The Option Investor Newsletter Sunday 06-20-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Ten Days and Counting Futures Market: See Note Index Trader Wrap: BELLWETHER BLUES Editor's Plays: Not Nice to Fool Investors Market Sentiment: Another Week of Waiting Ask the Analyst: Position Size is up to you Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 6-18 WE 6-11 WE 6-04 WE 5-28 DOW 10416.41 + 6.31 10410.1 +167.18 10242.8 + 54.37 +221.71 Nasdaq 1986.73 - 13.14 1999.87 + 21.25 1978.62 - 8.12 + 74.65 S&P-100 554.81 - 0.09 554.90 + 7.82 547.08 + 1.95 + 10.80 S&P-500 1135.00 - 1.47 1136.47 + 13.97 1122.50 + 1.86 + 27.08 W5000 11034.12 - 11.83 11045.9 +109.64 10936.3 + 9.95 +301.26 SOX 453.08 - 23.20 476.28 + 5.37 470.91 - 17.95 + 30.68 RUT 570.54 + 1.42 569.12 + 1.37 567.75 - .53 + 22.47 TRAN 3068.67 + 43.96 3024.71 + 32.43 2992.28 + 44.27 + 82.26 ****************************************************************** Ten Days and Counting by Jim Brown The markets traded to a draw once again as the indexes passed time waiting for coming events. We are ten days away from the Fed meeting and coming rate hike. We are ten days from the Iraq transfer of power and we are only twelve days away from high event risk of the July-4th weekend. Add to this the Russell shuffle and end of the quarter. All of these events contain high levels of uncertainty to some extent and we all know that is not something traders welcome. Dow Chart - Daily Nasdaq Chart - Daily The indexes ended flat and at strong resistance once again despite some strong economic reports and some dovish testimony from Greenspan. We saw the Philly Fed rise to 28.9 from 23.9 and Jobless Claims return to the 330K levels we saw in spring. The Beige Book saw strong economic signs in nearly every area of the country that included a pickup in hiring. Industrial Production soared as did Consumer Sentiment. Good news was breaking out all over but it was not without some soft spots. The International Trade number was a new record deficit. The current account deficit also rose to a -$145 billion level and the largest deficit related to GDP on record. The NY manufacturing survey was flat and the Kansas survey fell. However, the Fed claims inflation is still low despite the PPI and CPI which both soared. Do you see something in that prior paragraph that should concern traders? Of course it is uncertainty rearing its ugly head in the economic arena as well as on the global scene. The uncertainty in the recovery has analysts on the fence about the coming Fed rate hike. Where most were saying the Fed was behind the curve for the last couple months and suggesting the first hike could be 50 points the chatter this week has been more muted. Instead of 75 points through the August meeting analysts are now predicting only 25 points at each of the next five meetings and no 50 point jump at any point. The Fed rhetoric last week about taking aggressive action if needed has mellowed back to "measured pace" once again. The uncertainty factor still prevails. The recovery is now being called "tenuous" and while the Fed is still expected to hike on the 30th there is talk that there may not be another in August if the economy does not improve. We are in the summer doldrums for corporate earnings and we will begin to get the predictions for the summer quarter in about three weeks when the Q2 earnings begin announcing. So far there have been few earnings warnings but we are just now getting into the real warning period. Considering the upward guidance announcements have been muted as well we are seeing an uncertainty cloud begin to form over the future guidance. You see how that "U" word is beginning to dominate our future. Remember how the "visibility" word dominated guidance a couple years ago? Welcome to the new buzz word for traders. The problem is not just the next three weeks. Once past the July-4th weekend and earnings we will then be faced with the political conventions, Olympic event risk and then the election itself. The economic differences between Bush and Kerry could keep investors on the sidelines as long as the election outcome is in doubt. In a tie race every major election mistake by either candidate could swing the expected outcome and by default the "initial" impact of a win by the other side. In reality the market does equally well with either party in power but it does not react well to the first couple weeks after the election with a party change. Ideally the market would react well to positive Q3 guidance, calming comments from the Fed and a clear leader in the presidential race. We are several weeks before we can count on at least two of those factors. Since the market is a very efficient discounter of future events we are effectively dormant because investors do not know which way to discount. There are just too many unknowns ahead. The Dow has come to a screeching halt at 10430 resistance for the last two weeks and has tested it multiple times. The close on Friday at 10416 represents a close near the highs for the last two weeks and near the highest levels since April 28th. The declines for the entire month of May have been erased and we are back knocking on the resistance door. Considering the uncertainty this is amazing. This resistance range runs for about +150 points over the current 10430 level and increases in intensity up to 10575. Just getting over 10430 will not solve the problem but should at least give us a new range to trade. It does appear to me the Dow is building a bullish triangle at that 10430 level and were it not for the uncertainty I would expect a breakout almost immediately. Dow Chart - 120 min The Nasdaq is a little tougher to call. It has been trading in the 1980-2000 range since May 27th with only a couple forays outside those limits. The Nasdaq is being limited by the Russell shuffle due in 10 days and the implosion in the SOX. The SOX made a double top at resistance at 490 since June 1st and with the Book-to-Bill dropping on Thursday the SOX has declined to near 450. With chips falling the Nasdaq will not be able to sustain a rally. This should turn around next week IF it is going to turn. The SOX has strong support at 440 and this is where it could find buyers. Also helping the Nasdaq will be the Russell rebalance but not until month end. Once the new stocks are added there is normally a couple days of volatility and then the Russell is free to trade on fundamentals again rather than rebalance arbitrage. Nasdaq Chart - 120 min SOX Chart - Daily For me all those events I discussed sets up the potential for a rally the first week of July. Regardless of the Fed action it will be behind us and the holiday weekend over. The Russell rebalance will be history and earnings will begin flowing. I am encouraged that we have not seen more warnings and think the pickup in employment is a real sign that the economy is growing, slowly but growing. The slow growth should continue to keep inflation in check and the drop in oil prices should at least keep the July inflation numbers inline. Summers in front of an election are surprisingly enough bullish as the candidates promise a chicken in every pot and jobs for everybody. Reality tends to be ignored. With all the current negativity coming to a head very soon there is the possibility for an uncertainty relief rally on July 6th. I do not expect a 50 point hike and more than a 25 point hike is already priced in. Fund flows were actually positive +1.3B last week and June is the end of a quarter. This means there will be a larger influx of retirement funds the first ten days of July. I think there will be a pre earnings bounce and then a pause to see if the outlook will hold. That leaves us with a slack week ahead before the fireworks begin to happen. While I would like to think we could rise in front of those events I am not convinced. I think we could see a continued uptick but we could just as easily see a final exit to the sidelines by those more cautious to wait out the events. This is truly a week where the bulls and bears could battle but the war may be waged in such low volume as to be insignificant. With rising support and strong resistance a direction will eventually be found but it may not be next week. If anything our range may simply widen depending on the strength of either side but I doubt we will see a strong move in either direction. The coming week is not a week for big bets. It is more likely a week that traders take an early vacation while they wait for the fireworks. The following week could see strong volatility in both directions as the news events unfold. Depending on those events we could see a rise into the holiday weekend propelled by high risk traders trying to position themselves for any post holiday bounce. This forecast and $5 will only buy you a cup of strong coffee at Starbucks. It may not be exactly the way it plays out but that is the way I see it today. I will continue to update it as the calendar ticks away but remember for the next ten days, uncertainty rules. Enter Very Passively, Exit Very Aggressively! Jim Brown ************** FUTURES MARKET ************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ******************** INDEX TRADER SUMMARY ******************** BELLWETHER BLUES By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – A least for the Nasdaq, the "bellwether" Semiconductor (SOX) Index is keeping a lid on tech and there has been little to no follow through to the upside. This contrasts with the S&P and Dow indices, which look like they could achieve some modest further upside gains. FRIDAY'S TRADING ACTIVITY – THE NUMBERS - The S&P 500 (SPX) was up 3 points to 1,135, but down 1.47 points, (0.1%) on the week. The Dow 30 Average (INDU) advanced 38.9 points to 10,416, and was up a scant 6 points on the week. The Nasdaq Composite Index (COMP)was up 3 points to 1,986.7, still under the 2,000 level that I've been highlighting as an important and pivotal area of resistance. For the week, COMP was off 13 points - 0.6%. THE REPORTS – Before the opening the market got to digest our latest red ink in the U.S. Trade deficit showing that the U.S. current account was a minus $144.9 billion in the first quarter as we bought that much more than we sold. The consensus was for an account deficit of around $140 billion from an upwardly revised $127.5 billion in the prior quarter. The current account deficit is as noted on OIN in the morning is the broadest measure of the nation's financial balance with the rest of the world and includes goods, services and capital. It shows how much more Americans consumed and invested than they earned and saved. Kind of like everything else it seems these days, as we (Americans as a whole) spend like there is no tomorrow. The Market doesn't seem much focused on our whooping trade deficit as it has no discernable impact on the U.S. economy right now – not like JOBS for example. The semiconductor book-to-bill ratio for May was released and showed a decline to 1.11, putting it below consensus estimates of 1.13. Goldman had estimated May's book-to-bill at 1.14 and noted that May's data was first time in 10 months that front end orders have not increased and the 2nd month in 10 when back end orders have declined from one month to the next. If you want to know why the Nasdaq (Composite and Nas 100) is stalled and unable to establish a clear cut uptrend, you need look no farther than the Semiconductor Index (SOX). While broader measures of tech and small cap stocks like the Russell 2000 Index (RUT) seem be rebounding, the SOX is not. Their two charts, relative to their 50 & 200-day moving averages - For the SOX index, the two key moving averages are acting as a kind of resistance or as deflection points, whereas the opposite is apparent in the RUT. [For more about moving averages acting as support/resistance see my past Trader's Corner article at - http://www.OptionInvestor.com/traderscorner/tc_052004_1.asp] THE TALK – Dow and Nasdaq biggie Microsoft (MSFT) led the day's most actives as Triple Witch expiration came to a close. As noted by OIN's Jeff Bailey on Friday during one of his midday updates, the stock broke out of a bullish "wedge" pattern (pie shaped & pointing up). See chart below – The MSFT bulls seem to be warming up to Microsoft (MSFT) – as Jeff noted it is a (very) cash-rich technology name. As you can see from the chart, MSFT is now approaching its prior highs, and possible resistance, at 28.8, then 30. The On Balance Volume (OBV) Indicator actually gave an early tip off the at the stock could be under "accumulation" (steady net buying) when this indicator turned up when the stock was more or less going sideways in May (see this indicator and time period circled on the bottom part of the chart above). [This reminds me to write something both on wedge patterns and the OBV Indicator in a future Trader's Corner article this coming Tues.] Microsoft is typically a bellwether stock, tending to lead the way for both the Dow/S&P and for Nasdaq. However, only the S&P and Dow are maintaining price levels above the down trendlines highlighted on their charts below – not so, the Nasdaq, which is still stalled in a downtrend. S&P bellwether GE also had a technical breakout a while ago – both bellwethers suggesting that a further advance is possible in the NYSE-related stock indices. [More on stocks/indices (e.g., SOX) that act as bellwethers at - http://www.OptionInvestor.com/traderscorner/tc_051304_1.asp] Some of Friday's boost to MSFT might be at the expense of Red Hat (RHAT) as the stock was down substantially (-10%) on the day – RHAT's Linux software of course has been seen as a potential threat to the Microsoft operating system with IBM and other companies, as well as techies in general, being big proponents of Linux. OTHER MARKETS – July crude futures closed up 29 cents at $38.75 on the New York Mercantile Exchange (NY Merc). Continued violence in the Middle East and an oil workers strike in Norway outweighed some bearish U.S. supply data and the news that Iraqi exports would resume late next week. The U.S. dollar fell after the Commerce Department said the U.S. current account deficit widened substantially in Q4. The greenback was down 0.7% vs. the euro – the euro going out at just over $1.21. The dollar was down 0.7% against the Yen, closing in New York trade at 108.7. Bond prices on the week were off slightly (yields up) as the bond market continues to trade on the certain anticipation of a Federal Reserve interest-rate hike for the first time in 4 years. The benchmark 10-year T-note was 6/32 higher on the day, at 100 10/32 to yield 4.71%. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: The chart pattern is bullish, especially if the S&P 500 (SPX) Index holds at or above 1120. The call to put readings continue to show some very bullish one-day readings, which was the case again at the beginning of this past trading week. A move up to highlighted resistance at 1147-1150 is a looming possibility. There may be more of a sideways move next – Friday's apparent breakout type move could have more to do with the triple witching stocks, options and index futures expiration. Stay tuned on that! Above 1150, my maximum upside SPX objective, at least for the near-term/next 1-2 weeks, is to 1160. S&P 100 Index (OEX) – Daily chart: OEX could be heading up to test the prior highs at 560-564. The trend looks higher as long as the S&P 100 (OEX) Index holds 550, especially on a closing basis. Below this near support and as noted on the OEX chart below, next lower support is at 546, then 540-541 in my estimation. The Index is of course somewhat overbought, according to the 14- day stochastic model. This is not to say that OEX won't churn higher – but it does suggest that the trend may flatten out in a sideways type movement. If OEX gets to the 560-564 area, the combination of the prior highs, the closeness to my upper trading envelope line and the overbought situation does at least suggest taking profits on Index calls held from lower levels – nice profits are nice to take! Dow Industrials (INDU) Daily: The trend is up as long as the Dow 30 (INDU) can hold above 10,3000 on a closing basis. Next lower support is 10,200, then more major support – implied by the 200-day moving average – around 10,125. Resistance, and possible selling pressure, has to be assumed to be the prior highs at 10,540, extending to 10,575. By the end of this past week, the Dow was acting as though it wanted to break out of this little trading range and flag type pattern it was in. The ability to hold above 10,400 should be a tip off as to whether INDU will continue to chug higher. Notice how, what was resistance "became" support, as recent lows acted as support at the previously broken down trendline – see the green arrow at the dashed down trendline. Nasdaq 100 (NDX) Index – Daily: I expect support at 1450-1455, but this looks in danger of being penetrated, so is an area to watch closely as momentum is waning and the stochastic model has turned down. 1425 is next support. Resistance is apparent at 1490-1500. An hourly, then daily close above 1500, with the subsequent ability for NDX to hold above that level, to suggest that 1525 is a next possible objective. Nasdaq 100 tracking Stock (QQQ) Hourly: The Q's are in a tight range and have formed a "rectangle" type pattern which is another way of saying that its in a trading range – here, between 37-37.25 on the upside and 36 on the downside. To gauge the bigger potential will be to watch for a breakout in either direction. If on the downside, next lower support looks like 35.50. Conversely, an upside target and next resistance, assuming an upside breakout, is 38. I suggested last week using the 5 and 21-day hourly stochastic pairing (i.e., when both are at the bottom look for a buy, when both at high extremes look for a tradable top) as a way to trade the stock, especially on a very short-term basis. This rather than necessarily focusing on a specific price level – the recent high around 37 showed an overbought reading on both the very short term and the slightly longer term 2-3 day measure. [My past week's Trader's Corner article for you technophiles, as in technical analysis, was on Bollinger Bands - http://www.OptionInvestor.com/traderscorner/tc_061704_2.asp ] Good Trading Success! ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** Not Nice to Fool Investors In the suit that won't go away CECO took another hit on Friday to the tune of -$10.79. This company has been hit on previous charges twice in the past and the problem simply will not go away. The amended class action complaint states that Career Education, according to more than a dozen former employees, engaged in a pervasive practice and pattern which consisted of falsifying student records in order to obtain financial aid monies and portray Career Education schools as having increasing and revenue to garner the favor of the investing public, and manipulating Career Educations' schools financial statements in order to inflate revenue, lower bad debt reserves and to avoid cessation of funding from financial aid sources." While the first couple of complaints may have been chalked up to bad blood from prior employees this is beginning to look more like it will stick. The stock took a major hit on Friday and I would not recommend entering a put position on Monday. Especially not the Monday after expiration Friday when options are their most expensive. I would look for a denial bounce from CECO on Mon/Tue and then a second roll over. The stock continues to find buyers and was pressing $70 when the news broke on Thr. I would love to see a rebound back over $60 before the long goodbye begins. The concept here will be to enter two October $50 puts. One on a bounce to $58 and another on a bounce to $60. We do not want to enter the position before Wednesday at the earliest. Options are simply too expensive given the expiration cycle and the -$14 two day drop. If our numbers are hit WAIT for a break back below those levels before entering the position. We want the bounce to deflate the put premiums but we want the bounce to fail before we spend any money. I think investors overlooked the first event but the reappearance may start some to thinking that profits should be taken and put into a safer investment. I am targeting $40-$45. CECO Chart - Daily ********************** PVN Call Update $14.98 Providian provided us a perfect entry point last week on the dip to $13.95 and it rebounded to hit a new 52-week high this week. This play is off to a rousing start and I look for good things ahead. (kiss of death) http://members.OptionInvestor.com/editorplays/edply_061304_1.asp **************** MARKET SENTIMENT **************** Another Week of Waiting - J. Brown The markets have been effectively range bound over the last three to four weeks due to investor uncertainty over oil prices, interest rates, and Iraq. Unfortunately, none of that has changed. Granted fears over oil prices have settled somewhat despite the reality of the recent shutoff in Iraq due to terrorist bombings. Interest rate concerns aren't really a true "fear" any more now that the recent economic data shows inflation remains under control and the Fed is once again spouting their "measured" mantra. The only real concern left is Iraq. This past week has been a tough one when it comes to geo- political concerns. A handful of Iraq's new governing officials have been assassinated. Dozens of Iraqi citizens have been killed in car bombs while they waited in line for jobs with the new government. Two successful attacks on the southern pipelines have cut off Iraq's oil exports for the next seven to ten days to the tune of $60 million per day in lost revenues. There are rumors of Iran building up its armed forces near the Iraq border all while tensions mount of Iran's nuclear aims and capabilities. Let's not forget the recent beheading of an American by terrorists in Saudi Arabia, a country many claim is on the verge of civil war. Yes, geo-political worries truly are an influence on investor sentiment even more so if its affect keeps investors from trading at all. Volume has been incredibly low this past week because there is no impetus to buy (or sell) stocks. We're still ten days from the June 30th decision on interest rates and the Iraq handover of power. We're also ten days away from the end of the quarter and the end of the first half of the year. Will we see much window dressing ahead of these huge events? Or will it be window undressing? Jim mentioned the upcoming July 4th weekend. What are the odds of the U.S. government raising the terror alert on such a patriotic holiday? It would certainly appear to be a big opportunity for terrorists said to already be in the U.S. but then so is the Democratic and Republican conventions later in the summer. Take a look at the COT data at the bottom of this report. You'll notice a few interesting changes. Check the history of the commercial traders for the S&P e-minis. You'll see that commercial traders have slowly been upping their short positions so that they've turned from mildly bullish to significantly more bearish in the past month. That's not a good sign. This data says that commercial traders believe the S&P 500 will be trading lower in our future. Oddly enough we've seen the opposite happen in the Dow Jones futures. Commercial traders, or so called "smart money", has moved from net bearish to net bullish on the Dow Industrials. It wouldn't surprise me to see a divergence in the markets between blue chips and techs. Looking ahead to next week I'd keep my eyes on these sectors: oil, oil services, natural gas, defense, cyclicals, healthcare and gold. All of them have out performed this past week and might be able to keep the momentum going. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8871 Current : 10416 Moving Averages: (Simple) 10-dma: 10373 50-dma: 10257 200-dma: 10126 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 962 Current : 1135 Moving Averages: (Simple) 10-dma: 1133 50-dma: 1119 200-dma: 1093 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1180 Current : 1464 Moving Averages: (Simple) 10-dma: 1473 50-dma: 1447 200-dma: 1436 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 14.99 -0.16 CBOE Mkt Volatility old VIX (VXO) = 14.75 -0.29 Nasdaq Volatility Index (VXN) = 20.02 -1.31 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.80 1,095,854 878,324 Equity Only 0.60 907,770 543,536 OEX 1.05 45,969 48,124 QQQ 0.29 201,008 57,587 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 65.5 + 0 Bear Confirmed NASDAQ-100 41.0 - 1 BULL ALERT Dow Indust. 70.0 + 0 Bear Confirmed S&P 500 63.0 + 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: 1.02 10-dma: 0.90 21-dma: 0.93 55-dma: 1.03 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 1561 1408 Decliners 1217 1601 New Highs 167 78 New Lows 46 79 Up Volume 1084M 903M Down Vol. 667M 687M Total Vol. 1777M 1690M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 06/15/04 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercial traders remain net bearish but they have added to their long positions. Small traders have also added to their long positions but it's the jump in their shorts that is most noteworthy. Commercials Long Short Net % Of OI 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%) 06/15/04 428,905 444,197 (15,292) (1.8%) 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 05/25/04 136,086 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% 06/15/04 169,595 115,336 54,259 19.0% 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... what are commercial traders trying to tell us. Their short positions have grown steadily over the past four weeks. Likewise the small traders' long positions have grown each week for the last four weeks. Commercials Long Short Net % Of OI 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%) 06/15/04 440,867 522,546 (81,679) (8.5%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 05/25/04 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% 06/15/04 216,759 147,247 69,512 19.1% 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 bullish on the NASDAQ but their confidence is waning. Likewise small traders are staying true to their nature and doing the opposite with a decrease in shorts. Commercials Long Short Net % of OI 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% 06/15/04 78,542 54,341 24,201 18.2% 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 05/25/04 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%) 06/15/04 15,794 35,880 (20,086) (38.9%) 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 Hmm.. we have some interesting moves here. Commercial traders have gone from net bearish to net bullish while small traders have moved from net bullish to net bearish on the Dow Jones. You know who normally wins these conflicts - it's the commercials. Commercials Long Short Net % of OI 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%) 06/15/04 30,438 24,766 5,672 10.3% 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 05/25/04 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% 06/15/04 13,942 20,953 (7,011) (20.1%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Position Size is up to you When reviewing your "open position profiles" it appears you and I invest the same on your "stock Profiles", $10K/position. I am curious, if you don't mind sharing, how you decide your investment in the option positions. I see no pattern in your updates. Due to a prolonged power outage, I'm re-printing an e-mail question I received earlier this week, and what ended up being a rather lengthy e-mail response. Great question, and this is how I was taught to think about options. I'm using $10,000.00 as a base number. Some investors that may be managing their own money may feel comfortable with 10 positions at $1,000.00 per STOCK position. Some investors may feel comfortable with 10 positions at $50,000.00 per STOCK position. OK... now think of this. What does 1 option contract represent? 100 shares right? Right! OK... now... REGARDLESS of what security we are looking to trade BULLISH or BEARISH this is where OPTIONS mitigate RISK and how I was taught to treat an option. How many shares of a $100 stock could you buy with $10,000 (if this is what you would invest in the UNDERLYING STOCK?) 100 shares right? Right! OK.... how many contracts do I buy to represent 100 shares? 1 contract right? RIGHT! How many shares of a $20 stock could you buy with $10,000? 500 shares right? How many contracts? Five. OK.... For YOU Frank, it sounds like a "full position" is $10,000.00 per UNDERLYING STOCK trade. But what about Sue Subscriber and her $50,000.00 per UNDERLYING STOCK investment, or John Subscriber and his $1,000.00 per UNDERLYING STOCK trade? Now do you see the pattern? Jeff Bailey's Market Monitor OPEN Profiles - 06/18/04 Close Take the Stillwater Mining (SWC) October 15 Call profiles. 2 separate profiles, for 1/2 each (2 * 1/2 = 1 full position). (Note: Pink arrows are the actual profiles. Only the IPIX was profiled with the underlying stock as this security does not trade with options.) OK... on 05/27/04, stock looks like it is going to break out (but I'm a bit uncertain as to what the dollar may be doing) so I profile 1/2 position just in case SWC rockets higher to challenge recent 52-week highs. If $10,000.00 in UNDERLYING is full position, then a 1/2 position is $5,000.00. So... SWC UNDERLYING stock is trading $15.60. I quickly take $5,000.00 and divide by $15.60 and get... 320.51 shares. Boom! That's 3 contracts. Next.... What's my risk to a point and figure sell signal? SWC would give a sell signal if it were to trade $12.00. What's my RISK in the UNDERLYING STOCK to that sell signal? From $15.60, I calculate $3.60 per share RISK. Hey.... I'm mitigating my risk with the OPTION at $2.90 per share/contract. Not only that, but EVEN IF SWC trades $12.00, where I would probably have to STOP OUT on the STOCK, I've ALREADY assessed that RISK with the option, but now I've got until OCTOBER to let the stock work toward where I think its is going. Look at the PnF chart of SWC at this link http://stockcharts.com/webcgi/Pnf.asp?S=SWC . Now... a STOCK trader that was LONG/BULLISH SWC may have gotten stopped out back in February (after the red 2) when the stock did give a sell signal at $11.00. OK, so be it. However.... let's say YOU as an OPTIONS trader that had bought the June $12.5 calls when SWC was trading $14.00, and paid $3.00 per contract, would YOU have stopped out of the OPTION when SWC traded $11.00? I'm not sure what the options would have done, but if they were down 50% at the time, would it have made sense to stop out with a loss, after ALREADY having assessed $3.00 per share risk before I/you put the trade on? (Note: Friday was option expiration for June contracts. If still holding June $12.50 calls, we have the RIGHT, but not the OBLIGATION to buy the stock at $12.50 per share, or we can close out that June $12.50 call option for $2.70.) With a bullish vertical count of $32.00 associated with the PnF chart, if a trader did NOT over leverage in June $12.50 calls, I would exercise the call option, and take possession of the underlying stock. I could perhaps write covered call on part of the position if 700 shares ($10,000 / $14 = 714 share equivalent). Here, do you see how if I over leveraged back in February at $14 and bought 20 option contracts, I may have had to either stop out of the option (bit off more than I could chew) and perhaps my account discipline says I can't buy 2,000 shares at $12.50? Some option traders do use stops, but I think it is mistake! Why do I think its is a mistake to trade stops on options? BECAUSE... if you DON'T over leverage in OPTIONS, and if you use the discipline of establishing a consistent TRADE SIZE based on what you would invest in the UNDERLYING STOCK, then in essence, when you pull the trigger to buy an option (put or call) then you've basically consigned the loss, or RISK and once you've done that, then all that is left to worry about when to take PROFITS if they're had. I'm no different than most when it comes to losses. I hate them. But it makes me SICK to my STOMACH when I see options traders put on a trade, take a 50% loss in their option by stopping out 2 day's later, and then 2 weeks later, find the stock/option now PROFITABLE as the trade works in the DIRECTION of their analysis. Now... Look at the EBAY Put. Here I did got outside of the $10,000.00 divide by $78.48 per share, thus 127 shares, and did "round up" from 1 contract to 2 contracts. Here perhaps I look at a $3.10 per contract and say.... "$310.00? Get two of them." Hindsight being 20/20, at this point 1 put contract looks like it would have been too many. TIME will tell with one month left until expiration. Now... Look at the DIA Puts. Certainly $10,000 of a $99.36 security would have a full position being 1 contract. So... for $0.65, or and additional $65.00 I round to full position (have I really gone overboard with this one? An extra $65.00?). If I see both the DIA falling to $101 anytime soon, and get the option trade "break-even" (between the two) then I'm closing out both with July expiration now just a month away. However, the ONLY way I have a shot at break-even is to have RISKED an additional $65.00. Might not be worth it, but it might be. Now... IPIX Corp. (IPIX) .... this is a stock that has been showing up as being very volatile, but has been garnering both BULLISH and BEARISH trader's interest in recent months. If I were managing/investing/trading a $100,000.00 base account, would I (Jeff Bailey) put $10,000 of my own money in this stock at $14.30 with a stop at $10.50, representing a potential 26.5% loss? I (Jeff Bailey) would not. However, we've traded IPIX more than a couple of times on a day trade basis, and it has been rather clear that this stock will fluctuate $1 or $2 (sometimes more) in a day. OK Frank... this e-mail was long. Now, here's a more detailed thought process you might also want to review. The FIRST article I wrote for the Ask the Analyst column on 11/17/2002 (look under Education, then Ask the Analyst) describes in greater detail something I think EVERY trader or INVESTOR should do BEFORE they open an investment/trading account. The articles title is "Your account is your business," and may give investors/trader some insight as to establishing a business plan for their account investment/trading strategy. Let me know what you think.... Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- WAG Walgreen Mon, Jun 21 -----N/A----- 0.32 ------------------------- TUESDAY ------------------------------ COMS 3Com Corp Tue, Jun 22 After the Bell -0.10 DRI Darden Restaurants Tue, Jun 22 After the Bell 0.44 GS Goldman Sachs Tue, Jun 22 Before the Bell 1.95 GTK GTECH Holdings Corp. Tue, Jun 22 Before the Bell 0.73 SCS Steelcase Inc. Tue, Jun 22 Before the Bell -0.07 ------------------------ WEDNESDAY ----------------------------- ARRO Arrow International Wed, Jun 23 -----N/A----- 0.36 BBBY Bed Bath & Beyond Inc.Wed, Jun 23 After the Bell 0.25 COGN Cognos Wed, Jun 23 After the Bell 0.20 FDX FedEx Wed, Jun 23 Before the Bell 1.33 MLHR Herman Miller Wed, Jun 23 After the Bell 0.17 KMG Kerr-McGee Wed, Jun 23 -----N/A----- 1.09 LNR LNR Property Wed, Jun 23 -----N/A----- 0.88 MU Micron Technology Wed, Jun 23 -----N/A----- 0.07 WOR Worthington IndustriesWed, Jun 23 Before the Bell 0.76 ------------------------- THUSDAY ----------------------------- ATYT ATI Technologies Thu, Jun 24 -----N/A----- 0.17 DLM Del Monte Foods Thu, Jun 24 Before the Bell 0.33 FDO Family Dollar Thu, Jun 24 Before the Bell 0.43 NKE Nike Thu, Jun 24 After the Bell 1.09 RAD Rite Aid Corporation Thu, Jun 24 -----N/A----- 0.05 TEK Tektronix Inc. Thu, Jun 24 -----N/A----- 0.29 ------------------------- FRIDAY ------------------------------- PAYX Paychex Fri, Jun 25 Before the Bell 0.21 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable PG Procter & Gamble 2:1 Jun 18th Jun 21st CACH Cache Inc 3:2 Jun 18th Jun 21st WGR Western Gas Resources, Inc2:1 Jun 18th Jun 21st EWBC East West Bancorp Inc 2:1 Jun 20th Jun 21st NOC Northrop Grumman Corp 2:1 Jun 21st Jun 22nd WCN Waste Connections Inc 3:2 Jun 24th Jun 25th FBMT First National Bancshares 3:2 Jun 30th Jul 1st KWK Quicksilver Resources, Inc2:1 Jun 30th Jul 1st AXYS Axsys Technologies, Inc 3:2 Jun 30th Jul 1st TEVA Teva Pharm Industries Ltd 2:1 Jun 30th Jul 1st PTEN Patterson-UTI Energy Inc 2:1 Jun 30th Jul 1st CNT CenterPoint Prop Trust 2:1 Jun 30th Jul 1st LPMA Lipman Elect Engineering 2:1 Jul 1st Jul 2nd -------------------------- Economic Reports This Week -------------------------- Wall Street continues to focus on the upcoming June 30th decision on interest rates and the handover in Iraq. Meanwhile this week's economic data is all due to be released on Thursday and Friday. Don't forget that earnings are just around the corner. ============================================================== -For- ---------------- Monday, 06/21/04 ---------------- None ----------------- Tuesday, 06/22/04 ----------------- None ------------------- Wednesday, 06/23/04 ------------------- None ------------------ Thursday, 06/24/04 ------------------ Initial Claims (BB) 06/19 Forecast: 340K Previous: 336K Durable Orders (BB) May Forecast: 1.6% Previous: -3.2% Help-Wanted Index (DM) May Forecast: 40 Previous: 38 New Home Sales (DM) May Forecast: 1120K Previous: 1093K ---------------- Friday, 06/25/04 ---------------- GDP-Final (BB) Q1 Forecast: 4.5% Previous: 4.4% Chain Deflator-Final (BB) Q1 Forecast: 2.6% Previous: 2.6% Mich Sentiment-Rev. (DM) Jun Forecast: 95.0 Previous: 95.2 Existing Home Sales (DM) May Forecast: 6.50M Previous: 6.64M Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 06-20-2004 Sunday 2 of 5 In Section Two: Watch List: Diapers, Tractors and Chinese Internets Dropped Calls: BCR, ERTS, HSY Dropped Puts: None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Diapers, Tractors and Chinese Internets ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Kimberly Clark - KMB - close: 66.35 change: +0.38 WHAT TO WATCH: KMB is a huge producer of personal care and consumer products from diapers to paper towels to wet wipes. The non-durable consumables manufacturer has seen its stock rise strongly over the last year and now shares are butting up against major resistance at $67.00. A breakout over $67 could lead KMB to challenge its highs near $72.00 back in 2001. Currently its P&F chart points to a $100 price target. Chart= --- Deer Co - DE - close: 69.17 change: +0.65 WHAT TO WATCH: Construction and heavy machinery producer Deere's stock is up four weeks in a row. The trend of higher lows has now produced a small breakout over $69.00 and its simple 50-dma on better than average volume. We've been watching listing DE for a move above $69.00 or $70.00. More conservative traders might feel better evaluating bullish positions on a move through $70. We would target the $74.50-75.00 region. Chart= --- Harman Intl Industries - HAR - close: 89.10 change: +0.43 WHAT TO WATCH: Up, up and away! HAR is up four out of the last five weeks with this last week hitting new all-time highs. Shares have been challenging new resistance at $90.00 for the last four sessions. The pattern is suggesting a new upside breakout soon but the stock is short-term overbought. We'd look for a dip to its simple 10-dma in the $85.00-85.50 region and then consider a bounce. Its bullish P&F chart points to a long- term target of $126.00. Chart= --- Varian Medical Systems - VAR - close: 80.08 change: +0.88 WHAT TO WATCH: We seriously considered VAR as a potential put candidate this weekend. The recent breakdown under $82.00 and then the $80.00 level on rising volume looks very bearish. Its MACD is in a new sell signal and its P&F chart just produced a new triple-bottom breakdown sell signal. We hesitated to add VAR because of the bounce back above $80.00 and its P&F support right at $78.00. More aggressive traders can watch it for a failed rally under $82.00 and use a tight stop. Keep an eye on the simple 200-dma near $75, which could also be support. Chart= --- Sina Corp - SINA - close: 36.05 change: -2.49 WHAT TO WATCH: We almost added SINA to the put list this weekend. All the Chinese Internet stocks look weak and we really like SINA's 6.4% breakdown on Friday. The stock fell through support at $37.50 and its 21, 100 and 200-dma's. The move produced a new MACD sell signal. A couple of our concerns was potential support at $35.00 and its 40 and 50-dma's just below $35. Plus its P&F chart is still in a bullish pattern, although that appears to be reversing. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- GD $99.68 +0.40 - We're still watching GD for a breakout over $100. Defense stocks are on the rise and a move through $100 might be a decent entry point for a run toward its highs near $111. AGN $91.42 -0.14 - Keep an eye on AGN for a move through $92.50. It could be a trigger for a run toward the $100 mark. ITW $92.77 +0.32 - We're also watching ITW for a run toward the century mark. A breakout over $94 or $95 might work as an entry point. MBI $57.09 +0.34 - MBI appears to have built a solid six-week old base near $55. Now the stock is inching higher and just broke out above resistance at $57.00. BBOX $44.30 -0.44 - We'd use a trigger under $44.00 to try and capture what looks like BBOX's next move down toward $40.50. DJ $45.49 -0.62 - Dow Jones Co looks ready to breakdown below support at $45. Such a move could lead to a test of the $40 level (if you're patient). ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Bard C R - BCR - close: 57.46 chg: -0.17 stop: 55.95 After a month of trying we're going to kick BCR off the play list. However, that doesn't mean you need to close the play. The stock is still hanging in there near its highs. Unfortunately, it can't seem to get enough momentum to breakout over $58.00. BCR tried to breakout on Friday and made it to $58.20 before selling off in the last hour. Now Murphy's law is alive and well and odds are if we close the play now BCR will rocket higher next week. If you keep the play open watch your stops! Picked on May 20 at $ 55.00 (post split) Change since picked: + 2.46 Earnings Date 04/20/04 (confirmed) Average Daily Volume: 386 thousand Chart = --- Electronic Arts - ERTS - close: 51.69 change: +0.04 stop: 50.00 After a month on the play list, we've just gotten tired of waiting for ERTS to extend its initial move off of support. We got the new Buy signal on the PnF chart over a week ago, yet the stock continues to languish just over its 50-dma. While it is still possible that we'll see a bullish move towards the $55-56 area, with time value wasting away it seems better to harvest the small gain here and focus our efforts elsewhere. For traders that are willing to stick with the play in hopes of more bullish action next week, we'd suggest keeping a tight reign on open positions with a stop at $51, just under last week's lows and the 20-dma. Picked on May 18th at $49.60 Change since picked: +2.09 Earnings Date 4/29/04 (confirmed) Average Daily Volume = 3.65 mln Chart = --- Hershey Foods - HSY - close: 45.19 chg: -0.26 stop: 44.75 HSY has not yet broken support at $45.00 but we're going to err on the side of caution today. The recent close under its simple 10-dma and Friday's close under the $45.20 level, which should have been minor support has undermined our confidence. Its MACD has rolled back into a sell signal and HSY looks ready to retest its simple 40-dma near $44.70. Should HSY decide to bounce we can always choose to pick it back up again, maybe with a move through $46.50. We're closing the play with a small loss. Picked on June 08 at $ 46.11 (post split) Change since picked: - 1.08 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 441 thousand Chart = PUTS ^^^^ None *********** DEFINITIONS *********** ! Please note changes to the Option Chains for new call and put plays. We are no longer listing a "SL" or Suggested Stop Loss on individual options. Most brokers offer the ability to list a stop loss for your option on the underlying stock. All of OptionInvestor.com's directional call or put plays list a suggested stop loss for the stock itself and if the stock trades at or below that stop on an intraday basis we will close any hypothetical play at that time. OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 06-20-2004 Sunday 3 of 5 In Section Three: Current Calls: AHC, ETN, GDW, MERQ, ZMH New Calls: DHR, EASI, PD Current Put Plays: CCMP, KSS, MO New Puts: OMC, OSIP, SLAB ! Please note changes to the Option Chains for new call and put plays. We are no longer listing a "SL" or Suggested Stop Loss on individual options. Most brokers offer the ability to list a stop loss for your option on the underlying stock. All of OptionInvestor.com's directional call or put plays list a suggested stop loss for the stock itself and if the stock trades at or below that stop on an intraday basis we will close any hypothetical play at that time. ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Amerada Hess Corp. - AHC - close: 74.27 change: +0.12 stop: 69.00 Company Description: Amerada Hess Corporation explores for, produces, purchases, transports and sells crude oil and natural gas. These exploration and production activities take place in the United States, United Kingdom, Norway, Denmark, Equatorial Guinea, Gabon, Indonesia, Thailand, Azerbaijan, Algeria, Malaysia, Colombia and other countries. The company also manufactures, purchases, transports, trades and markets refined petroleum and other energy products. It owns 50% of a refinery joint venture in the United States Virgin Islands, as well as another refining facility, terminals and retail gasoline stations located on the east coast of the United States. Why we like it: As expected, our new AHC play didn't do much on expiration Friday, but did managed to inch a bit closer to our $75 trigger. Once over that level, the bulls ought to come out of the woodwork and quickly drive the stock towards first resistance at $78. Aggressive traders can enter on the initial breakout, while those with a more conservative style can hope for a pullback to test support near $74 before the rally begins in earnest. Until AHC breaks out, we'll maintain a liberal stop at $69. Suggested Options: Shorter Term: The July $75 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive longer-term traders can use the August $80 Call, while the more conservative approach will be to use the August $75 Call. Our preferred option is the August $75 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL JUL- 70 AHC-GN OI= 70 last traded @ $5.20 BUY CALL JUL- 75 AHC-GO OI=1772 last traded @ $1.95 BUY CALL AUG- 75*AHC-HO OI=2439 last traded @ $3.20 BUY CALL AUG- 80 AHC-HP OI= 916 last traded @ $1.40 Annotated Chart of AHC: Picked on June 17th at $74.15 Change since picked: +0.12 Earnings Date 4/28/04 (confirmed) Average Daily Volume = 1.08 mln Chart = --- Eaton Corp - ETN - close: 61.75 chg: +0.80 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 have good news to report on ETN. The rebound from Thursday afternoon continued into Friday morning and shares pierced resistance at $62.00 to hit our trigger point at $62.05. Volume on the rally was average but that's not bad considering the abysmally low volume the market has seen lately. The move over $62.00 did produce the new triple-top breakout buy signal on ETN's point-and-figure chart with a $77 price target. The bad news is that ETN failed to close over this pivotal $62.00 level. ETN pulled back the rest of the session into what looks like a very short-term bull flag, which could be good news. Remember that the reverse head-and-shoulders pattern should project a $71 price target. We're only targeting a move to the $67-70 range. We're not going to change our stop loss at $59.95 but we will suggest that more aggressive traders consider buying a bounce above $60.00. More conservative types ought to consider looking at new positions on a move through $62 again. 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 @ $2.95 BUY CALL JUL 62.50 ETN-GZ OI= 906 Last traded @ $1.40 BUY CALL JUL 65.00 ETN-GM OI= 273 Last traded @ $0.50 Annotated Chart: Picked on June 18 at $ 62.05 Change since picked: - 0.20 Earnings Date 04/14/04 (confirmed) Average Daily Volume: 1.0 million Chart = --- Golden West Fncl - GDW - close: 108.07 chg: +0.11 stop: 107.00 Company Description: Headquartered in Oakland, California, Golden West is one of the nation's largest financial institutions with assets over $85 billion as of April 30, 2004. The Company has one of the most extensive thrift branch systems in the country, with 273 savings branches in ten states and lending operations in 38 states. (source: company press release) Why We Like It: It has been a somewhat volatile week for GDW. The stock sank on Monday but has since seen a very slow drift higher the following four sessions. Unfortunately, volume has been very low for the stock so it's hard to read much into the recent action. Not all financials are expected to do poorly in a rising interest rate environment and GDW is one of the stronger candidates analysts believe will out perform its peers. We like the P&F chart with its bullish buy signal and $129 price target. Our target is a bit lower, in the $116-117 range, but first we need to open the play. Currently we are un-triggered. GDW needs to hit $110.01 or higher to trigger the play for us. More aggressive traders can try and jump the gun by entering on a breakout from its sharp bull flag pattern. As mentioned on Thursday the $108.50 or $109.00 level might make decent entries for the more aggressive. Suggested Options: We're going to suggest the July or August calls. Our favorite would be the July 110s. BUY CALL JUL 105 GDW-HA OI= 412 Last traded @ $3.30 BUY CALL JUL 110 GDW-HB OI= 411 Last traded @ $0.20 Annotated chart: Picked on June xx at $xxx.xx <-- See TRIGGER Change since picked: + 0.00 Earnings Date 07/20/04 (confirmed) Average Daily Volume: 694 thousand Chart = --- Mercury Interactive - MERQ - cls: 47.82 change: -0.26 stop: 46.50 Company Description: As a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications, MERQ is looking for growing e-commerce demand to continue to fuel its business. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks and automating quality assurance testing. MERQ's client base spans a wide range of industries including Internet companies such as Amazon.com and America Online, infrastructure companies Ariba and Oracle, as well as Apple Computer, Cisco Systems and Ford Motor Company. Why we like it: Expiration week didn't help out our MERQ play, with the stock steadily drifting lower through out the week. Closing just below $48 support on Friday, the stock should be primed for a rebound early next week, with the test of the 20-dma ($47.64) perhaps providing the catalyst for that bounce. As is typical of summer expiration weeks, MERQ saw light volume throughout the week, which adds credence to the notion that this is just normal consolidation before the rally resumes. Should the 20-dma fail to provide support, the last ditch support will be found at $47, which was solid resistance in April and provided support earlier this month. Maintain stops at $46.50, which is just under the early June intraday low, as well as the 30-dma, now at $46.55. Suggested Options: Shorter Term: The July $47 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive longer-term traders can use the October $50 Call, while the more conservative approach will be to use the October $47 Call. Our preferred option is the July $47 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL JUL- 47*RQB-GR OI=2089 last traded @ $2.05 BUY CALL JUL- 50 RQB-GJ OI=1530 last traded @ $1.00 BUY CALL OCT- 47 RQB-JR OI= 165 last traded @ $4.20 BUY CALL OCT- 50 RQB-JJ OI= 376 last traded @ $3.10 Annotated Chart of MERQ: Picked on June 6th at $47.56 Change since picked: +0.26 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.15 mln Chart = --- Zimmer Holdings - ZMH - close: 86.27 chg: +0.27 stop: 84.95 Company Description: Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer is the worldwide #1 pure-play orthopaedic leader in the design, development, manufacture and marketing of reconstructive and spinal implants, trauma and related orthopaedic surgical products. In October, 2003, the company finalized its acquisition of Centerpulse AG, a Switzerland-based orthopaedics company and the leader in the European reconstructive market. The new Zimmer has operations in more than 24 countries around the world and sells products in more than 80 countries. As a result of the acquisition of Centerpulse, reported 2003 sales were $1.9 billion. Full-year 2003 pro forma worldwide sales of Zimmer and Centerpulse were approximately $2.6 billion. The new Zimmer is supported by the efforts of more than 6,500 employees. (source: company press release) Why We Like It: We debated back and forth on whether or not to keep ZMH on the play list. Fundamentally business is good. The stock is near all-time highs and its P&F chart is on a new triple-top breakout buy signal with a $105 price target. Yet after two weeks of consolidating in a tight $2.00 range under resistance at $88.00 the stock slipped under $86 on Thursday. Its short-term technicals look weak. We decided that this is when we're going to let support and resistance do the work for us. ZMH has not yet broken support at $85.00. Until it does we're going to keep the play active. However, we're not suggesting new bullish positions until ZMH can breakout above resistance at $88.00. Maybe ZMH's management can issue some stock moving comments at the growth conference next Tuesday. Suggested Options: We are NOT suggesting any new plays until ZMH can trade above the $88.00 mark. Annotated Chart: Picked on May 27 at $ 85.20 Change since picked: + 1.07 Earnings Date 04/26/04 (confirmed) Average Daily Volume: 1.2 million Chart = ************** NEW CALL PLAYS ************** Danaher Corp. - DHR - close 48.74 change: +0.51 stop: 47.00 Company Description: Danaher Corporation operates in two business areas: Process/Environmental Controls and Tools and Components. The company's Tools and Components segment produces and distributes general purpose mechanics' hand tools and automotive specialty tools. Among the household names they are responsible for are Sears' Craftsman line, Allen wrenches, and NAPA hand tools. The Process Controls division, led by Veeder-Root, makes leak detection systems for underground storage tanks, as well as sensors, switches, measurement devices, and communications and power protection products. Why we like it: Continuing its year-long bullish trend, shares of DHR recently broke out over several months of resistance at $48, and then spent much of last week confirming that support appears to be firm near the $47.50 level. After rising from the $35 level to nearly $48, the stock has been in a broad consolidation pattern between $44-48 since mid-January and the recent breakout over the top of that range suggests a resumption of the year-long rally. The PnF chart presents a bit of a mixed picture, with a fresh Triple Top Buy signal, while at the same time the $49 bullish price target has already been reached. That said, from the perspective of the candle chart, this breakout looks like a bullish resolution to the 6-month continuation flag pattern, and that suggests this is a case where the PnF price target will be exceeded. With the breakout already having occurred, there's no need to use an entry trigger for the play. Aggressive traders can enter on a break over the $49 level, which would be a move to new all-time highs. On the other hand, conservative players can look for entry on another mild dip into the $47.50-48.00 area. Initially, we'll look for a breakout over $50 to extend towards our $55 target. Last week's lows near $47.50 should hold any test of support, and there's the 20-dma ($47.19) rising to reinforce that support. We'll initially set our stop at $46.75, which is just under the 50-dma ($46.76). Suggested Options: Shorter Term: The July $45 Call will offer short-term traders the best return on an immediate move, as it is currently in the money. Longer Term: Aggressive longer-term traders can use the September $50 Call, while the more conservative approach will be to use the September $47 Call. Our preferred option is the September $47 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. BUY CALL JUL- 45 DHR-GI OI= 350 last traded @ $4.10 BUY CALL JUL- 50 DHR-GJ OI=1058 last traded @ $0.75 BUY CALL SEP- 47*DHR-IW OI=1572 last traded @ $3.10 BUY CALL SEP- 50 DHR-IJ OI=1452 last traded @ $1.75 Annotated Chart of DHR: Picked on June 20th at $48.74 Change since picked: +0.00 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 1.59 mln Chart = --- Engineered Support Sys - EASI - cls: 56.22 chg: +3.17 stop: 53.50 Company Description: Engineered Support Systems, Inc. is a diversified supplier of high-tech, integrated military electronics, support equipment and logistics services for all branches of America's armed forces and certain foreign militaries. The Company also serves a variety of commercial and industrial customers (source: company press release) Why We Like It: Nope, that flash across the sky on Friday was not a UFO but shares of EASI soaring almost 6% higher on three times its normal volume. Yet the move is an unexplained phenomenon since we can't find any catalyst to account for the rally or the volume. The $3 move burst through major resistance at $55 and EASI looks ready to challenge its highs near $62. We do know that the stock's last surge higher back on May 25th was due to its earnings report. EASI beat estimates with stronger than expected revenues. According to their press release it was due to "recent acquisitions and exceptional organic growth." Plus, the company guided higher for the year. EASI now expects full year earnings of $2.65-2.70, which is 15 cents higher than their previous forecasts. Revenues are expected to hit $840 million versus $787 million. Now after four weeks of consolidating sideways EASI is on the move. Its P&F chart is bullish and points to a $79 price target. We're only going to target a move to $60-62. Our initial stop loss will be $53.50. Suggested Options: We like both the July and August strikes. Right now our favorites would be the July 55s. BUY CALL JUL 55 UFE-GK OI= 256 Last traded @ $3.30 BUY CALL JUL 60 UFE-GL OI= 120 Last traded @ $0.95 BUY CALL AUG 55 UFE-HK OI= 356 Last traded @ $4.00 Annotated Chart: Picked on June 20 at $ 56.22 Change since picked: + 0.00 Earnings Date 05/25/04 (confirmed) Average Daily Volume: 297 thousand Chart = --- Phelps Dodge - PD - close: 71.68 chg: +3.08 stop: 68.00 Company Description: Phelps Dodge Corp. is the world's second-largest producer of copper, a world leader in the production of molybdenum, the largest producer of molybdenum-based chemicals and continuous- cast copper rod, and among the leading producers of magnet wire and carbon black. The company and its two divisions, Phelps Dodge Mining Co. and Phelps Dodge Industries, employ more than 13,500 people in 27 countries. (source: company press release) Why We Like It: We've been following PD in the MarketMonitor and on the watch list for weeks now. After a quick double-bottom at $60.00 in May shares of PD have been edging higher. Its trend of higher lows has finally blossomed into a bullish breakout above resistance at its 50-dma, 200-dma and the $70.00 mark. Volume was stronger than normal on the breakout and that's encouraging considering the incredibly low volume numbers we've seen all week in the markets. Contributing to the move higher for PD has been the weeklong drift higher for copper futures and the recent declines in the U.S. dollar. Hopefully, now that PD has pushed through resistance we can see some momentum carry it toward the $80 level. Its P&F chart currently shows a new triple-top breakout buy pattern and a push through its P&F resistance. However, PD may see more resistance at its simple 100-dma. Be prepared. We're going to start the play with a stop loss at $68.00. Suggested Options: Short-term traders can choose from the July or October calls. Our favorites are the July 70s and 75s. BUY CALL JUL 70 PD-GN OI= 3268 Last traded @ $3.80 BUY CALL JUL 75 PD-GO OI= 3190 Last traded @ $1.50 Annotated Chart: Picked on June 20 at $ 71.68 Change since picked: + 0.00 Earnings Date 04/28/04 (confirmed) Average Daily Volume: 2.6 million Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Cabot Micro. - CCMP - close: 28.00 chg: +0.18 stop: 30.00 Company Description: Cabot Microelectronics, headquartered in Aurora, Illinois, is the leading supplier of CMP slurries for polishing various materials used in semiconductor manufacturing processes. The company's products play a critical role in the production of the most advanced semiconductor devices, enabling the manufacture of smaller, faster and more complex devices by its customers. (source: company press release) Why We Like It: Not a bad week for CCMP. Shares continued to drop Monday through Wednesday and CCMP came within 2 cents of our $26-25 profit target. Volume was pretty strong on Wednesday's drop to $26.02 but CCMP did manage a bounce off its lows. That bounce has continued the last couple of days but we're not concerned since CCMP was due for an oversold rebound. CCMP's MACD is in a new sell signal but its short-term technicals like its stochastics (5,3,3) are stepping higher from oversold. We are still bearish on the stock but suspect we could see a bit more bounce early next week. Look for a failed rally under $29.50 and or its simple 40-dma, currently near $29.75. This would be the preferred entry point for new positions. We're going to leave our stop loss at $30.00 for now. Be aware that CCMP is due to speak at a growth conference on Tuesday. Suggested Options: Our favorite puts for short-term traders are the July 30s. BUY PUT JUL 30 UKR-SF OI= 1577 Last traded @ $2.85 BUY PUT JUL 25 UKR-se OI= 2570 Last traded @ $0.55 Annotated chart: Picked on June 13 at $ 29.46 Change since picked: - 1.46 Earnings Date 04/22/04 (confirmed) Average Daily Volume: 3.7 million Chart = --- Kohl's Corp - KSS - close: 45.45 change: -0.08 stop: 48.05 Company Descriptions: Based in Menomonee Falls, Wis., Kohl's is a family-focused, value oriented specialty department store offering moderately priced national brand apparel, shoes, accessories and home products. The company operates 589 stores in 38 states. (source: company press release) Why We Like It: Wow! We wish they were all this easy to play. A couple of weeks ago KSS had rallied right to resistance and began to falter. We jumped on with suggested put plays since KSS had a descending trendline of resistance and its simple 200-dma looming overhead. We got a brief scare when KSS broke through its trendline but it failed under its 200-dma. Since then the stock has been down seven days in a row. The July 50 puts are up 50% and the July 45 puts are up 75% since we suggested them. Of course you know what happens now. After seven declines in a row KSS is overdue for a bounce. That doesn't means it has to bounce but odds are we might see one soon. Traders looking for new positions might want to wait for another rebound and then open positions as it begins to fail. Our target is the $41-42 region. We know our stop loss feels a bit wide at $48.05 but we want to give KSS room to move without jeopardizing our play. Suggested Options: It could take a few weeks to achieve our target so we're suggesting the July puts. Our favorites are the July 50s. BUY PUT JUL 50 KSS-SJ OI= 4555 Last traded @ $4.80 BUY PUT JLU 45 KSS-SI OI= 6792 Last traded @ $1.15 Annotated Chart: Picked on June 06 at $ 47.45 Change since picked: - 2.00 Earnings Date 05/13/04 (confirmed) Average Daily Volume: 3.7 million Chart = --- Altria Group - MO - close: 47.58 change: -0.11 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 majufacture 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 noted Thursday night, MO spent most of last week consolidating in a very narrow range after its drop back from just over $49. In typical expiration-Friday fashion, the stock tested both ends of that consolidation range and then closed near the middle of the range, giving us very little to go on in terms of forecasting next week's price action. The PnF chart is still bearish, there's solid resistance overhead at $48, further bolstered by the 10-dma ($48.20) and the 20-dma ($48.09) and all signs point to further downside. But on the other hand, it is interesting that the decline paused last week right on the $47.50 level, which is very close to the bottom of the gap from last November. That gap support may prove problematical in the near-term, so our preference for new entries is to focus on rollovers from resistance near $48. Maintain stops at $49.50, just over the top of the most recent failed bounce 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= 815 last traded @ $2.80 BUY PUT JUL-47 MO -SW OI=18454 last traded @ $1.05 Annotated Chart of MO: Picked on June 15th at $47.55 Change since picked: +0.03 Earnings Date 7/20/04 (unconfirmed) Average Daily Volume = 6.67 mln Chart = ************* NEW PUT PLAYS ************* Omnicom Group - OMC - close: 77.14 change: -0.70 stop: 80.50 Company Description: Omnicom Group is a marketing and corporate communications company. The company has grown its strategic holdings to over 1500 subsidiary agencies operating in more than 100 countries. OMC's wholly and partially owned businesses provide communications services to clients on a global, pan-regional and national basis. The company's agencies provide an extensive range of marketing and corporate communications services, including advertising, brand consultancy, crisis communications, custom publishing, database management, digital and interactive marketing, business-to-business advertising, employee communications and environmental design. OMC also provides field marketing, healthcare communications, marketing research, promotional marketing and sports and event marketing. Why we like it: Ever since last August, shares of OMC have been in the process of building a large H&S topping formation, and as we know, the bigger these patterns are, the more significant they are in terms of price action. The neckline of that formation currently rests just below $77 and last week's drop to within pennies of that line has the stock very close to confirming that long-term pattern. Looking at the more recent price action, we can see a smaller H&S top that has been forming since the beginning of April, and that pattern confirmed last week with the break of the neckline at $77.50. Calculating a downside target from that pattern gives us a near-term objective of $72. Completing the bearish picture is the PnF chart, which finally gave a Sell signal on Friday's touch of the $77 level and the tentative downside target from that view is $71. Should we see a solid break of the longer-term H&S neckline (which seems likely, given the PnF chart and the short-term H&S pattern), we'll have a longer-term target of $65 to work with. Looking simply at support levels that might come into play, we can see the likelihood for a near-term bounce from the $75 level, but real strong support doesn't come in until the $71-72 area, confirming the $71 target from the PnF chart and the $72 target from the short-term H&S pattern. With that kind of confluence, we'll set the $71-72 area as our initial target for the play. Depending on your perspective, we could say that the breakdown has already occurred (based on the short-term H&S pattern and PnF chart) or that it is just ahead, with a break of $76.50 being needed. We'll be a bit more aggressive and say the breakdown has already happened and will therefore not use an entry trigger. A break of $76.50 can be used for momentum entries, while a bounce back near the $78.00-78.50 area should provide for a nice rollover entry. With all of the shorter-term moving averages clustered near the $80 level, we'll set our initial stop at $80.50, just above the 50-dma ($80.18), which just crossed down through the 200-dma ($80.29). Suggested Options: Aggressive traders will want to use the July 75 Put while those with a more conservative approach will want to use the July 80 strike. Our preferred option is the July 80 strike, as it is currently in the money. BUY PUT JUL-80*OMC-SP OI=3704 last traded @ $3.70 BUY PUT JUL-75 OMC-SO OI=1063 last traded @ $1.15 Annotated Chart of OMC: Picked on June 20th at $77.14 Change since picked: +0.00 Earnings Date 4/27/04 (confirmed) Average Daily Volume = 1.12 mln Chart = --- OSI Pharma - OSIP - close: 65.63 chg: -2.00 stop: 70.01 Company Description: OSI Pharmaceuticals is a leading biotechnology company focused on the discovery, development, and commercialization of high- quality, next-generation oncology products that both extend life and improve the quality of life for cancer patients worldwide. OSI has a balanced pipeline of oncology drug candidates that includes both novel mechanism-based, gene-targeted therapies focused in the areas of signal transduction and apoptosis and next-generation cytotoxic chemotherapy agents. OSI's most advanced drug candidate, Tarceva(TM), a small-molecule inhibitor of the HER1 gene, has successfully completed Phase III clinical trials for lung cancer and is subject to an ongoing rolling submission of an NDA. OSI has a commercial presence in the U.S. oncology market where it exclusively markets Novantrone. (mitoxantrone concentrate for injection) for approved oncology indications and Gelclair. for the relief of pain associated with oral mucositis. OSI has also established Prosidion Ltd., an independently operated diabetes and obesity subsidiary based in the United Kingdom. (source: company press release) Why We Like It: It's hard to miss the big gap up in shares of OSIP last April. The stock soared from $38 to $98 and settled at $91 after releasing positive Phase III trial data on its lung cancer treatment Tarceva. After some initial profit taking OSIP found support near $67.50-70.00 and began climbing. After all the upcoming ASCO conference, where full details of the Phase III data would be unveiled, was only a few weeks away. Traders ignored a negative earnings report where OSIP missed estimates by 24 cents and came in under revenue expectations because they were focused on the ASCO conference. Well June showed up and true to form investors decided to "sell the news". After a month long rally in May suddenly biotech stocks were out of favor and OSIP fell sharply. The stock tried to consolidate between $65 and $70 last week but Friday saw the stock drop 2.95% and close under its simple 50- dma. We're going to suggest new (aggressive) put positions now and target a move to $55 maybe $50 depending on how fast OSIP falls. We know our stop loss at $70 is wide but the stock has been volatile and that's the nearest overhead resistance. Some traders might feel better using a trigger under $65.00 to enter new plays. FYI: point-and-figure chart fans will note the new sell signal and $46 price target. There are always significant risks trading biotech stocks. Just looking back to April is an excellent example of what can happen if you're on the wrong side of the press release. Tarceva is expected to be approved by the FDA some time in late 2004 or early 2005. Obviously many investors are already banking on an approval letter however; any new positive announcements could seriously impact our bearish play. Enter with caution. Suggested Options: We're going to suggest the July and October puts but our favorites would be the July 65 or 60s. BUY PUT JUL 60 GHU-SL OI= 3470 Last traded @ $1.35 BUY PUT JUL 65 GHU-SM OI= 3021 Last traded @ $3.10 BUY PUT JUL 70 GHU-SN OI= 3014 Last traded @ $6.20 Annotated Chart: Picked on June 20 at $ 65.63 Change since picked: - 0.00 Earnings Date 05/11/04 (confirmed) Average Daily Volume: 4.4 million Chart = --- Silicon Labs. - SLAB - close: 44.99 change: -0.64 stop: 48.00 Company Description: Silicon Laboratories designs, manufactures and markets proprietary high-performance mixed-signal integrated circuits (ICs) for the wireless, wireline and optical communications industries. The company initially focused its efforts on developing ICs for the personal computer modem market and is now applying its mixed-signal and communications expertise to the development of ICs for other high growth communications devices, such as wireless telephones and optical network applications. Why we like it: With more weakness in the Semiconductor sector (SOX.X) last week, it seems clear the time in this space is turning decidedly in favor of the bears. Even good news and upgrades from Wall Street haven't been able give the bulls enough ammunition to make any headway. After we completed our last foray into playing the downside in shares of SLAB, the stock rose to test its 50-dma and it actually looked for a couple days like it might succeed. But since then, price fell back under the 50-dma, then the 200-dma and over the past few days, we've seen selling intensify, driving the stock right to the site of support created by the May low at $44.90. A break below that level will likely see the bears getting more aggressive, particularly in light of the picture offered by the PnF chart. This recent downdraft has produced a new Sell signal and the tentative downside target is currently $38. The candle chart clearly shows that a break below the May lows will have the stock on a trajectory to test the December lows near $40 and that looks like a reasonable initial target to shoot for. We'll use a trigger at $44.75 for the play, with aggressive entries looking good on the initial break of support, while the more conservative approach will be to wait for a failed rebound in the $46-47 area before entry. There is now solid resistance near $47.50, which is backed up by the 10-dma (now at $47.43). Another very bearish factor about to be added to the mix is that the 50-dma ($50.59) is poised just over the 200-dma ($50.33) and that ominous cross should take place by Tuesday at the latest. We'll initially place our stop at $48.50, just over last week's intraday highs. Suggested Options: Aggressive traders will want to use the July 40 Put while those with a more conservative approach will want to use the July 45 strike. Our preferred option is the July 45 strike, as it is currently at the money. BUY PUT JUL-45*QFJ-SI OI=5618 last traded @ $2.60 BUY PUT JUL-40 QFJ-SH OI= 652 last traded @ $0.85 Annotated Chart of SLAB: Picked on June 20th at $44.99 Change since picked: +0.00 Earnings Date 4/26/04 (confirmed) Average Daily Volume = 1.13 mln Chart = ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 06-20-2004 Sunday 4 of 5 In Section Four: Leaps: Under The Surface Option Spreads: Whoever Said “Money Can’t Buy Happiness” Must Not Have Any! Traders Corner: A New Look at Macro Support and Resistance ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ***** LEAPS ***** Under The Surface By Mark Phillips mphillips@OptionInvestor.com The ridiculous rangebound chop in the broad market continued again last week. It really makes one wonder whether natural price action in the major indices will ever return. I'm not the only one wondering such a thing and I received a couple interesting and disturbing notes from some colleagues with connections into the pits where some of the index futures contracts are traded. If the reference to "990N" means anything to you, then you know precisely what I'm talking about. There's a growing contingent of CME pit traders that are increasingly ticked off by the way the futures are being driven, reportedly by an entity known by their clearing number, which is "990N". The notes that I receive dance around the issue of who 990N is, but the very strongly implied reference is that it is the very same entity that is due to make a big decision on June 30th. Whether there's any validity to the veiled accusation, I can't say. But there are many things that are purported in the marketplace and the financial arena that I feel are far less likely. What remains as an incontrovertible fact is that the something is wrong with the volatility indices. Either something fundamentally changed with the new calculation scheme last September, or there is very clear market manipulation and everyone knows it, keeping the volatility at extreme lows. Whatever the cause, the VIX/VXO indicators remain as useless to understanding the marketplace as they have been for the past 6 months. While the action in the broad market is inscrutable as ever, we're starting to see some sectors start to put in some important moves, and more importantly, we're starting to see some interesting action from individual stocks. We know that the Semiconductor sector is often a leading indicator for the overall market. So what does it say about the future of the rangebound broad market when the SOX gets hammered like we saw last week. Forget about what the root cause of the drop was. The key is that is completely irrelevant! What is key is that the SOX has been riding lower along the underside of the 200-week moving average since early January, and last week's break back under the 50-week moving average looks bad. But what we really need to think about is the picture being portrayed by the major weekly moving averages. All of the shorter averages are in the process of rolling over just below the 200-wma, and the 50-wma hasn't been over the 200-wma since the "death cross" that occurred in late 2001. Barring an as-yet invisible major catalyst, the SOX is going down and rising interest rates are certainly not going to help. Moving on to the individual equity landscape, we have some broad price patterns that are looking rather troubling for the bulls. As boring as the price action has been, isn't it interesting that our HD Portfolio play continues to be pressured by resistance at the top of its multi-year descending channel? How about EK? While the price action is about as exciting as watching grass grow, there's not a bullish sign to be seen. Jumping over to our Watch List, we have GM rebounding nicely from its recent lows, but stalling well below the top of its own multi-year descending channel. It's almost as though these three are waiting on the outcome from the Fed in terms of interest rates before giving an indication on what the future holds. It makes sense that HD would be in a holding pattern, as consumers' spending habits relative to home improvement projects will very likely be pinned to the near-term direction for interest rates. Likewise, GM has become little more than a financing operation, so a significant rise in interest rates is certainly not going to be good for corporate profits. There are numerous other examples of the market "under the surface" showing signs of weakness or at least indecision. But we don't really have time to hit them all here this weekend. The final point I'll make is to touch on a subject I've been writing about a great deal lately -- The Housing Sector. We're waiting for the shoe to drop on Fed policy towards interest rates to get the ball rolling, but I certainly see a lot of signs of a dam about to break. Check out my Trader's Corner article from last week and you'll see what I mean. Everyone expects the Fed to raise rates by 25 basis points on June 30th and then continue the process of tightening monetary policy until we've seen a significant rise in short term rates off of the current generational lows. But I'll offer a somewhat different view. While I won't necessarily say the Fed will not raise rates in a couple weeks, I think we're going to be looking at a much more subdued series of rate hikes than many fear. I'm taking my cues from the action in the Ten Year Note, which hit a high yield of 4.904% in the middle of May and has since been building what looks an awful lot like a double top formation. Sure, it could be just simple consolidation, but why? From all the economic reports that have been coming out in the past month, you would think the bond junkies would be in Sell mode, viewing the economic strength, employment growth and clearly rampant inflation as major signs that the Fed is about to get very hawkish indeed. The fact that it hasn't happened tells me that the bond crowd is once again listening to the Fed's rhetoric about a gradualist approach and believing it. With the incredible risks to the system of interest rates rising too rapidly (the carry trade is one risk, but an attendant risk is also the leveraged nature of FNM/FRE, along with a staggering amount of derivatives risk in the financial system -- think JPM), we can be sure that Greenspan will want to be exceedingly cautious in raising rates throughout the balance of the year. So what am I saying in all this rambling dialogue? The Fed is trying desperately to re-inflate the economy and to be honest, they've done a great job, what with the latest PPI showing an annualized rate of inflation approaching 10%! Of course that is being played down so as to allow the Fed to continue printing money at an alarming rate, while nobody really pays attention, all the while keeping interest rates as low as possible. If the Fed had their way, they wouldn't raise rates until sometime in 2005, but I suspect the bond market may have forced his hand in concert with the recently strong economic data. In short, I expect the 25 basis point hike on the 30th, with the very real possibility that it could be the only one until after the election. In addition to the now well-established process of keeping consumers literally swimming in all the cash being printed, I think the irrational chop we're seeing in the broad indices smacks of something very ugly -- namely market manipulation. I'll leave the identity of the force behind this supposed manipulation unnamed, but if you think "The Unknown Comic" -- you know, the guy with the bag over his head -- I think we'll have a working understanding. This entity has the ability to shove large amounts of cash at the index futures and pretty much make them behave as desired, ticking off everyone else involved in that arena. But what can't be accomplished with the complete lack of directionality is an influencing of individual stocks and sectors, which are now starting to react to things other than broad market action. You know, like fundamentals and valuations! So while the broad market action continues to be completely nonsensical, we're starting to see the real market appear in individual equities again and that means we ought to have more choices to work with in the months ahead. For now, let's take a gander at our current crop of plays and see what's happening. Portfolio: HD - There's no doubt that HD has really been trying our collective patience, as it continues to hold in its dull consolidation range after the false breakdown last month. The top of the channel near $36 continues to offer significant resistance and I suspect that the outcome of the upcoming FOMC meeting will be the key determinant for future price action. We'll maintain our coverage as is until after that event, keeping our stop set at $38. CHK - With the Natural Gas index (XNG.X) advancing to new 3-year highs last week and the price of Natural Gas holding well above the key $6 level, shares of CHK have enjoyed a nice little rally over the past week. Rebounding smartly from the bottom of the 4- month rising channel, the stock blasted right to the top of that channel before pulling back a bit on Friday. Last week's rally pushed the stock to fresh multi-year highs and it looks like a run at the $16.00-16.50 area is about ready to start. Note that weekly Stochastics are just starting to turn up from well above oversold territory, a significant bullish indication. Based on the way this stock trades, we can expect to see another round of profit taking or consolidation once price reaches that next plateau of resistance, so conservative traders may want to consider harvesting at least partial profits when that level is reached. We're still maintaining our long-term objective for a rally up towards the $20 level. Note that we've raised our stop to $12.60 this weekend, which is solidly below the bottom of the rising channel and just slightly under the 200-dma. LUV - We've had to be patient with our LUV play, but the stock looks like it is finally acting the way it should, rising on expectations of the normal rise in travel through the summer months. We're seeing a steady progression of higher lows and higher highs now and Friday's strong surge has LUV very close to a major breakout over $16 resistance, as well as the 200-dma. There will be more resistance found in the $16.60-16.70 area, but that will likely be just another consolidation zone prior to the bulls propelling LUV towards strong resistance near $18. Note that we've inched our stop up slightly this weekend, placing it at $14, just slightly under the rising trendline that connects the March and May lows. TYC - Continuing its inexorable rise, TYC has spent the past couple weeks churning about the $31-32 area and based on Friday's early surge higher, it appears this consolidation phase may be just about over. The stock is squarely in the middle of its 15- month rising channel and with the strong buying volume on Friday combined with the very encouraging picture on the PnF chart, our $35 target looks quite achievable. Of course, that's just the initial target, but we'll deal with the potential for a further advance after that first objective has been met. With the stock up well over 10% from our entry point, it's time to be less forgiving with our stop, so we've raised it to $29 this weekend. TYC should have strong support in the $29.50-30.00 area, further supported by the 50-dma ($29.44). AIG - Well, what's it going to be? AIG got off to a good start, rallying right up to the $75 area, where it stalled out and then fell right back to our entry point near $72. Viewed on the daily chart, it's clear that we have the potential risk of a H&S top being formed right now and that certainly wouldn't be good for our play. Of course, it would take a break under the $68.60 neckline of that pattern to confirm and a break of $68 to generate a PnF Sell signal. For the time being, we'll stay our course, maintaining our expectation that the current consolidation will resolve itself in favor of the bulls. Note that it will require a breakout over the April highs just north of $77 to remove the potential for a H&S top formation. In the meantime, a successful rebound from the $72 level can be considered for fresh entries. Maintain stops at $68. Watch List: GM - Over the past few weeks, we've been seeing a steady rise in GM, and last week, the stock finally climbed through the descending trendline from the January and April peaks. With the bullish slant to the weekly Stochastics oscillator, it looks like the bulls are going to attempt a run at the top of the long-term descending channel near $50. How the stock behaves on that initial test and the position of the weekly Stochastics at the time will tell us a great deal about whether this remains a viable bearish play candidate. Note that on the PnF chart, a breakout over $51 would be required for a new Buy signal. Short of that, we'll likely be looking to re-activate the play, with an ideal entry point near $50. But we've still got a few weeks to wait for that setup to present itself, based on the position of the weekly Stochastics right now. Radar Screen: EK - Two more weeks have passed since our last update and still nothing of consequence has occurred in shares of EK. We do have the stock building a pretty convincing neutral wedge on the daily chart, and the break from that pattern may give us some clues as to whether this un-tradable rangebound action will continue or if EK is going to see a return of normal trading action. Stay tuned. $DJUSHB - If you've been following my long series on the Housing sector and looking for some viable bearish candidates, then you know we've narrowed our list of potential victims down to two front-runners -- CTX and LEN. While we aren't interested in jumping the gun here, I think it's safe to say that both stocks will find their way onto our Watch List next weekend. I will offer this though -- LEN is currently my favorite of the two. We'll get into the details behind that view with next week's Trader's Corner article, but if you want a hint as to a big piece of the puzzle, I can tell you that playing with different scaling on the PnF charts of the two stocks should turn on a big neon sign. NEM - We certainly don't have a bullish picture just yet in the Mining sector, but there are some encouraging developments. We recently had new PnF Buy signals on the XAU and HUI indices, but they've both seen bearish reversals this month. That tells me that we need to explore some different scales on the PnF charts to remove the spurious signals. A scale setting of 3-point box size (instead of the default of 2) on HUI and about 1.4 on XAU filters out a lot of the extraneous noise. What I like about the sector right now is that we're seeing the price of Gold putting in some good basing action below the $400 level and a breakout over $400 would be a solid PnF Buy on the $5-box chart. With the weekly oscillators also showing bullish signs on the Gold chart, the overall sector appears to be in the final stages of this consolidation. As the bellwether for the sector, NEM is looking solid as well, holding above the bullish support line on its own PnF chart, which will issue a new Buy signal with a trade at $41. We aren't quite ready to Watch List this one again, but we're getting close. NOK - Technically, shares of NOK are still looking quite ugly on the PnF chart, but we're seeing signs of improvement on the weekly candle chart, with Stochastics threatening to move up out of oversold territory. What we really need to see is a solid move up to the $15 level, then a slight retracement down near the $13.50 level and then finally a breakout over the bottom of the April gap to turn things decidedly bullish. We'll need to exercise some patience here, but I think we've got a solid bullish play in the making. Closing Thoughts: All eyes are fixed on the events scheduled for the end of June and then the first week of July. But as we've discussed here today, we're likely to start seeing the "real market" appear as individual equities and sectors start to move on their own merits again. If you've got some vacation time coming, the next 2-3 weeks would be a good time to take advantage of it, as the market is likely to have a hard time making up its mind until we get past the 4th of July weekend. Best Trading Wishes! Mark LEAPS Portfolio Current Open Plays LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: None PUTS: GM 05/09/04 HOLD JAN-2005 $ 45 ZGM-MI JAN-2006 $ 45 WGM-MI PC SEP-2004 $ 50 GM -IJ OMC 06/20/04 $79-80 JAN-2006 $ 80 YGS-MP JAN-2007 $ 75 OBG-MO PC SEP-2004 $ 85 OMC-JQ New Portfolio Plays None New Watchlist Plays OMC - Omnicom Group Inc. $77.14 **Put Play** It isn't often that the same play shows up on both the short-term put play list and as a LEAP put play at the same time, but this is one of those rare occurrences. OMC has been building a large H&S top since last August and the upward-sloping neckline of that slightly irregular pattern crosses just below the $77 level. Over the past coupe months, the stock has also traced out a smaller H&S pattern, with the neckline at $77.50 having been violated last week on strong volume. Adding its voice to the bearish cacophony, the PnF chart has seen some significant developments over the past week. Price finally broke the bullish support line at $78-79 and issued a fresh PnF Sell signal, that brings with it a tentative bearish price objective of $71. While short term players can make plenty of hay between current levels and that short-term objective, we need to see the potential for a sharper decline to tempt us into a longer-term play. That evidence will appear on the break of the long-term H&S neckline, giving us a downside target in the vicinity of $65. Additionally, should the current column of O's on the PnF chart continue down to the $71 level without seeing a 3-box reversal first, we'll have a downside target of $59 to work with. With all the time I've spent looking at alternate scales on PnF charts lately, I thought it might be interesting to use a 1.5- point box size on the PnF chart and see what that view might lend to this discussion. Interestingly enough, the Sell signal from March is still intact and has a bearish price target of (are you ready for this?) $60! We still have a couple of things that have to line up in our favor, as that $59 target is still speculative, rather than being based on actual price data, but it's enough for me to want to start looking aggressively for a bearish entry point before everything is perfectly lined up. With all of the major moving averages on the daily chart clustered in the $79-80 area, I would view another failed rebound in that area to be an excellent bearish entry point. Having the luxury of time on our side, we typically don't advocate breakout/breakdown entries for our LEAPS plays, so if that breakdown does occur first, then we'll be looking for a subsequent failed rebound to allow us into the play. Given the size of the potential gain on this play, we'll set a rather liberal initial stop at $84, just over the top of the short-term H&S pattern. BUY LEAP JAN-2006 $80 YGS-MP BUY LEAP JAN-2007 $75 OBG-MO BUY Call Oct-2004 $85 OMC-JQ **Insurance Put** Drops None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ************************ Option Spread Strategies ************************ Whoever Said “Money Can’t Buy Happiness” Must Not Have Any! By Mike Parnos, Investing With Attitude When you’re hot, you’re hot. When you’re not, you’re probably a directional trader. Let’s be grateful that the market is cooperating and bask in the glow (like the Detroit Pistons!!) again this month. It’s also been said that money can’t buy love – unless, of course, you love money – or at least the freedom it provides. This month (June) we didn’t set a CPTI record. Our previous high monthly profit was last month’s $8,530. Well, everything went right this month, but we only made $7,200. I think that CPTI students that made some of these “hypothetical” profits are willing to forgive. We have every reason to celebrate. Now you can afford an extra item or two on your pizza and not think a thing of it. The June option cycle was the eighth cycle in the second year of tracking our Couch Potato Trading Institute portfolio. With our $7,200 of profits, we’ve now accumulated a total of $33,210 in seven months – on a trading account size of about $40,000. June Trade Summary SPX – Iron Condor – Profit: $1,300 RUT – Iron Condor – Profit: $1,800 MNX – Iron Condor – Profit: $1,200 BBH – Iron Condor – Profit: $1,550 OSX – Calendar Spread – Profit: $1,350 TOTAL JUNE PROFITS: $7,200 (See the summary below) Happy Returns Of The Day (Month) Report Once again, I calculated our hypothetical return on risk for this month’s portfolio trades. The total amount of maintenance in the above four trades was $45,000. If we subtract the $7,200 of premium we took in, we now have a real risk of $37,800. When we divide $37,800 into our $7,200 profit, we get a return on risk of 19%. Not too shabby! ___________________________________________________________ JUNE QUICKIE RESULTS – This Will Knock Your Socks Off – Maybe Your Shorts too! The $7,200 CPTI portfolio profits are impressive, but they are PEANUTS compared to our Quickie results this month. June Quickie #1 - RUT Siamese Condor - $569.12 We sold 10 June RUT 570 calls @ $5.70 = $5,700 and sold 10 June RUT 570 puts @ $6.30 = $6,300 for a total credit of $12,000 . Then we bought 10 June RUT 530 calls @ $.30 = $300 and 10 June RUT 600 puts @ $.30 = $300 for a total of $600. Our net credit was $11.40 ($11,400). The closer RUT finishes to 570, the more money we were to make. The settlement price was announced at 569.74. That means we had to give back $.26 ($260). Our profit was an amazing $11,140. Yes, you read that right. ELEVEN BLEEPING THOUSAND and one hundred forty dollars – in one week. June Quickie Position #2 - SPX Iron Condor - 1136.47 We sold 10 June SPX 1120 puts and bought 10 June SPX 1110 puts for a credit of $.80 ($800). Then we sold 10 June SPX 1150 calls and bought 10 June SPX 1160 calls for a credit of $1.00 ($1,000). Our total net credit was $1.80 ($1,800). The SPX settlement price came in at 1129.60 – well within the range. Our profit was $1,800 – for one week. Total Quickie Profits -- $12,940. When we’re hot, we’re hot. And WE’RE HOT!! ________________________________________________________________ I Need Your Input. What Do You Think? A number of people have requested that I put on a seminar to thoroughly teach the strategies I personally use and discuss in my weekly columns. I’m contemplating getting up off the couch and hosting a two-day comprehensive seminar – covering everything from the basic to my advanced strategies. I can imagine it being all kinds of fun and even more informative. If enough people are willing and able to attend, we could do it for just a fraction of what other seminar companies charge. And you would have something other companies don’t have – me. If you like the idea, let me know. If you don’t like it, let me know that too. Would you prefer late August or September? Weekdays or weekends? Should we include meals? A hotel package? Anything is possible. Your suggestions are also welcome. My mind is open. It will take a lot of work, but I’m willing to make the effort if you are. I can guarantee you two memorable days of fun and instruction. Let me know what you think. I’d really appreciate your input. Thanks! ________________________________________________________________ SUMMARY OF JUNE POSITIONS June Position #1 - SPX Iron Condor – 1135.02 We sold 5 SPX June 1150 calls and bought 5 SPX June 1170 calls for a credit of $1.20 (x 5 contracts = $600). Then we sold 7 SPX June 1025 puts and bought 7 SPX June 1010 puts for a credit: $1.00 (x 7 contracts = $700). Our total net credit was $1,300. Profit was the entire $1,300. June Position #2 - BBH Iron Condor - $140.80 We sold 10 BBH $155 calls and bought 10 BBH $165 calls for a credit of $.70 (x 10 contracts = $700). Then we sold 10 BBH $135 puts and bought 10 BBH $125 puts for a credit: $.90 (x 10 contracts = $900). Our total net credit was $1,550. Profit was the entire $1,550. June Position #3 - RUT - Iron Condor – 570.54 We sold 10 RUT 590 calls and bought 10 RUT 600 calls for a credit of $.80 (x 10 contracts = $800). Then, we sold 10 RUT 490 puts and bought 10 RUT 480 puts for a credit: $1.00 (x 10 contracts = $1,000). Our total net credit was $1,800. Profit was the entire $1,800. June Position #4 - MNX - Iron Condor - $146.47 Sold 10 MNX 147.50 calls and bought 10 MNX 152.50 calls for a credit: $.70 (x 10 contracts = $700). Then sold 10 MNX $132.50 puts and bought 10 MNX $127.50 puts for a credit: $.60 (x 10 contracts = $600). Our total net credit of $1,300. Maintenance: $5,000. Maximum profit range of $132.50 to $147.50. Profit was $1,200 because we bought back the short $147.50 call at the close on Thursday for $.10. ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $36.44 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We make money by selling near term puts and calls every month. Here’s what we’ve done so far: Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts and calls – credit of $1,150. Dec. $34 puts and calls – credit of $1,500. Jan. $34 puts and calls – credit of $850. Feb. $34 calls and $36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34 calls and $37 puts – credit of $750. May $34 calls and $37 puts – credit of $800. We rolled out the May $34 calls to the June $34 calls for a credit of $.60 and then the May $37 puts to the June $37 puts for credit of $.15. The total net credit was $.75 ($750). We rolled out to the July $34 calls ($.20 credit) and $37 puts ($.60 credit) on Tuesday and took in another net credit of $.80 ($800). Our new total credit is now $10,400. Note: We haven’t included the proceeds from this long term QQQ ITM Strangle in our profit calculations. It’s a bonus! And it’s a great cash flow generating strategy. ZERO-PLUS Strategy. OEX – 554.81 In my Feb. 8th column, I outlined a strategy based on an initial investment of $100,000. $74,000 was spent on zero coupon bonds maturing in seven years at a value of $100,000. The principal $100,000 investment is guaranteed. We’re trading the remaining $26,000 to generate a “risk free” return on the original investment. Our current position: We own 3 OEX December 2006 540 calls @ $81 (x 300 = $24,300). Our cash position as of May expiration is $4,390 plus unused $1,700 = $6,090. Our June 515/505 bull put spread expired worthless, as did our 560 short call. Therefore, we are able to officially add the $1,175 to our cash position – that now stands at $6,265 ($4,565 plus unused $1,700) New July Zero Plus Positions. July bull put spread 535/525 for credit of $1.30 x 5 contracts = $650. Short 570 call for credit of $1.40 x 5 = $700. If all goes well, we’ll be able to add $1,350 to our cash position as we wait for the market to move up. OSX Calendar Spread Plus - $105.30 – A semi-fond farewell! Originally bought 10 OSX June $115 calls and sold 10 OSX April $115 calls at a cost of $2.15 ($2,150). We also put on an April $100/$90 bull put spread and took in an extra $.70 ($700) to reduce the cost basis to $1.45 ($1,450). Results: The $95/85 bull put spread expired worthless. We had bought back our short $105 June call for $.10 early in the week. The June $115 call expired worthless. It’s finally over. Thank goodness. And it all worked out fine. After a couple of months of chaos, we emerged with a profit of $1.35 ($1.45 - $.10). The profit: $1,350. If nothing else, we put a few more CPTI dollars of profit into our coffers. The biggest benefit came, however, if you followed the trade from the beginning and saw the adjustments that were made as the trade progressed. The OSX didn’t move the way we had anticipated and we had to do some tap dancing (adjusting) but it all worked out. JULY NEW POSITIONS Position #1 – SPX Iron Condor – 1135.02 We sold 10 July SPX 1170 calls and bought 10 July SPX 1180 calls for a credit of about: $1.10 ($1,100). Then we wold 7 July SPX 1075 puts and bought 7 July SPX 1060 puts for a credit of about: $1.20 ($840). The total net credit of was $1,940. Maximum profit range of 1075 to 1170. Breakeven points of 1072.23 to 1171.94. Maintenance: $10,500. Potential profit: $1,940. Position #2 – RUT Iron Condor – 570.54 We sold 10 July RUT 600 calls and bought 10 July RUT 610 calls for a credit of about: $1.00 ($1,000). Then we sold 10 July RUT 530 puts and bought 10 July RUT 520 puts for a credit of $1.30 ($1,300). Our total net credit was $2.30 ($2,300). Maximum profit range of 530 to 600. Breakeven points of 527.70 to 602.30. Maintenance: $10,000. Profit potential $2,300. Position #3 – SPX Credit Spread Boogie – 1135.02 We haven’t done this strategy is quite some time. To review, it consists of establishing a 25-point credit spread and taking in $6-7 of premium (as much as possible). If the trend continues, you keep the premium. If the trend reverses, you close the trade for double the premium amount. Then, you open a credit spread in the opposite direction, using enough contracts to replenish what you spent to close the initial spread. We sold 3 SPX July 1125 puts and bought 3 SPX July 1100 puts for a total credit of about: $6.30 ($1,800). Our profit potential: $1,800. Maintenance: $7,500 (initially). We’ll need to keep a close eye on this one. We have to be alert – plus, we have to have a large enough account size to accommodate trading an increased number of contracts if adjustments become necessary. Position #4 – SOX (Semi-Conductor Index) – Iron Condor – 453.44 We sold 10 SOX July 490 calls and bought 10 SOX July 500 calls for a credit of about: $1.10 ($1,100). Then we sold 10 SOX July 420 puts and bought 10 SOX July 410 puts for a credit of about: $1.30 ($1,300). Our total net credit of: $2.40 ($2,400). Maximum profit range: 420 to 490. Breakeven points: 417.60 & 492.40. Maintenance: $10,000. Potential profit: $2,400. New To The CPTI? Are you a new Couch Potato Trading Institute student? Do you have questions about our educational plays or our strategies? To find past CPTI (Mike Parnos) articles, first look under "Education" on the OI home page and click on "Traders Corner." For more recent columns, you can look under "Strategies" and click on "Spreads & Combos." They're waiting for you 24/7. ____________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Your questions and comments are always welcome. Mike Parnos CPTI Master Strategist and HCP Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************** TRADERS CORNER ************** A New Look at Macro Support and Resistance Jane Fox I started trading about 5 years ago and over those years have acquired a fairly nice library of trading books. Books from the psychology of trading to the nitty gritty of the options greeks. I have read every one of these books and some of them twice with the exception of one, DeMark on Daytrading Options by Tom and Tom Jr. DeMark. This was one of the hardest books I have ever read and never did finish it. In all fairness I attempted to read it when I first started trading and a lot of the concepts were beyond me but I have tried again in recent years and still found it a hard read. In the latest edition of Active Traders Magazine there was an article called "Absolute Price Projections" by Tom and Roche Demark. Since I read everything in this magazine I read the article although I was tempted to pass over it because of the author. I am glad I did read it. The article is based on one of DeMark's proprietary indicators called the TD Absolute Retracement so I went to my library (bookshelf behind my trading desk) and pulled out the only book I had not completed. First of all I found out the TD stands for Tom Demark and is not there to promote DeMark's initials but to trademark the indicator, which gives them proper control over its distribution. Next I see there are four TD retracement indicators called: TD Relative Retracement, TD Relative Retracement Cancellations, TD Double Retracements and TD Absolute Retracements. All these proprietary indicators are based on Fibonacci Retracements but I will only be discussing the TD Absolute Retracements here. The TD Absolute Retracement is actually very simple for it uses downside and upside ratios to project support or resistance. Here at OptionInvestor we anchor our Fibonacci tool to a high or low and then drag it to an opposing high or low. DeMark says this leaves too much up to the discretion of the trader in that any one trader will pick different spots to anchor the tool making it more ad hoc than based on set rules. With the TD Absolute Retracement method you don't have to worry about drawing a Fibonacci retracement you just find a multi-month high or low, a low that has not been exceeded in the previous 12 months or a high that has not been exceeded in the previous 12 months. Once you find a multi-month high you multiple it by 61.8%, 50% or 38.2% to arrive at downside support or once you find a multi- month low multiple it by 138.2%, 150% or 161.8% to arrive at upside resistance. Let's look at some examples. The first multi-month high I would like to examine is the infamous S&P high of 1552.87 made in March 2000. According to DeMark you project support zones by multiplying the S&P 12 month high at 1552.87 by the downside ratios of 38.2%, 50% and 61.8%. Here are the numbers: 1552.87 * 61.8% = 959.67 1552.87 * 50% = 776.44 1552.87 * 38.2% = 593.20 Let's see how well these numbers fit to support zones. This first support I see on the chart above came at in December of 2000 with a low of 1254 and no match to TD Absolute Retracement support levels. The next zone of support was the low on September 21, 2001 at 944.75 where SPX found a significant support area and retraced 38.2% of the 1552 to 944 range. The TD Absolute Retracement projected 61.8% support was at 960, only a 16-point difference from the September 21st lows. And then of course we have the 768.63 lows made on October 10th 2002, which marked the end of the bear cyclical, a cycle the S&P entered in March 2000. This is kind of interesting for the TD Absolute Retracement projected 50% support was just 6 points away at 776. Thank heaven we never got to the 38.2%, I'm sure we would have had investors jumping out of windows at another 200 point drop. Let's look at an example of a multi-month low using the October 2002 lows. First of all a check of a 12-month low finds the last time the S&P was at this level was back in 1997 so I think this criterion is satisfied. Here is the S&P from October 2002 lows. October 2002 low was 768.63. If you multiply 768.63 by the TD Absolute Retracement upside ratios 138.2%, 150% and 161.8% you get the following numbers: 768.63 * 138.2% = 1062.24 768.63 * 150% = 1152.94 768.63 * 161.8% = 1243.64. The TD Absolute Retracement 138.2% resistance found little resistance at 1062 but the 150% resistance at 1152 found a lot. SPX's March highs were 1163 only 11 points away from the 150% resistance. Let's now fast-forward to current highs made in March and see where we stand. First let's check to make sure this is a 12 month high. A quick check shows that the last time SPX was trading at this level was March 2003 so this criterion is satisfied. The high made March 5th was 1163 so multiplying this number by the TD Absolute Retracement downside ratios 61.8%, 50% and 38.2% you get: 1163.04 * 61.8% = 718.76 1163.04 * 50% = 581.52 1163.04 * 38.2% = 444.28 S&P has not yet reached these numbers (thank heaven) but please take note the 50% projection from March 2004 highs (581) is very close to the 38.2% projection from the March 2000 highs (593) Let's look at the DOW and see how well the TD Absolute Retracement works on this market. On January 14th 2000 the DOW made an all time high at 11750 so multiplying this number by TD Absolute Retracement downside ratios of 38.2%, 50% and 61.8% you get: 11750 * 61.8% = 7261 11750 * 50% = 5875 11750 * 38.2% = 4489 October 2002 lows were 7197 just 64 points away from the 61.8% TD Absolute Retracement downside projection. The S&P hit the 50% TD Absolute Retracement support and the DOW only the 61.8% shows how well the DOW did in relation to the S&P in our recent bear market. Now let's take the DOW October 2002 lows and use the upside projection ratios. The October 2002 lows were 7197 and using the upside ratios here are the numbers: 7197 * 138.2% = 9946 7197 * 150% = 10795 7197 * 161.8% = 11644 The 138.2% projected resistance didn't give much resistance but the 150% projected resistance sure did. The February 2004 high on the DOW was 10746 only 49 points away from the 150% upside projection. Now let's take the February 2004 high at 10746 and apply the downside ratios. Here are the numbers: 10746 * 61.8% = 6641 10746 * 50% = 5373 10746 * 38.2% = 4105 Dow at 6641 is pretty ugly isn't it? From what I have seen in just these two markets it doesn't look like rallies or declines get much further than the 50% or 150% TD Absolute Retracement projections. That does not bode well for our current environment since both the DOW and the S&P have reached their 150% resistance levels. However, the data I have presented here is not enough to make any investment decisions on. You should check these projections in other markets and for sure go back further than I did before you come to any firm conclusions. Remember plan your trade and trade your plan Jane Fox ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. 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The Option Investor Newsletter Sunday 06-20-2004 Sunday 5 of 5 In Section Five: Covered Calls: Conservative Stock Ownership Spreads and Straddles: Stocks Climb Amid Cautious Optimism... Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ************* COVERED CALLS ************* Many investors find that writing "in-the-money" covered-calls fits their criteria for a conservative, easy-to-manage options strategy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL CANDIDATES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of potential candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. __________________________________________________________________ COVERED-CALLS Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield ENER 11.30 JUL 10.00 EQI-GB 1.80 34 9.50 26 6.2% NVAX 5.44 JUL 5.00 QUX-GA 0.65 151 4.79 26 5.1% OS 13.57 JUL 12.50 OS-GV 1.55 112 12.02 26 4.7% OMNI 5.42 JUL 5.00 QJN-GA 0.60 2 4.82 26 4.4% AMHC 24.09 JUL 22.50 QMH-GX 2.40 105 21.69 26 4.4% PTIE 8.84 JUL 7.50 UQ-GU 1.60 378 7.24 26 4.2% NVTL 21.20 JUL 17.50 NVU-GW 4.30 33 16.90 26 4.2% SGTL 26.45 JUL 25.00 UGO-GE 2.30 50 24.15 26 4.1% CENX 23.77 JUL 22.50 CQL-GX 2.00 33 21.77 26 3.9% TASR 25.77 JUL 22.50 QUR-GR 4.00 221 21.77 26 3.9% NAVR 13.65 JUL 12.50 QIG-GV 1.55 350 12.10 26 3.9% CALM 14.18 JUL 12.50 QKM-GV 2.05 64 12.13 26 3.6% Legend (for play description below) LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). __________________________________________________________________ ENER - Energy Conversion Devices $11.30 *** New Contracts! *** Energy Conversion Devices (NYSE:ENER) is a technology, product development and manufacturing company that specializes in the development of proprietary materials, products and production technology based on its atomically engineered amorphous and disordered materials. JUL-10.00 EQI-GB LB=1.80 OI=34 CB=9.50 DE=26 TY=6.2% __________________________________________________________________ NVAX - Novavax $5.44 *** Estrasorb Launch Coming *** Novavax (NASDAQ:NVAX) is a biopharmaceutical company engaged in the research, development and commercialization of products focused on drug delivery and vaccine development. The company sells, markets and distributes women's health prescription pharmaceuticals. JUL-5.00 QUX-GA LB=0.65 OI=151 CB=4.79 DE=26 TY=5.1% __________________________________________________________________ OS - Oregon Steel Mills $13.57 *** Steel Sector Rally! *** Oregon Steel Mills (NYSE:OS) manufactures and markets a line of specialty and commodity steel products. The company emphasizes the cost-efficient production of higher-margin specialty steel products targeted at a diverse customer base located primarily west of the Mississippi River and in western Canada. JUL-12.50 OS-GV LB=1.55 OI=112 CB=12.02 DE=26 TY=4.7% __________________________________________________________________ OMNI - OMNI Energy Services $5.42 *** Oil Service Speculation *** OMNI Energy Services (NASDAQ:OMNI) is an oilfield service company specializing in providing a range of onshore seismic drilling, permitting, survey and helicopter support services to geophysical companies operating in logistically difficult and environmentally sensitive terrain. JUL-5.00 QJN-GA LB=0.60 OI=2 CB=4.82 DE=26 TY=4.4% __________________________________________________________________ AMHC - American Healthways $24.09 *** Solid Earnings! *** American Healthways (NASDAQ:AMHC) provides specialized healthcare enhancement and disease management services to individuals in all 50 states, the District of Columbia, Puerto Rico and Guam. JUL-22.50 QMH-GX LB=2.40 OI=105 CB=21.69 DE=26 TY=4.4% __________________________________________________________________ PTIE - Pain Therapeutics $8.84 *** Positive Remoxy Results? *** Pain Therapeutics (NASDAQ:PTIE) is a biopharmaceutical company engaged in the development of drugs that target severe chronic pain, such as pain associated with advanced osteoarthritis, low-back pain or irritable bowel syndrome. JUL-7.50 UQ-GU LB=1.60 OI=378 CB=7.24 DE=26 TY=4.2% __________________________________________________________________ NVTL - Novatel Wireless $21.20 *** Recovery 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. JUL-17.50 NVU-GW LB=4.30 OI=33 CB=16.90 DE=26 TY=4.2% __________________________________________________________________ SGTL - Sigmatel $26.45 *** In A Trading Range? *** Sigmatel (NASDAQ:SGTL) is a fabless semiconductor company that designs, develops and markets proprietary, analog-intensive, mixed-signal integrated circuits for a variety of products in the consumer electronics and computing markets, including portable compressed audio players, notebook and desktop PCs, DVD players, digital televisions and set-top boxes. JUL-25.00 UGO-GE LB=2.30 OI=50 CB=24.15 DE=26 TY=4.1% __________________________________________________________________ CENX - Century Aluminum $23.77 *** Riding Alcoa's Coattail! *** Century Aluminum Company (NASDAQ:CENX) is a holding company, whose principal subsidiaries are Century Aluminum of West Virginia, Inc., Berkeley Aluminum, Inc. and Century Aluminum of Kentucky, LLC. Through its ownership interests, the company has an annual production capacity of approximately 1.2 billion pounds of primary aluminum. JUL-22.50 CQL-GX LB=2.00 OI=33 CB=21.77 DE=26 TY=3.9% __________________________________________________________________ TASR - TASER International $25.77 *** Entry Point *** TASER International (NASDAQ:TASR) develops and manufactures a range of less-lethal self-defense devices. The firm's primary product lines include the ADVANCED TASER and the TASER X26, a recently introduced weapon system offering a new "shaped pulse" technology, and a smaller form factor. JUL-22.50 QUR-GR LB=4.00 OI=221 CB=21.77 DE=26 TY=3.9% __________________________________________________________________ NAVR - Navarre $13.65 *** A New Multi-Year High! *** Navarre Corporation (NASDAQ:NAVR) is a provider of distribution, fulfillment and marketing services for a broad range of home entertainment and multimedia products, including audio and video titles, personal computer software, and interactive games. JUL-12.50 QIG-GV LB=1.55 OI=350 CB=12.10 DE=26 TY=3.9% __________________________________________________________________ CALM - Cal-Maine Foods $14.18 *** EGG-cellent Investment? *** Cal-Maine Foods (NASDAQ:CALM) is engaged in the production, cleaning, grading and packaging of fresh shell eggs for sale to shell egg retailers. Cal-Maine also produces specialty eggs such as Eggo land's Best and Farmhouse eggs and operates a dairy facility. JUL-12.50 QKM-GV LB=2.05 OI=64 CB=12.13 DE=26 TY=3.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER IN SECTION ONE ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ******************* SPREADS & STRADDLES ******************* Stocks Climb Amid Cautious Optimism... By Ray Cummins U.S. equities finished the week higher as investors displayed confidence about the economy ahead of some key reports due in the coming week. The Dow Jones Industrial Average ended up 38 points at 10,416, with Alcoa (NYSE:AA), the world's biggest aluminum producer, among the best performing blue-chips. The NASDAQ Composite Index added 3 points to close at 1,986 even as investors took profits from recent gains. The broader Standard & Poor's 500 Index added 2 points to end at 1,135, with biotech, airline, and basic materials stocks keeping the broader market in the green. The simultaneous expiration of stock and stock-index options, as well as futures contracts, boosted trading volume but not volatility. Over 1.5 billion shares changed hands on the New York Stock Exchange, while about 1.69 billion shares were crossed on the NASDAQ. Winners outpaced losers 6 to 5 on the Big Board, however breadth was marginally negative on the technology exchange. Bond prices drifted lower with the yield on the 10-year note closing at 4.71%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 06/18/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 51.69 JUN 45 47 0.35 47.15 0.35 Closed IMDC 61.17 57.29 JUN 50 55 0.50 54.50 0.50 Closed GPRO 38.30 41.72 JUN 30 35 0.70 34.30 0.70 Closed ASD 35.96 39.38 JUN 32 33 0.16 33.17 0.16 Closed IMCL 71.36 80.16 JUN 50 55 0.50 54.50 0.50 Closed CSC 42.17 43.18 JUN 35 40 0.65 39.35 0.65 Closed GILD 62.54 64.40 JUN 55 60 1.00 59.00 1.00 Closed RIMM 49.99 59.53 JUN 40 42 0.22 42.28 0.22 Closed QCOM 65.40 66.49 JUN 55 60 0.45 59.55 0.45 Closed ZBRA 80.08 79.46 JUN 70 75 0.65 74.35 0.65 Closed BRCM 42.54 42.60 JUN 37 40 0.30 39.70 0.30 Closed EBAY 85.33 86.50 JUN 75 80 0.50 79.50 0.50 Closed AMZN 48.50 49.60 JUN 42 45 0.30 44.70 0.30 Closed EYET 44.32 47.95 JUN 35 40 0.50 39.50 0.50 Closed RIMM 59.97 59.53 JUN 47 50 0.20 49.80 0.20 Closed AMZN 50.95 49.60 JUL 42 45 0.30 44.70 0.30 Open YHOO 31.87 32.07 JUL 25 27 0.30 27.20 0.30 Open CFC 69.15 71.15 JUL 60 63 0.35 63.03 0.35 Open QCOM 69.86 66.49 JUL 60 65 0.45 64.55 0.45 Open SWIR 33.83 33.05 JUL 25 30 0.90 29.10 0.90 Open CTSH 24.25 24.51 JUL 20 22 0.27 22.23 0.27 Open NUE 69.54 72.47 JUL 60 65 0.75 64.25 0.75 Open SII 53.26 54.33 JUL 47 50 0.30 49.70 0.30 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. CALL-CREDIT SPREADS Stock Pick Last Month LC SC Credit CB G/L Status CTX 44.80 46.35 JUN 55 50 0.50 50.50 0.50 Closed IVGN 67.61 67.12 JUN 80 75 0.55 75.55 0.55 Closed VIP 91.45 96.40 JUN 110 105 0.50 105.50 0.50 Closed CERN 41.33 44.42 JUN 50 45 0.55 45.55 0.55 Closed SEPR 45.06 51.18 JUN 55 50 0.60 50.60 (0.58) Closed BSC 80.02 80.95 JUN 90 85 0.50 85.50 0.50 Closed FRX 59.20 62.99 JUN 70 65 0.55 65.55 0.55 Closed MDT 47.66 49.12 JUN 55 50 0.60 50.60 0.60 Closed AZO 83.38 88.76 JUN 95 90 0.20 90.20 0.20 Closed RYL 79.60 76.31 JUN 90 85 0.60 85.60 0.60 Closed VIP 92.25 96.40 JUN 105 100 0.60 100.60 0.60 Closed OIH 65.40 70.79 JUL 75 70 0.65 70.65 (0.14) Closed APPX 34.03 31.97 JUL 45 40 0.50 40.50 0.50 Open GENZ 41.93 43.87 JUL 48 45 0.30 45.30 0.30 Open INSP 34.71 33.23 JUL 45 40 0.65 40.65 0.65 Open WMS 28.75 26.15 JUL 35 30 0.65 30.65 0.65 Open GS 90.21 89.18 JUL 100 95 0.70 95.70 0.70 Open SYMC 42.42 40.01 JUL 50 45 0.65 45.65 0.65 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Although it expired profitable, the NTL Inc. (NASDAQ:NTLI) spread was closed earlier in the month in order to limit potential losses. Sepracor (NASDAQ:SEPR), which is slightly negative, was also listed as an "early-exit" candidate. As noted last week, the continued bullish activity in the Oil Service Holdrs (AMEX:OIH) has signaled 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 20.44 JUN 20 20 3.00 2.80 Closed RIO 49.38 45.95 JUN 50 50 2.65 6.00 Closed GRMN 32.60 31.93 JUL 35 30 2.15 2.35 Open? SNDK 22.90 20.37 JUL 22 22 3.40 3.60 Open GDT 56.02 57.01 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. Garmin (NASDAQ:GRMN) will be a candidate for "early-exit" in the coming weeks. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ INDEX-BASED CREDIT SPREADS As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific industry group or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options and professional traders also employ index spreads in common hedge strategies. Traders who participate in OTM credit spreads often utilize index options because they generally contain favorable "premium" and also provide an underlying instrument less prone to huge, gapping moves. __________________________________________________________________ OEX - S&P 100 Index $554.81 *** Index Spreads *** Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. Trading in S&P-100 options will ordinarily cease on the business day preceding the expiration date. OEX options generally may be exercised on any business day before the expiration date. OEX - S&P 100 Index $554.81 PLAY (less conservative - bullish/credit spread): BUY PUT JUL-535.00 OEB-SG OI=1860 ASK=$3.00 SELL PUT JUL-540.00 OEB-SH OI=3880 BID=$3.70 INITIAL NET-CREDIT TARGET=$0.75-$0.80 POTENTIAL PROFIT(max)=16% B/E=$539.25 __________________________________________________________________ SPX - S&P 500 Index $1135.02 *** Index Spreads *** Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. These are summed for all 500 stocks and divided by a predetermined base value. The base value for the S&P 500 Index is adjusted to reflect changes in capitalization resulting from mergers, acquisitions, stock rights, substitutions, etc. Trading in SPX options will ordinarily cease on the business day (usually a Thursday) preceding the day on which the exercise-settlement value is calculated. SPX options generally may be exercised only on the last business day before expiration. SPX - S&P 500 Index $1135.02 PLAY (conservative - bullish/credit spread): BUY PUT JUL-1075.00 SPQ-SO OI=24049 ASK=$3.60 SELL PUT JUL-1090.00 SPQ-SR OI=13378 BID=$4.60 INITIAL NET-CREDIT TARGET=$1.10-$1.20 POTENTIAL PROFIT(max)=8% B/E=$1088.90 __________________________________________________________________ BEARISH PLAYS - INDEX-BASED CREDIT SPREADS __________________________________________________________________ OEX - S&P 100 Index $554.81 *** Index Spreads *** Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. Trading in S&P-100 options will ordinarily cease on the business day preceding the expiration date. OEX options generally may be exercised on any business day before the expiration date. OEX - S&P 100 Index $554.81 PLAY (conservative - bearish/credit spread): BUY CALL JUL-575.00 OEB-GO OI=2522 ASK=$1.05 SELL CALL JUL-570.00 OEB-GN OI=4207 BID=$1.50 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$570.50 __________________________________________________________________ SPX - S&P 500 Index $1135.02 *** Index Spreads *** Standard & Poor's 500 Index is a capitalization-weighted index of 500 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. These are summed for all 500 stocks and divided by a predetermined base value. The base value for the S&P 500 Index is adjusted to reflect changes in capitalization resulting from mergers, acquisitions, stock rights, substitutions, etc. Trading in SPX options will ordinarily cease on the business day (usually a Thursday) preceding the day on which the exercise-settlement value is calculated. SPX options generally may be exercised only on the last business day before expiration. SPX - S&P 500 Index $1135.02 "DISPARITY" PLAY (very conservative - bearish/credit spread): BUY CALL JUL-1190.00 SPT-GR OI=734 ASK=$0.85 SELL CALL JUL-1180.00 SPT-GP OI=478 BID=$1.40 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=6% B/E=$1180.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ DNA - Genentech $54.60 *** Earnings Speculation *** Genentech (NYSE:DNA) is a biotechnology company that discovers, develops, manufactures and commercializes biotherapeutics for significant unmet medical needs. The company manufactures and commercializes 13 biotechnology products in the United States, and also licenses several additional products to other firms. Genentech's product development efforts cover a wide range of medical conditions, including cancer, respiratory disorders, cardiovascular diseases, endocrine disorders and inflammatory and immune problems. Genentech will announce its 2nd quarter earnings on Wednesday, July 7, 2004, after the market close. DNA - Genentech $54.60 PLAY (speculative - neutral/debit straddle): BUY CALL JUL-55.00 DNA-GK OI=13397 ASK=$1.80 BUY PUT JUL-55.00 DNA-SK OI=2834 ASK=$2.60 INITIAL NET-DEBIT TARGET=$4.20-$4.30 INITIAL TARGET PROFIT=$1.70-$2.45 __________________________________________________________________ OVTI - Omnivision $15.50 *** Any More Surprises? *** OmniVision Technologies (NASDAQ:OVTI) designs, develops and markets high-performance, cost-efficient semiconductor image sensor devices. The company's main product, an image sensing device called the CameraChip, is used to capture an image in a variety of consumer and commercial mass market applications, including digital still cameras, cellular telephones, security and surveillance cameras and video game consoles. The company is expected to report its (delayed) fourth-quarter and annual results on June 23, 2004. OVTI - Omnivision $15.50 PLAY (very speculative - neutral/debit straddle): BUY CALL JUL-15.00 UCM-GC OI=1965 ASK=$1.65 BUY PUT JUL-15.00 UCM-SC OI=4888 ASK=$1.15 INITIAL NET-DEBIT TARGET=$2.60-$2.70 INITIAL TARGET PROFIT=$0.90-$1.65 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 06/18/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 36.23 0.70 4.03% 2.04% ASCA JUN 30 29.35 31.95 0.65 5.02% 2.21% DRIV JUN 25 24.25 31.87 0.75 7.04% 3.09% FARO JUN 20 19.45 23.69 0.55 7.32% 2.83% GIVN JUN 30 29.25 34.81 0.75 7.01% 2.56% MVSN JUN 20 19.65 25.01 0.35 4.54% 1.78% PDII JUN 22 22.00 30.49 0.50 6.67% 2.27% SMTC JUN 20 19.50 22.47 0.50 6.25% 2.56% CELG JUN 45 44.40 55.70 0.60 4.75% 1.35% ELN JUN 17 17.05 21.83 0.45 8.73% 2.64% FARO JUN 20 19.45 23.69 0.55 8.04% 2.83% FRO JUN 25 24.50 32.62 0.50 6.48% 2.04% IMMU JUN 5 4.75 4.64 (0.11) 0.00% 0.00% LNCR JUN 32 32.05 33.19 0.45 3.60% 1.40% MCK JUN 32 32.00 35.16 0.50 3.76% 1.56% NFLX JUN 25 24.45 29.55 0.55 7.36% 2.25% PHRM JUN 20 19.65 47.23 0.35 5.67% 1.78% RTN JUN 32 32.00 35.10 0.50 3.62% 1.56% VXGN JUN 12 12.10 13.64 0.40 10.35% 3.31% ARTI JUN 22 22.00 24.10 0.50 6.11% 2.27% AVID JUN 45 44.30 50.36 0.70 4.62% 1.58% BLUD JUN 25 24.70 30.21 0.30 3.54% 1.21% DIGE JUN 35 34.25 35.96 0.75 6.16% 2.19% DRIV JUN 25 24.60 31.87 0.40 5.37% 1.63% ERES JUN 18 18.11 24.55 0.22 3.85% 1.21% NUE JUN 55 54.25 72.47 0.75 3.96% 1.38% PHRM JUN 20 19.70 47.23 0.30 5.30% 1.52% SPLS JUN 25 24.60 29.34 0.40 4.24% 1.63% YHOO JUN 25 24.60 32.07 0.40 4.64% 1.63% ARO JUN 22 23.03 29.43 0.35 4.75% 1.52% CRDN JUN 25 24.65 34.77 0.35 5.57% 1.42% ERES JUN 18 18.63 24.55 0.30 6.61% 1.61% FARO JUN 22 21.85 23.69 0.65 9.88% 2.97% ISPH JUN 15 14.55 16.80 0.45 10.57% 3.09% IDEV JUN 5 4.70 6.93 0.30 17.36% 6.38% PDII JUN 22 22.20 30.49 0.30 5.83% 1.35% SSYS JUN 22 21.85 27.02 0.65 9.43% 2.97% SLXP JUN 25 24.70 29.52 0.30 4.85% 1.21% ASKJ JUN 35 34.40 35.55 0.60 6.85% 1.74% ERES JUN 20 19.80 24.55 0.20 4.60% 1.01% FWHT JUN 20 19.65 20.43 0.35 6.25% 1.78% GPRO JUN 35 34.45 41.72 0.55 5.54% 1.60% MEE JUN 22 22.15 26.28 0.35 5.66% 1.58% SMTC JUN 20 19.70 22.47 0.30 6.79% 1.52% SWIR JUN 22 22.20 33.05 0.30 6.05% 1.35% YHOO JUN 27 27.15 32.07 0.35 4.58% 1.29% ASKJ JUN 35 34.55 35.55 0.45 6.43% 1.30% CRDN JUN 30 29.45 34.77 0.55 8.32% 1.87% ERES JUN 23 23.03 24.55 0.35 6.55% 1.52% NKTR JUN 17 17.25 18.84 0.25 8.24% 1.45% NSM JUN 20 19.70 20.34 0.30 6.58% 1.52% SMTC JUN 22 22.20 22.47 0.27 5.59% 1.35% YHOO JUN 27 27.25 32.07 0.25 4.28% 0.92% CVTX JUL 15 14.60 15.97 0.40 5.63% 2.74% DITC JUL 17 16.80 23.06 0.70 8.40% 4.17% JILL JUN 20 19.70 23.11 0.30 10.05% 1.52% NKTR JUN 17 17.20 18.84 0.30 13.99% 1.74% OSIP JUN 65 64.50 65.63 0.50 6.89% 0.78% SINA JUN 35 34.50 36.05 0.50 10.37% 1.45% SMTC JUN 22 22.25 22.47 0.22 6.84% 1.12% SYNA JUL 17 16.85 20.38 0.65 7.48% 3.86% TELK JUN 20 19.75 22.83 0.25 10.33% 1.27% USG JUN 15 14.70 16.28 0.30 13.27% 2.04% UTHR JUN 22 22.15 23.50 0.35 10.38% 1.58% PTIE JUL 7 7.15 8.84 0.35 9.89% 4.90% BCC JUL 35 34.25 37.73 0.75 5.12% 2.19% JILL JUL 20 19.45 23.11 0.55 6.72% 2.83% LSS JUL 20 19.50 25.61 0.50 6.07% 2.56% OI JUL 15 14.65 16.17 0.35 5.64% 2.39% NVTL JUL 15 14.65 21.20 0.35 7.34% 2.39% PDII JUL 25 24.70 30.49 0.30 3.91% 1.21% RSAS JUL 17 17.05 20.73 0.45 6.22% 2.64% STLD JUL 25 24.45 27.25 0.55 5.33% 2.25% UPL JUL 30 29.55 35.20 0.45 4.14% 1.52% USG JUL 15 14.15 16.28 0.85 13.32% 6.01% ATI JUL 12 12.20 15.10 0.30 7.44% 2.46% BJS JUL 42 41.70 45.11 0.80 4.75% 1.92% LCAV JUL 25 24.35 28.28 0.65 6.85% 2.67% NCRX JUL 27 26.80 31.88 0.70 7.30% 2.61% NVTL JUL 17 17.05 21.20 0.45 8.97% 2.64% SSYS JUL 22 22.20 27.02 0.30 4.41% 1.35% SWIR JUL 30 28.85 33.05 1.15 10.66% 3.99% SYNA JUL 17 16.90 20.38 0.60 8.98% 3.55% YHOO JUL 30 29.20 32.07 0.80 6.80% 2.74% Boston Communications (NASDAQ:BCGI), Au Optronics (NYSE:AUO), 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. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield IACI JUN 32 33.15 29.94 0.65 5.22% 1.96% OVTI JUN 30 30.80 15.50 0.80 11.79% 2.60% SLAB JUN 55 55.50 44.99 0.50 4.93% 0.90% PHTN JUN 35 35.35 30.91 0.35 4.69% 0.99% ENDP JUN 25 25.70 21.14 0.70 11.16% 2.72% IPXL JUN 22 23.05 20.47 0.55 8.75% 2.39% MMR JUN 15 15.25 15.26 (0.01) 0.00% 0.00% APPX JUN 40 40.40 31.97 0.40 6.84% 0.99% OVTI JUN 27 27.25 15.50 0.25 6.69% 0.92% WSM JUN 32 33.00 31.61 0.50 5.64% 1.52% ABAX JUN 20 20.25 19.67 0.25 5.81% 1.23% CHIC JUN 20 20.35 19.19 0.35 8.70% 1.72% USNA JUN 30 30.40 29.95 0.40 6.29% 1.32% ABGX JUN 17 17.85 11.40 0.35 13.94% 1.96% CREE JUN 25 25.25 19.78 0.25 5.36% 0.99% SSNC JUN 25 25.50 18.39 0.50 10.41% 1.96% DIGE JUN 40 40.30 35.96 0.30 6.89% 0.74% MDCO JUN 30 30.70 29.23 0.70 15.46% 2.28% ASKJ JUL 45 45.55 35.55 0.55 6.50% 1.21% AMLN JUL 25 25.35 22.09 0.35 5.29% 1.38% ICOS JUL 30 30.45 27.34 0.45 5.26% 1.48% OIIM JUL 17 17.80 15.85 0.30 5.50% 1.69% INSP JUL 40 40.50 33.23 0.50 6.88% 1.23% RHAT JUL 25 25.60 20.10 0.60 9.08% 2.34% XMSR JUL 27 27.75 22.83 0.25 4.34% 0.90% McMoran Exploration (NYSE:MMR) has previously 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 AMHC JUL 22.50 21.80 24.09 0.70 9.36% 3.21% CTSH JUL 22.50 22.20 24.51 0.30 4.34% 1.35% CYBX JUL 30.00 29.25 37.06 0.75 10.31% 2.56% ERES JUL 22.50 21.85 24.55 0.65 9.03% 2.97% HLEX JUL 15.00 14.65 16.36 0.35 7.40% 2.39% MINI JUL 20.00 19.65 22.34 0.35 5.89% 1.78% NFI JUL 30.00 29.30 37.20 0.70 9.77% 2.39% PTIE JUL 7.50 7.25 8.84 0.25 11.96% 3.45% RIMM JUL 50.00 49.15 59.53 0.85 6.57% 1.73% SGTL JUL 22.50 22.25 26.45 0.25 4.25% 1.12% __________________________________________________________________ AMHC - American Healthways $24.09 ** Solid Earnings = Rally! ** American Healthways (NASDAQ:AMHC) provides specialized healthcare enhancement and disease management services to individuals in all 50 states, the District of Columbia, Puerto Rico and Guam. The firm's integrated care enhancement programs serve entire health plan populations through its member and physician care support interventions, advanced neural network predictive modeling and a confidential, secure Internet-based application that provides patients and physicians with individualized health information and data. AMHC - American Healthways $24.09 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 QMH SX 10 0.70 21.80 9.4% 3.2% __________________________________________________________________ CTSH - Cognizant Technology $24.51 *** Post-Split Entry? *** 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 $24.51 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 22.5 UPU SX 0 0.30 22.20 4.3% 1.4% TS __________________________________________________________________ CYBX - Cyberonics $37.06 *** "Premium-Selling" Only! *** Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and markets medical devices that provide vagus nerve stimulation (VNS) for the treatment of epilepsy and other debilitating neurological, psychiatric diseases and disorders. The firm's primary product, the Cyberonics VNS Therapy System, is an implantable medical device for the treatment of epilepsy, depression, Alzheimer's disease and other debilitating chronic disorders. CYBX - Cyberonics $37.06 "SPECULATIVE" 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 QAJ SF 3963 0.75 29.25 10.3% 2.6% __________________________________________________________________ ERES - eResearch Technology $24.55 *** Next Leg Up? *** eResearch Technology (NASDAQ:ERES) is a provider of technology and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. The company offers a range of products and services, including Diagnostics Technology and Services and Clinical Research Technology. Their Diagnostics Technology and Services include centralized diagnostic services and clinical research operations, including clinical trial and data management services. Their Clinical Research Technology and Services include the developing, marketing and support of clinical research technology and services. ERES - eResearch Technology $24.55 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 UDB SX 215 0.65 21.85 9.0% 3.0% __________________________________________________________________ HLEX - HealthExtras $16.26 *** Own This One! *** HealthExtras (NASDAQ:HLEX) is a provider of pharmacy benefit management (PBM) services and supplemental benefit programs. The company's PBM clients include managed-care organizations, self-insured employers and third-party administrators who contract with HealthExtras to cost-effectively administer the prescription drug component of their overall health benefit plans. PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 15 HUE SC 100 0.35 14.65 7.4% 2.4% __________________________________________________________________ MINI - Mobile Mini $22.34 *** New 52-Week High! *** Mobile Mini (NASDAQ:MINI) is a provider of portable storage solutions through its lease fleet of almost 90,000 portable storage and portable office units. The firm offers portable storage products in varying lengths and widths with a large assortment of differentiated features, such as proprietary security systems, multiple doors, wiring and shelving. These portable units provide secure, accessible temporary storage for a unique client base including: large and small retailers, construction companies, medical centers, schools, utilities, distributors, the United States military, hotels, restaurants, entertainment complexes and households. MINI - Mobile Mini $22.34 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 20 UAC SD 0 0.35 19.65 5.9% 1.8% __________________________________________________________________ NFI - NovaStar Financial $37.20 *** Bottom-Fishing Only! *** NovaStar Financial (NYSE:NFI) is a specialty finance firm that originates, invests in and services residential nonconforming loans. The company offers a range of mortgage loan products to borrowers (nonconforming borrowers) that usually do not satisfy the credit, collateral, documentation or underwriting standards prescribed by conventional mortgage lenders and loan buyers. NFI - NovaStar Financial $37.20 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 NFI SF 2301 0.70 29.30 9.8% 2.4% __________________________________________________________________ PTIE - Pain Therapeutics $8.84 *** No Pain -- No Gain! *** Pain Therapeutics (NASDAQ:PTIE) is developing a new generation of opioid painkillers with improved clinical benefits. The company's drugs will offer enhanced pain relief and reduced tolerance/physical dependence or addiction potential compared to existing opioid painkillers. If approved by the Food and Drug Administration, these proprietary drugs could replace certain existing opioid painkillers commonly used to treat moderate to severe pain. PTIE - Pain Therapeutics $8.84 "SPECULATIVE" PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 7.5 UQ SU 802 0.25 7.25 12.0% 3.4% __________________________________________________________________ RIMM - Research In Motion $59.53 *** Testing 2004 Highs! *** Research In Motion (NASDAQ:RIMM) is a designer, manufacturer and seller of wide area wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, the firm provides platforms and solutions for seamless access to time-sensitive information including e-mail, phone, short message service messaging, as well as Internet and intranet-based corporate data applications. RIMM - Research In Motion $59.53 PLAY (sell naked put): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL PUT JUL 50 RUP SJ 7577 0.85 49.15 6.6% 1.7% __________________________________________________________________ SGTL - Sigmatel $26.45 *** In A Trading Range? *** Sigmatel (NASDAQ:SGTL) is a fabless semiconductor company that designs, develops and markets proprietary, analog-intensive, mixed-signal integrated circuits for a variety of products in the consumer electronics and computing markets, including portable compressed audio players, notebook and desktop PCs, DVD players, digital televisions and set-top boxes. SGTL - Sigmatel $26.45 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 UGO SX 10 0.25 22.25 4.3% 1.1% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CECO - Career Education $56.24 *** Lawsuit Woes Continue! *** Career Education Corporation (NASDAQ:CECO) is a provider of private, for-profit, postsecondary education, with 78 campuses throughout the United States, Canada, France, the United Kingdom and the United Arab Emirates. The company also offers online education programs through its Online Education Group, which includes American InterContinental University Online and also Colorado Technical University Online. CECO - Career Education $56.24 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 65 CUY GM 2171 0.90 65.90 7.2% 1.4% __________________________________________________________________ ESI - ITT Educational Services $39.42 *** CECO Brethren *** ITT Educational Services (NASDAQ:ESI) is a provider of technology oriented post-secondary degree programs in the United States. It offers Associate's, Bachelor's and Master's degree programs and non-degree diploma programs. ITT/ESI also designs its education programs, after consultation with employers, to help graduates prepare for careers in various fields involving their areas of study. ESI - ITT Educational Services $39.42 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 45 ESI GI 2611 0.50 45.50 5.5% 1.1% __________________________________________________________________ FMT - Fremont General $17.82 *** A Big "Down" Day! *** Fremont General (NYSE:FMT) is a financial services holding firm engaged primarily in real estate lending through its industrial bank subsidiary, Fremont Investment & Loan. The firm lending operations consist of the wholesale origination of non-prime or sub-prime residential real estate loans on a nationwide basis that are primarily sold to third-party investors on a servicing released basis or, to a lesser extent, securitized or held in a loan portfolio, and the origination of commercial real estate loans on a nationwide basis that are substantially all held in a loan portfolio. FMT - Fremont General $17.82 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 20 FMT GD 21 0.40 20.40 8.7% 2.0% __________________________________________________________________ NBIX - Neurocrine Biosciences $49.70 *** Technicals Only! *** Neurocrine Biosciences (NASDAQ:NBIX) develops and intends to commercialize drugs for the treatment of neurologic and other endocrine system-related diseases and disorders. The firm's product candidates address pharmaceutical markets that include insomnia, anxiety, depression, malignant brain tumors, as well as peripheral cancers, diabetes mellitus, multiple sclerosis, irritable bowel syndrome, eating disorders, pain, prostate cancer, obesity and certain female health disorders. NBIX - Neurocrine Biosciences $49.70 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 55 UOT GK 959 1.10 56.10 8.2% 2.0% __________________________________________________________________ SLAB - Silicon Laboratories $44.99 *** Downtrend Underway! *** Silicon Laboratories (NASDAQ:SLAB) designs and develops a wide range of proprietary, analog-intensive, mixed-signal integrated circuits for use in various applications. The company groups its products into two categories: mobile handset products and broad-based, mixed-signal products. SLAB - Silicon Laboratories $44.99 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JUL 50 QFJ GJ 1313 0.75 50.75 6.4% 1.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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