The Option Investor Newsletter Sunday 05-02-2004 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: Triple Ugly Futures Market: See Note Index Trader Wrap: A BALANCED VIEW Editor's Plays: Go Long! Market Sentiment: April Ends Lower 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 4-30 WE 4-23 WE 4-16 WE 4-09 DOW 10225.57 -247.27 10472.9 + 20.87 10451.9 + 9.94 - 28.56 Nasdaq 1920.15 -129.62 2049.77 + 54.03 1995.74 - 57.12 - 4.31 S&P-100 540.88 - 15.92 556.80 + 1.86 554.94 - 1.18 - 1.98 S&P-500 1107.30 - 33.30 1140.60 + 6.03 1134.57 - 4.76 - 2.48 W5000 10793.66 -356.76 11150.4 + 72.34 11078.1 - 87.98 - 36.36 SOX 443.48 - 44.50 487.98 + 7.84 480.14 - 31.64 - 2.08 RUT 559.80 - 30.91 590.71 + 7.34 583.37 - 14.51 - 5.57 TRAN 2886.44 -115.27 3001.71 + 62.24 2939.47 + 12.59 - 39.78 ****************************************************************** Triple Ugly by Jim Brown For the third consecutive day the markets sold off on heavy volume and serious technical damage has been done. There was only a minor attempt to rally the big caps but the direction of tech stocks was never in doubt. Small caps were also weak and came within two points of a four month low. Big caps, techs and small caps all closed at the lows of the day after three days of selling. Definitely a triple ugly day. Dow Chart - Daily Nasdaq Chart - Daily Economically the results were decent but nobody seemed to care. The report parade began with Personal Income, which rose +0.4% in March and slightly higher than expected. Considering all the complaining about lack of leverage by employees this headline number was a little surprising. However, the wages component only rose +0.2% and it was the slowest growth of the year. The higher growth came from proprietors' income and from supplements to wages. The kicker was the inflation rate at +0.3%. This translates to a REAL income and spending rate of only +0.1% and the lowest growth rate since last fall. Headlines can be very deceiving and they don't always tell the entire story. The final Michigan Consumer Sentiment for April at 94.2 was up from the preliminary number of 93.2 but still lower than the March 95.8. Both Present Conditions and Expectations fell for the month. In reality the index has been roughly flat for the last three months since the 103.8 posted in January. Consumers are not changing their views along with the current recovery. That suggests there is little real confidence of its progress but consumers are waiting patiently. The New York NAPM just continues to move forward as economic conditions in the city improve. The index surged over +10 points to 282.2 for April and all major components jumped sharply. The +3.8% gain was very strong and shows the rebound from the 9/11 disaster is well under way. This is not a true reflection of the rest of the U.S. since the economic damage to NYC was enormous but it is encouraging to see the improvement. A broader representation of the current business environment came from the Chicago PMI rising well above estimates of 60.0 to 63.9 in April. This is a three month high and suggests the March lull finally found some traction. March saw a drop to 57.6 from 63.6 in Feb and analysts worried this was the beginning of a down trend. With the return to the 63+ level there was broad relief from the analyst community. Inventory, production and new orders all jumped nearly +5 points and posted strong gains. The component with the least gains was employment at only +1.7. The prices paid component rose to the highest reading since 1995 at 76.1 and it was also the highest component in the index. Supplier deliveries hit a 16-year high at 69.7 indicating that delays are very common and prices paid should continue to rise. I am sure Greenspan is watching this clear sign of inflation. The NY-NAPM and the PMI along with other manufacturing surveys published recently are continuing to show growth although somewhat limited in some areas. Strong reports like the PMI are pumping up expectations for the ISM on Monday. It should be strongly positive and well over the 63.0 consensus. Where have we heard this recently? GDP maybe? The pre-release hype builds expectations to levels that may not be met leading to market letdowns. With that said, the ISM has been flat in the 62.5 range since November and with consensus only 63.0 I am with the group in thinking we are in for an upside surprise. We have seen a plateau in this index after last years growth and resistance appears to be 63.0. A major break, say to 65, would be very unlikely but 64 may be in the cards. The challenge here is the Fed. If we had a real breakout it would drastically increase the chances of a negative Fed event. That puts us back to wanting the porridge to be just right and not too hot or cold. The current best guess for the Fed meeting is for only a change in the Fed statement to a bias that leans toward rate hikes. The only question today is how strong that bias statement will be. It will be examined for hints of how long the Fed will be in a tightening bias and how high the rates might get. Obviously they will not explain it in English but the tea leave readers will be dissecting every word. While there are no hikes expected for May or June the Fed funds futures are now projecting a hike in Aug, Sept and Nov with the funds rate being 1.75% in November. That would be a strong series of hikes in an election year. The key point beginning to pop up in most reports is rising inflation. The PMI showed prices paid at a nine year high. The NY-NAPM Regional Price Index component jumped +9 points to 71 and well over the multiple consecutive 50s at the end of 2003 and early 2004. Prices for gross domestic purchases in the GDP rose +3.2% compared to only +1.4% in the same period last year. We are reaching the point where the Fed will have to fight inflation regardless of the speed of economic growth. That is the under current analysts will be looking for in the Fed statement. The growing problem for the markets is not necessarily the Fed but the lack of aggressive guidance as I have mentioned before. With earnings suddenly taking a turn for the worse the markets are not seeing buyers coming in at the dips. For instance in just the last two days we have had outright earnings misses or guidance downgrades from GTW, FDRY, BOBJ, APCC, SPW, IM and WIN just to name a few. There have been numerous tech stocks with less than expected guidance and the Nasdaq has suffered for it. If you doubt the tech flight has begun you only need to look at SLAB, FFIV, CSCO, NVDA, GNSS, YHOO, ABTL, KLAC, AMAT, etc. Even IBM has dropped to six-month lows. Hardware, software and Internet stocks are moving to multi-month lows. Even the biotech sector, which has seen numerous rockets lately is down -8% for the week. This is pure PE compression from the lack of aggressive guidance and profit taking from the 2003 gains. Expectations at this point are in the tank. Technically the markets are in trouble. I mentioned Thursday that the bottom of the range was 10250/1975 and the Nasdaq had already broken that level. The Dow had broken but then recovered. Friday the Dow joined the Nasdaq with a new low for the month and a close at 10225. This is well below all the short term averages but still well above the 200dma and well above the 10007 low from March. It is ugly but it is still not a disaster. The disaster for the week was the Nasdaq, which closed at 1925 and -134 points below the high for the week. Even more critical for the Nasdaq was a break of the 200dma at 1933. The 200dma is historically a rebound point for serious tech corrections and while the Nasdaq did bounce on the first touch it failed again at the close. This is the first time the Nasdaq has closed under the 200dma since March-2003. This is a critical failure if it holds. I say "holds" since it happened late on a Friday in front of weekend event risk. Also, the entire three days of selling could have been the result of some asset allocation program before month end. If buyers show up at the open on Monday and push us back over the 1933 level, only +13 points away, then the tech cat has at least one life left. If the selling continues at the open then we are in serious trouble. The 200dma is considered to be a fairly common institutional sell signal, a stop loss for funds. Because it is an index it is not going to be a wide spread dump signal but more of a warning. Funds will sell individual stocks that break the 200 but not all stocks just because the Nasdaq broke. It functions more as a warning to take profits than a general sell signal. Also, they will not just dump a stock but will begin reducing positions. The only material support level remaining for the Nasdaq is 1900, which held in March. The 200dma was 1890 at the time. There was some discussion in the Market Monitor on Friday about whether the 200sma (simple) or 200ema (exponential) was the correct average for determining true support. While the most common analysis involves the 200sma at 1933 there is ample reason to suggest the 200ema may be more relative to the Nasdaq itself. The following chart shows both the averages and the differences over the last year. The 200ema is currently 1913 and a negative open on Monday could make the entire conversation mute. Nasdaq Chart - Daily with 200 sma/ema The major problem for the Nasdaq is still the SOX and that index broke to another new six month low on Friday. There was an attempt to rally back over 450 at the open but it quickly failed and moved back down to close near the lows. The SOX is well below all the averages but is approaching decent support at 420. That could be the resting point that provides support for the Nasdaq next week. Many of the chip stocks are extremely oversold and are due for a bargain hunting bounce soon. SOX Chart - Daily Russell-2000 Chart - Daily Also providing risk for the Nasdaq is the Russell, which set a new low for the month and came within two points of setting a new yearly low. The small cap stocks have been taking the brunt of the pressure from declining guidance. They do not have the resources or the breadth of business lines that would allow one product line to pickup the slack in sales for another. Many small cap companies are single focus and a slowing of growth in their target market means a slowing of growth for the entire company. The current weakness in small caps is a concern for mutual funds. Many funds concentrate on small caps for high growth prospects and a drop in the Russell means those funds are either selling stock or seeing their investments sink rapidly. The Russell should find support at the 200dma just over 540. Nasdaq-100 Index Chart - Daily If the Nasdaq has any single hope of rebounding at the open on Monday the NDX is it. The sell off on Friday closed at exactly 1400 with the 200ema at 1395. This is strong support and we are significantly oversold on the NDX. The QQQ, which is based on the NDX, fell nearly -2.50 from the weeks high to close at $34.80. This -7% drop for the week has been nearly vertical and has shown no letup. It is time for a bounce if for no other reason but to relieve the oversold conditions. The 200ema should be support at 34.69. Putting together the stop at NDX/QQQ support right at the close and the COMPX 200 ema at 1913 I would be really surprised to see a significant drop at the open on Monday. If we did have a strong Monday morning drop it would suggest much more serious problems. I have mentioned earnings several times and as of Friday about 80% of companies have reported. The other 20% will drag out over the next four weeks. Regardless of the earnings and guidance for those stragglers there is nothing on the earnings horizon to provide an upside catalyst. For all practical purposes earnings are over. The catalyst for next week is clearly the Fed and the economic reports. We have the ISM on Monday, Factory Orders and FOMC meeting on Tuesday, Productivity on Thursday and the Jobs report on Friday. What the Fed does on Tuesday could make the rest of the week's reports insignificant. The two key reports are ISM and Jobs. The Jobs data is routinely given to the Fed in advance of the release. Whether it is ready on Tuesday for their discussion is unknown. The Jobs are really the only wild card for a rate hike. The ISM is not likely to be strong enough to offset the GDP depression and will not be a material factor unless it is a blowout. The Jobs report is the key. The Fed has been know to use jobs as a rate hike trigger in the past. Another blowout could push the Fed to react. Should the Fed offer a tame bias statement then I would suspect the jobs report will also be tame. Should the Fed issue a harsh statement then I would expect the jobs to be strong. I have heard very little commentary about the expectations for Friday and the consensus is for only a gain of +185,000. Considering last month produced +308,000 new jobs this is a material drop. If you remember the consensus for last month was only +100,000. Obviously we have a lot of contradictions. Higher estimate but much lower than previous gains. This suggests there is some fear that the month was a blip in the process and not a real sustainable gain. I have heard several analysts suggest anything over +100K this month would be a relief and that worries me. It means they can see the potential for a drop back under 100K and that the jobs growth has not really started. I have heard nobody suggest that the number will be higher than the 185K consensus. No outrageous whisper numbers, no bragging, nothing. This may be good. It means there is some fear of failure and a decent number could actually produce a surprise. We just do not want it to be too strong or the Fed could react quickly. In the past they have been known to act on the following Monday to raise rates. That potential should keep the lid on any post Jobs blowout rally. Trading next week could be crazy. Whenever there is a major move in the markets that is potentially a trend change the trading activity increases. Those expecting a bounce rush in (at least we hope they rush in) and those expecting a continuation of the drop look for bounces to sell. It can produce some very volatile conditions. The calming force should actually be the Fed meeting and that would be a change. With no rate hike anticipated traders could be anticipating a post Fed relief rally. If this is the case then Monday at the open would be the likely place for it to start. The NDX support at 1400 is my guess for a trigger. If we do get a bounce on Monday it probably will not be very strong due to lingering doubt about rates. I would view it more as positioning for a post Fed move. Volume should be lighter as long as we move higher. Picking direction after the Fed meeting is best left to those psychics with a crystal ball. Holidays overseas will close the London market on Monday and the Japan markets for three days starting with Monday. Since the Nikkei had fallen for three straight days this could also take some pressure off the U.S. markets. Personally I will be going long in the Monitor on any strength at the open. I will be using NDX 1400 as my guide. Long over 1400, short under 1395. The Dow tried to rally all day Friday and the Nasdaq kept dragging it down. The -6% drop in the Nasdaq for the week was three times larger than the -2% drop in the Dow. That makes the Nasdaq/NDX the key for me on Monday. One word of caution, if you do get long don't get married to your positions. Any rally has plenty going against it for the long term. Until we determine the new range and direction your stops could be your best friend. While I can see the potential for a rebound from 1400 on Monday there is always the chance that 1400 was the last elevator stop before the express ride begins. If we do move lower do not fight it. Should that support fail it could be a long drop. 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 ******************** A BALANCED VIEW By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – The S&P has reached an area where there is some technical support, although I could see a final drop in the S&P 500 (SPX) to the 1100-1095 area, to 533-534 in the S&P 100 (OEX) and to around 10,200 - 10,180 in the Dow 30 Average (INDU). I'm not saying that I see currently suggesting an immediate resumption of the strong up trend that existed for the 12 months into the late- February top. The blue chip indices are not yet registering a fully "oversold" condition. In the short-term I anticipate a rebound based on the build up of put activity, which reached a level Friday that functions for me as a contrary indicator - that is traders got so bearish, as I measure this, that it's bullish. In the Nasdaq market segment, the Composite (COMP) will probably not fall much further, maybe back to the 1900 area (from 1925 on Friday); the Nasdaq 100 should find support around 1400, but 1370 might be touched; QQQ reached minor support at the low end of its hourly downtrend channel already, at 34.80 - but a fall to the 34 area can't be ruled out if a re-test of the late-March lows was in the cards. I somehow think that there will be a rebound from recent lows. The Nasdaq has fallen further than the S&P on a percentage basis, but these indices are also not yet fully oversold. However, a sideways trend for a few more weeks will bring oscillator type overbought/oversold measures down further. Tech earnings were the first to go at the major peak of the market in 2000 and will likely be the last to come back, at least on a sustained basis. Bottom bottom-line to traders: don't overstay in puts taken for a trade or how NOT to turn a trade into a buy and hold situation anticipating a further free fall. Call purchases can be considered of course if you trade very short-term. I tend to think that the first rally will not be the most sustained one. FRIDAY'S TRADING ACTIVITY – Well they didn't 'dress up' those 'windows' in stock portfolios for the month that ended Friday, as the tone of trading was bearish overall for the last week in April - now, on to May. After holding on to gains for some of Friday, the S&P 50 (SPX) ended down 6.63 points (-0.6%) to 1,107.26; the Dow 30 Average (INDU) closed at its intraday low, off 46.70 points (-0.5%), ending at 10,225.57. [For the week, SPX lost nearly 3% and the Dow, 2.4%. For the month SPX was down 1.7% and 0.4% year-to-date; the Dow lost 1.3% for the month of April and 2.2% for the year.] The Nasdaq Composite also closed right around its Friday intraday low, off 38.6 points (-2%) to close at 1920.15. [For the week, COMP was off a sizable 6.3%, putting it down 4.1% on the year.] The Nasdaq extended its losing streak to five straight days on Friday. Jitters about an expected shift in interest rates, combined with China's attempts to cool its economy and developments in the Middle East all conjoined to keep pressure on stocks in April. The worst performers continue to be tech stocks - networkers, internet, semiconductors, hardware, software, airlines, biotechnology, and the broker sectors were some of the market's worst-performing groups. Drugs, gold, integrated oil and natural gas were among the few winners. Next week brings another round of economic reports with the ISM index on Monday, the FOMC meeting on Tuesday, the ISM services on Wednesday and the non-farm payrolls report on Friday. An early bounce occurred Friday, as the market took kindly to another round of economic data, earnings from select Dow- components here at home and news in Iraq - namely, a pullback by Marines from Fallujah, Iraq. This was not to last of course. Personal income and spending numbers came out before Friday's Open and showed just a 0.1% gain, the smallest in five months. Real disposable incomes increased 0.1 percent in March, the smallest gain in six months. This was still good-news if the focus was on whether there is a compelling reason for the Fed to hike interest rates at some point. The Chicago PMI (Purchasing Manager's Report) was expected to jump from 57.6 in March to 60-61 in April. The Chicago PMI report beat estimates and was reported at 63.9, but as OIN noted Friday, this report was not soothing to those concerned about an interest rate rise. The latest numbers from the University of Michigan consumer sentiment were expected to rise a bit. Sure enough, the U of M said its consumer sentiment index improved to 94.2 in April from 93.2 earlier in the month - however, their index was down from 95.8 in March so there was little to cheer about. Expect some Monday morning reporting on any market comments from Warren Buffett, who is hosting his company's annual shareholder meeting in Omaha this weekend, with thousands of investors and fans flocking to hear what he has to say about the business cycle and where he thinks the economy might be headed this year. OTHER MARKETS – The benchmark 10-year Treasury note closed up 12/32 at 96 5/32, with its yield falling to 4.49%, down from 4.55% on Thursday. In the Forex markets, the dollar was off slightly against the euro to wind up at $1.1973 in New York trading. The greenback was up 0.5% against the Yen, closing at 110.43 yen to the dollar. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: The recent lows have put SPX back at its rising longer-term up trendline and could be a natural stopping point to the recent decline. On the other hand, a decisive break below the bottom line of the symmetrical triangle type pattern traced out on the chart below could suggest a more bearish outcome than this. My best guess is that the immediate further downside potential is limited, especially given the bullish 1-day reading on my Call to Put options indicator. Resistance is at 1140, support in the 1105-1107 area, then at 1100-1095. I would prefer taking put profits and buying further dips by going into index calls, looking for at least a short-term bounce. S&P 100 Index (OEX) – Daily chart: My view of the OEX is similar to that of the SPX, in that there is some likelihood that the recent drop to the up trendline might be the low. However, its also quite possible that the prior lows around 532-534 get re-tested, which would also put the S&P 100 Index down at the lower trading band or envelope line (equaling a level that is 3.5% under its 21-day moving average) as well as in the area of its 200-day moving average. The envelope lines are something I use as a benchmark only as the S&P tends to trade within these extremes a lot of the time. However, indicators like the 200-day average are more universal - institutional money managers will take note of the 200-day average and might use it as a benchmark and see this area as a place to do some more buying. And these folks are the 900 pound gorillas of the market. Near resistance is at 547-548, then at 555 on up to 558. I don't always repeat what I think is obvious (ha) - the green up arrows is what I figure as significant or noteworthy support points and the red down arrows are at noteworthy resistance areas. Dow Industrials (INDU) Daily: You can see from the right hand Weekly (close-only) chart below that this Index has barely fallen from its recent peak. But that recent peak was also a downside reversal from a longer-range (down) trendline (relative to tops made in Jan 2000 and May 2001) - and this top also was in the area of a prior significant peak. Since uptrends are defined as a series of higher rally peaks, the Dow has failed to establish that there is a major bull market in place - not yet. Shorter-term, resistance is in the 10,500 area, and support as suggested by the daily chart up trendline, is around 10,200. Intermediate support is figured at 10,000, at the 200-day moving average. (I figure major support at 8,500 at the long-term weekly up trendline.) Often, when INDU has an "inside day" like it did on Friday (the price range being 'within' the prior day's), this marks the end of the decline short-term. Stay tuned on that. If there was one more shot down to 102-101.8, I would not only exit puts in the Dow Index options - DJX - but buy some calls, anticipating a tradable rebound in the coming week. Nasdaq Composite (COMP) Index – Daily: Resistance is at 1980 at a prior low - what was support tends to "become" resistance - as noted on the level gray line on the chart below. Next higher and more key resistance is at 2050, at the down trendline. Key areas I'm watching on the downside: at the lower envelope line and already reached on Friday, with the decline to the 1920 area; and, the obvious technical support at 1900 as implied by the prior lows. Hey, it worked before to buy tech in this area in terms of the Composite! The market works on price history to some extent. On a short to Intermediate-term basis, the Composite is now registering in an oversold area, at least as suggested by the 14- day RSI. Stay tuned on what effect this has if investors continue to treat tech stocks as having unacceptable levels of risk around current (P/E) multiples based on expected earnings. Nasdaq 100 (NDX) Index – Daily: "1410, maybe a quick dip to 1400, is my target on NDX, with upside potential back up; to 1450 on a rebound" - what I said in my Thursday night Index Wrap. I would add that there is potential for re-test of the prior lows around 1370. However, NDX on Friday got back to the previously broken down trendline as can be seen on the chart - if a return to a previously broken UP trendline is the "kiss of death" trendline as I sometimes call it (smiley face), then a return to the previously broken DOWN trendline could be called the "kiss of life" trendline:- Stay tuned on this. Anyway, I tend to think it's too obvious a next downside target as being to the prior lows. Hey, if it was that easy, we would all be rich or richer than we are from trading activities anyway! Nasdaq 100 tracking Stock (AMEX:QQQ)– Hourly: In the 'Opps I spoke to soon' category of life, here is also what I mused on my previous Index commentary: "contrary to what I said about a target to 35, then maybe to 34.50 (or 34), in the short- term I think that the Q's could rally some first, probably back up to 36.30 or so." - WRONG! - well it goes to show, don't be hasty to give up on your objectives. So now we are in the zone where I see potential support shaping up, what!? I did cover some short positions in QQQ stock on Friday but didn't yet buy to play an anticipated bounce given the weak tone of the market in the afternoon. However, buying under 35, on down to 34 and using an exiting sell stop at 33.7, I consider a trade on the long side to have some short-term upside potential and decent risk to reward. I figure near resistance to be at 35.60-35.75, then at 36.50 at the 21-day moving average, on up to around 36.75 at the upper end of the hourly downtrend channel drawn on the QQQ hourly chart below right. The other noteworthy technical/chart aspect is that Friday's low put the Q's back to a possible (downside) stopping point at the previously broken down trendline on the Daily (below, left) chart. Good Trading Success! ************************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 ************** Go Long! After a -300 point Dow drop from the week's highs and a -138 point drop in the Nasdaq there has to be a relief rally around here somewhere. I know we have all uttered those words before but this time it is different. (grin) This is a short term, high speculation play for 2-3 days maximum. Don't play this if you are not prepared to lose all or part of your investment. This is a roll of the dice that we see a rebound from NDX 1400, Dow 10200, Nasdaq 1900-1913. The only question is long what? The NDX is right on support at 1400. (QQQ 35.00) The QQQ options are: May-$33 Call QAV-EG $2.10 May-$34 Call QAV-EH $1.35 May-$35 Call QQQ-EI $0.75 May-$36 Call QQQ-EJ $0.35 A $1 rise in the QQQ will change to premium to near the one above it. The $35 option would jump to $1.25 est. The $36 option would jump to $0.70 est. For a percentage increase the $36 option would double or a +100% increase. The $35 option would rise about +90% and the $34 option about 70%. The dollar risk is less on the $36 option because only 35 cents is at risk. Unfortunately there is a high risk of loss because it is already out of the money. The $35 option may have a smaller percentage gain on a $1 move but the amount of profit is also higher at 70 cents. Everything has a trade off between risk and reward. I am not going to debate the various strikes because everyone has their preferences. Choose the one you like and target $36 for an exit. Stop on this play would be $33.95. ($34 is strong support) But be aware that the majority of the premium would evaporate before $34. With only three weeks left this is a three-day play, max! If the target is not hit by Wednesday exit promptly. QQQ Chart - Daily DJX Options The same scenario exists on the DJX options. With the Dow at 10225 the odds of hitting 10300 are decent and 10350 slightly less. 10400 would be a real stretch for me but it depends on Mr. Market. The DJX strikes are: May-$101 Call DJV-EW $2.10 May-$102 Call DJV-EX $1.50 May-$103 Call DJV-EY $0.95 May-$104 Call DJV-EZ $0.60 With the Dow at 10225 today a +100 point gain to 10325 would move each premium up one strike. 60-95, 95-1.50, 1.50-2.10. Any more over 10325 would be icing on the cake. The target on the Dow would be 10325-10350. Don't get greedy. I would set a stop at 10175. If it breaks 10200 you should be ready to bail. This is a three-day play, max! If the target is not hit by Wednesday exit promptly. Dow/DJX Chart - Daily ********************** EBAY Update It was a tough week for the EBAY put play. After trending down on Monday there was a rumor on Tuesday that they were going to announce a 2:1 split. Shorts covered and the stock jumped from $81.31 to $84.75. Those that kept the faith were rewarded and the rumor faded and EBAY closed at the low for the week on Friday at $79.91. The Google news is hogging the airwaves and drawing attention to the very expensive PE ratios for EBAY, AMZN and YHOO. The prices for each are taking a dive although it could be months before the Google IPO is priced. The market drop is not hurting this play either and I think the worst is over. A move farther under $80 next week could set the pattern and our target at $76 is not that far away. http://members.OptionInvestor.com/editorplays/edply_042504_1.asp ********************** Taser Update Take this one to the bank. TASR split 2:1 on Friday and the stock lost another -5.50 to close at $32.34 ($64.68 split adjusted) This is well under out $110 short and the potential for TASR to return to the split price of $55 is nearly zero. If everything continues according to plan you will be put the stock at $55 and that stock will cover your short at $55. The $23 in premium you received minus the $3 estimated for slippage in the three transactions nets you a nice $20 profit. With all the premium in the $55 puts being ITM at $23.00 and TASR -$23 below the strike price you could close the trade now for the bid/ask spread and be done. Do me a favor. Help me keep my eyes open for another high flyer we can do this with in the future. http://members.OptionInvestor.com/editorplays/edply_041804_1.asp http://members.OptionInvestor.com/editorplays/edply_042504_1.asp *********************** News Corp Update $36.56 Still waiting for a chance to fill the last one third of the position. Waiting until entire position is filled to sell calls against our current leaps. It would help to have a market bounce to actually produce some call premium to sell. I am very encouraged by the staying power of NWS. It was actually positive on Friday. Still unfilled: Buy (2) Jan-2006 $40 Calls WLN-AH with a touch of 200dma (currently $35.05) http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp **************** MARKET SENTIMENT **************** April Ends Lower - J. Brown Boy, what a week. The NASDAQ ended the week down five days in a row for a 129-point loss (-6.29%) and a technical breakdown below its simple 200-dma. The Dow Industrials lost 200 points but remained within its April trading range. Concerns over interest rates, the economy, the presidential election and Iraq continue to buffet the markets and there doesn't appear to be any let up in sight. The country is still very divided over the upcoming election and the Iraq conflict as evidenced by the reaction to Koppel's Nightline television show on Friday. Ted Kopped planned to read the names of 500 of the war dead from Iraq as their photos flashed across the screen in an effort to "humanize" them. Some felt it was not an act of honoring the dead but a political move to undermine the President's support. Not helping matters was the prisoner-photo scandal where a dozen American soldiers sadly mistreated and abused naked Iraqis. It was not our proudest moment and that handful of soldiers undermined the presence of the 135,000+ servicemen who are doing their job honorably. Our opponents were more than happy to air the material as fodder to fuel the rising resentment against the U.S. How does this affect the stock market? Wall Street is already nervous about how Iraq will affect the upcoming November elections and scenes of misuse under American soldiers can spark a new round of violence in Iraq and abroad. Believe it or not earnings season is still very much in full swing but the majority of the large caps and S&P 500 components have already announced. Investors are turning their focus on economic reports and that we might be more thankful since the latest batch of earnings reports have been mostly flat to negative. Next week is full of major economic news and they will likely set the tone for trading through May. The ISM index comes out on Monday and while traditionally a market mover investors may sit tight as we wait for Tuesday's FOMC meeting. Wednesday unveils the ISM services index and Friday the non-farm payrolls report. Coincidentally, the Stock Traders Almanac states that the first day of trading in May has been up 5 out of the last 6 years. Considering how short-term oversold the markets are odds for a bounce look good. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8340 Current : 10225 Moving Averages: (Simple) 10-dma: 10376 50-dma: 10395 200-dma: 9973 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 902 Current : 1107 Moving Averages: (Simple) 10-dma: 1127 50-dma: 1130 200-dma: 1073 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1094 Current : 1401 Moving Averages: (Simple) 10-dma: 1458 50-dma: 1450 200-dma: 1409 ----------------------------------------------------------------- The VIX and VXO, while up strongly this week, remain within their April trading range. The VXN has broken out of its recent trading range on the breakdown in the NASDAQ but the VXN has yet to break out above its 200-dma. CBOE Market Volatility Index (VIX) = 17.19 +0.59 CBOE Mkt Volatility old VIX (VXO) = 17.56 +0.26 Nasdaq Volatility Index (VXN) = 25.73 +0.83 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.02 794,028 1,605,964 Equity Only 0.95 681,410 649,293 OEX 0.82 22,197 18,132 QQQ 2.04 144,106 293,838 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.7 - 1 Bull Confirmed NASDAQ-100 43.0 - 4 Bear Confirmed Dow Indust. 80.0 + 0 Bear Confirmed S&P 500 69.6 - 2 Bear Confirmed S&P 100 70.0 - 3 Bear Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.75 10-dma: 1.29 21-dma: 1.11 55-dma: 1.18 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 1064 934 Decliners 1723 2161 New Highs 32 37 New Lows 65 56 Up Volume 535M 316M Down Vol. 1405M 1820M Total Vol. 1972M 2152M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 04/27/04 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercials aren't making any big moves and remain net bearish. Small trades are relatively flat from last week as well and remain net bullish. Commercials Long Short Net % Of OI 04/06/04 409,429 419,471 (10,042) (1.2%) 04/12/04 412,827 419,910 ( 7,083) (0.9%) 04/20/04 409,729 421,456 (11,727) (1.4%) 04/27/04 406,927 416,244 ( 9,317) (1.1%) 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 04/06/04 130,262 80,174 50,088 23.8% 04/12/04 135,840 89,090 46,750 20.8% 04/20/04 136,699 92,982 43,717 19.0% 04/27/04 133,775 90,535 43,240 19.3% 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 Commercial traders have upped their bets on both longs and shorts but remain net bearish. Small traders have decreased the size of their long positions but are still strongly bullish. Commercials Long Short Net % Of OI 04/06/04 270,904 328,862 (57,958) ( 9.7%) 04/12/04 261,889 341,163 (79,274) (13.1%) 04/20/04 275,985 355,555 (79,570) (10.1%) 04/27/04 291,365 370,549 (79,184) (12.0%) 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 04/06/04 148,737 46,235 102,502 52.6% 04/12/04 172,473 52,274 120,199 53.5% 04/20/04 186,799 69,137 117,662 46.0% 04/27/04 175,788 69,613 106,175 43.3% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is virtually zero movement in the positions for commercial traders but luck would have it the little movement we did get pushed them to a new bullish high. Small traders are also stuck in limbo. Commercials Long Short Net % of OI 04/06/04 54,862 34,762 20,100 22.4% 04/12/04 54,144 34,432 19,712 22.3% 04/20/04 54,852 35,964 18,888 20.8% 04/27/04 54,196 33,948 20,248 23.0% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 20,248 - 04/27/04 Small Traders Long Short Net % of OI 04/06/04 7,971 20,721 (12,750) (44.4%) 04/12/04 8,297 20,746 (12,449) (42.9%) 04/20/04 8,538 19,431 (10,893) (39.0%) 04/27/04 9,008 20,347 (11,339) (38.6%) Most bearish reading of the year: (12,750) - 04/06/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders aren't changing their bets on the Dow either and remain marginally net long. Small traders remain net bearish but they have reduced their short positions. Commercials Long Short Net % of OI 04/06/04 23,101 22,108 993 2.2% 04/12/04 23,501 22,748 753 1.6% 04/20/04 24,156 22,009 2,147 4.7% 04/27/04 23,676 22,009 1,667 3.6% 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 04/06/04 7,316 8,085 (769) (5.0%) 04/12/04 6,136 7,450 (1,314) (9.7%) 04/20/04 5,997 9,631 (3,634) (23.3%) 04/27/04 5,998 8,868 (2,870) (19.3%) 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 *************** No Ask the Analyst This Week ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ACDO Accredo Health Mon, May 3 Before the Bell 0.42 AMH AmerUs Grp Co. Mon, May 3 After the Bell 0.98 AXS Axis Capl Hldg Lmtd Mon, May 3 After the Bell 0.82 BBD Banco Bradesco S.A. Mon, May 3 -----N/A----- N/A BEC Beckman Coulter Mon, May 3 Before the Bell 0.51 CDIS Cal Dive Intl Mon, May 3 After the Bell 0.25 CEPH Cephalon, Inc. Mon, May 3 After the Bell 0.29 BAP Credicorp Mon, May 3 -----N/A----- 0.29 CMLS Cumulus Media Inc. Mon, May 3 After the Bell -0.01 DVA DaVita Mon, May 3 -----N/A----- 0.72 EOG EOG Res Mon, May 3 Before the Bell 0.89 EYET Eyetech Pharm Mon, May 3 After the Bell -0.38 FHCC First Health Grp Mon, May 3 -----N/A----- 0.32 GPRO Gen-Probe Mon, May 3 After the Bell 0.33 ICOS ICOS Corp Mon, May 3 -----N/A----- -1.40 IMH Impac Mortgage Hldg Mon, May 3 After the Bell N/A IACI InterActiveCorp Mon, May 3 Before the Bell 0.16 MAS Masco Mon, May 3 Before the Bell 0.43 MXRE Max Re Capital Ltd. Mon, May 3 Before the Bell 0.66 MCY Mercury General Mon, May 3 Before the Bell 0.89 MET MetLife Inc. Mon, May 3 After the Bell 0.75 NBIX NEUROCRINE BIOSCI Mon, May 3 Before the Bell -0.36 SPOT PanAmSat Mon, May 3 -----N/A----- 0.18 PPS Post Prop, Inc Mon, May 3 After the Bell 0.41 QGENF Qiagen N.V. Mon, May 3 After the Bell 0.08 PFG The Principal Finl GrpMon, May 3 After the Bell 0.65 UNTD United Online Inc. Mon, May 3 Before the Bell 0.21 WRC Westport Res Corp Mon, May 3 After the Bell 0.43 WEC Wisconsin Energy Corp Mon, May 3 Before the Bell 0.76 XL XL Capital Ltd Mon, May 3 After the Bell 2.20 ------------------------- TUESDAY ------------------------------ ACAS Am Capital Strat Tue, May 4 After the Bell 0.70 AOC Aon Corp Tue, May 4 -----N/A----- 0.56 ITU Banc Itau Hldg Finan Tue, May 4 Before the Bell 1.29 GIB CGI Grp Tue, May 4 -----N/A----- N/A XEC Cimarex Energy Co. Tue, May 4 -----N/A----- 0.65 CCU Clear Channel Comm Tue, May 4 Before the Bell 0.14 CTV CommScope Tue, May 4 After the Bell 0.02 DF Dean Foods Tue, May 4 Before the Bell 0.45 EMR Emerson Electric Tue, May 4 Before the Bell 0.68 EOP Equity Off Prop Trust Tue, May 4 Before the Bell 0.66 GET Gaylord Entertainment Tue, May 4 Before the Bell -0.39 GLG Glamis Gold Ltd Tue, May 4 Before the Bell 0.05 GTM GULFTERRA NRG PART LP Tue, May 4 Before the Bell 0.43 HIG Hartford Finl Serv Tue, May 4 After the Bell 1.47 HCC HCC Insurance Hldg Tue, May 4 After the Bell 0.63 HNT Health Net, Inc. Tue, May 4 Before the Bell 0.53 HTG Hrtg Prp Invst Trst Tue, May 4 After the Bell 0.70 HEW Hewitt Associates Tue, May 4 Before the Bell 0.30 HIW Highwoods Prop Tue, May 4 After the Bell 0.60 IGL IMC Global Tue, May 4 -----N/A----- 0.04 IRGI Inveresk Research Grp Tue, May 4 After the Bell 0.28 KZL Kerzner Intl Limited Tue, May 4 -----N/A----- 1.12 KOSP Kos Pharm Tue, May 4 Before the Bell 0.28 LAF Lafarge North America Tue, May 4 -----N/A----- -0.89 LNC Lincoln Natl Tue, May 4 After the Bell 0.91 MLM Martin Marietta Mat Tue, May 4 Before the Bell -0.15 MVL Marvel Enterprises Tue, May 4 Before the Bell 0.21 MBI MBIA Inc. Tue, May 4 Before the Bell 1.27 NFP Natl Finl Partners Tue, May 4 After the Bell 0.37 NXY Nexen Tue, May 4 -----N/A----- 0.95 NBL Noble Energy, Inc. Tue, May 4 Before the Bell 0.98 NOC Northrop Grumman Tue, May 4 -----N/A----- 1.21 OCAS Ohio Casualty Tue, May 4 After the Bell 0.36 PDX Pediatrix Medical Grp Tue, May 4 Before the Bell 0.85 PFGC PERFORMANCE FOOD GRP Tue, May 4 Before the Bell 0.14 PER Perot Sys Tue, May 4 Before the Bell 0.15 PKZ PETROKAZAKHSTAN INC Tue, May 4 Before the Bell 1.16 PCG PG&E Corp Tue, May 4 -----N/A----- 0.42 PL Protective Life Corp Tue, May 4 Before the Bell 0.74 PDLI Protein Design Tue, May 4 After the Bell -0.11 PRU Prudential Finl, Inc. Tue, May 4 After the Bell 0.73 KWK Quicksilver Res Tue, May 4 After the Bell 0.30 Q Qwest Comm Tue, May 4 Before the Bell -0.14 RNR RenaissanceRe Hldg Tue, May 4 After the Bell 1.61 SWY Safeway, Inc. Tue, May 4 -----N/A----- 0.22 TLM Talisman Energy Tue, May 4 -----N/A----- 1.33 TLD TDC A/S Tue, May 4 -----N/A----- N/A THC Tenet Healthcare Tue, May 4 Before the Bell 0.02 TEVA Teva Pharmaceutical Tue, May 4 Before the Bell 0.59 DTV The DIRECTV Grp, Inc. Tue, May 4 -----N/A----- 0.01 PNX The Phoenix Co, Inc. Tue, May 4 Before the Bell 0.16 TYC Tyco Intl Tue, May 4 Before the Bell 0.36 VSH Vishay Intertech, Inc.Tue, May 4 Before the Bell 0.14 WWCA Western Wireless Tue, May 4 After the Bell 0.11 WFMI Whole Foods Market Tue, May 4 After the Bell 0.50 ------------------------ WEDNESDAY ----------------------------- ARG Airgas Wed, May 5 After the Bell 0.28 ADRX Andrx Corp Wed, May 5 After the Bell 0.26 WTR Aqua America Wed, May 5 Before the Bell 0.17 BCE BCE Wed, May 5 Before the Bell N/A CNQ Canadian Ntrl Res LmtdWed, May 5 -----N/A----- 1.56 CPG Chelsea Prop Grp, Inc.Wed, May 5 After the Bell 0.87 CSR Credit Suisse Grp Wed, May 5 Before the Bell N/A CCI Crown Castle Intl Wed, May 5 After the Bell -0.19 CVS CVS Corp Wed, May 5 Before the Bell 0.56 ENB Enbridge Inc. Wed, May 5 -----N/A----- N/A FRT Fedl Rlty Invst Trust Wed, May 5 -----N/A----- 0.69 FST Forest Oil Corp Wed, May 5 After the Bell 0.45 GMST Gemstar-TV Guide Intl Wed, May 5 After the Bell 0.05 GPK GRAPH PACK INTL CORP Wed, May 5 After the Bell N/A IPXL Impax Laboratories Wed, May 5 Before the Bell -0.03 KCI KINETIC CONCEPTS INC Wed, May 5 Before the Bell N/A LM Legg Mason Wed, May 5 Before the Bell 1.15 MCH Millennium Chemicals Wed, May 5 Before the Bell -0.17 NFS Nationwide Finl Serv Wed, May 5 After the Bell 0.78 NKTR NEKTAR THERAPEUTICS Wed, May 5 -----N/A----- -0.39 NTLI NTL INC Wed, May 5 Before the Bell -2.18 OGE OGE Energy Wed, May 5 Before the Bell -0.04 OTEX Open Text Wed, May 5 Before the Bell 0.23 PNP Pan Pacific Retl Prop Wed, May 5 Before the Bell 0.84 PEI Penn Rl Est Invst TrstWed, May 5 Before the Bell 0.87 PMI PMI Grp Wed, May 5 -----N/A----- 0.90 PUB PUBLICIS Grpe SA Wed, May 5 Before the Bell N/A IQW Quebecor World Wed, May 5 -----N/A----- 0.11 RA Reckson Assoc Rlty Wed, May 5 After the Bell 0.58 SRV Service Corp Intl Wed, May 5 Before the Bell 0.15 TRK Speedway Motorsports Wed, May 5 Before the Bell 0.50 STO Statoil ASA Wed, May 5 Before the Bell N/A SGY Stone Energy Wed, May 5 After the Bell 1.40 TEM Telefonica Moviles Wed, May 5 Before the Bell N/A TELN Telenor ASA Wed, May 5 -----N/A----- N/A TU TELUS Wed, May 5 During the Markey N/A TS TENARIS S A Wed, May 5 -----N/A----- 0.66 BCO The Brink's Co Wed, May 5 Before the Bell 0.18 TRW TRW Auto Wed, May 5 Before the Bell 0.45 UNM UnumProvident Corp Wed, May 5 After the Bell 0.38 ------------------------- THUSDAY ----------------------------- ATVI Activision Thu, May 6 After the Bell 0.01 AL Alcan Inc. Thu, May 6 -----N/A----- 0.58 ATK Alliant TechSys Inc. Thu, May 6 Before the Bell 0.87 ALO Alpharma Thu, May 6 After the Bell 0.01 AFR Am Finl Rlty Trust Thu, May 6 Before the Bell 0.26 AIV Apartment Invst & Mgt Thu, May 6 Before the Bell 0.67 AHL Aspen Ins Hldg LimitedThu, May 6 After the Bell 0.70 BCH Banco de Chile Thu, May 6 -----N/A----- 0.45 BE BearingPoint, Inc. Thu, May 6 Before the Bell 0.04 BIO Bio-Rad Laboratories Thu, May 6 -----N/A----- 0.86 BUH Buhrmann NV Thu, May 6 -----N/A----- N/A CPN Calpine Corp Thu, May 6 Before the Bell -0.11 CPT Camden Prop Trust Thu, May 6 After the Bell 0.77 CMX CareMark Rx, Inc. Thu, May 6 -----N/A----- 0.32 CZ Celanese AG Thu, May 6 -----N/A----- N/A CHC CharterMac Thu, May 6 -----N/A----- 0.41 CZN Citizens Comm Co. Thu, May 6 Before the Bell 0.10 CLX Clorox Thu, May 6 Before the Bell 0.56 CMS CMS Energy Corp. Thu, May 6 Before the Bell 0.41 CNO CONSECO INC Thu, May 6 Before the Bell 0.44 CEI Crescent Real Est Eq Thu, May 6 Before the Bell 0.21 DEG Delhaize Grp Thu, May 6 Before the Bell N/A DVN Devon Energy Corp Thu, May 6 Before the Bell 1.84 DISH EchoStar Comm Corp. Thu, May 6 Before the Bell 0.16 FS Four Seasons Hotels Thu, May 6 Before the Bell 0.15 FOX Fox Entertainment Grp Thu, May 6 Before the Bell 0.28 FMS Fresenius Medical CareThu, May 6 -----N/A----- N/A GFI Gold Fields Limited Thu, May 6 -----N/A----- 0.06 GLDN Golden Telecom Thu, May 6 Before the Bell 0.45 HCP Health Cr Prop Invest Thu, May 6 Before the Bell 0.42 HCN Health Care REIT, Inc.Thu, May 6 After the Bell 0.73 HB Hillenbrand Ind Thu, May 6 Before the Bell 0.98 IDA Idacorp Holding Thu, May 6 Before the Bell 0.44 IPR Intl Power Thu, May 6 Before the Bell N/A IPCR IPC Hldg Thu, May 6 Before the Bell N/A IST Ispat Intl Thu, May 6 Before the Bell N/A KG King Pharm Thu, May 6 Before the Bell 0.33 LAMR LAMAR ADVERTISING CO Thu, May 6 Before the Bell -0.09 MGA Magna Intl Inc. Thu, May 6 -----N/A----- 1.76 NXL Nw Pln Exl Rlty Trust Thu, May 6 Before the Bell 0.49 NVDA NVIDIA Corp Thu, May 6 -----N/A----- 0.10 OSG Overseas Shipholding Thu, May 6 Before the Bell 1.84 PIXR Pixar Anima Studios Thu, May 6 After the Bell 0.39 PTP Platinum Udrwrtr Hldg Thu, May 6 After the Bell 0.78 PSA Public Storage Thu, May 6 After the Bell 0.66 RRD RR Donnelley Thu, May 6 After the Bell 0.10 SPG Simon Prop Grp, Inc. Thu, May 6 After the Bell 0.96 SBGI Sinclair Broadcast GrpThu, May 6 Before the Bell -0.04 SNN Smith & Nephew Thu, May 6 Before the Bell N/A SDX Sodexho Alliance S.A. Thu, May 6 -----N/A----- N/A STRA Strayer Education Thu, May 6 Before the Bell 0.74 TI Telecom Italia Thu, May 6 -----N/A----- N/A TSO Tesoro Petroleum Thu, May 6 Before the Bell 0.71 MNY The MONY Grp Inc. Thu, May 6 Before the Bell 0.05 NWS The News Corp Limited Thu, May 6 Before the Bell 0.27 RSE The Rouse Co Thu, May 6 Before the Bell 0.96 TRN Trinity Ind Thu, May 6 Before the Bell -0.21 TRZ Trizec Prop, Inc. Thu, May 6 Before the Bell 0.41 TXU TXU Corp. Thu, May 6 Before the Bell 0.57 UVN Univision Comm Thu, May 6 After the Bell 0.08 VRX Valeant Pharm Intl Thu, May 6 -----N/A----- 0.06 HLTH WebMD Thu, May 6 After the Bell 0.09 WGR Western Gas Res Thu, May 6 Before the Bell 0.79 WMB Williams Co Inc. Thu, May 6 Before the Bell 0.08 XMSR XM Satellite Radio Thu, May 6 Before the Bell -0.81 ------------------------- FRIDAY ------------------------------- BLDP Ballard Power Sys Fri, May 7 Before the Bell -0.28 EAS Energy East Corp Fri, May 7 After the Bell 0.90 EPC Epcos Fri, May 7 Before the Bell N/A EVG Evergreen Res Fri, May 7 -----N/A----- 0.43 FE FirstEnergy Fri, May 7 -----N/A----- 0.44 IST Ispat Intl Fri, May 7 -----N/A----- N/A MAC Macerich Co Fri, May 7 -----N/A----- 0.86 CLI Mack-Cali Rlty Corp Fri, May 7 Before the Bell 0.87 DCM NTT DoCoMo Fri, May 7 -----N/A----- N/A POM Pepco Hldg, Inc. Fri, May 7 -----N/A----- 0.14 PNW Pinnacle West Capital Fri, May 7 Before the Bell 0.24 PXD Pioneer Ntrl Res Co Fri, May 7 Before the Bell 0.50 NZT Tlcm Corp New Zealand Fri, May 7 -----N/A----- N/A IPG Interpub Grp of Co Fri, May 7 Before the Bell 0.00 TOT Total Fri, May 7 -----N/A----- 2.05 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable TCBK TriCo Bancshares 2:1 Apr 30th May 3rd KENT Kent Finl Serv, Inc 2:1 May 3rd May 4th LACO Lakes Entertainment, Inc 2:1 May 3rd May 4th COBZ CoBix Inc 3:2 May 3rd May 4th TLM Talisman Energy Inc 3:1 May 4th May 5th RBA Ritchie Bros. Auctioneers 2:1 May 4th May 5th BEBE bebe stores, Inc 3:2 May 5th May 6th FARM Farmer Bros. Company 10:1 May 10th May 11th YHOO Yahoo! Inc 2:1 May 11th May 12th DNA Genentech Inc 2:1 May 12th May 13th IKNX IKONICS Corp 3:2 May 13th May 14th NSM Natl Semiconductor Corp 2:1 May 13th May 14th SYK Stryker Corp 2:1 May 14th May 17th TOUS Technical Olympic USA, Inc3:2 May 14th May 17th BCR C.R.Bard 2:1 May 14th May 17th -------------------------- Economic Reports This Week -------------------------- Earnings season is still very much in full swing but the majority of the S&P 500 have already announced. This week Wall Street will focus on economic reports like the ISM index on Monday, the FOMC meeting on Tuesday, the ISM services on Wednesday, and the non-farm payrolls report on Friday. ============================================================== -For- ---------------- Monday, 05/3/04 ---------------- Auto Sales (NA) Apr Forecast: 5.7M Previous: 5.6M Truck Sales (NA) Apr Forecast: 7.8M Previous: 7.6M Construction Spending (DM) Mar Forecast: 0.5% Previous: -0.1% ISM Index (DM) Apr Forecast: 62.7 Previous: 62.5 ----------------- Tuesday, 05/4/04 ----------------- Factory Orders (DM) Mar Forecast: 2.4% Previous: 0.3% FOMC Meeting (DM) ------------------- Wednesday, 05/5/04 ------------------- ISM Services (DM) Apr Forecast: 65.0 Previous: 65.8 ------------------ Thursday, 05/6/04 ------------------ Initial Claims (BB) 05/01 Forecast: 335K Previous: 338K Productivity-Prel. (BB) Q1 Forecast: 3.5% Previous: 2.6% ---------------- Friday, 05/7/04 ---------------- Nonfarm Payrolls (BB) Apr Forecast: 168K Previous: 308K Unemployment Rate (BB) Apr Forecast: 5.7% Previous: 5.7% Hourly Earnings (BB) Apr Forecast: 0.2% Previous: 0.1% Average Workweek (BB) Apr Forecast: 33.8 Previous: 33.7 Wholesale Inventories (DM) Mar Forecast: 0.5% Previous: 1.2% Consumer Credit (DM) Mar Forecast: $7.0B Previous: $4.2B 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. 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The Option Investor Newsletter Sunday 05-02-2004 Sunday 2 of 5 In Section Two: Watch List: Lots of Weakness Dropped Calls: BEC 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 ********** Lots of Weakness ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Intl Business Machines - IBM - close: 88.17 change: -0.91 WHAT TO WATCH: Tech and hardware related stocks were hit hard this week as the GHA hardware index posted its fifth decline in a row and its fourth day under support at 240 and its 200-dma. Meanwhile after valiantly trying to hold above support at $90.00 this week shares of IBM finally succumbed to the selling pressure and broke down on Thursday. That weakness resumed on Friday but the stock held meager support in the 87.50-88.00 range. If you squint at IBM's daily chart it would appear to be creating a head-and-shoulders pattern. If this is true then the potential target would be close to the $80.00 mark. Unfortunately it's a bit challenging to pinpoint where the neckline should be on this H&S pattern. We think IBM is worth watching because the GHA is overdue for a bounce. If IBM bounces you can bet there will be a lot of focus on the $90 level. A failure there and this could be a good short play. Should there be no bounce at all look for a drop under $87.50. Oops! We almost forgot. IBM's decline did produce a new sell signal on its P&F chart but it is currently perched just above P&F support. This is a pivotal area indeed! Chart= --- Media General - MEG - close: 71.88 change: -0.52 WHAT TO WATCH: MEG could be potential bullish candidate. Shares broke out over the $70.00 level two weeks ago and the stock has been able to maintain its gains despite the market's weakness this week. Its P&F chart looks very bullish with a triple-top breakout buy signal and a $93.00 price target. MEG's weekly chart is also noteworthy because it looks like a long-term cup and handle formation. Of course the bottom of the cup appears to have a big "W" bottom in it. Chart= --- Netease.com - NTES - close: 41.03 change: -2.59 WHAT TO WATCH: We wanted to add NTES as a put play on Wednesday when shares broke down through support and broke what appeared to be the neckline of a slanted head-and-shoulders pattern. Unfortunately, we could not because the company was due to report earnings on Thursday, April 29th. NTES managed to beat estimates by a penny but that didn't stop the stock from falling further to support near $40.00. NTES, like its other Chinese Internet counterparts, is being negatively impacted by the Chinese government's decision to slow down its economy before it over heats. We would watch NTES for a potential bearish play on a breakdown under $40.00 or a failed rally under $45.00. Chart= --- Intl Rectifier - IRF - close: 39.64 change: -0.30 WHAT TO WATCH: Yuck! The action in IRF doesn't look like the stock beat earnings by 3 cents and raised its guidance does it? The stock has been trading lower toward the bottom of its descending channel but what makes it noteworthy is the rising volume on the declines. Volume was very big on Friday because IRF had just announced earnings on Thursday evening. The close under the $40 mark looks very bearish but the decline stalled right at the bottom of its channel. It's probably not a coincidence that IRF's decline also stalled right at its P&F support as well. A bounce from here is certainly possible but we're watching it for a breakdown. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- BSX $41.19 +0.41 - We mentioned BSX as a potential bullish candidate on Thursday. The stock has pulled back toward support at $40.00 and its 100-dma this past week. BSX tested this level three times this week before bouncing higher on Friday. Its MACD is hinting a new buy signal soon. VIP $89.76 -0.53 - Russian cellphone provider VIP has broken support at its 50-dma and the $90.00 level. The stock looks short-term oversold but long-term overbought. We could see it pull back to $85.00 and its 100-dma. AMGN $56.41 -1.71 - Heads up! AMGN is quickly approaching key support at $56 and it looks ready to break it. CSCO $20.91 -1.00 - Uh-oh! CSCO has broken key support at $22 and its 200-dma. Earnings are expected on May 11th. ADI $42.60 -1.39 - ADI has broken key support at $45.00 and its 200-dma but stopped right at the bottom of its new descending channel. ************************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 ^^^^^ Beckman Coulter - BEC - cls: 55.84 chg: -0.23 stop: 54.99 Once again BEC tested support near the $55.00 mark but it held. Traders jumped in to buy the dip in the last hour of trading but it wasn't enough to push BEC into the green. As per our previous instructions we're closing the play ahead of its earnings report on Monday. Consensus estimates are for BEC to earn 51 cents per share. Picked on April 18 at $ 56.16 Change since picked: - 0.32 Earnings Date 05/03/04 (confirmed) Average Daily Volume: 333 thousand Chart = PUTS ^^^^ None *********** DEFINITIONS *********** ! Please note changes to the Option Chains for new call and put plays. We are no longer listing a "SL" or Suggested Stop Loss on individual options. Most brokers offer the ability to list a stop loss for your option on the underlying stock. All of OptionInvestor.com's directional call or put plays list a suggested stop loss for the stock itself and if the stock trades at or below that stop on an intraday basis we will close any hypothetical play at that time. OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. 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. 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The Option Investor Newsletter Sunday 05-02-2004 Sunday 3 of 5 In Section Three: Current Calls: AU, BBY, DGX, GDW, MIK, WFMI New Calls: None Current Put Plays: ASD, COF, SLAB New Puts: AMZN, LTR ! Please note changes to the Option Chains for new call and put plays. We are no longer listing a "SL" or Suggested Stop Loss on individual options. Most brokers offer the ability to list a stop loss for your option on the underlying stock. All of OptionInvestor.com's directional call or put plays list a suggested stop loss for the stock itself and if the stock trades at or below that stop on an intraday basis we will close any hypothetical play at that time. ************************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 ****************** Anglogold - AU - close: 31.42 change: +0.08 stop: 30.49 Company Description: AngloGold is a major global gold producer with 19 operations, in 8 countries worldwide. The company also has extensive and focused exploration activities in 10 countries. (source: company website) Why We Like It: (Original Play from Thursday) Gold and gold stocks have been getting crushed lately. Gold has dropped from its early April highs near $430 an ounce to almost $380 intraday on Wednesday. The XAU gold & silver index has plummeted with it to new seven-month lows. Shares of AU have likewise fallen precipitously. So why are we considering a bullish play? We have a couple of reasons but first we must disclose that this is a very high-risk play. We only recommend it for speculators willing to handle the volatility. We are going to use a tight stop loss to try and limit our risk but with every play we list it's never a guarantee. First of all, why go long gold now? Gold has been getting whacked on the strength in the U.S. dollar. However, the U.S. dollar has been struggling with resistance at its 200-dma (we're using the Qcharts symbol DX00Y). Today the dollar dropped strongly after failing at resistance again. This looks like a bearish reversal for the dollar and that lead to a decent intraday rebound for gold. Looking at the gold futures we see a small "hammer" candlestick with the bounce above $380. So we have a potential one-day bearish reversal in the dollar and a potential one-day bullish reversal in gold. Now why AU? Shares of AU are seriously oversold. The stock closed at $42.27 in March and it closed at $30.77 yesterday. That's a 27% drop in a month. AU probably suffered more than some of its peers because the company issued an earnings warning several days ago due to a drop in output. Earnings were out this morning and while the headline number was bad analysts commenting on the report said the results were not as bad as expected. We also like AU for a few technical reasons. Its daily/weekly chart shows the stock bouncing from its long-term trendline stretching back to October 2002. This is bolstered by historical support near $30.00 from last summer. Plus, its P&F chart, as abysmal as it looks, has already reached its bearish price target. That doesn't mean it can't keep dropping but the potential for a turnaround is there. How are we going to play AU? We're going to use a TRIGGER at $32.01. Shares of AU failed several times this morning just under the $32.00 mark. If we use a trigger to catch a breakout we'll be playing the upward momentum from a deeply oversold condition. However, if we are triggered we'll use a tight stop under yesterday's low at $30.49. There is plenty of overhead resistance as the stock stepped its way down but hopefully it can step its way up too. Remember, this is a speculative rebound play. Essentially we're trying to catch the proverbial "falling knife" because it appears to have finally hit the floor. Weekend Update: Gold stocks did indeed try to rebound on Friday but the rally was short-lived. Gold futures, the XAU index and shares of AU all faded from their early morning strength to close nearly unchanged. However, the rally higher was enough to trigger us. As a matter of fact AU gapped higher at $32.25. This is above our trigger at $32.01 and changes our entry point. Our stop loss at $30.49 is still in effect. Suggested Options: We're going to suggest the June calls. Our favorites are the June 30's. BUY CALL JUN 30 AU-FF OI= 184 Last traded @ $2.85 BUY CALL JUN 35 AU-FG OI= 668 Last traded @ $0.75 Annotated Charts: Picked on April 30 at $ 32.25 Change since picked: - 0.83 Earnings Date 04/29/04 (confirmed) Average Daily Volume: 1.0 million Chart = --- Best Buy Co - BBY - close: 54.25 change: +0.07 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: It has been a pretty rough week for stocks but BBY held up relatively well. We're still trying to play the reverse head- and-shoulders pattern. The pull back to the $53.00 level might be a nice entry point but given the bearish market tone we'd probably feel more comfortable initiating new positions once BBY trades back above the $55 mark. Currently the RLX retail index has pulled back from all-time highs toward the lower-end of its recent trading range and is also due for a bounce, which should help BBY's performance. 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= 3561 Last traded @ $4.90 BUY CALL MAY 55 BBY-EK OI=19563 Last traded @ $1.45 BUY CALL JUN 55 BBY-FK OI=12372 Last traded @ $2.60 Annotated Chart: Picked on April 23 at $ 55.05 Change since picked: - 0.80 Earnings Date 03/31/04 (confirmed) Average Daily Volume: 3.6 million Chart = --- Quest Diagnostics - DGX - close: 84.35 change: +0.00 stop: 82.00 Company Description: Quest Diagnostics was the result of a 1996 Corning spinoff, and currently holds the title of the world's #1 clinical laboratory. DGX performs more than 100 million routine tests annually, including cholesterol, HIV, pregnancy, alcohol, and pap smear tests. Operating laboratories throughout the US and in Brazil, Mexico, and the UK, DGX also performs esoteric testing (complex, low-volume tests) and clinical trials. The company serves doctors, hospitals, HMOs, and other labs as well as corporations, government agencies, and prisons. Why we like it: In a week of carnage, our DGX play actually held up pretty well, refusing to violate any levels of support. On both Thursday and Friday, the 10-dma ($84.05) was tested and held, as the daily Stochastics work their way towards oversold territory. It would have been nice to see the stock continue its breakout over $86, but in light of the broad market weakness, that would have been quite the feat of bullishness. A rebound from the $83.50-84.00 area still looks like a solid bullish entry, although conservative traders may want to wait for some sign of an upturn in the daily oscillators before taking the plunge. Those looking to enter on strength will need to wait at least for a move back over $86 and preferably a breakout to new recent highs above $86.75. We'll maintain our stops at $82 for the time being, as that is below both the 50-dma ($82.57) and the bottom of the post-earnings gap ($82.35). Suggested Options: Shorter Term: The May $85 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 June $90 Call, while the more conservative approach will be to use the June $85 Call. Our preferred option is the June $85 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL MAY-80 DGX-EP OI= 869 last traded @ $4.80 BUY CALL MAY-85 DGX-EQ OI=2155 last traded @ $1.30 BUY CALL JUN-85*DGX-FQ OI= 682 last traded @ $2.55 BUY CALL JUN-90 DGX-FR OI=2305 last traded @ $0.80 Annotated Chart of DGX: Picked on April 25th at $86.15 Change since picked: -1.80 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 652 K Chart = --- Golden West Fin. - GDW - close: 105.11 change: +0.12 stop: 99.75 Company Description: Golden West Financial Corporation is a holding company for its wholly owned, federally chartered savings bank subsidiary, World Savings Bank, FSB (WSB). WSB has a wholly owned subsidiary, World Savings Bank, FSB (WTX), a federally chartered savings bank. The company, through its financial institution subsidiaries, operates 268 savings branches in nine states and 311 loan offices in 38 states, of which 110 loan offices are located in savings branches. The company's primary source of revenue is interest from loans on residential real estate and mortgage-backed securities. Why we like it: Beginning the day with an upward move, GDW failed to deliver on the breakout we're expecting ahead of the weekend. The stock surged to $105.95 at the open, before falling back to trade in a narrow consolidation range right into the close. We were looking for a break over $106 to justify entries, and since that trigger wasn't quite hit, we're still on the sidelines. That said, the stock actually performed fairly well in light of the weakness prevalent across most sectors towards the end of the day and is still poised to make that strong upward move. Our plan remains unchanged. Wait for the breakout over $106 (and the 100-dma) before taking a position, with aggressive entries on the initial breakout and more conservative entries on a subsequent pullback to test support in the $104-105 area. Once clear of near resistance, look for a rally up to test the 50-dma ($109.65) as the first goal, at which point conservative traders should book some gains. Should the bulls gain some momentum, we can look for a stronger rally up to the $112-113 area. For now, we'll maintain our stop at $99.75. Suggested Options: Shorter Term: The May $105 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 June $110 Call, while the more conservative approach will be to use the June $105 Call. Our preferred option is the June $105 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL MAY-100 GDW-ET OI= 207 last traded @ $5.80 BUY CALL MAY-105 GDW-EA OI= 636 last traded @ $2.40 BUY CALL JUN-105*GDW-FA OI= 209 last traded @ $3.60 BUY CALL JUN-110 GDW-FB OI= 3 last traded @ $1.55 Annotated Chart of GDW: Picked on April 29th at $104.99 Change since picked: +0.12 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 662 K Chart = --- Michaels Stores - MIK - cls: 50.03 chng: +0.58 stop: 48.50 Company Description: Michaels Stores, Inc. is an arts and crafts specialty retailer providing materials, ideas and education for creative activities. The company operates 770 Michaels retail stores in 48 states, as well as in Canada. The stores offer products for the do-it- yourself home decorator and arts and crafts supplies. The company also operates 153 Aaron Brothers stores in nine states, offering photo frames, a full line of ready-made frames, custom framing services and a wide selection of art supplies. In addition, the Company owns and operates Star Wholesale, a single- store wholesale operation located in Dallas, Texas, offering merchandise primarily to interior decorators/designers, wedding/event planners, florists, hotels, restaurants and commercial display companies. Michaels also owns and operates Artistree, a vertically integrated frame and molding manufacturing operation that supplies molding and framing to the Michaels and Aaron Brothers stores nationwide. Why we like it: The big drop in shares of MIK on Thursday certainly forced traders to re-evaluate their stance on the stock, as the 30-dma ($49.32) was tested and price actually dipped briefly below the $49 level. For aggressive traders, that was a gift of an entry point, as the stock came back to give a solid test of broken resistance as new support. The big question is whether this is another bullish entry point or if the stock is just pausing on the way back down. Friday's slight rebound certainly didn't answer the question, but it left behind a nice little inside day. Traders that like to trade that pattern have a couple of key metrics with which to proceed early next week. A breakout over Thursday's high ($50.66) would be the signal to go long, while a break below $48.95 (Thursday's low) would signal continued weakness ahead. Aggressive traders could even target new entries on a successful bounce from above Thursday's low, looking for a new rally attempt and breakout to new highs. Daily Stochastics are now almost oversold, so that works in favor of the bulls. There's strong support at $49, which is now backed up by the 50- dma ($48.60) and if that strong support can't hold, then we'll clearly want to exit the play. That suggests our $48.50 stop is in exactly the right position. Suggested Options: Shorter Term: The May $50 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 June $55 Call, while the more conservative approach will be to use the June $50 Call. Our preferred option is the June $50 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor ahead of earnings. BUY CALL MAY-50 MIK-EJ OI= 358 last traded @ $1.20 BUY CALL JUN-50*MIK-FJ OI= 735 last traded @ $2.10 BUY CALL JUN-55 MIK-FK OI= 688 last traded @ $0.40 Annotated Chart of MIK: Picked on April 20th at $51.23 Change since picked: -1.20 Earnings Date 5/26/04 (confirmed) Average Daily Volume = 327 K Chart = --- Whole Foods Market - WFMI - cls: 80.03 chng: +0.05 stp: 79.25 Company Description: Whole Foods Market, Inc. owns and operates a chain of natural and organic foods supermarkets in the United States. As of September 28, 2003, it operated 145 stores in 26 states, the District of Columbia and Canada. Regional distribution centers, bakehouse facilities, commissary kitchens, seafood processing facilities, produce procurement centers and a coffee roasting operation support the Company's stores. WFMI's product selection has a heavy emphasis on perishable foods designed to appeal to both natural foods and gourmet shoppers. Its product categories include, but are not limited to, produce, seafood, grocery, meat and poultry, bakery, prepared foods and catering, specialty (beer, wine and cheese), whole body (nutritional supplements, vitamins, body care and educational products such as books), floral, pet products and household products. Why we like it: After a week of consolidation as the broad market headed decidedly south, our WFMI is poised to make one more directional move ahead of Wednesday's earnings report. While the $81 level has served as firm resistance over the past week, the stock has found firm support above our $79.25 stop. Friday's price action saw a brief dip below the 10-dma ($79.60), but the stock managed to recover a bit at the end of the day to end almost exactly in the middle of the week's range. Due to the proximity of earnings, we are not in favor of new entries. From here on, it is a matter of maximizing gains and protecting the lion's share of those gains. A break below our stop should have traders exiting the play, while a breakout over $81 should have the stock making strides towards our final target in the $83-84 area. Regardless of price action, all positions should be closed by the end of the day on Tuesday to avoid the risk of holding over the earnings announcement. We'll be officially dropping the play Tuesday night. Suggested Options: We have not listed any current strikes this weekend, as we are not recommending new positions at this time due to WFMI's scheduled earnings release next week. Annotated Chart of WFMI: Picked on April 15th at $76.01 Change since picked: +4.02 Earnings Date 5/05/04 (confirmed) Average Daily Volume = 696 K Chart = ************** NEW CALL PLAYS ************** None ************************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 ***************** Capital One - COF - close: 65.53 chg: -0.54 stop: 69.01 Company Description: Headquartered in McLean, Virginia, Capital One Financial Corporation (www.capitalone.com) is a holding company whose principal subsidiaries, Capital One Bank and Capital One, F.S.B., offer consumer lending products and Capital One Auto Finance, Inc., offers automobile and other motor vehicle financing products. Capital One's subsidiaries collectively had 46.7 million managed accounts and $71.8 billion in managed loans outstanding as of March 31, 2004. Capital One, a Fortune 500 company, is one of the largest providers of MasterCard and Visa credit cards in the world. (source: company press release) Why We Like It: Our COF put play has performed as expected, albeit slightly slower than estimated. Potentially slowing the descent of many financials is the consolidation patterns in the banking indices. The BKX banking index has been consolidating sideways but is now nearing support at 95 and its 200-dma. The BIX banking index is also consolidating above its 200-dma but its consolidation looks like a bear flag pattern. We're encouraged by the steady decline in shares of COF and the stock is nearing our exit range near its 200-dma. We hesitate to suggest new bearish positions since the $65 level could act as support. Plus, like many stocks, COF is short-term oversold and due for a bounce. Should a bounce materialize look for a failed rally under $68.00 but be sure to look for the roll over. The 10-dma and the 100-dma are converging near the $69 mark so we're going to leave our stop loss unchanged at $69.01. We're also going to give COF an official exit point at $62.75, just above its 200-dma. Suggested Options: Short-term traders can choose from the May or June options. Since there is still four weeks left for May options we'll suggest the May 70s. BUY PUT MAY 70 COF-QN OI= 6470 Last traded @ $5.30 BUY PUT MAY 65 COF-QM OI= 7579 Last traded @ $2.05 Annotated Chart: Picked on April 26 at $ 67.99 Change since picked: - 2.46 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 2.2 million Chart = --- Silicon Labs. - SLAB - close: 47.15 change: -2.88 stop: 52.00*new* Company Description: Silicon Laboratories designs, manufactures and markets proprietary high-performance mixed-signal integrated circuits (ICs) for the wireless, wireline and optical communications industries. The company initially focused its efforts on developing ICs for the personal computer modem market and is now applying its mixed-signal and communications expertise to the development of ICs for other high growth communications devices, such as wireless telephones and optical network applications. Why we like it: Continuing the bearish trend that prevailed throughout last week, the Semiconductor index (SOX.X) drilled to new recent lows on Friday, and a continued drop towards the $420 level seems assured. Following the lead of the SOX, our new SLAB play broke down with conviction, shattering the $49 support level, then the 200-dma ($48.57) and coming to rest just over the $47 level after probing as low as $46.30. Volume on the decline was well over the ADV and suggest more weakness to come. So long as the SOX continues its decline to the $420 level, we should see SLAB drill down to at least $45. Should the SOX drop all the way to strong support near $400, then our eventual target near $43 should be reached as well. A drop to that level should be used to exit the play for a very nice and quick gain. Traders still looking for an entry should be eyeing a failed rebound below the 200-dma as their opportunity. Note that we've lowered our stop to $52, which is just above Thursday's intraday high, and it should not be threatened unless there is a decided change of trend. Suggested Options: Aggressive short-term traders will want to use the May 50 Put. Those with a more conservative approach will want to use the June 50 put. Our preferred option is the June 50 strike, as it is currently in the money and should provide ample time for the play to move in our favor. Note that there is a June $45 strike available, but there is currently on open interest. BUY PUT MAY-50 QFJ-QJ OI=2296 last traded @ $4.20 BUY PUT MAY-45 QFJ-QI OI=1087 last traded @ $1.50 BUY PUT JUN-50*QFJ-RJ OI= 67 last traded @ $5.20 Annotated Chart of SLAB: Picked on April 29th at $50.03 Change since picked: -2.88 Earnings Date 4/26/04 (confirmed) Average Daily Volume = 1.31 mln Chart = ************* NEW PUT PLAYS ************* Amazon.com - AMZN - close: 43.60 chg: -2.59 stop: 46.35 Company Description: Amazon.com, a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth's Biggest Selection. Amazon.com seeks to be Earth's most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new and used items in categories such as health and personal care, jewelry and watches, gourmet food, sports and outdoors, apparel and accessories, books, music, DVDs, electronics and office, kids and baby, and home and garden. (source: company press release) Why We Like It: The NASDAQ Composite's breakdown under its simple 200-dma was big news on Friday. That's a major technical no-no that will likely cause investors to re-evaluate their tech holds and consider taking some money off the table. The rotation may have already begun in the Internet sector. The INX Internet index lead the decliners on Friday with a 4.27% drop. The move broke support at its simple 40, 50, & 100-dma's as well as the 180 mark. The MACD on the INX is in a sell signal and the group looks headed for its own 200-dma near last month's support at 168. So the next question is, "why AMZN?" We think AMZN looks like a good bearish candidate because its rebound from the March lows was halted at resistance in the $48-49 region. Shares spent the majority of April struggling to breakout and even a better than expected earnings report couldn't inspire investors to add to positions. Looking deeper at the earnings report Wall Street was disappointed that AMZN didn't offer more bullish guidance and analysts are concerned about AMZN's thinning profit margins. Friday's technical breakdown in the tech sector was very evident in AMZN with a 5.6% drop through support at $45.00 and its own 40 & 50-dma's. Furthermore the drop produced a strong failed rally pattern at resistance on its point-and-figure chart that now points to a $38 price target. We suspect that if the trend has changed in the NASDAQ that AMZN could hit the $35 region (see chart). Another sentiment reason for bears to give AMZN another look is the Google IPO. Many pundits believe that investors could take some cash out of their AMZN, YHOO and EBAY positions so they can invest in the new soon-to-be-public Internet darling Google. Short-term traders can target the $40.00 mark but we're going to target a move to its descending trendline of lows. We'll start the play with a stop loss at Friday's high $46.35. Suggested Options: May options are certainly a choice but traders only have three weeks before these expire. Our preference is the June 45s or 40s. BUY PUT JUN 40.00 ZQN-RH OI= 537 Last traded @ $1.20 BUY PUT JUN 42.50 ZQN-RV OI=2664 Last traded @ $2.10 BUY PUT JUN 45.00 ZQN-RI OI=2291 Last traded @ $3.40 Annotated Chart: Picked on May 02 at $ 43.60 Change since picked: - 0.00 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 8.4 million Chart = --- Loews Corp - LTR - close: 58.01 chg: -0.39 stop: 60.01 Company Description: Loews Corp is a New York, NY based holding company that owns a number of major subsidiaries. LTR owns 100% of Lorillard, a cigarette company (a.k.a. the Carolina Group); Loews Hotels, and Texas Gas Transmission. LTR is a majority owner in Bulova Corp (97% owner), CNA Financial (90% owner) and Diamond Offshore Drilling (54% owner). (source: company press release) Why We Like It: If you're an optimist you'd probably call LTR's lack of weakness a sign of relative strength. We suspect that investors are just in shock and trying to digest the various numbers before making any decisions. Analysts were looking for LTR to report profits of $1.35 per share on Thursday versus 87 cents a year ago. LTR turned in 5 cents with revenues slipping 12% to $3.49 billion. The poor performance appears to be a big loss for its CNA Financial life insurance business, slowing sales for its cigarette maker Lorillard (the Carolina Group), and an earnings miss for its Diamond Offshore subsidiary (DO). Why shares didn't plummet on the news is a mystery but the stock does look weak. The failed rally under $60.00 on Thursday looked like a decent entry point but there was very little follow through on Friday. So to protect ourselves we want to see some conviction and will wait for LTR to trade at or below our TRIGGER at $57.74. P&F chart readers can wait for the new sell signal if LTR trades under $57.00. Our first target is the $54 region, which would be a 38.2% retracement of LTR's run from the November lows to the March highs. Watch out for potential support at its 100-dma ($55.65). Suggested Options: If we are triggered the June 60s and 55 puts look like good bets. BUY PUT JUN 55 LTR-RK OI= 80 Last traded @ $1.00 BUY PUT JUN 60 LTR-RL OI=107 Last traded @ $3.20 Annotated Chart: Picked on May xx at $ xx.xx <-- see trigger! Change since picked: - 0.00 Earnings Date 04/29/04 (confirmed) Average Daily Volume: 419 thousand Chart = ************************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 05-02-2004 Sunday 4 of 5 In Section Four: Leaps: Schizophrenic Trade Option Spreads: Hard & Fast Rules Aren’t Always So Hard Or So Fast ************************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 ***** Schizophrenic Trade By Mark Phillips mphillips@OptionInvestor.com I wouldn't necessarily say that applies to the week just completed, as it went out on a very bearish note, with key support being challenged across all the major indices. No, what I'm referring to is what we can expect in terms of action on Tuesday afternoon. The much-anticipated FOMC meeting is on the agenda and we have a pretty clear roadmap of what to expect. Oh, nobody knows what the Fed will do, but I'll address that topic in a bit. We all know what to expect from the market though. It will go deathly quiet a few hours before the meeting, then gyrate wildly for about 45 minutes before finally picking a direction and following it into the close. If the past is any guide to the future, we should then expect to see that direction reversed on Wednesday. Schizophrenia anyone? If you're like me, you've learned to simply stay out of the way on those FOMC days and try not to let the short-term gyrations cloud your view of the longer-term trends that are in place. The Fed has had rates obscenely low for a long time and everyone knows that has to change eventually. Pointing to a few recent economic reports, the talking heads are talking about how the Fed "has to" raise rates and will probably do so in May or June. Fuggeddaboudit! The Fed is waiting for the jobs to appear and I think it will be very unlikely to see the rosy jobs picture the Fed wants in time for a rate hike prior to the August meeting. Right now, the Fed is focused on getting investors used to the idea of rising rates, and that means a possible change to the bias statement, but at the same time lots of pleasing words to indicate that it won't happen quickly. I alluded to this last week, but let's talk about it again. The Fed Funds rate is at 1% and even the August Fed Funds futures are only pricing in a 25 basis point hike. Let's be pragmatic here. How much of an effect is a 0.25% rise in interest rates likely to have? None! The market is a forward looking mechanism and is trying to effectively price in the reality that rates will be rising before the end of the year. This increase in rates will have a significant impact on those that have been playing the "carry trade" game, borrowing cheap short-term money and investing on longer-term higher-yielding instruments. But in terms of what it means to the economy, the impact will be negligible. Rising interest rates should not have a material impact on business expansion and growth until the FF rate is over 3%. I would be surprised to see that level even next year. So while most investors are focused on the near-term moves by the Fed, we can rest comfortably knowing that the investment climate for equities should remain stable. What has changed now and we must adjust to it is that the easy gains of the past 12 months are history. To make money on the long side, we're clearly going to need to be more discriminating. And the other side of the coin is that there should be more viable opportunities for solid plays to the downside as those stocks that will be negatively affected by the rising interest rate environment begin to weaken. So with that as our backdrop, what's going on in the market? Despite the very negative week that we just completed, the big picture really hasn't changed that much. The DOW, S&Ps and NASDAQ are still mired in their trading ranges, but the outlook is turning more negative. The picture is the worst in the Technology sector, with weakness being led by the Semiconductors and the Biotechnology sector really starting to play catch up to the downside. I'm maintaining my view of a rangebound market though until we see the bottom of the ranges we've become familiar with in recent months get broken to the downside. To reiterate, that's 10,000 for the DOW, 1080 for the SPX and 1900 for the NASDAQ Composite. Based on the price action last week and the bearish developments in the PnF view, I expect the NASDAQ to break down. That doesn't necessarily mean a breakdown on Monday (although that could happen), but it does mean that the downside is where we should focus our efforts for Technology plays. Looking at the PnF chart of the NDX, we can see price challenging the bullish support line at 1400 and on a Sell signal with a target at 1320. The 20-point box size view is less negative though, with a trade at 1360 necessary to create a Sell signal. One interesting point is that on the 20-point scale, the bullish support line is at 1320, lining up with that target from the traditional scale. The PnF chart for the COMPX is similarly negative, with another new Sell signal and a new tentative downside target of 1780. The bullish support line at 1960 has already been smashed. Turning to the 20-point scale chart, there's more trouble for the bulls, with the bullish support line being broken and the 1900 price objective almost sure to be hit next week. The bullish percent reading on both indices is decidedly bearish, with the NDX still Bear Confirmed and now back at 43%. On the COMPX, we're also in Bear Confirmed and now down to 54%. This isn't a situation for chasing the index lower with long-term positions, but the next failed rally attempt may be just the ticket we're looking for. For that reason, the QQQ looks like it could offer some solid downside potential in the months ahead, and I've added it to our Radar Screen this weekend. The view on the DOW and the S&Ps is less clear at this point. The DOW has given another PnF Sell signal on the standard scale chart, but when we step back to the 100-point scale, we see that it will require a trade at 10,000 to turn things bearish. The bullish percent chart is still in Bear Confirmed and back at 80%. We certainly wouldn't want to be considering bullish position trades there, but I'm not yet convinced it makes sense to put on a bearish trade either. As we've talked about recently, the SPX needs to trade 1080 before giving us a Sell signal and we're clearly not there yet. But the bullish percent chart cracked under 70% last week and that certainly suggests that the bears are gaining strength. Within the context of correcting off the recent highs, Technology is still the weakest link, but none of the major indices have shown enough weakness to suggest that it's time to completely ditch bullish plays. There's enough weakness to make us want to tighten up our stops on bullish plays (like we're doing with EBAY this weekend), but not enough to aggressively chase the downside. On the other side of the coin, initiating new long-term bullish positions is a much more aggressive stance than it was a few short weeks ago. April earnings are effectively over and while it's been a positive affair, investors have decided that there hasn't been enough glowing bullish commentary from corporate chieftains to justify holding onto large paper gains as we head into the bad six months (May through October) of the year. The "Sell in May and Go Away" trade appears to be playing out a bit earlier than usual, but that doesn't mean it is the end of the cyclical bull. It just means that we'll need to be more discriminating in our bullish trades and that we ought to have more choices with viable downside trades. I've had to keep things short this weekend due to incessant Technology challenges, but we'll pick things up in greater detail next week. Without further ado, let's dive into a quick review of our current plays and play candidates. Portfolio: HD - I'm actually glad I exercised some patience last week and didn't jettison this rather boring play just yet. Helped along by the broad market weakness, HD is back to testing key support at $35, with the 200-dma just below that level. Either we're going to see a rebound back into the recent trading range, or a decisive breakdown. With the clear bearish picture on the weekly chart, I tend to favor the downside here. Expect bulls to continue to defend the stock all the way down to the $33 lows from December, but if that level cracks then a drop down to the $30 level ought to be a slam dunk. While all eyes are focused on the Fed meeting next week, I think the real catalyst for HD will be the outcome from earnings on May 18th. Stay the course for now, but let's tighten our stop to $39. That is still above the top of the trading range of the past several months and just over the 200-week moving average ($38.95), which ought to present formidable resistance. CHK - It was a rough week for the bulls, but our Natural Gas play is still working quite nicely for us. A huge part of that dynamic is the reality that prices for gas are still near their highs and there is nothing in the supply/demand equation to suggest a change in the trend. CHK moved down from its new highs just under $14.50 strictly due to the weakness across the broad market. All things considered, the stock is continuing to look strong here, as the dips are being met by renewed buying interest in the $13.50 area. Remember a few weeks ago when we looked at that level as resistance? We're seeing the process of resistance being converted to support. Last week the 200-dma moved over $12, further protecting our stop and I see nothing to cause concern for our play. I would view any steep drop to the $13 area as an opportunity for late-comers to enter the play. The next upside objective will be for the stock to top $14.50, as that will give us another PnF Buy signal to reinforce the bullish picture. LUV - No matter how we slice it, last week's price action for LUV, the Airline index (XAL.X) and the Transports ($TRAN) was unpleasant. Of course, with losses across the board in the market, the weakness is really no great shock. LUV fell back to its 50-dma, and while that provided near-term support, the bigger concern for me is the price action on the XAL, which broke its $54 support level and appears headed for the March lows near $50. If that level breaks, then I think we'll be faced with a problem with our LUV play and will probably we looking at a challenge to our $12.75 stop. For now, we'll stay the course, and look for the stock to find support near $14 and resume its recent rise. EBAY - Rumors of an upcoming split sent our EBAY play soaring again last week, reaching a high of $84.75 before the selling across the market dragged the bulls back to reality. No matter what happens from here, EBAY has been a nice winning play, with the 2005 LEAP still offering us better than a 100% gain from the point of entry. The stock fell back on Friday to close right at $80 and with the post-earnings volatility we've seen, the picture on the PnF chart has changed significantly. It would now only take a drop to $79 to create a new Sell signal and with the kind of gains we have accrued so far, there's no need to stick around if such a signal is issued. So I've raised our stop to $79 this weekend. If it is hit, then don't hesitate to lock in those gains. And for those of you that got nervous last week and pulled the plug with tidy gains, Congratulations! Watch List: TYC - My apologies, as I made a mistake last week. I neglected to update our entry target from the $27 level, where it currently remains. I had intended to raise it to $28. That said, regardless of where the entry target was, there was certainly no justification for entering the play last week as there wasn't even a hint of a rebound on the way down. Not only that, but I've suggested that the prudent approach would be to wait until after the company's May 4th earnings announcement before taking a position. Well, we'll get the verdict on Tuesday, where we'll see the results, as well as investor reaction to those results. I think we can reasonably get a little cute with the entry strategy in light of last week's earnings report. A dip and rebound from the $26 level of support can be used for aggressive entries, while a move back over $28 would be the way to enter on strength. We'll officially take whichever entry materializes first, but only AFTER the earnings report. Should TYC deteriorate below $26 without a bounce, odds are very good that we'll be forced to reconsider the merits of the play and possibly drop it. One factor that should be considered is the view on the weekly chart, which shows a rather bearish tone in terms of Stochastics. In my view, that makes this play more aggressive than it was when we first considered it a few months back. AIG - The price action in AIG last week makes a great example of what constitutes an entry point (according to the strategy we employ here) and what does not. AIG did fall into the $71-72 targeted entry zone over the past 3 days, yet we have not added it to the Portfolio. Why? Quite simply, there hasn't been a credible bounce to indicate to us that this is the bottom of the current short-term decline. There's little point in trying to catch a falling knife, especially in the currently uncertain market environment. We're going to maintain our current $71-72 entry target, and that means, a bounce and close over $72 will be an entry signal. Should price continue to deteriorate from here, we'll be comfortably watching from the sidelines, able to re-evaluate unemotionally. More aggressive traders can target entries off the stronger support near $70, but we won't officially take a position until AIG closes back over $72. Radar Screen: GM - The broad market slide last week sent the GM bulls packing, at least temporarily, as the stock ran into stiff resistance near $50 and fell back towards its 50- dma. Looking at the daily chart, I can actually make an argument for a near-term H&S bottom forming with the neckline at $50. It's an ugly formation, but it is possible. Additionally, we do have the weekly Stochastics in confirmed bullish ascent, so it isn't time for a new play just yet. But a couple more weeks could do the trick. Patience is still warranted, but hopefully we'll get a shot at a bearish entry in the vicinity of that long-term descending trendline. EK - Just like GM, EK managed enough of an upside move to drag the weekly Stochastics into a bullish ascent (although it's been quite muted so far), but last week's market slide kept the bulls on the defensive. EK is now coming back to test support in the $25 area, but my expectation is for a continued upside move, even if it is feeble. We'll want to start thinking more aggressively about a bearish Watch List play once the weekly Stochs get closer to overbought territory and the price gets back over the $27-28 area. We still have time to wait for the right entry setup. QQQ - Am I nuts? Quite possibly, but in terms of this play idea, I don't think so. We've been watching all the major indices in consolidation patterns lately, and by far the NASDAQ is the weakest of the bunch. Add in the fact that both the NDX and the COMPX are on fresh PnF Sell signals and selling volume is on the rise and I think we might have the setup for a nice bearish position trade setting up. Even the weekly Stochastics are looking like they want to give a short-cycle bearish reversal. We don't want to chase the Techs lower at this point -- in fact I would expect at least a token oversold rebound next week. But once that has run its course, we should be set for a decent run to the downside. We'll look to put the QQQ on the Watch List for a bearish play next weekend. Closing Thoughts: Earnings are essentially over and all eyes are turning back to the economy. It is still growing, but not at what we would call a robust pace. More importantly, myopic traders have focused their attention on the action of the Fed next Tuesday. Once again, the report should be a non-event and I suspect the catalyst to undo some of the damage inflicted on the broad market over the past week. Don't get me wrong, I don't expect a swift rally to new highs anytime soon, but I think the FOMC meeting may be the catalyst to work off some of the near-term oversold condition. Whether that sets the stage for a renewed move down or a steady rise and recovery remains to be seen. Remember, we still have NOT broken the trading range I've been talking about these past several weeks. Eventually it will break, but for now the DOW remains pinned between 10,000- 10,700 and the NASDAQ Composite between 1900-2100. It will take a decisive break of one end of that range to get some conviction for long-term directional plays on the broad market. 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 AIG 04/25/04 $71-72 JAN-2005 $ 75 ZAF-AO CC JAN-2005 $ 70 ZAF-AN JAN-2006 $ 75 WAP-AO CC JAN-2006 $ 70 WAP-AN PP AUG-2004 $ 65 AIG-TM PUTS: None New Portfolio Plays None New Watchlist Plays None Drops MLNM $15.80 Investors' reaction to MLNM's earnings report on Thursday provided ample evidence that it isn't the news that's important, but that the key is really how the results stack up against expectations ahead of the news. MLNM narrowed its loss for the quarter, handily beating estimates of a 21 cent deficit with only a 7 cent loss. Apparently that wasn't good enough, as the stock tanked on the news, plunging through our $16 stop and bringing the play to a swift end. This is another example of how our protective puts work to our advantage. While we took a sizeable hit on our LEAPS, the protective put soared to almost double our cost of entry. Traders that employed the insurance put, saw a net loss of only 25 cents on the 2005 LEAP and $0.35 on the 2006 LEAP. Not the result that we were hoping for, but definitely not a disaster. ************************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 ************************ Hard & Fast Rules Aren’t Always So Hard Or So Fast By Mike Parnos, Investing With Attitude It’s been an eventful week, to say the least. The market is a little more fickle than usual. It was over-reacting to everything. Why? Probably PMS (Perverse Market Syndrome). Fortunately, it doesn’t happen every month, but often enough to make life a little miserable. I want to address some emails I received about our BBH Iron Condor position. I’ve been in California and had technical problems with sending email. If you haven’t received an email response to your questions and comments, you should soon. _____________________________________________________ Mike, Shouldn’t the BBH position have been closed out on Tuesday when it spike up and hit $160 – well over the safety range? In hindsight now, not doing it would have been the smart thing. But, you can’t use hindsight in live trading. Mike, Regarding your May BBH condor, I exited the play when BBH was in the $160 range and notice that you still have this play as an active play on the website. What are your rules for plays that exceed their safety parameters? Do you hold for a period of time to see if the index returns? Or do you immediately roll out and try to establish the position if it re-enters it’s range? Mike, You’re terrific and I have made money following your strategies. But I am confused. The BBH position shot up to $160 early this week. Why wasn’t the position bought back and a loss recorded? You always say that if our breakeven points are violated, it’s time to bail out – even if it is possible that the underlying will recover. This is what prevents a major loss on just one position. I’m confused because sometimes you follow this concept and sometimes you don’t. Please explain. Dear Students, All good questions. Let’s take a closer look at the market action. a) Friday 4/23 – BBH closed at $150.50. b) Monday 4/26 – BBH gapped way up, opening at $155.40. It then ran all the way up to $160.25. Closed at $157.11. c) Tuesday 4/27 – BBH traded down to $154.65. d) Wednesday 4/28 – BBH tanked, with the market, closing at $152.75. Why didn’t I close out the position? The gap. Those of you who are familiar with technical analysis know that large gaps tend to reverse and fill. If you look at a candlestick chart of Monday’s BBH action, you’ll see a large wick. That means that, it may have spiked up to $160, but almost immediately it began to give back most of the gain. It reversed. With that kind of action, it made sense to give BBH a chance to move back down. We got lucky and BBH has since moved down to below $150 – comfortably within our range – for now. But there are still three weeks left to expiration. Anything can happen. BBH has not gone down as dramatically as other indexes have in the last few days. When the market has its oversold bounce, BBH may again threaten the $155 short strike – and, this time, it won’t likely be a gap. Those CPTI students who closed the position did the prudent thing. My decision was strictly a judgment call. Taking the early loss and eliminating your exposure was not an unwise decision. It enables you to use those maintenance dollars elsewhere for the three weeks remaining in this option cycle. That’s why there are no hard and fast rules that dictate a particular action for every scenario. MNX At Risk Our MNX position is very close to violating our short $140 strike. However, the market is due for an oversold bounce. I’m going to be a little patient with MNX and give the buyers an opportunity to jump back into the market and bring MNX back up into our range. Track Record Requests I’ve had a number of requests for a track record of our CPTI positions since the inception of our “educational” porftfolio – back in October of 2002. I’m working on it, during the commercials. When it’s available to get posted, I’ll keep you posted. ______________________________________________________ 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 – 1107.30 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 – 559.80 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 - $140.14 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 - $149.93 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 -- $34.77 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 – 540.88 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 BPS 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). Note: If the market doesn’t bounce early on Monday, I’m considering buying back the 575 call (now at about $.25), waiting for the bounce, and then selling it again (or perhaps a slightly lower strike price). 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. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-02-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: Earnings Season Fails To Impress... Premium-Selling Plays: Naked Puts & 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 ******************* Earnings Season Fails To Impress... By Ray Cummins Equity values moved lower Friday as inflation concerns overcame positive economic news and a slew of favorable profit reports. The Dow Jones industrial average slid 46 points to 10,225, with Walt Disney (NYSE:DIS), Hewlett-Packard (NYSE:HPQ), Honeywell (NYSE:HON) and SBC Communications (NYSE:SBC) among the biggest losers. The NASDAQ Composite plunged 38 points to 1,920 as chip and internet issues continued to suffer from profit-taking. The broader S&P 500 Index fell 6 points to 1,107 with obvious selling pressure in lodging, brokerage, biotechnology, and managed care stocks. Trading was heavy with 1.6 billion shares swapped on the New York Stock Exchange while 2.1 billion shares were crossed on the NASDAQ. Market breadth was decidedly negative as decliners ousted advancers 3 to 2 on the Big Board and more than 2 to 1 on the technology exchange. Treasury prices rebounded from recent losses with the 10-year note up 9/32, while its yield closed at 4.50%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 04/30/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position 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 HSIC 75.81 70.47 MAY 65 70 0.45 69.55 0.45 Open? NAV 49.90 45.15 MAY 40 45 0.60 44.40 0.60 Open? DNA 112.00 122.80 MAY 95 100 0.50 99.50 0.50 Open EBAY 75.94 80.03 MAY 65 70 0.65 69.35 0.65 Open HDI 55.63 56.32 MAY 48 50 0.25 49.75 0.25 Open PDCO 74.97 73.66 MAY 65 70 0.65 69.35 0.65 Open CME 116.11 117.30 MAY 100 105 0.60 104.40 0.60 Open MATK 65.12 63.41 MAY 55 60 0.60 59.40 0.60 Open MTG 74.42 73.62 MAY 60 65 0.50 64.50 0.50 Open SLAB 56.33 47.15 MAY 45 50 0.60 49.40 (2.25) Closed BJS 47.30 44.50 MAY 42 45 0.30 44.70 (0.20) Open? NBR 47.03 44.36 MAY 42 45 0.30 44.70 (0.34) Open? L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Silicon Labs (NASDAQ:SLAB) should have been closed Thursday, when the issue moved below the sold (put) strike, for a smaller than published loss. Positions in BJ Services (NYSE:BJS), Nabors Industries (NYSE:NBR), Henry Schein (NASDAQ:HSIC), and Navistar (NYSE:NAV) are on the "watch" list and will be closed on any further downside activity. CALL-CREDIT SPREADS Symbol Pick Last Month L/C S/C Credit C/B G/L Status SOHU 25.46 16.74 MAY 35 30 0.60 30.60 0.60 Open SFNT 31.65 21.50 MAY 40 35 0.70 35.70 0.70 Open GENZ 46.40 43.50 MAY 55 50 0.60 50.60 0.60 Open PRX 55.25 40.30 MAY 65 60 0.65 60.65 0.65 Open MERQ 45.59 42.65 MAY 55 50 0.60 50.60 0.60 Open NEM 42.86 37.40 MAY 50 47 0.25 47.75 0.25 Open RYL 77.41 78.95 MAY 90 85 0.60 85.60 0.60 Open AMZN 45.20 43.60 MAY 55 50 0.65 50.65 0.65 Open BOBJ 27.85 21.92 MAY 35 30 0.75 30.75 0.75 Open NTES 51.43 41.03 MAY 65 60 0.50 60.50 0.50 Open VECO 27.43 22.75 MAY 35 30 0.55 30.55 0.55 Open BSX 40.25 41.19 MAY 45 42 0.25 42.75 0.25 Open RIMM 97.54 87.10 MAY 115 110 0.50 110.50 0.50 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status SSYS 20.88 20.44 MAY 22 20 2.10 2.25 Open? ZMH 80.84 79.85 MAY 80 80 4.90 6.15 Open? COCO 32.46 30.58 MAY 32 32 3.70 5.00 No Play AH 35.78 33.04 MAY 35 35 3.10 2.90 Open QLTI 29.60 27.07 MAY 30 30 3.00 3.80 Open LF 19.67 21.51 JUN 20 20 3.50 5.25 Open BSTE 30.63 39.50 JUL 30 30 6.00 11.50 Open? MKSI 23.10 19.20 JUL 22 22 4.70 5.50 Open Biosite (NASDAQ:BSTE) has been the best performing position in recent weeks, but Zimmer Holdings (NYSE:ZMH), LeapFrog (NYSE:LF), MKS Instruments (NASDAQ:MKSI) and QLT Inc. (NASDAQ:QLTI) have been active as well, providing favorable short-term gains. The position in Corinthian Colleges (NASDAQ:COCO) was not available at the target entry price, due to the "gap-up" on the day after the straddle was listed as a new candidate. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AVP - Avon Products $84.00 *** Favorable Earnings! *** Avon Products (NYSE:AVP) is a global manufacturer and marketer of beauty and related products. The company's products fall into three major product categories: Beauty, which consists of cosmetics, fragrances and toiletries; Beauty Plus, consisting of fashion jewelry, watches, apparel and accessories, and Beyond Beauty, which consists of home products, gift and decorative products and candles. Avon's business primarily consists of one industry segment, direct selling, which is conducted worldwide. The firm's segments are based on geographic operations in four regions: North America, Latin America, Europe and the Pacific. AVP - Avon Products $84.00 PLAY (conservative - bullish/credit spread): BUY PUT MAY-75.00 AVP-QO OI=310 ASK=$0.15 SELL PUT MAY-80.00 AVP-QP OI=101 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$79.55 __________________________________________________________________ MUR - Murphy Oil $68.50 *** Bullish Profit Report! *** Murphy Oil (NYSE:MUR) is a worldwide oil and gas exploration and production firm with refining and marketing operations in North America and the United Kingdom. The company was reorganized in 1983 to operate primarily as a holding company of its various businesses. Its operations are currently classified into two business activities: exploration and production and refining and marketing. Murphy's exploration and production activities are subdivided into geographic segments including the United States, Canada, United Kingdom, Ecuador, Malaysia and all other countries. The company's refining and marketing activities are subdivided into geographic segments for North America and United Kingdom. MUR - Murphy Oil $68.50 PLAY (less conservative - bullish/credit spread): BUY PUT MAY-60.00 MUR-QL OI=711 ASK=$0.15 SELL PUT MAY-65.00 MUR-QM OI=1405 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$64.45 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ MRVL - Marvell Technology $38.92 *** Sell-Off Underway! *** Marvell Technology Group (NASDAQ:MRVL) is a global semiconductor provider of broadband communications and storage solutions. The company's product portfolio consists of switching, transceiver, wireless, computer connectivity, gateways, telecom controller and storage solutions that power the entire communications infrastructure, including enterprise, metro, home and storage networking. Its core technologies were initially focused on the storage market, where it provided products to drive manufacturers such as Fujitsu, Hitachi, Samsung, Seagate and Toshiba. MRVL - Marvell Technology $38.92 PLAY (less conservative - bearish/credit spread): BUY CALL MAY-45.00 UVM-EI OI=3545 ASK=$0.40 SELL CALL MAY-42.50 UVM-ET OI=2084 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$42.80 __________________________________________________________________ OVTI - OmniVision Technologies $22.38 *** Sector Slump! *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and markets high-performance, cost-efficient semiconductor image sensor devices. The company's main product, an image sensing device called the CameraChip, is used to capture an image in a variety of consumer and commercial mass market applications, including digital still cameras, cellular telephones, security and surveillance cameras and video game consoles. The firm's CameraChips are manufactured using the complementary metal oxide semiconductor (CMOS) process, the most widely utilized method of producing modern integrated circuits. OVTI - OmniVision Technologies $22.38 PLAY (less conservative - bearish/credit spread): BUY CALL MAY-30.00 UCM-EF OI=13355 ASK=$0.20 SELL CALL MAY-25.00 UCM-EE OI=5432 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$25.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ HOTT - Hot Topic $22.26 *** Earnings Speculation! *** Hot Topic (NASDAQ:HOTT) is a specialty retailer operating the Hot Topic and Torrid store concepts. The company offers a selection of music-licensed and music-influenced apparel, accessories and gift items for young men and women principally between the ages of 12 and 22. The company has recently launched a second retail concept under the trade name Torrid, which offers a selection of apparel, lingerie, shoes and accessories centered around various lifestyles for plus-size females between the ages of 15 and 29. The firm also maintains two distinct Websites, www.hottopic.com and www.torrid.com, which reflect the Hot Topic and Torrid store concepts and sell certain items of merchandise. Earnings are due on May 19, 2004. HOTT - Hot Topic $22.26 PLAY (very speculative - neutral/debit straddle): BUY CALL MAY-22.50 UHO-EX OI=158 ASK=$0.85 BUY PUT MAY-22.50 UHO-QX OI=922 ASK=$1.05 INITIAL NET-DEBIT TARGET=1.75-$1.80 INITIAL TARGET PROFIT=$0.60-$1.05 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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... The Difference OneStopOption.com 888-281-9569 *************************************************************** ***************************************** 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 04/30/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position 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 FWHT MAY 17 17.15 20.10 0.35 4.19% 2.04% MICC MAY 17 17.15 25.13 0.35 4.31% 2.04% MNST MAY 22 21.95 25.61 0.55 4.39% 2.51% PLMO MAY 17 16.90 16.19 (0.71) 0.00% 3.55% HNT MAY 22 22.00 25.44 0.50 4.76% 2.27% IPXL MAY 20 19.50 20.80 0.50 5.43% 2.56% SSNC MAY 22 21.60 23.09 0.90 7.85% 4.17% TINY MAY 15 14.70 17.29 0.30 4.60% 2.04% ACCL MAY 12 17.25 17.93 0.25 3.62% 1.45% IMM MAY 15 14.70 18.80 0.30 4.66% 2.04% IPXL MAY 20 19.65 20.80 0.35 4.38% 1.78% JBLU MAY 22 22.15 27.70 0.35 3.65% 1.58% LSCP MAY 22 21.95 29.84 0.55 5.43% 2.51% TINY MAY 17 17.00 17.29 0.29 3.75% 2.94% USG MAY 15 14.25 14.23 (0.02) 0.00% 5.26% XMSR MAY 25 24.50 23.96 (0.54) 0.00% 2.04% ASKJ MAY 30 29.50 35.37 0.50 4.47% 1.69% BRCM MAY 37 36.70 37.83 0.80 4.83% 2.18% CLZR MAY 15 14.25 10.57 (3.68) 0.00% 5.26% FWHT MAY 20 19.35 20.10 0.65 7.29% 3.36% IMM MAY 17 17.05 18.80 0.45 6.91% 2.64% INSP MAY 35 34.45 32.91 (1.54) 0.00% 1.60% MRVL MAY 42 41.55 38.92 (2.63) 0.00% 2.29% ESIO MAY 22 22.10 20.44 (1.66) 0.00% 1.81% HOLX MAY 20 19.50 20.15 0.50 5.51% 2.56% GVHR MAY 25 24.65 22.14 (2.51) 0.00% 1.42% HSII MAY 22 22.25 24.83 0.25 2.61% 1.12% IMM MAY 17 17.25 18.80 0.25 4.16% 1.45% LF MAY 20 19.55 21.51 0.45 5.16% 2.30% TSAI MAY 20 19.80 21.23 0.20 2.99% 1.01% TSO MAY 20 19.50 20.31 0.50 5.60% 2.56% APPX MAY 35 34.40 42.26 0.60 5.81% 1.74% BLDP MAY 10 9.75 10.37 0.25 6.55% 2.56% ELN MAY 17 17.30 21.60 0.20 4.01% 1.16% ERES MAY 25 24.50 31.48 0.50 6.05% 2.04% HOLX MAY 20 19.65 20.15 0.35 4.54% 1.78% LSCP MAY 22 22.10 29.84 0.40 5.49% 1.81% PDII MAY 22 21.75 25.56 0.75 8.99% 3.45% TELK MAY 22 22.20 23.50 0.30 4.32% 1.35% TNOX MAY 15 14.50 17.05 0.50 8.35% 3.45% APPX MAY 35 34.65 42.26 0.35 3.75% 1.01% EYE MAY 17 17.20 21.89 0.30 5.00% 1.74% JCOM MAY 22 22.30 23.16 0.20 2.82% 0.90% MGAM MAY 22 21.90 22.25 0.35 4.18% 2.74% MICC MAY 22 22.10 25.13 0.40 5.16% 1.81% NET MAY 17 17.10 15.68 (1.42) 0.00% 2.34% NIHD MAY 32 32.88 35.05 0.50 4.38% 1.52% PXLW MAY 17 16.95 17.88 0.55 7.81% 3.24% SNIC MAY 17 17.15 18.03 0.35 5.76% 2.04% CAMD MAY 15 14.60 14.35 (0.25) 0.00% 2.74% DNDN MAY 13 12.25 13.00 0.25 6.83% 2.04% FWHT MAY 20 19.60 20.10 0.40 7.10% 2.04% MICC MAY 25 24.45 25.13 0.55 7.25% 2.25% NIHD MAY 35 34.50 35.05 0.50 5.01% 1.45% OSTK MAY 30 29.25 36.24 0.75 9.75% 2.56% SNIC MAY 17 17.20 18.03 0.30 6.05% 1.74% TINY MAY 17 17.20 17.29 0.09 1.98% 1.74% UTHR MAY 20 19.65 24.62 0.35 6.71% 1.78% ALKS MAY 15 14.70 15.34 0.30 6.80% 2.04% ATRS MAY 25 24.55 25.31 0.45 7.08% 1.83% DRTE MAY 17 17.20 17.09 (0.11) 0.00% 1.74% FWHT MAY 20 19.65 20.10 0.35 6.77% 1.78% GNTA MAY 7 7.00 8.60 0.50 16.81% 7.14% INSP MAY 30 29.50 32.91 0.50 7.20% 1.69% ISPH MAY 15 14.50 16.44 0.50 11.39% 3.45% PTEN MAY 35 34.65 36.19 0.40 4.13% 1.01% UTHR MAY 22 22.10 24.62 0.40 6.82% 1.81% Some of the portfolio plays may not have been available at the listed prices, due to recent volatile market activity. As noted previously, positions in ADE Corp. (NASDAQ:ADEX), Tom Online (NASDAQ:TOMO), Netflix (NASDAQ:NFLX), and USG Corp. (NYSE:USG) have been closed early to limit losses. In addition, a number of issues should have been exited earlier in the week and most of the portfolio issues are now on the "watch" list. Considering the bearish trend, conservative traders should close any naked-put positions on stocks that have less than "outstanding" technical indications. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield AFCI MAY 25 25.75 16.79 0.75 7.73% 2.91% QLGC MAY 37 37.95 26.99 0.45 4.22% 1.19% AVCT MAY 37 38.15 32.08 0.65 4.61% 1.70% INTU MAY 47 48.00 42.51 0.50 2.80% 1.04% PPCO MAY 20 20.30 15.90 0.30 6.92% 1.48% SINA MAY 45 45.55 28.50 0.55 6.61% 1.21% NANO MAY 20 20.40 11.84 0.40 10.66% 1.96% PHTN MAY 35 35.60 30.72 0.60 7.03% 1.69% SFA MAY 35 35.55 32.39 0.55 6.17% 1.55% SOHU MAY 25 25.75 16.74 0.75 11.61% 2.91% SWIR MAY 35 35.60 22.36 0.60 9.26% 1.69% HOV MAY 42 42.90 35.97 0.40 4.07% 0.93% NFI MAY 45 45.40 32.46 0.40 7.16% 0.88% PHTN MAY 35 35.30 30.72 0.30 6.07% 0.85% RMBS MAY 25 25.30 18.61 0.30 7.84% 1.19% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Strike Strike Cost Stock Option Max. Simple Symbol Month Price Basis Price Price Yield Yield ARTC MAY 22 22.20 23.50 0.30 5.52% 1.35% CPKI MAY 20 19.70 20.91 0.30 6.19% 1.52% HEW MAY 30 29.50 30.91 0.50 6.70% 1.69% ISPH MAY 15 14.55 16.44 0.45 12.90% 3.09% MGM MAY 20 19.65 21.02 0.35 7.24% 1.78% SONO MAY 20 19.60 21.74 0.40 8.71% 2.04% USPI MAY 35 34.35 36.22 0.65 7.48% 1.89% __________________________________________________________________ ARTC - ArthroCare $23.50 *** A Cut Above The Rest? *** ArthroCare (NASDAQ:ARTC) is a medical device firm that develops, manufactures and sells products based on its patented Coblation technology. The firm's products allow surgeons to operate with a high level of precision and accuracy, limiting damage to surrounding tissue and potentially reducing pain and speeding recovery for the patient. Arthrocare's products operate at lower temperatures than traditional electrosurgical or laser surgery tools, and enable surgeons to ablate, shrink, sculpt, cut, aspirate and suction soft tissue, and seal small bleeding vessels. Its surgery systems consist of a controller unit and an assortment of sterile, single-use disposable devices that are specialized for specific types of surgery. ARTC - ArthroCare $23.50 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 22.5 ARU QX 166 0.30 22.20 5.5% 1.4% __________________________________________________________________ CPKI - California Pizza Kitchen $20.91 *** Food For Thought! *** California Pizza Kitchen (NASDAQ:CPKI) is a restaurant chain with a particular focus on the premium pizza segment. The company's restaurants, which feature an exhibition-style kitchen centered around an open flame oven, provide a distinctive, casual dining experience that is designed to be family friendly and have broad consumer appeal. Its menu focuses on imaginative toppings and showcase recipes that capture tastes and flavors that customers readily identify, but don't typically associate with pizza, pasta or salads. CPKI - California Pizza Kitchen $20.91 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 20 CUH QD 21 0.30 19.70 6.2% 1.5% __________________________________________________________________ HEW - Hewitt Associates $30.91 *** Earnings Speculation *** Hewitt Associates (NASDAQ:HEW) is a global provider of human resources outsourcing and consulting services. The company's outsourcing business is comprised of three primary benefits administration services, new payroll administration service and workforce management solution. In this segment, Hewitt applies its human resources expertise and employ its integrated technology systems to administer its clients' human resources programs: benefits, payroll and workforce management. Through its consulting business, Hewitt provides an array of consulting and actuarial services covering the design, implementation, communication and operation of health and welfare, compensation and retirement plans and broader human resources programs and processes. HEW - Hewitt Associates $30.91 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 30 HEW QF 623 0.50 29.50 6.7% 1.7% __________________________________________________________________ ISPH - Inspire Pharma $16.44 *** Positive Drug Data! *** Inspire Pharmaceuticals (NASDAQ:ISPH) is a development-stage company engaged in the discovery and development of novel pharmaceutical products that treat diseases characterized by deficiencies in the body's innate defense mechanisms of mucosal hydration and mucociliary clearance, as well as other non-mucosal disorders. ISPH - Inspire Pharma $16.44 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 15 JPU QC 105 0.45 14.55 12.9% 3.1% __________________________________________________________________ MGM - Metro-Goldwyn-Mayer $21.02 *** Merger Target? *** Metro-Goldwyn-Mayer (NYSE:MGM) is a global entertainment content company. Through its subsidiaries, including Metro-Goldwyn-Mayer Studios, MGM is actively engaged in the development and worldwide production and distribution of entertainment products, including theatrical motion pictures, television programming, home video, interactive media, music and licensed merchandise. The company's principal subsidiaries are Metro-Goldwyn-Mayer Studios, United Artists Corporation, United Artists Films Inc. and Orion Pictures Corporation. MGM's library contains thousands of theatrically released feature film titles and television episodes. The firm also has ownership interests in television channels which are distributed to subscribers in over 100 countries and territories around the globe. MGM - Metro-Goldwyn-Mayer $21.02 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 20 MGM QD 3846 0.35 19.65 7.2% 1.8% __________________________________________________________________ SONO - SonoSite $21.74 *** Seeing Is Believing! *** SonoSite (NASDAQ:SONO) is a provider of high-performance digital ultrasound imaging systems for use in a wide variety of clinical applications and settings. The company focuses on six key market segments: radiology, obstetrics/gynecology, emergency medicine, surgery, cardiology and vascular medicine. Their systems offer an integrated color display, control panel and keyboard and they are built on the same hardware platform, which provides internal storage for images, clinical analysis packages, measurement tools and direct personal computer connectivity. SONO - SonoSite $21.74 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 20 UZS QD 22 0.40 19.60 8.7% 2.0% __________________________________________________________________ USPI - United Surgical Partners $36.22 *** Solid Earnings! *** United Surgical Partners (NASDAQ:USPI) operates "short-stay" surgical facilities, including surgery centers and private surgical hospitals in the United States, Spain and the United Kingdom. The firm focuses on providing surgical facilities that meet the needs of patients, physicians and payors better than hospital-based and other outpatient surgical facilities. USPI - United Surgical Partners $36.22 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT MAY 35 QPJ QG 12 0.65 34.35 7.5% 1.9% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FLSH - M-Systems Flash Disk Pioneers $17.45 *** Next Leg Down? *** M-Systems Flash Disk Pioneers (NASDAQ:FLSH) is a developer, manufacturer and marketer of data storage products (flash disks), which provide the functionality of a mechanical hard drive on a solid-state silicon chip. The company's products are based on its patented TrueFFS technology, and include both removable and non-removable data storage media in a wide range of capacities, interfaces and form factors. M-Systems has three primary product lines: the DiskOnChip, DiskOnKey and Fast Flash Disk (FFD) product families. FLSH - M-Systems Flash Disk Pioneers $17.45 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAY 20 FFU ED 1868 0.25 20.25 8.6% 1.2% __________________________________________________________________ NTE - Nam Tai Electronics $17.90 *** Post-Earnings Sell-Off? *** Nam Tai Electronics (NYSE:NTE) is an electronics manufacturing and design services provider to a select group of original equipment manufacturers of telecommunications and consumer electronic products. Through the firm's extensive electronics manufacturing services operations, Nam Tai provides electronic components and subassemblies, including liquid crystal display panels, LCD and RF modules, FPC subassemblies and image sensors. These components are used in a wide variety of electronic devices including cellular phones, digital cameras, handheld video games and microwave ovens. NTE - Nam Tai Electronics $17.90 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAY 22.5 NTE EX 1366 0.50 23.00 19.6% 2.2% * SELL CALL MAY 20 NTE ED 1351 1.10 21.10 28.6% 5.2% __________________________________________________________________ BRCM - Broadcom $37.83 *** Profit-Taking Underway! *** Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated silicon solutions that enable broadband communications and the networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for all broadband communications markets. Their diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/O(TM) server solutions. BRCM - Broadcom $37.83 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL MAY 42.5 RCQ ES 19379 0.30 42.80 4.5% 0.7% SELL CALL MAY 40 RCQ EH 16680 0.75 40.75 8.8% 1.8% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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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