The Option Investor Newsletter Sunday 05-30-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: What A Difference A Week Makes Futures Market: See Note Index Trader Wrap: See Note Editor's Plays: Earnings Lottery Market Sentiment: Ready for the Weekend Ask the Analyst: Biotech can bring great reward, and disappointment Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 5-28 WE 5-21 WE 5-14 WE 5-07 DOW 10188.45 +221.71 9966.74 - 46.13 10012.9 -104.47 -108.23 Nasdaq 1986.74 + 74.65 1912.09 + 7.84 1904.25 - 13.71 - 2.19 S&P-100 545.13 + 10.80 534.33 - 1.14 535.47 - 1.88 - 3.53 S&P-500 1120.64 + 27.08 1093.56 - 2.10 1095.66 - 3.03 - 8.61 W5000 10926.36 +301.26 10625.1 - 9.61 10634.7 - 51.33 -107.62 SOX 488.86 + 30.68 458.18 + 7.19 450.99 - 6.02 + 13.52 RUT 568.28 + 22.47 545.81 + 2.05 543.76 - 4.80 - 11.24 TRAN 2948.01 + 82.26 2861.75 + 12.86 2848.89 + 2.71 - 40.26 ****************************************************************** What A Difference A Week Makes by Jim Brown I predicted last Sunday that there was a bounce building in our immediate future. I outlined the reasons I thought the selling was over and why I thought we would rally. I suggested it would slow in the SPX 1020, Dow 10200 range and that is where we stopped. Unfortunately after several weeks of declines and a rebound as predicted the future is far less clear. Dow Chart - Weekly Nasdaq Chart - Weekly The economics for the week were a definite surprise. With a number of reports coming in weaker than expected the markets shrugged them off and continued higher. The bad news bulls appear to be back in charge. The weaker than expected reports continued on Friday with the Consumer Sentiment dropping to 90.2 and the lowest level since Oct 2003. Expectations were for a gain to 95.0 but analysts were quick to downplay the release. The common refrain was that sentiment was "news event" driven and did not reflect the true nature of the recovery. I will agree with them on that except that they always pound the table with delight when it is higher than expected. The increasing pessimism is coming from the Iraq prisoner scandal, rising gas prices and up until this week the falling markets. The Michigan survey is taken from 500 respondents. The preliminary number is from the first 250 respondents and the final number from the total of all 500. The swing from the preliminary release in May to the final number was about -8 points and a very large swing over the last two weeks. This correlates with the ABC News/Money Magazine poll that also dropped sharply. Conversely the Personal Income and Spending numbers released on Friday showed income was twice the level of spending and up +4.8% year over year. Income rose +0.6% and spending only +0.3%. This was the highest increase in spending since the end of 2000. Inflation as shown by the PCE Deflator rose only +0.1% for the month pushing the core PCE to only +1.4% year over year. This is one of Greenspan's favorite indicators and is showing almost no inflation. This could allow the Fed to remain patient for an extended period of time. The NY-NAPM rose for the ninth straight month in May but the rate of increase slowed slightly. In May the index hit 287.1 a gain of +4.9 points and a new record high. However current conditions fell to 59.7 from 70.9 and manufacturing conditions fell to 52.7 from 80.3. The quantity of purchases fell to 56 from 75. The worst drop was the six-month outlook, which fell from 85.7 to 62.5. Probably the biggest highlight that the outlook is slipping was the Production Materials Buying Policy which fell from 150 days to only 40 days of inventory. This could be seen in two ways. Either production has ramped up so strongly that managers cannot keep a longer supply on hand OR the future prospects have fallen off so sharply that managers are afraid to keep more raw materials on hand. When you consider the drop in the other components I think the latter is likely the case. It appears the New York recovery may be topping. The strongest survey for the week was the PMI, which rose to 68.0 and a level not seen since Jan-1988. This report helped to push the weakness in many of this weeks releases to the background with a +6 point jump over expectations. The New Orders component rose to 74.4 and the highest level since 1983. To keep pace with the increasing demand the employment component rose +4 points. Where the NY report showed a slowing rate of manufacturing growth the Chicago PMI shows an exploding rate of growth. This suggests the national ISM next week could also be stronger than expected. This would help continue the bullish optimism in the markets. The only downside was the soaring prices paid component to 80 and the highest level since 1995. On Thursday the weaker than expected GDP at 4.4% was a small disappointment but still strong. The 2Q GDP is only expected to be in the +3.5% to +4.0% range but the strong PMI and a strong ISM next week could go a long way towards raising those estimates. That ISM for May will be released at 10:00 on Tuesday. The other material reports are Factory Orders and Productivity on Thursday and Jobs on Friday. The Jobs report is the biggest hurdle with consensus estimates at +233,000, slightly less than the +288K for April. Unless the Jobs report was over +350K the odds of the Fed reacting before the June-30th meeting are slim. Currently the odds of a quarter point rate hike at the June meeting are 92%, down from 94% last Sunday and 100% several weeks ago. This is still a virtual certainty in Fed terms but a lower than expected ISM or Jobs could decrease the odds even further. With economics mixed but still improving where it matters and strong earnings the markets pulled a recovery out of the hat last week. The Dow rallied to resistance at 10220 and came to a dead stop on Thursday. Friday's high was just below that level at 10216 but support at 10175 was also very strong. The Nasdaq was by far the stronger index with a +120 point gain from the prior weeks lows. The Nasdaq went out Friday at its highs at 1988 and very close to the 2000 level once again. That 2000 level, actually 2000-2025, is very strong resistance and coupled with that 10200-10300 resistance level on the Dow could easily limit upward movement next week. The SPX came to a halt at 1121 right on schedule and the Russell at 570. All of these levels are strong resistance. However, closing at very strong resistance on a Friday with three day weekend event risk ahead was bullish. The major qualification was the holiday volume at only 2.5 billion shares across all markets. The NYSE only traded 1.2B and the Nasdaq 1.09B. These levels are -38% below Tuesday's level at 4.01B for the strong gain. The rally volume was also only moderate and lacking in conviction. The Nasdaq has now closed up +6 consecutive days and is nearing that stronger resistance mentioned above. With the summer doldrums ahead that trend is not likely to continue much longer. The summer doldrums are commonly known as June-August. Over the last five years the S&P has lost an average of -2.5% over those months. To put that in perspective it would only be -28 points from Friday's close. Hardly a tidal wave of selling and suggests that doldrums is a proper name. Offsetting the potential for three months of aimless wandering is the election year trend. Since 1900 there has been a summer rally in 73% of election years with an average gain of +7% according to Ned Davis Research. Now we have a choice between aimless wandering and a +7% avg gain. Who is right? Actually historical norms are only accurate over extremely long periods. Short-term views can be skewed significantly by current events and market trends. The doldrums trend I mentioned above simply reflects the bear market for three of the last five years. No surprise that the average was down. The longer election year trend since 1900 covers only 25 election year cycles and multiple major wars and economic disasters. With 73% of those years (18) showing a gain compared to 27% (7) showing a loss that is not really a trend you can count on. It is better than a coin toss but only slightly. Add in the June-30th Fed meeting, Iraq turnover and Olympics and the recent terror warning and the election year trend is probably nullified. With the Nasdaq and the Russell each up +4% for the week and the SOX up +7% you could easily make a case that the market is overbought. Buyer conviction is far from strong with the put/call ratio 1.05 and the TRIN 1.13 at Friday's close. Low volume, lack of conviction but closing at the highs on a holiday Friday. What a conflicting picture! I had gone into Friday afternoon thinking we were going to see a closing sell off on profit taking but other than some light chop there was no real attempt to take them down. There were several attempts to take them higher but those also failed but not very decisively. It appears there is no conviction on either side. When there is no conviction we need to look at the real support and resistance and the longer term trend to decide the probable outcome. Each of the major indexes are nearing their downtrend resistance dating back to early 2004. This will be a key test for next week. The Nasdaq has been down trending since January and that trend line is currently 2020. With round number resistance at 2000 to slow any new gains the 2020 level could be tough. Support is well below at 1940 & 1920. The path of least resistance for the Nasdaq is not up or down but sideways. It is right in the middle of a large range and we could wander in this 1940-2020 range for all of June while waiting for the month end events to unfold. Nasdaq Chart - Daily The Dow has monster resistance at 10300-10350 and heavy congestion between 10300-10550. The upward path for the Dow is going to be much more difficult than the Nasdaq. The +2% gain (+222) for the Dow was only half the Nasdaq gain and stopped right at 10220 resistance for the last two days. Most of the Dow recovery was based on only a very few stocks. UTX, AIG, INTC, HD, KO, AXP and MMM carried the index with many of the other issues flat to down. The Dow has very low relative strength when compared to the other indexes. With strong resistance from 10220- 10350 and support well below at 9900 the Dow also has a big range available for movement over the next four weeks. The path of least resistance is down for the Dow to something around the 10100 level. Dow Chart - Daily The two indexes that helped the rally the most were the SOX and the Russell. Both tacked on some serious gains but both are nearing some serious resistance. The SOX reached downtrend resistance on Friday at 490 and with the +7% gain for the week is definitely overbought. We could easily see some profit taking in chip stocks. SOX Chart - Daily Russell Chart - Daily The Russell is also very extended from the May base around 535 and the +35 point gain was extreme. 570 is strong resistance and could act to blunt any further gains next week. The small caps set a lower high on Friday and were very choppy all afternoon. This suggests indecision and a lack of fund buying. When funds buy or sell the Russell the direction and speed leaves no doubt. There was definite doubt on Thr/Fri. Based on the market information above I think the rebound is about over and profit taking should follow. With the weekend event risk over and a positive ISM on Tuesday we could easily see a move higher but with all the multiple resistance levels across all the indexes the odds of a major move higher are not high. I believe instead we could see a range bound market with risk to the downside until Friday's Jobs report. Everyone is expecting a blowout report and I have already heard one 500K prediction. The expectations are very high and potential for disappointment high as well. That is where we run into trouble. If the number did come in at 500K the Fed would almost certainly act immediately. In this case a blowout could be dangerous. Then there is also the persistent rumor that there will be a rally after the first cut because it means the Fed has begun to act and the economy is strong. If the number is well below the estimates the Fed may remain on hold and that could also rally stocks. This is a very tough week to call except for the obvious. My best analysis says that any move higher early in the week will fail and we will remain range bound until the Jobs report. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ******************** INDEX TRADER SUMMARY ******************** Due to a family emergency Leigh is unavailable this weekend. Look for his column to return next weekend. ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Earnings Lottery Ditech Communications won the lottery on Friday after beating estimates of 20 cents by +4 cents. Nice earnings, nice quarter but was it worth a +30% jump in the stock price? I would be really surprised to see it hold. I am sure there were a lot of shorts thinking they would miss earnings and they lost big with a +$5 jump in DITC. I think this was extremely overdone and the decline since January will return. I am going to make a lottery play of my own with the June $20 put. DITC was trading in the $13 range two weeks ago and while I do not expect them to move back to that level I would not be surprised to see $18 after the $20.60 close on Friday. Let's take a very short-term lottery play with the June $20 put, QZD-RD, which closed at 75 cents on Friday. This is just a coin flip based on the over reaction on Friday. There is no fundamental story here but just a roll of the dice. Buy June-$20 Put QZD-RD (75 cents on Friday) Exit target $18 on DITC. No stop loss. DITC Chart - Daily ********************** TYC Call Update $30.82 Tyco continued to rally all week and jumped from $29.41 last Friday to break resistance at $30 and close at $30.82 for the week. The July-$30 option rose from $1.00 to a high of $1.80 and close at $1.65. There was no exit plan on this play and there is no evidence the gains will slow. The chart continues to be strong. Tighten your stops to where you are comfortable and exit when ready. I am closing this play as of today as a winner but I do expect it to move higher. http://members.OptionInvestor.com/editorplays/edply_052304_1.asp ********************** PNRA Put Update $34.75 PNRA rose sharply with a gap open on Thursday morning but then sold off into Friday's close. The excitement seems to be fading again but I am not hopeful for this position. The option is currently 20 cents and will require a drop in PNRA under $33 to be profitable. The cost of the option as profiled was 45 cents. The market rally this week breathed new life back into this stock. At 20 cents I think it is worth holding another week. Target for the June $30 put UPA-RF is still $1.00. Traders may want to exit for a break even if the opportunity arises. http://members.OptionInvestor.com/editorplays/edply_051604_1.asp *********************** News Corp Update $36.80 NWS rebounded nicely from the $34.68 lows two weeks ago. We are looking for some continued bullishness to return to allow us to sell come covered calls against our leaps to reduce our cost. With the bounce back over $35 the next available calls are the $40. The June calls are 10 cents and the July calls 35 cents. This is not enough risk/reward to justify selling calls at this level. Our time will come and I am going to be patient. Current position: Long (6) Jan-2006 $40 Calls WLN-AH @ $3.83 http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp **************** MARKET SENTIMENT **************** Ready for the Weekend - J. Brown Friday's action was mixed and witnessed some mild profit taking but stocks ended the week on an up note. Meanwhile investors were eagerly leaving early for the long Memorial Day weekend after a choppy month. The Dow Industrials ended the week up 2.2% but down 37 points for the month. Meanwhile the NASDAQ Composite added 3.9% for the week and 66 points for the month (3.4%). Fueling the week's positive move was a steady drop in crude oil from its all-time high on Monday. Oil did bounce a bit on Friday but remained under the $40.00 per barrel mark. Thursday and Friday's markets were also boosted by generally positive economic data. Thursday was the 4.4% GDP reading while Friday unveiled strong consumer spending and a very strong Chicago PMI number. The rally this week is encouraging but many of the sector specific indices are trading right under resistance. We'd like to see the rally continue but we could be due for a little more rest (a.k.a. consolidation), especially for tech stocks. Next week is short with the markets closed on Monday for Memorial day. However, the remaining four days of the week could be exciting. Tuesday will bring the ISM report and Thursday unveils the ISM services number and the Factory report. Another potential market mover will be the Thursday night mid-quarter update from Intel (INTC). Yet the spotlight will be clearly focused on Friday's non-farm payrolls report. Conjecture on how strong the jobs number will or won't be will consume the financial media for the next several days. The result of the jobs report could very well set the tone for June. Judging from the declines in the volatility indices investor sentiment is pretty bullish but the major indices have significant overhead resistance to deal with. Watch those stops losses. Don't forget to say thank you to all the men and women serving in the armed forces this weekend. Happy Memorial Day! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8679 Current : 10188 Moving Averages: (Simple) 10-dma: 10029 50-dma: 10246 200-dma: 10064 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 946 Current : 1120 Moving Averages: (Simple) 10-dma: 1101 50-dma: 1116 200-dma: 1085 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1165 Current : 1466 Moving Averages: (Simple) 10-dma: 1422 50-dma: 1438 200-dma: 1426 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.50 +0.22 CBOE Mkt Volatility old VIX (VXO) = 15.82 +0.29 Nasdaq Volatility Index (VXN) = 21.33 -0.17 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.05 388,547 407,570 Equity Only 0.70 325,223 228,402 OEX 1.16 12,858 14,818 QQQ 1.45 28,509 41,263 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 63.8 + 0 Bear Confirmed NASDAQ-100 38.0 + 2 BULL ALERT Dow Indust. 66.7 + 0 Bear Confirmed S&P 500 60.4 + 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: 0.71 10-dma: 0.96 21-dma: 1.00 55-dma: 1.07 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 1617 1575 Decliners 1192 1453 New Highs 80 79 New Lows 22 14 Up Volume 725M 698M Down Vol. 641M 497M Total Vol. 1392M 1217M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 05/25/04 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 Not much movement from the commercial traders. It looks like they shifted a handful of money from shorts to longs. Conversely the small traders have rotated some money from longs to shorts. Commercials Long Short Net % Of OI 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%) 05/25/04 400,713 420,764 (20,051) (2.4%) 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 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% 05/25/04 136,086 79,060 57,026 26.5% 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 There was a big drop in longs by the commercial traders but it was coupled with a significant drop in shorts too. They remain net bullish on the S&P 500. Small traders have grown net bearish after last week's bullish reading. Commercials Long Short Net % Of OI 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% 05/25/04 353,722 336,406 17,316 2.5% 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 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% 05/25/04 91,515 100,759 ( 9,244) ( 4.8%) Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders have upped their long positions and remain net bullish on the NDX. Small traders have likewise upped their short positions and remain net bearish. Commercials Long Short Net % of OI 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% 05/25/04 59,891 37,630 22,261 22.8% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 22,261 - 05/25/04 Small Traders Long Short Net % of OI 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%) 05/25/04 10,184 20,653 (10,469) (33.9%) 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 Commercial traders are adding to their short positions while small traders are adding to their longs, which is generally par for the course. Guess who is right more often? Yup, the commercial traders. Commercials Long Short Net % of OI 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%) 05/25/04 23,578 24,632 (1,045) (2.2%) 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 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% 05/25/04 9,623 6,614 3,009 18.5% Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Biotech can bring great reward, and disappointment Hello Jeff, I appreciate your insight what is the technical out look on OSIP ? OSI Pharmaceuticals (NASDAQ:OSIP) $82.40 remains in what I consider to be very good technical health. For now. For just about any publicly traded biotechnology company, especially those with only one or two products in development, its stock price can change dramatically at any given point in time, and investing and trading in biotech's is often-times a purely technical trade. At least for me it is. While I am perhaps fascinated with all that takes place in the biotechnology landscape, I'm not a biochemist, I didn't enjoy the biology classes I took in high school or college, but marvel at what these people dressed in lab coats and goggles have been able to come up with over the years. Take OSI Pharmaceuticals (OSIP) as an example. Prior to the company's announcement that a recent Phase III study for its Tarceva lung cancer treatment indicated the drug may be capable of extending the survival rates of relapsed lung cancer patients by at least 33%, relative to placebo, shares of OSIP where trading strong and holding near their 52-week high of $43.26. The company released the news the morning of April 26, and the shares gapped significantly higher from $38.14 to $91.00. Before we proceed with OSIP analysis, lets quickly review some "reasons" I profiled this biotech company as bullish on May 6, near the close of that day's trade. One reason was that we had recently had some success in a BEARISH trade with Taser Intl. (TASR) using our 38.2% fitted retracement technique, where a bullish trade setup in OSIP required the stock to prove a close above $76.55. A second reason was that in a rather uncertain market environment, with geopolitical events, fears of inflation, rising oil prices, you name it, a stock like OSIP, with favorable news regarding its Phase III Tarceva study provided some uncertainty around the stock. A third reason is that prior to the stock gapping significantly higher, short interest was high at 5.9 million shares, where at that time, the days to cover was calculated at 5.9 million shares. In a relatively bearish market environment, shorts might be more eager to cover a position that has resulted in 100% loss and look elsewhere for bearish gains. OSI Pharmaceuticals (OSIP) Chart - Daily Intervals Since the gap higher on April 26, there's actually been very little "good news" for OSIP. On 04/27/04 IRG cut their rating on OSIP to "sell" from "neutral," saying risk/reward was poor and that the Tarceva's survival data are not significantly better than Iressa's, its main competitor. The stock retraced some of its gap higher to trade a recent low of $67.60 after Barron's wrote a story suggesting that OSIP's stock price had probably discounted Tarceva's sales prospects to the fullest extent. I wasn't aware of that article until after my bullish profile (July $90 call option) near the close of trade on 05/06/04, which I had set up for traders a couple of days in advance, where I wanted the stock to close above $76.55, as if to show enough demand from market participants to hold that close. Then wouldn't you know it, on 05/11/04, OSIP reported a quarterly loss of $1.27 per share, which was 24-cents worse than consensus estimates of $1.03. Considering some of this news, I'd have to say OSIP's technicals remain pretty strong, but there is obviously more than a few comments that would bring caution to the stock. I want to quickly address the gap higher for OSIP, but also bring in the observation of short interest and a market maker's responsibility. Why did OSIP gap like it did? Perhaps the Tarceva results are going to have this drug being a blockbuster, but we don't really know if this is true. I think the stock gapped so much higher because market makers had very little long/bullish inventory to meet market demand. How does a market maker mitigate his/her risk when a stock gaps to new highs, but under rules where the market maker MUST MEET MARKET LIQUIDITY NEEDS UNDER ANY AND ALL MARKET CONDITIONS? A market maker that lacks long/bullish inventory must by default short stock to the market, in order to meet the liquidity demand of buyers. It would be my analysis that the sever gap higher was an immediate attempt to try and mitigate a market makers risk (price it high enough to keep some demand at bay, but still do your job and provide liquidity). However, as you and I should both know, a market maker doesn't sit there and crunch fundamentals. They trade levels, manage inventory, and keep track of the bottom line, to try and make sure that they don't lose money in inventory. At least not for long, while doing their job and providing liquidity to buyers and sellers. A trader that can fully grasp these very simple beliefs, can perhaps become a disciplined and profitable trader/investor. OSI Pharmaceuticals (OSIP) Chart - Daily Intervals This is a chart we started out with, when we began monitoring OSIP after its gap higher. We used past trade in TASR, with similar retracement technique, to provide a test for OSIP. TASR never was able to close back above its 38.2% retracement after spiking to an all-time high. The test for an OSIP bullish play was for OSIP to prove enough strength and hold a close above $76.55 to prove itself worthy of an investor/trader's capital. Technical note: Once OSIP closed ABOVE any level of trade, it has NEVER closed below 3 LEVELS lower. For instance, the day OSIP gapped higher, it closed ABOVE $87.62. When it declined, it NEVER closed BELOW $69.70. DIVERVGENCE to this pattern would become more BEARISH. One negative in my view, was that OSIP had exceeded its point and figure chart's bullish vertical count, so assessing potential upside reward is difficult. For any trader/investor, the main question was if an OSIP July $90 call option priced at $4.20 per contract ($420 + commission) was worth the risk. Now, we also performed some addition work with another retracement several weeks ago (using a fitted retracement technique), but now that we have additional periods of data to work with (observations) here's what I'm going to do. I'm leaving the ABOVE retracement intact, but now I'm going to use the SAME 38.2% fitted retracement technique, to begin defining more near-term levels for further testing. All I'm going to do is try and look for some area/level in OSIP's chart, where there has been some type of resistance, and try to make sense out of how the stock HAS traded, in order to try and discover how the stock SHOULD trade to continue to meet a bull's eventual objective. OSI Pharmaceuticals (OSIP) - 60-minute intervals The BLUE retracement levels and the DARK PURPLE 38.2% is a newly fitted retracement, that gives the trader additional levels to measure OSIP's trade. I like this new retracement, and will stick with it, as I think it represents how a market maker would be trading the stock. I've anchored at the pullback low, and for whatever reason, OSIP seemed to find some resistance, which wasn't explained by my prior retracement at the $80.51 area. So, I want to try and mark that observation as a significant level. See how the stock "popped" above that level? Almost as if buyers finally overcame sellers. Now, not unlike what took place at our prior 38.2% retracement (BRIGHT PINK) once the 38.2% was violated to the upside, that 38.2% became pullback support. It would appear that our newly added 38.2% (DARK PURPLE) has shown some similar action. Resistance broken becoming support. Now, similar tests for strength by a bull can be tested as it relates to levels of trade with the newly added retracement. So far, once OSIP has moved above a level ($74.58), it has NOT fallen back below the much tighter level below ($68.65). Again, once OSIP moved above a level ($80.51), it has NOT fallen back below the much tighter level below ($74.58). It is almost as if market participants (especially market makers) are buying stock on pullback, then providing liquidity at the higher level (perhaps still having to short some stock if not squared up in inventory) at the next higher level. Another thing I like about our newly fitted retracement, is that its resulting 61.8% ($87.84) correlates very nicely with our first retracement at $87.82, which was a result from that 38.2% fitted retracement. It would have to be my analysis, that this is a level $87.82, where if I'm correct in my analysis that market makers lacked inventory, they will want to be squared up, should the stock trade that level. If I'm incorrect in my analysis, and market makers are currently squared up in their inventory (they know how to manage risk in inventory), then a short squeeze could develop above $87.84, if the current rise in short interest as of May 15, was built by other market participants. Market makers have the upper hand on me right now, as I don't know what their order flow is like (buy side versus sell side), and I don't know what the market maker's inventory is (net long, net short, or neutral) right now. The trade action would suggest net short, or neutral as the stock has been moving higher. Now, to play devil's advocate, I should admit that what has gone up on favorable clinical trial results, can go down just as quickly on any disappointment, and it would be my best analysis that any disappointing news is going to come prior to, or after normal trading hours, where it would be difficult to exit any position on a gap lower move. It would be this devil's advocate thought that has me preferring bullish exposure to OSIP with the use of call options, which give me the right, but not the obligation to buy the stock at $90 (or any strike price you prefer) where I can immediately assess my risk, in the option itself. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- Market Holiday - No Earnings Due ------------------------- TUESDAY ------------------------------ BNS Bank of Nova Scotia Tue, Jun 1 -----N/A----- N/A PLL Pall Corp. Tue, Jun 1 After the Bell 0.39 RYAAY Ryanair Holdings Tue, Jun 1 -----N/A----- 0.03 UNFI United Natural Foods Tue, Jun 1 -----N/A----- 0.20 ------------------------ WEDNESDAY ----------------------------- ABS Albertson's Wed, Jun 2 -----N/A----- 0.11 CWP Cable & Wireless PLC Wed, Jun 2 Before the Bell N/A CMVT Comverse Technology Wed, Jun 2 After the Bell 0.02 HOV Hovnanian Ent, Inc. Wed, Jun 2 After the Bell 1.03 MDZ MDS Inc. Wed, Jun 2 -----N/A----- N/A NMGa Neiman Marcus Group Wed, Jun 2 After the Bell 1.40 ------------------------- THUSDAY ----------------------------- KWD Kellwood Company Thu, Jun 3 After the Bell 0.89 MBG Mandalay Resort Group Thu, Jun 3 -----N/A----- 1.10 SKIL SkillSoft Corporation Thu, Jun 3 After the Bell 0.02 COO The Cooper Companies Thu, Jun 3 After the Bell 0.59 ------------------------- FRIDAY ------------------------------- PNY Piedmont Natural Gas Fri, Jun 4 -----N/A----- 1.01 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable IDEX IDEX Corp 3:2 May 28th May 31st CEDC Central European Dist 3:2 May 28th May 31st QCRH QCR Holdings, Inc 3:2 May 28th May 31st CNQ Canadian Natural Res Lmtd 2:1 May 28th May 31st PVTB PrivateBancorp, Inc 2:1 May 31st Jun 1st BNN Brascan Corp 3:2 May 31st Jun 1st GSBC Great Southern Bancorp 2:1 Jun 1st Jun 2nd BR Burlington Resources 2:1 Jun 1st Jun 2nd FNLC First Natl Lincoln Corp 3:1 Jun 1st Jun 2nd PCBC Pacific Capital Bancorp 4:3 Jun 8th Jun 9th ZLC Zales 2:1 Jun 8th Jun 9th MOGN MGI Pharma Inc 2:1 Jun 9th Jun 10th SFCC SFBC International, Inc 3:2 Jun 10th Jun 11th HE Hawaiian Electric Ind 2:1 Jun 10th Jun 11th BXX Brooke Corp 2:1 Jun 10th Jun 11th SSP E.W.Scripps 2:1 Jun 10th Jun 11th PVA Penn Virginia Corp 2:1 Jun 10th Jun 11th PNM PNM Resources 3:2 Jun 11th Jun 12th -------------------------- Economic Reports This Week -------------------------- The first week of June is a big week for economic data. Wall Street will focus on the ISM index on Tuesday and the Factory orders and ISM services number on Thursday. Yet the one report everyone will talk about and point to all week will be the non-farm payrolls report on Friday. ============================================================== -For- ---------------- Monday, 05/31/04 ---------------- None - Market Holiday - ----------------- Tuesday, 06/01/04 ----------------- Construction Spending (DM) Apr Forecast: 0.4% Previous: 1.5% ISM Index (DM) May Forecast: 61.5 Previous: 62.4 ------------------- Wednesday, 06/02/04 ------------------- Auto Sales (NA) May Forecast: 5.4M Previous: 5.2M Truck Sales (NA) May Forecast: 7.9M Previous: 7.8M ------------------ Thursday, 06/03/04 ------------------ Initial Claims (BB) 05/29 Forecast: 337K Previous: 344K Productivity Rev. (BB) Q1 Forecast: 3.7% Previous: 3.5% Factory Orders (DM) Apr Forecast: -1.0% Previous: 4.3% ISM Services (DM) May Forecast: 66.0 Previous: 68.4 ---------------- Friday, 06/04/04 ---------------- Nonfarm Payrolls (BB) May Forecast: 215K Previous: 288K Unemployment Rate (BB) May Forecast: 5.6% Previous: 5.6% Hourly Earnings (BB) May Forecast: 0.2% Previous: 0.3% Average Workweek (BB) May Forecast: 33.8 Previous: 33.7 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. 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The Option Investor Newsletter Sunday 05-30-2004 Sunday 2 of 5 In Section Two: Watch List: Internets to Insurance and More! Dropped Calls: None Dropped Puts: None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Internets to Insurance 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. ___________________________________________________________________ Ask Jeeves - ASKJ - close: 40.40 change: +1.22 WHAT TO WATCH: ASKJ can be a little too volatile for some traders and we would approach it cautiously. The big market rally on Tuesday this past week sent ASKJ through resistance at $39.00 and $40.00. After two days of profit taking traders stepped in to buy the dip on Friday near $39. Its P&F chart looks a lot more attractive with a fresh quadruple top bullish breakout and a target of $52.00. Aggressive traders may want to consider positions at current levels with an initial target of $45 and a secondary target of $50. Chart= --- UnitedHealth - UNH - close: 65.25 change: +0.82 WHAT TO WATCH: Health insurance stocks appear to be on the move again and UNH is one of them. Shares broke out over technical resistance at its 40 and 50-dma's mid-week and broke out over the $65 level on Friday. A move above $67.00 would actually be a new P&F buy signal. However, we'd consider new bullish positions at current levels with an eye on the $70 mark. A pull back and bounce from $64.00 would also be an attractive entry point. Chart= --- eBay Inc - EBAY - close: 88.80 change: +0.75 WHAT TO WATCH: It's a bird! It's a plane! No, it's those high- flying shares of Internet auction site EBAY. Yes, once again EBAY has taken flight with a non-stop rally this week to new highs. Volume was pretty strong early in the week and then tapered off as we headed into the long weekend. We'd keep an eye on this one for a pull back toward the $85 level. Odds are good the previous chatter about a possible split announcement is going to spring up again. Chart= --- Patterson Dental Co - PDCO - close: 75.71 change: +0.87 WHAT TO WATCH: The strong four-day rally in PDCO has produced a new buy signal in its MACD and a fresh bull-flag breakout. We're impressed with the strong volume on Friday despite the holiday weekend. Traders might want to use a trigger over $76.00 and target a quick move to $80.00. The bull flag pattern is pointing to a target of $85. Chart= --- OSI Pharmaceuticals - OSIP - close: 82.40 change: +0.01 WHAT TO WATCH: We've been watching OSIP for a dip back toward the $80 level and $80.81 was the low on Friday. This happens to be a bounce off its simple 10-dma and near its rising trendline of support. We like the rising channel formed in the month of May and we think this looks like a good entry point for bullish positions. Target the $90.00 level. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- HAR $80.14 +2.34 - HAR has broken out over technical resistance at its 40 & 50-dma's and the $80.00 mark. Target $85-86. ERES $25.29 +0.85 - This is a new all-time high for ERES and the bounce on Thursday from just under $24 looks tempting. XLNX $36.48 +0.29 - XLNX battled with resistance all day Friday but couldn't close over its 50-dma. CME $129.20 -1.10 - This looks very overbought but it just keeps climbing. Watch for a dip and a bounce from the $122.50-125.00 range. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ None *********** DEFINITIONS *********** ! Please note changes to the Option Chains for new call and put plays. We are no longer listing a "SL" or Suggested Stop Loss on individual options. Most brokers offer the ability to list a stop loss for your option on the underlying stock. All of OptionInvestor.com's directional call or put plays list a suggested stop loss for the stock itself and if the stock trades at or below that stop on an intraday basis we will close any hypothetical play at that time. OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. 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The Option Investor Newsletter Sunday 05-30-2004 Sunday 3 of 5 In Section Three: Current Calls: BCR, IMCL, QCOM, ZMH, AIG, BA, ERTS, JNJ, LXK New Calls: AET, SLAB Current Put Plays: CAKE New Puts: None ! Please note changes to the Option Chains for new call and put plays. We are no longer listing a "SL" or Suggested Stop Loss on individual options. Most brokers offer the ability to list a stop loss for your option on the underlying stock. All of OptionInvestor.com's directional call or put plays list a suggested stop loss for the stock itself and if the stock trades at or below that stop on an intraday basis we will close any hypothetical play at that time. ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Bard C R - BCR - close: 112.17 chg: +0.10 stop: 108.49 Company Description: C. R. Bard, Inc. (www.crbard.com), headquartered in Murray Hill, N.J., is a leading multinational developer, manufacturer, and marketer of innovative, life-enhancing medical technologies in the fields of vascular, urology, oncology, and surgical specialty products. (source: company press release) Why We Like It: Here we go! We added BCR for its relative strength and potential for a stock split run up and we're happy to report that the stock has broken out above resistance at $110 and the $112 levels. The 2-for-1 split occurs over the long weekend and BCR should begin trading at $56.08 on Tuesday. That means any options positions held will double in quantity but will halve their values to match the stock split. Be sure to double-check with your broker what the new options symbols might be. Now comes the tricky part. Some stocks who display decent pre- split run ups tend to turn lower after the split as momentum traders rotate out. Other times a stock will continue to run higher after a split because new investors now see the stock as a value or closer to their price range. We're going to keep BCR as an open play due to its impressive relative strength and bullish breakout to new highs. Our stop loss at $108.49 will become $54.25 post-split. Suggested Options: Short-term traders will probably do best with June or July calls. We're going to suggest the June's, especially the $110's, which will become $55s after the split. ! Be sure to DOUBLE-CHECK your options symbols on Tuesday, June 1 since they may change from this posting due to the split! BUY CALL JUN 105 BCR-FA OI=124 Last traded @ $7.80 BUY CALL JUN 110 BCR-FB OI=162 Last traded @ $3.80 BUY CALL JUN 115 BCR-FC OI=280 Last traded @ $1.25 BUY CALL JUL 110 BCR-GB OI=186 Last traded @ $5.20 Annotated Chart: Picked on May 20 at $110.00 Change since picked: + 2.17 Earnings Date 04/20/04 (confirmed) Average Daily Volume: 386 thousand Chart = --- Imclone Systems - IMCL - close: 74.34 chg: -0.35 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: The rebound in biotech stocks has been pretty impressive. Last week the BTK index was poised to produce a serious breakdown under the 492 level and its simple 200-dma. Instead we've seen a steady rally with some profit taking in the last session and a half. IMCL has joined that rally and hit new short-term relative highs. Unfortunately, we saw some steady selling in Friday's session but shares only lost 35 cents. Thursday Smith Barney initiated coverage on the stock with a "hold" and a $90 price target. We are still bullish on IMCL but the BTK index and shares of IMCL might need a minor pull back before continuing higher. We'd look for a dip back toward $73.00 in IMCL and traders can use that as a new entry point but look for the bounce before initiating positions. We would start to become concerned if shares traded under $72.50. Our short-term target remains $80 compared to its P&F target of $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= 6704 Last traded @ $7.10 BUY CALL JUN 75 QCI-FO OI= 6671 Last traded @ $4.30 BUY CALL JUL 75 QCI-GO OI= 664 Last traded @ $6.20 Annotated Chart: Picked on May 26 at $ 74.05 Change since picked: + 0.29 Earnings Date 04/27/04 (confirmed) Average Daily Volume: 2.9 million Chart = --- QUALCOMM - QCOM - close: 67.07 chg: +0.27 stop: 64.00 Company Description: QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2003 FORTUNE 500. company. (source: company press release) Why We Like It: We are still bullish on QCOM. The stock has been holding up pretty well after its strong rally on Tuesday and breakout over resistance at its 40 and 50-dma's and the $65.00 level. Since then shares of QCOM have traded in a relatively tight $1.00 range but do appear to be drifting higher. Shares are still a couple of points away from producing a new P&F buy signal but if it does it will be a triple-top buy signal. Right now initiating positions at $67.00 are okay but it might be a good idea to look for another dip toward $66.00-65.50 and buy a bounce. Our short- term target remains at $70.00 our secondary target is $74. Suggested Options: Short-term traders should be looking at the June or July strikes. Our favorites are the June 65s. BUY CALL JUN 60 AAO-FL OI= 2538 Last traded @ $7.40 BUY CALL JUN 65 AAO-FM OI=11330 Last traded @ $3.00 BUY CALL JLY 65 AAO-GM OI=21910 Last traded @ $4.20 Annotated Chart: Picked on May 24 at $ 66.01 Change since picked: + 1.06 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 9.6 million Chart = --- Zimmer Holdings - ZMH - close: 85.35 chg: +0.15 stop: 80.00 Company Description: Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer is the worldwide #1 pure-play orthopaedic leader in the design, development, manufacture and marketing of reconstructive and spinal implants, trauma and related orthopaedic surgical products. In October, 2003, the company finalized its acquisition of Centerpulse AG, a Switzerland-based orthopaedics company and the leader in the European reconstructive market. The new Zimmer has operations in more than 24 countries around the world and sells products in more than 80 countries. As a result of the acquisition of Centerpulse, reported 2003 sales were $1.9 billion. Full-year 2003 pro forma worldwide sales of Zimmer and Centerpulse were approximately $2.6 billion. The new Zimmer is supported by the efforts of more than 6,500 employees. (source: company press release) Why We Like It: (Original Play Description from Thursday) Zimmer should satisfy the fundamental and technical trader alike. Fundamentally business is great. Q1 sales this year were up 90% to more than $742 million. Profits are on the rise. ZMH has consistently grown its net income for more than two years. It may be a little expensive with a P/E of 60 but ZMH trades for less than 9 times its sales. Everyone is praising its recent acquisition of Swiss orthopedics maker Centerpulse. According to Forbes the deal was originally expected to dilute earnings but now the acquisition is expected to add to its full year EPS due to the smooth integration. According to multiple sources the U.S. knee and hip replacement business is growing at 16% a year and ZMH is the dominant player in the field. We really like its relative strength over the past couple of months. While the market was sliding ZMH was slowing gaining, although the last few weeks have been mostly sideways. Tuesday's market-wide rally produced a big bounce from the $80 level for ZMH and the follow through has pushed it right toward resistance near $85.00-85.25. We're willing to go long at the current levels with a stop loss at $80.00. Should the stock dip, look for a bounce from $82.00 before initiating positions. More conservative players might want to use a trigger near $85.50 to confirm the upside breakout. Short-term traders can target $90.00 but suspect ZMH has more upside than that. It's P&F chart has a $96 price target and a freshly minted triple-top breakout buy signal. Weekend Update: We had expected a bit more momentum from ZMH on Friday but with the major averages stuck in a tight sideways trading range and extremely low market volume due to the holiday weekend we're not complaining. No change in our strategy from Thursday. Fortunately, there was some good news on Friday for ZMH. S&P has raised its credit outlook for ZMH from "stable" to "positive" based on the company's "improving credit profile resulting from substantial repayment of debt..." The move is also "based on the company's leading position in the orthopedics market and on its geographic diversity. (source: S&P). Suggested Options: Short-term traders can choose from the June and July options. Septembers are available but there's no reason to use that much time if you don't need it. We like the June 80s and 85s or the July 85s. The June 80s are currently trading with a premium of just 70 cents. BUY CALL JUN 80 ZMH-FP OI= 1259 Last traded @ $6.00 BUY CALL JUN 85 ZMH-FQ OI= 1364 Last traded @ $2.35 BUY CALL JUL 85 ZMH-GQ OI= 112 Last traded @ $3.60 Annotated Chart: Picked on May 27 at $ 85.20 Change since picked: + 0.15 Earnings Date 04/26/04 (confirmed) Average Daily Volume: 1.2 million Chart = --- American Int'l Grp. - AIG - cls: 73.30 chng: +0.50 stp: 69.25*new* 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: AS we suspected, Tuesday's rally in shares of AIG was a key reversal day and after closing right at the $72 resistance level, the stock continued pushing its way higher through the balance of the week. While there may be some resistance found at the $74 level, the first real test for the bulls in this nascent bullish move will be found in the $75.00-75.50 area, as the stock tests the highs from February and March. There's always the possibility that AIG is building a topping formation, and a failure at the $75 level would serve to trace out the right shoulder of a H&S topping formation. But obviously that is not the most likely scenario, at least from where we sit. We're looking for the stock to push through that level of resistance and make a run at the April highs just over $77, at which point conservative traders may want to take the quick gain. More aggressive traders can hold out for our higher target at $80. The best new entries will present themselves on a mild pullback to confirm new support near $72, where the 50-dma ($72.29) and the 100-dma ($72.05) are now converging. we've inched our stop up slightly to $69.25 this weekend, which is just under the intraday low from last Tuesday. 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 $75 strike, as it is currently just out of the money and should provide sufficient time for the play to move in our favor. BUY CALL JUN- 70 AIG-FN OI=13646 last traded @ $3.80 BUY CALL JUN- 75 AIG-FO OI=18030 last traded @ $0.70 BUY CALL JUL- 70 AIG-GN OI= 491 last traded @ $4.50 BUY CALL JUL- 75*AIG-GO OI= 3147 last traded @ $1.40 Annotated Chart of AIG: Picked on May 25th at $72.00 Change since picked: +1.30 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 5.31 mln Chart = --- The Boeing Company - BA - close: 45.80 change: -0.40 stop: 43.25 Company Description: One of the world's major aerospace firms, BA operates in three principal segments: commercial airplanes, military aircraft and missiles, and space and communications. Commercial airplanes operations involves the development, production and marketing of commercial jet aircraft, principally to the commercial airline industry. The Military Aircraft and Missiles division is involved in the research, development, production, modification and support of military aircraft, including transport and attack aircraft. The Space and Communications segment is involved in the research, development, production, modification and support of space systems, rocket engines and battle management systems. Why we like it: We really didn't expect to see any follow-through to BA's strong breakout on Thursday, at least not ahead of the long holiday weekend. We weren't disappointed either, as the stock traded an inside day of consolidation, failing to challenge either the high or the low from the prior day. That leaves us with a nice little metric for gauging the stock's strength early next week though. A breakout over Thursday's $46.62 high will be a renewed sign of strength and can be used for aggressive entries. But our preference is still for entries on a pullback near strong support in the $44.50-45.00 area. Given the amount of time it took to finally break through that level as resistance, it should provide solid support on the next pullback. Taking note of the fact that daily Stochastics began to tip over on Friday, odds favor a minor pullback before this rally can continue. Maintain stops at $43.25. Suggested Options: Shorter Term: The June $45 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 $47 Call, while the more conservative approach will be to use the July $45 Call. Our preferred option is the July $45 strike, as it is currently in the money and should provide sufficient time for the play to move in our favor. BUY CALL JUN- 45 BA -FI OI=7958 last traded @ $1.55 BUY CALL JUN- 47 BA -FW OI=1774 last traded @ $0.40 BUY CALL JUL- 45*BA -GI OI= 630 last traded @ $2.10 BUY CALL JUL- 47 BA -GW OI= 707 last traded @ $0.85 Annotated Chart of BA: Picked on May 27th at $46.20 Change since picked: -0.40 Earnings Date 4/28/04 (confirmed) Average Daily Volume = 2.87 mln Chart = --- Electronic Arts - ERTS - close: 50.92 change: -0.02 stop: 47.40 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: As noted mid-week, ERTS certainly tested our patience (and its stop) before Tuesday's rally launched the stock sharply higher. Another strong performance on Thursday pushed ERTS through its shorter-term descending trendline, but that pesky 50-dma ($51.25) is still holding back the stock's advance. We wouldn't be surprised to see the stock pull back just a bit to test support near the $50 level before continuing higher. Note that in addition to horizontal support at that level, we have the 10-dma ($50.05) and the 20-dma ($50.22), reinforcing that level and making it an ideal spot to consider new entries. Keep in mind that we need to see a break above $53 before ERTS will be on a PnF Buy signal, so that keeps this a higher-risk play until that happens. Aggressive momentum traders can consider new entries above Thursday's high, but the more favored momentum entry will come on the break over $53. We're maintaining a fairly wide stop at $47.40 for now, just under Tuesday's intraday low. Suggested Options: Shorter Term: The June $50 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive longer-term traders can use the July $55 Call, while the more conservative approach will be to use the July $50 Call. Our preferred option is the July $50 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL JUN- 50 EZQ-FJ OI=7238 last traded @ $1.95 BUY CALL JUN- 52 EZQ-FX OI=3708 last traded @ $0.75 BUY CALL JUL- 50*EZQ-GJ OI= 474 last traded @ $2.90 BUY CALL JUL- 55 EZQ-GK OI= 381 last traded @ $0.85 Annotated Chart of ERTS: Picked on May 18th at $49.60 Change since picked: +1.32 Earnings Date 4/29/04 (confirmed) Average Daily Volume = 3.89 mln Chart = --- Johnson & Johnson - JNJ - cls: 55.71 chng: -0.08 stop: 54.00 Company Description: Johnson & Johnson is engaged in the manufacture and sale of products related to human health and well-being. Through over 200 operating companies, it conducts business worldwide. The company's business is divided into three segments: Consumer, Pharmaceutical and Medical Devices and Diagnostics. The Consumer segment manufactures and markets a range of products used in the baby and child care, skin care, oral and wound care and women's healthcare fields, as well as nutritional and over-the-counter pharmaceutical products. The Pharmaceutical segment's principal worldwide franchises are in the antifungal, anti-infective, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management, psychotropic and urology fields. The Medical Devices and Diagnostics segment includes a range of products used by or under the direction of physicians, nurses, therapists, hospitals, diagnostic laboratories and clinics. Why we like it: Following the strong rally on Tuesday that posted a big engulfing candlestick, shares of JNJ have continued their upward trek, drawing very near to the $56 resistance level. As we've noted on several occasions, JNJ moves slowly enough that the best way to play it is by nibbling on the pullbacks to support and traders that took advantage of the recent pullback near that $54 level got a solid entry into the play. With the 10-dma ($55.17) and the 20-dma ($54.95) straddling the $55 support level, that is where we should now have our attention focused for the next pullback entry. While aggressive traders can certainly consider entries over the $56.39 intraday high from May 11th, that isn't the most favorable strategy due to looming resistance near $58 and the fact that risk will still be down to our $54 stop. JNJ moves slowly and that means exercising patience is the best strategy. Suggested Options: Shorter Term: The June $55 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Longer-term traders can use the July $55 Call. Our preferred option is the July strike, as it is currently at the money and gives the stock plenty of time to move upwards without a significant loss of time value. BUY CALL JUN-55 JNJ-FK OI=17658 last traded @ $1.30 BUY CALL JUL-55*JNJ-GK OI=45341 last traded @ $1.75 Annotated Chart of JNJ: Picked on May 9th at $55.30 Change since picked: +0.41 Earnings Date 4/13/04 (confirmed) Average Daily Volume = 7.26 mln Chart = --- Lexmark Intl. - LXK - close: 94.32 change: +0.69 stop: 91.70*new* Company Description: Wrapping its arms around the entire life-cycle of printers, LXK develops and manufactures a broad range of laser, inkjet and dot matrix printers for the office and home markets. The company is also the exclusive source for new print cartridges for the laser and inkjet printers it manufactures. Additionally, LXK provides supplies for IBM printers and offers after-market laser cartridges for the large installed base of a range of laser printers sold by other manufacturers. Why we like it: The continued back and forth action is certainly keeping LXK investors on their toes, as each push higher is met with a trip back down to test support. But each support test over the past couple weeks has found willing buyers at slightly higher levels, keeping the slowly rising trend in place. The pullback after Tuesday's bullish move above the $95 level was met by selling and the stock dipped back towards the 10-dma ($93.40) yesterday and then a slight rebound into the weekend. LXK remains above the rising trendline and the 50-dma ($92.43), so despite the weakening of the daily Stochastics, we still view these regular dips to support as viable entry points before the rally really gets moving. Until recently, we've also been advocating breakout entries above resistance, but with the mid-week high less than $2 below solid resistance at $97, that does not appear to be the best choice. We're torn about raising our stop at this point. The best technical level is still at $89.75, just under the recent base that was formed. But an argument can be made for a stop at $91.70, just under Tuesday's intraday low, and solidly below the 50-dma, which has been a pivotal line of support for this play. Aggressive traders can still work with the wider stop, but we're going to err on the side of caution, raising our stop this weekend to $91.70. Suggested Options: Shorter Term: The June $90 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive longer-term traders can use the July $100 Call, while the more conservative approach will be to use the July $95 Call. Our preferred option is the July $95 strike, as it is currently near the money and should provide sufficient time for the play to move in our favor. BUY CALL JUN- 90 LXK-FR OI= 595 last traded @ $5.30 BUY CALL JUN- 95 LXK-FS OI=1310 last traded @ $1.95 BUY CALL JUL- 95*LXK-GS OI= 511 last traded @ $3.70 BUY CALL JUL-100 LXK-GT OI= 779 last traded @ $1.70 Annotated Chart of LXK: Picked on May 13th at $94.03 Change since picked: +0.29 Earnings Date 4/19/04 (confirmed) Average Daily Volume = 1.14 mln Chart = ************** NEW CALL PLAYS ************** Aetna Inc - AET - close: 81.20 change: +1.86 stop: 77.00 Company Description: As one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, Aetna puts information and helpful resources to work for its approximately 13.3 million medical members, 11.2 million dental members, 8.1 million pharmacy members and 12.4 group insurance members to help them make better informed decisions about their health care and protect their finances against health-related risks. Aetna provides easy access to cost effective health care through a nationwide network of more than 618,000 health care professionals, including over 370,000 primary care and specialist doctors and 3,783 hospitals. (source: company press release) Why We Like It: Stocks turned in a decent week but we were encouraged by the sustained rallies in both insurance and healthcare stocks. Looking at the IUX insurance index and the HMO healthcare index you can see the multi-day rally but you'll also notice that both closed just below combined resistance at their 40 and 50-dma's. We suspect both sectors could breakout to the upside next week. Potentially leading the charge higher should be AET. Shares of AET have dropped from $95 in early April to support at $77.00 in May due to profit taking both before and after its earnings report. Now shares have based along support at $77.00 for three weeks and investors are starting to nibble at the stock again. We like the new buy signal on its MACD indicator and its RSI and stochastic indicators also look bullish. If AET can trade over $82.00 it will produce a new P&F buy signal. What is really encouraging is the breakout over $81.00 and its 21-dma and 100- dma. Volume was almost normal on Friday's 2.34% gain despite the low volume in the markets due to the holiday weekend. Looking over the headlines we noticed that Bank of American (BAC) reiterated their "buy" rating on the stock a couple of days ago. Plus, Moody's has raised their outlook on AET's debt from "stable" to "positive" based on "the steady and solid earnings Aetna has reported over the last several quarters..." among other things. (source:Moody's). We're going to suggest longs at current levels with an initial target of $85.00 and its 50-dma. However, it wouldn't surprise us at all to see AET trade higher. Our beginning stop loss will be $77.00. Suggested Options: Short-term traders can choose from the June or July options. There are only three weeks left on June options so we'll suggest the July 80s. BUY CALL JUN 75 AET-FO OI= 205 Last traded @ $6.80 BUY CALL JUN 80 AET-FP OI= 4585 Last traded @ $2.80 BUY CALL JUN 85 AET-FQ OI= 726 Last traded @ $0.50 BUY CALL JUL 80*AET-GP OI=11308 Last traded @ $4.10 BUY CALL JUL 85 AET-GQ OI= 3455 Last traded @ $1.65 Annotated Chart: Picked on May 30 at $ 81.20 Change since picked: + 0.00 Earnings Date 04/29/04 (confirmed) Average Daily Volume: 1.5 million Chart = --- Silicon Labs. - SLAB - close: 52.13 change: +0.96 stop: 48.50 Company Description: Silicon Laboratories designs, manufactures and markets proprietary high-performance mixed-signal integrated circuits (ICs) for the wireless, wireline and optical communications industries. The company initially focused its efforts on developing ICs for the personal computer modem market and is now applying its mixed-signal and communications expertise to the development of ICs for other high growth communications devices, such as wireless telephones and optical network applications. Why we like it: Semiconductor stocks led the NASDAQ lower throughout much of the past month, so it only makes sense that this sector is the first place where we are seeing a revival of bullish sentiment. After finding solid support near $440, the Semiconductor index (SOX.X) rose back to resistance at $470 and finally broke out last week, helping the broad market along on Tuesday's strong rally. SLAB got hit pretty hard on the decline from the April highs, falling through its 200-dma before finding support near $45 and embarking on the road to recovery. Tuesday's move back over the 200-dma ($49.87) was encouraging, but the real key that got us interested in the stock as a bullish play was the move through the $51 level, which generated a new PnF Buy signal with a tentative upside target of $63. It was very encouraging to see the stock continue its midweek rally even on Friday, breaking through the 50-dma ($51,74) on Friday and just eking out a close over the 100-dma ($54.15). But we shouldn't be getting overly excited about momentum entries here, because SLAB closed right up against its PnF bearish resistance line. This is the first test of the line and odds favor a retracement before pushing through to higher levels. That means that we clearly favor pullback entries at this point and with strong historical support near $50, with the 200-dma rising to reinforce that support, that is the spot where we'd suggest targeting entries. Once over the $53 level, we're looking for SLAB to make steady progress towards the $56 level and quite possibly a run at the April highs in the $58-59 area. Place initial stops at $48.50, which is just below the now upwardly-sloping 20-dma ($48.57). As a point of confirmation when looking to buy the dip, watch for the SOX to find support above the $470 level on a pullback. Suggested Options: Shorter Term: The June $50 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 $55 Call, while the more conservative approach will be to use the July $50 Call. Our preferred option is the July $50 strike, as it is currently in the money and should provide sufficient time for the play to move in our favor. BUY CALL JUN- 50 QFJ-FJ OI=1385 last traded @ $3.50 BUY CALL JUN- 55 QFJ-FK OI=1217 last traded @ $1.05 BUY CALL JUL- 50*QFJ-GJ OI=1212 last traded @ $4.90 BUY CALL JUL- 55 QFJ-GK OI=2324 last traded @ $2.55 Annotated Chart of SLAB: Picked on May 30th at $52.13 Change since picked: +0.00 Earnings Date 4/26/04 (confirmed) Average Daily Volume = 1.16 mln Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Cheesecake Factory - CAKE - cls: 39.06 chng: +0.39 stp: 40.75 Company Description: The Cheesecake Factory operated 61 upscale, full-service, casual dining restaurants under The Cheesecake Factory mark in 20 states and the District of Columbia as of March 3, 2003. The company also operated three upscale casual dining restaurants under the Grand Lux Cafe mark in Chicago, Illinois, Los Angeles, California, and Las Vegas, Nevada, as well as one self-service, limited-menu, express foodservice operation under The Cheesecake Factory Express mark inside the DisneyQuest family entertainment center in Orlando, Florida. It also operated a bakery production facility in Calabasas Hills, California, which produces baked desserts and other products for its restaurants and for other foodservice operators, retailers and distributors. It also licensed three bakery cafes under The Cheesecake Factory Bakery Cafe mark to another foodservice operator. Why we like it: Is it a real bounce, or a failed rally? Inquiring minds want to know! Seriously, CAKE investors are having a hard time making up their minds about what to do with the stock. The recent drop below $38 found plenty of buyers, and we saw that level defended again on Tuesday. But the next day, the stock was quickly turned back from the $40 level of resistance and the remaining two days of the week saw the stock meandering between those two points of inflection, without being able to test either. The intraday lows have been rising over the past week, while at the same time, CAKE continues to be turned back from its 10-dma ($39.30). We've got a nice little consolidation zone building, with lower highs and higher lows and something will have to give. The first sign that the bulls are gaining the upper hand will be a close over the 10- dma, and more importantly above $40. On the other hand, the bears will be watching for a break below the short-term rising trendline near $38.60. Failures below $40 still look like viable bearish entries, with momentum traders wanting to wait for a break under $37.50. For now, we'll maintain our stop at $40.75, which is now protected by the 20-dma ($40.64). Suggested Options: Aggressive traders can use the $35 strike, while the more conservative approach will be to use the in-the-money June $40 strike. We've also listed a July strike for those desiring greater insulation against time decay. Our preferred option is the June 40 strike, as it is currently in the money and should provide ample time for the play to move in our favor. BUY PUT JUN-40*CFQ-RH OI= 521 last traded @ $1.90 BUY PUT JUN-35 CFQ-RG OI= 42 last traded @ $0.25 BUY PUT JUL-35 CFQ-RH OI=1849 last traded @ $2.50 Annotated Chart of CAKE: Picked on May 13th at $40.09 Change since picked: -1.03 Earnings Date 4/20/04 (confirmed) Average Daily Volume = 639 K Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-30-2004 Sunday 4 of 5 In Section Four: Leaps: Home In The Range...Again! Option Spreads: Running Naked Through The Marketplace ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ***** LEAPS ***** Home In The Range...Again! By Mark Phillips mphillips@OptionInvestor.com Hey there, sports fans! It's Memorial Day weekend and I hope you all know what that means. It's the start of the summer BBQ/grilling season, outdoor fun, family time and relaxation. If you're wondering what in tarnation that has to do with the market, I'll tell you it has EVERYTHING to do with it! Did you enjoy that stimulating session on Friday? To relieve the boredom, I actually stepped out back to see if I could actually observe the grass growing. Seriously, whether you liked the action (I use the word very loosely), get used to it. There are a lot more where Friday's session came from. Why, you ask? First off it's a rangebound market (hence the recycled title on this week's column) and did I mention it's Memorial Day weekend? The market isn't good or bad, it just is. And something we have to deal with is that the summer doldrums officially arrive next week, as many professional traders have already made their money for the year and are just coasting, determined not to screw it up before the action heats up again after Labor Day. We can expect volume to fall off further, intraday ranges to contract and catalyst for tradable moves to be few and far between. We talked about this last week -- there are a number of factors lying in the market's path that will have to be dealt with in the months ahead, but they are likely to create short-term dislocations, not tradable trends. At the end of June we have the FOMC meeting with the speculation over whether or not short-term rates are going to start rising. Just about the same time, the U.S. is supposed to relinquish control of Iraq. Then we have the July earnings cycle, a number of significant political events and of course the Olympics in Athens. Did I leave anything out? Oh yeah, we have the constant peril of terrorism, both here and abroad. Other than that, it ought to be a fairly quiet summer. The kicker is that with the exception of the July earnings cycle, all of these potential events have known schedules, but unknown outcomes. When the outcome is known, we're likely to see the typical knee-jerk reaction, with very little follow-through. Let me put it another way. The market has already cast its vote for how things are going to proceed for the next few months and as I've been saying for some time now, we should be looking for rangebound action until something big and unexpected occurs. That's what it will take to break this range. I said little about the broad market last week and I'm going to say even less this week -- primarily because we've got a defined range and until that range is broken decisively, there's little of merit for long-term investors to discuss. The pile ain't going very far. So let's discuss something a little more near and dear to my heart -- the action of the U.S. Dollar Index (DX00Y). We spoke about this one a bit last week, and I noted the significance of the 92 level, but didn't have the time to put together a chart to demonstrate the point graphically. I've taken care of that this week, so let's take a peek together. Weekly Chart of the U.S. Dollar Index (DX00Y) See the horizontal support-turned-resistance at 92? That was an important multi-year line of support until broken and we can see its significance demonstrated by the recent rollover from both that resistance as well as the declining year-long trendline. Just to add emphasis, we have the weekly Stochastics tipping over in classic bearish fashion. Do you see any similarity to the overall picture from last summer? Last April? October 2002? I can tell you this -- this is not the point that I'd be wanting to be long the dollar! Alright, that's the technical picture. What we really want to know is what is happening behind the scenes and causing the move, right? I think it's a safe bet that we will never know precisely what the answer is, but I think we can do some well-reasoned speculation. The DX00Y began to rise near the first of the year as investors began to expect that the Fed would need to raise interest rates. That trade picked up steam with a handful of economic reports focusing on inflation and employment that was pointing towards a strengthening economic recovery and the Fed has now made it clear that interest rates will be rising in the not- too-distant future. Rising interest rates will make US Treasury bonds more attractive due to the higher yield, implicitly strengthening the underlying currency -- at least relative to other paper currencies. But recently the Fed has been back-pedaling a bit, hinting that they're in no hurry to raise rates? Was a deal struck between Greenspan and the White House wherein Greenspan gets to keep his job in return for not torpedoing the economy with rising rates ahead of the election? I'll let you be the judge, but it certainly seems to me that the Fed's official statements have softened since Greenspan's official reappointment. If the Fed is now intent on waiting a bit longer before beginning the rate hike cycle, then don't you think it makes sense from a fundamental standpoint that the dollar is once again headed south? I think the location of the bottom of this decline will be very instructive in terms of what to expect from the equity market, currencies, precious metals, fixed income and commodities over the balance of the year. Jonathan has frequently referred to the "binary dollar trade" that has been in place over the past year, with the dollar moving one way and everything else moving the other way. Could it be that once short rates begin to rise that we'll finally see that link severed and the different asset classes resume their normal inter- relationships? At the core of what has been fueling this action has been the astounding level of money and credit creation, as every asset class has been floated higher on a sea of liquidity. That party can't go on indefinitely and the clear presence of rising inflation may be the equivalent of the cops showing up and finding no adults present and lots of alcohol. I don't have any predictions for how it will play out, but I will be a very interested observer, looking to see what dislocations will occur once the rate hike cycle commences. If you read my article last Thursday, you've got an idea of how I think it will play out in the housing market. We are unlikely to get a solid data point on interest rate policy going forward until the FOMC meeting at the end of June. While the Fed Funds futures are predicting a near-certainty of a hike, I'm less sure and wouldn't be at all surprised to see that first hike pushed out to August. With a lack of resolution on the interest rate issue in the near- term, I see it as very unlikely that the equity markets will be able to break their recent ranges and that means we need to be very cautious. Here's the latest updates on the plays we're currently following. Portfolio: HD - Did we say something up above about rangebound action? Apparently HD investors got a sneak peek at the script, because they picked themselves up last week and sent the stock back up towards strong resistance. The bottom of the range near $33 held firm and rather than roll over last week, the stock launched higher with the broad market, moving through its 200-dma, then 50- dma and finally the 100-dma, failing to find any resistance until encountering the top of the long-term descending channel just under $36.50. This puts the stock right back in the middle of the consolidation range that has prevailed for more months than I care to remember. More importantly, weekly Stochastics are hinting at a longer-term bullish move and we never did get the Sell signal on the PnF chart. While we can hope that Friday's move represented a near-term top, I'm doubtful and I'm putting this play on probation. We'll keep our stop set at $38, but any sustained move over Friday's high will have me looking to drop the play. Conservative traders may want to jump the gun and pull the plug on a close over $36.50. CHK - With the continued strength in energy prices, you'd expect our Natural Gas play to be acting better, especially with the overall market in rally mode last week. But the Natural Gas index (XNG.X) fell back from resistance near $235 in the latter half of the week and our CHK play followed suit, rolling over from just below the $14 level. The stock is still in the rising channel that has contained price for the past several months, but the price action is not looking encouraging. With weekly Stochastics firmly in bearish decline, new entries don't look particularly attractive at this time. Hopefully, we'll see price meander sideways until we see a fresh buy signal on the weekly oscillator. In the meantime, sitting pat with our stop in place at $12 seems the best course of action. LUV - The DOW Transports continue to be amazing in their reluctance to show any weakness, ending the week near 2950, even though the price of fuel continues to hold near all-time highs. The Airline index (XAL.X) did show a bit of weakness towards the end of the week, but still posted a respectable gain for the 5 days just ended. Investors have been showing LUV some love though, with the stock breaking out over the $15.25 level last week and holding that breakout into the end of the week. We should expect some firm resistance near $16, especially with the 200-dma just overhead, but the stock still appears on track for a rally to the $18 level as the summer travel season heats up. With our stop set at $13.50, we should be able to ride out any near- term turbulence. TYC - So, what do you think -- was it worth exercising some patience to get this tasty entry point? No sooner did we initiate our Portfolio play on TYC than the stock went vertical. First hitting resistance at $30, TYC then broke out in a big way on Thursday, with volume running nearly quadruple the daily average. Some analysts may attribute the move to some news about the company paying down debt and perhaps boosting its dividend. But I'd make the argument that the breakout occurred because technically it was ready. After several months of sideways consolidation, the stock was ready to move, and whether by luck or by skill, we managed to catch it at just the right time. We should expect to see a pullback to test support in the $29-30 area, but that dip should find support at that higher level and provide for secondary entries on the rebound from support. The next resistance level for us to really worry about is the $35 level, but it may take some time for the stock to get there. Note that we've raised our stop to $26.75, just under the early May low. AIG - Here again, our patience was rewarded, with AIG finally surging back to our $72 entry level on the back of Tuesday's strong market rally. We're not out of the woods just yet, but the move over both the 50-dma and the 100-dma certainly looks encouraging. We can expect to see some mild resistance at $74, and stronger resistance at $75, where the bears will be working to turn the daily chart into a possible H&S top. But we're going to go with the picture displayed by the PnF chart, which projects to significantly higher levels. See below for full details on this new Portfolio play. Watch List: GM - Finally a bounce in GM, and the stock inched its way back over the $45 level, but is currently pinned under both the 50-dma and the 200-dma. This isn't even close to what I want for an entry point, and I'm going to step add another level of caution to the play. Looking at the weekly Stochastics, I see a very real potential for bullish divergence to set up, and that could shoot the stock right through our prior entry target and put us in a very bad position. I'm going to put the play on hold for now. Radar Screen: EK - Hey, don't look now, but there was actually a bit of life to be found in shares of EK on Friday, with the stock rising to touch the declining trendline. I know the actual trendline should act as strong resistance, but what's bothering me here is the weekly Stochastics, which are midway through their ascent towards overbought territory. I found last week's price action a bit more encouraging to the prospects of an eventual bearish play here, but I don't think we need to be in a hurry. I still have a strong feeling that the stock is going to make another run towards the $28-29 area. We'll keep watching for a move that looks viable for a longer-term bearish position. QQQ - What was I thinking? I've been talking for weeks about the potential for a rangebound market through the summer and that by definition means long-term directional index plays are very unlikely to be profitable. Sure enough, QQQ rebounded strongly last week, moving right to its descending trendline on Friday. I'm expecting a breakout and a run back to the $38-39 area. It isn't enough to justify a bullish play, but neither will it be conducive to give us a winning bearish one either. I'm dropping QQQ from consideration as a play and will likely leave the indices alone until I can make a case for a break of the current ranges. $DJUSHB - We're making progress on laying out the road map for how to play the downside in the housing arena once short-term interest rates finally start to climb. We handled the background in last Thursday's article and we'll delve into specific analysis and strategies next week. Once we're done with that process, look for one or two of the home builders to appear in this section next month. NEM - Did you see that? NEM actually made it over the $40 level before tipping over at the end of last week, which is a pretty beefy move from the lows below $35 of a few short weeks ago. We still don't have a bullish PnF char to work with and I'm expecting the stock to now work back towards the $38 level, at which point we may start to see something viable set up. As you can tell from my continued commentary on the dollar, I'm expecting good things out of the gold sector and NEM should be a leader. Closing Thoughts: Just when all looked bleak, the broad market (especially Technology) put in an impressive performance last week, pushing all the major indices back into the middle of their respective ranges. It will take a sizeable move from here to break either support or resistance, and I suspect it's going to take a while to materialize. For those engineers out there, I think we're looking at an over-damped system and we've just witnessed the first two oscillations, which by definition should have the largest magnitude. Until there is another disturbance to the system, we shouldn't expect the broad market to move beyond the highs from earlier in the year or the lows posted earlier this month. They don't call them the summer doldrums for nothing! Best Wishes for a Safe and Enjoyable Memorial Day Weekend! Mark LEAPS Portfolio Current Open Plays LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: GM 05/09/04 HOLD JAN-2005 $ 45 ZGM-MI JAN-2006 $ 45 WGM-MI PP SEP-2004 $ 50 GM -IJ New Portfolio Plays AIG - American International Group $72.00 **Call Play** As mentioned last week, it was interesting how AIG just couldn't trade the $68 level that would have printed a fresh PnF Buy signal. The stock rallied strongly last week, hitting our entry target at $72 at the close on Tuesday and initiating our Portfolio play. The biggest risk in the play is that the current rally will stall out near $75, trace out a right shoulder to complete the possible H&S topping pattern and then head down through our $68 stop. But taking a look at the PnF chart, we like the bullish odds here. The PnF target is $94, or $22 above our entry point, while the initial risk is a mere $4. Weekly Stochastics haven't turned bullish yet, but they are clearly trying to put in a bottom and another bullish week ought to do the trick. Aggressive traders that missed the opportunity next week will now want to look for a short-term pullback near the $71-72 level to provide for entries. With potential resistance at $74, $75 and then $77, breakout entries don't really hold any appeal. That's a lot of resistance to work through, and it may be a tough road as we head into the summer doldrums, but all the technicals certainly seem to be leaning in our favor. Once AIG closes over $78 we'll have a pretty good idea that we've got a runner on our hands. BUY LEAP JAN-2005 $75 ZAF-AO $ 3.80 BUY LEAP JAN-2006 $80 WAP-AO $ 5.90 BUY PUT AUG-2004 $65 AIG-TM $ 1.05 **Protective Put** New Watchlist Plays None Drops None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************************ Option Spread Strategies ************************ Running Naked Through The Marketplace By Mike Parnos, Investing With Attitude I’ve had requests from some of the more aggressive CPTI students to discuss naked option writing. Well, get your raincoats ready. We’re about to go out in public. Be prepared. It’s dangerous out there – and drafty, too. Do You Have What It Takes? Naked option writing isn’t for everyone. It has certain requirements: the highest trading level approval from your broker, a VERY large brokerage account, and grapefruit-sized cajones. A little knowledge helps, too. Puts Or Calls? That decision depends on the direction du jour. Actually, naked option writing should ideally be done in a trending market. Try to determine the direction of the market is trending and then sell the appropriate option. For example, let’s say you are bullish – at least for the near term. Let’s pick a high premium tech stock and run the numbers. NTES (Netease.com) is trading at $45.05. Uri Geller returned from the dead one night, bent your spoons and told you that NTES will continue higher in the next three weeks. Now, let’s look at an option chain. The June $45 put is selling for $2.00. Let’s sell 2 contracts and take in $400. Remember, you have no interest in owning NTES stock (although that is a possibility). You’d prefer to keep the $400 of premium and – if you guessed right about the direction, the $400 will remain happy in its new home (your pocket). If NTES is above $45 at June expiration, the option will expire worthless and you will live happily ever after. Maintenance Requirement You don’t think the broker is going to let you skate without holding some of your money, do you? Without going into the basic formulas for naked position, you can estimate the maintenance to be about 25% of the total stock price. Two hundred shares of NTES would be worth about $9000. The requirement would be about $2,250. But, What If . . . Maybe Uri Geller was off his game. The voice from beyond was in Portuguese and you misunderstood. For whatever reason, NTES starts moving down. It’s $43, then $41.50, then $40. HELP!!!! What do you do? When the stock hits $40, you should be able to buy back your June $45 puts for about $5.50 (x 2 contracts = $1,100). Now, you’ve just spent $1,100. If you stopped there, you would incur a $700 loss. Are you still bullish? If the answer is “yes,” then take another look at the option chain. The July $40 puts are selling for $3.25. For each contract of the July $40 puts you sell, you’ll take in $325. How many July $40 put contracts do you have to sell to recuperate the $1,100 you just spent? Three contracts would bring in only $975 – not enough. So, we’ll sell four contracts and take in $1,300. Now, you’ve accomplished three things: 1) you have a whole other month for NTES to see the error of its ways and right itself; 2) you have lowered the short strike price by $5 (from $45 to $40); and 3) you’ve taken in an additional $200 of premium. Your account size has to be able to accommodate the additional margin requirements. The four $40 puts now represent 400 shares. That’s a value of $16,000. Using the same formula, the maintenance is now about $4,000. The maintenance requirement will fluctuate up and down with the value of the stock. Rolling For Credits This strategy is called “rolling for credits.” If NTES continues to fall to the next strike price ($35), the process is repeated – increasing the number of contracts to cover the cost of buying back the about to be violated short options. Eventually, NTES will stop falling (they “usually” do) – and the last set of written options will expire worthless. You will then make an overall profit consisting of an amount equal to all the credits (dollars) you took in to that point. There are two requirements for success with this strategy – that the stock will eventually stop falling. Secondly, you must have enough collateral backing to stay with the strategy, even if the stock dips heavily against you. The maintenance required for naked put (or call) writing can be in the form of cash or securities. A large stock portfolio can be used to finance the strategy through its loan value. There would be no margin interest charges incurred, because all transactions are credit transactions. The securities in the portfolio would remain untouched unless the strategy was terminated before completion. In Summary There you have it. Sounds like a “can’t lose” plan, right? Don’t kid yourself. Trading naked options close to the money (or anywhere else for that matter) is inviting trouble. Most of you won’t be able to use this strategy because of the trading level approval. For those of you who qualify, you might as well put your money on the endangered species list. ________________________________________________________ A Real Football Fan? From the “Get A Life” file, Eric Stephenson, a Salt Lake City, Utah lawyer, obviously has way too much time on his hands. He should be chasing ambulances or drafting wills like his friends. But not Eric. Apparently, Eric sued Viacom (CBS owner) for $5,000 because his sensibilities were offended. He believes Viacom should pay him $5,000 because of Janet Jackson’s “wardrobe malfunction.” Eric is the father of three children, ages 2, 4 and 6. He maintains that TV guides and pre- game advertising led him to believe that the halftime entertainment would be of a patriotic and family nature. Well, “nature” was definitely present – in all of its wonder and beauty. It just wasn’t what he expected. It was America at its finest. Eric believed he was led astray. The kids? They were probably playing with Leggos. I’ll bet Eric was the only one watching. Judge Jerald Jensen obviously had a grasp and told Eric to just go away. He didn’t cite a reason for his ruling. I suspect he was just being kind. Besides, the entire incident happened so quickly that Eric would have had to tape it, replay it, transfer it to his computer, and enlarged the image ten times just to get a glimpse. NEW JUNE POSITIONS June Position #1 – SPX Iron Condor – 1120.68 We sold 5 SPX June 1150 calls and bought 5 SPX June 1170 calls for a credit of $1.20 (x 5 contracts = $600). Then we sold 7 SPX June 1025 puts and bought 7 SPX June 1010 puts for a credit: $1.00 (x 7 contracts = $700). Our total net credit is $1,300. Maintenance: $10,500. Maximum profit range of 1025 to 1150. Potential profit is $1,300. June Position #2 – BBH Iron Condor - $147.77 We sold 10 BBH $155 calls and bought 10 BBH $165 calls for a credit of $.70 (x 10 contracts = $700). Then we sold 10 BBH $135 puts and bought 10 BBH $125 puts for a credit: $.90 (x 10 contracts = $900). Our total net credit is $1,550. Maintenance: $10,000. Maximum profit range of $135 to $155. Potential profit: $1,550. June Position #3 – RUT – Iron Condor – 568.28 We sold 10 RUT 590 calls and bought 10 RUT 600 calls for a credit of $.80 (x 10 contracts = $800). Then, we sold 10 RUT 490 puts and bought 10 RUT 480 puts for a credit: $1.00 (x 10 contracts = $1,000). Our total net credit is $1,800. Maintenance $10,000. Maximum profit range of 490 to 590. Potential profit: $1,800. June Position #4 – MNX – Iron Condor - $146.62 Sold 10 MNX 147.50 calls and bought 10 MNX 152.50 calls for a credit: $.70 (x 10 contracts = $700). Then sold 10 MNX $132.50 puts and bought 10 MNX $127.50 puts for a credit: $.60 (x 10 contracts = $600). Our total net credit of $1,300. Maintenance: $10,000. Maximum profit range of $132.50 to $147.50. Profit potential: $1,300. ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $36.55 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We make money by selling near term puts and calls every month. Here’s what we’ve done so far: Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts and calls – credit of $1,150. Dec. $34 puts and calls – credit of $1,500. Jan. $34 puts and calls – credit of $850. Feb. $34 calls and $36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34 calls and $37 puts – credit of $750. May $34 calls and $37 puts – credit of $800. We rolled out the May $34 calls to the June $34 calls for a credit of $.60 and then the May $37 puts to the June $37 puts for credit of $.15. The total net credit was $.75 ($750). Our new total credit: $9,600. Note: We haven’t included the proceeds from this long term QQQ ITM Strangle in our profit calculations. It’s a bonus! And it’s a great cash flow generating strategy. ZERO-PLUS Strategy. OEX – 545.13 In my Feb. 8th column, I outlined a strategy based on an initial investment of $100,000. $74,000 was spent on zero coupon bonds maturing in seven years at a value of $100,000. The principal $100,000 investment is guaranteed. We’re trading the remaining $26,000 to generate a “risk free” return on the original investment. Long Term: Bought 3 OEX December 2006 540 calls @ $81 (x 300 = $24,300). Our cash position as of May expiration is $4,390 plus unused $1,700 = $6,090. June Zero Plus Positions. We established a June OEX bull puts spread 515/505, taking in a credit of $1.15 x 5 contracts = $575. We also sold the June 560 call taking in a credit of $1.20 x 5 contracts = $600. If all goes well, we’ll be able to add an additional $1,175 to our cash position at June expiration. Some people have asked about why I’m using a 5-contract position when we only own 3 OEX Dec. 2006 calls. Well, we have $74,000 worth of zero coupon bonds that are certainly marginable and years to go to maturity. If violated, we can roll these spreads out however long is necessary to retain our profits. We’ll be adequately covered by the margin from the zeroes. OSX Calendar Spread Plus - $98.88 OSX is the Oil Index. This was a play based on the belief that oil prices will continue to move up. Well, the oil prices have gone up, but the index hasn’t. Bought 10 OSX June $115 calls and sold 10 OSX April $115 calls at a cost of $2.15 ($2,150). We also put on an April $100/$90 bull put spread and took in an extra $.70 ($700) to reduce the cost basis to $1.45 ($1,450). We rolled out our April $115 call and took in $1.20 - further reducing our cost basis to $.20. Then, aggressive traders (which we are in this strategy) put on the May $100/$90 bull put spread and took in $.95. So, we were a “plus” $.75 ($750). The May $115 call expired worthless. For June, on Thursday, we sold the June $105 call for $.70 against the June $115 call we still own. We closed our May bull put spread for a loss of $3.25 and rolled it out to the June $95/$85 bull put spread for a credit of $2.25. We had to trade 15 contracts of the bull put spread to cover what we spent to close the May $100/$90 bull put spread. We now have a positive $1.45 ($1450) -- $750 from before and another $700 from selling the $105 June call. We bought ourselves another month for the OSX to behave. We’re scrambling and I’ll be glad to be out of this damn trade with my butt still attached. That’ll teach me to try something directional. Never fear, we shall persevere. New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, first look under “Education” on the OI home page and click on “Traders Corner.” For more recent columns, you can look under “Strategies” and click on “Combinations.” They’re waiting for you 24/7. Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it’s not the cards we’re dealt. It’s how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-30-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: A Good Time For A Holiday! Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* A Good Time For A Holiday! By Ray Cummins Stocks traded in a small range Friday with few catalysts for direction ahead of the Memorial Day holiday. The Dow Jones Industrial Average ended the session 16 points lower at 10,188 with Alcoa (NYSE:AA), McDonald's (NYSE:MCD), and Intel (NASDAQ:INTC) among the best blue-chip performers. The NASDAQ Composite Index closed up 2 points at 1,986 with semiconductor stocks accounting for most of the gains in the technology segment. The S&P 500 finished almost unchanged at 1,120 as steel, tobacco and airline shares limited the upside activity in the broader market. Trading was extremely slow as many investors started the holiday weekend early. Volume on the New York Stock Exchange was a light 1.1 billion shares while slightly more than 1.2 billion shares were crossed on the NASDAQ. Advancers outpaced decliners by a decent margin on both the Big Board and the technology exchange. The bond market also closed early with the price of the 10-year note down 12/32, while its yield climbed to 4.65%. U.S. equity markets will be closed Monday in observance of the Memorial Day holiday. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 05/27/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 50.94 JUN 45 48 0.35 47.15 0.35 Open IMDC 61.17 60.52 JUN 50 55 0.50 54.50 0.50 Open GPRO 38.30 41.81 JUN 30 35 0.70 34.30 0.70 Open MATK 68.01 63.29 JUN 55 60 0.65 59.35 0.65 Open ASD 107.89 111.83 JUN 95 100 0.50 99.50 0.50 Open IMCL 71.36 74.69 JUN 50 55 0.50 54.50 0.50 Open CSC 42.17 42.99 JUN 35 40 0.65 39.35 0.65 Open GILD 62.54 65.71 JUN 55 60 1.00 59.00 1.00 Open RIMM 99.98 116.34 JUN 80 85 0.45 84.55 0.45 Open QCOM 65.40 66.80 JUN 55 60 0.45 59.55 0.45 Open ZBRA 80.08 80.82 JUN 70 75 0.65 74.35 0.65 Open BRCM 42.54 42.63 JUN 38 40 0.30 39.70 0.30 Open EBAY 85.33 88.05 JUN 75 80 0.50 79.50 0.50 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Martek Biosciences (NASDAQ:MATK) is on the "watch" list. CALL-CREDIT SPREADS Stock Pick Last Month L/C S/C Credit C/B G/L Status CTX 44.80 48.30 JUN 55 50 0.50 50.50 0.50 Open IVGN 67.61 68.65 JUN 80 75 0.55 75.55 0.55 Open NTLI 55.28 58.88 JUN 65 60 0.80 60.80 0.80 Open VIP 91.45 95.99 JUN 110 105 0.50 105.50 0.50 Open CERN 41.33 42.49 JUN 50 45 0.55 45.55 0.55 Open SEPR 45.06 45.15 JUN 55 50 0.60 50.60 0.60 Open BSC 80.02 80.92 JUN 90 85 0.50 85.50 0.50 Open FRX 59.20 63.46 JUN 70 65 0.55 65.55 0.55 Open MDT 47.66 48.55 JUN 55 50 0.60 50.60 0.60 Open AZO 83.38 84.69 JUN 95 90 0.20 90.20 0.20 No Play L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss NTL Inc. (NASDAQ:NTLI) has been joined on the early-exit "watch" list by Forest Labs (NYSE:FRX) and Medtronic (NYSE:MDT). The was no viable credit available in the Autozone (NYSE:AZO) position. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status GRMN 32.60 34.23 JUL 35 30 2.15 2.35 Open KKD 19.63 20.73 JUN 20 20 3.00 2.80 Open There was no further downside activity after Krispy Kreme Donuts (NYSE:KKD) announced quarterly earnings, so we will watch for a recovery in the stock during the next weeks, before considering an early exit in the position. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AMZN - Amazon.com $48.50 *** On The Rebound! *** Amazon.com (NASDAQ:AMZN) is a website where customers can find and discover anything they may want to buy online. The company lists millions of items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, PC software, computer and video games, tools and hardware, outdoor living items, kitchen and house-wares products, toys, baby and baby registry, travel services and magazine subscriptions. At its Amazon Marketplace, Auctions and zShops services, businesses and individuals can sell virtually any product to millions of customers, and with Amazon.com Payments, sellers are able to accept credit card transactions in addition to other methods of payment. The company operates a U.S.-based Website: amazon.com, and four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. AMZN - Amazon.com $48.50 PLAY (less conservative - bullish/credit spread): BUY PUT JUN-42.50 ZQN-RV OI=10019 ASK=$0.30 SELL PUT JUN-45.00 ZQN-RI OI=15107 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$44.70 __________________________________________________________________ EYET - Eyetech Pharmaceuticals $44.32 *** Rally Mode! *** Eyetech Pharmaceuticals (NASDAQ:EYET) is a biopharmaceutical firm that specializes in the development and commercialization of novel therapeutics to treat diseases of the eye. Its initial focus is on diseases affecting the back of the eye, particularly the retina. The company's most advanced product candidate is Macugen, which it is developing for wet age-related macular degeneration (AMD) and diabetic macular degeneration (DME). EYET - Eyetech Pharmaceuticals $44.32 PLAY (less conservative - bullish/credit spread): BUY PUT JUN-35.00 QUJ-RG OI=90 ASK=$0.25 SELL PUT JUN-40.00 QUJ-RH OI=17 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=12% B/E=$39.50 __________________________________________________________________ RIMM - Research In Motion $119.93 *** New 2004 High! *** Research In Motion (NASDAQ:RIMM) is a designer, manufacturer and seller of wide area wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, the firm provides platforms and solutions for seamless access to time-sensitive information including e-mail, phone, short message service messaging, as well as Internet and intranet-based corporate data applications. RIMM - Research In Motion $119.93 PLAY (conservative - bullish/credit spread): BUY PUT JUN- 95.00 RUP-RS OI=5467 ASK=$0.55 SELL PUT JUN-100.00 RUP-RT OI=8015 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$99.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ RYL - The Ryland Group $79.60 *** Housing Sector Slump? *** The Ryland Group (NYSE:RYL) is a homebuilder and mortgage-finance company. The company has built more than 190,000 homes during its 34-year history. Ryland homes are available in more than 260 new communities in 21 markets across the United States. In addition, the Ryland Mortgage company has provided mortgage financing and related services for more than 165,000 homebuyers. The company's operations span all the significant aspects of the home-buying process, from design, construction and sale to mortgage financing, title insurance, settlement, escrow and homeowners insurance. RYL - The Ryland Group $79.60 PLAY (conservative - bearish/credit spread): BUY CALL JUN-90.00 RYL-FR OI=585 ASK=$0.20 SELL CALL JUN-85.00 RYL-FQ OI=1889 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$85.50 __________________________________________________________________ VIP - Vimpel Communications $92.25 *** Failed Rally? *** Vimpel Communications (NYSE:VIP) is an established provider of telecommunications services in Russia, operating under the Bee Line family of brand names. VimpelCom's license portfolio covers much of Russia's population including the City of Moscow and the Moscow Region. VimpelCom introduced two digital communications standards to Russia and built a dual band GSM-900/1800 cellular network. The company also led the development and emergence of the mass consumer market for wireless communications in Russia by introducing a prepaid product solution. VimpelCom offers various technologies, such as wireless application protocol and BeeOnline, a multi-access web portal that provides a multitude of wireless information and entertainment services, including location-based features. VIP - Vimpel Communications $92.25 PLAY (less conservative - bearish/credit spread): BUY CALL JUN-105.00 VIP-FA OI=476 ASK=$0.70 SELL CALL JUN-100.00 VIP-FT OI=422 BID=$1.25 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$100.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ DEBIT SPREADS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This strategy offers a risk-reward outlook similar to credit spreads, however there is no margin requirement as the initial debit for the position is also the maximum loss. Since these positions are based primarily on technical indications, traders should review the current news and market sentiment surrounding each issue and make their own decision about the outcome of the position. SUPPLEMENTAL CANDIDATES The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. __________________________________________________________________ Due to the abbreviated holiday publishing schedule, there will be no "Supplemental" plays today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ Due to the abbreviated holiday publishing schedule, there will be no straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 05/27/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 10.65 0.35 7.73% 3.63% LPNT JUN 35 34.30 37.24 0.70 4.03% 2.04% ASCA JUN 30 29.35 32.69 0.65 5.02% 2.21% DRIV JUN 25 24.25 31.60 0.75 7.04% 3.09% FARO JUN 20 19.45 26.46 0.55 7.32% 2.83% GIVN JUN 30 29.25 30.71 0.75 7.01% 2.56% MVSN JUN 20 19.65 23.06 0.35 4.54% 1.78% PDII JUN 22 22.00 29.05 0.50 6.67% 2.27% SMTC JUN 20 19.50 25.23 0.50 6.25% 2.56% CELG JUN 45 44.40 56.42 0.60 4.75% 1.35% ELN JUN 17 17.05 23.08 0.45 8.73% 2.64% FARO JUN 20 19.45 26.46 0.55 8.04% 2.83% FRO JUN 25 24.50 34.28 0.50 6.48% 2.04% IMMU JUN 5 4.75 6.00 0.25 13.52% 5.26% LNCR JUN 32 32.05 34.25 0.45 3.60% 1.40% MCK JUN 32 32.00 34.27 0.50 3.76% 1.56% NFLX JUN 25 24.45 33.20 0.55 7.36% 2.25% PHRM JUN 20 19.65 37.00 0.35 5.67% 1.78% RTN JUN 32 32.00 33.16 0.50 3.62% 1.56% VXGNE JUN 12 12.10 15.58 0.40 10.35% 3.31% ARTI JUN 22 22.00 25.07 0.50 6.11% 2.27% AVID JUN 45 44.30 52.63 0.70 4.62% 1.58% BLUD JUN 25 24.70 31.10 0.30 3.54% 1.21% DIGE JUN 35 34.25 39.50 0.75 6.16% 2.19% DRIV JUN 25 24.60 31.60 0.40 5.37% 1.63% ERES JUN 27 26.85 36.66 0.65 7.59% 2.42% NUE JUN 55 54.25 67.00 0.75 3.96% 1.38% PHRM JUN 20 19.70 37.00 0.30 5.30% 1.52% SPLS JUN 25 24.60 27.58 0.40 4.24% 1.63% YHOO JUN 25 24.60 30.56 0.40 4.64% 1.63% ARO JUN 22 23.03 26.10 0.35 4.75% 1.52% CRDN JUN 25 24.65 33.05 0.35 5.57% 1.42% ERES JUN 27 27.05 36.66 0.45 6.61% 1.66% FARO JUN 22 21.85 26.46 0.65 9.88% 2.97% ISPH JUN 15 14.55 17.52 0.45 10.57% 3.09% IDEV JUN 5 4.70 8.42 0.30 17.36% 6.38% PDII JUN 22 22.20 29.05 0.30 5.83% 1.35% SSYS JUN 22 21.85 26.12 0.65 9.43% 2.97% SLXP JUN 25 24.70 29.06 0.30 4.85% 1.21% ASKJ JUN 35 34.40 39.18 0.60 6.85% 1.74% AUO JUN 20 19.55 22.51 0.45 8.86% 2.30% ERES JUN 30 29.70 36.66 0.30 4.60% 1.01% FWHT JUN 20 19.65 22.96 0.35 6.25% 1.78% GPRO JUN 35 34.45 41.81 0.55 5.54% 1.60% MEE JUN 22 22.15 24.56 0.35 5.66% 1.58% SMTC JUN 20 19.70 25.23 0.30 6.79% 1.52% SWIR JUN 22 22.20 28.05 0.30 6.05% 1.35% YHOO JUN 27 27.15 30.56 0.35 4.58% 1.29% Silicon Storage Tech (NASDAQ:SSTI), although profitable, has been closed to limit potential losses. Issues on the "watch" list are: Boston Communications (NASDAQ:BCGI), 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 31.54 0.65 5.22% 1.96% OVTI JUN 30 30.80 22.70 0.80 11.79% 2.60% SLAB JUN 55 55.50 51.23 0.50 4.93% 0.90% PHTN JUN 35 35.35 31.70 0.35 4.69% 0.99% ENDP JUN 25 25.70 22.31 0.70 11.16% 2.72% IPXL JUN 22 23.05 21.72 0.55 8.75% 2.39% MMR JUN 15 15.25 13.41 0.25 7.20% 1.64% APPX JUN 40 40.40 33.98 0.40 6.84% 0.99% OVTI JUN 27 27.25 22.70 0.25 6.69% 0.92% WSM JUN 32 33.00 31.93 0.50 5.64% 1.52% ABAX JUN 20 20.25 18.82 0.25 5.81% 1.23% CHIC JUN 20 20.35 17.70 0.35 8.70% 1.72% USNA JUN 30 30.40 27.74 0.40 6.29% 1.32% InteractiveCorp (NASDAQ:IACI), Impax Labs (NASDAQ:IPXL) and Williams-Sonoma (NYSE:WSM) are on the "watch" list. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 34.55 40.40 0.45 6.43% 1.30% CRDN JUN 30.00 29.45 33.27 0.55 8.32% 1.87% DRXR JUN 15.00 14.65 17.00 0.35 10.88% 2.39% ERES JUN 23.37 23.03 25.29 0.35 6.55% 1.52% NKTR JUN 17.50 17.25 21.49 0.25 8.24% 1.45% NSM JUN 20.00 19.70 21.67 0.30 6.58% 1.52% NVDA JUN 22.50 22.15 23.45 0.35 6.38% 1.58% SMTC JUN 22.50 22.20 25.12 0.30 6.21% 1.35% YHOO JUN 27.50 27.25 30.66 0.25 4.28% 0.92% __________________________________________________________________ ASKJ - Ask Jeeves $40.40 *** Uptrend Intact! *** 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 $40.40 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 3301 0.45 34.55 6.4% 1.3% __________________________________________________________________ CRDN - Ceradyne $33.27 *** Supplying The U.S. War Machine! *** Ceradyne (NASDAQ:CRDN) develops, manufactures and markets advanced technical ceramic products and components for industrial, defense, consumer, microwave communications and automotive applications. The company derives a portion of its revenues from its traditional products, which include lightweight-ceramic armor for military helicopters and microwave tube products. However, newer products developed or being developed by Ceradyne for defense, industrial and consumer applications represent an increasing share of its business. CRDN - Ceradyne $33.27 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 30 CEU RF 89 0.55 29.45 8.3% 1.9% __________________________________________________________________ DRXR - Drexler Technology $17.00 *** A Secure Stock! *** Drexler Technology Corporation (NASDAQ:DRXR) develops, produces and markets optical data storage products and systems featuring LaserCard optical memory cards and chip-ready Smart/Optical cards. Drexler-made LaserCard optical memory cards are used for "digital governance" applications such as immigration services, visas, cargo manifests, motor vehicles, import-duty collection, standard pay-per-use systems, and ID/access; and for healthcare and other digital read/write wallet-card applications. DRXR - Drexler Technology $17.00 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 15 RXQ RC 932 0.35 14.65 10.9% 2.4% __________________________________________________________________ ERES - eResearch Technology $25.29 ** Post-Split Entry Point? ** 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 $25.29 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 23.37 BKM RV 0 0.35 23.03 6.6% 1.5% __________________________________________________________________ NKTR - Nektar Therapeutics $21.49 *** Pure Premium-Selling! *** Nektar Therapeutics (NASDAQ:NKTR) makes drug delivery products based on its portfolio of technologies and expertise designed to improve drug performance throughout the drug development process. The company has developed three distinct technology platforms: Nektar Molecule Engineering, which uses advanced PEG (polyethylene glycol)ylation and PEG-based delivery systems to enable drug performance, Nektar Particle Engineering, which uses the company's expertise in pulmonary particle technology and supercritical fluids technology to design and manufacture optimal drug particles and Nektar Delivery Solutions, which uses advanced systems for pulmonary drug administration to improve therapeutic outcomes. NKTR - Nektar Therapeutics $21.49 "SPECULATIVE" PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 17.5 QNX RW 1776 0.25 17.25 8.2% 1.4% __________________________________________________________________ NSM - National Semiconductor $21.67 *** Bullish Outlook! *** National Semiconductor (NYSE:NSM) designs, develops, manufactures and markets a wide array of semiconductor products, including a broad line of analog, mixed-signal and other integrated circuits. The company's analog and mixed-signal devices include amplifiers and regulators, image sensors, power monitors and line drivers, radio frequency, audio amplifiers, display drivers and signal processors. NSM also makes other products with digital-to-analog or analog-to-digital capability include products for local area and wireless networking and wireless communications, as well as products for personal systems and personal communications. NSM uses the brand name Super I/O to describe its ICs that handle system peripheral and input/output functions on the personal computer motherboard. NSM - National Semiconductor $21.67 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 NSM RD 16420 0.30 19.70 6.6% 1.5% __________________________________________________________________ NVDA - Nvidia $23.45 *** Bottom Fishing! *** Nvidia (NASDAQ:NVDA) designs, develops and markets graphics and media communication processors and related software for personal computers (PCs), workstations and digital entertainment platforms. The company provides an architecturally compatible top-to-bottom family of unique, performance 3-D graphics processors and graphics processing units that set the standard for performance, quality and features for a broad range of desktop PCs. Nvidia's graphics processors are used for a wide variety of applications, including games, digital image editing, business productivity, the Internet and industrial design. Its graphics processors are designed to be architecturally compatible backward and forward between computer generations, giving its original equipment manufacturers (OEMs), customers and end users a low cost of ownership. NVDA - Nvidia $23.45 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 UVA RX 7858 0.35 22.15 6.4% 1.6% __________________________________________________________________ SMTC - Semtech $25.12 *** 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 $25.12 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUN 22.5 QTU RR 6918 0.30 22.20 6.2% 1.4% __________________________________________________________________ YHOO - Yahoo! $30.66 *** 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! $30.66 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 27900 0.25 27.25 4.3% 0.9% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ABGX - Abgenix $15.12 *** Drug Speculation Only! *** Abgenix (NASDAQ:ABGX) is a biopharmaceutical company that is focused on the discovery, development and manufacture of human therapeutic antibodies for the treatment of a variety of disease conditions, including cancer, inflammation, metabolic disease, transplant-related diseases, cardiovascular disease and infectious diseases. Abgenix has proprietary technologies that facilitate rapid generation of highly specific, antibody-therapeutic product candidates that contain fully human protein sequences and that bind to disease targets appropriate for antibody therapy. Abgenix developed its XenoMouse technology, a technology using genetically modified mice to generate fully human antibodies. It also owns a technology that enables the rapid ID of antibodies with desired function and characteristics, referred to as SLAM technology. ABGX - Abgenix $15.12 "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 17.5 AZG FW 12657 0.35 17.85 13.9% 2.0% __________________________________________________________________ CREE - Cree Incorporated $23.01 *** In A Trading Range? *** Cree (NASDAQ:CREE) is engaged in the development and manufacture of compound semiconductor materials and electronic devices made from silicon carbide (SiC), and a developer and manufacturer of optoelectronic and electronic devices made from gallium nitride and related materials. The company also produces radio frequency power transistor components and modules for wireless infrastructure applications using silicon-based bipolar and laterally diffused metal oxide semiconductor process technologies. Cree operates its business in two segments, the Cree segment, which consists of its SiC-based products and research contracts, and the Cree Microwave segment that consists of RF transistors and RF transistor modules based on a silicon platform. CREE - Cree Incorporated $23.01 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 CQR FE 6576 0.25 25.25 5.4% 1.0% __________________________________________________________________ SSNC - SS&C Technologies $22.99 *** Consolidation Underway? *** SS&C Technologies (NASDAQ:SSNC) is a provider of client/server based investment and financial management software, application service provider solutions and business process outsourcing solutions. The company's products and related services compete in a variety of vertical markets in the institutional investment management marketplace, including commercial lending, financial institutions, hedge funds and family offices, institutional asset management, insurance entities, pension funds, municipal finance and real estate property management. SSNC - SS&C Technologies $22.99 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 QUN FE 35 0.50 25.50 10.4% 2.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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