The Option Investor Newsletter Sunday 05-16-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Escaped With A Minor Loss Futures Market: See Note Index Trader Wrap: SLIPPAGE Editor's Plays: Dead Carbohydrate Bounce Market Sentiment: Big Moves 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 5-14 WE 5-07 WE 4-30 WE 4-23 DOW 10012.87 -104.47 10117.3 -108.23 10225.6 -247.27 + 20.87 Nasdaq 1904.25 - 13.71 1917.96 - 2.19 1920.15 -129.62 + 54.03 S&P-100 535.47 - 1.88 537.35 - 3.53 540.88 - 15.92 + 1.86 S&P-500 1095.66 - 3.03 1098.69 - 8.61 1107.30 - 33.30 + 6.03 W5000 10634.71 - 51.33 10686.0 -107.62 10793.7 -356.76 + 72.34 SOX 450.99 - 6.02 457.01 + 13.52 443.48 - 44.50 + 7.84 RUT 543.76 - 4.80 548.56 - 11.24 559.80 - 30.91 + 7.34 TRAN 2848.89 + 2.71 2846.18 - 40.26 2886.44 -115.27 + 62.24 ****************************************************************** Escaped With A Minor Loss by Jim Brown After a very rocky week traders escaped with only a minor loss across all the indexes. The Dow was the most negative at -104 for the week and mostly on the back of losses in CAT, IBM, MRK, C and JPM. The Nasdaq only finished with a -14 point drop despite some high profile losses in individual stocks. As the time ran out on the clock at Friday's close the bulls mounted a solid goal line stand to prevent the Dow and Nasdaq both from dropping under the critical 10000/1900 levels. Dow Chart - Daily Nasdaq Chart - Daily After dropping to new lows for the year on Wednesday the Dow has managed to trade sideways for two days at the 10000 level. Considering the negativity from multiple events this was a minor miracle. Unlike Thursday the economics on Friday were great. The Consumer Price Index led the list with a minimal +0.2% jump in the headline number and slightly below the +0.3% consensus. The core rate only rose +0.3% and is now only +1.8% for the year. No soaring inflation in sight for consumers according to this report. Both numbers were actually less than they were in March. If you dig into the internals it does show that core inflation although moderate is growing an annualized rate of +3.3% over the last three months. We are far from home free. Most analysts do not expect this rate to continue but to lessen over the summer. This slight bump in the core rate is what lessened the Fed's fears of "unwelcome fall in inflation" or what the rest of us would call deflation. To be free of the "D" monster the Fed would be perfectly happy with a hint of moderately higher inflation ahead. The Fed has been trying to fan the inflationary fire under conditions similar to midnight in the cold north woods. With only one match left they are very relieved to see a warming flame begin to develop from the smoldering economic embers. The alternative was a cold winter night and frost on their sleeping bags and bears closing in on all sides. There was one small point of contention. The CPI actually showed that energy prices slowed to only a +0.1% gain in April. Anybody at least room temperature and breathing should doubt this statistic based on the price of oil and soaring gasoline prices. Expect an unwelcome upward revision in May. Also bullish was a +0.7% jump in Business Inventories and well over consensus of only +0.5%. This was a March number and February was revised up to +0.8%. The governments last estimates for inventory buildup were very low and this hot number should spike the GDP on the next revision. Business Sales also shot up +2.9% prompting the inventory to sales ratio to fall to a record low at 1.30. The +2.9% jump was the largest single month gain in the 12 year history of the report. Manufacturing shipments rose +3.8%. Considering this is a March number and the 1.3 inventory to sales ratio means there was only 1.3 months of inventory on hand I think we are going to see a real blowout in April. We all know April was a stronger month than March and those inventories have got to be much lower today. This ties into the next paragraph on Industrial Production and the rise in capacity utilization. The race is on. Industrial Production jumped a huge +0.8% and well over the consensus at +0.3%. Capacity Utilization also rose +0.3% and is at the highest level in over a year at 76.9%. Several analysts believe this is artificially low and is a result of the Fed's failure to remove "dead" capacity from their figures. The ISM capacity utilization numbers are nearer 85% and this is more in line with current production growth. However you look at it the number was strong and climbing. The negative news for the day was the Consumer Sentiment at 94.2 and unchanged from last month. Consensus was slightly higher but the higher cost of gasoline appears to be an offset to the new jobs. Also, the falling stock market over the last two weeks and prisoner scandal in Iraq have combined to depress expectations. The expectations component posted its second consecutive monthly drop and is now at 85.8 suggesting consumers are becoming more depressed as the summer doldrums near. Consumers have held in the 94.5 range for the last six months except for an unexplained spike in January to nearly 104. There is no explanation for that event and we have seen nothing similar since. It remains to be seen if the pace of job creation can overcome $50 oil and $3 gasoline. $50 oil? Yes, that is the growing forecast. Demand continues to grow faster than supply. Oil traded at a 20-year high on Friday at $41.60 and closed at $41.40. This is the highest level we have seen since the Iran hostage crisis in 1979 that sent oil to an inflation adjusted price of $78. OPEC is meeting on May-22/24th to discuss boosting quotas and Saudi Arabia called on OPEC to raise output by 1.5M barrels per day. Don't hold your breath. I still believe the OPEC countries around Iraq are mad at us for the war and are extracting their pound of flesh in retaliation. Remember I also mentioned last week that oil tankers are booked solid for months to come and there is no additional shipping capacity available. The manager of the Russian pipeline system said output from Russia was at max capacity. This eliminated hope that Russia could fill the shortfall. A survey also announced on Friday said that oil consumption in some sections of China would increase 600% over the next year. Currently $44 is almost a given and $50 is the current whisper number target. With unleaded now over $2.40 in many places $50 oil could spike that price to $3.00 or more very quickly. How would that impact consumer sentiment? After the close on Friday Oracle reduced its bid for PSFT to $21 from $26 to reflect "current market conditions". Since the tech decline began ORCL has dropped from $15 to $11.50 and PSFT dropped to $17 from $24. If ORCL could not buy it for $26 I doubt they will be successful at $21. I am sure they were beginning to have a lot of stockholders reconsider their offer of $26 with the stock nearing 52-week lows but that is ancient history now. Dell traded down to $34.50 and barely saw any rebound after posting earnings that disappointed quite a few traders. This was just a drop in the bucket compared to the crash in ADIC which fell to $7.50 from its $10 close on weaker than expected earnings. BEAS got hit for a -22% loss from $10.80 to $8.34 after saying sales declined. This was the backdrop on Friday that saw the Nasdaq hold over 1900 despite a -22 point drop. There is no joy in tech land and the current three-week decline is showing no signs of letting up. The Dow has failed to rally from the massive sell off over the last three weeks and could not get out of its trading range all week. The negativity is very strong but there is a chance that by holding the line we could be getting ready to attempt a rebound. I know this would be a stretch for most to comprehend given the heavy selling but don't count it out. Wednesday was very negative and volume was high. Almost 2B shares of the volume came in the last hour when the S&P bounced off the 200dma in what is being called the Barton Biggs Bounce. That bounce found no follow through but sellers have not been able to put in a repeat performance. Volume for Thr/Fri was very low with barely 3.5B shares traded and the A/D ratios were almost even. Overall internals were much closer than the indexes would lead you to believe. Only the Nasdaq internals were significantly worse with declining volume 3:1 over advancing. The high profile earnings problems contributed to this imbalance. More on the rebound potential later. Other internal problems included very large cash outflows from mutual funds. I mentioned Thursday night the numbers were somehow missing from the news reports. They appeared on Friday and now we know why. Equity funds saw $2.4 billion in outflows for the week ended on Wednesday. Junk bond funds saw outflows of $2.15 billion indicating traders were becoming much more concerned about the future and were jumping to safety now that yields are nearing 5.0%. Emerging market equity funds saw the largest fund outflows on record for any single week. Tech funds saw cash outflows for the 15th consecutive week. Considering the Wednesday drop probably triggered many investors to head for the barn on Thursday those outflows will not be tallied until next week. There were several comments in the analyst community on Friday about hedge fund losses over the last month. Names were withheld to protect the guilty but evidently there are some hedgies in serious trouble. Seems the monster moves and whipsaw nature of the last couple months have caused some best laid plans to go astray. The momentum players have had their heads handed to them and nobody knows which way to jump. Welcome to reality. Speaking of reality it is coming home to roost for Greenspan. His appointment as Chairman of the Fed is up on June 20th. Bush has said he would reappoint him BUT has not done it yet. With the next Fed meeting on June-30th the scuttlebutt making the rounds has the Bush administration applying pressure to Greenspan to delay the rate hikes until after the election. The economy continues to ramp up, jobs are created, income generated and everybody votes Republican. If this is the case then somebody is smoking grass clippings. I could see Bush leaning on Greenie about rates but not with a heavy hand. If Bush is really withholding the appointment to apply pressure it is more likely to get him to shut up about the deficit and the looming Baby Boomer Social Security crash. Greenspan has been taking shots at the administration for the last couple of months as if he and Bush have their own cold war brewing. Either way the countdown is on and after 14 years at the helm their may only be 35 days left in Greenspan's tenure. Ten-year Yields Banking Index - Daily When trying to generate a potential scenario for a market rebound it must include financials and they are not leading the pack. Bonds sold off at the open on Friday with ten-year yields hitting 4.90% but then rallied on the tame CPI news. Financials failed to gain any ground and until the Fed begins its rate hike process there will be a cloud over the sector. SOX Chart - Daily Another cloud continues to be the Semiconductor sector and the midweek rebound to 470 has been completely erased. The SOX is threatening to break the May support at 440 and test support from last September at 420. The Nasdaq cannot rebound without the SOX. Russell-2000 Chart - Daily Behind the SOX the Russell was the next weakest supporter of the Nasdaq on Friday. The index dropped back to close right on its 200ema and very close to a significant drop. Small caps continue to be weak and the record withdrawals from emerging markets last week were a signal to me that the Russell is likely seeing the same fund weakness. If you follow the pattern on the chart above from the last touch of 600 you will see large drops followed by several days of consolidation and then a repeat of the process. This is a "b" pattern selling cycle. The Russell could be about ready to take the next dump to 520 to begin the next "b". I started this conversation thread with the potential for a coming rebound. Unfortunately the evidence is very thin and not something on which I would bet the farm. Here is my case. This is option expiration week. Open interest is very high, much higher than normal and most of the indexes are underwater. The MaxPain numbers for the DJX/DIA are 103, NDX 1425, SPX 1125 and QQQ 36. This suggests there could be some upward pressure on Monday as traders attempt to square positions and market makers try to maneuver the indexes higher to expire more options worthless. There are no material economic reports early in the week and nothing significant in the earnings arena until Tuesday. The Nikkei stopped its slide on Friday with a minimal gain but a gain never the less. The Dow closed at 10000 support. The Nasdaq at 1900 support and the NDX at 1400 support. It was a fight but they all held their ground at the close in front of weekend event risk. The SPX has not sold off since testing its 200dma on Wednesday and has been holding 1095, right where it closed. All of this is circumstantial evidence as the say but it is the only evidence we have. They tried to sell them both Thursday and Friday and were unsuccessful. As a betting man I am betting we "could" see an options related rebound on Monday morning assuming there are no "events" over the weekend. If we do see a rebound I expect it to only be a trading rally and we continue to see weakness once positions are squared. The Dow has resistance at 10200 and strong resistance at 10300. I would be very surprised to see those touched. The Nasdaq is the weak link and has strong resistance at 1930, 1950 and 1960. Corresponding resistance for the SPX is 1110 and 1120. Any expiration rally should slow considerably at those levels. I continue to advise selling any rally until the pattern changes. I still believe we have some serious risk in front of us with rates, Iraq, elections, Olympics, oil prices, China and declining earnings growth. Now we have the Greenspan time bomb ticking down in our future. Whatever you think about Greenspan the markets will definitely be volatile around any change in the Fed chairmanship. Views of any new appointee will be immediately scrutinized and reacted to accordingly. At least the countdown will reduce the impact of a sudden change from a health issue. The Fed replacements will be cussed and discussed in the media until Greenspan's fate is finally known. Our fate next week should be known very quickly. We will either rebound out of the gate on Monday or sink beneath current levels to our next support plateau. Choose your direction carefully. 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 ******************** SLIPPAGE By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – The market is presenting a quite mixed picture, not surprising given the contradictory cross-currents of a strengthening economy, a corresponding prospect of higher interest rates, a difficult Iraqi conflict and a major spike in energy prices. From a technical standpoint there are reasons to think that the indices reached at least temporary bottoms last week and I highlighted those key points in my recent Trader's Corner article – http://www.OptionInvestor.com/traderscorner/tc_051304_1.asp However the reality is also a continuing slippage of upside momentum, given that many indexes now are either trading under their 200-day moving averages [Nas Composite (COMP), Nas 100 (NDX), Dow 30 (INDU), Dow Transports (TRAN), Russell 2000 (RUT) and the Semiconductors (SOX)] OR are only a short distance above, in the case of the S&P 500 (SPX) and the S&P 100 (OEX). In the Dow for example this is the first occasion it is trading under its 200-day average since just over a year ago. While the Dow is managing to hold above the psychologically important 10,000 mark on a weekly closing basis and above key technical support in the 9860 area in terms of intraday lows to date for the recent correction, it is hard to see yet if and when much of a rally will get going. It is one thing to find a low, quite another for a sustained rally to get ignited. Well, sometimes the market does climb a "wall of worry" and there are plenty of worries out there. I will key off from the ability/inability of SPX to hold above 1080 and the OEX above 525-530 on a daily and weekly closing basis. If these key blue chip indexes slip under those price points, the dominant trend turns down in my estimation. FRIDAY'S TRADING ACTIVITY – The morning release of economic reports brought weaker than anticipated consumer sentiment, a neutral inflation report and industrial production figures better than expected. The Nasdaq was off on weakness in the semiconductor sector (SOX) and overall by the concern over the sharp surge of oil prices and when and how much on the expected Fed hike of interest rates. The S&P 500 (SPX) fell a fraction of a percent on the day, to 1,095.7. The Dow 30 (INDU) did manage to close up slightly, by a couple of points – to 10,012.8 – it was down 105 for the week however. The Nasdaq Composite (COMP) was off nearly 22 points (1.1%) to close at 1,904.2. SOX weakness was a key influence as it fell nearly 2% on the day. . Crude oil futures ran up to a new peak, with the June crude oil contract closing at $41.38. Gasoline is now around 2 bucks a gallon nationwide! – and, up to 2.40 here in California at the majors. OTHER REPORTS AND DATA – U.S consumer prices were reported to have rose 0.2% in April, the smallest gain this year. The core rate of the consumer price index, which strips out food and energy costs, was up 0.3%. Industrial production was reported at a better than expected 0.8% as indicated by the Federal Reserve. Capacity utilization rose to 76.9% from 76.5%, which was the highest level in 3 years. An increase in business sales boosted the inventory-to-sales ratio and that set a new record low in March according to the Commerce Department. The University of Michigan reported that its latest consumer sentiment index figure stayed at 94.2, same as late-April. But expectations on the Street was for an improvement. Consumer sentiment continues to be a hard figure to quantify, but the Street does look at this survey to try and gauge how consumer spending, still the mainstay of the economy, will fare in the weeks ahead. OTHER MARKETS – Bonds rallied slightly after the inflation numbers – the speculation was that the Fed might not raise rates as soon as June. The dollar gained against the Euro (+0.7%) to close in New York trading at $1.188. Against the Yen, the dollar was off some, - 0.3% to 114.42. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: As I said last week, the S&P 500 could get down to about 1080. Now what? I suggested that I would be a buyer of the SPX calls in this area (1080) – I also now would say that I will exit on close under 1080 or to below the 1080 level (thinking that such a close will set off some institutional selling, even though "cash" is not offering much of a return, but it's better than seeing stock value slip further and further) - setting a stop based on the closing level is higher risk; suppose SPX closed at 1060? I usually count on an oversold condition such as the one we're in now to diminish the likelihood of going into "free fall", but these are also times of potential "shocks" such as from a terrorist attack. Calculation of risk-to-reward is important - I look at how much I could or might lose always, not first and foremost how much I might make on a trade. Near-term upside potential is to 1115-1120 on a rebound, but SPX may struggle to close back above 1117 resistance implied by the 21-day moving average. One bullish backdrop to this market is the amount of recent put activity, put volume which as my Call to Put indicator in a bullish area. Enough so to form a "contrary" type indicator – the thing with this type trader "sentiment" measure is that it can go on for some time before it sets the stage for a rebound; e.g., usually, these 1-2 readings at the lower ("bullish") line, are associated with a turnaround or upside rebound that occurs as long as 5 trading days later. 5-6 trading days later is an eternity in options, but it is a telling forewarning to not get to complacent if holding index puts. Might be a good time to sell puts. S&P 500 Index (SPX) – Hourly chart: Resistance, at the hourly down trendline is at 1100. A plunge to below 1080-1076, would suggest SPX falling to the lower end of the implied downtrend channel in the 1066 area. On an hourly basis or near-term, the index is overbought – this factor plus the fact that the last rally reversed at the down trendline, is suggesting that the path of least resistance remains lower. S&P 100 Index (OEX) – Daily chart: 525-530 looks to be the key support as far as what happens next. Near resistance is at 540-542, then 550. Major resistance is at 560 and major support is probably at 510 (rather than 500 which is the "obvious" psychological support making me think that OEX won't get there, at least anytime soon). So far, the OEX has been managing to hold above its 200-day moving average and I continue to look at this key average. Why? No special reason in terms of 200 being some magical level, but in terms of it being an investment and longer-term benchmark, yes. You can see from the 14-day RSI that the S&P 100 is getting down toward an oversold reading at the lower (green) level line – nothing "magical" about this level either, just a benchmark and something that gives you an idea about whether the market could rally, if there was some good news or just a feeling that this decline is overdone and there are some stocks worth buying. Dow Industrials (INDU) Daily: The Dow 30 Average closed just under its 200-day moving average – first week that this has happened in over a year I mentioned already. 10,060 is near resistance. A close back above 10,200 (prior support) is probably needed to get something going to the upside here. More major resistance comes in at the downtrend trendline at 10,400 where the red (down) arrow is positioned. 9850 is important support – a close under this level would suggest that those prior lows going back to November could be re- tested – this suggest downside potential at that point to the low-9600 area. I don't consider this so likely at this juncture, but it should be in our sights, if there is another bout of weakness. The bear has gotten into town and onto the Street of Dreams! Nasdaq 100 (NDX) Index – Daily & Hourly: 1380 now looks like support – I was doubting that prior support at 1400 would hold and it didn't, intraday at least. There is a faint suggestion of a rounding bottom setting up on the hourly chart – time will tell on this possibility. Trendline resistance is at 1410 on the hourly chart. The Daily chart picture of prior highs and former lows, as well as the 50-day average, suggest that significant technical resistance also comes in at 1435-1440. Below 1380, we should be watching that cluster of prior lows off late-March in the 1368 area as to whether buying in the big cap Nasdaq (Nasdaq 100) will come in there again. Stay tuned! Nasdaq 100 tracking Stock Daily & Hourly (AMEX:QQQ): Well, I'm at break-even on some QQQ stock I bought at an average price at 34.75 by buying dips under 35 – my exiting sell stop is just under the low end of the downtrend price channel as seen lower right – it intersects in the first hour of trading on Monday at 34.25. I will exit at 34.15. I stay with stops. QQQ may be a buy on dip to the area of its prior lows at 34, but significant selling could also touch off a many (sell)_ stops just below 34.0. I would rather get back in if there if the Q's fell to say 33.5 and then rallied. This might be the low in a bear trap reversal. A bear trap reversal just being a kinda cute name for a decline to a new low followed by an immediate upside reversal. Resistance is what I have attempted to identify at the red arrows on both the hourly chart (at 36.25, then at 36.40 at the upper trendline) and daily charts (around 36.90 in terms of the daily chart down trendline). 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 ************** Dead Carbohydrate Bounce Last week warnings that the Atkins diet was impacting multiple bread makers including IBC, PNRA, PZZA, KKD and SLE knocked the flour off all the specialty bakers. Investors dropped KKD faster than a picking up a hot donut fresh out of the grease. While KKD bore the brunt of the damage with hot greasy donuts falling to the bottom of the low carbohydrate chain, another specialty baker also got hit. PNRA warned that earnings would be less than expected due to higher costs for milk products used in baking. PNRA reported profits on Thursday inline with prior estimates but warned that the current quarter would be short. They said full year earnings would remain the same due to new stores coming on line later this year. JP Morgan said this "was a stretch" with commodity prices continuing to rise and the cost of building new stores. The stock fell from $42 to $36.50 on the KKD news and dropped again to near $33 on Thursday after their earnings. Friday saw a dead cat bounce back to $36 as diehard investors went shopping for a sugary treat. I view $35 as support and the stock retreated from the intraday high of $36 to close right on $35 on Friday. I do not think the damage is over. PNRA has been trending down since last September and I think the excitement may be off this high flyer. This is a risky play because of the PNRA groupies but with the Nasdaq on the verge of collapse to 1800 the prior high flyers may be thrown out first. PNRA does have earnings and a PE at 40 after the haircut. I just don't think it has any sex appeal left. I am looking at the June-$30 put UPA-RF at $0.45 cents. If I am wrong there is not much risk. We are going to target $1.00 as our exit. There is no stop. PNRA Chart - Weekly ********************** IBM Put Update $86.37 The IBM put from last Sunday hit our target of $2.25 on the Wednesday drop after opening at $1.25 on Monday. I still think IBM is going to continue down for those who are holding out for more. This play is closed. http://members.OptionInvestor.com/editorplays/edply_050904_1.asp ********************** EBAY Put Update $79.00 Ebay continues to fight the decline but failed to move much over $80 this week. The low was $77.80 and our target is $76. Keep the faith. http://members.OptionInvestor.com/editorplays/edply_042504_1.asp *********************** News Corp Update $35.38 We finally hit our entry trigger on the last two contracts of the Jan-2006 $40 calls on Thursday when NWS touched the 200dma at $35.31. The option price at that time was $3.30 which gives us an average cost for the six contracts of $3.83 each. Once we see a bounce in the market we will try to sell some covered calls against our position to reduce our cost. I do not want to sell calls in a decline because there is no premium and any bounce can get you called out. I want to sell calls at the top of a rebound cycle when calls have premium value. Current position: Long (6) Jan-2006 $40 Calls WLN-AH @ $3.83 http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp **************** MARKET SENTIMENT **************** Big Moves Jonathan Levinson There was much ado about breadth this week, with the now-(in)famous Biggs exclamation presumably referencing the large swings in the New Highs minus New Lows category. For all the drama and handwringing, price moves were relatively subdued- for examply, the NYSE's NYHL chart (new highs-new lows) reached a low this week at levels seen only thrice in at least 10 years (the outer limit of my dataset). While the swings in price were significant for leveraged speculators, the overall moves were nothing like the swings in breadth. By the end of Friday's session, most of the damage was repaired, with the NYSE's NYHL line closing just south of unchanged in neutral territory. The VXO closed below 19 after a number of bursts above 20, with the recent prints in the low 14's a distant memory. The Nasdaq volatility index, the VXN, closed above 29, also well above the recent lows around 20. The seesaws in the internals were not matched by equivalent moves in the prices of the indices, and that disconnect is attributable to the action of a few major bellwethers, most notably MSFT and GE, both of which held up remarkably well during the worst plunges of the week. Whether this was mutual funds or other interests defending the headline index numbers, the market was far weaker below the surface than was apparent from the index prices. By the end of the week, the worst of the internal imbalanced were corrected. For next week, we will see whether the bounces off the lows were the first steps of a daily change in direction and a new upleg, or merely the result of the more deeply bearish internals, a deadcat bounce. The COT data indicates that commercials in the E-mini S&P are betting on the former, while for the other contracts, the market is not clearly favoring either outcome yet. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8416 Current : 10012 Moving Averages: (Simple) 10-dma: 10137 50-dma: 10303 200-dma: 10021 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 912 Current : 1095 Moving Averages: (Simple) 10-dma: 1104 50-dma: 1121 200-dma: 1079 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1103 Current : 1399 Moving Averages: (Simple) 10-dma: 1413 50-dma: 1438 200-dma: 1436 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 18.47 -0.39 CBOE Mkt Volatility old VIX (VXO) = 18.93 -0.46 Nasdaq Volatility Index (VXN) = 29.04 +0.93 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.97 530,308 1,046,464 Equity Only 0.82 398,858 326,891 OEX 0.91 37,692 34,406 QQQ 4.24 20,726 87,791 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 62.1 + 0 Bear Confirmed NASDAQ-100 34.0 + 0 Bear Confirmed Dow Indust. 66.7 + 0 Bear Confirmed S&P 500 59.0 + 0 Bear Confirmed S&P 100 61.0 + 0 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: 1.00 10-dma: 0.92 21-dma: 1.14 55-dma: 1.14 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 1513 1045 Decliners 1313 1987 New Highs 25 46 New Lows 104 81 Up Volume 721M 260M Down Vol. 897M 1210M Total Vol. 1644M 1485M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 05/04/04 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 increased their open interest be equivalent amounts both long and short, while small traders went net shorter. Commercials Long Short Net % Of OI 04/20/04 409,729 421,456 (11,727) (1.4%) 04/27/04 406,927 416,244 ( 9,317) (1.1%) 05/04/04 397,964 417,175 (19,211) (2.4%) 05/11/04 401,365 421,672 (20,307) (2.5%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 04/20/04 136,699 92,982 43,717 19.0% 04/27/04 133,775 90,535 43,240 19.3% 05/04/04 137,112 80,201 56,911 21.6% 05/11/04 135,534 76,987 58,547 27.5% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercials were much more active in the e-mini S&P contracts, reducing their shorts slightly and dramatically increasing longs, flipping to net long for the first time in at least 4 weeks. Small traders took the other side of the trade, reducing longs and increasing their net short position. Commercials Long Short Net % Of OI 04/20/04 275,985 355,555 (79,570) (10.1%) 04/27/04 291,365 370,549 (79,184) (12.0%) 05/04/04 316,840 370,781 (53,941) ( 7.8%) 05/11/04 378,696 362,887 15,809 2.1% Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 04/20/04 186,799 69,137 117,662 46.0% 04/27/04 175,788 69,613 106,175 43.3% 05/04/04 119,308 74,407 44,901 23.2% 05/11/04 101,199 94,408 6,791 3.5% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercials added slightly to their net short position, while small traders reduced both shorts and longs but favoring the long side, reducing their overall net short position. Commercials Long Short Net % of OI 04/20/04 54,852 35,964 18,888 20.8% 04/27/04 54,196 33,948 20,248 23.0% 05/04/04 56,931 35,209 21,722 23.6% 05/11/04 57,680 37,410 20,270 21.3% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 21,722 - 05/04/04 Small Traders Long Short Net % of OI 04/20/04 8,538 19,431 (10,893) (39.0%) 04/27/04 9,008 20,347 (11,339) (38.6%) 05/04/04 10,247 24,764 (14,517) (41.5%) 05/11/04 9,716 21,072 (11,356) (36.9%) Most bearish reading of the year: (14,517) - 05/04/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercials increased their net long position, while small traders took the other side of the trade, increasing longs and reducing shorts. Commercials Long Short Net % of OI 04/20/04 24,156 22,009 2,147 4.7% 04/27/04 23,676 22,009 1,667 3.6% 05/04/04 24,296 22,181 2,115 4.6% 05/11/04 22,614 21,507 1,107 2.5% 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 04/20/04 5,997 9,631 (3,634) (23.3%) 04/27/04 5,998 8,868 (2,870) (19.3%) 05/04/04 6,262 8,155 (1,893) ( 9.2%) 05/11/04 7,009 7,640 ( 631) ( 4.3%) 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 *************** Due to Technical Difficulties, Jeff's Ask the Analyst Will Be Posted on Monday. ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- A Agilent Technologies Mon, May 17 After the Bell 0.24 BAB British Airways Mon, May 17 Before the Bell N/A CCH Coca-Cola Hllnc BttlngMon, May 17 Before the Bell 0.05 CSC Computer Sciences CorpMon, May 17 After the Bell 1.00 LTD Limited Brands Mon, May 17 -----N/A----- 0.13 LOW Lowe's Co Mon, May 17 Before the Bell 0.54 ROS Rostelecom Mon, May 17 Before the Bell N/A TOY Toys R Us Mon, May 17 Before the Bell -0.01 VAL Valspar Mon, May 17 Before the Bell 0.74 ------------------------- TUESDAY ------------------------------ AMAT Applied Materials Tue, May 18 -----N/A----- 0.19 ADSK Autodesk, Inc. Tue, May 18 After the Bell 0.30 BKS Barnes&Noble Tue, May 18 Before the Bell 0.12 BJ BJ's Wholesale Club Tue, May 18 Before the Bell 0.22 BGP Borders Group Inc. Tue, May 18 After the Bell 0.02 DE Deere & Co Tue, May 18 -----N/A----- 1.74 DKS Dick's Sporting Goods Tue, May 18 Before the Bell 0.18 HPQ Hewlett-Packard Tue, May 18 After the Bell 0.34 HD Home Depot Inc Tue, May 18 Before the Bell 0.43 JCP JCPenney Tue, May 18 Before the Bell 0.34 MNT Mentor Tue, May 18 After the Bell 0.32 OOM MMO2 Tue, May 18 Before the Bell N/A NTAP Network Appliance Tue, May 18 After the Bell 0.12 SKS Saks Incorporated Tue, May 18 Before the Bell 0.17 SCO Scor Tue, May 18 -----N/A----- N/A SPLS Staples, Inc. Tue, May 18 Before the Bell 0.22 TJX The TJX Co Inc. Tue, May 18 Before the Bell 0.32 ZLC Zale Corp Tue, May 18 Before the Bell 0.43 ------------------------ WEDNESDAY ----------------------------- ADCT ADC Wed, May 19 After the Bell 0.00 AAP Advance Auto Parts Wed, May 19 After the Bell 0.66 BLI Big Lots, Inc. Wed, May 19 Before the Bell 0.04 BRCD Brocade Comm Systems Wed, May 19 After the Bell 0.03 EV Eaton Vance Corp. Wed, May 19 Before the Bell 0.50 FL Foot Locker, Inc. Wed, May 19 -----N/A----- 0.31 GT Goodyear Tire Rubber Wed, May 19 Before the Bell -0.20 INTU Intuit Wed, May 19 After the Bell 1.16 PETC PETCO ANIMAL SUPPLIES Wed, May 19 After the Bell 0.25 ROST Ross Stores, Inc. Wed, May 19 Before the Bell 0.32 SNPS Synopsys Wed, May 19 After the Bell 0.33 TLB Talbots Wed, May 19 -----N/A----- 0.57 ------------------------- THUSDAY ----------------------------- ARO Aeropostale, Inc. Thu, May 20 After the Bell 0.09 BTY BT Group PLC Thu, May 20 Before the Bell N/A CBRL CBRL Group Thu, May 20 Before the Bell 0.53 CIEN CIENA Corp Thu, May 20 Before the Bell -0.08 CLE Claire's Stores, Inc. Thu, May 20 Before the Bell 0.24 GPS Gap Inc. Thu, May 20 After the Bell 0.32 HRL Hormel Foods Corp Thu, May 20 Before the Bell 0.33 MRVL Marvell Technology GrpThu, May 20 After the Bell 0.32 NGG National Grid Transco Thu, May 20 Before the Bell N/A NAV Navistar InternationalThu, May 20 Before the Bell 0.59 JWN Nordstrom Thu, May 20 After the Bell 0.43 PDCO Patterson Dental Thu, May 20 Before the Bell 0.65 PETM PetsMart Thu, May 20 -----N/A----- 0.21 UU United Utilities Thu, May 20 Before the Bell N/A UVV Universal Corp Thu, May 20 After the Bell N/A ------------------------- FRIDAY ------------------------------- TKS Tomkins PLC Fri, May 21 Before the Bell N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable SYK Stryker Corp 2:1 May 14th May 17th TOUS Tech Olympic USA, Inc 3:2 May 14th May 17th BCR C.R.Bard 2:1 May 14th May 17th PBCT Peoples Bank 3:2 May 15th May 17th BWA BorgWarner Inc 2:1 May 17th May 18th TK Teekay Shipping Corp 2:1 May 17th May 18th DHR Danaher Corp 2:1 May 20th May 21st ODFL Old Dom Freight Line, Inc 3:2 May 20th May 21st CCNE CNB Financial Corp 5:2 May 21st May 24th FBTC First BancTrust Corp 2:1 May 21st May 24th ASBC Associated Banc-Corp 3:2 May 21st May 24th SONC Sonic Corp 3:2 May 21st May 24th RCI Renal Care Group, Inc 3:2 May 24th May 25th BMRC Bank of Marin 3:2 May 24th May 25th BFCF BFC Financial Corp 5:4 May 25th May 26th ESCA Escalade, Inc 2:1 May 25th May 26th ANN AnnTaylor Stores Corp 3:2 May 26th May 27th ERES eResearchTechnology, Inc 3:2 May 27th May 28th KIND Kindred Healthcare, Inc 2:1 May 27th May 28th IEX IDEX Corp 3:2 May 28th May 31st CEDC Central European Dist 3:2 May 28th May 31st QCRH QCR Holdings, Inc 3:2 May 28th May 31st CNQ Canadian Natural Res Lmtd 2:1 May 28th May 31st -------------------------- Economic Reports This Week -------------------------- If it wasn't for a full week of stock splits, there wouldn't be much to report this week. We have the NY Empire State Index report due on Monday and the Leading Indicators set for Thursday. ============================================================== -For- ---------------- Monday, 05/17/04 ---------------- NY Empire State Index (BB) May Forecast: 34.8 Previous: 36.1 ----------------- Tuesday, 05/18/04 ----------------- None ------------------- Wednesday, 05/19/04 ------------------- Housing Starts (BB) Apr Forecast: 1988K Previous: 2007K Building Permits (BB) Apr Forecast: 1940K Previous: 1976K ------------------ Thursday, 05/20/04 ------------------ Initial Claims (BB) 05/15 Forecast: N/A Previous: 321K Leading Indicators (DM) Apr Forecast: 0.2% Previous: 0.3% Philadelphia Fed (DM) May Forecast: 31.2 Previous: 32.5 ---------------- Friday, 05/21/04 ---------------- None Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-16-2004 Sunday 2 of 5 In Section Two: Watch List: Energy, Defense and more Dropped Calls: None 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 ********** Energy, Defense and more 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. ConocoPhillips - COP - close: 73.33 change: +1.38 WHAT TO WATCH: With crude oil prices soaring to new 13 year highs and global demand for oil showing no signs of slowing the larger oil conglomerates could be plays for short-term and longer-term bulls. The action in COP looks tempting. The stock appears to be basing along rising technical support at its 40 & 50-dma's. More aggressive traders might speculate on positions now. More conservative traders can look for a move over $75.00 and target $80.00. chart = --- General Dynamics - GD - close: 95.19 change: +1.57 WHAT TO WATCH: Defense contractor Northrop Grumman issued some positive comments to analysts recently and they are lifting the defense sector. Rival GD looks pretty good with three strong gains in a row. GD is approaching resistance at $96 and is close to producing a new buy signal on its P&F chart. There is some resistance near $97 but this could be a decent candidate for traders in a tough market to find bullish plays. chart = --- Lear Corp - LEA - close: 56.15 change: -0.03 WHAT TO WATCH: Lear Corp might be one to watch for new bearish positions. It looks oversold now after last week's plummet through major support at its 200-dma and the $60.00 level. Shares have been consolidating those losses above the $55 mark the last few days but the bounce has been more sideways than up, which suggest potential weakness ahead. Its P&F chart looks rather bearish too and points to a $46 price target. We would look for a breakdown under $55 as a trigger to consider new bearish plays. Watch for potential support in the $52.50 region dating back to last summer. chart = --- Ballard Power Systems - BLDP - close: 9.09 change: -0.12 WHAT TO WATCH: Investors willing to do some digging might want to research BLDP and find out why this alternative energy play is not seeing more buying interest with oil prices soaring. Technical traders should note the pullback toward crucial support near $9.00. A breakdown here could lead it toward the 2002 lows under $7.00. chart = ************************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 ^^^^^ None 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. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-16-2004 Sunday 3 of 5 In Section Three: Current Calls: ADP, JNJ, LXK New Calls: None Current Put Plays: AMZN, APOL, CAKE, CTX, GM, MBG, MSTR, WHR New Puts: None ! 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 ****************** Auto. Data Proc. - ADP - close: 45.48 change: -0.35 stop: 43.25 Company Description: Through its many subsidiaries, ADP is a provider of computerized transaction processing, data communication and information services. The company's operations are divided into Employer Services, Brokerage Services, Dealer Services and Claims Services. Among the activities managed by the Employer Services division are payroll, human resources, benefits administration, tax filing and reporting and retirement plan services. Why we like it: When we began coverage on ADP last weekend, we were hoping for a pullback to test support in the $44-45 area to give us a solid entry into the play, and it looks like we're getting our wish. The initial breakout did manage to extend up near $47 for a test of the top of the rising channel before the bulls ran out of conviction and the past few days have seen the stock pulling back towards support on significantly diminished volume. So far, things are going according to plan, with ADP coming back into what should be strong support in the $44.50- 45.00 area, while daily Stochastics work their way down out of overbought territory. We should see the 20-dma ($45.08) and 30-dma ($44.94) reinforce that support, making a dip to support look that much better as an entry point. Traders that would prefer to enter on strength will want to trigger entries on a break back above the $46 level, which would represent a breakout above the short-term descending trendline of the past week. Maintain stops at $43.25, which is now comfortably below the 50-dma ($43.71). Suggested Options: Shorter Term: The June $45 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive longer-term traders can use the August $47 Call, while the more conservative approach will be to use the August $45 Call. Our preferred option is the June $45 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. ! Alert - May options expire next week! BUY CALL JUN-45*ADP-FI OI=1183 last traded @ $1.70 BUY CALL JUN-47 ADP-FW OI= 390 last traded @ $0.65 BUY CALL AUG-45 ADP-HI OI=2493 last traded @ $2.55 BUY CALL AUG-47 ADP-HW OI=1387 last traded @ $1.40 Annotated Chart of ADP: Picked on May 9th at $46.03 Change since picked: -0.55 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.06 mln Chart = --- Johnson & Johnson - JNJ - close: 54.52 change: -0.12 stop: 52.75 Company Description: Johnson & Johnson is engaged in the manufacture and sale of products related to human health and well-being. Through over 200 operating companies, it conducts business worldwide. The company's business is divided into three segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment manufactures and markets a range of products used in the baby and child care, skin care, oral and wound care and women's healthcare fields, as well as nutritional and over- the-counter pharmaceutical products. The Pharmaceutical segment's principal worldwide franchises are in the antifungal, anti-infective, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, psychotropic and urology fields. The Medical Devices and Diagnostics segment includes a range of products used by or under the direction of physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Why we like it: Recent price action should have effectively demonstrated why we weren't interested in breakout entries in our JNJ play. While the stock is a viable defensive stock play, it does not tend to break out and rally strongly. Instead, it tends to slowly move in a given direction, but with far less volatility than many other stocks. As expected, the breakout over the $55 level needed some consolidation before the stock can move higher and we've seen JNJ pull back from its foray over $56, coming down to test the $54 level on Friday, before rebounding to end right near the middle of its intraday range. Recall from our initial write-up that we thought ideal entries would be found on a rebound from the $54 level and Friday's bounce from the low certainly would have qualified. For traders not willing to blindly buy the dip, the next best strategy will be to enter on the next push over the $55 level, which will represent a breakout over the short-term descending trendline that has capped the intraday rally attempts over the past week. Keep in mind the big picture with JNJ is that the stock is in a bullish PnF alignment, with an upside target of $65. We're just looking to take a piece of that longer-term move, entering in the $54-55 area and exiting near $60. Maintain stops at $52.75. Suggested Options: Shorter Term: The June $55 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Longer-term traders can use the July $55 Call. Our preferred option is the July strike, as it is currently at the money and gives the stock plenty of time to move upwards without a significant loss of time value. ! Alert - May options expire next week! BUY CALL JUN-55 JNJ-FK OI=12538 last traded @ $1.10 BUY CALL JUL-55*JNJ-GK OI=44130 last traded @ $1.50 Annotated Chart of JNJ: Picked on May 9th at $55.30 Change since picked: -0.78 Earnings Date 4/13/04 (confirmed) Average Daily Volume = 7.23 mln Chart = --- Lexmark Intl. - LXK - close: 92.65 change: -1.38 stop: 89.75 Company Description: Wrapping its arms around the entire life-cycle of printers, LXK develops and manufactures a broad range of laser, inkjet and dot matrix printers for the office and home markets. The company is also the exclusive source for new print cartridges for the laser and inkjet printers it manufactures. Additionally, LXK provides supplies for IBM printers and offers after-market laser cartridges for the large installed base of a range of laser printers sold by other manufacturers. Why we like it: It appears that part of the rise in LXK's price on Thursday may have been anticipation of DELL's earnings report. That report came in softer than investors had hoped and DELL fell sharply on Friday. That weakness seemed to spread to shares of LXK at the open, resulting in an intraday dip down to the $91.55 level before the stock rebounded slightly to close just over $92. Recall from our initial writeup that we were looking for a pullback near the $92 level for a solid entry setup and Friday's dip and reflexive rebound certainly qualifies. The stock has been consistent about bouncing from the 50-dma ($90.84) over the past several months and last week's bounce from that average suggests that we've got a repeat performance on our hands. Following this pullback, the first milestone will be for LXK to scale the $95 level and then we can look for a run at the recent highs at $97. But based on the way the stock has been trading these past months, we're expecting to see another breakout to new multi-year highs. Our target for the play at $100 looks achievable if this 50-dma rebound is the real deal. Maintain stops at $89.75, just under the bottom of the stock's range of the past month. Suggested Options: Shorter Term: The May $90 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. But with May options expiring next week, the June strikes probably are the wiser choice. Longer Term: Aggressive longer-term traders can use the June $95 Call, while the more conservative approach will be to use the July $95 Call due to the greater time until expiration. Our preferred option is the June $90 strike, as it is currently in the money and should provide sufficient time for the play to move in our favor. ! Alert - May options expire next week! BUY CALL MAY-90 LXK-ER OI=2369 last traded @ $3.30 BUY CALL JUN-90*LXK-FR OI= 257 last traded @ $5.50 BUY CALL JUN-95 LXK-FS OI= 349 last traded @ $2.80 BUY CALL JUL-95 LXK-GS OI= 415 last traded @ $3.90 Annotated Chart of LXK: Picked on May 13th at $94.03 Change since picked: -1.38 Earnings Date 4/19/04 (confirmed) Average Daily Volume = 1.07 mln 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 ***************** Amazon.com - AMZN - close: 43.05 chg: -0.56 stop: 44.75 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 tech-heavy NASDAQ continues to suffer under its trend of lower highs. Both the COMPX and the INX Internet index produced a failed rally at their 10-dma's on Friday and both look vulnerable to new declines this coming week. That makes AMZN's recent bounce toward resistance near $44 look like a potential entry point for new short positions. However, we'd rather wait and see this rebound begin to fade. We suggested on Thursday that this rebound was a possible bear flag pattern and that still holds true. Traders looking for new entry points can watch for a breakdown under $42.50 or $42.00, which may be a better entry and should be a breakdown from out of the bear flag pattern. If stocks continue to be weak as investors rotate out of equities due to interest rate concerns then higher P/E Internet stocks are likely to lead the way lower. AMZN with a triple-digit P/E certainly looks like a candidate for more selling. Both bulls and bears will be watching how AMZN reacts if it moves toward psychological round-number support/resistance at the $40.00 mark. Suggested Options: Given the bounce back toward resistance at $44 the 42.50s or 45s might be a good play. We're still suggesting the June puts. Our preference is for the June 40's or 42.50's. ! Caution - May options EXPIRE this coming Friday! BUY PUT JUN 40.00 ZQN-RH OI=3562 Last traded @ $1.10 BUY PUT JUN 42.50 ZQN-RV OI=4590 Last traded @ $2.00 BUY PUT JUN 45.00 ZQN-RI OI=4303 Last traded @ $3.40 Annotated Chart: Picked on May 02 at $ 43.60 Change since picked: - 0.55 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 8.4 million Chart = --- Apollo Group - APOL - close: 90.57 change: -0.21 stop: 95.00*new* Company Description: The Apollo Group provides higher education to working adults. The company operates through its subsidiaries, The University of Phoenix, Inc., Institute for Professional Development, The College for Financial Planning Institutes Corporation and Western International University, Inc. APOL offers its programs and services at 58 campuses and 102 learning centers in 36 states, Puerto Rico, and Vancouver, British Columbia. Why we like it: Ever since Monday's selloff, shares of APOL have been trying valiantly to hold above the 50-dma ($88.53) and make a decent attempt at a rebound. Well one out of two isn't bad. The stock did manage to hold above the 50-dma through the end of the week, but the size of the rebound was pretty small. APOL did manage a solid bounce on Tuesday, but the rest of the week was little more than a holding action and we saw price hold well below the $92 resistance level, while daily oscillators languished in oversold. This certainly feels like a bounce that isn't going to go anywhere of note, reinforcing our belief that a short-term push into the $92-93 area will represent a great entry point to the downside. Recall that we've got a fresh PnF Sell signal that translates into downside target of $81, also the site of solid historical support and the 100-dma. However, with the reversal into a column of X, we can now see that a trade at $95 would produce a new PnF Buy signal, so we're lowering our stop to $95 this weekend. Aggressive entries should be taken on the rollover near resistance, while the more conservative approach will be to wait for a breakdown under the $87.50 level (just below last Monday's low) before playing. Suggested Options: Aggressive short-term traders should use the June $90 strike due to May options expiring next week. Our preferred option is the June 90 strike, as it is currently at the money and should provide ample time for the play to move in our favor. ! Alert - May options expire next week! BUY PUT JUN-90*OAQ-RR OI= 1387 last traded @ $3.80 BUY PUT JUN-85 OAQ-RQ OI= 922 last traded @ $2.00 Annotated Chart of APOL: Picked on May 11th at $90.32 Change since picked: +0.25 Earnings Date 6/11/04 (unconfirmed) Average Daily Volume = 1.72 mln Chart = --- Cheesecake Factory - CAKE - cls: 40.30 chng: +0.21 stp: 44.10 Company Description: The Cheesecake Factory operated 61 upscale, full-service, casual dining restaurants under The Cheesecake Factory mark in 20 states and the District of Columbia as of March 3, 2003. The company also operated three upscale casual dining restaurants under the Grand Lux Cafe mark in Chicago, Illinois, Los Angeles, California, and Las Vegas, Nevada, as well as one self-service, limited-menu, express foodservice operation under The Cheesecake Factory Express mark inside the DisneyQuest family entertainment center in Orlando, Florida. It also operated a bakery production facility in Calabasas Hills, California, which produces baked desserts and other products for its restaurants and for other foodservice operators, retailers and distributors. It also licensed three bakery cafes under The Cheesecake Factory Bakery Cafe mark to another foodservice operator. Why we like it: While Friday's rebound in shares of CAKE wasn't exactly what we were hoping for, it did confirm our primary belief in this play. The stock is weak and getting weaker. After Thursday's sharp selloff below the $40 level, the bulls weren't even able to reach $41 - much less the 200-dma ($41.45) before allowing the stock to roll over again. We're looking for rollovers in order to set up our desired entry into the play, but were hoping to see a bounce into the $41-42 area before taking the plunge. That said, aggressive traders certainly could have taken an entry on Friday's rollover -- the stock's $40.97 intraday high may have been close enough. A push up to stronger resistance near $42 would be preferable, but we'll have to take what the market decides to give us. Recall that while the PnF chart is on a strong Sell signal with a downside target of $31, we're deliberately avoiding taking breakdown entries into the play due to the fact that the bullish support line (which is likely to catalyze the next serious rebound) is resting at $39. Either enter on a rollover from resistance or stand aside from the play. Maintain a wide stop at $44.10 for now. Suggested Options: Since we're looking for a rebound entry and May options expire next week, there really isn't enough time for a profitable play using front month options. Consequently, we've only listed June strikes for the play. Aggressive traders can use the $40 strike, while the more conservative approach will be to use the in-the-money $45 strike. Our preferred option is the June 45 strike, as it is currently in the money and should provide ample time for the play to move in our favor. ! Alert - May options expire next week! BUY PUT JUN-45*CFQ-RI OI= 42 last traded @ $5.20 BUY PUT JUN-40 CFQ-RH OI=167 last traded @ $1.60 Annotated Chart of CAKE: Picked on May 13th at $40.09 Change since picked: +0.21 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 579 K Chart = --- Centex Corp - CTX - close: 45.66 change: +0.42 stop: 49.35 Company Description: Dallas-based Centex, through its subsidiaries, ranks among the nation's largest home builders, mortgage originators and commercial contractors. Centex was recently ranked No. 12 on Business Week's annual list of the "Top 50 Best Performing Companies" in the U.S. and consistently ranks among the most admired companies in its industry, according to FORTUNE magazine. (Source: Company Press Release.) Why We Like It: The bounce continues for the DJUSHB home construction index and shares of CTX followed suit with a small climb of its own. We're still looking for that failed rally-rollover entry under the 200- dma in CTX and it could be just around the corner. Interest rate concerns continue to plague the stock market and this will remain a dark cloud over the home building stocks. Historical research shows that the homebuilding sector strongly under performs the broader market when the Fed begins to raise rates. Investors know that and that's why we've seen such a drop in the housing stocks already. As the job numbers and PPI/CPI data continue to show a strong and growing economy the FOMC will be inching closer and closer to its next rate hike. This train of thought is very evident in the huge sell-off in the bond market. Bonds have plunged over the last several weeks driving yields back toward 4.78% on the 10-year note. What we do find noteworthy and a potential caution flag for bears in home stocks is the action in the bond market on Friday. Bonds were and still are very oversold. They began to bounce on Friday and the yield edged lower. The chart pattern on the yield looks like a bearish engulfing pattern. This suggests a pull back in yields as bonds bounce from oversold conditions. That could produce a short-term bounce in housing stocks (which appears to already be underway). Fortunately, we're looking for a bounce but we want to see the rebound in CTX fail under its 200-dma. Currently, CTX's 200-dma is just under $48.00. Traders can evaluate new entry points to buy puts on a failed rally/rollover in the $46-48 range. However, we're going to leave this play UNTRIGGERED until we actually see the rollover occur. What this means is that more active traders can probably get a better entry point than we will but we highly recommend you pay close attention to your stops. To simply things look for a move toward the $47 area and then a drop back under $46.00. That's when we'll probably list an "official" entry on this play. Suggested Options: The June or July options should work well for short-term traders. We like the June 45s or the July 47.50s. ! Caution - May options EXPIRE this coming Friday! BUY PUT JUN 45.00 CTX-RI OI=2775 Last traded @ $2.15 BUY PUT JUN 50.00 CTX-RJ OI= 745 Last traded @ $5.30 BUY PUT JLY 45.00 CTX-SI OI=1900 Last traded @ $2.90 BUY PUT JLY 47.50 CTX-SW OI=1836 Last traded @ $4.20 BUY PUT JLY 50.00 CTX-SJ OI=1565 Last traded @ $5.90 Annotated Chart for CTX: Picked on May xx at $ xx.xx (See rollover entry.) Change since picked: - x.xx Earnings Date 04/20/04 (confirmed) Average Daily Volume: 2.0 million Chart = --- General Motors - GM - close: 44.35 change: +0.20 stop: 47.25 Company Description: General Motors Corporation provides automotive-related products and services by primarily designing, manufacturing and marketing vehicles, as well as providing communications services and financial services. The company operates in two segments, Automotive, Communications Services and Other Operations, and Financing and Insurance Operations. It's automotive business segment consists of General Motors Automotive, which encompasses four regions: GM Norma America, GM Europe, GM Latin America/Africa/Mid-East and GM Asia Pacific. The communication services include digital entertainment, information and communications services and satellite-based private business networks. The company's other operations include the design, manufacturing and marketing of locomotives and heavy-duty transmissions. GM's Financing and Insurance Operations primarily relate to General Motors Acceptance Corporation (GMAC). Why we like it: With the spectre of rising interest rates firmly planted in their frontal lobes, traders have lost their appetite for shares of GM. After breaking down under the $44 level and issuing a PnF Sell signal (the first in over a year), the stock put in a very weak bounce on Monday, failing to even test the 200-dma ($45.47) before settling into a very tight consolidation pattern for the remainder of the week. Providing support on the downside is the bottom of the December gap, just under $43.50, but this tight range is unlikely to last. Next week is options expiration, so anything is possible, but we'd expect the stock to gravitate towards the $45 level over the next 5 days as market makers shoot for that 'max pain' point. That means that we ought to look at any failed rally in the $45-46 area as a solid entry point in anticipation of the stock breaking down in deference to the picture shown on the PnF chart. In addition to broken support in that area being strong resistance now, we have the 10-dma ($45.63), 50-dma ($46.54), 30-dma ($46.82) and 20-dma ($46.94) all bearing down on the 200-dma and likely to turn back anything other than a strong rally attempt. That makes our $47.25 stop look quite safe except in the event of an unexpected reversal from last week's lows. Traders preferring to enter on further weakness should wait for a break under the $43.25 level before playing. Suggested Options: Aggressive short-term traders will want to use the June 42 Put. Those with a more conservative approach will want to use the June 45 put. Traders looking for more insulation against time decay can look out to the September strike. Our preferred option is the June 45 strike, as it is just out of the money and should provide ample time for the play to move in our favor. ! Alert - May options expire next week! BUY PUT JUN-45*GM-RI OI=19129 last traded @ $2.10 BUY PUT JUN-42 GM-RV OI=15801 last traded @ $1.10 BUY PUT SEP-42 GM-UV OI= 3930 last traded @ $2.70 Annotated Chart of GM: Picked on May 9th at $44.60 Change since picked: -0.25 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 5.21 mln Chart = --- Mandalay Resort Group - MBG - cls: 51.17 chng: +0.20 stop: 53.21 Company Description: Mandalay Resort Group, founded in 1974 as Circus Circus Enterprises, Inc., is in the business of entertainment, with its core strength in casino gaming. The company's asset base, operating cash flow, profit margin, multiple markets and customer counts rank it as a gaming industry leader. (Source: Company Website.) Why We Like It: Early in May, Merrill Lynch downgraded MBG to a neutral rating from its previous buy rating. Saying the "best was behind us," the firm said that the rest of 2004 and all of 2005 might see growth rates for casino and hotel companies slowing. Although Deutsche Bank had reiterated its buy rating in mid-April, investors' opinions and price action appeared to be more in harmony with Merrill Lynch's opinion. Since hitting its April high of $62.20 on April 6, MBG has tumbled, with volume building as it declines. That tumble created a P&F double-bottom breakdown on the P&F chart in late April. This week, candles have been congregating at the 100-dma, but now look ready to tumble below it, perhaps all the way to a test of the 200-dma. We're going to trigger this play with a trade at $49.95, just below Thursday's low. We're targeting $46.25, and will set an initial stop at $53.21 if this play is triggered. Those considering this play should consider some important possible support levels, especially since MBG's decline has already been so steep. Those levels must include the psychologically important $50.00 level, of course. The 30-week average, one closely watched by some market old-timers, lies at $49.18. In addition, the 38.2 percent of the rally off the 2003 low lies at $47.49, with that level also perhaps providing support and possible bounce potential. WEEKEND UPDATE: Wow! We came VERY close to be triggered in MBG on Friday. The stock dropped to $50.44. Our TRIGGER to go short/buy puts was $50.43. Upon further consideration we're going to adjust our trigger to UNDER the round-number support/resistance level at $50.00. Our NEW TRIGGER to buy puts is $49.95. Until MBG trades at or below this level we're willing to sit out. Fortunately, we could see MBG fall under the $50.00 level soon as its trend of lower highs continues to build. Aside from its early morning strength there was virtually no bounce on Friday! Suggested Options: Open interest is about equal for all these put options surrounding MBG's current price. Our preference would be for the JUN 47.50 or 50 strikes. ! Caution - May options EXPIRE this coming Friday! BUY PUT JUN 47.50 MBG-RW OI= 3174 Last traded @ $1.15 BUY PUT JUN 50.00 MBG-RJ OI= 1465 Last traded @ $1.90 BUY PUT JUN 55.00 MBG-RK OI= 1962 Last traded @ $4.80 Annotated Chart for MBG: Picked on May xx at $ xx.xx (See Trigger) Change since picked: - 0.00 Earnings Date 06/03/04 (confirmed) Average Daily Volume: 1.7 million Chart = --- MicroStrategy Inc. - MSTR - cls: 45.73 chng: +0.65 stp: 48.05 Company Description: MicroStrategy Inc. is a worldwide provider of business intelligence software that enables companies to analyze the raw data stored across their enterprise to reveal the trends and insights needed to develop solutions to manage their business effectively. The company's software delivers this critical information to workgroups, the enterprise and extranet communities via e-mail, Web, fax, wireless and voice communication channels. MSTR offers an integrated business intelligence platform, known as MicroStrategy 7i, which is designed to enable businesses to turn information into strategic insight and make more effective business decisions. Why we like it: The past week has certainly been a volatile one for shares of MSTR, as the stock tries to build a new base following the major breakdown under the $47 level. With several tests on each side of the range in recent days, MSTR appears to be building a range between $43-46, with slightly higher lows. This could be a bullish wedge forming or it could be a bearish slightly-ascending wedge formation. Right now, it is too hard to discern the most likely pattern. Daily oscillators have now turned up, so we should expect a bit more testing of resistance before we see a bonified rollover. Aggressive traders can open new positions on a rollover from the $46-47 area, although we'd prefer to see the 10-dma ($46.39) continue to provide solid resistance as it did over the past two sessions. We're maintaining our stop at $48.05, as that is close enough to keep us from giving too much back, yet far enough away to prevent getting hit on a brief failed upward spike before the downtrend continues. Remember, we're steering clear of breakdown entries for now due to the fact that there's now a fairly tight web of support in the $42-43 area and below there we're looking for an exit from the play near $40. Suggested Options: Aggressive short-term traders will want to use the June 40 Put. Those with a more conservative approach will want to use the June 45 put. Our preferred option is the June 45 strike, as it is just now at the money and should provide ample time for the play to move in our favor. ! Alert - May options expire next week! BUY PUT JUN-45*EOU-RI OI= 231 last traded @ $3.10 BUY PUT JUN-40 EOU-RH OI= 117 last traded @ $1.35 BUY PUT JUL-40 EOU-SH OI= 403 last traded @ $2.15 Annotated Chart of MSTR: Picked on May 6th at $47.02 Change since picked: -1.29 Earnings Date 4/27/04 (confirmed) Average Daily Volume = 417 K Chart = --- Whirlpool Corp - WHR - close: 64.38 chg: -0.06 stop: 65.76 Company Description: Whirlpool is one of world's leading manufacturers and marketers of major home appliances, with annual sales of more than $12 billion, 68,000 employees, and nearly 50 manufacturing and technology research centers. The company markets Whirlpool, KitchenAid, Brastemp, Bauknecht, Consul and other major brand names to consumers in more than 170 countries. (Source: Company Press Release.) Why We Like It: We don't have a lot to report on for WHR. The stock dropped steadily during the morning hours on Friday but rebounded back toward the $64.50 level and hovered there throughout the afternoon. The good news is that resistance at the $65.00 level continues to hold. The breakdown through support at $65 last week was crucial on both its daily, weekly and point & figure charts. The bounce back to test this level as resistance is not uncommon but traders should remain careful. We would probably watch this stock for a drop through Friday's low near $63.40 before considering new positions. Fortunately WHR is likely to under perform the markets. The company is likely suffering from the rise in steel prices over the last several months and concerns over interest rates affects mortgage rates which influences home buying and in the process indirectly influences the sales of home appliances. Suggested Options: With May expiration in less than two weeks, we suggest June options, in particular the June 65's. ! Caution - May options EXPIRE this coming Friday! BUY PUT JUN-60 WHR-RL OI= 293 Last traded @1.15 BUY PUT JUN-65 WHR-RM OI=3451 Last traded @3.20 Annotated Daily Chart for WHR: Picked on May 05 at $ 64.69 Change since picked: - 0.31 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 555 thousand Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-16-2004 Sunday 4 of 5 In Section Four: Leaps: Between A Rock And A Hard Place Option Spreads: Quickies – It’ Time To Roll The Dice Again Futures Corner: Russell Emini Game Plan ************************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 ***** Between A Rock And A Hard Place By Mark Phillips mphillips@OptionInvestor.com It should be crystal clear to anyone with a modicum of intelligence that we've got some serious inflation on our hands and that the Fed really has no choice but to embark down the path of raising interest rates. We've been talking about this for a couple months now, citing the strength in even the government- sanctioned inflation gauges as incontrovertible evidence that the flagrantly irresponsible method of printing up money at an unprecedented rate has indeed put inflation back into the economy. As we have recently discussed, this was the plan all along, but the Fed managed to keep us distracted just enough (with the whole deflationary song and dance) to not really notice the extent of the damage being inflicted on the value of our currency. The amount of money that has rolled off the printing press in the past year is truly astounding and it was inevitable that it would have an inflationary impact. Many investors don't seem to understand the significance of monetary inflation, so I thought I would provide a graphic example that everyone understands. Let's say that you're an investor in IBM and there are currently 100 million shares outstanding. Everything hums along, with the company turning out profits and the price of the stock rising and falling with the rise and fall in investor sentiment and the rise and fall of profits. That's an equation we all understand quite well. Now let's draw the equivalence to our national economy. The stream of profits can be equated to the GDP, the investor sentiment can be equated to the Consumer Sentiment or any one of a couple dozen metrics that in some way measure how we feel about the state of our economy. The trade surplus or deficit can be roughly equated to IBM's balance sheet, showing whether the company is going further into debt or paying down its debts. In our comparison of IBM to the U.S. economy, the marketplace tells us what IBM is worth through the price action of its stock. The market tells us what our economy is worth through the price action of our currency and to a lesser extent our government-issued bonds. Are you with me so far? So let's weigh the balance sheet. Our nation is running a chronic (and growing) trade deficit and a chronic (and growing) budget deficit, the combination of which is not a pretty sight. Imagine IBM adding to its debt quarter after quarter, while at the same time selling less products and services. Would investors reward the stock with a higher valuation? I doubt it. But that's not the real shocker. What if we add to the equation the fact that IBM has been issuing 10 million shares and selling them into the marketplace to raise funds on each of the past 4 quarters? That represents a dilution of the outstanding stock by 40% in only one year. Investors won't stand for that and each time new stock is issued, a stock is given a corresponding haircut, keeping corporate executives from viewing stock issuance as an unlimited piggy bank. So how does this relate to the national economy? Printing more money is the precise analog to printing up more stock. With the Fed having printed up an obscene amount of money over the past couple years, it is truly astounding that we haven't seen even more weakness in our currency than we have. Just the increase in actual hard money supply is up more than 20% in the past 2 years, and that may not seem like much of a problem. Until we delve into the whole picture of the fractional reserve system, which allows for a single dollar of actual money to be multiplied through the financial system as much as 100 times. That kind of inflation of the money supply would be disastrous if reflected as an increase in IBM's shares outstanding. Big Blue would quickly be reduced to penny-stock status. So why hasn't this reality caused the value of the dollar to absolutely crash? The simple answer is because in terms of the Dollar Index, our currency is simply compared to a basket of other paper currencies, each from nations that engage in nominally the same practices. The dollar is a fiat currency, which is valued against several other fiat currencies, so seeking what is the true value of that currency is a difficult endeavor, at best. It is a complex mix of the nation's economic health, its trade balance, budget surplus/deficit, interest rates, money supply growth/contraction along with a host of secondary and tertiary factors. With the price of renting money overnight (the Fed Funds rate) languishing down near the 1% level for the past couple years, it is no great surprise that our currency has been falling. It has paid next to nothing to hold our bonds and that has added to the pressure on the dollar, driving the DX00Y index down to multi-year lows near 85 earlier this year. Since then, the oversold rebound has finally gotten underway, with the index rising right to the descending trendline at 92 last week. Will this be the top for the move, or are we headed higher from here. The question really boils down to one of interest rates. Over the past several weeks, the bond vigilantes have absolutely hammered bonds lower, showing their strong conviction that interest rates will be rising soon and they will be rising far. In fact, the Fed has been backed into a corner of sorts. They would prefer to be patient and do nothing about short-term rates over the next few months, because the last thing they want to do is raise rates and kill the nascent economic recovery. But at the same time, the bond market is telling the Fed that they're already tardy with the first rate hike and bond traders are doing the Fed's work for it. So either the Fed must play catch-up -- something the equity market is concerned about, or the central bank will be stubborn, refusing to be bullied into action, waiting until they think the time is right and intervening in the bond market to keep long rates down, if necessary. Basically the Fed has been put in a very awkward position of wanting to let the economic recovery pick up a bit more steam before acting to slow it down with rising rates. But at the same time, they are being goaded by the bond market to hurry up and act. How will it all play out? That's the $64,000 question, but my gut feel is that we'll probably get a 25-bp cut at either the June or August meeting and another one later in the year. I expect the Fed to drag their heels on rate cuts at least through the end of the year and then their actions will be predicated on the health of the economy. Alan Greenspan still wants the legacy of leaving office in a healthy economic environment and that means he desperately does not want to screw things up again. But at the same time, he's being forced (by the bond traders' reaction to clearly inflationary economic reports) to take some action. "Just do something, even if it's wrong"! Basically, A.G. is now between a rock and a hard place, and we better hope he knows what he's doing. The good news is that if we can believe the numbers in terms of inflation and job growth, the Fed is back to presiding over a system that they have at least some control over -- an inflationary environment that can be controlled through monetary supply and interest rate policy. Whether the old tools will work as they have in the past is anyone's guess, but I think it is a safe bet to say that this is the path upon which the Fed will soon be embarking. So where does this discussion leave us in terms of equity market direction for the near and longer term? I think I summed up my feelings pretty well last weekend. The "Sell in May and Go Away" trade appears to be in force. We've seen all the major indices come well off their recent highs, and we have clear violations of support across the board. That said, I do not think we're looking at a major selloff coming in the market this summer. Remember the summer doldrums? Expect them to return this summer and that will make things even rougher on intraday traders, as the hedgies increase their ever-more-dominant position, accounting for more and more of the volume on both the NYSE and the NASDAQ exchanges. The DOW exceeded it's downside PnF target of 10,000 last week and then rebounded from the bullish support line and is now in the process of trying to build a new base. With the bullish percent reading now strongly Bear Confirmed at 67%, we should expect more downside action in the weeks and months ahead, but I have the sense that the price action to the downside will be rather muted as we wait for the BP to fall back towards oversold territory. The price action on the SPX looks a bit more ominous for the bulls, with last week's dip to the 1080 level finally issuing a PnF Sell signal with a downside target of 1000. That's still a ways down there, and there's clearly lots of support in that area, reinforced by the bullish support line at 985. Bullish percent readings are favorable for the bears as well, as it is now strongly Bear Confirmed at 59% and well on its way to oversold territory. Finally, the NASDAQ COMP is trying to find support near the 1900 level, its former bearish price target. The NASDAQ-100 on the other hand, may be offering the clue as to future direction, as it is on a big PnF Sell signal with a downside price objective of 1280. The problem is that it won't take much (only a push to 1430) to create a new Buy signal. We also have the reality that the Bullish Percent is already growing stretched to the downside, reaching the 34% level last week and now just above oversold territory. Take all these factors together and I see the broad market and many stocks heading further south in the weeks and months ahead, but not by a great deal. What we should expect to see through the summer months is a market that is consolidating in anticipation of a resumption of the bull market after Labor Day. That means winning long-term directional plays are going to be few and far between in the near-term and it makes sense that we're trimming our active plays in anticipation of that rangebound environment. Whether the market in fact does head higher after the summer months or chooses to head south again is anybody's guess. And if I were to offer an opinion here at this time, it would be little more than a guess. But I think our discussion above concerning the state of the U.S. economy and interest rate policy will play a very big part in the months ahead. Since I'm running behind again on my commentary, I better cut this short and get to addressing the individual plays. We'll delve into some more of these big picture issues next week. And as always, if you have questions, comments or suggestions, don't hesitate to send them along. Portfolio: HD - Hmmm...what was that I said about HD likely finding support near $33? GRIN Just as expected, that former support did serve to help the stock find its legs again after a dip to roughly $32.50. While this play is finally moving in our favor, keep in mind that we're not out of the woods yet -- HD needs to trade the $31 level to issue a PnF Sell signal and really get things moving in our favor. Things are definitely looking more encouraging though and over the next couple weeks we can watch the relative action of the 50-dma and the 200-dma, the former of which looks headed for a bearish cross of the latter. That will provide bearish confirmation for us. Once we get that cross and price cracks the $31 level, we'll have a new price target of $24 to work with and can seriously target the downside. More realistically though, the $26 level is about all we can hope for, as that is the site of the bullish support line. For now, failed rebounds in the vicinity of $35 look good for new entries. Lower stops to $38 this weekend, which is just fractionally above the intraday highs of the multi-month top just put in place. CHK - It was a rough week all the way around for the equity market, as investors brace for rising interest rates. Even with the price of Natural Gas continuing to climb, CHK got hit by a fresh round of profit taking, falling back towards the rising trendline support at $12.75 before a strong rebound at the end of the week that brought price right back to the key $13.50 level. We can expect lots of volatility from the uncertainty in the Energy sector, but the trend should remain up. We're looking for a decided push through the $14.50 level to really kick the stock along towards its next obstacle in the $16 area. So long as price remains above the 200-dma ($12.25) and nominally within its rising channel, we should look at irrational dips like that from last week as entry points ahead of the next strong rally move. Maintain stops at $12. LUV - Relative to the very negative tone that LUV went out on a week ago, last week's price action wasn't too bad. The bears tried to press the stock lower, but met plenty of buying support near $13.50. Friday's strong rally looked very encouraging, as it came on strong volume and sent the stock back over the 50-dma. Weekly Stochastics have turned bearish, so that's a problem, but we're encouraged by the possibility that the stock is finally putting in a higher low. If successful, this should be the beginning of a significant move higher, and the next confirmation of that will be a breakout over the April highs near $15.30. Maintain stops at $12.75. Watch List: TYC - It took long enough, but TYC finally gave us the bullish price action we were looking for and the play moves over to the Portfolio this weekend. AIG - Another week has passed, and AIG has yet to make a viable bullish move. Sure it could do so next week, but I am growing concerned. The 100-dma is providing closing resistance and the 50-dma is bearing down as further resistance. Add to that the fact that the weekly oscillators are clearly bearish and it's hard to get excited about AIG's bullish prospects. This is precisely why we've been cautious with our entry setup and why we've remained on the sidelines this long. Last week's intraday dip to $68.73 came very close to issuing a new PnF Sell signal and tripping our stop before we even get a chance to play. We'll stick by our guns for now, targeting entries on a rally back over $72, but pulling the plug should the stock dip below $68 at any point. GM - Clearly the tide has turned for shares of GM, as the stock barely budged off its lows last week, in a classic buyer's strike. We can expect the stock to gravitate towards the $45 level towards the end of next week, with options expiration approaching. Last week's breakdown under the $44 level was the key, as it gave us a new PnF Sell signal (downside target = $37) to work with. Now our objective is to find a viable entry point into the play. I suspect that our initial target at $47-48 may be asking for a bit much with the 50-dma now falling below the $47 level. So let's ratchet our entry target down a notch to $46-47. We'll initially target the $37-38 area, using an initial stop just over $50. Radar Screen: EK - How many different ways can we say boring? EK has no strength, but it is likewise not showing us much in the way of weakness. This incessant choppy price action in a very tight range is not conducive to picking good entry points and we'll remain on the sidelines with this candidate until we see a solid directional move unfold that can offer us a better entry. QQQ - This is precisely why I wasn't in a hurry to add QQQ to the Watch List. The breakdown that materialized a couple weeks ago has had virtually no downside follow-through and certainly plenty of buying support. At the same time, the intraday highs have been steadily moving lower. Putting it in context though, the QQQ has barely exceeded a range of $1.25 for the past two weeks and it certainly hasn't been directional in nature. Strong support exists at $34, but it really hasn't been tested yet. We need a sizeable rally back towards the $37.00-37.50 resistance level to give us a decent setup for a downside play. For now, we wait and watch. $DJUSHB - Last week, I raised the issue of a bearish LEAP play on the Housing sector, but with the thought that we don't need to be in a hurry, as the topping formation that we should expect to see as rates begin to rise, won't really be complete until near the end of the summer or early Fall. While I promised to do an in- depth analysis between the LEAP-able Housing stocks (LEN, DHI, CTX, PHM and RYL) this weekend, as I got started on that task, it became clear that the study will require an article of its own -- perhaps even two. I hope it's clear that we aren't in any hurry in this sector, so an extra week here and there isn't going to affect our results. But getting the analysis right certainly will! Look for the first installment of that analysis in the Trader's Corner section next week. Closing Thoughts: The confirmation we've been looking for arrived last week with all the major indices breaking below important support and giving us indications of more weakness ahead. Despite that confirmation, I'm erring on the side of caution in my analysis and expecting that the downside will be muted as the Bear Confirmed readings on the Bullish Percent charts run their course. At the same time, I expect we won't have a sufficient bullish catalyst throughout the summer that can drive the markets through its recent highs. It isn't an environment that I expect to be conducive to large wins in the directional play arena, so we'll need to pick our plays very carefully. On another note, until further notice, I will not be commenting on the VIX/VXO measures of market volatility. I've been watching these indices since the CBOE changed the basis of their calculation last September. I've been avoiding this conclusion for a long time, but I'm now of the mind that these indices are worthless for now and probably some time to come. We used to trade based on the levels of the VIX, but that was when we knew what the 'normal' range was. With the basis of the calculation changed, we have no way of knowing what the new 'normal' range is, or even if it will provide useful boundaries like the old VIX did. I'm through wasting my time trying to understand the action of the VIX relative to the market action and I'm through wasting your time with meaningless commentary on that action. The VIX is broken and while part of that may be due to changing market conditions, it didn't help that the CBOE removed any tie we might have had to a reference point. Have a great week! Mark LEAPS Portfolio Current Open Plays LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: 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: GM 05/09/04 $47-48 JAN-2005 $ 45 ZGM-MI JAN-2006 $ 45 WGM-MI PP SEP-2004 $ 50 GM -IJ New Portfolio Plays TYC - Tyco International $28.32 **Call Play** It seems like we've been waiting forever for TYC to finally give us a viable entry point. For weeks and weeks, we were stymied by a stock that wouldn't come down to our entry target and then we had to wait for earnings to pass and then the stock couldn't seem to put together even a hint of a rebound. Thankfully, it looks like all those issues are behind us. TYC dipped almost exactly to $27 last Wednesday before the buyers finally made their presence known. The move looked encouraging on Thursday, but the key was Friday's rally back over the $28 level, finally satisfying our entry criteria. Ignoring the bad tick from late February, shares of TYC have been finding support at a gradually rising trendline that crosses just over the $27 level and clearly provided support last week. Looking at the bigger picture, we can see that the stock has been trading in a broad consolidation pattern since February and despite the bearish look of the weekly oscillators, this looks like a healthy pattern. Obviously, we think the stock is headed significantly higher in the months ahead or we wouldn't be adding it as a bullish Portfolio play this weekend. But it's nice to have the PnF chart back up our expectations with a strong Buy signal that projects a rally to the $54.50 level. That's a long way off, so we really need to look at our standard candle charts to gauge what some nearer-term targets might be. First off, we need to see a push through the March highs in the $30-31 area, and then we can see solid resistance near $35. But if the bulls can manage to push through that level, without allowing a PnF Sell signal to print, then we should be able to set our sights on a move to $40 and possibly $45 in the months ahead. We'll place stops initially at $24.50, just under the 200-dma. While this is a bit wider than we're normally comfortable with, I hope you can see that it makes sense in light of the stock's apparent upside potential. BUY LEAP JAN-2005 $30 ZPA-AF $ 2.15 BUY LEAP JAN-2006 $30 WPA-AF $ 4.00 BUY PUT JUL-2004 $25 TYC-SE $ 0.55 **Protective Put** New Watchlist Plays None Drops EBAY $77.53 The party had to end eventually and the sharp market losses early last week, finally pushed EBAY off its pedestal and all the way down to $77 on Monday. We've had quite the ride from the stock, entering near the $66 level and actually riding it as high as $84 and change. We tightened our stop to the $79 level as a trade at that point would have produced a new PnF Sell signal. But even leaving our stop at the $77 level wouldn't have kept us in the play, as the intraday low was $76.92. Now EBAY has made a habit out of giving PnF Sell signals which turn out to be the perfect entry for the next leg up the charts. That's how we got the great entry down at $66, by taking advantage of that pattern. It may be repeated this time around, but my gut says no, that the stock will probably pull back towards the $70-72 area and work to build a new base. All positions should have been closed on the drop on Monday and now we'll watch the stock from the sidelines in anticipation of another opportunity to play in the months ahead. ************************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 ************************ Quickies – It’ Time To Roll The Dice Again By Mike Parnos, Investing With Attitude This month has been hairy to say the least. But, we’re not going to keep us from creating some quickies. Hey, life is a crapshoot. And, never let it be said that I don’t have as much crap as anyone else. As I do every month, let me remind you that these quickies are risky. They do seem to work out more often than not. However, when they don’t, it can cost you dearly. Remember, government cheese is not a delicacy. May Quickie #1 – QQQ Call - $34.75 This one is just based on a feeling. I believe that, at some point next wee, the QQQs are going to bounce up to about $35.50. It’s going to take a few very strong days for that to happen. But, I’m willing to bet $.15 that it will happen. As a matter of fact, let’s go nuts and trade 20 contracts. Our total out of pocket risk is a mere hypothetical $300. If the QQQs make it up to $35.50, our $300 will be worth a minimum of $1,000. Buy 20 QQQ May $35 calls @ $.15 The upside is unlimited. If you’re not going to be around, you can always put in a GTC (Good Till Cancel) order for $.90 and go to the movies. May Quickie #2 – OEX Siamese Condor - $535.42 While I believe the QQQs might spike up, I think the market as a whole will trade in a pretty tight range next week (but, again, what do I know?). Let’s take advantage of it by establishing one of our Siamese Condors. We’ll: Sell 10 of the OEX 535 calls @ $5.00 = $5,000 Sell 10 of the OEX 535 puts @ $4.60 = $4,600 Total credit of $9,600 Now, we’re going to have to, protect ourselves, or at least make it seem like we’re going to protect these short options. So, we’ll: Buy 10 OEX 555 calls @ $.25 = $250 Buy 10 OEX 510 puts @ $.50 = $500 Our net credit is $8.85 ($8,850). Our ABSOLUTE bailout points are 543.85 on the topside and $526.15 on the bottom. We’ll make money if OEX closes anywhere in between. The closer OEX closes to 535, the more money we’ll make. That’s a pretty sizable range of 17.70 points. The technical maintenance is a hefty $25,000 – but it’s only for a week and it’s not really at risk if we know our exit points – and WE DO! May Quickie Position #3 – BBH Iron Condor - $147.29 Well, do you think BBH has gotten all of the volatility out of its system? Could be. How can we take advantage of that scenario? With one of our Iron Condors. There’s only a week left. I’m going to guess that it will finish somewhere between $145 and $150. Sell 10 BBH $145 puts Buy 10 BBH $140 puts Credit: $.65 ($650) Sell 10 BBH $150 calls Buy 10 BBH $155 calls Credit: $.70 ($700) Total net credit: $1.35 ($1,350). We’re using $5 spreads, so our actual risk is $3.65 ($3,650). The maintenance for this position is $5,000. MAY CPTI POSITIONS A little over a week to go to expiration. It’s been a long five- week option cycle. We’ve exercised amazing patience. Let’s hope the market cooperates and rewards our patience – and discipline. May Position #1 – SPX Iron Condor – 1095.70 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 – 543.76 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 - $139.99 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 - $147.29 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 -- $34.75 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 – 535.42 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 and the OEX 515/505 bull put spread expired worthless. 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 May 575 calls for $1.40 (x 5 contracts = $700). Today (Thursday), when the market tanked, we bought back the May 575 call for $.15 ($75). This locked in $1.25 profit on the 575 call. Then, we still have two weeks left, so we sold 5 of the May 560 calls for $1.15 ($575). If these plays work out, we can add another $1,175 + $575 ($1,750) to our cash total – just a little bonus while we wait for the market to go up. OSX Calendar Spread Plus - $98.50 OSX is the Oil Index. This is a play on the common belief that oil prices will continue to move up over the next month or two. Bought 10 OSX June $115 calls (36 delta) and sold 10 OSX April $115 calls (23 delta) at a cost of $2.15 ($2,150). We also put on an April $100/$90 bull put spread and took in an extra $.70 ($700) to reduce the cost basis to $1.45 ($1,450). We rolled out our April $115 call and took in $1.20 - further reducing our cost basis to $.20. Then, aggressive traders (which we are in this strategy) put on the May $100/$90 bull put spread and took in $.95. So, now we are a "plus" $.75. In the best-case scenario, the OSX will finish just below $110 at May expiration. ______________________________________________________________ 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. ************** FUTURES CORNER ************** Russell Emini Game Plan By Jim Brown I have been tweaking a set of indicators on the Russell for several months now. While I do not claim to have a perfect system I do think it has been performing well for me personally. I tested the entries in the monitor for public viewing on Thursday and Friday and the signals performed very well. The numbers are hypothetical as it was just a test so readers could get familiar with the types and style of entries. After running the Momentum Model for nearly a year now I have always been frustrated with the entry and exit scenarios. Especially the stops. Whenever I had a successful trade in progress I would start getting emails about exits. Eventually I would cave in and exit the trade and many times the ES would run dozens of points without us. The entry points were always supposed to be on a cross/touch of the momentum averages. This was easier said than done in many cases. Many times we went for days without an entry. From the quantity of email I receive it was evident readers wanted a system that would consistently take small 3-5 point gains instead of waiting a week for a potentially huge gain in one play. I became interested in the ER (Russell Emini) some time ago due to its less erratic movement. It still has strong moves but it tends to jerk around less. This tends to be easier to trade based on indicators. I have been working on programming trade signals from a combination of several indicators as well as some internal logic for about six months. Unfortunately we all know there is no holy grail and no "system" works every time. It still requires human input. This is where the system breaks down when human input depends on personal bias for each trade. We all have a bias regardless of where we are in the trading day. We exit longs early because we know the run is about over. We refuse to jump into a short because the market is already severely oversold. Our bias eventually costs us money. The hardest part of day trading for me is following the trend. Sounds easy but it is never simple. Our trader bias wants to start anticipating the end of the trend or the "turning point" for the trend. If we just closed our eyes and bet on the house we would be better off in most cases. What I have devised in my current ER project is simply a trend following system that looks for confirmation from multiple indicators before signaling a change in the trend. On the charts you will see the candles will show three colors. Blue for Longs, Red for shorts and Yellow for undecided. With Red or Blue all the indicators are in agreement. When Yellow there is disagreement among indicators or the program logic is not seeing enough agreement to confirm. The charts you will see are based on Tradestation. I cannot replicate this in Qcharts because of the program logic and the lack of tick charts. I will give you some basic indicators for a setup but the program logic is the key, at least for me. It gives me a black/white trade signal and the indicator interpretation has already been done. As with any indicator system a slow range bound day will produce indicator convergence and beat you to death. This is where the human input comes into play. We have to recognize the lulls and the trading ranges and avoid them. As such I will not be taking every trade that appears. Normally the middle of the day is slow and we will try to avoid anything that is not directional. Play Entries I am going to change the way I post entries in this model. Instead of picking entries in advance with stops I am going to point out entries as they happen and stick with them until they change. I will warn as we are approaching an entry and approximately where I anticipate it to occur then post it when it happens. I am anticipating signals to be for 2-4 points normally and they will be 1-2 points late. I am not trying to pick tops or bottoms, just trade in the direction of the trend when the direction changes. We will then trade in the direction of the trend until that trend reverses. Stops I am not going to give stops. The majority of directional changes will trigger a change in position within two points or less. Since the majority of readers use different stop management systems than me I think it is better for everyone to plan their own exits. Some like tight one point stops, others 3-5 points. I shudder at more than two points but to each his own. By not giving a stop we are not at as much risk of being taken out on a blip only to see the move continue. It will happen and there will be times we will get whipsawed. It is a fact of life. Number of Trades There will be a lot of trades. Depending on the market we could see 6-8 trades per day. I do not plan on trading in the middle of the day when indicators tend to converge. I do plan on not trying to anticipate trends. We will take what the market gives us and trade it, good bad and indifferent. We will not trade before the open or leave trades open overnight. Trade Entries The following entry formats will be used: ER Trend Trade Entry Point Alert - ER Trend Trade Exit Point Alert - Potential ER Trend Trade Setup Alert - Quite often we will change sides at the same time from long to short or short to long with no pause in between. Base Indicator Setups for 233 Tick Chart Keltner Exp Channel 30, 4 (HLOC)/4 MACD 15,26,11 CCI 30,1,-100,100 Chart showing the basic setup: http://www.OptionInvestor.com/charts/514200420902PM_81.asp Performance I am making no claims about performance other than it has been working well in practice. I tested the signals in the monitor on Thr/Fri and the hypothetical results are below. Many times systems that work in private do not work in public and two days is not a valid trial. Many times the translation time between signal, entry and posting make the systems unusable. We will use next week as a live test and see if the signals can be reader profitable. Over the last two days of testing in the monitor the test signals have generated +19.50 ER points through noon Friday. Conditions were perfect and I do not expect this performance in real life. Friday Time - signal - entry - - exit - - gain - - max move 09:54 Short 543.00, 539.50, +3.50, low- 537.90 10:33 Long- 540.50, 544.00, +3.50, high 545.90 11:29 Short 543.00, 542.00, +1.00, low- 539.80 12:10 Long- 542.50, 545.50, +3.00, high 548.80 closed early Net gain/loss +11.00 (hypothetical only) Thursday Time - signal - entry - - exit - - gain - - max move 09:51 Short 548.0, 546.0, +2.00, low- 543.30 10:13 Long- 546.0, 548.0, +2.00, high 549.80 10:47 Short 547.0, 547.0, +0.00, low- 546.20 11:36 Long- 547.0, 550.0, +3.00, high 551.10 12:27 Short 549.0, 544.0, +4.00, low- 541.80 14:45 Short 544.0, 545.0, -1.00, low- 543.40 15:06 Long- 546.0, 545.0, -1.00, high 547.60 15:32 Short 545.5, 546.0, -0.50, low- 544.70 Net gain/loss +8.50 (hypothetical only) Russell Contract Specs The Russell-2000 Emini contract is worth $100 per point. It trades in .10 increments at $10 per tick. The bid/ask spread is normally one tick. Intraday margin is $1750. Overnight margin is $3500. The trade symbol depending on your trading platform is ER2 or @ER2 To chart the contract on Qcharts use MR04M To chart the contract on TradeStation use @ER2 ************************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 05-16-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: Inflation Concerns Subdue Stocks... Premium-Selling Plays: Naked Puts and 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 ******************* Inflation Concerns Subdue Stocks... By Ray Cummins The major equity averages made little headway in Friday's session after a larger than expected increase in April's core CPI renewed worries about inflation. The Dow blue-chip average finished almost unchanged, up 2 points at 10,012 with gains in its transportation and energy components. Technology was one of the weakest groups, weighed down by losses in computer hardware and chip stocks. The NASDAQ Composite fell 21 points to 1,904. The broad S&P 500 Index ended flat, despite buying pressure in oil and gas equipment, gold, tobacco, casino, homebuilding, airline, auto, REIT, and hospital shares. Trading volume was 1.34 billion on the Big Board and 1.52 billion on the technology exchange. Winners outpaced losers 6 to 5 on the NYSE but breadth was negative on the NASDAQ, where 2 stocks fell for every one that moved higher. Bond prices rebounded in a "short covering" rally. The 10-year note was up 18/32 while its yield dropped to 4.78%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 05/14/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 Stock Pick Last Month L/P S/P Credit C/B G/L Status DNA 56.00 61.09 MAY 47 50 0.25 49.75 0.25 Open EBAY 75.94 78.95 MAY 65 70 0.65 69.35 0.65 Open HDI 55.63 54.95 MAY 47 50 0.25 49.75 0.25 Open PDCO 74.97 74.59 MAY 65 70 0.65 69.35 0.65 Open CME 116.11 118.65 MAY 100 105 0.60 104.40 0.60 Open MATK 65.12 70.37 MAY 55 60 0.60 59.40 0.60 Open MTG 74.42 70.69 MAY 60 65 0.50 64.50 0.50 Open AVP 84.00 84.39 MAY 75 80 0.45 79.55 0.45 Open MUR 68.50 66.04 MAY 60 65 0.50 64.50 0.50 Open? ERES 32.29 31.99 MAY 27 30 0.25 29.75 0.25 Open ZBRA 74.62 75.97 MAY 65 70 0.40 69.60 0.40 Open ERTS 51.88 51.04 JUN 45 47 0.35 47.15 0.35 Open IMDC 61.17 57.78 JUN 50 55 0.50 54.50 0.50 Open GPRO 38.30 37.48 JUN 30 35 0.70 34.30 0.70 Open MATK 68.01 70.37 JUN 55 60 0.65 59.35 0.65 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Bullish positions in BJ Services (NYSE:BJS), Nabors Industries (NYSE:NBR), Navistar (NYSE:NAV), Henry Schein (NASDAQ:HSIC) and (Silicon Labs NASDAQ:SLAB) have previously been closed to limit potential losses. Murphy Oil (NYSE:MUR) remains on the "watch" list. CALL-CREDIT SPREADS Stock Pick Last Month L/C S/C Credit C/B G/L Status SOHU 25.46 16.95 MAY 35 30 0.60 30.60 0.60 Open SFNT 31.65 22.40 MAY 40 35 0.70 35.70 0.70 Open GENZ 46.40 42.56 MAY 55 50 0.60 50.60 0.60 Open PRX 55.25 40.26 MAY 65 60 0.65 60.65 0.65 Open MERQ 45.59 44.60 MAY 55 50 0.60 50.60 0.60 Open NEM 42.86 36.95 MAY 50 47 0.25 47.75 0.25 Open RYL 77.41 74.92 MAY 90 85 0.60 85.60 0.60 Open AMZN 45.20 43.05 MAY 55 50 0.65 50.65 0.65 Open BOBJ 27.85 19.70 MAY 35 30 0.75 30.75 0.75 Open NTES 51.43 37.34 MAY 65 60 0.50 60.50 0.50 Open VECO 27.43 23.81 MAY 35 30 0.55 30.55 0.55 Open BSX 40.25 39.57 MAY 45 42 0.25 42.75 0.25 Open RIMM 97.54 92.61 MAY 115 110 0.50 110.50 0.50 Open MRVL 38.92 39.72 MAY 45 42 0.30 42.80 0.30 Open OVTI 22.38 21.77 MAY 30 25 0.55 25.55 0.55 Open AMZN 43.95 43.05 MAY 50 47 0.25 47.75 0.25 Open CHIR 45.58 43.87 MAY 50 47 0.25 47.75 0.25 Open BCSI 38.55 36.09 MAY 50 45 0.40 45.40 0.40 Open CFC 56.30 59.99 MAY 65 60 0.45 60.45 0.45 Open? CTX 44.80 45.66 JUN 55 50 0.50 50.50 0.50 Open IVGN 67.61 65.38 JUN 80 75 0.55 75.55 0.55 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Countrywide Financial (NYSE:CFC) is now on the "watch" list. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status ZMH 80.84 81.85 MAY 80 80 4.90 6.15 Open? AH 35.78 34.40 MAY 35 35 3.10 2.90 Closed QLTI 29.60 24.85 MAY 30 30 3.00 5.25 Open? HOTT 22.26 20.19 MAY 22 22 1.80 2.25 Open LF 19.67 20.11 JUN 20 20 3.50 5.25 Open? BSTE 30.63 38.00 JUL 30 30 6.00 11.50 Open? MKSI 23.10 19.53 JUL 22 22 4.70 5.50 Open Hot Topic (NASDAQ:HOTT) provided a favorable one-week profit and (Zimmer Holdings NYSE:ZMH), LeapFrog (NYSE:LF), MKS Instruments (NASDAQ:MKSI) and QLT Inc. (NASDAQ:QLTI) have also offered viable short-term gains. The Stratasys (NASDAQ:SSYS) position has been closed to preserve capital. The Corinthian Colleges (NASDAQ:COCO) straddle was not available at the target entry price, due to the "gap-up" on the day after the straddle was listed as a 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ASD - American Standard $107.89 *** 3-for-2 Split Coming! *** American Standard Companies (NYSE:ASD) is a global, diversified manufacturer of brand-name products that operates in three major business segments: Air Conditioning Systems and Services, Bath and Kitchen and Vehicle Control Systems. The Air Conditioning Systems and Services Group designs and produces commercial and residential air conditioning systems and equipment for domestic and export sales. It also provides control systems, aftermarket service and parts for its products and performance contracting for the installation and maintenance of heating, ventilation and air conditioning systems. The Bath and Kitchen segment designs and produces bathroom and kitchen fixtures and fittings on a global basis. Vehicle Control Systems designs and manufactures braking and control systems for the worldwide commercial vehicle industry. ASD - American Standard $107.89 PLAY (conservative - bullish/credit spread): BUY PUT JUN-95.00 ASD-RS OI=10 ASK=$0.40 SELL PUT JUN-100.00 ASD-RT OI=183 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$99.55 __________________________________________________________________ IMCL - ImClone Systems $71.36 *** Premium-Selling Only! *** ImClone Systems (NASDAQ:IMCL) is a unique biopharmaceutical firm involved in advance oncology care by developing a portfolio of targeted biologic treatments designed to address the needs of patients with cancer. It focuses on three major strategies for treating cancer: growth factor blockers, angiogenesis inhibitors and cancer vaccines. Their lead product, ERBITUX (Cetuximab), is an antibody which has been approved by the United States Food and Drug Administration for use in combination with irinotecan in the treatment of patients with a specific type of colorectal cancer. IMCL - ImClone Systems $71.36 PLAY (conservative - bullish/credit spread): BUY PUT JUN-50.00 QCI-RJ OI=1820 ASK=$0.45 SELL PUT JUN-55.00 QCI-RK OI=8876 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$54.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NTLI - NTL Incorporated $55.28 *** Sector Slump! *** NTL Incorporated (NASDAQ:NTLI) is a broadband communications and broadband services company in the United Kingdom and the Republic of Ireland. The firm's principal lines of business are consumer services, including residential telephony, cable television, Internet access and interactive services and wholesale Internet access solutions for United Kingdom Internet service providers; business services, including data, voice and Internet services; broadcast transmission and tower services, including digital and analog television, radio broadcasting, wireless network management, tower and site leasing, satellite distribution services and radio communications for public safety; network services, including the management of their United Kingdom national network infrastructure; and carrier services and mobile such as national and international carrier telecommunications services. NTLI - NTL Incorporated $55.28 PLAY (aggressive - bearish/credit spread): BUY CALL JUN-65.00 NUD-FM OI=2232 ASK=$0.55 SELL CALL JUN-60.00 NUD-FL OI=3496 BID=$1.40 INITIAL NET-CREDIT TARGET=$0.90-$1.00 POTENTIAL PROFIT(max)=22% B/E=$60.90 __________________________________________________________________ VIP - Vimpel-Communications $91.45 *** In A Trading Range? *** Vimpel-Communications (NYSE:VIP) provides a range of wireless telecommunications services in Russia under the "Bee Line" family of brand names. VimpelCom's license portfolio covers more than 92% of Russia's population, including Moscow and St. Petersburg. VimpelCom offers two digital cellular communications standards and has built a dual band GSM-900/1800 cellular network. The company is engaged in the development and emergence of the mass consumer market for wireless telecommunications in Russia with prepaid products such as "infotainment" services, location-based services, mobile portal, and wireless Internet access through "BeeOnLine." The firm also provides GPRS (General Packet Radio Services) with per-byte billing and GPRS roaming capabilities. VIP - Vimpel-Communications $91.45 PLAY (conservative - bearish/credit spread): BUY CALL JUN-110.00 VIP-FB OI=397 ASK=$0.95 SELL CALL JUN-105.00 VIP-FA OI=259 BID=$1.35 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$105.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ DEBIT SPREADS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This strategy offers a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. SUPPLEMENTAL CANDIDATES The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. __________________________________________________________________ CALL DEBIT SPREADS Stock Current Long Ask Short Bid Cost Spread Max Symbol Price Call Price Call Price Basis Debit ROI% TK 64.53 KFK 10.10 TKFL 5.60 59.50 4.50 11.1 SLXP 32.75 PQNFE 9.00 PQNFF 4.50 29.50 4.50 11.1 CELG 56.97 LQHFH 17.40 LQHFJ 8.40 49.00 9.00 11.1 CFC 59.99 CFCFJ 10.60 CFCFK 6.10 54.50 4.50 11.1 DIGE 38.01 QDGFF 8.50 QDGFG 4.00 34.50 4.50 11.1 DNA 61.09 DNAFJ 11.50 DNAFK 7.00 54.50 4.50 11.1 KMRT 44.30 KTQFG 9.90 KTQFH 5.40 39.50 4.50 11.1 CME 118.65 CMEFT 19.70 CMEFB 10.60 109.10 9.10 9.9 PUT DEBIT SPREADS Stock Current Long Ask Short Bid Cost Spread Max Symbol Price Put Price Put Price Basis Debit ROI% PHTN 29.82 PDURG 5.80 PDURZ 3.60 32.80 2.20 13.6 AVCT 32.35 QVXRU 5.30 QVXRG 3.10 35.30 2.20 13.6 XMSR 22.89 QSYRF 7.30 QSYRE 2.90 25.60 4.40 13.6 NTLI 55.28 NUDRM 10.40 NUDRL 6.00 60.60 4.40 13.6 CLF 40.55 CLFRJ 10.30 CLFRI 5.90 45.60 4.40 13.6 BCSI 36.09 IYURJ 15.20 IYURH 6.30 41.10 8.90 12.4 SLAB 45.71 QFJRL 14.60 QFJRJ 5.70 51.10 8.90 12.4 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ SUPPLEMENTAL DEBIT STRADDLES -- "EARNINGS REPORT SPECULATION" The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Stock Pick Exp. Straddle Long Long Target Target Symbol Price Month Strike Call Put Debit Gain A 25.59 MAY 25.00 A-EE A-QE 2.00 0.70 ADSK 34.73 MAY 35.00 ADQ-EG ADQ-QG 2.30 0.80 BBOX 47.93 MAY 50C/45P QBX-EJ QBX-QI 0.60 0.25 BJ 20.29 MAY 20.00 BJ-ED BJ-QD 1.25 0.45 BLI 12.83 MAY 12.50 BLI-EV BLI-QV 0.80 0.30 FL 21.68 MAY 22C/20P FL-EX FL-QD 0.70 0.25 LOW 50.58 MAY 50.00 LOW-EJ LOW-QJ 2.50 0.85 ZLC 53.95 MAY 55.00 ZLC-EK ZLC-QJ 2.30 0.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 05/14/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 19.91 0.35 4.19% 2.04% MICC MAY 17 17.15 21.45 0.35 4.31% 2.04% MNST MAY 22 21.95 25.34 0.55 4.39% 2.51% HNT MAY 22 22.00 22.76 0.50 4.76% 2.27% IPXL MAY 20 19.50 21.57 0.50 5.43% 2.56% SSNC MAY 22 21.60 23.31 0.90 7.85% 4.17% IPXL MAY 20 19.65 21.57 0.35 4.38% 1.78% JBLU MAY 22 22.15 25.92 0.35 3.65% 1.58% LSCP MAY 22 21.95 30.32 0.55 5.43% 2.51% ASKJ MAY 30 29.50 37.23 0.50 4.47% 1.69% BRCM MAY 37 36.70 37.66 0.80 4.83% 2.18% FWHT MAY 20 19.35 19.91 0.56 6.28% 3.36% HOLX MAY 20 19.50 19.38 (0.12) 0.00% 2.56% HSII MAY 22 22.25 26.53 0.25 2.61% 1.12% LF MAY 20 19.55 20.11 0.45 5.16% 2.30% TSAI MAY 20 19.80 20.24 0.20 2.99% 1.01% TSO MAY 20 19.50 22.07 0.50 5.60% 2.56% APPX MAY 35 34.40 34.88 0.48 4.65% 1.74% BLDP MAY 10 9.75 9.09 (0.66) 0.00% 2.56% ELN MAY 17 17.30 22.25 0.20 4.01% 1.16% ERES MAY 25 24.50 31.99 0.50 6.05% 2.04% HOLX MAY 20 19.65 19.38 (0.27) 0.00% 1.78% LSCP MAY 22 22.10 30.32 0.40 5.49% 1.81% PDII MAY 22 21.75 27.77 0.75 8.99% 3.45% TELK MAY 22 22.20 23.14 0.30 4.32% 1.35% TNOX MAY 15 14.50 16.60 0.50 8.35% 3.45% APPX MAY 35 34.65 34.88 0.23 2.47% 1.01% EYE MAY 17 17.20 22.81 0.30 5.00% 1.74% JCOM MAY 22 22.30 22.96 0.20 2.82% 0.90% MGAM MAY 22 21.90 22.49 0.59 7.05% 2.74% NIHD MAY 33 32.88 33.24 0.37 3.20% 1.52% PXLW MAY 17 16.95 16.45 (0.50) 0.00% 3.24% SNIC MAY 17 17.15 18.79 0.35 5.76% 2.04% DNDN MAY 12 12.25 11.15 (1.10) 0.00% 2.04% FWHT MAY 20 19.60 19.91 0.31 5.50% 2.04% NIHD MAY 35 34.50 33.24 (1.26) 0.00% 1.45% OSTK MAY 30 29.25 32.84 0.75 9.75% 2.56% SNIC MAY 17 17.20 18.79 0.30 6.05% 1.74% UTHR MAY 20 19.65 23.74 0.35 6.71% 1.78% ATRS MAY 25 24.55 23.85 (0.70) 0.00% 1.83% DRTE MAY 17 17.20 16.36 (0.84) 0.00% 1.74% FWHT MAY 20 19.65 19.91 0.26 5.03% 1.78% INSP MAY 30 29.50 31.50 0.50 7.20% 1.69% ISPH MAY 15 14.50 16.57 0.50 11.39% 3.45% PTEN MAY 35 34.65 31.23 0.40 4.13% 1.01% UTHR MAY 22 22.10 23.74 0.40 6.82% 1.81% ARTC MAY 22 22.20 21.10 (1.10) 0.00% 1.35% CPKI MAY 20 19.70 19.44 (0.26) 0.00% 1.52% HEW MAY 30 29.50 29.99 0.49 6.56% 1.69% ISPH MAY 15 14.55 16.57 0.45 12.90% 3.09% MGM MAY 20 19.65 20.45 0.35 7.24% 1.78% SONO MAY 20 19.60 21.10 0.40 8.71% 2.04% USPI MAY 35 34.35 36.17 0.65 7.48% 1.89% DRIV MAY 25 24.75 28.41 0.25 5.17% 1.01% GPRO MAY 35 34.70 37.48 0.30 4.34% 0.86% JILL MAY 20 19.60 21.25 0.40 9.70% 2.04% MVSN MAY 20 19.65 23.11 0.35 9.34% 1.78% PDII MAY 25 24.55 27.77 0.45 8.88% 1.83% SYMC MAY 45 44.65 48.00 0.35 3.95% 0.78% VXGN MAY 15 14.50 16.36 0.50 16.34% 3.45% ADP MAY 45 44.65 45.48 0.35 5.00% 0.78% ERES MAY 30 29.70 31.99 0.30 7.04% 1.01% FARO MAY 20 19.75 23.41 0.25 9.82% 1.27% MXIM MAY 45 44.70 47.18 0.30 4.57% 0.67% NCF MAY 30 29.50 31.50 0.50 11.10% 1.69% NSM MAY 20 19.70 20.41 0.30 9.79% 1.52% BCGI JUN 10 9.65 10.88 0.35 7.73% 3.63% LPNT JUN 35 34.30 36.59 0.70 4.03% 2.04% ASCA JUN 30 29.35 33.05 0.65 5.02% 2.21% DRIV JUN 25 24.25 28.41 0.75 7.04% 3.09% FARO JUN 20 19.45 23.41 0.55 7.32% 2.83% GIVN JUN 30 29.25 35.61 0.75 7.01% 2.56% MVSN JUN 20 19.65 23.11 0.35 4.54% 1.78% PDII JUN 22 22.00 27.77 0.50 6.67% 2.27% SMTC JUN 20 19.50 21.98 0.50 6.25% 2.56% SSTI JUN 12 12.15 12.37 0.22 4.40% 2.88% Positions in ADEX, ALKS, CAMD, CLZR, ESIO, GNTA, GVHR, IMM, INSP ($35 strike), MICC, MRVL, NET, NFLX, ORBZ, PLMO, TINY, TOMO, USG and XMSR were previously closed to limit potential losses. New additions to the "early-exit" list are: ARTC, ATRS, BLDP, CPKI, DRTE, DNDN, HOLX, NIHD, SSTI and PXLW, among others. In light of the recent bearish activity, most of the remaining portfolio issues are on the "watch" list. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield AFCI MAY 25 25.75 15.88 0.75 7.73% 2.91% QLGC MAY 37 37.95 27.05 0.45 4.22% 1.19% AVCT MAY 37 38.15 32.35 0.65 4.61% 1.70% INTU MAY 47 48.00 42.49 0.50 2.80% 1.04% PPCO MAY 20 20.30 12.71 0.30 6.92% 1.48% SINA MAY 45 45.55 28.45 0.55 6.61% 1.21% NANO MAY 20 20.40 11.93 0.40 10.66% 1.96% PHTN MAY 35 35.60 29.82 0.60 7.03% 1.69% SFA MAY 35 35.55 32.43 0.55 6.17% 1.55% SOHU MAY 25 25.75 16.95 0.75 11.61% 2.91% SWIR MAY 35 35.60 23.92 0.60 9.26% 1.69% HOV MAY 42 42.90 33.10 0.40 4.07% 0.93% NFI MAY 45 45.40 33.88 0.40 7.16% 0.88% PHTN MAY 35 35.30 29.82 0.30 6.07% 0.85% RMBS MAY 25 25.30 19.01 0.30 7.84% 1.19% FLSH MAY 20 20.25 16.30 0.25 8.55% 1.23% BRCM MAY 42 42.80 37.66 0.30 4.46% 0.70% APPX MAY 50 50.55 34.88 0.55 11.50% 1.09% KG MAY 20 20.25 13.88 0.25 12.67% 1.23% SHRP MAY 30 30.45 27.55 0.45 8.28% 1.48% ATRX MAY 30 30.35 27.86 0.35 9.16% 1.15% KOSP MAY 40 40.65 34.05 0.65 12.52% 1.60% PBY MAY 27 27.85 24.20 0.35 10.04% 1.26% IACI JUN 32 33.15 29.25 0.65 5.22% 1.96% OVTI JUN 30 30.80 21.77 0.80 11.79% 2.60% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 CELG JUN 45.00 44.40 56.97 0.60 5.07% 1.35% ELN JUN 17.50 17.05 22.25 0.45 9.31% 2.64% FRO JUN 25.00 24.50 30.28 0.50 6.91% 2.04% IMMU JUN 5.00 4.75 5.82 0.25 14.42% 5.26% LNCR JUN 32.50 32.05 35.09 0.45 3.84% 1.40% MCK JUN 32.50 32.00 33.95 0.50 4.01% 1.56% NFLX JUN 25.00 24.45 30.74 0.55 7.85% 2.25% PHRM JUN 20.00 19.65 27.60 0.35 6.05% 1.78% RTN JUN 32.50 32.00 33.12 0.50 3.86% 1.56% VXGN JUN 12.50 12.10 16.36 0.40 11.04% 3.31% __________________________________________________________________ CELG - Celgene $56.97 *** Pure Premium-Selling! *** Celgene (NASDAQ:CELG) is an integrated biopharmaceutical company engaged in the discovery, development and commercialization of therapies designed to treat cancer and immunological diseases through regulation of cellular, genomic and proteomic targets. The firm has built a discovery, development and commercialization platform for drug and cell-based therapies that allows it to both create and retain significant value within its unique therapeutic franchise areas of cancer and immune/inflammatory diseases. This target-to-therapeutic platform integrates both small molecule and cell-based therapies and spans the key functions that are required to generate a pipeline of new drugs and cell therapy candidates. CELG - Celgene $56.97 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 45 LQH RI 576 0.60 44.40 5.1% 1.4% __________________________________________________________________ ELN - Elan Corporation $22.25 *** Favorable Outlook! *** Elan Corporation (NYSE:ELN) is an integrated biopharmaceutical firm engaged in research and development in Alzheimer's disease, Parkinson's disease, multiple sclerosis, pain management and autoimmune diseases. The company's objective is to discover and develop products that will fulfill the unmet medical needs of patients. Elan conducts its worldwide business, including all research and development, manufacturing and marketing, through wholly owned subsidiaries incorporated in Ireland, the United States, the United Kingdom and other countries. ELN - Elan Corporation $22.25 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 17.5 ELN RW 2198 0.45 17.05 9.3% 2.6% __________________________________________________________________ FRO - Frontline $30.28 *** Transportation Sector *** Frontline (NYSE:FRO) is a Bermuda-based shipping company engaged in the ownership and international operation of oil tankers, including oil/bulk/ore carriers. The company primarily operates a fleet of tankers in two sizes: very-large crude carriers and Suezmaxes. The company is also involved in the charter, purchase and sale of vessels, and charters in 11 modern VLCCs, a Suezmax tanker and a fleet of 10 dry-bulk carriers that included Capesize, Panamax and Handymax size bulkers. FRO - Frontline $30.28 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 25 FRO RE 384 0.50 24.50 6.9% 2.0% __________________________________________________________________ IMMU - Immunomedics $5.82 *** Cheap Speculation! *** Immunomedics (NASDAQ:IMMU) is a biopharmaceutical firm focused on the development, manufacture and marketing of monoclonal antibody-based products for the detection and treatment of cancer and other serious diseases. The company has developed a number of advanced proprietary technologies that allow it to create humanized antibodies that can be used either alone in unlabeled form or conjugated with other radioactive isotopes, chemotherapeutics or toxins, in each case to create highly targeted agents. In addition to its therapeutic discoveries, the firm has also developed highly specific diagnostic imaging agents, one of which, CEA-Scan, has already been approved in the United States, Canada and the European Union, where it is being marketed for the detection of colorectal cancers. IMMU - Immunomedics $5.82 "SPECULATIVE" PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 5 QUI RA 1272 0.25 4.75 14.4% 5.3% __________________________________________________________________ LNCR - Lincare Holdings $35.09 *** Safe-Haven Sector? *** Lincare Holdings (NASDAQ:LNCR) together with its subsidiaries, is a provider of oxygen and other respiratory therapy services to patients in the home. The company's customers suffer from chronic obstructive pulmonary disease such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen or other respiratory therapy services in order to alleviate the symptoms and discomfort of respiratory dysfunction. Lincare serves over 400,000 customers in 47 states through 642 operating centers and also provides a variety of durable medical equipment and home infusion. LNCR - Lincare Holdings $35.09 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 32.5 LQN RZ 415 0.45 32.05 3.8% 1.4% TS __________________________________________________________________ MCK - McKesson Corporation $33.95 *** Rally Mode! *** McKesson Corporation (NYSE:MCK) provides supply, information and care management products and services designed to reduce costs and improve quality across the healthcare industry. The company conducts its business through three primary segments. With the Pharmaceutical Solutions segment, McKesson distributes ethical and proprietary drugs and health and beauty care products, and provides patient and payor services in the United States. The Medical-Surgical Solutions segment distributes medical-surgical supplies and equipment, and provides logistics and other related services. The company's Information Solutions segment delivers enterprise-wide patient care, clinical, financial, supply chain, managed care and strategic management software solutions, as well as outsourcing and other services, to healthcare organizations throughout North America, certain European countries and the U.K. MCK - McKesson Corporation $33.95 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 32.5 MCK RZ 118 0.50 32.00 4.0% 1.6% TS __________________________________________________________________ NFLX - Netflix $30.74 *** In A Trading Range? *** Netflix (NASDAQ:NFLX) is an online entertainment service in the United States that provides more than 600,000 subscribers access to a comprehensive library of more than 11,500 movie, television and other filmed entertainment titles. The company's standard subscription plan allows subscribers to have three titles out at the same time with no due dates, late fees or shipping charges. Subscribers can view as many titles as they want in a month and they select these titles at the firm's Website www.netflix.com) aided by its proprietary CineMatch technology. They receive them on DVD by first-class mail and return them to Netflix at their convenience using prepaid envelopes. Once a movie title has been returned, Netflix mails the next available title in a subscriber's queue. NFLX - Netflix $30.74 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 25 QNQ RE 5160 0.55 24.45 7.8% 2.2% __________________________________________________________________ PHRM - Pharmion Corporation $27.60 *** New Drug Speculation! *** Pharmion Corporation (NASDAQ:PHRM) is a global pharmaceutical company focused on acquiring, developing and commercializing products for the treatment of hematology and oncology patients. The company has established its own regulatory, development and sales and marketing organizations and has a distributor network to serve the global hematology and oncology markets. Pharmion has acquired rights to two products, Innohep and Refludan. It also has two products, Thalidomide Pharmion 50 mg) and Vidaza, in advanced stages of development. Pharmion intends to continue to build a balanced portfolio of approved and pipeline products targeting the hematology and oncology markets. PHRM - Pharmion Corporation $27.60 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 20 JUT RD 0 0.35 19.65 6.0% 1.8% __________________________________________________________________ RTN - Raytheon Company $33.12 *** Entry Point? *** Raytheon Company (NYSE:RTN) is a defense electronics contractor serving all branches of the United States military and other U.S. government agencies, North Atlantic Treaty Organization, and many allied governments. The company range of systems and equipment include missiles; radar; sensors and electro-optics; intelligence, surveillance and reconnaissance; command, control, communication and information systems; naval systems; air traffic control systems, and technical services. Raytheon's commercial electronics businesses leverage unique technologies in commercial markets. Raytheon Aircraft is a provider of business and special mission aircraft and delivers a broad line of jet, turboprop and piston-powered airplanes to corporate and government customers worldwide. RTN - Raytheon $33.12 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 32.5 RTN RZ 46 0.50 32.00 3.9% 1.6% TS __________________________________________________________________ VXGN - VaxGen $16.36 *** More Drug Speculation! *** VaxGen (NASDAQ:VXGN) is a biopharmaceutical company focused on the commercial development and manufacture of products for the prevention and treatment of human infectious disease. Spun-off from Genentech in 1995, VaxGen utilizes recombinant technology to clone and express complex proteins, including those made through bacterial and mammalian-cell fermentation. The firm is focused on developing and commercializing vaccine candidates to address bioterrorism threats, including anthrax and smallpox. VaxGen is being funded by the National Institutes of Health to develop a modern, recombinant anthrax vaccine, known as rPA102. In 2003, it was awarded a contract from the NIH to advance the vaccine candidate into Phase II clinical trials, conduct animal efficacy studies and manufacture a three-million-dose stockpile of rPA102. The company is also the single-largest shareholder in Celltrion, a joint venture formed to build biopharmaceutical manufacturing operations. VXGN - VaxGen $16.36 "SPECULATIVE" PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 12.5 UWG RV 119 0.40 12.10 11.0% 3.3% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PHTN - Photon Dynamics $29.82 *** A Lateral Consolidation *** Photon Dynamics (NASDAQ:PHTN) is a provider of yield management solutions to the flat panel display (FPD) industry. The company also offers yield management solutions for the printed circuit board assembly and advanced semiconductor packaging industries and the cathode ray tube display and CRT glass and auto glass industries. The firm's test, repair and inspection systems are used by manufacturers to collect data, analyze product quality and identify and repair product defects at critical steps in the manufacturing. PHTN - Photon Dynamics $29.82 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 35 PDU FG 68 0.35 35.35 5.0% 1.0% __________________________________________________________________ SLAB - Silicon Laboratories $45.71 *** Sell-Off Underway! *** Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells proprietary high-performance mixed-signal integrated circuits 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. The company's mixed-signal design engineers utilize standard complementary metal oxide semiconductor (CMOS) technology to create ICs that can reduce the cost, size and system power requirements of devices that the company's customers sell to their end user customers. SLAB - Silicon Laboratories $45.71 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 55 QFJ FK 636 0.50 55.50 5.3% 0.9% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 *************************************************************** ********** 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
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc