The Option Investor Newsletter Tuesday 05-25-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Russell Leads the Way Futures Markets: See Note Index Trader Wrap: A trimming of the hedge? Market Sentiment: Oil Slides, Stocks Geyser Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 05-25-2004 High Low Volume Advance/Decline DJIA 10117.62 +159.19 10121.67 9915.86 1.84 bln 2410/ 478 NASDAQ 1964.65 + 41.67 1966.68 1913.73 1.73 bln 2216/ 850 S&P 100 542.39 + 8.35 542.72 531.57 Totals 4626/1328 S&P 500 1113.05 + 17.64 1113.80 1090.74 RUS 2000 565.39 + 13.67 565.43 550.16 DJ TRANS 2931.95 + 66.59 2934.22 2856.11 VIX 15.96 - 2.12 18.42 15.73 VXO 15.91 - 2.40 19.21 15.63 VXN 22.04 - 2.29 24.82 21.62 Total Volume 4,012M Total UpVol 3,476M Total DnVol 454M 52wk Highs 117 52wk Lows 125 TRIN 0.40 PUT/CALL 0.90 ************************************************************ Russell Leads the Way Linda Piazza While market participants focused on the Iraq situation, crude oil prices, the Consumer Sentiment and Existing Home Sales, the Russell 2000 was making a sneak assault on the top boundary of its nearly month-long rectangular congestion zone. That sneak assault led the way for other indices to challenge recent consolidation patterns, too. By the end of the day, the move had led to gains of 2.48 percent on the Russell 2000, 1.16 percent on the SPX, 2.17 percent on the Nasdaq, and 1.60 percent on the Dow, with those gains produced on moderate volume. Other volume patterns proved impressive, however, with the ratio of advancing to declining issues 28:6 on the NYSE and 23:9 on the Nasdaq. Up volume amounted to more than eight times down volume on the NYSE and seven times down volume on the Nasdaq. With crude oil futures closing at a record high on Monday, the stage had been set for a decline in overseas markets. Following network television's decision not to televise Bush's speech live, articles discussing overseas market performance made little mention of Bush's five-point plan for achieving a stable, peaceful Iraq as a factor in trading decisions. Instead, those articles focused on the likely impact of increasing oil prices. The Nikkei followed through on the promised declines, falling 138.71 points or 1.25 percent to close below the psychologically important 11,000 at 10,962.93. With concerns that oil prices would restrict economic growth and Germany's much-watched IFO Index easing in May, European markets gapped lower, too, but then treaded water near their opening levels. Stagnating consumer demand continues to impact expectations in Germany, with higher oil prices being mentioned along with escalating health-care costs as negative factors. Some took heart from the increase in the expectations component of that index, however. Our futures reacted by falling throughout the night, beginning a labored climb about 6:30 am EST, perhaps about the time that it was clear that European markets would steady rather than tumble precipitously. The dollar weakened and fixed income markets throughout the globe stabilized. Yields for the benchmark Ten- Year Treasury Note opened lower, followed by early weakness in equity markets. Most indices fell toward their morning lows just ahead of and as May's Consumer Confidence and April's Existing Home Sales numbers were released at 10:00 am EST. Expectations for May's Consumer Confidence had ranged from 93-94 with a prior number at 92.9. The expectations component of the consumer confidence number, 60 percent of the total index, rose from 94.8 to 95.2, with the present-situation component falling from 90.4 to 90.3. The 93.2 Consumer Confidence number was variously hailed as meeting expectations and being lower than expectations, depending on the news source. Survey results listed rising gasoline prices, a mixed employment outlook, and the growing Iraq scandal as pressures on confidence levels. UBS issued a report last Friday that speculated that the rising oil costs could trim $35 billion from after-tax income this year if those higher costs continue. Goldman Sachs believes consumer confidence and presidential approval ratings to be strongly linked, and Bush's approval rating has dipped as the Iraq situation intensifies. All agreed on whether the existing home sales number met or beat expectations, with that number surprising to the upside. The 6.64 million sales figure was the second highest on record according to the National Association of Realtors. Consensus expectations had been for a decrease to 6.41 million from March's 6.48 million sales, although I'd read forecasts that ranged from 6.40-6.48 million. Some theorize that potential homebuyers rushed to get into homes as interest rates rose, fearing higher interest rates to come, making that bump higher a temporary one. Perhaps predictably, the homebuilders saw some of the strongest gains, with the $DJUSHB, the Dow Jones US Home Construction Index, gaining 4.90 percent in Tuesday's trading. The SPX, Dow and Nasdaq reacted variously to those numbers and a concurrent dip in crude oil futures by steadying a few minutes or dipping to a slightly lower low. The Russell 2000, however, just steepened the climb that it had begun at Tuesday's open when it broke above the consolidation zone in which it had been confined since May 7. Annotated 60-Minute Chart of the Russell 2000: After closing above its 200-dma on Monday, the Russell charged above that consolidation zone and important 60-minute averages at the open, pausing only to absorb the impact of the economic numbers before steepening that climb. Annotated Daily Chart of the Russell 2000: As can be observed on the Russell 2000's daily chart, recent gains produced a bullish cross in the MACD, but from below signal, and broke the stochastics above the signal line. Shorter-term 5(3)3 stochastics (not shown), however, have already cycled far toward levels indicating short-term overbought conditions, with that stochastics level being approached as the Russell 2000 approaches horizontal resistance, the upside target of its 60-minute rectangular consolidation band, the 50-dma, and one version of a descending trendline off recent highs. While today's impressive gains can not be minimized, especially as they created a new P&F double-top breakout signal with an upside target of 630, neither should that impressive resistance be minimized. This move can not be called bullish with certainty until it retraces more than 50 percent of the recent decline. If the Russell 2000 can break above the 572 level, it should next test the 100-dma and then the 595-600 range if it can climb above the 100-dma. If the Russell 2000 led the way, did the other indices follow? Most major indices produced breakouts, with the SPX being one of those indices. Annotated Daily Chart of the SPX: The SPX has been particularly important to watch as its tests of the 200-sma have prompted recent bounce attempts. While some other indices, most notably the OEX, appeared more bearish because of continual closes below their 200-dma's, the SPX's closes above that important moving average coupled with the bullish divergence on its daily chart signaled a warning to those thinking bearishly. Today's action saw the MACD produce a bullish cross, but from below signal. Annotated Daily Chart of the Nasdaq: If the Russell 2000's close above its 200-sma Monday predicted that it was breaking out of its recent congestion zone, the Nasdaq's close above its 200-ema Monday may have been doing the same. Especially with tech-related indices, I like to watch the -ema as well as the -sma, and this viewpoint shows the OEX scrambling above that moving average Monday, finding support at it on Tuesday's morning dip, and then climbing strongly from that average. As with many other indices, MACD produced a bullish cross but from below signal. The 21(3)3 stochastics have moved up through the signal line. The shorter-term 5(3)3's (not shown) have already cycled far toward levels indicating overbought conditions as the Nasdaq heads up to test its 50-dma, the psychologically important 2000, and then perhaps its 100-dma and the descending trendline off the year's high, depending on whether it can surmount each succeeding level or gets turned back. It's possible to draw several versions of a triangle on the Nasdaq's chart, and the possible formation I've drawn on this one proves less neutral than a symmetrical triangle. The chart reveals that the Nasdaq is perhaps just rising within that formation that consists of a flat bottom and a series of lower highs. That presumes the formation of another lower high, but it was also possible to draw a triangle with an ascending lower trendline, the neutral version of a triangle. The coordination of the MACD bottoms with the price bottoms within the flat- bottomed structure hint that it may be the correct one. I've included a neutral triangle (ascending bottom support) and a bearish one (flat bottom) on the Dow's chart, although here an interpretation of the formation as a bearish right triangle seems a stretch. Annotated Daily Chart of the Dow: The Dow's chart (using the DJX as a proxy) has produced bullish price/MACD divergence, too. As with the other indices, the MACD bullish cross was produced from below signal, and prices head straight up into moving-average, horizontal and trendline resistance. Dow 10,200-10,300 registers as important known historical resistance as well as the location of the 30- and 50- dma's and the former supporting trendline from the Dow's neutral triangle. Weekly charts show these indices trying to steady at first important weekly support, while weekly 21(3)3 stochastics attempt bullish crosses, completed only on the COMPX and without a move up through the signal line on that index. On all, RSI hooks up within a roughly descending formation. Weekly MACD has not turned up on any of the above indices. What does it all mean? Earlier in the week, I had speculated that indices might make a run higher this week into the June 3 official OPEC meeting in a kind of buy-the-rumor move. Yesterday's climb by crude oil futures spoiled that effect, with Jane Fox of the OIN Market Monitor perhaps pinpointing one reason behind that climb. It was perhaps produced at least in part by a safety shutdown at a Royal Dutch/Shell Oil platform in the Gulf of Mexico, with that shutdown cutting the oil supply by 150,000 barrels a day. With some statements about an optimum price being $30/barrel producing Tuesday's pullback in crude prices, we then saw the expected run higher, a run into resistance. That continued inverse relationship between oil prices and equity behavior gives me pause about predicting whether the indices will be able to push above their next approaching resistance levels. Crude oil prices have been consolidating above the benchmark $40.00, with these moves higher and lower occurring within a consolidation zone roughly between $40.00 and $42.00. Moves within a consolidation zone prove difficult to predict. Daily oscillators for crude oil head lower . . . or did, until stochastics turned higher again on Tuesday, refusing to fall below the signal line. The other factor giving me pause relates to economic releases Wednesday, with one of those releases being the Crude Oil/Gasoline/Distillate Inventories at 10:30. In this climate, that number might be watched more closely than in the past, with further declines producing a move higher in the crude futures. We're beginning to see earnings reports and business and consumer confidence numbers being impacted by crude oil costs, such as Germany's IFO Index and our Consumer Confidence Index. Headlines for articles discussing airline stocks mention fuel surcharges, but the airliners aren't the only entities affected by those high crude prices. Articles today about eurozone movers and shakers included notations that chemical firms such as BASF and Bayer had been notable decliners in early trading today, attributing those declines to crude oil costs. The best I can say is that I think indices will attempt continued bounces into resistance as long as crude prices consolidate or show an inclination to decline into the June 3 OPEX meeting. However, if Wednesday's inventory numbers concern market watchers or some global geopolitical event heightens worries and send crude oil higher again, markets appear vulnerable to a downturn below resistance. Whether indices can break above upper descending trendlines remains in question at this time and may depend in part on OPEC's decision. If we do get a buy-the-rumor continued run higher, then even a beneficial decision by OPEC might result in a sell-the-rumor effect, especially as some doubt how much production can be increased. When we're considering what's likely to happen, however, we shouldn't ignore the collapse in volatility today. The collapse was huge, almost mirroring the March 10 one-day gain in volatility. The collapse turned the VIX back into the 15.75- 16.75 range that has been a recent axis of gyrations for the VIX and elicited intrigue about who knows what. Is China going to announce a decrease in demand that will uncouple the inverse relationship of oil and equities? Will Russia reveal that it will complete its pipelines sooner than expected and be able to supply the world's needs? Who knows something and what is it that's known? It's not the actual number that proved so startling, since that's within that recent axis, but the precipitous drop. As far as I can ascertain, Tuesday produced the biggest one-day drop in the VXO since the reformulation of the VIX. A continued drop in the VIX produces an enigma for market watchers who remember the old "when VIX is low, it's time to go" axiom, coupled with the usual advice about selling stocks in May. We've watched the VIX go lower and lower, reaching new multi-year low after new multi-year low with only to-be-expected pullbacks resulting, so how low is low? Other economic reports due Wednesday include the 8:30 release of April's Durable Goods Orders, with expectations anything from a flat number to a 0.8 percent decrease. March's number stood at 5 percent and March's Durable Goods Orders minus transportation at 5.4 percent. This release by the Census Bureau often proves market-moving even though it can be volatile. Non-defense capital goods can be a much-watched component of this number since it gives insight into business investment component of the GDP. Market watchers will want to see gains, if any result, be broad based rather than isolated in a particular sector. Other economic releases include April's New Homes Sales at 10:00 EST and the already mentioned Crude Oil/Gasoline/Distillate Inventories at 10:30. Homebuilder Toll Brothers (TOL) also reports before the bell. Like other indices, the $DJUSHB's gain today sent it up into resistance, and market watchers want to see TOL announce results that reassure the dip buyers that the made the right decision. Keep an eye on the Russell 2000 and crude oil prices tomorrow as guides to likely action, and be careful around the time of these economic releases. *************** 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 ******************** A trimming of the hedge? Bulls ran rampant in today's trade and either today's economic data, which was largely inline with economists' forecast was much better than equity traders thought it would be, or President Bush said something in last night's speech that had a hedge being lifted in today's trade. When the morning trade began I mumbled to myself... "here we go again, another tight range of trade," but by the close, the major indices all finished with 1% gains or more, with all closing back above their longer-term 200-day simple moving averages. While I can't be certain, some things Jane Fox first mentioned in this morning's Market Monitor 10:39:03 "the most encouraging thing I see is the VIX, it has fallen below 18 and is not at 17.30" regarding the declining Market Volatility Index (VIX.X) 15.96 -11.72% which simply imploded would strongly suggest to this trader that some type of downside hedge, which may have been initiated just about a month ago triggered today's bullish gains. While July Light, Sweet Crude Oil Futures (cl04n) $41.14 -1.39% retreated from recent contract highs, I don't think a 58-cent decline in oil could have sparked today's broad gains for equities. Market Volatility Index (VIX.X) - Daily Intervals A daily interval bar chart of the VIX.X shows just what type of volatility collapse was seen, where action like this on a rather "light news day" is suspicious. Market Volatility Index (VIX.X) - 5-minute intervals The major indices were sideways to lower early this morning and really didn't make much of a move until after this morning's 10:00 AM release of May Consumer Confidence (93.2 vs. consensus 94.0) and April Existing Home Sales (6.64 mill. vs. 6.45 mill consensus). Alternating buy and sell program premium alerts were found ahead of, and just after the economic data as the SPX seemed pinned at its MONTHLY S1 (1,092.92) and WEEKLY Pivot (1,092.96) as it was trading 1,093.00. Jane's notes came just as the VIX.X fell under 18.00 (10:10-10:15 buy program premium marked the end of the alternating buy and sell programs we had been seeing) and the further unwinding or collapse of the VIX.X would suggest to me that there was some type of meaningful option action driving today's action. S&P 500 (SPX.X) Option Chain - 05/25/04 Most Active At tonight's close, I wanted to quickly update ourselves on some comments made in the 01:00 PM intraday update. Note the amount of option volume in some of the June 2004 contracts (arrows), where if I (Jeff Bailey) think a hedge was taken off in today's trade at SPX 1,093 and a correlative WEEKLY/MONTHLY level, its really the June 1,150 calls (SPTFJ) that grabs my attention. I'll discuss the 1,150 calls in a minute when we look at the SPX chart. Let's also take note that the June 1,125 calls (SPTFE), which I've marked with a BLUE arrow, would have this 1,125 strike (sound familiar? keeps showing up month after month in "max pain" calculations) a familiar level for Index Trader Wrap readers. One thing that has me thinking we saw a hedge removed today, was if I were to simply split the difference from the 1,025 and 1,150 strike, I'd come up with 1,087.50. This too is a bit suspicious to me (Jeff Bailey) when we've been noting how the SPX has been wanting to show very modest gains/losses on a closing basis the past several sessions. Almost as if it was being "pegged" to a level, and today, as if a hedge is fully unwound, or really starting to be unwound, we get a pretty sizeable move in VOLATILITY and the SPX, or major indices themselves. Market Snapshot / Internals - 05/25/04 Close I've made a coupe of notes as it relates to the NH/NL breadth indications, where today's trade would have the NASDAQ Composite's NH/NL 10-day average ratio reversing up to "bull alert" status, where this would be the first sign of meaningful bullish leadership returning. But also look at the intra-day point moves for the major indices from the 12:00 to 01:00 PM and then to the close point changes after having observed the intra- day VIX.X chart. S&P 500 Index (SPX.X) Chart - Daily Intervals I've marked the 1,150 level to get a visual price perspective on just who in their right mind would have been an active buyer of June 1,150 out the money calls today. Was the consumer confidence or existing home data that much of a bullish catalyst? I don't think so, and in April, June 1,150 calls were selling for between $30 and $20 and I think call buyer was a covered call seller locking in gains. The one SHORT-TERM trade setup an SPX option trader might look for from the CALL side tomorrow is a pullback into the 1,106.50 or better yet 1,099 area, have VIX.X stay BELOW 16.78, then trade the 1,100 June strikes long, but don't hold if failure back below 1,093, where a further bounce target to trend and 1,130. NASDAQ-100 Tracker (QQQ) - Daily Intervals Not unlike the SPX, the QQQ made a strong move above an overlapping MONTHLY Pivot ($35.66) and WEEKLY R1 ($35.64) resistance, and this should serve some support on any near-term retest. Volume of 90.7 million wasn't overly heavy, which may be partially explained by a volume at price study on the QQQ. NASDAQ-100 Tracker (QQQ) - Volume at price In my opinion, there was a lot of selling that "should have taken place" today among some QQQ stocks that didn't. After giving a very bearish triple-bottom sell signal at $79 on May 10, and a fitting bearish vertical count of $70, which would have tied in very nicely with a QQQ at about $33.00, shares of eBay (EBAY) $85.33 negated the triple bottom pattern objective of Professor Davis, and its bearish vertical count of $70 when it traded a negating $84 buy signal and then goes on to trade a new all-time high. A volume at price study has the QQQ now entering an area that would be considered "void" of much near-term resistance where $36.65-$37.00 looks near-term achievable. A trader in the QQQ might well associate any re-test of the MONTHLY Pivot as a good support entry for a continued bounce higher. Later tonight I'll check the NASDAQ-100 Bullish % ($BPNDX) where I know EBAY was at least one stock to generate a reversing upward point and figure buy signal, but if the QQQ was to have found it pullback bottom then $34.00 may well have been it on a longer-term basis, where the only upward trend on the QQQ, and a longer-term one at that from the October 2002 lows certainly would grab some attention at this point. Jeff Bailey ************************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 **************** Oil Slides, Stocks Geyser - J. Brown It is interesting how the market seems to focus on one main concern. A few weeks ago it was interest rates. Before that it was jobs. Right now it's oil. Monday saw oil shoot to an all- time high at $41.72 a barrel despite news that Saudi Arabia would up production to soothe demand and rising prices. Today oil slips 58 cents and the markets rejoice with a very broad-based rally that left no one behind. Every major sector index closed in the green with very heavy buying in tech stocks and previously interest rate sensitive items like homebuilders. Boosting investors confidence today was a better than expected existing home sales numbers, which is a strong sign for the economy since home sales tend to boost demand for household products. Also on the economic front today was consumer confidence, which edged up 0.2 percent to 93.2. The markets could also be reacting to President Bush's speech last night that clearly outlined America's plan to exit the conflict in Iraq. The fact that we now have a plan and a timetable should have eased fears that we'll be trapped there forever. Of course the President did say we have tough days ahead of us as insurgents and terrorists step up their activities ahead of the June 30th handover. Here at home we have mounting concerns with elevated terrorist "chatter" about a potential attack during the Olympics in Greece, the Democratic and Republican conventions this summer and the U.S. elections in November. For the time being "geo-political risk" will remain an underlying worry but today investors managed to forget them. Market internals were very bullish with advancing stocks outnumbering decliners almost 6-to-1 on the NYSE and 11-to-4 on the NASDAQ. Up volume was more than eight times down volume on the NYSE and more than seven times down volume on the NASDAQ. Volatility indices took major tumbles back toward their April lows. We've been expecting a potential rally this week (see this weekend's market wrap) and we've finally got one. The Dow's breakout over 10,100 and its 200-dma is very encouraging as is the NASDAQ's close over its own 200-dma. Tomorrow brings us the April durable goods order and the new home sales numbers. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8540 Current : 10117 Moving Averages: (Simple) 10-dma: 9986 50-dma: 10252 200-dma: 10050 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 927 Current : 1113 Moving Averages: (Simple) 10-dma: 1094 50-dma: 1116 200-dma: 1083 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1123 Current : 1447 Moving Averages: (Simple) 10-dma: 1407 50-dma: 1435 200-dma: 1422 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.96 -2.12 CBOE Mkt Volatility old VIX (VXO) = 15.91 -2.40 Nasdaq Volatility Index (VXN) = 22.04 -2.29 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.90 829,079 748,788 Equity Only 0.69 648,742 448,555 OEX 1.00 25,434 25,328 QQQ 0.50 56,017 28,098 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 62.4 + 1 Bear Confirmed NASDAQ-100 33.0 + 3 Bear Confirmed Dow Indust. 66.7 + 0 Bear Confirmed S&P 500 58.4 + 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: 0.91 10-dma: 1.14 21-dma: 1.06 55-dma: 1.08 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 2410 2216 Decliners 478 850 New Highs 67 78 New Lows 27 37 Up Volume 1597M 1511M Down Vol. 192M 209M Total Vol. 1841M 1734M 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 Commercial traders remain net short and seem to be increasing their bearish sentiment. Small traders are net bullish and in mirror-like fashion are growing more bullish compared to the big traders. Commercials Long Short Net % Of OI 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%) 05/18/04 394,352 423,258 (28,906) (3.5%) 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 04/27/04 133,775 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% 05/18/04 139,647 74,597 65,050 30.4% 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 The four-week trend for the commercial traders has been a bullish one as they increase their long positions. Meanwhile the small traders have been busy shuffling money around and reducing their long and short positions. Commercials Long Short Net % Of OI 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% 05/18/04 390,484 357,157 33,327 4.5% 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 04/27/04 175,788 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% 05/18/04 62,216 87,269 25,053 16.8% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There continues to be very little movement in the commercial traders' positions. Small traders have reduced their short positions somewhat. 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% 05/18/04 58,376 37,528 20,848 21.8% 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 04/27/04 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%) 05/18/04 9,843 18,935 ( 9,092) (31.6%) 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 The dead heat between longs and shorts for the commercial traders has grown even thinner. Small traders have moved from net bearish to net bullish on the Industrials. Commercials Long Short Net % of OI 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% 05/18/04 22,257 22,444 ( 187) (0.4%) 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 04/27/04 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%) 05/18/04 9,098 6,591 2,507 16.0% 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 05-25-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: APOL, CTX, GDT, WHR Call Play Updates: ADP, ERTS, JNJ, LXK, BCR, QCOM New Calls Plays: AIG, IMCL Put Play Updates: AMZN, CAKE, GM, FRX 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: ***** Apollo Group - APOL - close: 91.87 change: +2.62 stop: 92.00 After a pretty convincing breakdown under the 50-dma last week, APOL moved right back up to its $90 price magnet on expiration Friday. Direction was still unclear yesterday, as the stock posted a narrow-range doji. But the neutrality was resolved in a big way today with APOL opening strongly and rallying straight up the chart, hitting our $92 stop in the final hour. In hindsight, we can clearly see that last week's breakdown was nothing more than a bear trap. All open positions should have been closed out when our stop was hit this afternoon, especially with daily oscillators now giving strong bullish reversals. Picked on May 11th at $90.32 Change since picked: +1.55 Earnings Date 6/11/04 (unconfirmed) Average Daily Volume = 1.80 mln Chart = --- Centex Corp - CTX - close: 48.34 change: +2.16 stop: 47.50 The rebound in the homebuilders has become a full-fledged rally and the DJUSHB home construction index jumped 4.9% on Tuesday. Investors seem to be rotating money back into the group after weeks of selling. We're going to close CTX un-triggered since the stock never completed our entry requirements for a drop back through the $46 level. It may be time for traders to scan the group for bullish candidates. 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 = --- Guidant - GDT - close: 60.49 chg: +1.64 stop: 60.26 Shucks! GDT was looking pretty good yesterday with the move toward resistance at $60.00 and the slow fade into Monday's close. Then Medtronic announced earnings this morning but more importantly they released data on their Phase I Endeavor drug- coated stent program. The news wasn't good and right now Endeavor does not appear to be any competition to BSX or GDT. That sent shares of GDT soaring to $62.25 before profit taking set in. Of course that was more than enough to stop us out at $60.26. This is a good example of why we use stop losses. No one could have known that MDT was going to report its Phase I data with earnings or that the data would be disappointing. It could have easily been a positive report that sent GDT lower. Picked on May 20 at $ 57.11 Change since picked: + 3.38 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 3.1 million Chart = --- Whirlpool Corp - WHR - close: 68.21 chg: +2.84 stop: 65.76 WHR reiterated their 2004 earnings forecasts as the stocked soared more than 4.3% with heavy volume. The move was fueled by the stronger than expected existing home sales, which boosted expectations for stronger household items. Not hurting WHR was a decent consumer confidence number. Oh and did we mention the 159-point gain in the Dow? We're obviously stopped out at $65.76 and WHR looks ready to challenge resistance near its 200-dma just under the $70 mark. Picked on May 05 at $ 64.69 Change since picked: + 3.52 Earnings Date 04/21/04 (confirmed) Average Daily Volume: 555 thousand Chart = ************************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 - cls: 45.27 chng: +1.00 stop: 43.75*new* It seems like we've been waiting forever for shares of ADP to show some sign of life. The 2-week pullback finally came to an end today, with the stock gapping up at the open in response to the positive sentiment in the rest of the market. The positive action didn't end there, as ADP steadily worked higher into the close, ending at its high of the day on strong volume. The stock gapped open to the midline of the rising channel and the day's intraday gains put the stock well into the upper half of the channel. With daily oscillators now pointed solidly upwards, it looks like the next leg of the rally is underway. Traders that stepped into positions during the weakness of the past week appear to have gotten a great entry point and now our attention turns to the upside to see if ADP can continue its trend of higher highs. Should this rebound falter at this point, we'd be hesitant to buy another dip towards the $44 level. New entries can be considered on a break above today's $45.35 high. Raise stops to $43.75, just under the recent low, as well as the 50-dma ($43.99). Picked on May 9th at $46.03 Change since picked: -0.76 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.16 mln Chart = --- Electronic Arts - ERTS - close: 50.13 change: +1.65 stop: 47.00 Finally, our patience was rewarded today, as ERTS put in a real rebound from that $48 support level. After trading fractionally below that level and created a new PnF Sell signal last week, the stock has been trying to stabilize near strong support at $48. From today's price action, it certainly looks favorable for the bulls. Underscoring the strength of today's rebound, it came after some early weakness that saw both the rising trendline and the 200-dma ($47.80) being challenged. Tuesday's session was a clear key reversal day, with the stock dropping to new lows early in the session and then battling back to close well above the highs of the past few days. There's still an important challenge for the bulls to overcome though, and that is dual resistance at $51, the site of both the 50-dma ($51.10) and the short-term falling trendline. Traders looking to enter on strength will want to wait for a move above that resistance before playing. Maintain stops at $49.75. Picked on May 18th at $49.60 Change since picked: +0.53 Earnings Date 4/29/04 (confirmed) Average Daily Volume = 3.85 mln Chart = --- Johnson & Johnson - JNJ - cls: 55.36 chng: +1.05 stop: 53.50 If the bulls are going to put in a showing, it's always nice to see them do it in the manner they did on Tuesday. JNJ opened the day looking a bit weak and poised to challenge $54 support again, but the buyers showed up in force, driving the stock sharply higher for most of the day. After hitting its high of $55.70, JNJ backed off a bit into the close, but holding above the $55 level. What was nice about the day's candle was the way it engulfed not just yesterday's candle, but the last SIX! Daily Stochastics and MACD are now turning up in bullish fashion and after the recent consolidation, JNJ ought to be able to make a serious run at the early May highs near $56.50 and then take aim at solid resistance near $58. Since we began coverage of JNJ, we've cautioned against attempting to initiate momentum entries due to the stock's slow-moving nature, and that is still our advice. There's been ample opportunity to buy this recent dip near $54 and now we'll see how much gas is in the tank. Maintain stops at $53.50 until we get a breakout to new recent highs. Picked on May 9th at $55.30 Change since picked: -0.36 Earnings Date 4/13/04 (confirmed) Average Daily Volume = 7.23 mln Chart = --- Lexmark Intl. - LXK - close: 95.06 change: +2.01 stop: 89.75 After one last thrust down to test the 50-dma ($92.12) for any stragglers still waiting to buy the dip, LXK took off with enthusiasm, blasting through the near-term resistance near $94.40 and closing at a new 3-week high. The battle isn't over, but with daily oscillators showing clear bullish indications and price breaking over near-term resistance, it certainly appears the stock is on its way to a test of the April highs near $97. Of course, that isn't our final objective, as we're still looking for the stock to make a run at the century mark. Our ideal entry scenario was for a dip and rebound from the $92 area and while things have been rather choppy over the past several sessions, initial indications are that the wait is going to be worth it. Aggressive traders can now look for momentum entries above today's high, keeping in mind that resistance is likely to be found in the $96.50-97.00 area. Maintain stops at $89.75. Picked on May 13th at $94.03 Change since picked: +1.03 Earnings Date 4/19/04 (confirmed) Average Daily Volume = 1.13 mln Chart = --- Bard C R - BCR - close: 109.58 chg: -0.42 stop: 106.99 *new* Uh-oh! If you're a bullish trader in BCR warning bells should be going off in your head. The Dow added almost 160 points in a very widespread rally today but BCR failed to join in. The stock lost 42 cents when it should have been breaking out over the $110 level and challenging resistance at $112. Volume was pretty strong on the session as well and that smells like distribution. We still like the short-term uptrend and BCR has consolidated tightly under the $110 mark and that suggests it is ready or at least trying to move higher. Keep in mind that BCR will split 2- for-1 a week from today. Traders looking for new positions might want to wait for a close over $110 again. We're going to raise our stop loss from $106.00 to $106.99. Picked on May 20 at $110.00 Change since picked: - 0.42 Earnings Date 04/20/04 (confirmed) Average Daily Volume: 386 thousand Chart = --- QUALCOMM - QCOM - close: 66.90 chg: +1.35 stop: 64.00 *new* That didn't take long did it? QCOM traded through our TRIGGER at $66.01 on Monday but failed to hold the $66 level by the close. Fortunately, Tuesday was much more positive and QCOM paced the rally in the NASDAQ with a 2.05% gain of its own. Volume was above average and the stock looks ready to challenge resistance near $70, especially now with all of its technical in "buy" mode. If you missed the entry point yesterday QCOM still looks good to us here. We're going to raise our stop loss from $63.50 to $64.00. Picked on May 24 at $ 66.01 Change since picked: + 0.89 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 9.6 million Chart = ************** NEW CALL PLAYS ************** American Int'l Group.- AIG - close: 72.00 change: +2.20 stop: 68.70 Company Description: Engaged in a broad range of insurance and insurance-related activities through its subsidiaries, AIG's primary focus is on its general and life insurance businesses. Additionally, the company is growing its presence in financial services and asset management. Other operations include auto insurance, mortgage guaranty, annuities, and aircraft leasing. With operations in 130 countries, AIG generates more than half of its revenues outside the United States. Why we like it: Will the real trend please stand up? In actuality, it looks like the dominant trend in shares of AIG is starting to reassert itself. After trading briefly above the $77 level in early April, the stock succumbed to the broad market weakness and gradually drifted lower until reaching bottom just below the $69 level in early May. While that near-term trend looked bad, one thing that was interesting is that the stock was unable to trade the $68 level, which was what would have been necessary for the PnF chart to issue a Sell signal. AIG spent more than 2 weeks drifting along with the $69 level acting as support, but with negligible signs of a bonified rebound. That all ended today with the stock dipping slightly at the open and then rallying strongly right up to the closing bell. As if to leave us with an ideal setup, the stock closed right on $72 resistance, leaving us with the perfect scenario for bullish entries on further strength tomorrow. Of course, there's always the possibility that this rally could fail, but with solid bullish alignments on the daily oscillators, AIG certainly looks like it wants to move higher. To minimize the chance of getting caught in a bull trap, we're going to set our entry trigger at $72.40, which is just above the 50-dma ($70.27). That way, AIG will have to rally through today's high and the 50-dma before we'll be lured into a position, and a breakout above the 50-dma should have some room to run, at least to the $75 resistance level. Taking a quick peek at the PnF chart shows that the stock is still nominally bullish with an upside target of $94. We don't want to be too greedy though, so we'll initially just target a return to the $77 highs from last month. Should AIG pick up a head of steam, we may even stretch our target up to the $80 level. Initial stops should be set at $69.70, just under the recent lows. Suggested Options: Shorter Term: The June $70 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 July $75 Call, while the more conservative approach will be to use the July $70 Call. Our preferred option is the July $70 strike, as it is currently in the money and should provide sufficient time for the play to move in our favor. BUY CALL JUN- 70*AIG-FN OI=14828 last traded @ $2.85 BUY CALL JUN- 75 AIG-FO OI=18138 last traded @ $0.50 BUY CALL JUL- 70 AIG-GN OI= 105 last traded @ $3.70 BUY CALL JUL- 75 AIG-GO OI= 608 last traded @ $1.10 Annotated Chart of AIG: Picked on May 25th at $72.00 Change since picked: +0.00 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 5.28 mln --- Imclone Systems - IMCL - close: 73.13 chg: +1.43 stop: 70.00 Company Description: ImClone Systems Incorporated is committed to advancing oncology care by developing and commercializing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The Company's three programs include growth factor blockers, angiogenesis inhibitors and cancer vaccines. ImClone Systems' strategy is to become a fully integrated biopharmaceutical company, taking its development programs from the research stage to the market. ImClone Systems' headquarters and research operations are located in New York City, with additional administration and manufacturing facilities in Branchburg, New Jersey. (source: company press release) Why We Like It: After a sell-the-news reaction to its stunning Q1 report in April shares of IMCL are on the rise again. The stock has found new support at its 21-dma and its short-term and long-term technicals also support additional upside. We like the recent rebound from the $69 level in IMCL and the bullish reversal in the BTK biotech index could pave the way for IMCL to test its April highs. More aggressive traders could go long at current levels but we're going to wait for a move over $74.00. Our TRIGGER will be $74.05. If triggered we'll use a stop loss at $70.00. More conservative traders may want to consider using a trigger over short-term resistance at $75.00. Our initial target is the $80.00 mark. Currently IMCL's P&F target is $96. Suggested Options: June or July calls appear to be the best bets for short-term traders. Our favorites are the June 70s or 75s or the July 75s. BUY CALL JUN 70 QCI-FN OI= 5407 Last traded @ $7.10 BUY CALL JUN 75 QCI-FO OI= 5829 Last traded @ $4.70 BUY CALL JUL 75 QCI-GO OI= 111 Last traded @ $6.60 Annotated Chart: Picked on May xx at $ xx.xx <- see TRIGGER Change since picked: + 0.00 Earnings Date 04/27/04 (confirmed) Average Daily Volume: 2.9 million 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: 43.65 chg: +2.02 stop: 44.05 Ouch! Bears are being overwhelmed by the bulls in Internet stocks today. The INX Internet index soared 3.34% with leaders like EBAY and YHOO nearing or hitting new highs. Even the laggard, AMZN, found some buying support in Tuesday's very broad- based rally and the stock is within striking distance of our stop loss. Investors are ignoring news out yesterday that Toys-R-Us is suing AMZN over its exclusivity rights to certain toys and baby products. If you haven't already abandoned ship there's no need to wait for the command. We're holding on to this one only because it may still yet failed at the $44 resistance level but odds are good we may be stopped out tomorrow. Picked on May 02 at $ 43.60 Change since picked: + 0.05 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 8.4 million Chart = --- Cheesecake Factory - CAKE - cls: 38.77 chng: +0.29 stp: 40.75 It was a strongly bullish day in the broad market on Tuesday, but you sure wouldn't know it to look at the price action in CAKE. Sure, the stock rebounded from its lows and ended near the high of the day, but that's about all the bulls can crow about, as the stock didn't get anywhere near challenging first resistance at $39.50. That said, the daily oscillators are turning upward and it may indeed be time for a bit of an oversold rebound. Conservative traders unwilling to risk the current small gains may want to exit on a move above Tuesday's high and look for re- entry on a rollover in the $39.50-40.00 area. Judging by the anemic rebound of the past few days, CAKE and the other non- Atkins friendly stocks still look weak and rally attempts should continue to be sold. Maintain stops at $40.75, which is solidly above both the 10-dma and last Wednesday's intraday high. Picked on May 13th at $40.09 Change since picked: -1.32 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 629 K Chart = --- General Motors - GM - close: 44.74 change: +0.97 stop: 45.25 Well, this doesn't look good at all! After being mired in a persistent downward trend since late April, shares of GM finally found a bit of buying support yesterday and then the stock screamed higher along with the rest of the broad market today. The stock managed to tap the $45 level in the middle of the day before running out of steam and that leaves the stock at a critical juncture in terms of our play. A rollover here could set up new entry points, although that should only be considered by VERY aggressive players with the daily oscillators angled upward in bullish fashion. It appears likely that GM will push up to test the 20-dma ($45.30) tomorrow and such a move will end up challenging our $45.25 stop. Conservative traders may just want to pull the plug on any move over the $45 level. We'll stick with the play for now in hopes of another rollover, but everyone should understand that is not the most likely course from here. Picked on May 9th at $44.60 Change since picked: -0.14 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 5.17 mln Chart = --- Forest Labs - FRX - close: 60.10 chg: +1.60 stop: 63.00 If you haven't heard it yet the rally on Tuesday was very widespread. Every sector closed in the green and that includes the drug sector. FRX was oversold and due for a bounce and the triple-digit gain in the Dow as enough to inspire a 2.7% rebound in FRX. Are we worried here? No, not yet. FRX can bounce back to resistance at $62.00 before we really start to get concerned. A rollover under $62.00 could be a new entry point but some traders may want to wait for the drop back under $60 to confirm the "failed rally". No change in our stop loss. Picked on May 23 at $ 59.20 Change since picked: + 0.90 Earnings Date 04/20/04 (confirmed) Average Daily Volume: 1.9 million 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. 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 Tuesday 05-25-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Internets, Financials and more! Spreads & Straddles: Crude Retreat Spurs Rally! Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** Internets, Financials 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. ___________________________________________________________________ eBay Inc - EBAY - close: 85.33 change: +3.22 WHAT TO WATCH: Tuesday's strong rally inspired courage in the tech-buying crowd and the INX Internet index soared 3.34%. EBAY, arguably the darling of Internet-stock investors, outpaced the advance with a 3.9% gain of its own. The two-day rally for EBAY has been fueled by strong volume and today's close marks another new all-time high. We would keep a watch on EBAY for a dip back toward the $82.50-83.50 range and consider buying a bounce. Chart= --- Vimpel Communications - VIP - close: 99.65 change: +0.98 WHAT TO WATCH: A few of the telecom stocks appear to be on the rebound and Russian wireless provider VIP has turned in a strong two-week rally. The good news is the rally doesn't appear to be over yet. The stock recently broke out over resistance at its 50-dma and is now challenging the psychological round-number level at $100. Its P&F chart is back into a new buy signal and points to a $114 price target. We would consider a trigger over $100 and an initial target at its old highs near $110. Chart= --- I T T Industries - ITT - close: 79.73 change: +1.04 WHAT TO WATCH: Once again ITT is bouncing from technical support at its 100-dma. We also like the technical picture with a new MACD buy signal and its short-term RSI and stochastics already pointing higher. Bulls could use a trigger over resistance at $80.00 and target a move to $85.00 assuming the rising channel still holds up. Chart= --- T C F Financial Corp - TCB - close: 54.55 change: +0.55 WHAT TO WATCH: This regional bank stock has broken out above major resistance at the $54 level on stronger than average volume. Normally we might pass over TCB because shares move a bit slowly for option traders. This time it might be worth another look. Its weekly chart appears to be painting a cup and handle formation but bulls may want to use a trigger over $55 before opening any positions. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- AVP $87.81 +2.76 - We're still watching AVP now that it has broken out over resistance at $86.00. A pull back toward the $86.00-86.50 range could be an entry point. GBBK $28.37 +0.68 - GBBK has been channeling sideways between $26.50 and $30.00 for the last five months. Scalpers can still grab part of the next move toward $30. HOT $42.00 +0.90 - Trading near its all-time highs shares of Starwood Hotels is breaking out from a bull-flag pattern. Consider targeting a move toward the $46 region. UTSI $28.84 +1.44 - Communications stock UTSI has broken out of its descending channel and above technical resistance at its 40 & 50-dma's. ZMH $83.75 +2.10 - We're still watching ZMH for a breakout over resistance at $84.50. Target $90.00. ************************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 ******************* Crude Retreat Spurs Rally! By Ray Cummins U.S stocks soared Tuesday amid a decline in energy prices that gave buyers a reason to return to the market after a two-week absence. The Dow Jones Industrial Average closed up 159 points at 10,117 as blue-chip stocks enjoyed solid gains. The NASDAQ Composite Index rose 41 points to 1,964 with only telecom shares limiting the technology advance. The S&P 500 Index added 17 points to end at 1,113 as homebuilding shares rallied along with airline, retail, oil refining, natural gas, and gold issues. Advancers outnumbered decliners 4 to 1 on the New York Stock Exchange and 2 to 1 on the NASDAQ. Big Board volume was 1.55 billion shares, and nearly 1.8 billion shares traded on the technology exchange. Treasury prices edged higher with the benchmark 10-year note up 1/32 at 100 5/32, yielding 4.73%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 05/23/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ERTS 51.88 48.72 JUN 45 47 0.35 47.15 0.35 Open IMDC 61.17 58.51 JUN 50 55 0.50 54.50 0.50 Open GPRO 38.30 37.13 JUN 30 35 0.70 34.30 0.70 Open MATK 68.01 61.60 JUN 55 60 0.65 59.35 0.65 Open ASD 107.89 107.83 JUN 95 100 0.50 99.50 0.50 Open IMCL 71.36 70.24 JUN 50 55 0.50 54.50 0.50 Open CSC 42.17 41.89 JUN 35 40 0.65 39.35 0.65 Open GILD 62.54 63.33 JUN 55 60 1.00 59.00 1.00 Open RIMM 99.98 109.02 JUN 80 85 0.45 84.55 0.45 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss CALL-CREDIT SPREADS Stock Pick Last Month L/C S/C Credit C/B G/L Status CTX 44.80 44.95 JUN 55 50 0.50 50.50 0.50 Open IVGN 67.61 66.16 JUN 80 75 0.55 75.55 0.55 Open NTLI 55.28 56.47 JUN 65 60 0.80 60.80 0.80 Open? VIP 91.45 95.18 JUN 110 105 0.50 105.50 0.50 Open? CERN 41.33 39.89 JUN 50 45 0.55 45.55 0.55 Open SEPR 45.06 43.31 JUN 55 50 0.60 50.60 0.60 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Vimpelcom (NYSE:VIP) and NTL Inc. (NASDAQ:NTLI) are on the "watch" list after Tuesday's rally. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status LF 19.67 19.99 JUN 20 20 3.50 5.25 Closed BSTE 30.63 38.26 JUL 30 30 6.00 11.50 Closed MKSI 23.10 20.58 JUL 22 22 4.70 5.50 Closed Biosite (NASDAQ:BSTE) was the "Straddle of the Month," however Hot Topic (NASDAQ:HOTT), Zimmer (NYSE:ZMH), LeapFrog (NYSE:LF), MKS Instruments (NASDAQ:MKSI), QLT Incorporated (NASDAQ:QLTI), and Stratasys (NASDAQ:SSYS) also offered potential gains in May. Corinthian Colleges (NASDAQ:COCO), although very volatile, was not a viable position 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BRCM - Broadcom $42.54 *** Next Leg Up? *** Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated silicon solutions that enable broadband communications and the networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for all broadband communications markets. Their diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/O(TM) server solutions. BRCM - Broadcom $42.54 PLAY (less conservative - bullish/credit spread): BUY PUT JUN-37.50 RCQ-RT OI=5920 ASK=$0.30 SELL PUT JUN-40.00 RCQ-RH OI=5172 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$39.70 __________________________________________________________________ EBAY - eBay $85.33 *** Another All-Time High! *** eBay (NASDAQ:EBAY) is a web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and other miscellaneous items. The eBay trading platform is an automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. Through its wholly owned and partially owned subsidiaries and affiliates, the Company operated online trading platforms directed towards the United States, Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland and also the United Kingdom. EBAY - eBay $85.33 PLAY (less conservative - bullish/credit spread): BUY PUT JUN-75.00 XBA-RO OI=21924 ASK=$0.25 SELL PUT JUN-80.00 XBA-RP OI=13952 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=12% B/E=$79.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AZO - Autozone $83.38 *** Failed Rally? *** AutoZone (NYSE:AZO) is a specialty retailer of automotive parts and accessories primarily to do-it-yourself customers. It also sells parts and accessories online at autozone.com. Each auto parts store carries an extensive product line for cars, vans and light trucks, including new and remanufactured automotive parts, maintenance items and various accessories. AutoZone also has a commercial sales program in the United States, AZ Commercial, which provides commercial credit and prompt delivery of parts and other products to local, regional and national repair garages, dealers and service stations. In addition, the company sells automotive diagnostic and repair software through ALLDATA and through alldatadiy.com. AZO - Autozone $83.38 PLAY (conservative - bearish/credit spread): BUY CALL JUN-95.00 AZO-FS OI=799 ASK=$0.20 SELL CALL JUN-90.00 AZO-FR OI=3447 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$90.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 05/23/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 BCGI JUN 10 9.65 10.35 0.35 7.73% 3.63% LPNT JUN 35 34.30 36.16 0.70 4.03% 2.04% ASCA JUN 30 29.35 32.87 0.65 5.02% 2.21% DRIV JUN 25 24.25 32.38 0.75 7.04% 3.09% FARO JUN 20 19.45 25.75 0.55 7.32% 2.83% GIVN JUN 30 29.25 32.66 0.75 7.01% 2.56% MVSN JUN 20 19.65 22.71 0.35 4.54% 1.78% PDII JUN 22 22.00 27.97 0.50 6.67% 2.27% SMTC JUN 20 19.50 23.04 0.50 6.25% 2.56% CELG JUN 45 44.40 54.42 0.60 4.75% 1.35% ELN JUN 17 17.05 21.30 0.45 8.73% 2.64% FARO JUN 20 19.45 25.75 0.55 8.04% 2.83% FRO JUN 25 24.50 32.16 0.50 6.48% 2.04% IMMU JUN 5 4.75 5.42 0.25 13.52% 5.26% LNCR JUN 32 32.05 34.41 0.45 3.60% 1.40% MCK JUN 32 32.00 33.61 0.50 3.76% 1.56% NFLX JUN 25 24.45 31.26 0.55 7.36% 2.25% PHRM JUN 20 19.65 38.56 0.35 5.67% 1.78% RTN JUN 32 32.00 32.51 0.50 3.62% 1.56% VXGN JUN 12 12.10 15.64 0.40 10.35% 3.31% ARTI JUN 22 22.00 24.39 0.50 6.11% 2.27% AVID JUN 45 44.30 50.30 0.70 4.62% 1.58% BLUD JUN 25 24.70 28.45 0.30 3.54% 1.21% DIGE JUN 35 34.25 39.59 0.75 6.16% 2.19% DRIV JUN 25 24.60 32.38 0.40 5.37% 1.63% NUE JUN 55 54.25 62.35 0.75 3.96% 1.38% PHRM JUN 20 19.70 38.56 0.30 5.30% 1.52% SPLS JUN 25 24.60 26.72 0.40 4.24% 1.63% YHOO JUN 25 24.60 28.55 0.40 4.64% 1.63% Issues on the "watch" list are: Given Imaging (NASDAQ:GIVN) and Raytheon (NYSE:RTN). NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield IACI JUN 32 33.15 30.06 0.65 5.22% 1.96% OVTI JUN 30 30.80 20.59 0.80 11.79% 2.60% SLAB JUN 55 55.50 47.25 0.50 4.93% 0.90% PHTN JUN 35 35.35 28.48 0.35 4.69% 0.99% ENDP JUN 25 25.70 20.90 0.70 11.16% 2.72% IPXL JUN 22 23.05 19.64 0.55 8.75% 2.39% MMR JUN 15 15.25 13.53 0.25 7.20% 1.64% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ASKJ JUN 35.00 34.40 40.84 0.60 6.85% 1.74% AUO JUN 20.00 19.55 23.35 0.45 8.86% 2.30% ERES JUN 30.00 29.70 36.71 0.30 4.60% 1.01% FWHT JUN 20.00 19.65 22.09 0.35 6.25% 1.78% GPRO JUN 35.00 34.45 38.27 0.55 5.54% 1.60% MEE JUN 22.50 22.15 25.02 0.35 5.66% 1.58% SMTC JUN 20.00 19.70 24.50 0.30 6.79% 1.52% SWIR JUN 22.50 22.20 27.52 0.30 6.05% 1.35% YHOO JUN 27.50 27.15 30.28 0.35 4.58% 1.29% __________________________________________________________________ ASKJ - Ask Jeeves $40.84 *** The Uptrend Resumes! *** Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search, providing consumers with authoritative and fast ways to find relevant information to their everyday searches. Ask Jeeves deploys its search technologies on Ask Jeeves (Ask.com and Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com). In addition, to its internet sites, Ask Jeeves syndicates its monetized search technology and advertising units to a network of affiliate partners. The company is based in Emeryville, California, with offices in New York, Boston, New Jersey, Los Angeles, London and Dublin. ASKJ - Ask Jeeves $40.84 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 AUK RG 2613 0.60 34.40 6.9% 1.7% __________________________________________________________________ AUO - AU Optronics $23.35 *** On The Rebound! *** AU Optronics (NYSE:AUO) manufactures and assembles thin-film transistor liquid crystal display panels. These products are used in computers, consumer electronics products and LCD TVs. The company manufactures a range of TFT-LCD display panels for computer products, which typically utilize large-size display panels, primarily for use in notebook computers and desktop monitors; consumer electronics products, which typically use small to medium-sized display panels in products like digital cameras, digital camcorders, mobile phones, car television monitors, car navigation systems and PDAs, portable TVs and portable DVD players, and LCD television. AUO - AU Optronics $23.35 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 AUO RD 2695 0.45 19.55 8.9% 2.3% __________________________________________________________________ ERES - eResearch Technology $36.71 *** New 2004 High! *** eResearch Technology (NASDAQ:ERES) is a provider of technology and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. The company offers a range of products and services, including Diagnostics Technology and Services and Clinical Research Technology. Their Diagnostics Technology and Services include centralized diagnostic services and clinical research operations, including clinical trial and data management services. Their Clinical Research Technology and Services include the developing, marketing and support of clinical research technology and services. ERES - eResearch Technology $36.71 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 30 DBO RX 31 0.30 29.70 4.6% 1.0% __________________________________________________________________ FWHT - FindWhat.com $22.09 *** Strong Sector! *** FindWhat.com (NASDAQ:FWHT) operates online marketplaces that connect the consumers and businesses that are most likely to purchase specific goods and services with the advertisers that provide those goods and services. Online advertisers determine the per-click fee they will pay for their advertisements, which FindWhat.com and its private-label partners such as Terra Lycos's Lycos.com and HotBot distribute to millions of Internet users. Their network includes hundreds of distribution partners, such as CNET's Search.com, Excite, Webcrawler, NBCi, MetaCrawler, Dogpile, Go2Net and Microsoft Internet Explorer Autosearch. FWHT - FindWhat.com $22.09 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 20 HFQ RD 350 0.35 19.65 6.3% 1.8% __________________________________________________________________ GPRO - Gen-Probe $38.27 *** Bracing For A Rally? *** Gen-Probe (NASDAQ:GPRO) is a global leader in the development, manufacture and marketing of rapid, accurate and cost-effective nucleic acid testing products used for the clinical diagnosis of human diseases and for screening donated human blood. With its patented NAT technology, Gen-Probe has FDA approvals for products that detect a variety of infectious microorganisms, including those causing sexually transmitted diseases, strep throat, tuberculosis, pneumonia and fungal infections. The company also produces an FDA-approved blood screening assay for the simultaneous detection of HIV-1 and HCV, which is marketed by Chiron. The company has 20 years of nucleic acid detection research and development experience, and its products are used daily in clinical laboratories and blood collection centers throughout the world. GPRO - Gen-Probe $38.27 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 PSU RG 442 0.55 34.45 5.5% 1.6% __________________________________________________________________ MEE - Massey Energy $25.02 *** Energy Sector Hedge! *** Massey Energy (NYSE:MEE) produces, processes and sells bituminous, low sulfur coal of steam and metallurgical grades through its 19 processing and shipping centers, called resource groups, many of which receive coal from multiple coal mines. The firm's resource groups or mining complexes blend, process and ship coal that is produced from one or more mines, with a single complex handling the coal production of as many as eight distinct underground or surface mines. These mines are at strategic locations in close proximity to the Massey preparation plants and rail facilities. Coal is transported from its mining complexes to customers by means of railroad cars or trucks. Massey operates 30 underground mines and 13 surface mines in West Virginia, Kentucky and Virginia. The company's steam coal is primarily purchased by utilities and industrial clients as fuel for power plants. MEE - Massey Energy $25.02 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 MEE RX 46 0.35 22.15 5.7% 1.6% __________________________________________________________________ SMTC - Semtech $24.50 *** Favorable Earnings? *** Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal semiconductors. The company operates in two business segments, Standard Semiconductor Products and Rectifier, Assembly and Other Products. The Standard Semiconductor Products segment makes up the vast majority of overall sales and includes power management, protection, test and measurement, advanced communications and human input device product lines. The Rectifier, Assembly and Other Products segment includes the company's line of assembly and rectifier devices, which are the remaining products from its original founding as a supplier into the military and aerospace market. SMTC - Semtech $24.50 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 QTU RD 1699 0.30 19.70 6.8% 1.5% __________________________________________________________________ SWIR - Sierra Wireless $27.52 *** Bottom Fishing! *** Sierra Wireless (NASDAQ:SWIR) is a leader in delivering highly differentiated wireless solutions that enable our customers to improve their productivity and lifestyle. Sierra Wireless develops and markets AirCard, the industry-leading wireless PC card line for portable computers; embedded modules for OEM wireless applications; the MP line of rugged vehicle-mounted connectivity solutions and Voq, a line of professional phones with secure, easy-to-use, products for mobile professionals. SWIR - Sierra Wireless $27.52 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 IYQ RX 1927 0.30 22.20 6.0% 1.4% __________________________________________________________________ YHOO - Yahoo! $30.28 *** Another 2004 High! *** Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer services company that offers a comprehensive branded network of properties and services to more than 200 million individuals worldwide. The company offers an online navigational guide to the Internet via its www.yahoo.com Website, which is a guide in terms of traffic, advertising and household and business user reach. Through Yahoo! Enterprise Solutions, the firm also provides many business services designed to enhance the productivity and Web presence of its clients. Yahoo! has offices in the United States, Europe, Asia, Latin America, Australia and Canada. YHOO - Yahoo! $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 27.5 YHQ RY 26208 0.35 27.15 4.6% 1.3% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ABAX - Abaxis $18.00 *** Stuck In A Trading Range? *** Abaxis (NASDAQ:ABAX) develops, manufactures and markets portable blood analysis systems for use in any veterinary or human patient care setting to provide clinicians with rapid blood constituent measurements. Its primary product is a system consisting of a compact 6.9-kilogram analyzer and a series of single-use plastic discs, reagent discs, containing all the chemicals required to perform a panel of up to 12 tests. The system can be operated with minimal training and performs multiple routine tests on whole blood, serum or plasma samples. The system provides test results in less than 15 minutes with the precision and accuracy equivalent to a clinical laboratory analyzer. Abaxis also sells a hematology analyzer under the name Vetscan HMT, which provides a complete blood count. ABAX - Abaxis $18.00 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 20 QOX FD 85 0.25 20.25 5.8% 1.2% __________________________________________________________________ CHIC - Charlotte Russe $17.68 *** Premium-Selling Only! *** Charlotte Russe Holdings (NASDAQ:CHIC) is a mall-based specialty retailer of apparel and accessories targeting young women between the ages of 15 and 35. The firm has two distinct store concepts: Charlotte Russe and Rampage. Charlotte Russe stores provide a wide range of fashionable, affordable apparel and accessories that have been tested and accepted by the marketplace. Rampage stores feature emerging fashion trends. Both Charlotte Russe and Rampage stores are located in high-visibility, center court mall locations in spaces that average approximately 7,100 square feet. CHIC - Charlotte Russe $17.68 "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 20 UYC FD 32 0.35 20.35 8.7% 1.7% __________________________________________________________________ USNA - USANA Health Sciences $26.90 *** An Un-Healthy Stock? *** USANA Health Sciences (NASDAQ:USNA) develops and manufactures nutritional, personal care and weight management products that are distributed through a network marketing system throughout the United States, Canada, Australia, New Zealand, the United Kingdom, Hong Kong, Japan and Taiwan. The firm's three primary product lines consist of USANA Nutritionals, Sense-Beautiful Science and LEAN Lifelong. USANA Nutritionals include a range of antioxidants, minerals, vitamins, and other nutritional supplements. The Sense-Beautiful Science product line is comprised of products designed to support healthy skin and hair. LEAN Lifelong products were developed to provide a comprehensive approach to weight management, proper diet and nutrition and healthy living. USNA - USANA Health Sciences $26.90 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUN 30 UNX FF 146 0.40 30.40 6.3% 1.3% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. 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. 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