The Option Investor Newsletter Tuesday 06-15-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Inflation or Deflation? Futures Markets: See Note Index Trader Wrap: Are Treasury bond trader's clueless? Market Sentiment: CPI Cools Concerns Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 06-15-2004 High Low Volume Advance/Decline DJIA 10380.43 + 45.70 10428.05 10336.51 1.61 bln 2225/ 626 NASDAQ 1995.60 + 25.61 2006.58 1982.41 1.49 bln 2085/ 971 S&P 100 552.79 + 2.73 555.67 550.06 Totals 4310/1597 S&P 500 1132.01 + 6.72 1137.36 1125.29 RUS 2000 567.92 + 10.25 569.69 557.67 DJ TRANS 3039.84 + 45.87 3051.89 2997.09 VIX 15.05 - 1.02 15.35 14.72 VXO 15.00 - 1.15 15.64 14.61 VXN 20.88 - 1.36 21.85 20.46 Total Volume 3,116M Total UpVol 2,443M Total DnVol 625M 52wk Highs 111 52wk Lows 80 TRIN 0.61 PUT/CALL 0.78 ************************************************************ Inflation or Deflation? Jonathan Levinson The markets were dominated with news and discussion surrounding the thorny inflation vs. deflation issue, with the CPI report released in the morning ahead of Greenspan's testimony before the Senate Banking Committee. Bonds staged a dramatic upside reversal, with milder but still solid gains in equities and metals. The Dow closed higher by 45.7 points at 10380.43, the S&P 500 added 6.71 to close at 1,132 and the Nasdaq gained 25.6 points to close at 1995.6. Volume was modest, and volatility dropped strongly following yesterday's sharp gains, correcting part of those gains. The VXO fell 7.12% to close at 15, the QQV 7.09% to close at 19.27. The abortive morning rally and the failed afternoon plunge accompanied by big moves in the volatility indices reminded us that it is, after all, op-ex or "scam" week, a time for headfakes and false breaks. Today did not disappoint. Daily Dow Chart The Dow's gains lent support to the descending trendline at 10340, which once again supported the price with the day low printed at 10336. The move paints a complicated picture, as today's failed high at 10428 broke Monday's and Friday's high, but the gains blew off in a doji spike. Despite the higher high (and higher low), the overall descending trend from the June high continues, but it was sufficient to confuse the daily cycle oscillators, with the 10-day stochastic hesitating in its downphase. Macd confirmation of the stochastic sell signal from last week remains elusive, making this a dangerous and tricky level overall, below rising resistance but above descending support. A break below the descending trendline, currently at 10335-40, would be a good short entry with a stop just above the trendline, while a break of today's high on a closing basis would most likely abort the stochastic downphase and set up a test of rising resistance at 10490. Next support below 10335 is at 10290, being confluence and Fibonacci support, followed by 10240. Daily Nasdaq Chart The Nasdaq daily is a much simpler chart here, with a failed "return-to-the-scene-of-the-crime" rally rejected at the descending resistance line. Last week's upside close has so-far proven to be a classic throwover trap, and until a close above the trendline at 2005, the daily cycle downphase should continue to strengthen. A closing break of support at 1980-82 (session low at 1982 today) should provide the bearish Macd cross we've been awaiting to confirm the daily cycle rollover from last week, while another bounce from that level sets up another challenge of the broken resistance line. A break of 2005 on a closing basis would obviously be bullish, but I'd want to see a break of 2025 resistance before doubting the daily cycle downphase currently in progress. It was a news-heavy day. At 8:30AM, the Labor Department reported that the Consumer Price Index, the most widely used gauge of U.S. inflation, rose 0.6% in May, the largest one-month gain since January 2001 and exceeding expectations for a 0.4% gain. The media emphasized that the core CPI, which is the CPI net of food and energy costs, rose just 0.2%, in line with expectations. The fact that everyone has to pay the so-called "volatile" food and energy costs doesn't seem to be a fact with which many analysts concern themselves. Furthermore, looking at the yearly trend, we see that the 12-month y-o-y change in the CPI (including food and energy) is now 3.1%. At 1.0%, the real Fed funds rate is -2.1% using the 12-month y-o-y change in CPI as the inflation measure. It's even more egregiously negative if we use the 5-month annualized rate which is in the vicinity of 5.1%. At 8:30AM with the release of the data, one could not help but wonder, if the alleged economic recovery is as robust as the Fed, the Treasury Department and our politicians claims, why is the Fed funds rate being maintained so far below the curve? Also at 8:30, the New York Empire State Manufacturing Index was released, meeting expectations at 30.2. The New York Federal Reserve Bank said that the data showed strong economic activity, unchanged from its May reading. The press reported that other than during the March decline, the Empire State index has been above 30 since October. New orders fell to 26.5 from 36.6 in May, shipments fell to 33.4 from 42.3, and the employment index fell to 12.9 from 21.3. The Commerce Department reported that business inventories in the rose a 0.5% in April, exceeding expectations for a 0.4% rise for an 8th consecutive gain. Business sales fell 0.1% after record gains in the prior month. The inventory-to-sales ratio remained at a record low of 1.30 months in April, which indicates strengthening demand exceeding the ability or willingness of businesses to grow their inventories, a generally bullish sign. A low inventory-to-sales ratio predicts a more direct increase in production in the event of increasing demand for products. The Producers Price Index was delayed again indefinitely with the BLS again citing computer problems. The missing report was originally scheduled for release on June 11th. The US Dollar Index dipped on the 8:30 data, sparking a rally in equities, treasuries and precious metals. At 9:45, the University of Michigan announced that consumer sentiment rose to 95.2 in June, a 2 month high, up from the 90.2 May reading and exceeding expectations for 90.5. The admittedly subjective index reading is down 8% from its January high. Despite this strong data, bonds remained firm near their highs of the day in breakout territory on the daily charts, just in time for Greenspan to begin his testimony before the Senate at 10AM. Around the same time, it was reported by oil minister Thamer Ghadban that "A pipeline south of Basra was targeted by saboteurs with explosives," in what he felt was an act of sabotage. Oil rose on the news of yet another attack on oil production and delivery assets. Iraqi oil exports were reportedly brought to a standstill by the blast. The gains were short lived, with crude futures settling back into negative territory to finish the day down 1.29% at 37.39. Greenspan said relatively little in his Senate testimony. He told the committee that he would be honored to serve a 5th term as Fed chairman. Most notably, he did not confirm if or when the Fed would be raising rates, and emphasized uncertainty and the difficulty in determining monetary policy overall. He said that the Fed would focus on probabilities in the face of the wide range of events that the future might hold, and noted that the economy has been very resilient in the face of what would formerly have been destabilizing shocks. In the Q&A session, Greenspan stated that the Fed views inflation to be benign currently, and not a problem. He nevertheless admitted that high energy costs could present a threat to productivity. Moving from that topic, he reiterated his warnings from last year, saying that he found the numbers concerning the imminent retirement of the baby boomers around 2008 to be "very disturbing", urging that deficits be reduced or eliminated, primarily by reducing government spending. In response to a question from Senator Sarbanes, he added that he would be very surprised to the boom in home sales and prices continue. Equities had been in the process of rolling over, but spiked higher on the "inflation is benign" comments from the Fed chief. Gold spike to new session highs and similarly held those levels during the Q&A session. Chairman Greenspan is scheduled to testify before the House Budget Committee tomorrow at 10AM. In last night's Futures Wrap, I cautioned against being too confident that Greenspan would be quick to do what the market so obviously expected. With a rate hike appearing almost unavoidable, I noted that the bond market, which determines the rates that concern the whole world (other than the Fed's 23 primary dealer banks), had already fallen very substantially from its March highs, raising yields (read: interest rates) sharply from their March lows. Central bankers prefer to jawbone the markets than to actively buy or sell them, and Mr. Greenspan today did not disappoint. The markets over the past 3 months have done most of the heavy lifting, and his testimony and Q&A responses were only a step above bare chit chat. Also in the morning, President Bush and the Afghan president Hamid Karzai addressed the press from the Rose Garden. They delivered an upbeat assessment of economic developments in Afghanistan, and announced a bilateral trade agreement between the US and that country, including a dedication of $5M to promoting the advancement of women in the Afghan's public and private sectors, including training and small business grants. In the Q&A session that followed, the President answered questions about the US economy, stating that he's pleased about the strong economy and optimistic for its future. No one asked him why he thought the Fed is pegging its rates so far below even the official CPI number. The House Financial Services Committee approved a bill tabled by Richard Baker, R-LA. that would require companies to expense only those stock options granted to their five highest-paid executives. This watered-down bill would also require the SEC and Labor Department to conduct a joint study to study the economic impact of stock option expensing despite the fact that the Financial Accounting Standards Board has already recommended that companies should deduct the value of all stock options from their income statements. This is also a point on which Warren Buffett has been particularly outspoken in the past, arguing that stock options should be required to be expensed by the companies that grant them. In corporate news, MSFT was higher on analyst Rick Sherlund's speculation that MSFT may announce a share buy-back program to reduce part of its massive cash position. The Goldman Sachs analyst said that "We believe an aggressive share repurchase would be materially additive to earnings and could be a positive catalyst to the stock," but admitted that the Company had yet to make any announcement. Speculators didn't wait, however, bidding MSFT up to a 1.56% gain, stock closing at 27.32. After the close, ORCL announced Q4 earnings of $990M or 19 cents per share, up from $858 million or 16 cents y-o-y and beating expectations by a penny. Sales rose 9% percent to $3.1B, exceeding expectations of $3.071M, up from $2.8B y-o-y. For tomorrow, we await the 8:30 release of May housing starts (est. 1.95M) and building permits (est. 1.97M), followed by May industrial production (est. .8%) and capacity utilization (est. 77.4%), followed by the 2PM release of the Fed's Beige Book. And, to repeat, Chairman Greenspan's testimony before Congress is scheduled to begin at 10AM. For tomorrow, I'm expecting more downside attempts based on the ongoing daily cycle downphases. Because it's op-ex week, complete with failed moves and spiky volatility, I'm trying to stay flexible and not get too surprised by whatever sudden move happens next. The trendlines on the daily charts provide a good working range that can either be faded for reversals or followed on breakouts, but I'd urge you to be disciplined with your stops out of respect for the op-ex factor. Greenspan's testimony should also be good for some swings, if it doesn't result in a teeth-grinding stall such as we had at various points this morning. *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************** INDEX TRADER SUMMARY ******************** Are Treasury bond trader's clueless? I've always held the belief that Treasury bond traders are the smartest traders around, but of late, and after today's trade, I'm beginning to wonder if that's the case. While the major equity indices all posted handsome gains in today's trade, Treasuries simply unraveled and posted what I'd consider to be more significant gains, as "group think" and an ever so slight abatement of core producer prices had bond traders gobbling up these fixed income instruments like there was no tomorrow. Certainly today's inflation data at the consumer level, which showed overall consumer prices a stronger-than-expected 0.6%, now has consumer prices having risen 3.1% year-over-year, boosted largely by a 15% rise in energy and 4% in food prices. However, bond and Treasury bulls seemed shocked, and bought Treasuries along with other fixed income instruments as the core rate, which excludes the often times more volatile energy and food components, which reached a new 40-year low of 1.1% from November to January, but turned higher to 1.7% in May, appeared modest when measured against recent government figures that showed the economy growing at a 4.4% annual rate at the end of the first quarter. U.S. Market Watch - 06/15/04 Close I'm not berating bond traders, but how is such a move in Treasuries possible today? 19.3 basis points in the 5-year? 18.4 basis points in the 10-year? 15.6 in the longest-dated 30- year? Some of our "inflation" gauges in Oil, currently depicted by the August Light, Sweet Crude Oil futures (cl04q) $37.63, which shows a 7.67% decline over the past 4-weeks (since April 14), August Gold futures (gc04q) $389.20, up 1.61%, but still below $400, and the CRB Index (cr00y) 266.62 now back below that 270 level we had made a benchmark from several weeks ago, may all have been suggesting that other market participants weren't overly worried about consumer prices. I've shown the 20-day percentage change in the U.S. Market Watch. While it would be incorrect verbiage to say the 10-year yield has fallen 2.13% the past 20-day's, the point I would be trying to make today is the forceful lower yield in today's trade, relative to the past 20-days. Meanwhile, oil is more notably lower, but gold and CRB Index (cr00y) relatively unchanged. Treasury bond traders seemed shocked today. In yesterday afternoon's Market Monitor, just prior to the close, I ran through some of our inflation checks. I also made note that our "junk bond" security that I find useful to monitor had the Pacholder High Yield Fund (PHF) $8.72 +1.75% having been trading sideways the past 9 sessions, despite the 10-year yield having risen from a yield of 4.655% to yesterday's close of 4.870%. Aside from any "option-related" action I was following in various option chains on the major indices today, I had noted at 02:31 PM EDT that the Broker Dealer Index (XBD.X) 123.11 -1.17% had fallen to unchanged levels and had been seeing a "prolonged" intra-day decline after matching its morning highs just prior to 01:00 PM EDT. A quick check of some brokers showed Lehman Brothers (NYSE:LEH) $73.02 -4.03% leading weakness when down 2.32%. I thought to myself "this is a bit surprising considering today's strong trade in Treasuries, where LEH is one of the biggest bond houses." Before the bell, LEH reported upside earnings, gapped up to trade a session high of $76.80, then faded to hold $75 intra-day, but when $75 was broken, fell to its close and weighed heavily on the XBD.X today. Market Snapshot / Internals - 06/15/04 Close The major indices faded a bit from their mid-session highs, but after having said earlier in today's session that today's trade was shaping up to be very similar to what we saw Thursday of last week, A/D lines at both the NYSE and NASDAQ finished stronger, as did the NH/NL indications at the NYSE and NASDAQ. It's PRICE that seems to be mattering most, as is often the case, where I still feel that much of what we're seeing right now, is a constant gyration where this week's Triple Witch is having greater impact on trade, and most likely will into Friday's close. It may also have BIG impact on next week's trade, which I hope to provide some insight toward, later on in the wrap. Pivot Analysis Matrix - While rather simplistic, I feel quite a bit of tension into tonight's close. Not necessarily from bulls and bears, but just what the heck options market makers are going to "try" to do, or better yet.... "have to do." For the most part, today's highs (tomorrow's DAILY R1s) and today's lows (tomorrow's DAILY S1s) would be some levels to me monitoring very closely, where using the Dow Industrials (INDU) 10,381.43 +0.44%, which close up 46 points does find correlative resistance at DAILY R1 and MONTHLY R1 (which it has traded this month), but a break much above there (10-point above) could trigger some unraveling for bullish gains to DAILY R2 and correlative WEEKLY R1, which NONE of the equity- based indices have been able to trade this week. Earlier this afternoon, AFTER I had profiled a bullish day trade in the Semiconductor HOLDRs (AMEX:SMH) $37.50 +1.35% from the $37.60 level (stopped out at break-even on price), I saw that the Semiconductor Index (SOX.X) 471.30 +1.25% had traded a session high of 475.02 and it dawned on me that 475 was the "Max Pain" level for June in the SOX.X. I have no regrets for profiling this bullish trade. If the SOX.X had broken 475, perhaps tomorrow's DAILY R1, then SOX.X at its WEEKLY Pivot (478.98) would have carried SMH bulls to my bullish target. Fact at tonight's close is that the SOX.X didn't make the break, and we'll look at some intra-day charts of how I think we have to tie things together heading into tomorrow, and even into Friday's close. As noted previously, when Lehman Brothers (LEH) broke the $75 level and had the XBD.X turning fractionally red, that also marked today's high in the S&P Banks Index (BIX.X) 347.52 +0.9% as it was challenging its WEEKLY Pivot. I'd begin to build some near-term resistance observations with SOX.X 475 and BIX.X 349. 10-year Treasury YIELD ($TNX.X) Chart - Daily Intervals For impact more than anything, if the above chart were that of a stock, we'd say "that's impressive!" Not only the rise in YIELD since the March relative lows of 3.7%, but today's single-day decline, where in the context of the narrow WEEKLY Pivot levels, today's turn was similar to an equity index trading above its WEEKLY R1, then falling to WEEKLY S2. S&P 500 (SPX.X) Option Chain - Sorted by most active I wanted to quickly look at the SPX most active, and it may not be what you and I would have thought would be amongst the most active. With PINK arrows, I note some volume levels as being notable relative to open interest. The September 1,135 call/put would most likely be some continued rollout from June. However, what it the HECK is that Aug 1,200 call (SZPHT) doing, where average trade size is institutional at 2,049 per trade? Could be a premium seller, but if interpreting both sides of the trade (bullish/bearish) somebody sees something roughly 4-points either side of 1,200 next month, and that notably higher that where we're at right now. In Monday's Index Wrap, I had highlighted both the June 1,125 call/put and June 1,135 call/put. Note today that the 1,125 calls get little attention, but the 1,125 puts get greater attention. Open interest has built in BOTH as of Tuesday's trade. Now... look at their average trade size, but also consider OPEN interest. In my opinion, the trade size is "retail" (you and I). One opinion I have on this is that it is "easy" to sell 50 contracts naked on the SPX 1,125 put, rake in a cool $11,350 today. What happens on a break below SPX DAILY S1? That's why I'm keeping a rather close eye on the VIX.X right now. Remember, a naked put seller takes on the OBLIGATION to buy the SPX at 1,125. I'm not saying the "retail" trader is wrong, we know they can be after watching short interest and commercial shorts build as the SPY and QQQ marched higher all last year. Just understand on a near-term basis what can happen if they all head for the door if they've over leveraged and the "quick buck" suddenly evaporates. I can't say for sure, but the recent session's gaps up and down, (see the daily percentage gain/losses in the near-term June options) have been pleasurable for some, but equally painful for others. S&P 500 Index (SPX.X) - Daily Intervals For a moment, lets place option expiration aside and at least realize that today's close reverses about 1/2 of yesterday's declines (all of them at one point) where the rebound came on a retest of our broken downward trend (resistance broken becoming support). Now back to option action. Last night I was looking for a naked put trade in the SPX, but on a decline to 1,115. Today's high volume in the June 1,125 puts wasn't a bad trade, where RISK to WEEKLY S2 being assessed, was a high probability trade with expiration nearing. It's the LIGHT volume in the 1,125 calls, and the lower average trade size in the 1,125 puts that suggests the bulk of put sellers was "retail" oriented. Semiconductor Index (SOX.X) - 10-minute intervals One part of trading is taking a chance to seek profit in anticipation for gain, where upside looks to be present. I think the above intra-day chart of the SOX.X gives some good technical support-resistance trade. I "had" to take a chance from the bullish side (some buy programs, declining VIX.X and VXN.X) to give the SMH a shot from the long side. Only reason I raised the stop to breakeven was the realization of what looked to be taking place (VIX.X and VXN.X started to rise again after SOX.X edged off 475). It's a tough trade into expiration, and I'm using tight stops as Triple Witch expiration can become VERY volatile, it is difficult to try and monitor option unraveling, which can really move and index, and a stock. OK... now let's take a look at an intra-day chart of the S&P Banks Index (BIX.X) 347.52 +0.90%. Good one here as this index does NOT trade with options!!! Maybe a more "natural" trade. S&P Banks Index (BIX.X) - 10-minute Intervals If I had not been more focused on the SMH and QQQ today, I might have noticed that the BIX.X and SPX.X had both gotten to their WEEKLY Pivots at about the same time. Maybe the BIX.X, which doesn't trade options might not have "confirmed" the SPX.X 1- point move above its WEEKLY Pivot. SPX afternoon and session low of 1,128.84 was 0.01 above its WEEKLY Pivot. For the most part, BIX.X and SPX.X traded "identical" today. BIX.X without options can become a good "natural" trade perhaps offsetting any option influence found in the SPX. Now, I do make note that the money centery KBW Bank Index (BKX.X) 96.85 +0.62% does trade with options, and there are common components between the BIX.X and BKX.X, where any attempt by the BKX.X to gravitate back HIGHER toward its June "Max Pain" of 99.00 could have bullish influence on the BIX.X. NASDAQ-100 Tracker (QQQ) - 10-minute intervals I'm marking SOX.X 475 against the QQQ's WEEKLY 38.2% retracement as a correlation. However, I might make note that without the impressive gain from index heavyweight MSFT in today's trade, with the SOX.X pinned below 475, then QQQ might not have made it to $36.99. On the above chart, I forgot to market the MONTHLY/WEEKLY pivot retracement overlap down at $36.32, but it is there, and I'd eyeball the SOX.X equivalent of 465, which is really Monday's close. Jeff Bailey ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** **************** MARKET SENTIMENT **************** CPI Cools Concerns - J. Brown Monday's market wide decline was fueled by rising fears of a 50 basis point rate hike at the end of June. Hawkish comments from Federal Reserve officials late last week made it clear that if inflation rose too quickly so to would their monetary policy. All eyes were on the May CPI report this morning. The overall rise in consumer prices jumped 0.6%, the strongest move in three years. Fortunately, everyone knew the Fed was watching the core rate of inflation that excludes more volatile food and energy prices. May's core rate rose just 0.2%, which was inline with expectations. This report eased tensions that the Fed might be forced to raise rates too quickly and Wall Street felt more confident that the FOMC would indeed use their "measured" approach with just a 25-point hike on the June 30th. The May CPI number sparked a rally in both stocks and bonds today but trading began to slow midday as investors turned to hear Greenspan testify before his Senate confirmation hearings. As we moved into the afternoon stocks began to falter and by the close we were well off the highs of the session. Overall it was a bullish session with market internals strongly positive. Advancing stocks overshadowed decliners 11 to 3 on the NYSE and by more than 2 to 1 on the NASDAQ. Up volume was four times down volume on the NYSE and the NASDAQ. What is a potential concern are the volatility indices. Once again the VIX/VXO/VXN are moving toward their recent lows. Usually when they reach such extremes the stock market tends to sell-off. These volatility indices aren't there yet but they are nearing dangerous levels and traders should keep this in mind as they consider any bullish positions. Tomorrow is another big day for economic data and Fed head speeches. Wednesday brings the housing starts number, building permits, industrial production, capacity utilization and the Fed's Beige Book report. Wall Street will also keep one ear turned toward Fed governor Guynn and Fed governor Broaddus as they speak on the economy. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8871 Current : 10380 Moving Averages: (Simple) 10-dma: 10322 50-dma: 10266 200-dma: 10122 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 962 Current : 1132 Moving Averages: (Simple) 10-dma: 1129 50-dma: 1120 200-dma: 1092 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1180 Current : 1479 Moving Averages: (Simple) 10-dma: 1470 50-dma: 1449 200-dma: 1434 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.05 -1.02 CBOE Mkt Volatility old VIX (VXO) = 15.06 -1.09 Nasdaq Volatility Index (VXN) = 20.88 -1.36 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.78 737,671 578,207 Equity Only 0.63 534,309 337,034 OEX 1.29 41,021 52,912 QQQ 1.05 49,427 51,777 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 65.3 - 1 Bear Confirmed NASDAQ-100 39.0 - 1 BULL ALERT Dow Indust. 70.0 + 0 Bear Confirmed S&P 500 63.4 + 0 Bear Confirmed S&P 100 63.0 + 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: 0.96 10-dma: 0.96 21-dma: 1.00 55-dma: 1.01 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 2225 2085 Decliners 626 971 New Highs 70 41 New Lows 39 41 Up Volume 1260M 1178M Down Vol. 325M 300M Total Vol. 1612M 1498M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 06/08/04 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercial trades are turning more bearish with an increase in short positions while pulling a little bit of money out of their longs. Small traders have increased their positions in both longs and shorts but continue to remain net bullish. Commercials Long Short Net % Of OI 05/18/04 394,352 423,258 (28,906) (3.5%) 05/25/04 400,713 420,764 (20,051) (2.4%) 06/01/04 406,665 421,681 (15,016) (1.8%) 06/08/04 397,294 452,904 (55,610) (6.5%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 05/18/04 139,647 74,597 65,050 30.4% 05/25/04 136,086 79,060 57,026 26.5% 06/01/04 137,100 79,583 57,517 26.5% 06/08/04 158,373 92,794 65,579 26.1% 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 Hmm... could the commercial traders be trying to tell us something? Both their large S&P futures positions and their S&P e-minis positions have turned net short or bearish. As would be expected the small traders is walking the other way and has significantly beefed up their longs. Commercials Long Short Net % Of OI 05/18/04 390,484 357,157 33,327 4.5% 05/25/04 353,722 336,406 17,316 2.5% 06/01/04 325,865 325,274 591 0.0% 06/08/04 367,191 409,246 (42,055) (5.4%) 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 05/18/04 62,216 87,269 25,053 16.8% 05/25/04 91,515 100,759 ( 9,244) ( 4.8%) 06/01/04 111,484 90,625 20,859 10.3% 06/08/04 140,191 84,649 55,542 24.7% 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 remain net long on the NASDAQ 100. Small traders remain strongly net short. Commercials Long Short Net % of OI 05/18/04 58,376 37,528 20,848 21.8% 05/25/04 59,891 37,630 22,261 22.8% 06/01/04 59,944 34,784 25,160 26.6% 06/08/04 64,747 41,178 23,569 22.3% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 05/18/04 9,843 18,935 ( 9,092) (31.6%) 05/25/04 10,184 20,653 (10,469) (33.9%) 06/01/04 9,755 30,025 (20,270) (51.0%) 06/08/04 9,716 29,594 (19,878) (50.6%) Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL There has been very little action from the commercial traders in the Dow Jones futures but they remain net short. Small traders remain net long but their resolve may be weakening a bit. Commercials Long Short Net % of OI 05/18/04 22,257 22,444 ( 187) (0.4%) 05/25/04 23,578 24,632 (1,045) (2.2%) 06/01/04 23,397 24,393 ( 996) (2.0%) 06/08/04 24,636 25,821 (1,185) (2.3%) 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 05/18/04 9,098 6,591 2,507 16.0% 05/25/04 9,623 6,614 3,009 18.5% 06/01/04 9,000 6,021 2,979 19.8% 06/08/04 8,325 6,431 1,894 12.8% Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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 Tuesday 06-15-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: AIG, BA, JNJ Dropped Puts: None Call Play Updates: BCR, DGX, GDW, HSY, QCOM, ZMH, ERTS, MERQ New Calls Plays: ETN Put Play Updates: CCMP, KSS, SYMC New Put Plays: MO **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** American Int'l Grp. - AIG - cls: 72.15 chng: -0.61 stp: 71.50 Two weeks after we began coverage on AIG, the stock has made a round trip, right back where we started. After the breakout over the 50-dma, we tracked the stock up to the $75 level, at which point we were expecting a bit of a retracement and then another leg up. Our plan took a wrong turn yesterday when the stock closed right on the 50-dma and today's high-volume violation of that average looks ominous. Based on the price action so far this week, it looks like the H&S pattern we noted over the weekend may be setting up for confirmation later this month. Even though our stop hasn't yet been violated, with the increased volume on today's drop and the stock right back to our starting point, this looks like a good place to make our exit. Picked on May 25th at $72.00 Change since picked: +0.15 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 5.35 mln The Boeing Company - BA - cls: 49.25 chng: +0.42 stop: 47.25 Following its breakout over $46 a couple weeks ago, BA has done everything we've asked of it, including rising to within spitting distance of our $50 target this morning. The opening gap, courtesy of a Navy contract win, sent the stock soaring to $49.90 before retracing back to fill that gap by the end of the day. No matter, we're happy with the performance and in keeping with our prior comments are going to suggest exiting the play near current levels. Another push up towards the $50 would be a gift at this point and should be used to exit any remaining open positions. Picked on May 27th at $46.20 Change since picked: +3.05 Earnings Date 4/28/04 (confirmed) Average Daily Volume = 2.99 mln Johnson & Johnson - JNJ - cls: 56.21 chng: -0.80 stop: 55.25 After pushing up to the $57 level last week, JNJ looked like it might finally get enough buying interest to continue its journey up to the $58 resistance level this week before entering the next phase of consolidation. Alas, it wasn't to be, as the stock sold off sharply today, ending just above the $56 level. JNJ may yet continue up to the $58 and then possibly $60 levels, but it will do so without us. We knew when we began coverage that the stock would be a slow-mover, but this progress is just a bit too slow, even for a longer-term option play. Use any pop back towards the $57 level to exit open positions. We're dumping the play tonight to make room for stronger candidates. Picked on May 9th at $55.30 Change since picked: +0.91 Earnings Date 4/13/04 (confirmed) Average Daily Volume = 7.34 mln PUTS: ***** None ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Bard C R - BCR - close: 57.30 chg: -0.02 stop: 55.95*new* Unfortunately, we have very little to report on for BCR. Shares continue to trade sideways between $56.00 and $58.00. Technicals have turned sideways. If we don't see a breakout over the $58.00 level soon we may plan to drop BCR on Thursday. We are going to raise our stop loss to $55.95. It wouldn't hurt to close profitable positions now. Picked on May 20 at $ 55.00 (post split) Change since picked: + 2.30 Earnings Date 04/20/04 (confirmed) Average Daily Volume: 386 thousand Chart = --- Quest Diagnostic - DGX - cls: 87.45 chg: +0.51 stop: 84.95*new* It's time to see some action in DGX. Shares of this stock have been consolidating for the last six sessions. Volume has been light on the pull back and that's what we want to see but now it's time for the bounce. We're still willing to consider new long positions on a move through $88.00 or $88.25. In the mean time we're going to raise our stop loss to $84.95. Look for potential headlines tomorrow when DGX presents at the Thomas Weisel Growth conference in California. Picked on June 01 at $ 87.70 Change since picked: - 0.25 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 603 thousand Chart = --- Golden West Fncl - GDW - close: 108.27 chg: +1.92 stop: 107.00 In spite of the volatile and bearish session on Monday GDW's P&F chart remains bullish and points to a $129 price target. Shares of GDW dropped strongly yesterday without any apparent catalyst other than the market-wide sell-off. GDW did find support above $105 and its simple 50-dma and the stock produced a decent bounce today. Chart readers will note that GDW appears stuck in a bull flag consolidation pattern. Our TRIGGER to go long is $110.01 but more aggressive traders could try and catch the breakout from this flag pattern with a trigger above $108.50. Picked on June xx at $xxx.xx <-- See TRIGGER Change since picked: + 0.00 Earnings Date 04/20/04 (confirmed) Average Daily Volume: 694 thousand Chart = --- Hershey Foods - HSY - close: 92.03 chg: +0.28 stop: 89.50*new* Here we go! HSY is set to split 2-for-1 and should open Wednesday morning near $46.00 per share. That means our new stop loss at $89.50 will become $44.75. Any options owned should half in value while double in quantity and potentially change their symbols so check with your broker about the new symbols, if any, when it comes time to sell. We're still bullish on HSY but sometimes stocks can experience some post-split depression if they've enjoyed a strong pre-split ramp up. We'd probably hesitate to open new positions unless HSY gave us a nice bounce from the $45.50 region. Picked on June 08 at $ 92.22 Change since picked: - 0.19 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 441 thousand Chart = --- QUALCOMM - QCOM - close: 69.40 chg: +0.68 stop: 67.00*new* QCOM continues to coil more tightly under resistance at $70.00 and we expect an upside breakout soon. Traders have been buying mild technical support at its simple 10-dma, which means any dip tomorrow "should" be bought at $68.50. We are suggesting that investors wait for the breakout over $70.00 before considering any new long positions. We're going to raise our stop loss to $67.00. Picked on May 24 at $ 66.01 Change since picked: + 3.39 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 9.6 million Chart = --- Zimmer Holdings - ZMH - close: 87.64 chg: +0.54 stop: 84.25 Any day now. Yes we're expecting ZMH to breakout above resistance at $88.00 any day now. The stock continues to trade sideways in a narrow range (86.65-88.00). Now that ZMH has churned sideways for the last week and a half its technicals are flattening out and they don't offer as many clues. Yet we're still bullish and suggest traders wait for the breakout over $88.00 before evaluating new bullish positions. We didn't see any news come out of ZMH's presentation at the Thomas Weisel Growth Forum today. Picked on May 27 at $ 85.20 Change since picked: + 2.44 Earnings Date 04/26/04 (confirmed) Average Daily Volume: 1.2 million Chart = -- Electronic Arts - ERTS - close: 51.89 change: +0.68 stop: 50.00 Last week's rally in ERTS was certainly encouraging, especially with the issuance of the new PnF Buy signal as the stock traded over the $53 level. But the fade into the end of the week and then the sharp drop through the 50-dma ($51.42) yesterday did not inspire confidence. Fortunately, ERTS rebounded without tapping our $50 stop and spent most of today's session back on the right side of the 50-dma. While this could turn out to be a solid entry point, we want to exercise caution due to the fact that the daily oscillators have just issued fresh Sell signals. We'll stick with our action plan of buying dips near the $51 level, with the reminder to keep those stops tight at $50. While some may want to buy strength over last week's highs, we're hesitant to endorse such a strategy with the knowledge that there should be solid resistance near our $55-56 target for the play. That just doesn't leave enough upside potential to work with. Picked on May 18th at $49.60 Change since picked: +2.29 Earnings Date 4/29/04 (confirmed) Average Daily Volume = 3.85 mln -- Mercury Interact. - MERQ - cls: 48.52 chng: +0.02 stp: 46.50*new* Everything looked so encouraging for our MERQ play last Monday after the ramp right through the $48.50 resistance level. Since then, the stock has settled into a small, shallow descending channel of consolidation. While at first blush it may not seem conducive to our bullish goals for the play, another perspective is that this could be a short-term bull flag, meaning that the likely resolution will be an upside breakout. Aggressive traders can look to buy this dip, with strong support likely to be found in the $48 area, which is both the site of last week's breakout, as well as the 10-dma ($48.21). Reinforcing that support is the 20-dma ($47.05), which should cross up through the 200-dma ($47.14) tomorrow. Traders looking to enter on strength will want to wait for a move over $49.75 before playing. Raise stops to $46.50, just under the June 3rd intraday low. Picked on June 6th at $47.56 Change since picked: +1.50 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.38 mln ************** NEW CALL PLAYS ************** Eaton Corp - ETN - close: 61.41 chg: +0.85 stop: 59.95 Company Description: Eaton Corporation is a diversified industrial manufacturer with 2003 sales of $8.1 billion. Eaton is a global leader in fluid power systems and services for industrial, mobile and aircraft equipment; electrical systems and components for power quality, distribution and control; automotive engine air management systems and powertrain controls for fuel economy; and intelligent drivetrain systems for fuel economy and safety in trucks. Eaton has more than 54,000 employees and sells products to customers in more than 100 countries. (source: company press release) Why We Like It: We like ETN for a couple of reasons. The stock has been very strong the last 3 1/2 weeks and shares are on the verge of a major breakout. ETN peaked near $62.00 back in January 2004 and has been consolidating under resistance at $62.00 ever since. If the stock can break out it would produce a new triple-top breakout buy signal on its P&F chart. Plus, if you look closely at its daily chart ETN appears to be building a reverse head-and- shoulders pattern. The H&S pattern suggests we can target the $71.00 level on a break of the neckline. We're going to use a TRIGGER at $62.05 to open the play for us. Until ETN trades at or above this level we'll sit out. If we are triggered then we'll target a move to $67.00-70.00. Our initial stop loss will be $59.95. Suggested Options: We're going to suggest the July options but the Octobers are available. Our favorite would be the July 60s. BUY CALL JUL 60.00 ETN-GL OI= 293 Last traded @ $2.90 BUY CALL JUL 62.50 ETN-GZ OI= 902 Last traded @ $1.55 BUY CALL JUL 65.00 ETN-GM OI= 182 Last traded @ $0.75 Annotated Chart: Picked on June xx at $ xx.xx <-- See TRIGGER Change since picked: + 0.00 Earnings Date 04/14/04 (confirmed) Average Daily Volume: 1.0 million ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Cabot Micro. - CCMP - close: 28.20 chg: +0.15 stop: 30.45*new* Our recently added put play is hitting all the right notes so far. Monday's weakness was led by a strong drop in the SOX semiconductor index. CCMP, while not technically a chip builder, is influenced by moves in the chip group. Shares of CCMP lost 4.78% on Monday and confirmed the breakdown under the $30 mark. We remain bearish. Traders can use a failed rally under $30.00 or moves under $28.00 as potential entry points. CCMP does have some support at $26.80 but we expect it to fail now that the MACD has produced a new sell signal. We are going to lower our stop loss again this time from $30.65 to $30.45. Picked on June 13 at $ 29.46 Change since picked: - 1.26 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 3.7 million Chart = --- Kohl's Corp - KSS - close: 46.56 change: -0.24 stop: 49.01 Our put play in KSS is right on target. Monday's decline broke through minor support at $47.25-47.00. The stock tried to rebound this morning but hit selling pressure at $47.26. The slide stopped right at its 21 and 100-dma's but we don't expect them to hold as support with the MACD in a new sell signal. If you're looking for entry points consider a roll over under $47.25 or a move through $46.50. Remember that we're targeting the $41- 42 range. Picked on June 06 at $ 47.45 Change since picked: - 0.89 Earnings Date 05/13/04 (confirmed) Average Daily Volume: 3.7 million Chart = --- Symantec Corp. - SYMC - cls: 42.42 chng: -0.58 stop: 45.50*new* After several failed breakdown attempts, SYMC finally got the job done this week, smashing through the recent lows on Monday and continuing the carnage the morning, with the early lows coming very close to our $39-40 target. Nimble traders got a brief shot at locking in some gains this morning as the stock began to rebound from just over the $40 level. The question now is whether this was the bottom for the move or whether the bears have more in store. Despite the strength of the rebound, we feel the stock will make another stab down into the $39-40 area, meeting our target for the play. We're not so much interested in new entries at this point, as watching for attractive exit points. Should that target zone be reached later this week, don't hesitate to pull the trigger and book that gain. We're lowering our stop tonight to $45.50, which will be just over the 20-dma ($45.53) by tomorrow. Picked on May 13th at $44.16 Change since picked: -1.81 Earnings Date 4/28/04 (confirmed) Average Daily Volume = 4.92 mln ************* NEW PUT PLAYS ************* Altria Group - MO - close: 47.55 change: -0.07 stop: 49.50 Company Description: Altria Group, Inc., formerly Philip Morris Companies Inc., is a holding company and the parent company of Philip Companies Inc. The company's wholly owned subsidiaries, Philip Morris USA, Philip Morris International and its majority-owned (84.2%) subsidiary, Kraft Foods Inc. are engaged in the manufacture and sale of various consumer products, including cigarettes, foods and beverages. The company changed its name from Philip Morris Companies to Altria Group in January 2003. Why we like it: As regular as clockwork, it seems every time that shares of MO get up near the $60 level, legal challenges arise to knock the stock back down the charts. This time around the catalyst seems to have been the issue of whether the government can force the disgorgement of past profits in penalizing the Tobacco stocks. Regardless of the outcome of this issue, the technical picture is clear. After rising over the $58 level, MO dropped back into the low $50s in March, rebounded to a lower high near $57 and then plummeted in early May, finding support first near $48 and then most recently near $45. That most recent rebound stalled out near the $49 level and over the past few days the stock has been in the process of rolling over again. The PnF chart shows just how bad the technical situation is, as the drop from early May created a large Sell signal that currently has the stock working on a downside target of $22. The major breakdown already occurred, and the rollover is already in progress, negating the need for an entry trigger. Traders looking to enter on further weakness can target entries on a break below $47.25, while those looking for a more favorable entry can look for a failed rebound in the vicinity of the 10-dma ($48.31) and 20-dma ($48.37), which would also come very close to filling Monday's gap. The $45 level is an obvious level of support, having produced the rebound from the late May selloff. But we're looking for the stock to set a lower low on this leg, with the strong historical support in the $42-43 area being a reasonable target to shoot for. Stops should initially be set at $49.50, just over the top of the most recent rally attempt. Suggested Options: Aggressive traders will want to use the July 47 Put while those with a more conservative approach will want to use the July 50 strike. Our preferred option is the July 50 strike, as it is currently in the money and should provide ample time for the play to move in our favor. BUY PUT JUL-50*MO -SJ OI= 598 last traded @ $3.10 BUY PUT JUL-47 MO -SW OI=3755 last traded @ $1.35 Annotated Chart of MO: Picked on June 15th at $47.55 Change since picked: +0.00 Earnings Date 7/20/04 (unconfirmed) Average Daily Volume = 6.97 mln ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 06-15-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: EBAY, WFMI, TEVA, GS Spreads & Straddles: Stocks Rebound On Hopes Of "Measured" Rate Increase Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** eBay Inc - EBAY - close: 87.44 change: +1.83 WHAT TO WATCH: We strongly considered adding EBAY to the play list tonight. This looks like an entry point with the strong bounce from its 21-dma. Yet one could argue EBAY has not yet broken out of what looks like a bull flag consolidation pattern. More aggressive traders might want to use a move through the $88.00 level as a trigger point to consider longs. Chart= --- Whole Foods Market Inc - WFMI - close: 87.78 change: +1.81 WHAT TO WATCH: WFMI also looks like a good candidate for the call list tonight. The stock has been strong and resistant to profit taking. It held support at $85 on Monday when the rest of the market was sinking. Today's move is a nice breakout to new highs. The $90 level might be some resistance but we'd consider new plays with a tight stop. Its P&F target is $98.00. Chart= --- Teva Pharmaceuticals - TEVA - close: 67.10 change: +1.08 WHAT TO WATCH: Yesterday TEVA announced a 2-for-1 stock split. The split is payable on June 30th and shares should begin trading post-split on July 1st. We think a trigger over $67.50 might be a good entry point to try and capitalize on any pre-split ramp up. A move over $68.00 would produce a new triple-top breakout buy signal on its P&F chart, which currently points to a $77 price target. Chart= --- Goldman Sachs - GS - close: 90.21 change: -1.32 WHAT TO WATCH: A week or two ago we tried to play GS as a bearish play but the stock never hit our trigger under support at $90.00 to initiate the strategy. Investor reaction to Lehman Brother's earnings report today has sent GS back toward support at $90 again. Short-term traders might want to try again. Use a trigger under $90.00 and target a drop to $85.00. However, be careful and be aware of GS' earnings report due on next Tuesday. We would not hold over the announcement. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- CI $68.95 +0.70 - Cigna looks like a potential bullish candidate if it can breakout over resistance in the 70.00-70.50 range. SLB $59.92 +1.22 - We mentioned SLB in the MarketMonitor today. The breakout over its 40 and 50-dma's looks great but we'd consider a trigger over $60.00 as an entry point with a target of $64.50-65.00. AET $84.79 +1.10 - We recently played AET as a call and it may be time to do it again. Keep an eye on it for the next move higher. INFY $86.03 +3.28 - INFY broke out over resistance at $85.00 today but still has resistance at $90. Nimble traders might be able to scalp the next move higher. ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* Stocks Rebound On Hopes Of "Measured" Rate Increase By Ray Cummins U.S. equities rallied Tuesday as investors were comforted by Fed Chair Alan Greenspan's assurance of a slow and methodical response to inflation. Analysts also speculated that today's CPI data removes the need for Fed policymakers to raise interest rates by 50 basis points when they meet later this month and stocks responded positively to that outlook. The Dow Jones Industrial Average close up 45 points at 10,380 with big moves coming from Honeywell (NYSE:HON), Caterpillar (NYSE:CAT), Alcoa (NYSE:AA), Merck (NYSE:MRK), United Technologies (NYSE:UTX), and General Motors (NYSE:GM). Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC) led the technology index higher with the NASDAQ finishing 25 points higher at 1,995. The S&P 500 added 6 points to close at 1,132, with gold and energy shares among the best performers. Winners outnumbered losers by a 4 to 1 margin on the New York Stock Exchange and by 2 to 1 on the technology exchange. Big Board volume was over 1.35 billion shares while about 1.5 billion shares traded on the NASDAQ. Bond prices remained higher, while yields fell back from recent highs, despite a strong reading for the University of Michigan consumer sentiment gauge. The benchmark 10-year Treasury note rose 48/32 with its yield falling to 4.68%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 06/15/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 CB G/L Status ERTS 51.88 51.78 JUN 45 47 0.35 47.15 0.35 Open IMDC 61.17 56.69 JUN 50 55 0.50 54.50 0.50 Open? GPRO 38.30 42.03 JUN 30 35 0.70 34.30 0.70 Open ASD 35.96 38.47 JUN 32 33 0.16 33.17 0.16 Open IMCL 71.36 79.16 JUN 50 55 0.50 54.50 0.50 Open CSC 42.17 42.33 JUN 35 40 0.65 39.35 0.65 Open GILD 62.54 63.87 JUN 55 60 1.00 59.00 1.00 Open RIMM 49.99 57.06 JUN 40 42 0.22 42.28 0.22 Open QCOM 65.40 69.40 JUN 55 60 0.45 59.55 0.45 Open ZBRA 80.08 79.18 JUN 70 75 0.65 74.35 0.65 Open BRCM 42.54 42.84 JUN 37 40 0.30 39.70 0.30 Open EBAY 85.33 87.45 JUN 75 80 0.50 79.50 0.50 Open AMZN 48.50 50.11 JUN 42 45 0.30 44.70 0.30 Open EYET 44.32 42.13 JUN 35 40 0.50 39.50 0.50 Open RIMM 59.97 57.06 JUN 47 50 0.20 49.80 0.20 Open AMZN 50.95 50.11 JUL 43 45 0.30 44.70 0.30 Open YHOO 31.87 32.10 JUL 25 27 0.30 27.20 0.30 Open CFC 69.15 68.06 JUL 60 63 0.35 63.03 0.35 Open QCOM 69.86 69.40 JUL 60 65 0.45 64.55 0.45 Open SWIR 33.83 34.28 JUL 25 30 0.90 29.10 0.90 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Martek Biosciences (NASDAQ:MATK) has been closed to limit potential losses. Inamed (NASDAQ:IMDC) and Eyetech Pharmaceuticals (NASDAQ:EYET) remain on the "watch" list. CALL-CREDIT SPREADS Stock Pick Last Month LC SC Credit CB G/L Status CTX 44.80 46.06 JUN 55 50 0.50 50.50 0.50 Open IVGN 67.61 64.17 JUN 80 75 0.55 75.55 0.55 Open VIP 91.45 90.62 JUN 110 105 0.50 105.50 0.50 Open CERN 41.33 43.95 JUN 50 45 0.55 45.55 0.55 Open SEPR 45.06 49.05 JUN 55 50 0.60 50.60 0.60 Open? BSC 80.02 79.43 JUN 90 85 0.50 85.50 0.50 Open FRX 59.20 61.76 JUN 70 65 0.55 65.55 0.55 Open MDT 47.66 49.46 JUN 55 50 0.60 50.60 0.60 Open? AZO 83.38 88.76 JUN 95 90 0.20 90.20 0.20 Open? RYL 79.60 76.25 JUN 90 85 0.60 85.60 0.60 Open VIP 92.25 90.62 JUN 105 100 0.60 100.60 0.60 Open APPX 34.03 31.21 JUL 45 40 0.50 40.50 0.50 Open OIH 65.40 68.40 JUL 75 70 0.65 70.65 0.65 Open GENZ 41.93 42.88 JUL 47 45 0.30 45.30 0.30 Open INSP 34.71 33.13 JUL 45 40 0.65 40.65 0.65 Open WMS 28.75 27.01 JUL 35 30 0.65 30.65 0.65 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss The position in NTL Inc. (NASDAQ:NTLI), although profitable, has been closed to limit potential losses. Sepracor (NASDAQ:SEPR) is an "early-exit" candidate. Autozone (NYSE:AZO) and Medtronic (NYSE:MDT) are on the "watch" list. The oil service segment has been a bullish sector recently and the OIH is nearing resistance at $68.50. A move above this area would signal our exit in the bearish position. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status KKD 19.63 21.18 JUN 20 20 3.00 2.80 Closed RIO 49.38 45.35 JUN 50 50 2.65 4.20 Open? GRMN 32.60 33.44 JUL 35 30 2.15 2.35 Open SNDK 22.90 20.68 JUL 22 22 3.40 3.60 Open GDT 56.02 56.60 JUL 55 55 4.80 4.50 Open Companhia Vale Do Rio Doce (NYSE:RIO) reached our profit target in only one week and Sandisk (NASDAQ:SNDK) has achieved a small profit. The Krispy Kreme (NYSE:KKD) straddle has been closed to preserve capital. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CTSH - Cognizant Technology $48.50 *** A Big Day! *** Cognizant Technology Solutions (NASDAQ:CTSH) delivers full life cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. These information technology (IT) services are delivered through the use of a seamless on-site and offshore consulting project team. The company's solutions include application development and integration, application management and re-engineering services. CTSH - Cognizant Technology $48.50 PLAY (conservative - bullish/credit spread): BUY PUT JUL-40.00 UPU-SH OI=1233 ASK=$0.35 SELL PUT JUL-45.00 UPU-SI OI=3203 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$44.45 __________________________________________________________________ NUE - Nucor $69.54 *** Steel Stocks Soar! *** Nucor (NYSE:NUE) is engaged, along with its subsidiaries, in the manufacture and sale of steel and steel products. The company operates two segments: steel mills and steel products. Primary products from the steel mills segment are hot-rolled steel and cold-rolled steel. Principal products from the steel products segment are steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems and light gauge steel framing. NUE - Nucor $69.54 PLAY (less conservative - bullish/credit spread): BUY PUT JUL-60.00 NUE-SL OI=1505 ASK=$0.40 SELL PUT JUL-65.00 NUE-SM OI=511 BID=$1.15 INITIAL NET-CREDIT TARGET=$0.75-$0.85 POTENTIAL PROFIT(max)=17% B/E=$64.25 __________________________________________________________________ SII - Smith International $53.26 *** Strong Sector! *** Smith International (NYSE:SII) is a worldwide supplier of premium products and services to the oil & gas exploration and production industry, the petrochemical industry and other industrial markets. The firm provides a comprehensive line of technologically advanced products and engineering services, including various drilling and completion fluid systems, solids control, waste management services, production chemicals, three-cone and diamond drill bits, turbines, fishing services, drilling tools, under-reamers, casing exit and multilateral systems, packers and liner hangers. The firm also offers supply chain management solutions through an large North American branch network providing pipe, valves, fittings, mill, safety and other maintenance products. SII - Smith International $53.26 PLAY (conservative - bullish/credit spread): BUY PUT JUL-47.50 SII-ST OI=955 ASK=$0.35 SELL PUT JUL-50.00 SII-SJ OI=1026 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$49.70 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ GS - Goldman Sachs $90.21 *** Brokerage Shares Slump! *** The Goldman Sachs Group (NYSE:GS) is a global investment banking and securities firm that provides a range of services worldwide to a substantial and diversified client base. The firm operates offices in over 20 countries with activities are divided into two primary segments: Global Capital Markets, and Asset Management and Securities Services. The Global Capital Markets segment, which represented 64% of the firm's 2001 net revenues, consists of Investment Banking, and Trading and Principal Investments. Goldman's Asset Management segment offers investment strategies and advice across all major asset classes: global equity; fixed income, including money market instruments; currency, as well as alternative investment products. The firm's Securities Services activities include brokerage, financing services and securities lending. GS - Goldman Sachs $90.21 PLAY (less conservative - bearish/credit spread): BUY CALL JUL-100.00 GS-GT OI=14196 ASK=$0.25 SELL CALL JUL-95.00 GS-GS OI=8730 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.70-$0.75 POTENTIAL PROFIT(max)=16% B/E=$95.70 __________________________________________________________________ SYMC - Symantec $42.42 *** New Competition: Microsoft! *** Symantec (NASDAQ:SYMC) provides content and network security software and appliance solutions to enterprises, individuals and service providers. The firm provides client, gateway and server security solutions for virus protection, firewall and virtual private network, security management, intrusion detection, e-mail filtering and Internet content, remote management technologies and security services to enterprises and service providers worldwide. The company views its business in five operating major segments: enterprise security, enterprise administration, consumer products, services and other activities. SYMC - Symantec $42.42 PLAY (less conservative - bearish/credit spread): BUY CALL JUL-50.00 SYQ-GJ OI=4319 ASK=$0.20 SELL CALL JUL-45.00 SYQ-GI OI=2628 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$45.65 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ No straddles or strangles today... ***************************************** 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 06/15/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 LPNT JUN 35 34.30 37.86 0.70 4.03% 2.04% ASCA JUN 30 29.35 32.89 0.65 5.02% 2.21% DRIV JUN 25 24.25 31.91 0.75 7.04% 3.09% FARO JUN 20 19.45 24.72 0.55 7.32% 2.83% GIVN JUN 30 29.25 32.50 0.75 7.01% 2.56% MVSN JUN 20 19.65 23.69 0.35 4.54% 1.78% PDII JUN 22 22.00 31.53 0.50 6.67% 2.27% SMTC JUN 20 19.50 23.52 0.50 6.25% 2.56% CELG JUN 45 44.40 54.70 0.60 4.75% 1.35% ELN JUN 17 17.05 21.42 0.45 8.73% 2.64% FARO JUN 20 19.45 24.72 0.55 8.04% 2.83% FRO JUN 25 24.50 38.45 0.50 6.48% 2.04% IMMU JUN 5 4.75 4.94 0.19 10.27% 5.26% LNCR JUN 32 32.05 33.86 0.45 3.60% 1.40% MCK JUN 32 32.00 35.13 0.50 3.76% 1.56% NFLX JUN 25 24.45 29.73 0.55 7.36% 2.25% PHRM JUN 20 19.65 41.33 0.35 5.67% 1.78% RTN JUN 32 32.00 34.51 0.50 3.62% 1.56% VXGN JUN 12 12.10 14.98 0.40 10.35% 3.31% ARTI JUN 22 22.00 25.53 0.50 6.11% 2.27% AVID JUN 45 44.30 51.37 0.70 4.62% 1.58% BLUD JUN 25 24.70 30.50 0.30 3.54% 1.21% DRIV JUN 25 24.60 31.91 0.40 5.37% 1.63% ERES JUN 17 18.11 23.33 0.22 3.85% 1.21% NUE JUN 55 54.25 69.54 0.75 3.96% 1.38% PHRM JUN 20 19.70 41.33 0.30 5.30% 1.52% SPLS JUN 25 24.60 29.10 0.40 4.24% 1.63% YHOO JUN 25 24.60 32.10 0.40 4.64% 1.63% ARO JUN 22 23.03 29.37 0.35 4.75% 1.52% CRDN JUN 25 24.65 35.11 0.35 5.57% 1.42% ERES JUN 17 18.63 23.33 0.30 6.61% 1.61% FARO JUN 22 21.85 24.72 0.65 9.88% 2.97% ISPH JUN 15 14.55 16.90 0.45 10.57% 3.09% IDEV JUN 5 4.70 6.98 0.30 17.36% 6.38% PDII JUN 22 22.20 31.53 0.30 5.83% 1.35% SSYS JUN 22 21.85 26.88 0.65 9.43% 2.97% SLXP JUN 25 24.70 27.72 0.30 4.85% 1.21% ASKJ JUN 35 34.40 36.42 0.60 6.85% 1.74% ERES JUN 20 19.80 23.33 0.20 4.60% 1.01% FWHT JUN 20 19.65 20.48 0.35 6.25% 1.78% GPRO JUN 35 34.45 42.03 0.55 5.54% 1.60% MEE JUN 22 22.15 25.23 0.35 5.66% 1.58% SMTC JUN 20 19.70 23.52 0.30 6.79% 1.52% SWIR JUN 22 22.20 34.28 0.30 6.05% 1.35% YHOO JUN 27 27.15 32.10 0.35 4.58% 1.29% ASKJ JUN 35 34.55 36.42 0.45 6.43% 1.30% CRDN JUN 30 29.45 35.11 0.55 8.32% 1.87% ERES JUN 23 23.03 23.33 0.30 5.71% 1.52% NKTR JUN 17 17.25 18.16 0.25 8.24% 1.45% NSM JUN 20 19.70 21.06 0.30 6.58% 1.52% SMTC JUN 23 22.20 23.52 0.30 6.21% 1.35% YHOO JUN 27 27.25 32.10 0.25 4.28% 0.92% CVTX JUL 15 14.60 15.88 0.40 5.63% 2.74% DITC JUL 17 16.80 21.98 0.70 8.40% 4.17% JILL JUN 20 19.70 23.00 0.30 10.05% 1.52% NKTR JUN 17 17.20 18.16 0.30 13.99% 1.74% OSIP JUN 65 64.50 66.72 0.50 6.89% 0.78% SINA JUN 35 34.50 38.36 0.50 10.37% 1.45% SMTC JUN 22 22.25 23.52 0.25 7.77% 1.12% SYNA JUL 17 16.85 19.24 0.65 7.48% 3.86% TELK JUN 20 19.75 21.25 0.25 10.33% 1.27% USG JUN 15 14.70 16.31 0.30 13.27% 2.04% UTHR JUN 22 22.15 22.70 0.35 10.38% 1.58% PTIE JUL 7 7.15 8.77 0.35 9.89% 4.90% BCC JUL 35 34.25 36.34 0.75 5.12% 2.19% JILL JUL 20 19.45 23.00 0.55 6.72% 2.83% LSS JUL 20 19.50 22.27 0.50 6.07% 2.56% OI JUL 15 14.65 15.89 0.35 5.64% 2.39% NVTL JUL 15 14.65 22.36 0.35 7.34% 2.39% PDII JUL 25 24.70 31.53 0.30 3.91% 1.21% RSAS JUL 17 17.05 20.39 0.45 6.22% 2.64% STLD JUL 25 24.45 26.90 0.55 5.33% 2.25% UPL JUL 30 29.55 33.90 0.45 4.14% 1.52% USG JUL 15 14.15 16.31 0.85 13.32% 6.01% Au Optronics (NYSE:AUO), Boston Communications (NASDAQ:BCGI), Drexler Technologies (NASDAQ:DRXR), Nvidia (NASDAQ:NVDA), Silicon Storage Tech (NASDAQ:SSTI) and Digene (NASDAQ:DIGE), which is currently profitable, have been closed to limit potential losses. In light of the recent volatile activity, there are a large number (far too many to list) of issues on the "watch" list. Use good judgment and remember that limiting losses is the "secret to success" in this strategy. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield IACI JUN 32 33.15 30.11 0.65 5.22% 1.96% OVTI JUN 30 30.80 15.98 0.80 11.79% 2.60% SLAB JUN 55 55.50 47.47 0.50 4.93% 0.90% PHTN JUN 35 35.35 31.93 0.35 4.69% 0.99% ENDP JUN 25 25.70 21.42 0.70 11.16% 2.72% IPXL JUN 22 23.05 20.15 0.55 8.75% 2.39% MMR JUN 15 15.25 15.66 (0.41) 0.00% 1.64% APPX JUN 40 40.40 31.21 0.40 6.84% 0.99% OVTI JUN 27 27.25 15.98 0.25 6.69% 0.92% WSM JUN 32 33.00 30.87 0.50 5.64% 1.52% ABAX JUN 20 20.25 18.94 0.25 5.81% 1.23% CHIC JUN 20 20.35 19.50 0.35 8.70% 1.72% USNA JUN 30 30.40 29.50 0.40 6.29% 1.32% ABGX JUN 17 17.85 11.92 0.35 13.94% 1.96% CREE JUN 25 25.25 20.44 0.25 5.36% 0.99% SSNC JUN 25 25.50 18.51 0.50 10.41% 1.96% DIGE JUN 40 40.30 36.22 0.30 6.89% 0.74% MDCO JUN 30 30.70 27.26 0.70 15.46% 2.28% ASKJ JUL 45 45.55 36.42 0.55 6.50% 1.21% AMLN JUL 25 25.35 21.99 0.35 5.29% 1.38% ICOS JUL 30 30.45 27.04 0.45 5.26% 1.48% OIIM JUL 17 17.80 16.25 0.30 5.50% 1.69% Charlotte Russe Holdings (NASDAQ:CHIC) and Usana (NASDAQ:USNA) are on top of the "watch" list. McMoran Exploration (NYSE:MMR) has been closed to limit potential losses. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ATI JUL 12.50 12.20 14.74 0.30 7.44% 2.46% BJS JUL 42.50 41.70 44.60 0.80 4.75% 1.92% LCAV JUL 25.00 24.35 27.23 0.65 6.85% 2.67% NCRX JUL 27.50 26.80 31.32 0.70 7.30% 2.61% NVTL JUL 17.50 17.05 22.36 0.45 8.97% 2.64% SSYS JUL 22.50 22.20 26.88 0.30 4.41% 1.35% SWIR JUL 30.00 28.85 34.28 1.15 10.66% 3.99% SYNA JUL 17.50 16.90 19.24 0.60 8.98% 3.55% YHOO JUL 30.00 29.20 32.10 0.80 6.80% 2.74% __________________________________________________________________ ATI - Allegheny Technologies $14.74 *** Steel Surges! *** Allegheny Technologies (NYSE:ATI) is a diversified producer of specialty materials. The company operates in three business segments: flat-rolled products, high-performance metals and industrial products. The flat-rolled products segment produces, converts and distributes stainless steel, nickel-based alloys and super-alloys and titanium and titanium-based alloys. The high-performance metals segment produces, converts and sells nickel- and cobalt-based alloys and super-alloys, titanium and titanium-based alloys, zirconium, hafnium, niobium, tantalum, their related alloys and other specialty materials. Industrial products' principal business produces tungsten powder, tungsten carbide materials and carbide cutting tools. ATI - Allegheny Technologies $14.74 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 12.5 ATI SV 26 0.30 12.20 7.4% 2.5% __________________________________________________________________ BJS - BJ Services $44.60 *** Oil Service Stocks Rally! *** BJ Services (NYSE:BJS) is a provider of pressure pumping and other oilfield services serving the petroleum industry worldwide. The company's pressure pumping services consist of cementing and stimulation services, and are used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. BJ's other oilfield services include completion tools, completion fluids and casing and tubular services provided to the oil and natural gas exploration and production industry, commissioning and inspection services provided to refineries, pipelines and offshore platforms and production chemical services. BJS - BJ Services $44.60 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 42.5 BJS SV 680 0.80 41.70 4.7% 1.9% __________________________________________________________________ LCAV - LCA-Vision $27.23 *** Consolidation Complete? *** LCA-Vision (NASDAQ:LCAV) is a global developer and operator of fixed-site, laser vision correction centers under the brand name LasikPlus. Their vision centers provide the staff, facilities, equipment and support services for performing laser vision corrections that employ advanced laser technologies to help correct nearsightedness, farsightedness and astigmatism. LCA utilizes fixed-site excimer lasers made by Bausch & Lomb, VISX and Alcon. Its vision centers are supported mainly by full-time, board-certified ophthalmologists and optometrists, as well as other healthcare professionals. LCAV - LCA-Vision $27.23 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 25 JVQ SE 13 0.65 24.35 6.8% 2.7% __________________________________________________________________ NCRX - NeighborCare $31.32 *** A Healthy Stock! *** NeighborCare (NASDAQ:NCRX), formerly Genesis Health Ventures, is a provider of institutional pharmacy services in the United States. The company provides pharmacy services for beds in long-term care facilities in the U.S. and the District of Columbia. Its pharmacy operations consist of 62 institutional pharmacies, 32 community-based professional retail pharmacies and 20 on-site pharmacies, which are located in customers' facilities and serve only customers of that facility. In addition, NeighborCare operates 16 home infusion, respiratory and medical equipment distribution centers. NCRX - NeighborCare $31.32 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 27.5 QNY SY 5558 0.70 26.80 7.3% 2.6% __________________________________________________________________ NVTL - Novatel Wireless $22.36 *** Rally Mode! *** Novatel Wireless (NASDAQ:NVTL) is a provider of wireless data access solutions, including wireless data modems and software, for use with portable personal computers (PCs) and with handheld computing devices. The company delivers comprehensive solutions that help businesses and consumers to access personal, corporate and public information through e-mail, enterprise networks and the Internet. Novatel also offers wireless data modems as well as custom software and hardware engineering services and systems integration services to its customers to facilitate use of its products. NVTL - Novatel Wireless $22.36 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 17.5 NVU SW 5 0.45 17.05 9.0% 2.6% __________________________________________________________________ SSYS - Stratasys $26.88 *** Uptrend Intact! *** Stratasys (NASDAQ:SSYS) manufactures and sells a line of rapid prototyping and three-dimensional printing devices that create physical models from computerized designs. The company's rapid prototyping systems are based on its patented fused deposition modeling technology or on its patented Genisys technology. The company is also involved in the office prototyping market (rapid prototyping) and develops, manufactures and markets a family of rapid prototyping devices and 3-D printers that enable engineers and designers to create physical models, tooling and prototypes out of plastic and other materials directly from a computer-aided design workstation. SSYS - Stratasys $26.88 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 22.5 QQG SX 4 0.30 22.20 4.4% 1.4% __________________________________________________________________ SWIR - Sierra Wireless $34.28 *** The Recovery Continues! *** Sierra Wireless (NASDAQ:SWIR) is a leader in delivering highly differentiated wireless solutions that enable our customers to improve their productivity and lifestyle. Sierra Wireless develops and markets AirCard, the industry-leading wireless PC card line for portable computers; embedded modules for OEM wireless applications; the MP line of rugged vehicle-mounted connectivity solutions and Voq, a line of professional phones with secure, easy-to-use, products for mobile professionals. SWIR - Sierra Wireless $34.28 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 30 IYQ SF 593 1.15 28.85 10.7% 4.0% __________________________________________________________________ SYNA - Synaptics $19.24 *** Next Leg Up? *** Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of custom-designed user interface solutions for notebook computers. The company's original equipment manufacturer customers include ten large personal computer OEMs. Synaptics generally supplies its OEM customers through its contract manufacturers, which take delivery of its products and pay the company directly for the OEMs. Synaptics family of product solutions include TouchPad, TouchPad Under Plastic, TouchStyk, dual pointing solutions, ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese character recognition, Fingerprint TouchPad, TouchRing and TouchScreen. SYNA - Synaptics $19.24 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 17.5 QYG SW 96 0.60 16.90 9.0% 3.6% __________________________________________________________________ YHOO - Yahoo! $32.10 *** Entry Point? *** 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! $32.10 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 30 YHQ SF 7146 0.80 29.20 6.8% 2.7% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ INSP - InfoSpace $33.13 *** "Premium-Selling" Only! *** InfoSpace (NASDAQ:INSP) develops and delivers a wireless and Internet platform of software and application services to a range of customers that span each of its wireline, merchant and wireless business units. Many of the company's products and application services are offered to its customers, which, in turn, offer these products and application services to their customers as their own solutions. InfoSpace provides its services across multiple platforms, including personal computers and non-PC devices. INSP - InfoSpace $33.13 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 40 IOU GH 1137 0.50 40.50 6.9% 1.2% __________________________________________________________________ RHAT - Red Hat $22.06 *** Post-Earnings Slump? *** Red Hat (NASDAQ:RHAT) provides an enterprise-operating platform based on open source technology for the IT infrastructure of the Global 2000. The company applies its technology to create its enterprise operating platform, Red Hat Enterprise Linux, and related layered infrastructure technology solutions, based on open source technology. Red Hat's enterprise solutions meet the functionality requirements and performance demands of the large enterprise and the third-party computer hardware and software applications that are critical to enterprises. The company also creates additional products, including Red Hat Linux and related tools, and open source software applications. Red Hat's professional services offerings, principally directed toward its large enterprise customers and strategic partners, include technical support and maintenance, custom development, consulting, training and education and hardware certification. RHAT - Red Hat $22.06 "SPECULATIVE" PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 25 RCV GE 2104 0.60 25.60 9.1% 2.3% __________________________________________________________________ XMSR - XM Satellite Radio $23.50 *** Stuck In A Range? *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service with over 1 million subscribers. Broadcasting live daily from Washington, DC, New York City and Nashville, Tennessee at the Country Music Hall of Fame, XM provides its loyal listeners with over 100 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. XMSR - XM Satellite Radio $23.50 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 27.5 QSY GY 6217 0.25 27.75 4.3% 0.9% TS ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. 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