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Daily Newsletter, Thursday, 04/22/2004

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The Option Investor Newsletter                Thursday 04-22-2004
Copyright 2004, All rights reserved.                       1 of 3
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Size Matters
Futures Markets: See Note
Index Trader Wrap: "see note"
Market Sentiment: Fearless!


Posted online for subscribers at http://www.OptionInvestor.com
************************************************************
MARKET WRAP  (view in courier font for table alignment)
************************************************************
      04-22-2004           High     Low     Volume   Adv/Dcl
DJIA    10461.20 +143.90 10496.61 10292.28 2.21 bln 2437/ 834
NASDAQ   2032.91 + 37.30  2035.39  1991.47 2.14 bln 2105/1061
S&P 100   555.24 +  6.04   556.76   547.24   Totals 4542/1895
S&P 500  1139.93 + 15.84  1142.77  1121.92
W5000   11154.54 +160.20 11174.70 10978.22
SOX       480.48 +  1.70   485.81   468.09
RUS 2000  593.24 + 10.02   593.67   582.28
DJ TRANS 3006.96 + 52.50  3007.01  2948.54
VIX        14.61 -  0.99    15.98    13.86
VXO (VIX-O)14.59 -  1.07    16.36    14.17
VXN        21.35 -  1.47    22.94    20.94
Total Volume 4,748M
Total UpVol  3,604M
Total DnVol  1,107M
Total Adv  5101
Total Dcl  2198
52wk Highs  337
52wk Lows   152
NasTRIN    0.78
TRIN       0.76
PUT/CALL   0.63
************************************************************

Size Matters
by Jim Brown

It appears that size and quality does matter when it comes to
earnings and Thursday was a banner day for quality results.
Good news was breaking out all over and analysts were pounding
the table about the new bull market. Is it a new bull market
or just a lot of bull?

Dow Chart - Daily


Nasdaq Chart - Daily


Wilshire-5000 Chart - Daily



According to market reporters earnings suddenly rocketed to
the forefront and considering the economics today it was
about time. Jobless Claims fell slightly to 353,000 but that
marks the second week over the 350K level. That level is used
as a benchmark for adding or deleting real jobs from the
market. The prior week was revised up to 362K. Analysts are
still blaming the seasonal adjustments for Easter as the
reason for the jump.

The March PPI surprised to the upside with a +0.5% jump and
well over estimates of +0.2%. Core prices rose at a slower
rate of +0.2% for those of you that don't use food or energy.
A +1.5% jump in food prices was the main reason for the
headline bounce. For the first quarter finished goods have
already risen +5.1% and although much of that was due to
energy it is still a warning sign for the Fed that inflation
is knocking on the door.

The Chicago Fed National Activity Index (CFNAI) dropped
to 17 in March from 47 in February. This was the seventh
consecutive month of expansion but the lowest month since
October. The +308,000 jobs created in March added +0.09 to
the headline number and it was only the fourth positive
contribution by employment in the last four years. The CFNAI
is seen as confirmation that the economy is still growing but
the drop in the expansion rate is troubling. If rates rise
soon the housing sector will slow and that could push the
numbers back into negative territory very quickly.

By far the best report of the day was the Monthly Mass Layoffs
which showed that there were only 920 mass layoffs in March
that impacted 92,554 workers. This the second consecutive
month under 100,000 and bodes very well for the coming Jobs
report. If jobless claims remain low as well as layoffs then
we can assume companies have reached their minimum level of
employment and could be ramping up again soon. Manufacturing
still accounted for the largest number of layoffs with one
third of the total. Strong earnings as we have been seeing
this week would also make companies more comfortable about
maintaining payrolls and adding additional workers.

According to the bobble head reporters on stock TV economics
were not the motivating force today. According to them the
earnings picture finally took the lead and positive comments
from numerous companies combined together to produce a
rebound back to a two week high. Rate fears that were blamed
for the Tuesday decline were forgotten and entire two day
hiccup was erased.

When we discuss these things you should always remember that
nearly 50% of our daily trading is done by computer programs
launched by funds and institutions. This is up from a little
over 20% just a couple years ago. These programs come and
go daily with some buying and some selling. As long as they
are balanced there is no material impact to the market. When
we suddenly get several large programs that move in the same
direction without any offsetting activity we get a major
market event.

This is what happened on Tuesday and again today. On Tuesday
at approximately 2:30 we saw several sell programs triggered
and the selling was blamed on Greenspan comments. With Alan
Greenspan scheduled to speak again the next morning nobody
was ready to buy the dip. More sell stops were hit and the
drop accelerated. The selling was not especially heavy for
the entire day, only for the duration of the sell programs.
Volume was only moderate at 4.2B shares across all markets.
The market had been moving higher that morning but fear of
Greenspan was prompting some underlying profit taking all
day. The sell programs just accelerated the event. It
was not a watershed day. It was simply a reaction event made
worse by the lack of buyers. Traders were concerned it would
carry over into Wednesday but Greenspan said nothing new and
it turned into a false alarm.

The exact reverse occurred today. The market opened down and
we bounced along the 10300 level for about an hour. At 10:30
a strong buy program triggered taking us to new highs for
the day. Once those highs were made new programs appeared
and we raced to just over the 10400 level where we rested
for a couple hours. Shorts without stops were caught off
guard and were forced to bite the bullet in increasing
numbers when there was no immediate sell off. At 1:25 those
shorts hoping for an end of day retracement were surprised
when another strong buy program appeared to push us within
13 points of 10500. Short covering held us there and we
closed with little or no selling.

Dow Chart - 30 min


Advance-decline Chart  (programs)



Despite the numbers on the board it was not a blowout. The
volume was strong at 4.8B shares across the board but up
volume was only 3:1 over down volume. Advancers only beat
decliners by little more than 2:1. It was simply a day where
the buy programs outnumbered sell programs and it was helped
by positive earnings chatter. On the chart above you can see
the marked moves where large programs pushed the indexes
around. A plus/minus change in the A/D line of 1000 issues
in a single 30 min period in the middle of the day is not
created by retail buying and selling.

Advance-decline - Chart (normal)




I chose today to elaborate on the program activity because
the TV announcers were tripping all over themselves trying
to explain how the bullish earnings news had prompted this
massive buying. Surprise, the news today was no different
than the news on any other day this week. The rate picture
is still the same. In fact Bernanke spoke today and said
the Fed was in policy transition mode, indicating the Fed
was preparing to raise rates. Nobody blinked. Wayne Angel,
a prior Fed governor, was on TV saying he thought +50 points
in May would be the right move. Nobody blinked. There were
multiple terror events around the world and a train wreck
in Korea potentially killing 3000 people and the markets
did not blink. The markets go up and down based on money
flows into funds and asset allocation by major institutions.
Retail traders simply go along for the ride.

Those pulling the trigger on those buy programs probably
did so because of the long term outlook as earnings continue
to beat expectations. That part is true. If a fund is sitting
on a large pile of cash and the Tuesday crash and Wednesday
speech failed to break support at 10300 then why not take
advantage of the best buying opportunity over the last month?
It does not even take guts or conviction. Index funds have
to invest the money and the best market timing they can do
is buy the dips whenever possible. Does that mean the rally
was false? Does it mean we are not going to see any summer
doldrums? No to both questions. It means nothing except some
shorts got squeezed. You cannot make market decisions based
on single day events. Granted it was a bullish event but it
was just one day.

It was a very bullish day for sentiment. Company after company
raised guidance and made glowing statements about the future.
Comments from Caterpillar were repeated almost hourly day.
The company CEO said "it appears the world's economy will
have one of the strongest, broadest recoveries in years."
CAT raised its profit outlook to +65% to +70% growth from the
prior forecast of +40%. That was just an example of similar
comments from dozens of companies.

Thursday was the heaviest earnings schedule for the April
cycle with 70 S&P 500 companies reporting along with hundreds
of others. After the close we got several high profile reports
including MSFT, AMZN, AMGN, BRCM, GLW, MCHP, XLNX and PSFT.

Microsoft blew away estimates of 28 cents with profits of
34 cents and Microsoft was uncharacteristically bullish in
its comments. CFO John Connors said 2004 has been a great
year and we see a very bright future for the company and
its shareholders. It did not announce plans for its $56B
in cash but did say it will announce some news before the
companies analyst meeting in July. Many expect a larger
dividend, possibly a one time cash disbursement and some
acquisition plans. The resolution of numerous antitrust
cases recently has reduced the need to hoard cash. The
company said it saw broad based demand and solid execution
across all segments. They said demand increased in servers,
PCs and in overall technology spending. The MSN division
also returned to profit status and Xbox sales rose +30%.
Life is good at Microsoft today. The stock jumped nearly
$2 in after hours trading. They also raised estimates for
the current quarter. They raised estimates for PC growth
for the rest of the year but lowered estimates for 2005.

Amazon posted its third straight quarterly profit with
earnings of 26 cents compared to a loss of -3 cents in the
same quarter last year. Revenue jumped +41%. Amazon beat
analyst estimates but the stock fell after the news. AMZN
still forecasts a profit for the coming quarter but the
guidance left some confused and suggested earnings could
decline on lower margins. Considering AMZN has stretched
its profits to quarters where it has always had losses and
sales are continuing to increase it is evident the business
model is working well and the short term volatility should
pass. Amazon is getting into the search engine business
and keyword click sales. That is a pure profit effort and
their billions of page views will capitalize on that space.

Broadcom beat the street by two cents but the good news was
the upgraded guidance. BRCM said earnings in the current
quarter should increase by +10%. They said bookings had been
very strong into April and they were seeing broad increases
in demand. They bragged about the strength in the broadband
market and claimed it was their fastest growing segment.

XLNX, another chipmaker posted earnings of 36 cents against
estimates of 25 cents and raised guidance going forward.
This is getting to be a repeating pattern. Those beating
are leading the pack and raising estimates while a few
stragglers are still catching up. It is a stock by stock
problem related to product mix but the chip sector is
definitely improving. Other chips reporting tonight included
IDTI +1, MCHP +2, TQNT +1, VTSS inline, MCRL inline, MSCC
+1.

Corning beat estimates of five cents with an eight-cent
gain and raised guidance. They said demand for liquid crystal
display panels remained very strong. They did say they did
not see telecom recovering until 2005. They said LCD sales
grew +16% for the quarter and demand was growing faster than
expected.

These are just some of the positive reports seen today but
the overall picture continues to be strong. American Express
said travel fees rose +23% for the quarter as Americans
suddenly increased their rate of travel. Sabre raised their
estimates as well saying bookings were climbing quickly.
Starwood Hotels said business travel had increased faster
than their expectations in just the last couple months.
Credit card companies are posting strong profits and saying
debtors are making payments faster and weak credits are
decreasing. Maytag said orders were increasing to the point
where materials shortages were becoming a problem. Norfolk
Southern said rail shipments were growing strongly. UPS
said package growth across all segments was strong with
international shipments especially strong. Ryland Homes
said new orders were the highest in company history at
nearly 5,000 homes. They also closed a record 3,000+ homes
in the first quarter. The strength in the home marketplace
bodes well for the entire economy as we move into the
spring buying season.

Yes, earnings are great, the economy is growing and everyone
has accepted that rate hikes are on the way. What is wrong
with this picture? Nothing and that scares me. Bad things
tend to happen when all the news is good. The Dow ran back
to begin testing its April resistance and that test could
come as early as tomorrow. 10550 has been tested five times
in April and failed each time. A breakout there could attract
more buyers who were planning on waiting out the summer
doldrums.

The Nasdaq has the same resistance hurdle at 2070 and while
it had a strong +37 point run today it is still well below
that level. The tech news after the bell has failed to really
juice the futures with the S&P +3 and the Nasdaq +12. Not big
numbers considering the number of positive surprises.

The problem we have to face is not something we can point
to and wait for the announcement. It is not terror, rates
or rising economy. It is expectations. All the good news is
already priced into the market and investors will have to
decide if they want to buy at the highs while knowing that
future quarters will not be this strong. Stranger things
have happened and we will have to wait out the rest of April
to see if that occurs. Today was the largest day of the
cycle and we will start to see shorter list of earnings
schedules beginning next week. Most of the big guys have
already reported and the sterling numbers normally decline
from here as the lower quality companies report later in
the cycle.

For Friday I would be very cautious about buying any bounce
unless 10550/2070 is broken. With weekend event risk ahead
the odds are slim we are going to make that break tomorrow.
If it is going to happen I would bet on a Monday attempt.
I would instead look at buying any dip in anticipation of
any potential gains next week. We are far from out of the
woods but that may be daylight just up ahead. Is it a new
bull market or just a lot of bull? We will know soon.

Enter Passively, Exit Aggressively.

Jim Brown
Editor


***************
FUTURES MARKETS
***************

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



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********************
INDEX TRADER SUMMARY
********************



Check the Site Later Tonight For Jeff's Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_042204_1.asp


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****************
MARKET SENTIMENT
****************

Fearless!
 - J. Brown

Stocks soared on Thursday when for one brief moment investors
ignored their interest rate fears, the violence in Iraq and
concerns over the Presidential election to focus on the trainload
of positive earnings reports.  Okay, I may be exaggerating a bit
but Alan's soothing words on Wednesday appeared to do the job or
investors finally came to their senses and realized that a bump
or two in interest rates wouldn't kill the economy.

It didn't hurt to have outstanding profit numbers from the likes
of Caterpillar (CAT), a Dow-component, and EBAY.  The profits
continued to soar with a strong report from MSFT and AMZN after
the close, although AMZN was trading lower on the news.  Normally
we tend to see profit taking after a big move like today and
facing the weekend it wouldn't surprise us a bit to see traders
taking money off the table since there is always an event risk of
some new terrorist attack.  However, MSFT's news could keep the
tech sector in the green and potentially push the NASDAQ toward
resistance at 2050-2075.

Market internals were very bullish.  Advancing stocks tackled
decliners 22 to 6 on the NYSE and 2 to 1 on the NASDAQ.  Up
volume swamped down volume 17 to 5 on the NYSE and 3 to 1 on the
NASDAQ.  Total volume was very strong.  The volatility indices
collapsed back toward their lows indicating almost zero investor
fear!


-----------------------------------------------------------------

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8263
Current     : 10461

Moving Averages:
(Simple)

 10-dma: 10409
 50-dma: 10433
200-dma:  9935



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  886
Current     : 1139

Moving Averages:
(Simple)

 10-dma: 1132
 50-dma: 1133
200-dma: 1069



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1072
Current     : 1485

Moving Averages:
(Simple)

 10-dma: 1468
 50-dma: 1456
200-dma: 1404



-----------------------------------------------------------------

Volatility has completely collapses.  Alan Greenspan has helped
soothed the markets' fears over rates and now investors can
focus on earnings.

CBOE Market Volatility Index (VIX) = 14.61 -0.99
CBOE Mkt Volatility old VIX  (VXO) = 14.65 -1.01
Nasdaq Volatility Index (VXN)      = 21.35 -1.47

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume

Total          0.63        977,611       617,591
Equity Only    0.54        800,523       430,109
OEX            1.05         25,119        26,499
QQQ            3.18         31,920       101,593


-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          77.8    - 1     Bull Confirmed
NASDAQ-100    56.0    + 2     Bear Correction
Dow Indust.   83.3    - 7     Bear CONFIRMED
S&P 500       75.4    + 0     Bear Confirmed
S&P 100       77.0    - 2     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


-----------------------------------------------------------------

! Sorry!  There are not ARMS/TRIN moving average numbers today.
Errors with our data provider prevented us from providing
trustworthy material.


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    2197      2040
Decliners     635      1054

New Highs     166       141
New Lows       60        26

Up Volume   1746M     1514M
Down Vol.    467M      569M

Total Vol.  2218M     2113M
M = millions


-----------------------------------------------------------------

Commitments Of Traders Report: 04/12/04

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and Chicago Board of Trade. COT data
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs tend
to be wrong.

S&P 500

We continue to see little change in commercial traders' positions.
Small traders are adding to positions and remain bullish although
there is a decent jump in new shorts.


Commercials   Long      Short      Net     % Of OI
03/23/04      401,456   418,732   (17,273)   (2.1%)
03/30/04      407,987   420,624   (12,673)   (1.5%)
04/06/04      409,429   419,471   (10,042)   (1.2%)
04/12/04      412,827   419,910   ( 7,083)   (0.9%)

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
03/23/04      130,648    89,943    40,705    18.5%
03/30/04      130,112    81,937    48,175    22.7%
04/06/04      130,262    80,174    50,088    23.8%
04/12/04      135,840    89,090    46,750    20.8%

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Commercials have reduced the long positions and added to their
shorts, which is bearish for the markets.  Small traders remain
net long and have increased their bullish positions significantly.


Commercials   Long      Short      Net     % Of OI
03/23/04      268,647   294,930    (26,283)  ( 4.7%)
03/30/04      265,492   305,797    (40,305)  ( 7.1%)
04/06/04      270,904   328,862    (57,958)  ( 9.7%)
04/12/04      261,889   341,163    (79,274)  (13.1%)

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
03/23/04      131,879     59,210    72,669    38.0%
03/30/04      123,494     59,550    63,944    35.0%
04/06/04      148,737     46,235   102,502    52.6%
04/12/04      172,473     52,274   120,199    53.5%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Almost no change in commercial traders' positions here.
The same can be said for small traders.


Commercials   Long      Short      Net     % of OI
03/23/04       52,014     34,017    17,997   20.9%
03/30/04       52,749     67,967   (15,218) (12.6%)
04/06/04       54,862     34,762    20,100   22.4%
04/12/04       54,144     34,432    19,712   22.3%

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
03/23/04        9,884    12,887    (3,003)  (13.2%)
03/30/04        8,928    16,551    (7,623)  (30.0%)
04/06/04        7,971    20,721   (12,750)  (44.4%)
04/12/04        8,297    20,746   (12,449)  (42.9%)

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

Still no change in commercial traders' positions here either.
It's an even race between longs and shorts.  Small traders
have actually grown more bearish.


Commercials   Long      Short      Net     % of OI
03/23/04       23,048    22,119      929       2.1%
03/30/04       23,642    22,180    1,462       3.2%
04/06/04       23,101    22,108      993       2.2%
04/12/04       23,501    22,748      753       1.6%

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
03/23/04        8,344     6,734    1,610     10.7%
03/30/04        7,020     6,711      309      2.3%
04/06/04        7,316     8,085     (769)    (5.0%)
04/12/04        6,136     7,450   (1,314)    (9.7%)

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03

-----------------------------------------------------------------


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The Option Investor Newsletter                 Thursday 04-22-2004
Copyright 2004, All rights reserved.                        2 of 3
Redistribution in any form strictly prohibited.


In Section Two:

Dropped Calls: ESRX
Dropped Puts: LEH, PD, UTSI
Call Play Updates: BEC, MIK, WFMI, ZBRA
New Calls Plays: BBY, MBG, UOPX
Put Play Updates: AMG, QLGC
New Put Plays: None


****************
PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

Express Scripts - ESRX - close: 79.75 change: +0.39 stop: 74.95

It may seem strange to be dropping ESRX tonight, especially with
the stock closing at new all-time highs, but this is one of those
times where discretion seems the better part of valor.  We
finally got the breakout to new highs that we were expecting and
it's entirely possible that the rally could continue right into
earnings next Wednesday.  However, with the stock seeming to
stall just below $80 the past 3 days, we're concerned that the
rally may peter out heading into the weekend or early next week.
Rather than take that risk, let's close the play on a high note,
with a solid gain.  Traders willing to hold for higher levels
should be super stingy and use a tight stop just under the 10-
dma.  Remember, our initial target for the play was $80, so
today's $79.75 close is really close enough.

Picked on April 4th at       $75.36
Change since picked:          +4.39
Earnings Date                4/28/04 (confirmed)
Average Daily Volume =     1.05 mln
Chart =



PUTS:
*****

Lehman Brothers - LEH - cls: 77.81 chng: +1.81 stop: 78.25

Twice in the past two weeks, the bears took a serious run at the
downside in shares of LEH, and both times they were unable to put
together a serious challenge of the 200-dma, which was our target
for the play.  Yesterday's dip to just above $75 was the best
they could do and the stock came roaring back today, ending just
below the 10-dma.  While we saw a similar bounce last week, this
one feels stronger than the one from last week and we're going to
duck out of the play here for a modest gain.  The stock could
very easily roll over and head down to test the 200-dma ahead of
the weekend, but it could just as easily blast through our $78.25
stop.  This looks like a great opportunity to take the money and
run.

Picked on April 6th at        $81.77
Change since picked:           -3.96
Earnings Date                3/16/04 (confirmed)
Average Daily Volume =      2.26 mln
Chart =


---

Phelps Dodge - PD - close: 70.84 chg: +1.74 stop: 71.01

See what happens when we get greedy?  On Tuesday we suggested
traders take profits but maybe consider leaving open a small
position to take advantage of what looked like an impending
breakdown through support at $70.00.  Sure enough PD did break
support and traded to $67.05 on a big drop in copper prices.
However, the markets rebounded in the afternoon and PD's
Wednesday candlestick looked like a "hammer" or one-day reversal.
We lowered the stop loss to $71.01 in hopes of leaving the play
open and seeing PD roll over again under $70.00.  The stock may
indeed by rolling over with some weakness this afternoon but the
huge rally in the broader markets was enough to lift PD through
our stop loss at $71.01.

Picked on April 13 at $ 75.15
Change since picked:   - 4.31
Earnings Date        04/28/04 (confirmed)
Average Daily Volume:     2.3 million
Chart =


---

UTStarcom, Inc. - UTSI - cls: 28.98 chng: +1.90 stop: 28.25

We noted on Tuesday that UTSI was certainly due for an oversold
rebound and that with the proximity of its earnings report, we
didn't have time to weather an oversold bounce and still have
time for the stock to drill to new lows.  For that reason, we
aggressively tightened our stop to just above the first level of
resistance we could find on the daily chart.  In hindsight, that
was a stroke of genius (or luck, if you prefer), as the stock
soared 7% higher today in response to several press releases less
than a week ahead of earnings on the 27th.  The stock gapped
higher, clipped our stop before lunch and continued grinding
higher right into the closing bell.  Needless to say, all
positions should now be closed.

Picked on March 30th at       $29.38
Change since picked:           -0.40
Earnings Date                4/27/04 (confirmed)
Average Daily Volume =      3.12 mln
Chart =



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PLAY UPDATES - CALLS
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Beckman Coulter - BEC - cls: 57.95 chg: +1.05 stop: 54.75*new*

Putting together back to back gains shares of BEC surge ahead on
stronger than average volume and above minor resistance at
$57.00.  News is quiet on the stock but BEC looks poised to hit
the $60.00 level soon.  We're going to raise our stop loss to
$54.75.  Traders looking for new entry points might want to look
for dips to the $56-57 levels.

Picked on April 18 at $ 56.16
Change since picked:   + 1.79
Earnings Date        05/03/04 (confirmed)
Average Daily Volume:     333 thousand
Chart =


---

Michaels Stores Inc. - MIK - cls: 52.31 chng: +1.06 stop: 48.50

Fresh from its breakout to new all-time highs on Tuesday, MIK
didn't miss a beat yesterday.  MIK gave a quick blip down and the
closed near its high of the session and that was followed by
today's strong rally, that drove the stock to fresh highs.  As we
mentioned in the initial writeup, the conservative approach is to
enter on pullbacks near support, ideally at the 10-dma ($50.08).
Barring that opportunity, taking the breakout entry is the way to
go and traders got a solid shot at that setup this morning.
Those instructions still fit this play, with a dip to the 10-dma
or a breakout to new highs both making sense for new entries,
depending on an individual's tolerance for risk.  We're
maintaining our stops at $48.50 tonight.

Picked on April 20th at      $51.23
Change since picked:          +1.08
Earnings Date               5/26/04 (confirmed)
Average Daily Volume =        336 K
Chart =


---

Whole Foods Market - WFMI - cls: 79.25 chng: -0.15 stp:
76.50*new*

"I think I can, I think I can", you could almost hear WFMI
chanting over the past couple days.  Three days now, the stock
has been testing the old highs at $79.25 and so far it hasn't
been able to maintain a breakout.  But to its credit, there
hasn't been much of a retracement either.  Sure, there was
today's opening pullback near $78, but that just turned out to be
an entry point for more aggressive traders.  That was actually an
encouraging rebound, as it suggested that old resistance at that
level has now changed to support.  Another dip near $78 can be
used for new entries, as can a bonified breakout over the $80
level.  Earnings are set to be released on May 5th, so we'll
still got time for the stock to break out and make a move towards
our higher target in the $83-84 area.  But let's protect
ourselves by getting a bit more aggressive with our stop tonight,
raising it to $76.50, just under the 10-dma ($76.74).

Picked on April 15th at      $76.01
Change since picked:          +3.24
Earnings Date               5/05/04 (confirmed)
Average Daily Volume =        687 K
Chart =


---

Zebra Technologies - ZBRA - cls: 75.86 chg: +1.49 stop: 72.50*new*

Something lit a fire under shares of ZBRA on Wednesday.  The
stock climbed the entire session.  Today's widespread market
rally helped push the stock through resistance at $75.00.  Could
this be an earnings run up?  Let's hope so.  ZBRA only has three
trading days left before it announces earnings on the morning of
April 28th.  That means we'll be dropping the play on Tuesday the
night before.  Considering the short time frame left for this
play we're not suggesting any new positions.  Normally, we'd
probably adjust the stop loss to yesterday's low and keep it near
support.  However, with only three days left we're going to raise
the stop to $72.50.

Picked on April 11 at $ 73.26
Change since picked:   + 2.60
Earnings Date        04/28/04 (confirmed)
Average Daily Volume:     332 thousand
Chart =



**************
NEW CALL PLAYS
**************

Best Buy Co - BBY - close: 54.95 change: +1.51 stop: 51.99

Company Description:
Minneapolis-based Best Buy Co., Inc. is North America's leading
specialty retailer of consumer electronics, personal computers,
entertainment software and appliances. The Company's subsidiaries
operate retail stores and/or Web sites under the names: Best Buy
(BestBuy.com), Future Shop (FutureShop.ca), Geek Squad
(GeekSquad.com), and Magnolia Audio Video (Magnoliaav.com). The
Company's subsidiaries reach consumers through more than 750
stores in the United States and Canada. (source: company press
release)

Why We Like It:
On your mark.  Get set.  Go!  The RLX retail index has rallied
right to resistance and looks poised to breakout to new all-time
highs.  This also looks like a good chance to capture a similar
move in BBY as it readies itself for a breakout over resistance
at $55.00.  You may remember that BBY reported earnings on March
31st.  The numbers were strong and the stock gapped up above
resistance at $50.00 and its simple 200-dma.  It has spent the
last three weeks consolidating those gains and building what
appears to be a reverse head and shoulders pattern.

We're going to use a TRIGGER at $55.05 to capture a breakout over
resistance.  Such a move would be a bullish breakout of its
reverse H&S pattern and produce a triple-top buy signal on its
P&F chart.  If the H&S pattern holds true then bulls can target a
run to the $65.00 level.  However, our first target is a much
more reasonable move to resistance at $60.00.

Suggested Options:
Short-term traders can choose between the May and June options.
Our choice is probably the June 55s or the May 50s.

BUY CALL MAY 50 BBY-EJ OI= 5166 at $5.50 SL=3.25
BUY CALL MAY 55 BBY-EK OI=14814 at $1.80 SL=0.95
BUY CALL JUN 55 BBY-FK OI=11738 at $2.95 SL=1.50

Annotated Chart:



Picked on April xx at $ 00.00 <-- see TRIGGER
Change since picked:   + 0.00
Earnings Date        03/31/04 (confirmed)
Average Daily Volume:     3.6 million
Chart =


---

Mandalay Resort Group - MBG - cls: 61.02 chg: +1.57 stop: 58.99

Company Description:
Mandalay Resort Group owns and operates 11 properties in Nevada:
Mandalay Bay, Luxor, Excalibur, Circus Circus, and Slots-A-Fun in
Las Vegas; Circus Circus-Reno; Colorado Belle and Edgewater in
Laughlin; Gold Strike and Nevada Landing in Jean and Railroad
Pass in Henderson. The company also owns and operates Gold
Strike, a hotel/casino in Tunica County, Mississippi. The company
owns a 50% interest in Silver Legacy in Reno, and owns a 50%
interest in and operates Monte Carlo in Las Vegas. In addition,
the company owns a 50% interest in and operates Grand Victoria, a
riverboat in Elgin, Illinois, and owns a 53.5% interest in and
operates MotorCity in Detroit, Michigan.
(source: company press release)

Why We Like It:
America's economy is improving.  That much is clear.  So where
are American's going to spend their leisure time?  Many are
choosing to do it in Vegas with the dollar so weak overseas and
traveling to Vegas is perceived as safer than traveling overseas.
MBG broke out to new highs in March only to surge again in early
April with a positive earnings pre-announcement.  MBG said its
revenue per available room was rising strongly and slot machine
revenues were up nearly 30%.  The stock has spent the last two
weeks consolidating its gains but now looks ready to run higher
again with technical support at its 21-dma.

We're going to use a TRIGGER at $61.51 to open the play so we can
catch MBG breaking out over minor resistance at $61.50.  More
conservative traders might want to wait for a new high over
$62.20.  The stock is certainly long-term overbought, there is no
denying it but we'll start the play with a stop loss under
Wednesday's low (once we're triggered).  MBG doesn't announce
earnings for a while but look for several of its rivals to report
this week and turn in good news!

Suggested Options:
We like the June calls.  Our favorite would be the June 60s.

BUY CALL JUN 60 MBG-FL OI= 862 at $3.60 SL=1.80
BUY CALL JUN 65 MBG-FM OI= 271 at $1.45 SL=0.75

Annotated Chart:



Picked on April xx at $ 00.00 <-- see TRIGGER
Change since picked:   + 0.00
Earnings Date        06/03/04 (unconfirmed)
Average Daily Volume:     1.1 million
Chart =


---

Univ. of Phoenix - UOPX - cls: 93.87 chng: +3.87 stop: 87.50

Company Description:
University of Phoenix Online is the computerized, digital
delivery system of the University of Phoenix.  It is a provider
of accessible, accredited educational programs for working
adults.  It began operations in 1989 by modifying courses
developed by University of Phoenix' physical campuses for
delivery via modem to students worldwide.  UOPX offers accredited
degree programs in business, education, information technology
and nursing.  A student can participate in UOPX's classes through
a Pentium-class personal computer, a 56.6K modem and an Internet
service provider.  Students retrieve lectures, questions and
assignments from instructors then review them offline. They also
have access to online research libraries and services, as well as
other professionals with whom they can share ideas, debate issues
and learn from each other's experience. University of Phoenix is
part of Apollo Group, Inc., the parent company of University of
Phoenix.

Why we like it:
Aside from a bit of volatility due to rumors of accounting
problems at one of the other extended education firms, UOPX (and
its parent APOL) have been on one monstrous rally since bottoming
near the $22 level back in the summer of 2002.  Since then, UOPX
has more than quadrupled in price and one could make the argument
that it is getting a bit pricey at these levels.  With a PE
ration north of 75, that would certainly seem to be a rational
point.  That is, until we take a look at the PnF chart.  After a
slight pullback in March, the stock broke out with a vengeance,
continuing the bullish move that began in January.  In late
March, we got a fresh Buy signal and today's breakout to new all-
time highs gives investors renewed belief in the stock's ability
to reach its bullish price target of $112.  While that is
entirely possible, we'll be more than happy to hitch a ride from
near current levels to the century mark, which is likely to offer
at least token resistance.

With volume surging on Thursday, this could be the beginning of a
momentum move towards that goal and that helps to make the case
for momentum entries on a breakout over $94.  However, the market
has been rather crazy of late, so our preference would be for
entries on a pullback near mild support at $92 or stronger
support at $90.  Note that the 10-dma ($90.33) will reinforce
that support, helped along by the 20-dma at $89.17.  One
interesting thing about today's action is that the stock's strong
rally seems to have been related to an upgrade from Legg Mason,
as the stock had its rating raised from Hold to Buy.  That isn't
the strange part though.  At the same time, the firm downgraded
UOPX's parent company APOL from Buy to Hold.  Both stocks ended
the session with strong gains and at new all-time highs.  Clearly
we'll need to monitor the price action in APOL for confirmation
of what to expect from UOPX.  We're starting coverage with a
generous stop at $87.50, just under last week's intraday low.
That should give plenty of room for a decent pullback to test
support before continuing higher.

Suggested Options:
Shorter Term: The May $90 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 June $95
Call, while the more conservative approach will be to use the
June $90 Call.  Our preferred option is the June $95 strike, as
it is currently just out of the money and should provide
sufficient time for the play to move in our favor.

BUY CALL MAY-90 UBY-ER OI= 106 at $5.60 SL=3.50
BUY CALL MAY-95 UBY-ES OI= 191 at $2.55 SL=1.25
BUY CALL JUN-95*UBY-FS OI=  25 at $4.50 SL=2.75

Annotated Chart of UOPX:



Picked on April 22nd at      $93.87
Change since picked:          +0.00
Earnings Date               3/12/04 (confirmed)
Average Daily Volume =        177 K
Chart =



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PLAY UPDATES - PUTS
*******************

Affiliated Mgrs - AMG - cls: 51.30 chng: +1.00 stop: 53.50

After a non-stop $7 slide, AMG was overdue for a rebound and
that's precisely what transpired on Thursday, although the
rebound was a bit stronger than we would have liked.  The
downtrend is still very much intact and a bounce from the $50
area was to be expected due to its proximity to the 50%
retracement of the November-March rally.  But yesterday's doji
and today's strong bullish candle combine with Tuesday's large
red candle to offer a bullish reversal pattern, along with the
daily Stochastics, which are threatening to turn up in bullish
fashion.  The good news is that today's bounce came on rather
light volume, at least compared to the recent selloff.  We've
already tightened our stop to $53.50, which is protected by both
the 38% retracement ($52.54) and the 10-dma ($53.02).  Let's give
this rebound time to peter out and then look for an entry on a
rollover below what should be strong resistance near $52.50.  On
the outside chance that today's bounce is reversed on Friday, a
dip near the 200-dma ($48.63) should be used in order to gain a
favorable exit from the play at our target.

Picked on April 18th at       $52.91
Change since picked:           -1.61
Earnings Date                4/28/04 (unconfirmed)
Average Daily Volume =         559 K
Chart =


---

QLogic Corp. - QLGC - close: 28.14 change: -0.02 stop: 29.50

If ever there were a picture of "pinned to the mat" QLGC is it.
Even with the NASDAQ-100 gaining an impressive 2.37% on Thursday,
QLGC was held down for a loss of a couple pennies as the stock
consolidates its recent fall.  While it is certainly possible
that the stock could rebound from here, we're betting on another
breakdown as the company's earnings report approaches, currently
scheduled for next Wednesday.  With earnings that close, we
obviously don't have a lot of time left to play and we certainly
don't have time to weather an oversold rebound.  We've already
lowered our stop to $29.50, just over near-term resistance and
where the 10-dma ($29.74) will be by tomorrow.  We aren't
advocating new entries at this time due to the nearness of
earnings.  It's time to look for favorable exits from the play.
Our initial target of $25 is still in play if the stock were to
break down again heading into the weekend.  But barring a major
catastrophe, it appears unlikely that QLGC will reach that lower
target of $20 ahead of the report.

Picked on April 13th at       $31.00
Change since picked:           -2.86
Earnings Date                4/28/04 (confirmed)
Average Daily Volume =      4.49 mln
Chart =



*************
NEW PUT PLAYS
*************

None


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The Option Investor Newsletter                  Thursday 04-22-2004
Copyright 2004, All rights reserved.                        3 of 3
Redistribution in any form strictly prohibited.


In Section Three:

Watch List: Bulls Stampede on Thursday
Option Spreads: Many Happy Returns Of The Day
Traders Corner: Better Results Through Redundancy


**********
WATCH LIST
**********

Bulls Stampede on Thursday

___________________________________________________________________

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.
___________________________________________________________________


Magna Intl Corp - MGA - close: 83.44 change: +1.20

WHAT TO WATCH: MGA has been struggling with resistance in the
$83-84 range for the last nine months.  Now, after the big
rebound from the March low, MGA is once again fighting to
breakout over $84.00.  The consolidation over the past three
weeks has been pretty tight ($82-84).  We'd probably consider
bullish positions on a move over $84.00 and play it for any sort
of earnings run into its May 6th announcement.

Chart=


---

Cognizant Technology - CTSH - close: 48.70 change: +1.48

WHAT TO WATCH: The test of support at $40.00 and its 200-dma a
few weeks ago also happened to be a test of its P&F support.
That proved to be a great entry point for brave bulls.  Now CTSH
is poised to breakout over resistance at $49.00 after three weeks
of consolidation.  Earnings were a couple of days ago so we don't
have to worry about avoiding the announcement.  More aggressive
traders could use a trigger over $49.00.  More conservative
traders might want to use a trigger over $50.00.  We would target
a move to the $55 level.

Chart=


---

Yahoo! Inc - YHOO - close: 57.95 change: +3.01

WHAT TO WATCH: A very strong earnings report from EBAY last night
launched the entire Internet sector into the stratosphere.  YHOO
did its best to keep up with a 5.5% gain on strong volume.  While
we like the breakout bullish entry points are probably best
considered on a dip back toward the $56.00-57.00 levels.  It will
be interesting to watch if YHOO pulls back on profit taking
tomorrow or if the rally continues powered by AMZN's strong
earnings report after the bell tonight.

Chart=


---

Analog Devices - ADI - close: 46.21 change: +0.21

WHAT TO WATCH: We've had ADI on the watch list before and we've
been following it in the MarketMonitor as well.  The stock has
been trading in a sideways channel between $44-45 and $50-51 for
months.  The recent pull back to $45.00 and its simple 200-dma
looks like a bullish entry point.  Yet to be honest we're
surprised that ADI didn't bounce more strongly on Thursday with
the markets in rally mode.  Traders can still consider bullish
positions here but we'd probably have a stop loss at today's low.

Chart=




-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------

BGP $25.21 +0.50 - The mover over $25.00 proved to be a breakout
over round-number resistance a new multi-year highs for Borders
Group, the bookstore chain.  The stock doesn't move that fast but
it might be a decent covered call candidate.

AMZN $48.86 +3.14 - A strong earnings report from EBAY sent
traders into a buying mood for AMZN who announced their own
earnings report after the bell on Thursday.  The bullish breakout
over resistance at its 100 & 200-dma combined with its better
than expected earnings should sent the stock higher on Friday.

ITT $80.25 +2.57 - We like the breakout over resistance at $79.00
and resistance at $80.00 but we usually don't play stocks this
close to their earnings announcement, which was today.


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Option Spread Strategies
************************

Many Happy Returns Of The Day
By Mike Parnos, Investing With Attitude

Let’s return to the discussion of investment returns.  We haven’t
talked about it for a while and I know some traders still find it
a little confusing.

Below is a recent sequence of emails with a CPTI student who had a
tough time accepting the fact that last month our “hypothetical”
CPTI portfolio returned about 32% on the “hypothetical” money we
put to work in the “hypothetical” market.  I think you’ll find it
enlightening.

Now that we have all the “hypotheticals” out of the way, let’s get
to the meat and potatoes – or, should I say, the “hypothetical”
meat and potatoes.  However, the weight I gain from said meat and
potatoes is anything but hypothetical.
_____________________________________________________________

Hi Mike.
While my investment style normally involves selling naked puts and
I ordinarily focus on the naked put section of the newsletter,
last night I read something you wrote that caught my eye
concerning investment return. You seemed to be focused on the
ratio of premium earned to amount at risk.  Is that really the
correct way of looking at it?  It seems to me that you're ignoring
a critical piece of the equation, which is probability of outcome.

Depending on how many standard deviations away the strike prices
are in your iron condor plays, the results, as you calculate them,
can be a little deceiving.  For example, while a ratio of $6,050
premium to $18,950 at risk looks like a good return on the
surface, if the probability of staying within the profitable range
is insufficient, then the actual results can be quite different.

Take, for example, strike prices just one standard deviation from
the mean.  That would suggest about a one in three chance of
falling outside the range and incurring a maximum loss.  If we
earn $6,050 in two of three months, but lose $18,950 in the third
month, that wouldn't be a very good result.  Note that I haven't
actually tried to determine how many standard deviations were
involved in your specific trade, I'm just using it as a
hypothetical situation.  Am I missing something in this analysis?
Ray

Ray,
Life is not all black and white.  Neither is trading.  There are
an abundance of gray areas.  Just because the posted risk may have
been $18,950, it doesn't mean I would have allowed the positions
to get all the way to that point.  As all good CPTI students know,
there are a variety of adjustments that can be made when a
specific trade looks like it's going bad.

As far as probability of profit is concerned, I try to create a
very large range on these Iron Condors.  I don't really know how
to calculate a "probability of profit" on these positions.  But, I
sure do like the CPTI Portfolio’s success rate over the last few
years since we started keeping track.  How would you calculate the
return?
____________________________________________________________

Mike,
The way I've seen Expected Profit calculated is as follows:
(max. profit x probability) - (max. loss x probability)
For example:
Max profit of $1,000 x 90% = $900
Max loss of $5,000 x 10% =  -$500
Expected profit:  $400

The probability factors are calculated using a normal distribution
and the Black-Scholes formula with critical inputs including
volatility and days to expiration.  The results are somewhat
imperfect to the extent that there is significant probability of
outcomes between maximum profit and maximum loss.

Aside from that minor defect, the calculations are a pretty good
indicator.
As for rate of return, I would think it would be equal to the
Expected Profit (as calculated above) divided by the margin
requirements, but I don't claim to be the expert and there may be
a more appropriate measure.
Ray

Hi Ray,
I really appreciate all your effort, but I'm a simple kind of guy.
I have my hands full drawing a decent trend line.  Trying to
calculate all that stuff would drive me crazy and, more
importantly, take away from my quality TV time.  I'd have to use
all my fingers and even a few of my toes to make these kind of
calculations.  Besides, even if we came up with a figure, it would
have no bearing on whether or not the trade will be profitable.
I'm a patient guy.  Hell, I once sat through four hours of a time-
share presentation to get a clock radio, but I have to draw the
line somewhere.

My "expected" profit is ALL the premium – every damn cent!  If a
trade goes bad, I better have a Plan B ready -- or I should be
trading baseball cards instead of options.  I’m still not sure
what “probability” has to do with figuring out a return.  Isn’t a
return based on “after-the-fact” results?  The figures I use when
posting the trades are what the anticipated return will be IF the
trade is successful.  If you want to talk about calculating risk
vs. reward “prior” to implementing the trade, well, that’s a whole
other subject.  We might even be able to include “probability” in
the decision making process.

Here’s a simple way of calculating the return on your investment.
Let’s say our account size is about $40,000 – like our CPTI
portfolio.  Let’s also assume we withdraw our monthly profits each
month.  If we’ve made $17,500 in six months on a $40,000 size
account, isn’t it fair to say we’ve made a return of 43.75% on our
account?

When you consider that we rarely use the entire $40,000 in a
month, I think our results are pretty impressive.   There’s a huge
base of CPTI students that have had to add an addition onto their
piggy banks to accommodate the profits.  When you consider those
who have compounded their returns by reinvesting their profits,
you realize that we’ve just scratched the surface –
hypothetically, of course.
____________________________________________________________

MAY CPTI POSITIONS
Remember, May is a five-week option cycle.  Get comfortable.
We’re going to exercise some patience and self-discipline.  That’s
the best kind of exercise.  It beats the hell out of a
Stairmaster.  It’s more profitable, too – usually.

May Position #1 – SPX Iron Condor – 1139.93
We sold 10 SPX May 1080 puts and bought 10 SPX May 1070 puts for a
total credit of $1.90 ($1,900).  Then we sold 7 SPX May 1175 calls
and bought 7 SPX May 1190 calls for a credit of  $1.40 ($980).
Our total net credit and potential profit is $2,880.  Our maximum
profit range is 1080 to 1175.  Maintenance: $10,500.

May Position #2 – RUT Iron Condor – 593.24
We sold 10 RUT May 620 calls and bought 10 RUT May 630 calls for a
credit of $1.20 ($1,200).  Then we sold 10 RUT May 540 puts and
bought 10 RUT May 530 puts for a credit of $1.30 ($1,300).  Our
total net credit and profit potential is $2,500.  Our maximum
profit range is 540 to 620.  Maintenance: $10,000.

May Position #3 – MNX Iron Condor - $148.55
We sold 10 MNX May $152.50 calls and bought 10 MNX May $157.50
calls
for a credit of $.80 ($800).  Then we sold 10 MNX May $140 puts
and bought 10 MNX May $135 puts for a credit: $.95 ($950).  Our
total net credit and profit potential is $1,750.  Our maximum
profit range is $140 to $152.50.  Maintenance: $5,000.

May Position #4 – BBH Iron Condor - $149.76
We sold 10 BBH May $155 calls and bought 10 BBH May $165 calls for
a credit of $.70 ($700).  Then we sold 10 BBH May $135 puts and
bought 10 BBH May $125 puts for a credit of  $.70 ($700).  Our
total net credit and profit potential is $1.40 x 10 contracts =
$1,400.  Our maximum profit range is  $135 to $155.  Maintenance:
$10,000.

_____________________________________________________________

ONGOING POSITIONS

QQQ ITM Strangle – Ongoing Long Term -- $36.92
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.
May $34 calls and $37 puts – credit of $800.  Total credit:
$8,850.

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
a great cash flow generating strategy.

ZERO-PLUS Strategy.  OEX – 555.25
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).  Our cash
position as of April expiration is $2,640 plus unused $1,700 =
$4,340.

The April 570 OEX call expired worthless.  The OEX 515/505 bull
put spread also expired worthless. (Isn’t this fun?)

New May Zero Plus Position
We sold 5 OEX May 530 puts and buy 5 contracts of May 520 puts for
credit of  $1.10 (x 5 contracts = $550).

We sold a call against our long 540 call. We sold 5 OEX April 575
calls for $1.40 (x 5 contracts = $700).

If both of these plays work out, we can add another $1,250 to our
cash total – just a little bonus while we wait for the market to
go up.
______________________________________________________________

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.


**************
TRADERS CORNER
**************

Better Results Through Redundancy
by Mark Phillips
mphillips@OptionInvestor.com

While writing last week's LEAPS column, I was reminded of an
important method of confirming the validity of a given trade or
market view -- that of looking at a stock or index from multiple
viewpoints.  It is fairly easy to scan through a list of charts
and make an argument for either a bullish or a bearish bias, but
frequently a single chart view can be misleading.

We've all see stocks that look like a great short on the daily
chart, but when we dial out to the weekly view, we can see support
levels that will make a significant downward move difficult to
achieve.  Likewise, an index may look like it is ready to make a
bullish move on the daily chart, but when we drill down to the
hourly chart, we may see bearish divergence on the Stochastics and
MACD oscillators.

Both of these are examples of trade setups that may work in our
favor, and then again they may not.  But the lack of confirmation
across multiple timeframes makes the odds of success much lower
than if we can find confirmation for a given bias across multiple
timeframes.  Putting those two scenarios together, what we'd
really like to see is the weekly chart having just broken below
major support, the daily chart looking like it is just starting a
daily cycle and the hourly chart providing clear bearish
divergence.  Doesn't that sound like a better combination and more
likely to result in a successful trade?

Intraday traders may very rarely look at the longer timeframes
such as the weekly chart, while long-term traders may find little
use for the hourly or shorter-term charts.  Let me suggest that no
matter what your typical holding time for your trades that your
results will very likely improve if you filter out the mediocre
candidates by looking across the different timeframes for clues as
to both the longer- and shorter-term influences at work.

But that's really only one part of the equation, one that I'm sure
we're all familiar with to varying degrees.  Where our results can
really improve is when we look for confirmation of a trade bias
completely outside of our normal trading viewpoint.  If you think
I'm about to talk about Point & Figure (PnF) charting, then you're
right on the money.

As we know, PnF charts don't care one whit about timeframe or
volume or buy and sell programs or oscillators.  There is only one
component to PnF charts - price.  That specific focus helps to
remove much of the noise present on our normal bar or candle
charts and provides important insights as to the dominant forces
at work in a given security or index.

If you've been reading my articles for awhile, you've already been
forced to come up to speed with basic PnF charts.  Either that, or
you've decided I don't know what I'm talking about and have quit
reading my stuff.  But then one has to wonder what you're doing
back here this afternoon.  GRIN  The point I want to make is that
it isn't enough to just look at the standard scale on the PnF
charts.  If you do, it's the equivalent to doing all of your
analysis using only the daily chart.  It is a 2-dimensional,
myopic view and if you limit yourself in that way, you're liable
to miss out on some important clues.

Let's look at a very simple example by viewing the chart of the
NASDAQ Composite on both a weekly and daily timeframe.

NASDAQ Composite Weekly Chart



Starting with this weekly view, there were certainly plenty of
false Sell signals on the weekly Stochastics over the past year
and until January none of them proved fruitful.  What's a bear to
do?  How about take a look at the PnF chart?  It wasn't perfect to
be sure, but as you can see by pulling up the PnF chart shown at
the bottom of this article, we can see that it does a good job of
keeping us out of trouble.  There are some one-box sell signals on
the way up, but we didn't get a strong Sell signal until the 2000
level finally cracked.  It didn't leave much room for profiting on
the recent downside move, but it did keep an over-eager bear out
of trouble for much of the rally of the past year.

NASDAQ Composite Daily Chart



Now let's say we are inclined to play the bearish crossover in the
weekly chart shown up above.  See how dialing down to the daily
timeframe helps to illuminate some clearer entry points, giving us
3 distinct opportunities to enter the 2-month downward trend?
Here we had the weekly and daily candle charts in our favor and
after the break below 2100, we had the standard scale PnF chart in
our favor as well.  Three out of four isn't half bad!  But here I
go getting ahead of myself and talking about the PnF charts before
we've looked at them.  We'll get to that in a minute.

But first, take note of the green annotated "Buy?" signals on the
daily and weekly charts above.  Any guesses on why I've shown
those circles with a "?"?  Simply put, I want us thinking about
more than just those candle charts.  Whenever we're looking to
change directions on a given symbol, our first reaction should be
to pull up the PnF chart and see whether it gives us permission or
if it is saying to be patient and look for a play back in the
direction of the previously dominant trend.  As you'll see below,
the PnF charts have helped to provide a great deal of clarity in
recent months

NASDAQ Composite PnF Chart - Standard 10-Point Box



The initial break below 2100 put this standard scale PnF chart on
a Sell signal and at that point we have a pretty clear runway for
playing the downside in the weekly and daily charts above.  Take
another look at that daily chart and look how the 2100 level lines
up with the first Sell signal on that view?  Alright, but what I
really want to focus on is where the chart turns bullish.  Note
that the PnF chart above gave us a new Buy signal with the late
March push through the 1990 level, and that was good for a run up
to the 2070 level.  Not bad and certainly good for short-term
traders.  But I'll suggest that bullish position traders should
still be on the sidelines.  Why?  Take a look below!

Ah, but first I want to call your attention to the 1900 level on
the chart above.  Not only is it the current target, but it was
the site of the prior target -- perfectly achieved -- from the
initial Sell signal in late February.  What is the significance of
the 1900 level right now?  A bounce from that level will now give
us a double bottom setup, which will be to the bulls liking.
Let's not talk about the consequences of a break below that level
right now, as it isn't that pleasant.

NASDAQ Composite PnF Chart - Standard 10-Point Box



It's this view of the COMPX that I really think speaks volumes.
We saw on the standard scale chart that the 1070 level stopped the
past rally and here we can see the significance of that level.  If
it had traded 2080, we would have been back on a PnF Buy signal on
this larger and more significant price scale.

So how do we put it all together in the here and now?  If looking
to trade bullish, aggressive traders could actually target a
breakout over the 2040 level as it would be a confirmed bullish
signal on the standard scale PnF chart.  But we don't necessarily
buy the initial breakout at that point.  Why?  Because the 20-
point scale chart hasn't yet joined the party.  Instead, we should
look for a subsequent pullback to oversold on the daily chart up
above as a bullish entry point.  Traders looking for more
confirmation would keep their eye on the 20-box scale chart and
not play bullish (remember this is for position traders) until
seeing a Buy signal over 2080.

By the way, take note of the fact that both the 10-point and 20-
point box scale charts are currently showing a 1900 bearish price
objective (denoted by the red lines).  When the price objective
lines up like that across multiple scales, I've found it is
usually a good idea to pay attention -- even though it has already
been achieved in terms of the 20-point box scale.

Note there's nothing magical about the 20-point box size.  Who's
to say but what a 30-point or 50-point scale might not provide a
better tool.  That's the beauty of trading -- there are infinite
possibilities and ways of looking at the market.  Don't be afraid
to experiment a little.

Hopefully this helps to demonstrate how we can use confirming
timeframes (or scales) and different chart types together in order
to increase our odds of being on the right side of a given trade.
I know this has been a really cursory view, but if there's a
desire for coverage in greater depth, you know what to do.  Just
drop me an email and let me know.  In the meantime, experiment not
only with the different timeframes on the symbols you're trading,
looking for confirmation of your trade bias, but do the same trick
with your PnF charts, looking for confirmation across multiple
scales as well.  Remember, this is experimentation and education
time.  There are no mistakes and there are no dumb questions.
This is how we learn new and hopefully profitable lessons.  Have
Fun!!

Have a great weekend!

Mark


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