The Option Investor Newsletter Tuesday 05-18-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: The Day the Market Stood Still Futures Markets: See Note Index Trader Wrap: Market Sentiment: Pay at the pump Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 05-18-2004 High Low Volume Adv/Dcl DJIA 9968.51 + 61.60 9987.04 9906.64 1.68 bln 2304/ 893 NASDAQ 1897.82 + 21.20 1903.39 1890.95 1.48 bln 2000/1113 S&P 100 533.82 + 3.42 535.25 530.40 Totals 4304/2006 S&P 500 1091.53 + 7.43 1094.14 1084.10 W5000 10598.26 + 80.40 10615.01 10518.57 SOX 453.36 + 8.40 455.97 444.94 RUS 2000 542.56 + 7.22 542.56 535.34 DJ TRANS 2842.36 + 30.00 2844.18 2811.35 VIX 19.33 - 0.63 19.70 19.14 VXO (VIX-O)19.82 - 1.21 20.54 19.23 VXN 27.75 - 1.44 29.29 27.58 Total Volume 3,421M Total UpVol 2,628M Total DnVol 742M Total Adv 4793 Total Dcl 2321 52wk Highs 52 52wk Lows 190 TRIN 0.83 NAZTRIN 0.51 PUT/CALL 0.99 ************************************************************ The Day the Market Stood Still by Jim Brown Almost like a scene out of an old science fiction movie the markets gapped open on Asian relief and then just stopped. They traded almost completely flat after 10:30 on very light volume. Intraday charts showed a near flat line despite the advancers controlling the day. It was not a surge in buyers but a complete lack of aggressive sellers. Dow Chart - Daily Nasdaq Chart - Daily Nasdaq Chart - 5 min The lack of excitement worried everyone and there was a total lack of conviction. However, there were several attempts to press a sell off and they all failed quickly. Resistance held and so did support. Considering the weak economics this morning just holding in place was an accomplishment. Chain Store Sales came in at -0.8% and the second consecutive weekly loss. Consumers are getting killed at the pump with gas prices hitting an all time high today. This is taking cash out of consumers pockets and summer weather kept them out of stores. Tax refunds have begun to dwindle and consumers are running out of surplus cash. New Residential Construction fell to 1.969M units from 2.011M in March. This shows that builders are not as optimistic about the future with rising rates. The drop was not significant and we did have a very strong March so this is not really a factor to fear. If it dropped another 50-100K traders would start to worry more that the sector was weakening. Several comments and events recently have begun to question if the Fed would actually hike in June so the picture is still cloudy. We still have a couple strong months ahead for home sales. The majority of the market relief today was due to a recovery in the Asian markets. India led the rebound with a +8% gain after Sonia Gandhi turned down the Prime Minister position. The Indian markets fell -17% intraday on Monday and recovered to close only down -11% but it was still the biggest loss on record. Other Asian markets fell on the news on Monday with the Nikkei down -3%, Taiwan -5.1% and Korea -5%. All those markets recovered on Tuesday and the U.S. markets rebounded at the open on relief. We also saw the GDP in Japan come in at +5.6% when only +3.5% had been expected. That was the last major economic release for the week and the Nikkei jumped +2% but only recovered two-thirds of Monday's losses. No sooner had the markets opened up than Fed President Al Broaddus delivered a hawkish speech expressing concern that core inflation had quickly bottomed and was on a subsequent upswing. He said there was a growing concern at the Fed about inflation. He said that after a long period of worrying about lack of inflation he would now have to dust off his inflation hawk feathers in case he had to attack it again soon. As if he feared he had said to much he repeated the current Fed refrain of "labor market slack and excess capacity will restrain the inflation pressures in the period immediately ahead." He also repeated the "measured pace" phrase but said there is no question the risk is greater now than just three months ago. He dismissed 1994 parallels saying the Fed only wanted to "stabilize" inflation at the current levels today and not "reduce" it as they did in 1994. Since it took almost 20 years for the last inflation cycle to be broken the Fed does not want to go there again and Broaddus made it clear the Fed would not allow it to happen again. This was the most hawkish of the recent Fed speakers and brought the June rate hike back into focus. That hike had been discounted somewhat over the last couple days with oil hitting 22 year highs and depressing the current economic environment. Coupled with global market instability there were some beginning to think the Fed could still take a pass in June. I think the inventory adjustment to the GDP will push it high enough that the Fed will feel required to act. Helping push the U.S. markets higher at the open were strong earnings from CSC and Agilent. This helped push the Nasdaq back to 1900 but the index could not hold it. The Dow tried to regain 10000 but that was also an elusive target. The Dow rebounded from 9900 support that held firm yesterday and climbed to 9970 by 10:30 and it held that level the rest of the day. By failing to recover 10K after trading very close all day it cast significant doubt on the quality of the rally. The Nasdaq rebounded +20 points at the open and then traded in a six point range the rest of the day. This is yet another lower high and another failure to return to critical levels. Both indexes gave the appearance of a simple dead cat bounce where sellers paused in hopes buyers would rush into the dip and push indexes back to resistance so sellers could pile on once again. I mentioned on Sunday there was a chance the market could see an option expiration rally off critical support at NDX 1400 and Nasdaq 1900 on Monday assuming there were no weekend events. Obviously the Asian market implosion was a key event over the weekend that nullified that rebound potential. The failure for the NDX/Compx to return to those levels today is a clue to the weakness still ahead. The lack of volume was another clue. We are two days into expiration week and it appears everyone is content to let the week end at this level. Hedge funds or just funds in general have been pushing the market around worse than the ball in a Ping Pong match. On Monday volume in the QQQ was over 150 million shares. Today it was only 96 million. Average volume is 103 million. A 50% increase in volume on one day should give you a clue how heavily the funds are hedged. Program trading hit 52.3% on the NYSE last week, the highest level ever. Average daily volume in program trades was 847 million shares. Only 11% of the program trading was due to arbitrage. That is the buying/selling of a basket of stocks and futures to capture differences in the fair value. (http://www.nyse.com/press/1084441844123.html) The retail trader is being tossed around like a ship in a storm as the big guys fight for points. The lack of ANY volatility after 10:30 today indicates the hedge funds and institutions took the day off. Whether they are comfortable holding the indexes just under key resistance or they were hoping for a bounce to sell we will not know until tomorrow. One statistic on cash flow that hit the airwaves today was the outflow of cash by foreign investors. In March there was an inflow of +$2.4 billion but April saw outflows of -$13.5 billion. This was the highest outflow since records began in 1978. Deficits and rate hikes were given as the reasons for the withdrawals as foreign accounts repatriate money. A positive for today's market was a drop in oil of more than a $1. July crude fell -1.08 to $40.40 after setting an all time high yesterday. There is no reason other than profit taking and the recovery of the Asian markets. The Bush administration said it would NOT use the strategic oil reserves to reduce prices. That oil is supposed to be for national emergencies and for a defense stockpile. Prices are not an emergency. Considering the rate of escalation in price and the heated words over oil in the press I don't think it is a bad idea to store it up. Planes, ships, tanks, trucks and humvees don't run without oil. I also don't think it would hurt to start applying the screws to OPEC nations. Cutting off trade favors to several might take the smile off their face. It only costs an average of $8 to produce a barrel of oil so profits are huge. One market factor I mentioned last week was eliminated when Bush formally reappointed Greenspan to his position today for another four year term. He now has to be approved by Congress but that is not expected to be a problem. Greenspan cannot serve the entire term. His term at the Fed is up on Feb-1st 2006 and he will have to abdicate by then. By law he cannot continue at the Fed past that date. That gives us a little over a year and an election before potential successors will start posturing in the press. After the bell today several tech companies reported great earnings. Leading the list was Hewlett Packard, which did announce inline at 34 cents and a profit of $1.3 billion on an operating basis. Sales in Europe surged +17% on things like digital cameras, music players and laptops. Carly Fiorina said the quarter was strong but admitted corporations were still reluctant to spend millions on computer upgrades. She said pricing was extremely competitive and sales depended on price. HPQ raised its guidance but it was clear that Dell was breathing down their neck in hot pursuit and IBM is chipping away at the HPQ base. AMAT beat the street by three cents and said orders were up +32% in the first quarter to $2.21 billion. AMAT raised its guidance for the current quarter and said its plants were running at 100% with plenty of opportunity for upside. NTAP also announced earnings inline with estimates and they predicted revenues would grow +4-6% in the current quarter. ADSK also beat the street by +6 cents and boosted estimates for the full year. PLAB beat the street by +3 cents and will give guidance on a conference call on Wednesday. Earnings are good, the economy is growing and Asia is still booming as evidenced by Japan's GDP today. However the U.S. markets are still weak. Even the finding of a couple chemical weapons in Iraq could not send them higher. You know why and I do not need to spell it out again. There are still some rocky times ahead and while we may be nearing some strong support there is still strong overhead supply. There is stock for sale and until that supply goes away we will continue to be weak. June 30th is the key day for more than one reason. The key for me is when will traders decide that enough is enough and start nibbling at beaten up issues in hopes of a summer rally after that date. The velocity of the decline is slowing but we may not be done yet. For the rest of the week there are no economic reports that should shake up the markets. We have three days left in expiration week and based on today's volume it could be very boring. I have been suggesting everyone sell rallies until the trend changes but I am recommending a neutral approach today. Until we get past expiration it could be terminally boring interspersed with periods of extreme volatility. Neither environment is conducive to profitable trading. Next week we should return to normal and a trend should emerge again. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************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 ************************************************************** ******************** INDEX TRADER SUMMARY ******************** Check the Site Later Tonight For Jeff's Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_051804_1.asp ************************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 ************************************************************** **************** MARKET SENTIMENT **************** Pay at the pump By Jeff Bailey U.S. stocks recouped the bulk of Monday's losses on Tuesday as investor sentiment is swayed not only by what is taking place at home in the U.S., but overseas as well, where great focus has been given to energy prices as the global economy picks up momentum. U.S. Government statistics released this week showed the national average for a gallon of retail gasoline reached $2.00 for the first time in history, leaping 7.6 cents over the past week to a record high of $2.017 a gallon. While the government forecasted that the average price for retail gasoline will peak at $2.03 a gallon in June, industry analysts expect prices to rise further because of a seasonal increase in demand that usually kicks in after the Memorial Day weekend. The continued rise in gasoline prices may have eaten away at consumer spending habits, where chain store sales edged down 0.8% in the week ended May 15, versus a 0.3% rise in the previous week. Broadline retailers have expressed some concern that higher gasoline prices may eat into sales should consumers begin cutting back on discretionary purchases as they fill their tanks with higher priced gasoline. Helping alleviate some fears that the consumer's pocketbook has been totally depleted after the recent 3-month rise in Treasury yields, which have raised the rate of borrowing costs for consumers and had negative impact mortgage refinancing, was the quarterly earnings report from Home Depot (NYSE:HD) $34.62 +3.43%, where the building products retailer handily beat Wall Street's earnings forecast. Early Monday morning, geopolitical events in Iraq saw stocks drop early in the session, but by Tuesday's close, stocks are back near Friday's closing prices. Monday morning's news that the head of Iraq's governing council had been killed in a car bomb attack had June, Light Sweet Crude Oil futures (cl04m) spiking to a contract high of $41.85 and achieving its point and figure chart bullish vertical count of $41.75, but since that morning high trade, June crude has slipped back below $40.50, helping alleviate some near-term fears regarding higher energy prices impact on inflation and the global economic recovery. Crude prices dropped in Tuesday's trade despite the Bush administration rebuffing pressure from Democrats to open the spigots on the nations emergency oil stockpile to help lower record gasoline prices. Saudi Arabia has proposed that OPEC boost output by 1.5 million barrels per day when the cartel meets June 3. Also giving boost to investor sentiment in Tuesday's trade was Japan's Nikkei 225 gaining 1.96% after the Japanese government said its economy grew at a 1.4% rate in the first quarter. The news helped calm fears that higher oil prices and rising U.S. interest rates would jeopardize Japan's export-led recovery. Market internals in today's U.S. trade showed some sign of renewed bullish leadership trying to build from some deeply oversold conditions found last week. The NYSE reported 17 stocks hitting new 52-week highs compared to 59 stocks hitting new lows, which has the 5-day NH/NL average ratio improving to 12.5% and moving above the still declining 10- day ratio of 10.8%. NASDAQ showed similar improvement with 31 new highs and 74 new lows, but not from as deeply oversold levels where the 5-day NH/NL average ratio improved for the fourth-straight session to 24.3%, but still remains below its declining 10-day NH/NL average ratio of 26.6%. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8416 Current : 9968 Moving Averages: (Simple) 10-dma: 10062 50-dma: 10278 200-dma: 10029 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 912 Current : 1091 Moving Averages: (Simple) 10-dma: 1098 50-dma: 1118 200-dma: 1080 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1103 Current : 1397 Moving Averages: (Simple) 10-dma: 1407 50-dma: 1436 200-dma: 1418 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 19.33 -0.63 CBOE Mkt Volatility old VIX (VXO) = 19.82 -1.21 Nasdaq Volatility Index (VXN) = 27.75 -1.44 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.99 716,116 710,531 Equity Only 0.75 561,884 423,685 OEX 1.88 35,393 66,475 QQQ 1.30 147,692 191,668 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 61.5 - 1 Bear Confirmed NASDAQ-100 31.0 - 3 Bear Confirmed Dow Indust. 66.7 + 0 Bear Confirmed S&P 500 57.8 - 1 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: 0.85 10-dma: 0.96 21-dma: 1.06 55-dma: 1.05 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 2084 1951 Decliners 774 1107 New Highs 29 35 New Lows 50 40 Up Volume 1288M 1074M Down Vol. 374M 311M Total Vol. 1694M 1395M 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************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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The Option Investor Newsletter Tuesday 05-18-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: ADP, JNJ, LXK New Calls Plays: ERTS Put Play Updates: AMZN, APOL, CAKE, CTX, GM, MBG, MSTR, WHR New Put Plays: None **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** None ************************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 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Auto. Data Proc. - ADP - close: 44.57 change: -0.03 stop: 43.25 Continuing with its pullback from last week's highs, ADP dropped back to the $44.50 level yesterday and finally found some support at the midline of the rising channel that has been encompassing the stock's price action these past several months. That support lines up perfectly with horizontal support from February and March and if the bulls are going to buy this dip, then this is the spot where they'll have to do it. Daily oscillators are nearly to oversold and this decline has come on rather light volume, supporting the notion that this is just a normal pullback in the overall bullish trend. Aggressive traders still looking for a position can use a rebound off this $44.50 level as their entry into the play. We should see the 50-dma ($43.77) providing added support as it nears the current price level, helping to protect our $43.25 stop. If looking to enter on strength, we'd suggest waiting for a rally back through the 10-dma ($45.63) and mild resistance at $46 before playing. Picked on May 9th at $46.03 Change since picked: -1.46 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.06 mln Chart = --- Johnson & Johnson - JNJ - close: 54.63 change: -0.07 stop: 52.75 We're still waiting to see if JNJ is going to put in that bullish continuation that we've been expecting ever since the stock pushed through the $55 resistance level over a week ago. Since tapping the $56 level, the stock has been pulling back on diminishing volume and it was encouraging yesterday to see the stock once again find support above the $54 level and post a solid gain on the session. That gain came amidst broad market weakness, maintaining the theme that JNJ still appears to be a defensive stock, garnering investor's dollars when nervousness about riskier areas of the market increases. Daily Stochastics are just starting to turn upwards from slightly above the oversold area and this looks like a good spot for initiating new positions, especially with the 30-dma ($53.83) rising to reinforce support at $54. If looking to enter on renewed strength, waiting for a move back over $55 looks like the appropriate course of action. Maintain stops at $52.75 for now, which is now fractionally below the 100-dma ($52.77). Picked on May 9th at $55.30 Change since picked: -0.67 Earnings Date 4/13/04 (confirmed) Average Daily Volume = 7.23 mln Chart = --- Lexmark Intl. - LXK - close: 91.75 change: +1.48 stop: 89.75 There's no two ways about it, Monday's drop to just above the $90 level looked ominous indeed, especially with the close below the 50-dma ($91.17). But true to form, the bulls stepped into the breech, buying the dip this morning and sending the stock back over that average at the close. It's hard to characterize today's rebound as overly bullish, as it didn't have the support of strong volume. But the daily price pattern does look reminiscent of the past 3 tests of the 50-dma, which consisted of a bullish reversal higher only one day after closing below that average. So far, that pattern remains intact and it is nice to know that each of those prior test resulted in new highs a couple weeks after the test. We're looking for a repeat performance, so obviously we view this dip and nascent rebound as a viable entry point. Of course, more cautious traders may want to wait for a close back over the 30-dma ($93.04) before playing. Maintain stops at $89.75. Picked on May 13th at $94.03 Change since picked: -2.28 Earnings Date 4/19/04 (confirmed) Average Daily Volume = 1.07 mln Chart = ************** NEW CALL PLAYS ************** Electronic Arts - ERTS - close: 49.60 change: -0.60 stop: 47.00 Company Description: ERTS creates, markets and distributes interactive entertainment software for a variety of hardware platforms, including Sony's PlayStation 2, the PC, Nintendo GameCube and the recently launched Xbox. The company's EA.com business segment is engaged in the creation, marketing and distribution of entertainment software which can be played or sold online, as well as the ongoing management of subscriptions of online games and Website advertising. Why we like it: After soaring to new highs in late March and early April, shares of ERTS have been slowly settling their way back to earth in a very orderly manner. There hasn't been much of a bullish tone to the daily trading pattern now for over a month, so one might wonder why we're considering it as a bullish play. That's a fair question and to be fair, this is definitely a more aggressive play, as we're going to be attempting to pick the bottom of the current round of profit-taking, looking to play a rally back to test the April highs. There really hasn't been a lot of follow- through to any of the bearish moves of late, and even a disappointment on April video game sales this morning didn't usher in a wave of selling. Instead, the stock just continued its orderly decline towards strong support near $48-49. As we can see, there's significant historical support in this area, and it is reinforced by the 100-dma ($48.89) and the 200-dma ($47.62). Looking at the PnF chart, we can see that ERTS is in a precarious position here, as a trade at $48 will generate a new PnF sell signal. But we're looking for a rebound from just above $48 to provide a solid bullish entry point. Traders not willing to attempt catching the falling knife (even this close to an expected floor) will want to wait for a breakout over the near- term descending trendline at $51.50 (also the site of the 30-dma) before playing. We'll target an initial move to the $55-56 area, for a test of the April highs and re-evaluate at that time whether it appears prudent to hold for a breakout to new highs. Due to the aggressive nature of the play, we're working with a tight initial stop at $47. While a trade at $48 would be a new PnF Sell signal, we want to give the stock a bit more room to move than that on the thought that we could see a bear-trap and then a strong reversal to the upside. Suggested Options: Shorter Term: The June $47 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive longer-term traders can use the June $52 Call, while the more conservative approach will be to use the June $50 Call. Traders looking for more insulation against time decay may want to consider the September strike. Our preferred option is the June $50 strike, as it is currently near the money and should provide sufficient time for the play to move in our favor. BUY CALL JUN- 47*EZQ-FW OI=1970 last traded @ $3.70 BUY CALL JUN- 50 EZQ-FJ OI=6596 last traded @ $2.15 BUY CALL JUN- 52 EZQ-FX OI=2125 last traded @ $1.15 BUY CALL SEP- 50 EZQ-IJ OI=2108 last traded @ $4.10 Annotated Chart of ERTS: Picked on May 18th at $49.60 Change since picked: +0.00 Earnings Date 4/29/04 (confirmed) Average Daily Volume = 3.87 mln Chart = ************************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 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Amazon.com - AMZN - close: 41.99 chg: -0.09 stop: 44.75 For weeks, many have speculated that Google's planned IPO would take some of the shine off other Internet favorites such as AMZN, but it may actually be another IPO that accomplishes that task. Blue Nile (NILE), a company selling diamonds over the Internet, boasts a proven low-cost operating model profitable since 2002 with positive cash flow from operations for three years. Operating expenses measure just a little more than 14 percent of sales. According to one article, AMZN's operating expenses measure about 19 percent of sales. Blue Nile, to be launched this week, will offer buyers the ability to order customized rings that will compete with AMZN's newly announced "Create a Diamond Ring" feature on its "Jewelry Store" site. Perhaps some AMZN investors took note. While the CBOE Internet Index, the $INX, bounced Tuesday into an inside-day formation, AMZN did not bounce. Zale Corp (ZLC) and Tiffany and Company (TIF), other competitors in NILE's category, also bounced Tuesday. This week saw AMZN drop out of the most recent bear flag, but it has so far refused to fall below the 5/10 low of $40.57. Bearish traders want to see it drop below that level and then below the 3/24 low of $39.15 on its way to its trendline of lower lows, currently near $35.40. We continue to suggest that short-term players take profits near $40.00, or perhaps just ahead of that 3/24 low if $40.00 is breached. Conservative longer-term plays could take partial profits at those levels, too. This weekend, we suggested new rollover entries, with AMZN complying by a rollover beneath the new-entry levels. Now that support approaches, however, we would not suggest new entries. We'll reevaluate if AMZN pushes below that round-number support at $40.00. Picked on May 02 at $ 43.60 Change since picked: - 1.61 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 8.4 million Chart = --- Apollo Group - APOL - close: 89.66 change: +0.74 stop: 95.00 We've been waiting for a full week for APOL to deliver some follow-through to its plunge through the $91.50 support level and it hasn't happened yet. The stock has spent the time wedging up on top of the 50-dma ($88.88) with the 10-dma ($90.61) continuing to cap any intraday rally attempts. With daily Stochastics starting to roll over again without even reaching overbought territory, this looks like a classic rollover in process. If this one is going to play out as we suspect, then getting a rollover entry in the $92-93 area appears unlikely. Instead, we should be focusing our efforts on catching a rejection from the 10-dma, as it is clearly providing upside resistance. The breakdown entry possibility is still very much in play as well, and using a break under $87.50 looks like the way to play. Maintain stops at $95. Picked on May 11th at $90.32 Change since picked: -0.66 Earnings Date 6/11/04 (unconfirmed) Average Daily Volume = 1.72 mln Chart = --- Cheesecake Factory - CAKE - cls: 40.25 chng: +0.63 stp: 42.75 The lack of a significant bounce in CAKE over the past few sessions certainly adds credence to the notion that last week's breakdown under the 200-dma ($41.51) was significant. The stock tried an initial rebound late last week and then a move lower yesterday, but basically it is just consolidating that breakdown. Oscillators are looking like they want to turn up here, so we could be looking at a real rebound attempt. With a PnF downside target of $31, that rebound would be welcome, as it would set us up for a nice rollover entry in the $41-42 area. A quick look at the PnF chart tells us why we're seeing the stock hold at these levels, as the bullish support line rests at $39. While aggressive traders can short a breakdown below that level, our preference is still to exercise patience and wait for the fat pitch on a rollover from resistance. Maintain stops at $42.75, which is solidly above the top of last week's gap, as well as the 20-dma ($42.33). Picked on May 13th at $40.09 Change since picked: +0.16 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 579 K Chart = --- Centex Corp - CTX - close: 44.93 change: -0.07 stop: 49.35 While CTS did challenge $46.00 again on Monday, as it had on Friday, it hasn't yet followed the new parameters we set out this weekend for a triggered entry. Those included a move up to $47.00 and then a downturn through $46.00 again. Therefore, we're not yet considering this play officially triggered even though it did pull back slightly this week. We're still eyeing the $DJUSHB, the Dow Jones US Home Construction Index, noting that it's still rising within its possible bear flag, perhaps up to form a right shoulder on the potential H&S formation. We mentioned that as a possibility when the play was first listed, and that possibility was behind our focus on a bounce-and-rollover entry. If the DJUSHB bounced, perhaps as a result of a consolidation in yields, we thought CTX might be carried higher with some of the other homebuilders. As is almost always true whenever a stock enters a consolidation pattern, oscillators give few clues, with the MACD, RSI, and stochastics all having flattened. We notice that many of those homebuilders, such as TOL and HOV, have patterns similar to CTX's. All look as if they've been rising into a bear flag formation, but all now teeter on the edge of a rollover. If such a rollover begins now, we may miss our official entry. A look at ten-year yields, the TNX, shows a doji printed for Tuesday's trade, with that doji displaying indecision that won't be resolved until later in the week. A continued pullback in yields may well produce that CTX bounce up to $47.00, but a continued rise in yields may turn CTX down before we get our entry. 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: 44.11 change: +0.71 stop: 47.25 Is it finally time for a rebound? After the recent breakdown, shares of GM have been consolidating in a very tight sideways range. On one hand, we can view this as holding up while oscillators move south, in preparation for a bullish move. However, with the highs and lows moving lower over the past week, it looks more like a classic 'b' distribution pattern. In either case, today's rebound came on slightly stronger volume and does look encouraging for those of us looking for an entry on a rollover from resistance. That resistance begins near the $45 level, strengthens near the 200-dma ($45.54) and becomes strong near the $46 level, with both the 30-dma ($46.60) and 50-dma ($46.38) bearing down. So our preferred strategy of entering new bearish positions on a rollover from the $45-46 area still looks like the best course of action. Breakdown entries might work, but as we can see from the way yesterday's apparent breakdown below $43 was reversed, there's greater risk in pursuing that strategy. Maintain stops at $47.25. Picked on May 9th at $44.60 Change since picked: -0.49 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 5.21 mln Chart = --- Mandalay Resort Group - MBG - cls: 53.04 chng: +1.54 stop: 53.21 After almost hitting our original trigger Friday, MBG headed up Monday and Tuesday, posting stronger-than-average volume during Tuesday's rise. Monday, CSFB raised the company's rating from a neutral rating to an outperform one. The firm also raised the company's price target to $62 from its former $60 target. That strong-volume rise was perhaps prompted by the upgrade. The bounce brought MBG above the 10- and 100-dma's, closing it above both. However, the rise stopped short at the resistance zone from $53.00-53.60. To recap our new entry, we're now looking for a move below round- number resistance at $50.00, with the new entry officially triggered at $49.95. RSI hints that MBG may rise first before rounding down and hitting our trigger, if it does, as RSI has hooked upward. The MACD histogram grows less negative, but MACD lines have not produced a bullish cross and both lines remain below signal. We see conflicting signals. We never want to see rising volume on a bounce if we're considering a bearish play, so that expanding volume warns us to be particularly careful that triggers are hit before considering an entry. However, other considerations do not show the bounce to be a strong one as yet, and our trigger may yet be hit. Picked on May xx at $ xx.xx (See Trigger) Change since picked: - x.xx Earnings Date 06/03/04 (confirmed) Average Daily Volume: 1.7 million Chart = --- MicroStrategy Inc. - MSTR - cls: 45.37 chng: +0.48 stp: 47.00 The consolidation pattern in MSTR that we spoke of over the weekend has shown no signs of resolving itself this week, as the stock continues to trade in that gradually rising bear-flag pattern. Energy is being stored up in this consolidation pattern ahead of the next strong directional move and when MSTR decides to move, it could get exciting in a hurry. Obviously we're still leaning towards a downside continuation move and daily Stochastics support that position, as the oscillator has risen almost to overbought, while price has merely drifted sideways, a classic sign of weakness. The first sign that the stock is breaking down from this pattern will come from a drop through the $44.50 level (just under the lower boundary of the wedge), with confirmation coming from a close below $44, violating Monday's low. Aggressive traders could consider new entries on such a move, but with the understanding that we're likely to see support again in the $42-43 area on the way to our $40 target. On the chance that the current consolidation breaks to the upside, we've got a fairly tight stop at $47, which is above the highs of the pattern. Picked on May 6th at $47.02 Change since picked: -1.65 Earnings Date 4/27/04 (confirmed) Average Daily Volume = 417 K Chart = --- Whirlpool Corp - WHR - close: 64.65 chg: +1.08 stop: 65.76 Tuesday, WHR announced a plan to spend $180 million in 2004 on its Benton Harbor U.S. facilities and Mexican plants, with the money being used for a new generation of washers and dryers. When making that announcement, the company also announced other initiatives at other plants. Perhaps at least in part to that announcement, WHR moved higher Tuesday. As we mentioned this weekend, however, WHR continues to find resistance at $65.00. While we're encouraged by that resistance holding, we also notice that WHR finds support at about $63.40. We continue to suggest that play participants exercise caution as the bulls and bears battle to see whether support or resistance will prove stronger. Intraday charts do depict a more detailed look at the action. The 60-minute chart shows that on Monday WHR broke through the supporting trendline that had been in place since 5/10. After trading sideways through a number of 60-minute bars, WHR rose again to retest that trendline early Tuesday morning, then immediately fell away again. WHR labored uphill again through the rest of the day, never quite reaching the early-morning high of the day. While the immediate pullback at resistance proved encouraging to our position, the continual testing of resistance warns that WHR may break through one of these times. If it does, next resistance appears to be at about $65.50. If WHR breaks through that, too, our stop loss will soon take us out of the play. Play participants want to see WHR fall through the $63.40 next support instead, with such a fall also producing a new entry into this bearish play. Picked on May 05 at $ 64.69 Change since picked: - 0.04 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 555 thousand Chart = ************* NEW PUT PLAYS ************* None ************************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. 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The Option Investor Newsletter Tuesday 05-18-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Fed Prez Mentions Inflation, Not News to Consumers Spreads & Straddles: A Much-Needed Bounce! Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** Fed Prez Mentions Inflation, Not News to Consumers _________________________________________________________________ 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. _________________________________________________________________ KMart - KMRT - close: 48.79 change: +0.17 What to Watch: After reporting a profitable quarter on 5/17, KMRT gapped higher then climbed out of a possible bull flag. It climbed on volume five times its 820,000 average daily volume. Tuesday, KMRT posted another gain on strong volume. That day's gain produced a small-bodied candle at the top of a climb, however, so we think it may be time for KMRT to absorb some of those strong gains, perhaps either by consolidating sideways or by pulling back and retesting support, perhaps near $46.80-47.00. Those interested in playing the long side on this stock might wait for such a pullback and then a push back up past Tuesday's high. Monday's trade created a triple-top breakout signal on the P&F chart with a $69.00 upside target, but those interested in this bullish play should follow KMRT higher with their stops, as some articles still mention the negative sentiment toward KMRT on the part of investors. Chart= --- Nike Inc - NKE - close: 66.50 change: +0.45 What to Watch: When we study NKE's chart, we see a possible "b" distribution pattern developing, with that type of pattern often occurring about halfway through a decline. That possible "b" distribution pattern appears on both the daily and weekly charts. On the daily chart, the bulb of the "b" forms just over and under the 200-dma, giving that pattern even more relevance. In addition, on the weekly chart, NKE already appears to be below a support/resistance level near $68.00. We believe a breakdown out of the "b" distribution pattern, signaled by a fall through $65.85, below last week's low, might send NKE down to test $57.00, but we see some danger spots along the way and would suggest setting a closer profit target. Shortest-term traders might opt for a quick exit near $64.00- 64.60, the site of historical horizontal S/R. A new P&F sell signal will be created with a trade at $63.00, so support might also be expected at that level, and some traders might opt to set a profit target just above that. We believe that $61.50-62.00 might be achievable, however. Chart= ---- Waters Corp - WAT - close: 44.62 change: +0.50 What to Watch: With a new high reached on Tuesday, the completion of a saucer pattern completed with a move above $41.00, and a P&F upside target of $79.00, this potential bullish play has much to offer. We would use intraday dips toward $44.00 as entries. We think entries at the current level are fine, and also believe that a profit target near $49.00 should be possible. We would suggest following WAT's movements closely with stops as it approaches $48.50-50.00. Chart= ---- Intl Rectifier - IRF - close: 38.99 change: +0.67 What to Watch: IRF's chart looks ugly. IRF has slipped beneath its 200-dma, but clings to support just above $38.50. We could see two possible entries on this play. One would be on a low- volume rise and then a rollover beneath the 200-dma. The other would be on a fall through the support at $37.00-37.25 level. Be sure to watch volume patterns if the bounce-and-rollover entry should present itself. That might be the first entry offered since bullish price/oscillator divergence shows up on the daily chart. Target $34.60-35.00, just above the 200-week moving average. We could see this working its way down toward $30- 32.00, but think the potential for a bounce at the 200-week moving average might be strong, too. Chart= ************************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 ************************************************************** ******************* SPREADS & STRADDLES ******************* A Much-Needed Bounce! By Ray Cummins Stocks rebounded from 2004 lows Tuesday as investors shopped for bargains on news of favorable corporate profits and a retreat in crude prices. The Dow Jones industrial average closed up 61 points at 9,968 on strength in Home Depot (NYSE:HD) after the company reported solid earnings. The technology-laden NASDAQ Composite Index added 21 points to finish at 1,897 ahead of quarterly income reports from Hewlett-Packard (NYSE:HPQ) and Applied Materials (NASDAQ:AMAT). The S&P 500 Index ended up 7 points at 1,091 with oil services stocks among the few losing groups. Trading was light with only 1.35 billion shares changing hands on the New York Stock Exchange, while 1.4 billion shares were crossed on the NASDAQ. Advancing issues outnumbered decliners by a 5 to 2 ratio on the NYSE and by a 7 to 4 margin on the technology exchange. Bond prices drifted lower with the 10-year treasury note down 9/32, while its yield climbed to 4.73%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 05/16/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CSC - Computer Sciences $42.17 *** A Big Day! *** Computer Sciences (NYSE:CSC) offers a wide array of services to its clients in the global commercial and government markets and specializes in the application of complex information technology to achieve its customers' strategic objectives. The company's service offerings include IT and business process outsourcing and IT and professional services. CSC also provides management of key functions for clients, such as claims processing, credit checking, logistics and customer call centers. CSC - Computer Sciences $42.17 PLAY (less conservative - bullish/credit spread): BUY PUT JUN-35.00 CSC-RG OI=1663 ASK=$0.20 SELL PUT JUN-40.00 CSC-RH OI=3167 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$39.35 __________________________________________________________________ GILD - Gilead Sciences $62.54 *** New Rally Underway! *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five major products marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $62.54 PLAY (aggressive - bullish/credit spread): BUY PUT JUN-55.00 GDQ-RK OI=2199 ASK=$0.65 SELL PUT JUN-60.00 GDQ-RL OI=523 BID=$1.70 INITIAL NET-CREDIT TARGET=$1.05-$1.20 POTENTIAL PROFIT(max)=26% B/E=$58.95 __________________________________________________________________ RIMM - Research In Motion $99.98 *** Next Leg Up? *** Research In Motion Limited (NASDAQ:RIMM) is a designer, builder, and marketer of wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, the firm provides solutions for seamless access to time-sensitive information and communications, including e-mail, telephone, messaging and Internet- and intranet-based applications. The company's technology also enables a broad array of third-party developers and manufacturers around the world to enhance their own products and services with wireless connectivity. RIM's portfolio of products includes a family of wireless handhelds, the BlackBerry wireless e-mail solution, embedded radio modems and a suite of software development tools. RIMM - Research In Motion $99.98 PLAY (conservative - bullish/credit spread): BUY PUT JUN-80.00 RUL-RP OI=3073 ASK=$0.75 SELL PUT JUN-85.00 RUP-RQ OI=2199 BID=$1.15 INITIAL NET-CREDIT TARGET=$0.45-$0.60 POTENTIAL PROFIT(max)=9% B/E=$84.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CERN - Cerner $41.33 *** In A Trading Range? *** Cerner (NASDAQ:CERN) designs, develops, markets, installs, hosts and supports software information technology and content solutions for healthcare organizations and consumers. The firm's solutions give end users secure access to clinical, administrative and other financial data in real-time. Consumers retrieve appropriate care information and educational resources via the Internet. The firm implements these solutions as stand-alone, combined or enterprise wide systems. Cerner solutions can be managed by the company's clients or via an application outsourcing/hosting model. Cerner provides hosted solutions from its data center in Lee's Summit, Missouri. CERN - Cerner $41.33 PLAY (conservative - bearish/credit spread): BUY CALL JUN-50.00 CQN-FJ OI=1685 ASK=$0.25 SELL CALL JUN-45.00 CQN-FI OI=1738 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$45.60 __________________________________________________________________ SEPR - Sepracor $45.06 *** Pure Premium-Selling! *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. SEPR - Sepracor $45.06 PLAY (conservative - bearish/credit spread): BUY CALL JUN-55.00 ERU-FK OI=1192 ASK=$0.35 SELL CALL JUN-50.00 ERU-FJ OI=3950 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$50.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ No straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 05/16/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ARTI JUN 22.50 22.00 24.51 0.50 6.11% 2.27% AVID JUN 45.00 44.30 50.57 0.70 4.62% 1.58% BLUD JUN 25.00 24.70 27.86 0.30 3.54% 1.21% DIGE JUN 35.00 34.25 39.01 0.75 6.16% 2.19% DRIV JUN 25.00 24.60 29.75 0.40 5.37% 1.63% NUE JUN 55.00 54.25 60.95 0.75 3.96% 1.38% PHRM JUN 20.00 19.70 27.22 0.30 5.30% 1.52% SPLS JUN 25.00 24.60 26.39 0.40 4.24% 1.63% YHOO JUN 25.00 24.60 27.77 0.40 4.64% 1.63% __________________________________________________________________ ARTI - Artisan Components $24.51 *** Testing 2001 Highs! *** Artisan (NASDAQ:ARTI) is a developer of unique high-performance, high-density and low-power embedded memory, standard cell and input/output intellectual property components for the design and manufacture of complex integrated circuits or semiconductors. The company's products are used for the design of integrated circuits used in complex, high-volume applications, such as portable computing devices, cellular phones, consumer multimedia products, automotive electronics, computers, workstations and servers. Artisan focuses on licensing its products and providing related services to semiconductor manufacturers and integrated circuit design companies. ARTI - Artisan Components $24.51 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 22.5 UAR RX 85 0.50 22.00 6.1% 2.3% __________________________________________________________________ AVID - Avid Technology $50.57 *** Consolidation Complete? *** Avid Technology (NASDAQ:AVID) develops, markets, and supports a wide range of software, and hardware and software systems, for digital media production, management and distribution. Avid Technology participates in two principal markets transitioning from well-established analog content-creation processes to digital content-creation tools. Both of these markets, video and film editing and effects and professional audio, are using the worldwide web to collaborate and distribute video and audio content. The company's products, which are categorized into the two principal markets in which they are sold, are used worldwide in production and post-production facilities, film studios, network, affiliate, independent and cable television stations, recording studios, advertising agencies, government and also educational institutions, corporate communication departments, and by game developers and Internet professionals. AVID - Avid Technology $50.57 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 AQI RI 951 0.70 44.30 4.6% 1.6% __________________________________________________________________ BLUD - Immucor $27.86 *** Who Can Live Without BLUD? *** Immucor (NASDAQ:BLUD) develops, manufactures and sells a complete line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks in a number of tests performed to detect and identify certain properties of the cell and serum components of human blood prior to blood transfusion. Immucor also markets a complete family of automated instrumentation for all of their market segments. BLUD - Immucor $27.86 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 QMQ RE 66 0.30 24.70 3.5% 1.2% TS __________________________________________________________________ DIGE - Digene $39.01 *** Rally Underway? *** Digene (NASDAQ:DIGE) develops, manufactures and sells proprietary gene-based testing systems for screening, monitoring and diagnosis of human diseases. Its primary focus is in women's cancers and infectious diseases. The firm has applied its proprietary Hybrid Capture technology to develop a unique diagnostic test for human papillomavirus, which is the primary cause of cervical cancer and is found in greater than 99% of all cervical cancer cases. In addition to its HPV Test, the company's product portfolio includes gene-based tests for detecting chlamydia, gonorrhea, hepatitis B virus and cytomegalovirus. DIGE - Digene $39.01 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 35 QDG RG 322 0.75 34.25 6.2% 2.2% __________________________________________________________________ DRIV - Digital River $29.75 *** Testing 2004 Highs! *** Digital River (NASDAQ:DRIV) is a provider of electronic commerce outsourcing solutions. As an application service provider, the company enables its clients to access its proprietary electronic commerce system over the Web. Their technology platform allows the company to provide a suite of electronic commerce services, including Web commerce development and hosting, transaction processing, fraud screening, digital delivery, integration to physical fulfillment and customer service. The firm also has analytical marketing and merchandising services to assist its clients in increasing page view traffic to, and sales through, their Web commerce systems. DRIV - Digital River $29.75 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 DQI RE 1168 0.40 24.60 5.4% 1.6% __________________________________________________________________ NUE - Nucor $60.95 *** Strong Sector! *** Nucor (NYSE:NUE) is engaged, along with its subsidiaries, in the manufacture and sale of steel and steel products. The company operates two segments: steel mills and steel products. Primary products from the steel mills segment are hot-rolled steel and cold-rolled steel. Principal products from the steel products segment are steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems and light gauge steel framing. NUE - Nucor $60.95 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 55 NUE RK 65 0.75 54.25 4.0% 1.4% __________________________________________________________________ PHRM - Pharmion Corporation $27.22 *** 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 $27.22 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 0.30 19.70 5.3% 1.5% __________________________________________________________________ SPLS - Staples $26.39 *** Favorable Earnings! *** Staples (NASDAQ:SPLS) is an office supplies retailer that sells its products through a superstore concept. The company operates three business segments: North American Retail, North American Delivery and European Operations. Staples' North American Retail segment consists of United States and Canadian business units which sell office products and services through over 1,100 retail stores. Its North American Delivery segment consists of United States and Canadian business units that sell and deliver office products and services directly to customers. Staples' European Operations business units sell office products and services in over 200 stores in the United Kingdom, Germany, the Netherlands, Portugal and Belgium, and sell and deliver office products and services directly to customers throughout the United Kingdom, Germany, France, Belgium, Spain, Italy and Sweden. SPLS - Staples $26.39 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 PLQ RE 1711 0.40 24.60 4.2% 1.6% __________________________________________________________________ YHOO - Yahoo! $27.77 *** Post-Split Rally! *** Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer services company that offers a comprehensive branded network of properties and services to more than 200 million individuals worldwide. The company offers an online navigational guide to the Internet via its www.yahoo.com Website, which is a guide in terms of traffic, advertising and household and business user reach. Through Yahoo! Enterprise Solutions, the firm also provides many business services designed to enhance the productivity and Web presence of its clients. Yahoo! has offices in the United States, Europe, Asia, Latin America, Australia and Canada. YHOO - Yahoo! $27.77 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 YHQ RE 36615 0.40 24.60 4.6% 1.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ENDP - Endo Pharmaceuticals $21.90 *** Oxycontin Delay! *** Endo Pharmaceuticals (NASDAQ:ENDP) is a specialty pharmaceutical company specializing in pain management. The company is engaged in the research, development, sale and marketing of branded and generic prescription pharmaceuticals used primarily to treat and manage pain. The company's primary area of focus is analgesics, with a portfolio of branded products and generic drugs that cover a broad range of indications, most of which are focused in pain management. ENDP - Endo Pharmaceuticals $21.90 "SPECULATIVE" PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 25 IUK FE 1649 0.70 25.70 11.2% 2.7% __________________________________________________________________ IPXL - IMPAX Laboratories $20.23 *** Sell-Off In Progress! *** IMPAX (NASDAQ:IPXL)) is a unique, technology-based pharmaceutical firm focused on the development and commercialization of generic and brand name pharmaceuticals, utilizing its controlled-release and other in-house development and formulation expertise. In the generic pharmaceuticals market, IMPAX is primarily focusing its efforts on selected controlled-release generic versions of brand name pharmaceuticals. The firm is also developing other generic pharmaceuticals that present one or more competitive barriers to entry, such as difficulty in raw materials sourcing, complex formulation or development characteristics, or special handling requirements. In the brand-name pharmaceuticals market, IMPAX is developing products for the treatment of central nervous system disorders. IPXL - IMPAX Laboratories $20.23 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 22.5 UPR FX 350 0.55 23.05 8.8% 2.4% __________________________________________________________________ MMR - McMoRan Exploration $13.05 *** Sector Slump! *** McMoRan Exploration (NYSE:MMR) is engaged in the exploration, development and production of oil and gas offshore in the Gulf of Mexico and onshore in the Gulf Coast region. The company owns or controls interests in oil and gas leases in the Gulf of Mexico and onshore Louisiana and Texas covering over 376K gross acres. This acreage includes 100,000 gross and 26,000 net acres associated with the firm's potential reversionary interests. MMR - McMoRan Exploration $13.05 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 15 MMR FC 88 0.25 15.25 7.2% 1.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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