Georgia Pacific (NYSE:GP) $34.15 +0.44% was raising Dixie Cup, plate and cutlery prices 4% to 6%, and would raise paper towel, tissue and napkin prices 6% to 9%. We can begin to understand that this is inflationary at the consumer level, and most likely, GP is raising prices to offset the rise in fuel prices, which GP relies on to make its products. I thought to myself, and posted a reply to Jonathan's comment that this might be GOOD NEWS! Actually, I was playing devils advocate, when I made the comment that it was good news that GP actually felt they could raise prices for their goods. Hasn't that been a NEGATIVE often mentioned? That company's have no pricing leverage? I also wondered how long GP has been waiting to make this announcement? It might well be coincidence, but what better time to announce a price increase, when the economy shows robust jobs growth, while Oil prices are falling. Could the scenario of raising the price for your product be a positive for a company like GP, or other companies, if the economy begins ramping up job growth, and oil prices fall? OK... so maybe we need to keep tabs on oil prices and jobs data. Think about not only the NEGATIVE implications, but also the POSITIVE implications. Jobs and oil/fuel prices were perhaps this weeks top economic news events, where both can have implications for what the Fed is thinking in regards to interest rates, which could draw a reaction from the bond market, which could then impact consumer borrowing costs, where selling in Treasuries could have positive, or negative implications for equities. Pivot Analysis Matrix - A quick note I want to make for the S&P Banks Index (BIX.X) is that Friday's range of trade, was also the week's range of trade. For such a move to take place, I would have to think the nonfarm payroll data from Friday was a surprise, and most likely had some banking bulls re-thinking some scenarios as it relates to interest rates (where a sharp rise can become a negative) versus the positives that jobs growth (still uncertain as to what type of sustainability or stability of growth) could have on banks. Up in the DAILY Pivots, to the far left, I quickly review Friday's percentage changes for the S&P 500 Index (SPX.X) +0.85%, the NASDAQ-100 Index (NDX.X) +2.55% and the S&P Banks Index (BIX.X) -1.32%. Those that have looked at a chart of the NDX.X or QQQ in recent weeks or months will certainly understand that this tech-heavy index had seen steeper percentage declines, where in just the past 7 sessions, 62% of the mid-January to late-March decline has quickly been erased. One thing I do think traders/investors do need to come to grips with is that we could well be seeing bullish rotation back to a more "oversold" group of stocks. With that said, I also want traders/investors in the SPX and OEX to remember that roughly 25% of the SPX/OEX is comprised of financial stocks. This isn't just banks, but brokerage stocks as depicted by the Broker/Dealer Index (XBD.X) 709.54 -0.10% and insurance stocks, or the S&P Insurance Index ($IUX.X) 331.27 +1.04%. Today's trade among the financial sectors was quite mixed. One reason the brokers were fractionally weak may be attributed to Lehman Brothers (NYSE:LEH) $82.67 -1.77%, which has profited greatly from bullish interest among Treasury bulls, and bond bulls in general, where LEH is one of the largest bond brokers/underwriters in the world. It isn't so much the thought that Treasuries fall out of favor that would impact trading revenues (still a transaction to be had for buyer to meet seller), but if Treasuries begin to lose favor among fixed income investors and YIELDS rise, then there becomes thought that new CORPORATE bond offerings, which translate to underwriting fees for LEH, could begin to dry up. Insurance companies would most likely WELCOME higher Treasury YIELDS. Why? Insurance companies that take in revenue in the form of premiums you and I pay, invest a large portion of those premium in interest bearing securities, which are obligations of the issuer (the government, companies, etc) where the interest paid on those investments can be used to pay claims. Basic thought is that if properly managed, rising bond YIELDS can actually help an insurance company's bottom line. Here's a twist you may not have thought of. What have your insurance premiums been doing the past couple of years? Going up? What have Treasury YIELDS been doing the past couple of years? Going down? What if Treasury YIELDS rise, insurance company's become more profitable and margins grow? Could it be that a rising YIELD then allows an insurance company to actually LOWER insurance premiums for consumers? Remember in a free market economy like we have in the U.S., when profits in a certain segment of the economy become too great, there will be new entrants to that business, looking to share in the profits. With new entrants comes competition. With competition comes lower prices. While a mixed outlook for various financial sectors presents itself should Treasury YIELDs rise, one mindset I think traders should be refreshed on, is the importance of the financial sectors, especially as it relates to the SPX/OEX. Remember too, that the "real" name of the NDX.X is the NASDAQ-100 Non-Financial Index. Again... one day's trade and percentage change I showed for Friday's trade isn't necessarily indicative that money is going to rotate out of banks and into technology, but Pivot Matrix traders that are using the levels to help guide their trade, might have to be prepared, or understand that a WEEKLY R1 for the NDX/QQQ may not be directly tied to the BIX.X or SPX/OEX. Traders of the SPX/OEX might have to begin thinking of these two indices as an 8 cylinder car engine, where with 25% of its weighting being tied to financial sectors, which can be impacted by rising and falling Treasury YIELDS, may run on all 8 cylinders one day, but 6-cylinders the next, as the MARKET tries to sort out the impact of Friday's more robust jobs data. S&P 500 Index (SPX.X) Chart - Daily Intervals During today's session I was making note that the small-cap Russell-2000 Index ($RUT.X) was challenging new highs. With the SPX now boosted above its 50-day SMA, I would be keeping an eye on the RUT.X, and should it make a break above current levels, then I would have to think that the SPX's March 5 highs are in play. Russell-2000 Index ($RUT.X) - Daily Intervals The RUT.X is back at 603 and after briefly violating a downward trend in early March to just barely trade a new 52-week high, the RUT.X found support at a conventional 80.8% retracement taken from its All-time high to the bear market low. With the RUT.X right at the upper end of what has been a trading range, focus can be given to Stochastics, where this oscillator is more informative for trading ranges. Still, the longer-term trend, as depicted by the regression channel, also taken from the bear market low has traders observing MACD ramping higher and back above zero, which looks very bullish. This would be the major index to be monitoring for leadership. I would have to begin thinking renewed weakness only on a reversal back below the starting to round up 21-day SMA of 492.55. NASDAQ-100 Tracking Stock (QQQ) - Daily Intervals Friday's nonfarm payroll data saw the QQQ gap higher, and by session's end, heavy volume of 128.2 million shares traded. While the QQQ is also matching a March 5 relative high of $37.15 (the bar that tucks directly under the 50-day SMA, where QQQ closed just above the current WEEKLY Pivot of $36.59) I would tie current level of trade in the QQQ to the RUT.X. Since the QQQ is more heavily traded buy bulls and bears, where the RUT.X, keep a close eye on the RUT.X in sessions to come. I would expect more shorting in the QQQ, but should the RUT.X be breaking new ground higher to its all-time high, then QQQ could launch further higher to WEEKLY R1. Dow Industrials (INDU) Chart - Daily Intervals Effective at the opening of trade on April 8, 2004, current Dow Components T +1.55%, EK +0.27% and IP +1.16% will be replaced with are going to be replaced AIG +1.33%, PFE +1.15% and VZ +0.92%, which may have the Dow Industrials trading somewhat unnatural until the changes are completed. In today's trade, I made note that both Intel (INTC) $28.12 +2.70% and IBM (IBM) $94.20 +1.98% showed what looked to be reverse head and shoulder patterns on their charts, which I felt could have bullish implications if played out to their pattern objectives. Both stocks broke above their horizontal necklines in today's trade and both traded above average volume. INTC's pattern objective is calculated at $30.00 (head $26, neckline $28), while IBM's pattern objective is calculated at $97.25 (head $90.28, neckline 93.80). INTC is scheduled to announce quarterly earnings on April 13, after the close. Analysts estimates are for the company to earn $0.27 per share compared to year-ago quarter $0.14. IBM is scheduled to announce quarterly earnings on April 15, after the close. Analysts estimates are for the company to earn $0.94 per share compared to year-ago quarter $0.79. Jeff Bailey ************************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 ************** Chip Rally? The semiconductor billing report suggested that PC sales on a global scale are blooming. The report showed that year over year billings rose +31% and it was the strongest gain since late 2000. I reviewed the various chip stocks and decided Intel may actually give us the best chance of an earnings run into April. Intel will announce earnings after the close on April-13th. This gives us a short fuse. Intel has apparently put in a bottom at $27 and the Friday rebound pushed them to just above $28. Intel did not give an exciting mid quarter update and I suspect they were being careful due to the weak January numbers. We have the potential for an upside surprise with earnings because nobody is expecting any good news. Because we want to be out of the play before their announcement or worst case the morning after the release so I am going to use April options. The April $27.50 call closed at $1.10 on Friday. This is 58 cents in the money and should give almost a 90% increase in value for every dollar gain in Intel. I want to say right up front that this is a very high risk play. It assumes we will go higher next week in advance of earnings and there is continued improvement in Intel stock. I am not looking for a big jump in the price. Intel has resistance at $30 and I would be surprised if it moved over that level. Still a touch of $30 would make the call worth $2.50 and I would be glad to see it. There is no stop loss and we are going to let it all hang out. I am going to set a profit target of $30 and we will decide next Sunday if we are going to close it before earnings of after earnings. If we get a pullback at the open on Monday it would provide a better entry point but I am not counting on it. Just get long and let's hope we see $30 soon. I chose Intel rather than some of the other chips because it is still oversold and as a big cap could be seen as a safer bet for funds with extra cash that want a highly liquid stock. If PC growth is accelerating then Intel is the primary beneficiary. Intel Chart - Daily SOX Chart - Daily Best Laid Plans The DJX put play did not survive the week. After being triggered at 10300 on Monday strong rally the lack of any pullback allowed the Dow to push over 10400 at Wednesday's close. The April $102 put was trading at 85 cents when triggered at 10300 and 55 cents when stopped at 10400. **************** MARKET SENTIMENT **************** On Your Mark - J. Brown Get set. Go! Wow! What a week. The markets turned in their best percentage weekly performance since October of last year. The vast majority of the sector indices we follow have broken out above technical resistance at their 50-dma's. The INX Internet index has broken out to new multi-year highs while the SOX semiconductor index is above major resistance and should continue to lead the NASDAQ higher. Speaking of the NASDAQ it is now firmly above resistance at the top of its descending channel and the 2000 level. More importantly the jobs number, which sparked the rally, is the lagging indicator that many on Wall Street and Main Street have been waiting for. Not only will stocks benefit from an asset allocation out of bonds but investors who have been waiting on the sidelines for the jobs number to show up will be trying to enter the markets as well. You wouldn't know it but there was a bomb found on a Spanish railroad on Friday but the markets shook it off with the strong labor data. The 300K-job increase was the best improvement in four years. Right now the only risk to stocks would appear to be a terrorist event. Many "experts" are saying the up coming earnings season should be positive enough to launch the next leg of the bull market at least for the next couple of months. How we fare in mid-summer is another matter. The major indices are short-term overbought but I believe that after a bit of profit taking they'll be up and running into the mid-April earnings season. Don't tell anyone but secretly it wouldn't surprise me to see the NASDAQ fill the gap from Friday morning or at least pull back to the 2020 level. You can bet there will be investors waiting to buy the dip. Be patient, watch those stop losses and time your entries! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8145 Current : 10470 Moving Averages: (Simple) 10-dma: 10252 50-dma: 10461 200-dma: 9848 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 862 Current : 1141 Moving Averages: (Simple) 10-dma: 1114 50-dma: 1133 200-dma: 1060 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1018 Current : 1490 Moving Averages: (Simple) 10-dma: 1424 50-dma: 1462 200-dma: 1388 ----------------------------------------------------------------- Now that the markets are back in rally mode the volatility indices are quickly fading back toward their multi-year lows. CBOE Market Volatility Index (VIX) = 15.64 -1.01 CBOE Mkt Volatility old VIX (VXO) = 15.59 -1.56 Nasdaq Volatility Index (VXN) = 21.35 -2.06 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.68 1,154,470 788,367 Equity Only 0.53 994,736 531,671 OEX 1.55 37,515 57,994 QQQ 1.21 177,722 215,207 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.1 + 1 Bull Correction NASDAQ-100 50.0 + 6 Bear Correction Dow Indust. 83.3 + 0 Bear Confirmed S&P 500 76.6 + 2 Bear Confirmed S&P 100 79.0 + 1 Bull Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.74 10-dma: 1.08 21-dma: 1.38 55-dma: 1.15 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 1612 2169 Decliners 1208 949 New Highs 201 184 New Lows 20 6 Up Volume 1378M 1821M Down Vol. 568M 294M Total Vol. 1961M 2167M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 03/30/04 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 Not much change in the commercial traders' positions this past week. Small traders turned a little less bearish. Commercials Long Short Net % Of OI 03/09/04 418,394 433,237 (14,843) (1.7%) 03/16/04 454,635 449,505 5,130 0.6% 03/23/04 401,456 418,732 (17,273) (2.1%) 03/30/04 407,987 420,624 (12,673) (1.5%) 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 03/09/04 155,947 88,317 67,630 27.7% 03/16/04 159,054 115,023 44,031 25.3% 03/23/04 130,648 89,943 40,705 18.5% 03/30/04 130,112 81,937 48,175 22.7% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Almost the same holds true here. Commercial traders edged up their short positions but not by much. Small traders turned a little less bullish. Commercials Long Short Net % Of OI 03/09/04 431,623 485,268 (53,645) ( 5.9%) 03/16/04 472,809 574,241 (101,432) ( 9.7%) 03/23/04 268,647 294,930 (26,283) ( 4.7%) 03/30/04 265,492 305,797 (40,305) ( 7.1%) 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 03/09/04 135,233 76,558 58,675 27.7% 03/16/04 192,136 96,691 95,445 33.0% 03/23/04 131,879 59,210 72,669 38.0% 03/30/04 123,494 59,550 63,944 35.0% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Whoa! Commercials turned bearish on the NASDAQ just before it broke out over resistance. Unless that's a typo by the COT it will be interesting to see how that number changes next week. Small traders turned more bearish. It's been a painful week for everyone here. Commercials Long Short Net % of OI 03/09/04 57,368 46,082 11,286 10.9% 03/16/04 68,285 54,899 13,386 10.9% 03/23/04 52,014 34,017 17,997 20.9% 03/30/04 52,749 67,967 (15,218) (12.6%) Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 13,386 - 03/16/04 Small Traders Long Short Net % of OI 03/09/04 15,533 8,070 7,463 31.6% 03/16/04 27,859 18,333 9,526 20.6% 03/23/04 9,884 12,887 (3,003) (13.2%) 03/30/04 8,928 16,551 (7,623) (30.0%) 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 Very little change in commercial traders' positions while small traders pared back their longs. Remember, these numbers are prior to the jobs report on Friday. Commercials Long Short Net % of OI 03/09/04 26,867 12,845 14,022 35.3% 03/16/04 32,317 17,514 14,803 29.7% 03/23/04 23,048 22,119 929 2.1% 03/30/04 23,642 22,180 1,462 3.2% 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 03/09/04 7,053 19,159 (12,106) (46.2%) 03/16/04 10,002 20,970 (10,968) (35.4%) 03/23/04 8,344 6,734 1,610 10.7% 03/30/04 7,020 6,711 309 2.3% Most bearish reading of the year: (12,106) - 3/09/04 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 *************** Look for the Ask the Analyst column on Monday! ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ AYI Acuity Brands, Inc. Tue, Apr 6 -----N/A----- 0.16 AA ALCOA Inc Tue, Apr 6 After the Bell 0.42 ISCA Intl Speedway Tue, Apr 6 Before the Bell 0.52 RI Ruby Tuesday Tue, Apr 6 After the Bell 0.47 UTIW UTi Worldwide Tue, Apr 6 Before the Bell 0.32 ------------------------ WEDNESDAY ----------------------------- STZ Constellation Brands Wed, Apr 7 After the Bell 0.54 DNA Genentech, Inc. Wed, Apr 7 After the Bell 0.31 LI Laidlaw International Wed, Apr 7 After the Bell 0.13 RIMM Res In Motion Limited Wed, Apr 7 -----N/A----- 0.50 RPM RPM International Inc Wed, Apr 7 After the Bell 0.06 YHOO Yahoo, Inc. Wed, Apr 7 -----N/A----- 0.10 ------------------------- THUSDAY ----------------------------- ABT Abbott Laboratories Thu, Apr 8 Before the Bell 0.56 ADX Adams Express Thu, Apr 8 -----N/A----- N/A RAD Rite Aid Corporation Thu, Apr 8 Before the Bell 0.08 STI SunTrust Thu, Apr 8 Before the Bell 1.23 ------------------------- FRIDAY ------------------------------- None ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable TACT TransAct Technologies Inc 3:2 Apr 2nd Apr 5th CACB Cascade Bancorp 5:4 Apr 2nd Apr 5th UUU Universal Security 4:3 Apr 5th Apr 6th DKS Dicks Sporting Goods, Inc 2:1 Apr 5th Apr 6th FCFS First Cash Finl Serv Inc 3:2 Apr 6th Apr 7th CRDN Ceradyne, Inc 3:2 Apr 7th Apr 8th DWCH Datawatch Corp 2:1 Apr 8th Apr 9th FOSL Fossil, Inc 3:2 Apr 8th Apr 9th GBTS Gateway Finl Holdings 21:20 Apr 8th Apr 9th CFC Countrywide Financial Corp3:2 Apr 12th Apr 13th CBU Community Bank System Inc 2:1 Apr 12th Apr 13th HIBB Hibbett Sporting Goods 3:2 Apr 16th Apr 19th AVD American Vanguard Corp 3:2 Apr 16th Apr 19th MSFG MainSource Financial Group3:2 Apr 16th Apr 19th SHFL Shuffle Master, Inc 3:2 Apr 16th Apr 19th -------------------------- Economic Reports This Week -------------------------- Now that the jobs report is past Wall Street will focus on the Q1 earnings season that is just around the corner. This week look for the ISM services number on Monday and the PPI on Thursday. ============================================================== -For- ---------------- Monday, 04/05/04 ---------------- ISM Services (DM) Mar Forecast: 61.0 Previous: 60.8 ----------------- Tuesday, 04/06/04 ----------------- None ------------------- Wednesday, 04/07/04 ------------------- Import Prices ex-oil (BB) Mar Forecast: N/A Previous: 0.4% Consumer Credit (DM) Feb Forecast: $7.6B Previous: $14.3B ------------------ Thursday, 04/08/04 ------------------ Initial Claims (BB) 04/03 Forecast: N/A Previous: 342K PPI (BB) Date TBA Mar Forecast: N/A Previous: 0.1% Core PPI (BB) Date TBA Mar Forecast: N/A Previous: 0.1% Wholesale Inventories (DM) Feb Forecast: 0.2% Previous: 0.1% ---------------- Friday, 04/09/04 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-04-2004 Sunday 2 of 5 In Section Two: Watch List: A Very Mixed List to Watch! Dropped Calls: AVID, LXK, KBH Dropped Puts: None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** A Very Mixed List to Watch! ___________________________________________________________________ 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. ___________________________________________________________________ Stryker Corp - SYK - close: 92.97 change: +2.97 WHAT TO WATCH: A positive upside earnings revision from rival ZMH sent shares of SYK soaring on Friday. After two and a half months of consolidation between $85 and $92 this breakout might be the real deal. It produced a new buy signal on its P&F chart and its MACD indicator. We'd prefer to buy a dip back toward $90 or at least $91.00. Our target is round-number psychological resistance at $100.00. Chart= --- Scotts Co - SMG - close: 66.90 change: +0.70 WHAT TO WATCH: It's that time of year again. Spring has sprung and Americans are faced with the task of bringing the yard back to life before their home owners association sends them a nasty letter. Who better to help them than SMG. The stock recently broke out over resistance at $65 on big volume. We'd look for a dip back to this level as a bullish entry point. Happy weeding. Chart= --- Trimble Navigation - TRMB - close: 24.34 change: +1.22 WHAT TO WATCH: TRMB, a major player in the GPS navigation industry, is really enjoying the strength in tech stocks. Friday's 5% rally sent TRMB soaring above resistance at $23.50 and its 50-dma. Even the close over the $24 mark is good news. The $26 mark might be near-term resistance but it wouldn't surprise us to see TRMB slowly climb back toward its January highs. Chart= --- Kohls Corp - KSS - close: 46.97 change: -0.32 WHAT TO WATCH: We've been watching KSS for a bearish play entry point for some time but the bullishness in the markets has made us hesitant to jump in. Wednesday's close under its 50-dma looked good but it rebounded up off its lows for the session. Thursday's breakdown under its 50-dma and test of the 100-dma look good too but the markets waited for the jobs report. Sure enough KSS soared with the markets at the open on Friday only to lose it all within the first hour or two. Now that we have a very strong failed rally on rising volume we'd be willing to risk it and buy puts. The $45 level might act as support but the real target is probably the $41-40 region. Chart= --- Sunoco Inc - SUN - close: 58.94 change: -0.60 WHAT TO WATCH: Look out below! Shares of SUN have been strongly under performing the market the last two days with no participation the rally. Contributing to its weakness was Prudential's downgrade of SUN and two other oil refiners on Friday to "under weight". The drop on Friday broke SUN's technical support at its 50-dma, which has held up for months. Now we're a little hesitant to short oil refiners with business so strong and oil demand growing but the daily chart suggests that SUN should be vulnerable toward its 100-dma near $55.00. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- DE $70.18 +1.03 - DE is in the same boat as CAT. Both are enjoying strong sales due to the expanding global economies. Fortunately for DE it's at near a new all-time high and shooting higher after a bullish reverse Head-and-shoulders breakout. We would target $75.00. ODFL $36.57 +1.20 - The transports are breaking out again and JP Morgan upgraded some trucking stocks on Thursday. ODFL was one of them. Friday's rally sent ODFL to a new all-time closing high and a triple-top P&F breakout buy signal. YUM $38.50 +0.45 - YUM is either about to breakout over resistance at $39.00 or form a bearish double-top. We'd bet on the former since a handful of restaurants have been issuing strong same-store sales numbers the past couple of weeks. LEH $82.67 -1.49 - No participation in the rally on Friday looks like bad news for LEH. The stock is producing a trend of lower highs and the next stop looks like support at $80.00. A breakdown there and bears could target a move to its 200-dma. ************************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 ^^^^^ Avid Technology - AVID - cls: 46.74 change: -0.62 stop: 42.99 All right, we're throwing in the towel on AVID. Friday marked the third failed rally at the 200-dma in a week. The rest of the market was shooting higher and AVID actually manages a small loss. That's not the kind of relative strength we're looking for in a bullish play. Picked on March 29 at $ 47.35 Change since picked: - 0.61 Earnings Date 04/15/04 (unconfirmed) Average Daily Volume: 663 thousand Chart = --- Lexmark Intl. - LXK - close: 91.71 change: -0.04 stop: 89.50 We've had a nice run from LXK since the stock broke out above the $86 level, but it appears that it is time to book our gains and move on. After once again failing to penetrate the $93 level on Friday, the stock dropped to close near its low of the day and it looks like selling volume is starting to pick up ever so slightly. Not only that, but daily Stochastics are giving an early Sell signal, while at the same time flashing bearish divergence. The lack of participation in Friday's broad market rally is troubling and it's time to book the gain. Aggressive traders willing to hold on for one more attempt at a breakout towards our $95 target should use a tight stop just under the 10-dma. Picked on March 14th at $85.77 Change since picked: +5.94 Earnings Date 4/19/04 (unconfirmed) Average Daily Volume = 1.04 mln --- KB Home - KBH - close: 76.60 change: -3.60 stop: 76.95 Ouch! Earlier we suggested that there was a possibility for the homebuilders turning lower on a stronger jobs number but we didn't expect it to be that sharp. The entire group got smacked with the DJUSHB index down 4.26%. KBH was a little bit weaker down 4.48%. The stock gapped down and opened at $78.00 before quickly trading lower and stopping us out at $76.95, although on some charts there appears to be a bad tick near $72. We'd keep KBH on the watch list as the $75 level could be support and Friday's pull back may end up being a buying opportunity. Picked on March 30 at $ 80.88 Change since picked: - 4.28 Earnings Date 03/16/04 (confirmed) Average Daily Volume: 1.0 million Chart = PUTS ^^^^ None *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-04-2004 Sunday 3 of 5 In Section Three: Current Calls: CAT, EBAY, MGG, NEM, NSM New Calls: BBY, ESRX, PDCO, TK Current Put Plays: AHC, UTSI New Puts: None ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Caterpillar - CAT - close: 81.20 change: +2.20 stop: 78.24*new* Company Description: For more than 75 years, Caterpillar Inc. has been building the world's infrastructure and, in partnership with its worldwide dealer network, is driving positive and sustainable change on every continent. With 2003 sales and revenues of $22.76 billion, Caterpillar is a technology leader and the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. More than half of all sales were to customers outside of the United States, maintaining Caterpillar's position as a global supplier and leading U.S. exporter. The company employs nearly 70,000 people around the world. (source: company press release) Why We Like It: Ka-Boom! The markets exploded upward on the strong jobs number and shares of CAT out performed many of its Dow brethren with a 2.78% gain. The breakout over the $80 mark looks great and CAT should be poised to run toward the $85 level after four days of consolidating between $78 and $80 last week. Please make a bookkeeping note. Friday's gap open at $80.25 is above our trigger at $80.05 so we have to adjust our official entry point to the higher number. We know that some of you might be wondering why CAT performed so well. The stronger jobs number immediately cast the shadow of higher interest rates sooner than previously expected and big construction equipment stocks like CAT tend to do poorly in a higher interest rate environment. Besides some pent up optimism we believe that CAT did well because the jobs number was one of the last remaining indicators to really cement in the minds of investors that the economy was still on track. Not only is the U.S. economy doing well but CAT is also benefiting from the expanding global economy. We've very bullish here but there is headline risk that labor talks could break down between CAT and the UAW union who extended the negotiations until April 18th. We'd be willing to go long at current levels but considering the overbought market conditions it would not be a bad idea to look for a dip back toward the $80.00 mark as a bullish entry point. We're going to raise our stop loss from $77.49 to $78.24. FYI: point-and-figure chart fans will notice that the Friday rally produced a new buy signal and a $98 price target for CAT. Suggested Options: We're going to suggest the May options since Aprils are due to expire in three weeks. Our favorite would be the May 75s if you can afford them. Otherwise the May 80s. BUY CALL MAY 75 CAT-EO OI=2101 at $7.20 SL=5.20 BUY CALL MAY 80 CAT-EP OI=5273 at $3.70 SL=1.85 Annotated Chart: Picked on April 02 at $ 80.25 Change since picked: + 0.95 Earnings Date 04/22/04 (unconfirmed) Average Daily Volume: 2.5 million Chart = --- eBay Inc - EBAY - close: 73.77 change: +1.52 stop: 68.25*new* Company Description: eBay is The World's Online Marketplace(TM). Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. (source: company press release) Why We Like It: (Thursday's Original Write up) We've been waiting and watching for a strong move in EBAY over resistance at $70.00 for weeks. Positive comments from Bear Stearns, who raised their earnings estimates on EBAY's Q1, sparked a rally that didn't stop until it had cleared March's earlier high at $72.00. Volume was almost double the average, which suggests this move is for real this time. The rally today also produced a new bullish buy signal on its MACD oscillator. We feel that EBAY should be able to make a decent earnings run with their announcement just three weeks away on April 21st. As an end of day newsletter we're going to open the play at current levels but we suggest traders look for a dip back toward the $70.00 mark to initiate bullish positions. We're going to start the play with a stop loss at $67.00 even though we believe the $70 level should now act as support. Weekend Update: Was it more short covering after the positive jobs number or just over-eager bulls? Whatever the case EBAY soared even higher on Friday after Thursday's big breakout. Boosting the stock was a strong 2.65% performance in the INX internet index and positive comments from CSFB who reiterated their "out perform" rating for EBAY. We're still hoping for a pull back but excited bulls might not let EBAY dip toward the $70 level again. We're going to suggest that traders look for EBAY to pull back into the $71.00- 72.50 range to initiate entries. We are going to raise our stop loss to $68.25 near its simple 50-dma. FYI: the gain on Friday has extended EBAY's P&F chart buy signal and raised its bullish price target to $93.00. Suggested Options: EBAY's earnings are the 21st of April and we don't plan to hold over the event. However, April options expire on the 16th. So we're going to suggest May calls. Our favorite is the May 70s. Remember, we're suggesting a buy on the dip so these should get cheaper. BUY CALL MAY 70 XBA-EN OI= 3113 at $5.70 SL=3.20 BUY CALL MAY 75 XBA-EO OI= 3527 at $2.80 SL=1.40 Annotated chart: Picked on April 01 at $ 72.25 Change since picked: + 1.52 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 7.0 million Chart = --- MGM Mirage - MGG - close: 46.77 change: +0.59 stop: 44.00*new* Company Description: MGM MIRAGE, one of the world's leading and most respected hotel and gaming companies, owns and operates 12 casino resorts located in Nevada, Mississippi, Michigan and Australia, and has investments in two other casino resorts in Nevada and New Jersey. The company is headquartered in Las Vegas, Nevada, and offers an unmatched collection of casino resorts with a limitless range of choices for guests. Guest satisfaction is paramount, and the company has approximately 40,000 employees committed to that result. Its portfolio of brands include AAA Five Diamond award winner Bellagio, MGM Grand Las Vegas -- The City of Entertainment, The Mirage, Treasure Island ("TI"), New York-New York, Boardwalk Hotel and Casino and 50 percent of Monte Carlo, all located on the Las Vegas Strip; Whiskey Pete's, Buffalo Bill's, Primm Valley Resort and two championship golf courses at the California/Nevada state line; the exclusive Shadow Creek golf course in North Las Vegas; Beau Rivage on the Mississippi Gulf Coast; and MGM Grand Detroit Casino in Detroit, Michigan. The Company is a 50-percent owner of Borgata, a destination casino resort at Renaissance Pointe in Atlantic City, New Jersey. Internationally, MGM MIRAGE also owns a 25 percent interest in Triangle Casino, a local casino in Bristol, UK. (source: company press release) Why We Like It: Casino and gambling stocks continue their out performing ways with the market's widespread rally on Friday. Shares of MGG jumped to another new all-time high after the strong jobs number. Fellow casino operates also lifted the sector after Thomas Weisel upgraded Boyd Gaming (BYD) and Caesars Entertainment (CZR) to "out perform" on Friday. As we see more and more evidence of an improving U.S. economy we should see stronger numbers for the leisure industry. Major players like MGG have already reported stronger pricing power for their rooms in Vegas compared to last year and terrorism fears are likely to keep the strip pretty busy since it's in our own "backyard". We remain bullish on MGG but traders might want to look for a dip back toward $45.50-46.20 range to initiate new positions. Our target is the $50 region. We're going to raise our stop loss to $44.00. Suggested Options: Earnings are coming up less than three weeks from now and we don't plan to hold over the report. That means we can probably get away with using April calls, which expire two days after MGG reports. More conservative traders may feel more comfortable using May or June calls. BUY CALL APR 40 MGG-DH OI= 188 at $7.10 SL=5.10 BUY CALL APR 45*MGG-DI OI=2031 at $2.20 SL=1.10 BUY CALL MAY 45 MGG-EI OI= 124 at $3.20 SL=1.65 Annotated Chart: Picked on March 25 at $ 45.69 Change since picked: + 1.08 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 597 thousand Chart = --- Newmont Mining - NEM - close: 45.88 change: -0.87 stop: 43.50 Company Description: Newmont Mining Corporation is a holding company and is principally engaged in gold mining. As of the end of 2002, the company had gold reserves of 86.9 million equity ounces and an aggregate land position of approximately 63,000 square miles. NEM has operations in North America, South America, Australia, New Zealand, Indonesia, Uzbekistan and Turkey. In 2002, the company obtained more than 69% of its equity gold production from politically and economically stable countries, namely the United States, Canada and Australia. Why we like it: With strong job growth finally making its appearance in Friday's economic data, bonds plunged and the dollar rallied in anticipation that interest rates could be rising sooner, rather than later. Gold stocks naturally pulled back on the bullish action in the dollar, with NEM coming back down to once again test the bottom of last week's gap at the open and then spending the remainder of the session trading in a tight range just below $46. Traders that didn't want to chase the stock higher on its breakout over $46 are now getting their chance at a better entry. Entries look good on rebounds from above the $45 level, while those traders preferring to enter on strength will now need to wait for a break over the $47.40 level, taking out last week's highs. Maintain stops at $43.50, just under the 50-dma. Suggested Options: Shorter Term: The April $45 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 May $47 or $50 Calls, while the more conservative approach will be to use the May $45 strike. Our preferred option is the May $47 strike, as it is currently near the money and should provide sufficient time for the play to move in our favor. ! Alert - April options expire in 2 weeks! BUY CALL APR-45 NEM-DI OI=14849 at $1.65 SL=0.75 BUY CALL APR-47 NEM-DW OI= 9774 at $0.50 SL=0.25 BUY CALL MAY-45 NEM-EI OI= 3072 at $2.85 SL=1.40 BUY CALL MAY-47*NEM-EW OI= 6677 at $1.70 SL=0.80 BUY CALL MAY-50 NEM-EJ OI= 4596 at $0.85 SL=0.40 Annotated Chart of NEM: Picked on March 28th at $46.15 Change since picked: -0.27 Earnings Date 2/04/04 (confirmed) Average Daily Volume = 6.43 mln --- National Semi. - NSM - cls: 47.24 chng: +1.78 stop: 43.00*new* Company Description: National Semiconductor Corporation designs, develops, manufactures and markets an array of semiconductor products, including a line of analog, mixed-signal and other integrated circuits (ICs). These products address a variety of markets and applications, including amplifiers, personal computers, power management, local and wide area networks (LANs and WANs), flat panel and cathode ray tube displays and imaging and wireless communications. The Company's operations are organized in five groups: the Analog Group, the Displays Group, the Information Appliance and Wireless Group, the Wired Communications Group and the Custom Solutions Group. Why we like it: In response to the bullish jobs data on Friday, the Semiconductor index (SOX.X) had a stellar day, advancing through more solid resistance and decisively breaking the descending trendline that has been in place since January. Not only did the SOX clear the 50-dma, but it also pushed through the 100-dma and ended at its high of the day with a 3.74% gain. Our NSM play continued to lead the way, adding to its strong gains from Thursday, with a 3.9% advance. Closing at its high of the day, the stock closed at its best level since the latter half of 2000 and with volume continuing to run well above the ADV, it looks like our $50 target could be reached next week. Traders that were waiting for a pullback for entry on Friday were sorely disappointed, as the stock gapped higher and just continued to run. The best we can probably hope for in terms of a pullback entry now is a dip to fill Friday's gap and test that breakout level near $45. Aggressive traders can still enter on a breakout above Friday's high, but with the proximity of our profit target, the risk-reward of such a move is significantly diminished as compared to taking the initial breakout entry. Note that we've significantly tightened our stop this weekend, raising it to $43, right at the 10-dma. Suggested Options: Shorter Term: The April $45 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive longer-term traders can use the May $50 Call, while the more conservative approach will be to use the May $45 strike. Our preferred option is the May $45 strike, as it is currently in the money and should provide sufficient time for the play to move in our favor. ! Alert - April options expire in 2 weeks! BUY CALL APR-45 NSM-DI OI=10802 at $2.90 SL=1.50 BUY CALL APR-50 NSM-DJ OI= 1370 at $0.45 SL=0.20 BUY CALL MAY-45*NSM-EI OI=14301 at $4.30 SL=2.75 BUY CALL MAY-50 NSM-EJ OI= 2783 at $1.80 SL=0.90 Annotated Chart of NSM: Picked on March 30th at $44.43 Change since picked: +2.81 Earnings Date 5/25/04 (unconfirmed) Average Daily Volume = 4.12 mln ************** NEW CALL PLAYS ************** Best Buy Company - BBY - close: 53.92 change: +1.62 stop: 50.75 Company Description: Best Buy Co., Inc. is a specialty retailer of consumer electronics, home office equipment, entertainment software and appliances. The company operates retail stores and commercial Websites as part of continuing operations under the brand names Best Buy (BestBuy.com), Future Shop (FutureShop.ca) and Magnolia Hi-Fi (MagnoliaHiFi.com). BBY has two reportable operating segments, Domestic and International. Domestic includes United States Best Buy and Magnolia Hi-Fi stores. International consists of Future Shop stores operating in Canada, as well as Canadian Best Buy stores. Why we like it: After languishing in a bearish trend since early December, shares of BBY got a fresh shot of adrenaline on Wednesday when the company reported better than expected revenues and earnings. That solid performance met with a trio of upgrades from CIBC, Legg Mason and Buckingham Research and investors couldn't hit the buy button fast enough once the opening bell rang. BBY surged higher at the open, gapping over both the 50-dma ($51.02) and the 200-dma ($51.02) and the buying interest continued unabated all the way to Friday's closing bell. On Friday alone, the stock gained more than 3% and is now closing in on key resistance at $55. Not only was this a consistent barrier ever since the gap down in early December, but a trade at $55 will generate a fresh PnF Buy signal and a minimum price target of $74. Obviously we don't expect to see that target reached in the near-term, but it gives an idea of the strength of the rally the stock has embarked upon in the past few days. Keeping in mind the strength of that resistance at $55 and the fact that currently the stock remains on a PnF Sell signal, we need to use an entry trigger at $55. Aggressive traders can enter on the initial breakout, while bargain hunters may be able to get a continuation entry on a subsequent pullback to test support near $54. The bottom of the December gap (just over $55.50 may offer some slight resistance, but the first serious resistance will be found at the top of the tap near $57.50. Once clear of that obstacle, we can look for a continued rally up to $60 resistance and quite possibly a test of the December highs near $62. We'll set our stop initially at $50.75, just under the 50-dma and 200-dma. Suggested Options: Shorter Term: The April $55 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 May $60 Call, while the more conservative approach will be to use the May $55 strike. Our preferred option is the May $55 strike, as it will be at the money when the play is triggered and should provide sufficient time for the play to move in our favor. ! Alert - April options expire in 2 weeks! BUY CALL APR-50 BBY-DJ OI=22981 at $4.00 SL=2.50 BUY CALL APR-55 BBY-DK OI=17800 at $0.60 SL=0.30 BUY CALL MAY-55*BBY-EK OI= 8982 at $1.85 SL=1.00 BUY CALL MAY-60 BBY-EL OI= 2218 at $0.50 SL=0.50 Annotated Chart of BBY: Picked on April 4th at $53.92 Change since picked: +0.00 Earnings Date 6/16/04 (unconfirmed) Average Daily Volume = 3.75 mln --- Express Scripts - ESRX - close: 75.36 change: +1.01 stop: 72.00 Company Description: Express Scripts provides health care management and administration services on behalf of clients that include health maintenance organizations, health insurers, third-party administrators, employers and union-sponsored benefit plans. The company's fully integrated pharmacy benefit management services include network claims processing, mail pharmacy services, benefit design consultation, drug utilization review, formulary management, disease management, medical information management services and informed decision counseling services through its Express Health Line division. Why we like it: Following a very strong rally from the October lows, shares of ESRX have been consolidating in a tight range and just below their all-time highs for more than a month. Rather than selling off with the rest of the market during March, the stock held up very well, putting in a mini-double bottom just above $72, and working their way gradually higher over the past week. Friday's broad market rally got the bulls moving again and the stock gapped higher and pushed up to the $75.50 level, just under the all-time highs slightly above $76. The PnF chart paints a very bullish picture, as the stock is currently working with a bullish price target of $93. Of course, the stock has looked ready to break out on more than one occasion recently, so we want to force it to prove itself before we take action. We're setting an entry trigger at $76.25, just over the highs from early March and momentum entries above that level look quite favorable. More conservative traders might be able to nab a better entry on a subsequent pullback to test support in the $74-75 area before the rally really gets going, but be careful not to miss the move. Looking back in recent months, the stock has made a habit of launching on roughly $10 rallies before once again going into consolidation mode. If that's what unfolds here, we can expect the stock to rise towards the $85 level before running out of steam. If the upside has potential, we really shouldn't see a break below the 30-dma ($73.46), but we're going to set a more liberal stop (at least until the breakout occurs) at $72, just under the trading floor put in place last month. Suggested Options: Shorter Term: The April $75 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 May $80 Call, while the more conservative approach will be to use the May $75 strike. Our preferred option is the May $75 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. ! Alert - April options expire in 2 weeks! BUY CALL APR-75 XTQ-DO OI= 769 at $1.95 SL=1.00 BUY CALL APR-80 XTQ-DP OI= 319 at $0.35 SL=0.00 BUY CALL MAY-75*XTQ-EO OI=1584 at $3.60 SL=1.75 BUY CALL MAY-80 XTQ-EP OI= 439 at $1.50 SL=0.75 Annotated Chart of ESRX: Picked on April 4th at $75.36 Change since picked: +0.00 Earnings Date 4/28/04 (unconfirmed) Average Daily Volume = 1.04 mln --- Patterson Dental Co - PDCO - cls: 72.14 chg: +1.95 stop: 67.90 Company Description: Patterson Dental Company is a value-added distributor serving the dental, companion-pet veterinarian and rehabilitation supply markets. (source: company press release) Why We Like It: We've had our eye on PDCO for a long time. The stock produced an incredible run from the $35 region in April 2003 to the $70 level in November 2003. Since then it has been consolidating its gain with most of the last four and a half months in the $65 to $70 range. Fundamentally business sounds good. PDCO's last earnings announcement was late February and the company reported sales were up 24% while profits rose 33%. Technically it looks great. The Thursday-Friday rally last week produced a strong breakout over resistance at $70.00 and its previous all-time high at 71.50 from last November. Its P&F chart also shows a fresh triple-top breakout buy signal (actually its a quintuple top) pointing to an $85 price target. Traders can consider bullish entries here or on a pull back toward the $70 level. We're going to start the play with a stop loss at $67.90 and a target of $77.50 to $80.00. Suggested Options: We don't have to worry about earnings for PDCO until May. So we're going to suggest the May or July calls. Our favorite is the May 70s on a dip or the May 75s. BUY CALL MAY 70 DOU-EN OI= 50 at $4.40 SL=2.25 BUY CALL MAY 75 DOU-EO OI= 11 at $1.75 SL=0.90 BUY CALL JUL 70 DOU-GN OI=274 at $5.70 SL=3.25 BUY CALL JUL 75 DOU-GO OI=554 at $3.10 SL=1.60 Annotated Chart: Picked on April 04 at $ 72.14 Change since picked: + 0.00 Earnings Date 02/19/04 (confirmed) Average Daily Volume: 493 thousand Chart = --- Teekay Shipping - TK - close: 69.13 change: +1.22 stop: 65.95 Company Description: Teekay Shipping Corporation is the leading provider of international crude oil and petroleum product transportation services, transporting more than 10 percent of the world's sea- borne oil. With offices in 13 countries, Teekay employs 4,700 seagoing and shore-based staff around the world. The Company has earned a reputation for safety and excellence in providing transportation services to major oil companies, oil traders and government agencies worldwide. (source: company press release) Why We Like It: Crude oil may have slipped this past week on profit taking now that the OPEC news is finally out but demand for oil isn't slipping anytime soon. The expanding U.S. economy, the expanding global economy and the red-hot Chinese economy are all raising demand for oil to the highest level since 1997. That means demand for oil transportation is going to remain strong. We like the oil tanker industry because it (at least TK) endured the downturn in the transport sector with little loss. Now the transports are on the move higher again and TK looks ready to breakout over resistance at the $70.00 mark. Both TK's daily chart and P&F chart show the same trend of higher lows, which should eventually produce a breakout over resistance. We think that might occur sooner rather than later so we're going to use a TRIGGER at $70.05 to open the play for us. More aggressive traders might hope for a dip back toward the simple 50-dma where TK has technical support. If we are triggered we'll start the play with a stop loss at $65.95. Suggested Options: Earnings for TK should be in late May so we're going to suggest the May or July calls. Right now our favorite would be the May 70s on a breakout but the 65s look good, especially on a dip. BUY CALL MAY 65 TK-EM OI= 26 at $6.00 SL=3.75 BUY CALL MAY 70 TK-EN OI= 371 at $2.95 SL=1.50 BUY CALL MAY 75 TK-EO OI= 72 at $1.25 SL=0.65 BUY CALL JUL 70 TK-GN OI=1189 at $4.70 SL=2.35 Annotated Chart: Picked on April xx at $ xx.xx <-- see trigger Change since picked: + 0.00 Earnings Date 02/25/04 (confirmed) Average Daily Volume: 374 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 ***************** Amerada Hess Corp. - AHC - close: 62.70 change: -0.45 stop: 66.00 Company Description: Amerada Hess Corporation explores for, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place in the United States, United Kingdom, Norway, Denmark, Equatorial Guinea, Gabon, Indonesia, Thailand, Azerbaijan, Algeria, Malaysia, Colombia and other countries. The company also manufactures, purchases, transports, trades and markets refined petroleum and other energy products. It owns 50% of a refinery joint venture in the United States Virgin Islands, as well as another refining facility, terminals and retail gasoline stations located on the east coast of the United States. Why we like it: A positive reception of the very strong Jobs Report on Friday was enough to kick off a respectable rally across most of the broad market and even the Oil stocks managed to participate. But the Oil Service sector (OSX.X) was a real laggard, barely posting a fractional gain. AHC mirrored the price action in the OSX, but it was even weaker, ending with a fractional loss. Key support at the 50-dma ($62.05) was tested as expected and managed to hold, with the stock clawing its way gradually higher into the close. The bulls are trying to hold above this measure of support and we clearly have set our entry trigger at the right point. We need to see a crack below the $61.75 level (which would be a clear violation of the 50-dma) before entering the play, and more conservative traders may still want to wait for a break under the $61 level for added confirmation. After our trigger is satisfied, a failed bounce below $63-64 can be used for continuation entries, but keep in mind that bounce may not occur. Once below $61, AHC should quickly seek out next support at $58 on the way to our $56 target, also the PnF bearish price target. Suggested Options: Aggressive short-term traders will want to use the April 65 Put, but with April options expiring in two weeks, this choice carries greater risk. Those with a more conservative approach will want to use the May 65 put. Aggressive traders looking for more insulation against time decay can use the May 60 strike. Our preferred option is the May 65 strike, as it is currently in the money and should provide ample time for the play to move in our favor. ! Alert - April options expire in 2 weeks! BUY PUT APR-65 AHC-PM OI= 654 at $2.75 SL=1.40 BUY PUT MAY-65*AHC-QM OI= 261 at $3.70 SL=2.00 BUY PUT MAY-60 AHC-QL OI=1332 at $1.35 SL=0.75 Annotated Chart of AHC: Picked on April 1st at $63.15 Change since picked: -0.45 Earnings Date 4/28/04 (unconfirmed) Average Daily Volume = 898 K --- UTStarcom, Inc. - UTSI - close: 29.54 change: +0.32 stop: 32.25 Company Description: UTStarcom, Inc., headquartered in Alameda, California, is a global provider of wireless and wireline access and Internet protocol (IP) switching solutions. The company designs, manufactures, sells and installs an integrated suite of future- ready access network and next-generation switching solutions. It enables wireless and wireline operators in fast-growth markets worldwide to offer voice, data and Internet access services rapidly and cost effectively by utilizing their existing infrastructure. UTSI's products provide a seamless migration from wireline to wireless, from narrowband to broadband and from circuit- to packet-based networks by employing next-generation network technology. The company's customers include public telecommunications service providers that operate wireless and wireline voice and data networks in rapidly growing communications markets worldwide. Why we like it: Dropping just far enough to activate our entry trigger on Wednesday, shares of UTSI have been trying valiantly to put in a credible bounce over the past couple days, but it doesn't look good for the bulls. Even with the broad market strength on Friday and a very strong rally in Technology shares, UTSI barely managed to kiss the $30 level before once again dropping back. Now that our trigger has been satisfied, our preference for opening new positions is on a failed rally below the 10-week descending trendline, now at $31.50, right at the 30-dma ($31.51). Traders preferring to enter on signs of renewed weakness will want to wait for a break of last week's $28.73 low before playing. As noted previously, potential support will be found first just below $28 and then again near $26 enroute to our downside target near $23-24. Maintain stops at $32.25. Suggested Options: Aggressive short-term traders can use the April 30 Put, but need to be careful with April options expiring in two weeks. Those with a more conservative approach will want to use the May 30 put. Aggressive traders looking for more insulation against time decay can use the May 25 strike. Our preferred option is the May 30 strike, as it is currently at the money and should provide ample time for the play to move in our favor. ! Alert - April options expire in 2 weeks! BUY PUT APR-30 UON-PF OI=6192 at $1.40 SL=0.75 BUY PUT MAY-30*UON-QF OI=6605 at $2.50 SL=1.25 BUY PUT MAY-25 UON-QE OI=3003 at $0.65 SL=0.30 Annotated Chart of UTSI: Picked on March 30th at $29.38 Change since picked: +0.16 Earnings Date 4/27/04 (unconfirmed) Average Daily Volume = 3.67 mln ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 04-04-2004 Sunday 4 of 5 In Section Four: Leaps: It's A Matter Of When, Not If Option Spreads: Bought A Stock & Guessed Right? Now What? ************************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 ***** It's A Matter Of When, Not If By Mark Phillips mphillips@OptionInvestor.com Following the latest missives from the Bureau of Labor Statistics (BLS), we are led to believe that job growth is finally kicking in and inflation is still benign. We know that job growth is the last sign the Fed is looking for to kick in the next chain of interest rate hikes and judging by the stellar move in the bond market on Friday, we can assume that interest rates will be on the rise sooner rather than later. It looks like the BLS finally got their data manipulation machine running properly last month, as the PPI report came in at just 0.1%, showing a marked decline from January's 0.6% figure, calming fears of inflation. Never mind the fact that we can see the dramatic rise in the price of virtually everything other than imported products, the statistics show benign inflation. On top of that, the missing jobs that we've been promised would be found, were. Friday's jobs report showed a gain of 308,000 new jobs, well above consensus estimates and igniting talk that the job market is finally turning around. Where this is important to investors is in its impact on interest rate policy and the bond traders voted loudly on Friday sending the yield on the benchmark 10-year Treasury note soaring back over 4.1%. This is a tremendous rise from the sub-3.7% level lf less than 2 weeks ago. Friday's rise in the 10-year yield was the largest one-day gain in since late 2001 and to ignore its very clear message is a very risky move. Simply put, interest rates are on the rise and with another strong jobs report, the Fed will likely have no choice but to set the gears in motion. It isn't the first rate hike we have to worry about, but how many of them there will be and over what duration. Obviously, we can't know any of those answers, but we can reasonably infer that they will be rising and we should begin to plan accordingly. As this week's title states, it is now a matter of when, not if. Trying to outguess the market's reaction to news and economic data is a game I try not to play, because we never really know what the aggregate expectations are ahead of the news, so we don't know how the market is likely to treat the news. Friday is a perfect example of this, as rising interest rates could be viewed as an impediment to continued economic growth. While that may be true over the longer term, it appears the short term bullish action in the market is being driven by the reality that selling of bonds is freeing up cash that needs to be put to work and equities are where than money is heading. I know we cover a lot of varied terrain here on a weekly basis, and my never-ending struggle is to try to tie together many of the different pieces to form a coherent picture we can use in order to navigate the market in the weeks and months ahead. In the recent past, we've spent a lot of time talking about inflation, interest rates, currencies, commodities and precious metals. I've attempted to tie all of these various factors together to show how they might impact the equity markets. In a nutshell, here are the macro trends I see. Inflation is much higher than is generally reported, as the cost of all raw materials has risen dramatically due to monetary inflation and increasing demand from Asia, as those economies make rapid strides towards full industrialization. Monetary inflation is driving the value of the dollar down, but other nations need to keep the value of their currencies low relative to the dollar, so what we've seen is a pattern of competitive currency devaluations. The winner in this game is precious metals, as these tangible assets continue to rise against the fiat currencies around the world. Over the years ahead, I believe we'll continue to see the value of the dollar (and other paper currencies) fall against gold and silver and that's the primary reason why I think all portfolios should have exposure to both physical gold and silver as well as the mining stocks. The U.S. equity market is in a major secular bear market and the primary reason we've enjoyed this bullish run of the past year is due to currency effects. Stocks are denominated in dollars, which is a depreciating asset. As we've discussed at great length, when we denominate the DOW, NASDAQ or S&P in terms of gold or crude oil, we can clearly see that the market has gone nowhere for the past 12 months. Speaking of crude oil, I've got to hit on this very important topic. So many analysts talk of the dramatic rise in crude oil prices as being a huge implicit tax on the overall economy. That part is correct. But then the discussion is expanded to blame the evil oil cartel (OPEC) and the oil companies for price gouging and there are cries for the government to do something. Talk about focusing on the wrong enemy! The root cause behind most of the rise in the price of oil is directly traceable to the irresponsible actions of our Federal Reserve, as Greenspan and friends continue to destroy our currency by printing more and more dollars in a desperate attempt to avoid having to pay for the excesses of the 1990s that have never really been neutralized. Virtually all oil sales worldwide take place in dollars. Well, as I've demonstrated in the past, the majority of the rise in the price of oil in the past 2 years can be directly blamed on the drop in the value of the dollar. For that we have nobody to blame but the Fed. So if we want the government to "do something" it ought to be to confiscate Ben Bernanke's keys to the printing press. These are the dots that analysts are supposed to be paid to connect, but increasingly they seem to be falling into the trap of revving their mouth up to full speed without taking the time to put their brain in gear. All right, rant off... Much has been made of the issue of whether the real estate market is a bubble. Let me say that I firmly believe it is, primarily because of the way it has been fueled by Easy Al's House of Credit. Will it become a crisis or can the Fed engineer a soft landing? I honestly don't know, but I'm beginning to sense some desperation on the part of the Fed, with Uncle Alan himself singing the virtues of adjustable rate mortgages. When he spouts such nonsense, why is it that nobody asks the obvious question, "What happens to the poor slob with a 4% ARM when the interest rate rises to 7% or higher?" I'll answer the rhetorical question by saying it will start the deflating of the real estate bubble as more and more borrowers find themselves unable to make the steadily rising debt-service payments. Foreclosures rise, supply of homes on the market rises and the price of that real estate falls, both in real terms and in terms of the dollar. Then you have even more people (that have borrowed to the hilt) upside down on their mortgage, unable to make their payments and going into foreclosure or bankruptcy. It's an ugly scenario and one that we should hope never comes to pass. But these are all issues that are further down the road. I mention them as a means to help keep us centered on how the overall investment landscape is likely to change in the months and years ahead. Now let's turn our attention to the more immediate issue of last week's developments in the market. You'll remember that I eschewed setting up a bearish play on the DOW via the DJX due to my expectation that we would see a breakout and new PnF Buy signal created in the rebound from the recent lows. Indeed we did, as the DOW blasted through the 10,350 level, and the new PnF Buy signal came complete with a bullish price target of 11,300. Lest you think that is some sort of prediction, I think it is important to point out that PnF price targets are guidelines and methods for measuring POTENTIAL risk and reward. As a perfect example, last week, the DOW's PnF chart was bearish with a price target of 9400. Clearly that target wasn't achieved, yet here we are back on a Buy signal. We have a different lesson on the NASDAQ-100, as it's bearish price target had been 1390, and that target was actually exceeded with the index falling as low as 1368 before finding bottom. Now the NDX's PnF chart is on a strong Buy signal, with the bullish price target of 1740 (and growing). I don't view the vertical counts for either the NDX or the DOW as predictions of where they ARE headed, but as a measure of how high they could run, giving me a way to gauge risk and reward for both bullish and bearish positions. Right now, despite the still very extended bullish percent readings (except in the case of the NDX), it appears the bears are once again carrying the bulk of the risk in the near term. Was it really only 2 weeks ago that I said the bears were coming out of hibernation? Apparently they still need more sleep because they weren't very active last week. I think we can safely say that we've just experienced a very healthy and natural pullback in a strong uptrend. March's drop was the first sizable pullback in the past year and I think this view of the S&P 500 tells the picture pretty clearly. Daily Chart of the S&P 500 Rather than that selloff in the SPX being the beginning of a trend reversal, I think we have to view it in its proper context, which is that of a healthy and long-overdue retracement within the overall bullish trend. Isn't it simply uncanny how closely the index retraced 38% of its rally from the summer lows? There's another view that we really need to take the time to look at this weekend. Do you remember the monthly chart of the SPX that we've looked at over the past several months, where I've pointed out the POTENTIAL for some major bearish divergence? Monthly Chart of the S&P 500 As you can see, we still have the potential for that major divergence to play out in the bears' favor, but we won't have confirmation of that potential until we get a bonified Stochastics sell signal without price exceeding the early 2002 highs. The jury is still out on that one. I don't think we should leave our discussion without at least a token mention of the VIX. Remember that fleeting foray over 20 and into the range of normalcy? Well with the VIX back under 16, that brief revival of fear has been completely wiped out as investors are voting with confidence that downside risks are minimal. Who knows, they may be right and stocks may just continue higher into the November election. I think that's pretty unlikely, but we'll let the market tell us what is happening, rather than trying to dictate our expectations. Right now, the market is telling us that it wants to go higher and it's nice to have our Portfolio aligned that way right now. Speaking of which, it's high time we looked at the week's developments on our playlist. Portfolio: NEM - As exciting as last week was for our NEM play, this week was rather uninteresting. After four days of gradually climbing higher along with the price of gold, the short-term trend reversed on Friday on the heels of the much better than forecast Jobs report. Bonds plunged, yields soared and the dollar climbed strongly, all to the detriment of gold, which fell back to the $421 level. So it should come as no surprise that NEM dropped back, erasing a weeks worth of gains, as the stock ended very near its breakout level from the prior week. There's nothing to suggest a major reversal here as we have strong bullish indications from the weekly oscillators and the PnF chart. We should take advantage of any near-term weakness in NEM to initiate or add to positions on dips that find support above the 50-dma. Raise stops to $41, as that is well below the ascending trendline (now just over $42) connecting the lows from February and March. Not only that, but a trade at $41 would be a new PnF Sell signal and change the technical picture significantly. HD - Boring! I can't ever remember having a play in the Portfolio that did so little for such a long period of time. HD has continued to channel gradually higher within the lower half of the rising channel we've been watching these past several weeks, while at the same time it continues to bump its head on the top of the long-term descending channel. Actually, the stock broke briefly above that channel line last week, but got smacked down hard on Friday in response to the Jobs data, which was bad news for interest rate sensitive stocks, particularly those tied to the Housing sector. Oscillators have become almost useless on the weekly and even the monthly view, so we're left watching resistance to see if it wins or the bulls do. Stay the course, with a stop at $41 and we'll see where she goes. MLNM - There's no two ways about it, MLNM has not been acting well these past few weeks and all we have to do is look at the BTK index to see why. It got pummeled down to strong support near $500 just over a week ago, dragging MLNM down to almost the $16 level. But with the BTK coming back strong last week and ending with a bang on Friday (up 2.8%), MLNM finally got back in gear and recovered a full 5% to close just under the $18 level. That rally took the stock right to the 50-dma resistance, as well as the top of the nearly 2-month descending channel. That's right, it looks like MLNM is starting to turn around for us, but the bulls still have some work to do. The PnF chart is still on a Sell signal and will need to break above $19.50 again in order to turn that view bullish. We'll stay the course, keeping our stop at $14 and let the market be our voting machine. CHK - Now that's more like it! CHK finally showed what it was made of last week, breaking back over the 50-dma and 100-dma in the process of driving right back to key resistance near $13.50. Scaling that level will be the first test for the bulls, but the real key will be to see whether the stock can break out over the $14 level. Looking at the weekly chart, we can see the last time the stock was above that point was back in 1997, and there's some formidable resistance near that level. But taking our cue from the very bullish PnF chart, we see that $14-16 resistance should only be a speed bump on the way to ever higher levels. As long as natural gas continues to be in the favorable demand-driven and supply-constricted relationship, we can look for CHK to remain in its long-term bullish trend. Maintain stops at $11 until we get the breakout over the $14 level. SNDK - Well, what do you know? It looks like we actually hitched a ride on this Technology stock at just the right time. The bulls pushed price right up to the descending trendline at the close of trading on Thursday and then with the broad market rally ignited by the Jobs data, SNDK broke through that line for the first time in many months. At the same time, the stock broke over the March highs and is right on the verge of either a breakout or a rejection at the converged 100-dma and 200-dma near $30.55. Call me an optimist, but I think we're going to see a breakout, although maybe not on the first try. See, the PnF chart gave a new Buy signal on Friday and with it comes a bullish price target of $39. There's no guarantee that level will be reached, but we now have some concrete levels to work with. Either the rally continues, or we drop back and go back on a Sell signal. It would take a trade at $25 to give that Sell signal, so with our breakout in progress, it seems wise to raise our stop to $25 this weekend. Note that weekly oscillators are now solidly bullish and the monthly Stochastics are just starting to poke out of oversold territory. All signs point up right now, so hang on for what could be a wild ride. One final note about the PnF chart -- the column of X is still incomplete, so our bullish price target will continue to move higher until we get a reversal into a column of O. LUV - What happened to the weakness in Transports and Airlines? A near-term drop in the price of fuel seems a pretty flimsy excuse, but there's no denying the renewed strength there. The $TRAN absolutely exploded in the last week, taking out the early February low on Friday and the XAL index has had a pretty solid rise too, reaching the 50-dma on Friday and very near the 200-dma. LUV spent most of the past week, drifting ever so slightly higher after creeping through the top of the descending channel. That move was solidified on Friday, as the stock exploded higher to the tune of 4%, closing right on the 50-dma. This could just be an oversold bounce, but we'll take what we can get on this aggressive play. The next major overhead obstacle is the $15.50 area and then $16, before reaching the 200-dma just over $16.50. Until we see proof of greater strength, we'll maintain our very liberal stop down at $11, with the real downside protection coming from our protective put. EBAY - One of the realities of trading is that no matter how hard and fast your set of rules is, you have to be able to step aside and realize when the rules don't apply. Our EBAY play is a perfect example of that reality. It was incredibly difficult to step up and enter that long play the week before last, right after the stock had issued a fresh PnF Sell signal. But analyzing the stock's PnF chart, we could see a history of Sell signals being bear traps and leading to subsequent breakouts to new highs. I gambled that would be the case once again and sure enough it was. The stock continued to rebound for the first part of the week and then absolutely exploded on Thursday, closing at a new all-time high at $72.25. Underscoring the strength of that move, the stock continued its rally on Friday and now we're deep into breakout territory. Pity the bears that sold the apparent breakdown! I don't want to get too aggressive with our stop just yet, but it should be quite safe to raise our stop to $64, below the bottom of the recent dip. Watch List: TYC - I stood at the plate, watched the pitch go by and said to myself, a better one will be along soon. Wrong! It looks like I blew it by not jumping on that dip near the $26 level a couple weeks ago, as the stock has been on a nice steady rebound for over a week now. Finally moving into the upper half of the rising channel on Friday, TYC is once again beginning to look firm. The irony is that now I have to raise the entry target to $27, which is currently the bottom of the rising channel -- if I had been less stingy, we'd already be in at a lower level. TYC is a fairly slow-moving stock though, so I'm content to wait for the next dip toward support to take an entry. Radar Screen: WMB - As this directionless consolidation pattern continues, I grow less and less enthusiastic about a long-term bullish move in shares of WMB. Last week did see a bullish break from the near- term wedge, but that still just places the stock right smack in the middle of the consolidation zone of the past 7 months. I'm going to keep WMB on the bench for now, pending a clearer bullish setup. APA - Still nowhere near what I think is an actionable long-term entry point, APA is still flirting with a solid breakout at the $43.50 level. I'm still content to wait for a better setup, and a dip back to the $35-36 area would certainly do the trick, especially with the very bullish fundamental picture in the Natural Gas patch. GM - The price action in GM was rather peculiar, as the stock was completely unable to participate in the strength seen in the DOW and then it got hit pretty hard on Friday. Of course, the selling on Friday makes perfect sense when we understand that GM no longer makes money from building cars. No, the company is now little more than a huge finance company that also happens to make cars and sell them at cost or even a small loss. In that light, GM's drop in response to the Jobs data makes perfect sense. I find it interesting that price rolled over right at the 50-dma, as well as strong historical resistance (broken support) near $48. I still like the bearish prospects for old GM, but not right here, as the weekly Stochastics are just starting to bottom in oversold. We've got some time to wait for the oversold condition to work itself off and hopefully, we'll be able to nab a bearish entry near the top of the long-term descending channel. DJX - Talk about dodging a bullet, I'm glad I paid attention to that little voice in my head. There wasn't anything specific on the charts, just an intuitive feel I had for the patterns that were being put in place and it looked like we were going to get a rally. Sure enough, we did and the DOW went back on a PnF Buy signal, with a target of 11,300! I won't say that level will be reached, but I'm certainly not going to step in front of this stampede until the charts give me a credible reason to do so. I'll leave the DJX on the Radar Screen for now and we'll continue to monitor the situation, looking for an opportunity to play. Closing Thoughts: Last week we talked about the fact that things looked bearish, but my gut feel was that we'd seem some renewed bullish action leading into April earnings? Boy, did we ever! New PnF Buy signals on the DOW, NDX and SOX, very strong job growth statistics and the latest iteration of the PPI showing still benign inflation. It's no wonder the bulls were dancing in the streets! Despite all the bearish signs that were apparent a couple short weeks ago, it now appears the bulls are going to do some serious frolicking over the next few weeks as we grind through the April earnings season. We're currently loaded up with bullish plays, most of which are performing rather nicely. At the same time, our bearish play cupboard is very empty and quite honestly that's the way it ought to be when the broad market action looks this strong. It won't stay that way indefinitely though, as the "Sell in May and Go Away" impulse could be very strong after April earnings are out of the way, especially with the election uncertainty continuing to weigh on investors' minds. No new plays this week, but we could be adding quite a few in the weeks ahead, depending on the performance of the market through the upcoming earnings season. Have a great week! Mark LEAPS Portfolio Current Open Plays LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: TYC 03/07/04 $27 JAN-2005 $ 30 ZPA-AF CC JAN-2005 $ 25 ZPA-AE JAN-2006 $ 30 WPA-AF CC JAN-2006 $ 25 WPA-AE PP JUL-2004 $ 25 TYC-SE PUTS: None New Portfolio Plays None New Watchlist Plays None Drops SMH $41.41 Our canary in the coal mine is dead. Actually, our stop hasn't been hit, but I now view that as a matter of when, not if. Let's look at the bullish factors. The SMH broke above the top of its descending channel and the 50-dma on Friday, gaining more than 3% in the process. The weekly Stochastics are turning up from oversold, the SOX generated a fresh PnF Buy signal and the SOX moved strongly through the $500 resistance level. Oh and let's not forget the strong Book to Bill number and the strong likelihood of bullish continuation on Monday. We spent 3 months trying to catch a nice bearish play in the SMH and it just wasn't there. With conditions starting to turn bullish, it's time to cut bait while we're near breakeven on the play. ************************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 ************************************************************** ************************ Option Spread Strategies ************************ Bought A Stock & Guessed Right? Now What? By Mike Parnos, Investing With Attitude At the CPTI, we don’t advocate the ownership of stock. Why spend all that money on stock when there are LEAPS available? When you buy a stock (or even a LEAP), there’s only one way you can make money – if it goes up. Let’s try to apply some common sense to this scenario – and hope it sinks in. Invest In Some Insurance We’ve talked about this at length. If you own a stock, you need to protect your investment. The simplest way to do this is to buy a protective long term put. At first, it may look expensive. But, if you prorate it, it will seem like a bargain – especially if the stock tanks. If the stock is worth $50, then it’s worth $53. If you’re right and the stock moves up to $65, you’ll never miss the cost of the insurance. If you’re wrong and the stock drops to $35, you may break your arm patting yourself on the back for making a wise decision. Maybe you’ve taken the passive approach to investing and put your money into a mutual fund that tracks the S&P 500. There is a Vanguard index called the “Vipers” (VTI) that enables you to buy puts to protect a mutual fund investment on a tracking stock. If you are in tech funds, there are many indexes that offer put protection alternatives. There are a number of sector indexes that will mirror the holdings of many mutual funds. GTFO OK. The easiest way to protect a profit is to simply sell the stock (or fund). If you bought 300 shares of a stock at $30 and it’s increased to $45, and you still want to roll the dice, sell 200 of the shares, recoup your investment. Then you can play roulette with the market’s money. Better yet, sell the damn stock (and count your blessings). Pocket the $15 points profit and go on a cruise. Tight Trailing Stops This is the second best method of protecting your stock profits. Using a tight trailing sell stop that is set about a quarter-point BELOW the stock’s 10-day moving average. That will gives the stock the benefit of the doubt, without giving up too much in the event of a technical breakdown. If the damn thing breaks the 10- day MA, it’s likely to test the 20-day. Then, look out below. Why is this the “second best” method? If the stock gaps down over your trailing stop, your sell order becomes a market order and you’ll end up selling at what is often the lowest price of the day. A put may cost you a few cents a month, but, if you own a put, you sacrifice nothing. You are protected from the strike price all the way down to zero. A Little Cushion Is Better Than Nothing If you own a stock or two that has gapped up 3-4 points and is butting up against some resistance, sell some deep in-the-money calls. There’s a pretty good chance the stock will retrace and attempt to fill that gap. Why should you give up that profit? If the stock does retrace, you can buy back the calls for much less, lock in your profit, and be in position to participate in a potential retry at the resistance. Shorting Against The Box What do the professional money managers do? It’s called "shorting-against-the-box." When you short-against-the-box, you short the very same stock you are long in what is called a short account, locking in the current value of the shares. Apparently, in some parallel universe, every trading account has a short account attached to it. For example: You own 1,000 shares of RMBS. Not long ago, RMBS closed one day at $25.84 and opened the next day at $35.90 (a resistance level). If you shorted RMBS that morning, you would have locked in the $10+ gain. Then, as RMBS worked its way back down to $26+ (a support level), you could have covered your short and banked your profit. You would still be long your original 1,000 shares of stock and be in position for a potential bounce off support. Stock Or Options? Remember, that most of the above asset protection strategies can be used if you own stocks, funds or (surprise, surprise) options. ______________________________________________________________ The Next Two Weeks Should be, at the very least, interesting. The market is moving up. Again, it seems overbought and ready to pull back. The jobs report should put the fear of Greenspan into investor’s hearts and we could be in for some selling. The markets will be closed for Good Friday. As premium sellers, we love those long weekends. The fewer days we’re exposed to the daily market chaos, the better. During the week of April 11 – 17, I will be sending in columns from a different couch. I got roped into going on a cruise. A Carnival ship (they don’t like to be called “boats”) will be stopping at various islands where only three people speak English and you’re bothered to buy 50-cent trinkets for $5. I’ll need to use all the self-discipline I can muster. I won’t be tempted by the trinkets. It’s the ship’s 24-hour pizza window I’m worried about. ____________________________________________________________ APRIL CPTI POSITIONS April Position #1 – SPX Iron Condor – 1141.81 We sold 4 SPX April 1075 puts and bought 4 SPX April 1050 puts for credit of: $2.50 (x 4 contracts = $1,000). Then we sold 10 SPX April 1170 calls And bought 10 SPX April 1180 calls for a credit: $1.40 (x 10 contracts = $1,400). Total net credit and potential profit of about $2,400. Maximum profit range is 1075 to 1170. Safety range is about 1072.60 to 1177.40. Maintenance: $10,000 _____________________________________________________________ April Position #2 – RUT Iron Condor – 603.45 We sold 10 RUT April 530 puts and bought 10 RUT April 520 puts for a credit of $1.10. Then sold 10 RUT April 610 calls and bought 10 RUT April 620 Calls for a credit of $1.15. Total net credit of about $2.25. Potential profit: $2,250. Maximum profit range: 530 to 610. Safety range: 527.75 to $612.25. Maintenance: $10,000. ______________________________________________________________ April Position #3 – XAU Iron Condor - $104.30 Sold 10 XAU April 95 puts and bought 10 XAU April 90 puts for a credit of $.85 (x 10 contracts = $950). Sold 10 XAU April 110 puts and bought 10 XAU April 115 puts for a credit of $.55 (x 10 contracts = $550). Total net credit: $1.40. Potential profit: $1,400. Maximum profit range $95 to $110. Safety range: $93.60 to $111.40. _____________________________________________________________ April Position #4 – OSX Calendar Spread Plus – $101.42 OSX is the Oil Index. This is a play on the common belief that oil prices will continue to move up over the next month or two. Bought 10 OSX June $115 calls (36 delta) and sold 10 OSX April $115 calls (23 delta) at a cost of $2.15 ($2,150). We also put on an April $100/$90 bull put spread and took in an extra $.70 ($700) to reduce the cost basis to $1.45 ($1,450). ______________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $37.10 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We make money by selling near term puts and calls every month. Here's what we've done so far: Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts and calls – credit of $1,150. Dec. $34 puts and calls – credit of $1,500. Jan. $34 puts and calls – credit of $850. Feb. $34 calls and $36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34 calls and $37 puts – credit of $750 Total credit: $8,050. Note: We haven't included the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! And it's an efficient cash flow generating strategy. ZERO-PLUS Strategy. OEX – 558.10 In my Feb. 8th column, I outlined a strategy based on an initial investment of $100,000. $74,000 was spent on zero coupon bonds maturing in seven years at a value of $100,000. The principal $100,000 investment is guaranteed. We’re trading the remaining $26,000 to generate a “risk free” return on the original investment. Long Term: Bought 3 OEX Jan. 2006 540 calls @ $81 (x 300 = $24,300) March: Sold 3 OEX 585 calls @ $3.10 (x 300 = $930) March: 535/525 Bull Put Spread for credit of $1.10 (x 300 = $330). Bought back 3 OEX March 585 calls for $.10 & sold 3 of March 560 calls for $1.35. A credit of $1.25 x 300 = $375.00. Bought back March 560 calls for $.15, locked in profit of $120 x 3 = $360. Cash position is $3,320 ($1,620 plus the unused $1,700). April Positions: OEX Bull Put Spread - $558.10. Sell 5 OEX April 515 puts and buy 5 contracts of April 505 puts for credit of $.90 (x 5 contracts = $450). Sell call against long 540 call. Sell 5 OEX April 570 calls for $1.35 (x 5 contracts = $675). New cash position is $2,640 plus unused $1,700 = $4,340. _____________________________________________________________ New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, first look under "Education" on the OI home page and click on "Traders Corner." For more recent columns, you can look under “Strategies” and click on “Combinations.” They're waiting for you 24/7. ____________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP _____________________________________________________________ Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? 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The Option Investor Newsletter Sunday 04-04-2004 Sunday 5 of 5 In Section Five: Spreads & Straddles: Rally In Progress! Premium-Selling Plays: Naked Puts & Calls Conservative Stock Ownership: Covered Calls ************************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 ************************************************************** ******************* SPREADS & STRADDLES ******************* Rally In Progress! By Ray Cummins The major equity averages soared Friday after a favorable labor report gave investors confidence about the recovering economy. The Dow Jones Industrial Average finished up 97 points at 10,470 with 25 of the 30 blue-chip components posting gains. The NASDAQ Composite added 42 points to end at 2,057 on strength in chip and computer hardware shares. The broader S&P 500 Index rose 9 points to 1,141, despite losses in interest-rate sensitive shares such as brokerages, banks and homebuilders. Advancing issues had only a slight edge over declining stocks on the Big Board, while winners swept past losers by a 22 to 9 margin on the technology exchange. Volume was 1.6 billion shares on the NYSE, and 2.16 billion on the NASDAQ. The growth in jobs sent bond yields higher with the yield on the benchmark 10-year Treasury note rallying to 4.14%. For the week, the Dow rose 2.5%, the NASDAQ gained 4.9%, and the S&P 500 Index climbed 3%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 04/02/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 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. PUT-CREDIT SPREADS Symbol Pick Last Month L/P S/P Credit C/B G/L Status APOL 77.82 90.97 APR 65 70 0.60 69.40 0.60 Open BZH 111.90 102.30 APR 95 100 0.70 99.30 0.70 Open? KBH 78.71 76.60 APR 65 70 0.55 69.45 0.55 Open COF 73.50 74.99 APR 60 65 0.50 64.50 0.50 Open HUG 52.95 53.65 APR 45 50 0.50 49.50 0.50 Open SYMC 44.64 46.96 APR 37 40 0.35 39.65 0.35 Open DNA 106.82 110.70 APR 90 95 0.60 94.40 0.60 Open FDX 71.59 76.07 APR 65 70 0.85 69.15 0.85 Open LLL 56.67 60.06 APR 50 55 0.50 54.50 0.50 Open TASR 61.80 85.00 APR 45 50 0.60 49.40 0.60 Open DE 68.23 70.18 APR 60 65 0.40 64.60 0.40 Open FFIV 31.87 34.74 APR 25 30 0.55 29.45 0.55 Open MRVL 42.67 46.98 APR 37 40 0.20 39.80 0.20 Open CFC 95.90 91.25 APR 85 90 0.55 89.45 0.55 Open? KBH 80.80 76.60 APR 70 75 0.40 74.60 0.40 Open? NCEN 48.56 47.50 APR 40 45 0.45 44.55 0.45 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Hughes Supply (NYSE:HUG), although positive, has previously been closed to limit potential losses. Positions in Beazer (NYSE:BZH), Countrywide Financial (NYSE:CFC), and the new KB Home (NYSE:KBH) spread are candidates for "early exit" on any further downside movement. New Century Financial (NASDAQ:NCEN) is on the "watch" list. CALL-CREDIT SPREADS Symbol Pick Last Month L/C S/C Credit C/B G/L Status DISH 35.50 32.99 APR 42 40 0.30 40.30 0.30 Open NVLS 31.15 33.67 APR 37 35 0.35 35.35 0.35 Open VSEA 40.85 44.83 APR 50 45 0.60 45.60 0.60 Open? SFA 31.96 34.16 APR 40 35 0.55 35.55 0.55 Open? BBBY 39.04 39.61 APR 45 42 0.25 42.75 0.25 Open MSTR 52.64 54.44 APR 65 60 0.60 60.60 0.60 Open NTLI 53.12 59.14 APR 65 60 0.60 60.60 0.60 Open? SINA 35.96 38.79 APR 45 40 0.70 40.70 0.70 Open AFCO 27.85 29.67 APR 35 30 0.55 30.55 0.55 Open CAM 43.90 43.91 APR 50 45 0.50 45.50 0.50 Open CCMP 42.13 42.41 APR 50 45 0.45 45.45 0.45 Open XLNX 37.76 39.97 APR 42 40 0.25 40.25 0.25 Open? L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Bearish spreads on Adobe (NASDAQ:ADBE) and Cognos (NASDAQ:COGN), which is positive, have previously been closed to limit potential losses. NTL Inc. (NASDAQ:NTLI) remains an "early exit" candidate and is joined by Varian Semiconductor (NASDAQ:VSEA), Scientific Atlanta (NYSE:SFA) and Xilinx (NASDAQ:XLNX). Spreads on Applied Films (NASDAQ:AFCO) and Sina Corp (NASDAQ:SINA) are now on the "watch" list. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status GLBC 13.86 20.44 APR 15 12 1.80 5.50 Open? SNP 40.74 38.80 APR 40 40 5.70 5.70 Open? CCMP 44.55 42.41 APR 45 45 5.90 5.75 Open? AMX 35.66 39.50 MAY 35 35 3.65 5.00 Open AIG 74.28 74.30 MAY 75 75 5.60 7.80 Open SLB 65.13 61.79 MAY 65 65 6.75 6.50 Open BSTE 30.63 33.85 JUL 30 30 6.00 6.50 Open MKSI 23.10 25.94 JUL 22 22 4.70 5.25 Open New straddle plays in MKS Instruments (NASDAQ:MKSI) and Biosite (NASDAQ:BSTE) are off to a good start. The speculative position in Global Crossing (NASDAQ:GLBC) has provided a large short-term gain for traders who paid a small premium to enter the straddle. Prices for the new positions in American International (NYSE:AIG) and Schlumberger (NYSE:SLB), as well as any potential gains (max. value) for straddles in play during my recent absence from the market, will not be accurate. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PHTN - Photon Dynamics $37.30 *** Upgrade = Rally! *** Photon Dynamics (NASDAQ:PHTN) is a provider of yield management solutions to the flat panel display (FPD) industry. The company also offers yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industries and the cathode ray tube display and CRT glass and auto glass industries. The firm's test, repair and inspection systems are used by manufacturers to collect data, analyze product quality and identify and repair product defects at critical steps in the manufacturing. PHTN - Photon Dynamics $37.30 PLAY (less conservative - bullish/credit spread): BUY PUT APR-32.50 PDU-PZ OI=193 ASK=$0.30 SELL PUT APR-35.00 PDU-PG OI=63 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$34.70 __________________________________________________________________ RIMM - Research In Motion $104.14 *** "Blue Sky" Territory! *** Research In Motion Limited (NASDAQ:RIMM) is a designer, builder, and marketer of wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, the firm provides solutions for seamless access to time-sensitive information and communications, including e-mail, telephone, messaging and Internet- and intranet-based applications. The company's technology also enables a broad array of third-party developers and manufacturers around the world to enhance their own products and services with wireless connectivity. RIM's portfolio of products includes a family of wireless handhelds, the BlackBerry wireless e-mail solution, embedded radio modems and a suite of software development tools. Earnings are due on 4/7/04. RIMM - Research In Motion $104.14 PLAY (less conservative - bullish/credit spread): BUY PUT APR-85.00 RUP-PQ OI=7214 ASK=$0.85 SELL PUT APR-90.00 RUP-PR OI=8943 BID=$1.50 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$89.35 __________________________________________________________________ YHOO - Yahoo! $50.15 *** New 2004 High! *** Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer services company that offers a comprehensive branded network of properties and services to more than 200 million individuals worldwide. The company offers an online navigational guide to the Internet via its www.yahoo.com Website, which is a guide in terms of traffic, advertising and household and business user reach. Through Yahoo! Enterprise Solutions, the firm also provides many business services designed to enhance the productivity and Web presence of its clients. Yahoo! has offices in the United States, Europe, Asia, Latin America, Australia and Canada. Earnings are due on 4/7/04. YHOO - Yahoo! $50.15 PLAY (less conservative - bullish/credit spread): BUY PUT APR-45.00 YHQ-PI OI=14221 ASK=$0.35 SELL PUT APR-47.50 YHQ-PW OI=11419 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$47.20 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PHM - Pulte Homes $52.87 *** Sector Slump! *** Pulte Homes (NYSE:PHM) is a holding company whose subsidiaries engage in the homebuilding and financial services businesses. The company's direct subsidiaries include Pulte Diversified Companies, Inc. (PDCI), Del Webb Corporation and others that are engaged in the homebuilding business. PDCI's operating subsidiaries include Pulte Home Corporation (PHC), Pulte International Corporation and other subsidiaries that are engaged in the homebuilding business. The company also has a mortgage banking company, Pulte Mortgage Corporation, which is a subsidiary of PHC. PHM - Pulte Homes $52.87 PLAY (less conservative - bearish/credit spread): BUY CALL APR-60.00 PHM-DL OI=1177 ASK=$0.10 SELL CALL APR-55.00 PHM-DK OI=2394 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$55.55 __________________________________________________________________ XAU - PHLX Gold & Silver Index $104.30 *** Gold Bears Only! *** The PHLX Gold & Silver Sector (XAU) is a capitalization-weighted index composed of the common stocks of 9 companies involved in the gold and silver mining industry. The XAU was set to an initial value of 100 in January 1979; options commenced trading on December 19, 1983. For more information on the XAU, go to www.phlx.com. XAU - PHLX Gold & Silver Index $104.30 PLAY (conservative - bearish/credit spread): BUY CALL APR-115.00 XAV-DC OI=2664 ASK=$0.25 SELL CALL APR-110.00 XAV-DB OI=9283 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$110.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ BRKS - Brooks Automation $22.66 *** Cheap Speculation! *** Brooks Automation (NASDAQ:BRKS) is a supplier of products for automation and related solutions primarily for the worldwide semiconductor market. The company supplies hardware, software and services to both chip manufacturers and original equipment manufacturers, or OEMs, who make manufacturing equipment for making semiconductor devices. Brooks' offerings ranging from hardware and software modules to fully integrated systems and the system integration services to deploy its products on a worldwide basis. BRKS - Brooks Automation $22.66 PLAY (very speculative - neutral/debit straddle): BUY CALL APR-22.50 BQE-DX OI=72 ASK=$0.95 BUY PUT APR-22.50 BQE-PX OI=310 ASK=$0.85 INITIAL NET-DEBIT TARGET=1.60-$1.70 INITIAL TARGET PROFIT=$0.55-$0.90 __________________________________________________________________ LF - LeapFrog Enterprises $19.67 *** Probability Play *** LeapFrog Enterprises (NYSE:LF) is a designer, developer and seller of technology-based educational products and related proprietary content, dedicated to making learning effective and engaging. The firm designs its products to help preschool through eighth grade children learn age- and skill-appropriate subject matter, such as phonics, reading, math, spelling, science, geography, history and music. The company has also extended its product line downward in age to reach infants and toddlers and upward in age to reach high school students. LF - LeapFrog Enterprises $19.67 PLAY (conservative - neutral/debit straddle): BUY CALL JUN-20.00 LF-FD OI=600 ASK=$1.65 BUY PUT JUN-20.00 LF-RD OI=1293 ASK=$1.95 INITIAL NET-DEBIT TARGET=3.40-$3.50 INITIAL TARGET PROFIT=$1.85-$2.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 04/02/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 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. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) 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 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 trade. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NAKED PUTS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield APPX APR 33 32.48 44.43 0.90 5.98% 2.77% NEOL APR 15 14.65 20.00 0.35 5.57% 2.39% OSTK APR 25 24.30 32.34 0.70 7.25% 2.88% APPX APR 33 32.73 44.43 0.65 5.76% 1.99% ASKJ APR 25 24.15 37.94 0.85 9.04% 3.52% CLZR APR 11 11.07 14.12 0.17 4.72% 1.54% JNPR APR 22 21.85 27.10 0.65 7.82% 2.97% NEOL APR 15 14.65 20.00 0.35 6.74% 2.39% PDII APR 22 21.80 25.90 0.70 8.31% 3.21% SWIR APR 22 22.15 40.96 0.35 5.03% 1.58% APPX APR 33 33.03 44.43 0.35 4.71% 1.06% BRCM APR 35 34.55 41.40 0.45 4.64% 1.30% ELN APR 15 14.65 21.47 0.35 9.84% 2.39% OSTK APR 22 22.25 32.34 0.25 4.47% 1.12% PCLN APR 20 19.75 27.20 0.25 4.90% 1.27% SYMC APR 40 39.40 46.96 0.60 4.89% 1.52% XMSR APR 25 24.40 29.86 0.60 7.74% 2.46% YHOO APR 40 39.40 50.15 0.60 5.13% 1.52% APPX APR 35 34.45 44.43 0.55 6.27% 1.60% ASKJ APR 25 24.55 37.94 0.45 7.51% 1.83% CMC APR 30 29.60 31.60 0.40 4.72% 1.35% CSGS APR 15 14.65 17.35 0.35 7.65% 2.39% ECLG APR 17 17.20 21.53 0.30 6.26% 1.74% JILL APR 17 17.15 21.53 0.35 6.38% 2.04% MGAM APR 22 22.05 23.78 0.45 6.80% 2.04% PBY APR 25 24.50 28.41 0.50 5.97% 2.04% SUPG APR 7 7.15 8.62 0.35 16.86% 4.90% AGI APR 30 29.55 33.75 0.45 5.39% 1.52% ASKJ APR 25 24.60 37.94 0.40 6.62% 1.63% ENDP APR 20 19.75 26.65 0.25 4.98% 1.27% NFLD APR 12 12.15 15.81 0.35 12.17% 2.88% PBY APR 25 24.55 28.41 0.45 6.18% 1.83% PLMO APR 15 14.65 23.55 0.35 9.66% 2.39% RSAS APR 15 14.55 18.47 0.45 10.23% 3.09% SHFL APR 40 39.60 46.50 0.40 4.13% 1.01% SYMC APR 40 39.35 46.96 0.65 5.79% 1.65% ASCA APR 30 29.70 34.86 0.30 4.73% 1.01% ASKJ APR 30 29.40 37.94 0.60 9.72% 2.04% ERJ APR 30 29.40 32.45 0.60 8.22% 2.04% IMM APR 15 14.70 19.85 0.30 11.43% 2.04% INSP APR 30 29.70 39.26 0.30 5.70% 1.01% MICC APR 18 16.90 24.32 0.60 15.59% 3.55% MNST APR 22 22.20 28.26 0.30 5.95% 1.35% TKTX APR 15 14.50 17.14 0.50 17.25% 3.45% APPX APR 43 42.63 44.43 0.75 8.92% 1.76% ASKJ APR 30 29.70 37.94 0.30 6.44% 1.01% COCO APR 30 29.75 33.69 0.25 4.55% 0.84% FWHT MAY 17 17.15 21.60 0.35 4.27% 2.04% MICC MAY 17 17.15 24.32 0.35 4.39% 2.04% MNST MAY 22 21.95 28.26 0.55 4.48% 2.51% PLMO MAY 17 16.90 23.55 0.60 6.80% 3.55% TTN APR 17 17.25 20.06 0.25 8.43% 1.45% TTWO APR 35 34.55 36.99 0.45 6.40% 1.30% Some of the new positions may not have been available at the listed prices, due to the recent market rallies. Plays on Amylin (NASDAQ:AMLN) and Nektar (NASDAQ:NKTR), although positive, have been closed to limit potential losses. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield SEAC APR 20 20.40 15.84 0.40 7.86% 1.96% ERES APR 35 35.30 28.23 0.30 4.73% 0.85% FARO APR 30 30.40 23.70 0.40 7.33% 1.32% AFCI APR 25 25.50 22.87 0.50 8.84% 1.96% FLSH APR 22 22.75 21.07 0.25 5.62% 1.10% ADTN APR 35 36.30 31.36 0.80 9.56% 2.20% DISH APR 35 35.65 32.99 0.65 6.34% 1.82% MTLM APR 40 40.60 39.00 0.60 9.68% 1.48% BRL APR 50 50.40 47.50 0.40 4.08% 0.79% OVTI APR 30 30.50 28.81 0.50 10.89% 1.64% SNDK APR 32 32.75 30.00 0.25 6.38% 0.76% The "early-exit" candidates listed on Wednesday: NII Holdings (NASDAQ:NIHD) and Schnitzer Steel (NASDAQ:SCHN), were closed to limit losses. The bearish position in Career Education (NASDAQ:CECO) has previously been closed. M-Systems Flash Disk (NASDAQ:FLSH), Omnivision Technologies (NASDAQ:OVTI) and Sandisk (NASDAQ:SNDK) are on the "watch" list, and conservative traders should consider closing the bearish position in Metal Management (NASDAQ:MTLM). ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING UNCOVERED 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BARZ - Barra $36.75 *** On The Rebound! *** Barra (NASDAQ:BARZ) is an investment risk management firm that provides solutions to financial professionals worldwide. The company's products and services support the business-critical portfolio and enterprise-wide risk management needs of global investment professionals and are designed to allow clients to make strategic investment decisions with confidence. Barra's business is organized into two business units: core business, which provides risk management solutions, and the ventures businesses, which consist of investments, joint ventures or significant licensing arrangements that leverage the ideas and intellectual property of the core business. BARZ - Barra $36.75 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 35 QNB PG 210 0.65 34.35 12.1% 1.9% * __________________________________________________________________ HNT - Health Net $27.00 *** Bottom-Fishing Only! *** Health Net (NYSE:HNT) is an integrated managed care organization that administers the delivery of managed healthcare services. The company's health plans and government contracts subsidiaries provide health benefits through health maintenance organizations, insured preferred provider organizations and point-of-service plans to approximately 5.4 million individuals in 15 states through group and individual programs. The firm's subsidiaries also offer managed healthcare products related to behavioral health, dental, vision and prescription drugs. In addition, the firm offers managed healthcare product coordination for workers' compensation insurance program through its employer services group subsidiary. HNT - Health Net $27.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 25 HNT PE 1837 0.55 24.45 14.9% 2.2% SELL PUT MAY 22.5 HNT QX 675 0.50 22.00 4.8% 2.3% * SELL PUT MAY 25 HNT QE 72 1.15 23.85 7.5% 4.8% __________________________________________________________________ IPXL - IMPAX Laboratories $24.23 *** Multi-Year High! *** 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. IPXL - IMPAX Laboratories $24.23 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 22.5 UPR PX 87 0.50 22.00 15.0% 2.3% SELL PUT MAY 20 UPR QD 515 0.50 19.50 5.4% 2.6% * __________________________________________________________________ SSNC - SS&C Technologies $26.64 *** Consolidation Complete? *** SS&C Technologies (NASDAQ:SSNC) is a provider of client/server based investment and financial management software, application service provider solutions and business process outsourcing solutions. The company's products and related services compete in a variety of vertical markets in the institutional investment management marketplace, including commercial lending, financial institutions, hedge funds and family offices, institutional asset management, insurance entities, pension funds, municipal finance and real estate property management. SSNC - SS&C Technologies $26.64 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 25 QUN PE 16 0.60 24.40 15.8% 2.5% SELL PUT MAY 20 QUN QD 20 0.30 19.70 3.4% 1.5% TS SELL PUT MAY 22.5 QUN QX 0 0.90 21.60 7.9% 4.2% * __________________________________________________________________ TINY - Harris & Harris Group $19.60 *** A "NANO" Investor! *** Harris & Harris Group (NYSE:TINY) is a venture capital investment company that is operating as a business development company. The company's investment objective is to achieve long-term capital appreciation, rather than current income, from its investments. The company has invested a substantial portion of its assets in privately held start-up companies and in the development of new technologies in various industry segments. These privately held businesses generally tend to be thinly capitalized, unproven, small companies based on risky technologies that lack management depth and have not attained profitability nor have any history of operations. TINY - Harris & Harris Group $19.60 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 17.5 QJT PW 251 0.30 17.20 12.6% 1.7% SELL PUT MAY 15 QJT QC 80 0.30 14.70 4.6% 2.0% * SELL PUT MAY 17.5 QJT QW 90 0.95 16.55 9.2% 5.7% __________________________________________________________________ TRID - Trident Microsystems $16.75 *** Entry Point? *** Trident Microsystems (NASDAQ:TRID) designs, develops and sells integrated circuits for video graphics, multimedia and digitally processed television products for desktop and notebook personal computers and the consumer television market. In 2000, Trident restructured its organization into two major business units: the Graphics Division, which concentrated primarily on video graphics for the PC market, and the Digital Media Division, which designs integrated circuits for digitally processed television (DPTV) for the consumer television market. TRID - Trident Microsystems $16.75 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 15 HVU PC 116 0.25 14.75 12.2% 1.7% * SELL PUT MAY 15 HVU QC 0 0.85 14.15 9.5% 6.0% __________________________________________________________________ UTHR - United Therapeutics $24.14 *** Drug Speculation! *** United Therapeutics (NASDAQ:UTHR) is a biotechnology company focused on the development and commercialization of therapeutics to treat chronic and life-threatening diseases in 3 therapeutic areas: cardiovascular medicine, infectious disease and oncology. It has 5 therapeutic platforms: Prostacyclin analogs are stable synthetic forms of a molecule that has effects on blood-vessel health and function; Remodulin has been approved in the United States for the treatment of pulmonary arterial hypertension in patients with New York Heart Association Class II-IV symptoms; Immunotherapeutic monoclonal antibodies are antibodies that activate patients' immune systems to treat cancer; Glycobiology anti-viral agents are a class of small molecules that may be effective as an oral therapy for hepatitis C and other infections, and Telemedicine involves portable digital devices that enable physicians to remotely monitor patients' bodily measurements. UTHR - United Therapeutics $24.14 "SPECULATIVE" PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 22.5 FUH PX 300 0.45 22.05 13.5% 2.0% * __________________________________________________________________ XMSR - XM Satellite Radio $29.86 *** The Rally Resumes! *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service with over 1 million subscribers. Broadcasting live daily from Washington, DC, New York City and Nashville, Tennessee at the Country Music Hall of Fame, XM provides its loyal listeners with over 100 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. XMSR - XM Satellite Radio $29.86 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT APR 27.5 QSY PY 3239 0.30 27.20 7.7% 1.1% * SELL PUT MAY 25 QSY QE 755 0.55 24.45 4.7% 2.2% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option 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 options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very 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 price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ HOV - Hovnanian Enterprises $40.00 *** Sector Slump! *** Hovnanian Enterprises (NYSE:HOV) constructs and sells single-family detached homes and attached condominium apartments and townhouses in more than 196 new home communities in New Jersey, Pennsylvania, New York, Virginia, Maryland, North Carolina, Texas and California. The firm offers a wide variety of homes that are designed to appeal to first-time buyers; first- and second-time, move-up buyers; luxury buyers; active adult buyers, and empty nesters. In addition, the company provides financial services, including mortgage banking and title services to the homebuilding operations' customers. The firm does not retain or service the mortgages that it originates, but rather sells the mortgages and servicing rights to investors. HOV - Hovnanian Enterprises $40.00 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL APR 42.5 HOV DV 2666 0.40 42.90 7.3% 0.9% * SELL CALL APR 40 HOV DH 5573 1.25 41.25 18.4% 3.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ******************************************* CONSERVATIVE STOCK OWNERSHIP: COVERED CALLS ******************************************* Many of our readers find that writing "in-the-money" covered-calls fits their criteria for a conservative, easy-to-manage investing strategy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Supplemental Covered Calls -- April 4, 2004 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. These positions will not be included in the monthly summary. A new selection of covered-call candidates will be published on expiration week-end (4/18/04). __________________________________________________________________ Sequenced by Target Yield (monthly basis) Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield OMCC 20.45 APR 20.00 UMK DD 1.35 60 19.10 12 11.9% PLMO 23.55 APR 22.50 UPY DX 2.00 773 21.55 12 11.2% AUDC 12.67 APR 12.50 QAS DV 0.70 159 11.97 12 11.2% SUNW 5.06 APR 5.00 SUQ DA 0.25 74595 4.81 12 10.0% CACS 12.80 APR 12.50 CQQ DV 0.75 142 12.05 12 9.5% PXLW 17.70 APR 17.50 PUO DW 0.70 797 17.00 12 7.5% AMD 17.45 APR 17.00 AMD DY 0.90 13372 16.55 12 6.9% BRKS 22.66 APR 22.50 BQE DX 0.75 72 21.91 12 6.8% AMAT 22.55 APR 22.50 ANQ DX 0.60 79337 21.95 12 6.4% GNSS 18.17 APR 17.50 QFE DW 1.10 1195 17.07 12 6.4% SWC 18.15 APR 17.50 SWC DW 1.05 69 17.10 12 5.9% TER 25.36 APR 25.00 TER PE 0.70 1762 24.66 12 3.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************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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