The Option Investor Newsletter Sunday 07-04-2004 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: Much Ado About Nothing Futures Market: See Note Index Trader Wrap: SUMMERTIME BLUES Editor's Plays: Verge of a Crash? Market Sentiment: Mixed Emotions Ask the Analyst: Like a bunch of Elephants! Treasury yields and stocks 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 7-02 WE 6-25 WE 6-18 WE 6-11 DOW 10282.83 - 89.01 10371 - 44.57 10416 + 6.31 +167.18 Nasdaq 2006.66 - 18.81 2025.47 + 38.74 1986.73 - 13.14 + 21.25 S&P-100 547.17 - 2.58 549.75 - 5.06 554.81 - 0.09 + 7.82 S&P-500 1125.38 - 9.05 1134.43 - 0.57 1135.00 - 1.47 + 13.97 W5000 10997.55 - 76.05 11073 + 39.48 11034 - 11.83 +109.64 SOX 457.31 - 21.60 478.91 + 25.83 453.08 - 23.20 + 5.37 RUT 582.72 - 4.98 587.70 + 17.16 570.54 + 1.42 + 1.37 TRAN 3146.17 - 18.01 3164.18 + 95.61 3068.67 + 43.96 + 32.43 *************************************************************** Much Ado About Nothing by Jim Brown Multiple major events came and went and the markets yawned with indifference. End of quarter window dressing turned into a strip search as weak economics and earnings warnings started to chip away at investor confidence. Still, despite a return to the bottom of our recent range the markets did not appear concerned. Dow Chart - Daily Dow Chart - 90 min Nasdaq Chart - Daily SOX Chart - Daily Ten-year Yield Chart Friday was no different from the rest of the week with the Nonfarm Payrolls coming in weaker than expected at only +112,000 and well under the consensus estimates of 275,000. This was the third monthly drop since the March high of 353,000 and the smallest gain in four months. April was revised down from 346K to 324K for a drop of -22,000 jobs. Adding this drop to the this months gain represents only a net gain of +90,000. This is still positive and the tenth consecutive month of job additions but the trend is not healthy. The net gain was only 1/4 of the March number and suggests the August payrolls could be flat or even negative if the trend continues. Manufacturing employment fell -11,000 in June and was the first decline in five months. The companion household employment survey showed a gain of +259,000 for June but this is a very volatile survey with wide swings. It is used as a confirmation of the Nonfarm Payroll numbers. This suggests more employees are switching to contractor status or becoming self employed. Average workweek and manufacturing workweek hours both dropped suggesting a continuing weakness in the workplace. This would also suggest next months employment numbers could be weaker. The number of unemployed workers rose +45,000 for the month to 8.248 million. This was the second consecutive month of gains in the total unemployed. The economy must add +150,000 jobs per month just to stay even with the number of new workers coming into the workforce. As you can see we actually lost ground last month. The smaller than expected job gain sent the bond market reeling with a drop in the ten-year note yields to 4.44% and a two month low. Considering this was only two days after the Fed began a rate hike cycle this is simply amazing. While I doubt this will deter the Fed from its next hike the weak economics and the drop in bond yields will undoubtedly keep the Fed on a slow and measured pace for future hikes. The Fed funds futures immediately removed a 25 point hike from the current end of year scenario and reduced the potential for a 50 point hike in August to almost zero. The equity market did not like the weak jobs numbers but the drop in rates should help smooth over their worries once trading begins again next week. The slack in the labor market is still with us and the Fed has strong history in not raising rates until jobs are on a steady path. Another battle worth watching is the semiconductor sector. I have written about it recent path several times but the saga continues. The SOX dropped another -2% to 456 in early trading on Friday after Deutsche Bank cut Intel to a hold on concerns about global shipments. There are conflicting data points on supply and demand constraints depending on who you read. The Semiconductor Billing report on Friday showed a +37% jump in sales on a year-over-year basis in May and at their highest level since late 2000. This should be good news but the sector is under attack from analysts suggesting the peak has passed. Viewed another way sales only climbed +2.1% in May over April and this has fueled the criticism by analysts. We will get Intel earnings on the 13th and that gives us plenty of time for analysts to polarize even further. As long as the SOX continues to be weak we cannot expect the Nasdaq to recover. Leading chip stocks like INTC, AMAT and LRCX lost an average of -5% for the week. To summarize, the component shortage suggests high demand and an increase in pricing power but limits the amount of chips sold. Earnings should continue to rise but sales may not rise at the same rate. Next week is a relatively light week for economic reports with those on the schedule not specifically market movers. We will have the ISM Services on Tuesday and the MAPI Survey on Thursday and those are the highlights. Investor focus should begin to shift to earnings as the Q2 cycle begins. It will start with a whimper on Tuesday with AA, DNA and YHOO followed by GE and ABT on Friday. The next week beginning July-12th has over 300 reporters headlined by Intel on Tuesday. After the GE guidance on Friday and the Intel guidance on Tuesday traders will make decisions about Q3 direction and the markets should react accordingly. The big news has passed with Iraq, the Fed, quarter end, Russell shuffle and Jobs now history. If anything we could be facing a long hot summer of investor apathy as vacations and election conventions take center stage. Analysts are pretty much in agreement that the economy is slowing but only slowing to a more sustainable pace. The starting sprint out of the recession lows is over and the market will settle into its long distance routine. Economics will begin to be ignored as long as they maintain a positive trend and post election 2005 earnings guidance will begin to take center stage. The prospect of no immediate catalyst provided traders with no excitement on Friday. The indexes dropped at the open on the Jobs news but they rebounded slightly once support levels were reached. The Dow fell to 10275 and light support just a couple dozen points below its recent range bottom at 10300. It tested that 10275 level multiple time during the day and appeared on the verge of cracking on weekend event risk most of the day. In the end support held and the Dow closed at 10282 for a loss of -51. Internals have declined significantly and the Dow is back to June-2nd levels having given back -200 points from the weeks highs. The Nasdaq retreated to resistance turned light support at 2000 and hovered there most of the day. With the SOX heading south it was remarkable to see the Nasdaq hold this level for most of the day. The Nasdaq does not face a support challenge until 1965 and that is well below our current levels. The YHOO earnings on Tuesday could be pivotal in whether we test that support. Traders were not able to make any gains into the close and there was a distinct lack of short covering. The Nasdaq ended at 2006 for a loss of -9. The flurry of earnings warnings and the weaker than expected ISM and Jobs reports have put a crimp in my expectations for a post holiday rally into earnings. I really do not think economic conditions have changed much but the perception of a worsening is growing. With the markets near 10500/2075 and the recent highs stocks were priced to perfection in anticipation of strong earnings. The warnings have tarnished investor outlook and we are seeing much less of a bullish undertone. Where I was looking for a post holiday uptick into the earnings week of the 12th I have moved back to a neutral position. While we could easily go either way there is still strong support below us. That support could evaporate with a couple more high profile warnings and we could begin a sideways decline into October. I know this flies in the face of the summer rally crowd but when you think about it there is no reason for stocks to rise. If real earnings are going to decline and the economy continue to slow then stocks are fairly valued at the current level. What we need is for GE and Intel to brag about how strong business really is and raise guidance for Q3 and beyond. Personally I think the odds of this happening now are very slim. I think they will just affirm guidance and leave it at that. Should Intel lower guidance as two analysts have suggested we will be in serious trouble. This makes next week a tossup and I suspect moving higher will be a challenge. We have seen the range expanded on the high side to 10487 and I think we could see the low side pushed back to 10150. This gives us a very broad range to wander over the next couple weeks without any damage being done. July is typically the strongest month of the 3Q and so far it is not shaping up as bullish. The Nasdaq has room to 1965 and is currently right in the middle of its recent 1965-2065 range. Again, plenty of movement potential without any conviction required. Our volume on Friday was definitely light with only 2.7B shares across all markets and that was weighted 2:1 in favor of declining shares. Tuesday is going to be telling for market direction. I would use Tuesday as an indicator for the week and trade what you see not what you think. There could easily be a sentiment change in progress and we need to see which way the traffic is moving before stepping off the curb. Speaking of traffic have a safe holiday weekend and remember to buckle up. The Dept of Transportation is predicting 522-550 deaths from traffic accidents over the weekend. This weekend kills and injures more people than any other. Buckle up and live to trade another day. 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 ******************** SUMMERTIME BLUES By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – The bulls didn't get the lift from getting the modest rate rise out of the way and especially did not get the expected big jump in jobs. It's enough to make a grown bull cry. So near yet so far – the indices got at or near prior highs but retreated from their April price peaks (the Feb. highs in the case of the Nasdaq 100 & QQQ). This action of last week sets up double tops and suggests that this market will continue to be in trading range. And, from last week's closing levels, lower from here. The only major index powering to a new high was the Dow Jones Transportation average (TRAN) and its prior high was reflecting a stock group that was lagging the market significantly. Still, this new high in TRAN sets up a watch to see if the Dow 30 (INDU) can follow suit at some point – right now, INDU is lagging the other related indices. My last week's Trader's Corner article was about what Dow Theory might have to say on this subject. See - http://www.OptionInvestor.com/traderscorner/tc_062904_2.asp FRIDAY'S TRADING ACTIVITY – THE NUMBERS – The S&P 500 Index (SPX) fell to 1,125.37 (-0.3%). The Dow Jones 30 Average (INDU) was off by 51 points (-0.5%) to 10,282.76, it's lowest close since June 3rd. For the week, the Dow lost 89 points. The Nasdaq Composite Index (COMP) was off 9 points (-0.4%), to finish at 2,006.6 – for the week COMP fell 19 points. The Russell 2000 (RUT) bucked the trend slightly by closing fractionally higher on the day at 582.7 THE REPORTS – The Labor Dept. reported that the June non-farm payroll increase was only 112,000 jobs, well under the consensus forecast for around a quarter of a million. The unemployment rate held steady at 5.6%. Average hourly wages rose by 2 cents (+0.1%) to $15.65 which was less than the 0.3% gain expected by the market. Payroll growth in April and May together was revised lower by 37,000. Over the past 3 months, payroll growth has averaged 224,000 a month putting it near a million on an annual basis. President Bush bragged on the growth, while his Dem challenger John Kerry pointed out that new jobs are generally paying less than ones lost in prior years. The income squeeze perceived by the middle class relates to this issue. Details of the June Labor Dept. report included that the average workweek fell by 2/10ths of an hour to 33.6 hours. Total hours worked in the economy dropped 0.6%. In manufacturing, the average workweek fell by 3/10ths of an hour to 40.8 hours, while overtime was steady at 4.6 hours a week. May factory orders were also released on Friday and fell by 0.3%, which was not as weak as the -0.7% forecast and May's decline was not as much as April's 1.1% fall. Not a great time to be in the manufacturing business – there are some signs of life but the patient is not well. THE TALK – Deutsche Bank dropped its rating on Dow stock Intel (INTC) – also of course a key stock in the Nasdaq - to "hold", citing supply- chain uncertainties. The Deutsche Bank analyst noted concerns about Intel's recently launched "Grantsdale" PC chip and its motherboard shipments in Taiwan as expressed by lowering their firm's rating on the stock. Some cautious analyst comments on chip-maker Texas Instruments (TXN) also created a negative impact on tech stocks in general, as did warnings on some smaller companies. Apple Computer (AAPL) was a drag on the hardware sector as the company said the launch of a flat-panel version of its popular iMac PC would be delayed. Semiconductor stocks were among the hardest hit among tech shares as investors disregarded word from the Semiconductor Industry Association that worldwide sales rose to $17.32 billion in May, up 2.1 percent from April and 36.9 percent from a year earlier. The Philadelphia Semiconductor index (SOX) fell just over 2%. OTHER MARKETS – Bonds soared as the data lessened concerns about aggressive interest-rate moves by the Fed. Treasury bond prices on Friday rallied to 6-month highs and yields fell to 2-month lows. The 10-year note ended almost a full point higher, +28/32nds to 102 9/32, yielding 4.46%. August crude futures closed at $38.39 a barrel on the New York Merc, down 35 cents, but up 85 cents for the week. A surprise fall in last week's crude inventories provided support last week, but prices fell Friday after a 2-day climb of more than $3 a barrel. MY INDEX OUTLOOKS – If the bulls are looking for help from the tech stock sectors and anticipating that maybe the Nasdaq, which has been lagging the S&P indices in recent weeks, will take the lead – little comfort for that is provided by the very important semiconductor index (SOX) as it reversed right at it's 200-day moving average and retreated from there, falling back under its down trendline – S&P 100 Index (OEX) – Daily chart: It is now more apparent that the S&P 100 (OEX) has made at least an interim top given the continued decline from its high in the 559 area, which equals its late-April peak at the dashed red level line on the daily chart below. If in puts, stay with them as the near-term trend has gone from sideways to down with the decline to under the low end of the recent trading range. The close under 550 and its 21-day moving average is also near- term bearish. Support could develop around 544, at the previously broken up trendline. A rebound from this area would be encouraging for a shallow correction only. 540-541 may offer some support. 533 is at the lower trading envelope line and is a kind of benchmark to see where OEX might again be "oversold". The best technical indication for a top was pre-warned by the falling 14-day RSI line which was divergent or contrary action relative to what prices were doing; i.e., making a new high. This type of bearish divergence is one of the best signs for an upcoming reversal that there is. In case you want to know more about Price/Indicator divergences, you can look back at a prior Trader's Corner article I did, which includes a discussion of divergences of this type – http://www.OptionInvestor.com/traderscorner/tc_032804_1.asp Dow Industrials (INDU) Daily: The fall last week in the Dow 30 average (INDU) to below near- support in the 10300 area gives more credence to the idea that this index reached a top when prices again got up near the cluster of the April highs in INDU. Look for possible support in the 10260 area, then in the 10170 area of the 200-day moving average. I think that the 10100 area is the lowest that will be seen in the short-term. (If that is the lowest low for this correction it will be interesting to see is a head and shoulder's bottom sets up.) Price momentum is clearly down now as can be measured by such Indicators as the 14-day slow stochastic. Nasdaq 100 (NDX) Index – Daily: I suspect that the Nasdaq 100 (NDX) is headed back to the 1450 area at a minimum. I would be surprised to see NDX climb back above 1500 in the coming week, which is a short week anyway. A very good tip off for a top was seen mid-week with the clear cut higher high, but without a similar new high in the 14-day RSI. These type divergences don't set up all that often, but are very valuable to index option trading. The bearish divergence that set up this past week suggested a high potential put buy as the index rallied – especially up to a prior high (the Feb. top) - and when OEX put prices were relatively cheap. When they break, you then have to pay "up" for the option. Nasdaq 100 (NDX) Index – Hourly: If you want to see an even better visual on the aforementioned bearish price/RSI divergence, the hourly chart is shown below - The RSI "length" setting shown above is 14, but the divergent trend of a lower RSI peak was also apparent with a "21" setting in the Relative Strength Index indicator that is good for use on an hourly chart. Use of the hourly chart also shows the prior lows coming in around 1450 – below this level, support comes in around 1425 based on what I see in the chart pattern. Nasdaq 100 tracking Stock (QQQ) Daily: I leave the down trendline in place – it was a line of resistance – will it now prove to be the opposite and act as support. If so, the Q's will need to maintain closes at or above Friday's closing level at 36.80. However best near support is apparent in the 36 area. If the Q's start breaking 36 it should go lower still and would set up a target to the 35 area. The only good jump in volume seen in a while – above average daily volume – was when the stock broke sharply this past week. The lack of a corresponding jump in volume on the rally early in the past week was a case of volume not "confirming" the advance in prices – the rally. 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 ************** Verge of a Crash? While my logic tells me we should move slightly higher over the next couple weeks as we move into earnings I think the potential for a new leg down is rising. I am not willing to risk a lot on this potential but I think it is worth a lottery play. With two weeks left in the July option cycle the current month options are cheap and cheap for a reason. We have been range bound for a month and with the potential for an historical uptick next week the odds of remaining range bound appear good. That is where I am beginning to differ from conventional wisdom. Markets have a habit of doing the opposite of what we expect when we most expect it. This makes the counter trend move when it appears one of considerable strength because everyone has been betting against it. Today that would mean everyone bought the dip and is expecting a rebound into the third week of July. That is the conventional wisdom. Every time I look at the Dow chart today I keep seeing a potential failure back to 10150-10200 or even 10000 with very little effort. I am willing to risk a few dollars on the roll of the dice that the market may surprise the bulls. I am going to suggest the July DJX-$102 put DJV-SX which closed at $0.70 on Friday. Assuming we open higher on Tuesday we should be able to buy it cheaper after three days of time have expired in the premium. If we do open higher wait for a clear roll over to enter the trade. The higher the better. We are going to target something below 10200 for an exit. I am not going to post an official exit because there is the potential for a serious drop in this fragile market. I am going to set a stop at 10375 just in case we guessed wrong. This is a very speculative position and one that should only last four days or less. I do not want to hold it over the next weekend unless we are deep in the money and the markets are heading south. Plan on closing on the 9th to preserve any remaining time premium. If we are wrong we will take our lumps. Buy July DJX-$102 Put DJV-SX $0.70 at Friday's close. Stop loss Dow 10375 Profit target 10200 or less. Look for an exit under 10200. DJX Chart - Daily ********************* Microsoft Running In Place $28.56 Combination play Microsoft finished only a penny lower for the week as traders wait for the news on the cash disbursement. http://members.OptionInvestor.com/editorplays/edply_062704_1.asp *********************** Trouble Across the Pond News Corp Update $35.61 Current position: Long (6) Jan-2006 $40 Calls WLN-AH @ $3.83 http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp ********************** PVN Call Update $14.69 http://members.OptionInvestor.com/editorplays/edply_061304_1.asp **************** MARKET SENTIMENT **************** Mixed Emotions - J. Brown All the traders not yet on holiday with the extended Fourth of July weekend can breathe a sigh of relief. Despite an incredibly busy week where the markets endured the Russell 2000 reshuffling, the Iraq handover of power, the two-day FOMC meeting and decision on interest rates, the Friday non-farm payrolls report and a wave of disappointing economic reports, stocks remain widely stuck in their month-long trading range. Yes, it was rather anticlimactic. We endured all of these "market moving" events and yet the markets didn't move - not just for the week but for the year. The NASDAQ and the S&P 500 are marginally up for the year while the Industrials are negative but less than 200 points from their 2003 close. Looking ahead it's hard to judge investor sentiment. There are conflicting factors for both short-term and long(er)-term time horizons. Short-term the broader NASDAQ and S&P 500 are near the bottom of their trading range and technicals look bearish. The Industrials are actually just under the bottom of its month-long trading range. Technically the ARMS index or TRIN is showing a bullish/oversold reading on its short-term 5-dma. Yet volatility indices remain near their lows indicating traders are too bullish for stocks to mount any sort of extended rally. Plus the sudden rise in oil has damaged expectations for a future drop in fuel prices to ease inflation and boost consumer discretionary spending. Hopefully the recent two-day drop in the stock market and the rise in oil is merely investor fear and/or speculation over a terrorist event during the long holiday weekend. If the weekend passes peacefully then oil may slip lower again. Short-term one might expect traders to gear up for what should be a strong Q2 earnings season. Unfortunately, investor confidence has took a beating on this one with a rash of painful earnings warnings. Yet on the positive side the beginning of July is supposed to see retirement money inflows from the recent quarter end filter into stock prices. I think we haven't seen that yet because of investor caution ahead of the weekend. July also happens to be the best month out of the third quarter for stocks in general. On the flipside July may be the best month out of the third quarter only because August and September are historically that much weaker. As I mentioned in the wrap on Wednesday July begins the worst four months of the year for the NASDAQ. Longer-term investors should be encouraged that the economy has been able to maintain its trend of growth. The U.S. economy is working on its 12th consecutive quarter of growth. Businesses have added more than one million jobs since last August. It was only a few quarters ago that the pace of growth hit 20-year highs. Of course therein lies our problem for the second half of 2004. Growth was so strong in the second half of 2003 that earnings comparisons are going to be extremely tough to beat. That's why this Q2 earnings season may be challenging. Corporations are expected to easily surpass last year's numbers but their guidance going forward will be the determining factor for the second half of July and probably all of August. One point of view I heard on Friday made a lot of sense. The markets have already accepted a rising interest rate environment. Investors expect rates to rise because the economy is improving. Yet what if the economy isn't improving. We've heard and seen a number of reports that show growth has been slowing. The rate of job growth has also been declining for three months in a row. Now we're moving into the third quarter a.k.a. the slowest quarter of the year. If you view the market from this point of view there isn't a lot of eagerness to buy stocks. This isn't a new idea. Jim has been discussing lower earnings expectations and weaker comparisons for the third and fourth quarter for weeks. If earnings growth slows down it's only natural to see the stock market slow and/or decline. Earnings have always been the main market driver and that's why you hear so much lately about how "quality" stocks will be the winners in the second half. But don't start looking at those January put options yet. Job growth is expected to pick up again as we move deeper into the second half. Plus, I mentioned on Wednesday that the S&P 500 historically rises an average of 8% in the first six months after the Fed begins a tightening cycle on monetary policy. Plus, we have the historical trend for stocks to perform well in the last seven months of an election year. Of course this last trend may be challenged. There is so much uncertainty regarding the 2004 elections that stocks might be stuck in wide trading range through Thanksgiving. Enjoy your long weekend, your hard won freedoms and say thank you to the men and women in uniform who help defend it! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8871 Current : 10284 Moving Averages: (Simple) 10-dma: 10373 50-dma: 10250 200-dma: 10169 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 960 Current : 1125 Moving Averages: (Simple) 10-dma: 1134 50-dma: 1119 200-dma: 1099 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1204 Current : 1481 Moving Averages: (Simple) 10-dma: 1489 50-dma: 1452 200-dma: 1443 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.08 -0.12 CBOE Mkt Volatility old VIX (VXO) = 15.21 +0.13 Nasdaq Volatility Index (VXN) = 19.89 -0.17 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.81 559,886 453,271 Equity Only 0.71 459,413 325,758 OEX 0.69 22,288 15,544 QQQ 3.10 32,169 99,994 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 67.1 + 0 Bear Confirmed NASDAQ-100 50.0 + 0 BULL ALERT Dow Indust. 70.0 + 0 Bear Confirmed S&P 500 65.6 + 0 Bear CORRECTION S&P 100 67.0 + 1 Bear CORRECTION 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: 1.62 10-dma: 1.28 21-dma: 1.11 55-dma: 1.10 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 1725 1423 Decliners 1092 1522 New Highs 118 84 New Lows 30 39 Up Volume 470M 317M Down Vol. 807M 838M Total Vol. 1292M 1187M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 06/29/04 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 It would appear that no one wanted to make any big bets this week with the Iraq handover, the FOMC meeting and the Jobs report. Commercial traders remain slightly bearish and small traders remain bullish. Commercials Long Short Net % Of OI 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%) 06/22/04 407,842 415,462 ( 7,620) (0.9%) 06/29/04 405,273 413,351 ( 8,078) (0.9%) 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 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% 06/22/04 124,985 89,934 35,051 16.3% 06/29/04 129,978 94,535 35,443 15.7% 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 Commercial traders have tempered their bearishness a bit but they remain very bearish on the e-minis. Likewise small traders are still very bullish. One group is going to be terribly wrong here and odds are in favor of the big traders. Commercials Long Short Net % Of OI 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%) 06/22/04 229,290 446,974 (217,684) (32.2%) 06/29/04 258,443 447,505 (189,062) (26.7%) 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 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% 06/22/04 243,444 58,389 185,055 61.3% 06/29/04 236,492 47,780 188,712 66.3% 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 are relatively neutral on the NASDAQ-100 with a small bullish bias. Meanwhile small traders have turned a bit more bearish on the group. Commercials Long Short Net % of OI 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% 06/22/04 40,397 37,413 2,984 3.8% 06/29/04 41,078 37,194 3,884 4.9% 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 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%) 06/22/04 9,311 9,950 (639) ( 3.3%) 06/29/04 7,437 11,904 (4,467) (23.1%) 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 Not much change for the commercial traders. They remain bullish on the Dow Industrials. Small traders have turned a little more bearish on the index. Commercials Long Short Net % of OI 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% 06/22/04 26,808 19,752 7,056 15.2% 06/29/04 27,278 20,512 6,766 14.1% 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 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%) 06/22/04 5,626 7,798 (2,172) (16.2%) 06/29/04 4,930 7,682 (2,752) (21.8%) 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 *************** Like a bunch of Elephants! Treasury yields and stocks I've been a subscriber to OptionInvestor.com since 1999. In 2000, I pulled huge profits off the table when you began warning that lower Treasury yields were a sign of caution toward economic slowing, when prior to 2000 Treasury yields and stocks were moving in the same direction as the economy was expanding with relatively modest inflation. Sure enough, as it pans out, stocks suffered some losses. However, my question is this. One of the things I remember you saying is that the lower move in Treasury yields, which came as the Fed was still in a tightening mode, was the signal from the bond market that stocks would soon suffer the consequences. Isn't that what is taking place today? The Fed just started raising rates and now yields are falling. Can you explain why you are turning more bullish now than you were in 2000? I checked, and sure enough, this is a human that wrote the above e-mail, and not an elephant. You're not supposed to remember things I said more than 3-years ago! The stock and bond markets have changed a bit the past year haven't they? Stock prices rose sharply from their March 2003 bottom, yet Treasury YIELDs continued to decline. The decline in Treasury YIELDs suddenly became a measure of good fortune for stocks as the lower YIELDs helped keep consumer borrowing costs at 45 year lows! That along with tax cuts helped reflate the struggling U.S. economy, spurred largely on the back of a strong housing market and homebuilding. And this is where I think it so important to have a general understanding of economic cycles. Stock investors are familiar with terms used to describe the evolution of a company, and economic cycles are no different. In the early stage of development, a company that has developed a new product that is eagerly accepted by the market will experience what many call an "acceleration phase", where revenues will grow rapidly on a year-to-year comparison. As time passes, that same company, as it establishes economies of scale then enters a "growth phase" where no longer is it just consumers that are early adopters begin to use the company's product(s) on a more regular basis. As time passes a company eventually enters what is called a "maturity phase" where growth slows notably when compared to the "acceleration" and "growth" phases. So what does this have to do with stocks and Treasury YIELD? I'm going to make my case that stocks and Treasury YIELD are about to get back into a similar pattern of moving higher in unison. In fact, I'll try and show this to be true and already underway. Again, I believe, based on observation, that the "acceleration" phase of a new economic recovery began, and I now think we are entering the "growth" phase. I may be wrong, I may be right. And while I will test BEARISH scenarios for sign of validity, it is only fair to test BULLISH scenarios. Not for a day, or a week, but continually. Here's a weekly bar chart comparison between the 10-year Treasury YIELD ($TNX.X) and the S&P 500 Index (SPX.X), which many investors consider to be a relatively fair representation of market participants view of the U.S. economy. Treasury YIELD is also thought to be market participants view of Fed policy toward interest rates. In the following charts, I've overlaid conventional use of retracement, to simply define a range, and then dissect that range. Use of 10-week (50-day) and 40-week (200-day) simple moving averages give observation relative YIELD/PRICE movement comparisons. 10-year YIELD (top) / S&P 500 (bottom) comparison - Weekly Int. There are some strikingly similar comparisons between the 10-year YIELD chart and the S&P 500 Index. It is always fascinating to this analyst how there is ALWAYS some type of worry, or BEARISH prognostication present in a market. Sometimes the BEARISH scenario plays out, sometimes it doesn't. However, one thing that is always found, is the BEARISH and BULLISH scenario. Each portends to call the market, and give traders and investors something to think about. It is those scenarios that don't past the test, when continually followed due to the trader/investor's conviction, that will do the most harm to an account. In mid-May, we began to discuss an extremely bearish scenario that had shifted from "deflation" to "inflation." During the "deflation" stage, the BEARISH scenario stated that economy was in a nosedive and that despite tax cuts and an overly easy Fed (in regards to interest rates at 1.0%) the economy would not produce any jobs, and tax cut policy, combined with increasing Federal deficit to fund a war, would have the economy plunging from recession to depression. Suddenly, the equity markets turned higher as tax cuts took hold, where increased consumer spending began to fuel an economic recovery. Hmmmm.... with the scenario of deflation evidently not in play (see markets) and the economy suddenly showing notable job gains, the BEARISH scenario of RAMPID INFLATION had to be in play, where the rapid rise in Treasury YIELD was clear sign that the Fed has lost control, and markets were taking over. The Fed had evidently left interest rates (Fed Funds rate) too low for too long, and inflation was rearing its ugly head. While gold prices, thought to be a good indicator for inflation fell from $428 to below $400, a revamped BEARISH scenario for RAMPID INFLATION was still in play. It was thought that Fed tightening (raising interest rates) showed gold prices falling, and not really being an accurate read on inflation. Instead, a rise in the dollar was the clear sign that RAMPID INFLATION was present. Now, we discussed the RAMPID INFLATION scenario in past OptionInvestor.com Index Trader Wraps, as we needed to set up some tests. We also knew that the MARKET was a forward looking instrument and would eventually give an answer to various scenarios that were in play. In the 05/23/04 Ask the Analyst column, "Economics 101" we had a crash course in economics, looked at recent economic reports, and I (Jeff Bailey) made some economic predictions. Noting that I wasn't an economists, but knew just enough about various indicators/reports in the scope of an economic cycle, to be dangerous. Here's an update to that 05/23/04 column, but more importantly perhaps, still testing the scenario of doom and gloom on RAMPID INFLATION. Table of Economic Reports - Jan. 2004 to May 2004 What have we learned (facts) since mid-May. One fact revealed since mid-May is that the government now says the economy grew at a downwardly revised 3.9% annual rate in the first quarter, from the originally reported 4.2% annual rate. OK, not as robust as originally thought, but steady growth. Another fact, which was a major point of focus in the 05/23/04 Ask the Analyst column was the beneficial impact that higher rates of productivity can have on lessening inflation. Since 05/23/04, the government said productivity grew 3.8% in the first quarter, up from originally reported figures of 3.5%. I was a bit skeptical of RAMPID INFLATION taking hold based solely on the rise in commodity prices. After a recession, production of all sorts (not just manufactured goods and services, but production of commodities is being shut down) had been curtailed, where production was scaled back. Some facilities entirely shut down. It's notable how the CRB Index if benchmarked from its end of May close has fallen, as Industrial production showed 0.8% and 1.1% gains in April and May. Did various industries bring on production to now take advantage of higher prices? Looks that way doesn't it? What tends to happen when more supply comes to a market? Price stability, or decline depending on demand. Now, let's get back to Treasury YIELD for a moment. In past commentary, I made the distinction between CONSUMER interest rates (established by Treasury YIELD) and interest rates (established by the FOMC). When reviewing the chart of the 10-year YIELD ($TNX.X) what happened with CONSUMER interest rates from mid-March to mid-May? Fact: The 10-year YIELD ($TNX.X) rose from roughly 3.75% to a high of 4.85%. RAMPID INFLATION!!!!!! What's the 10-year YIELD doing now? Hmmmm.... RAMPID DEFLATION, RECESSION!!! These scenarios will now start to surface. Why? Because RAMPID INFLATION doesn't look to be in play. You see! It's a new RECESSION we now have to be worried about. See how durable goods and factor orders have been falling off? That's it! RECESSION! Hmmm.... what are Treasury YIELDS doing? A bull might say YIELDS are moving at a higher yet "measured approach" rate. Could it be that the reason durable goods and factory orders have seen declines after RAMPID RATES OF GROWTH is that the bond market, and the rise in YIELDS, which increased consumer borrowing costs had an impact on consumer purchases? Again, we've noted how the BOND market probably did a lot of the Fed's "dirty work" when YIELDS jumped from their March 2004 relative lows, when the Fed first started discussing the possibility of a "measured approach" to interest rate hikes. Just this week, the Fed raised rates 25 basis points. Here's where the trader/investor asking today's question has concerns, as it relates to commentary from 2000. Remember, in 2000 the economic boom, or economic expansion had been running at a record 9 years, the longest period of economic growth. We didn't know for certain (you never do until quarter's later) that in 2000, the economy had been in its "maturity" phase. Not unlike animal populations, economic cycles (up and down), which stock markets reflect (up and down), show animal populations swelling and contracting over periods of time. While history shows economic expansions ranging from 3 to 9 years, there's never a CERTAINTY that history will repeat, just as there's no certainty that the rabbit population around my house will remain robust. I'm seeing more foxes of late. Probably because the food supply is so high in my neighborhood. In hindsight to some, the NEGATIVE forecast from the bond market to the stock market on the lower YIELD trade in 2000, despite a 50 basis point rate hike by the Fed, was the bond market saying "you shouldn't have tightened." Remember too that GOLD was trading at and below the $300 level. You can review that historical analysis in the 08/31/03 Ask the Analyst column "Gold and the Fed. Too loose, too tight, or just right?" Regardless of what the Fed did in 2000, the stock market would have eventually declined. However, the Fed was criticized for its 50 basis point rate hike in 2000 as bringing to an end the economic growth cycle, and the length of the eventual recession. I also remember that in 1995, 1996, 1997, 1998 and 1999 there were constant predictions that the growth cycle for the economy was about to end. Hey.... if you predict something long enough, it will eventually come true. So... let's say that the BEARISH scenario of RAMPID INFLATION has been put to rest. For now at least. After all, the dollar's decline doesn't match the scenario of being a great predictor for inflation. Gold... hey, its back near $400, maybe inflation hawks will refocus on gold. The CRB Index is hovering around 270, where a slight decline in oil prices hasn't hurt. When I look at the dollar in the above table, one thing that stands out to me is that the dollar ROSE (April) at the same time as the April Federal Budget Deficit showed a $17.6 billion surplus that month. Hmmmm.... could it be that BEARS that were looking for a reason to be concerned about inflation, chose the dollar's rise as their indicator of choice? I'm not sure that that's the only reason. The INFLATION scenario had many currency traders citing the dollar's strength as being attributed to buying of dollars on thought the Fed was going to be more aggressive with interest rates, thus Fed policy being more concerned about inflation. As I look at both the BOND and STOCK markets, they both appear to be in a renewed upward trends, after exhibiting an acceleration move higher. Where that acceleration has entered a consolidation period. If it's true that the markets are never wrong, and forward looking, it would be my observation that the recent lows for the SPX, might well have been reflecting the recent "weaker than forecasted" economic data. In the table above, that would be factory orders and durable goods. Remember that the May durable orders were released on June 24, while factor orders for May were just released on Friday, July 2nd. We might now be able to understand what the stock market was doing in April, ahead of May economic reports. And how the weaker May and perhaps June data would be a result of the higher Treasury YIELD, which had to have consumer-borrowing costs rising. As I (Jeff Bailey) interpret the current market action, I do confess a longer-term bullish outlook. I'm always open to BULLISH and BEARISH scenarios, and I think I can usually derive some pretty good tests for scenarios presented. I'm not overly concerned about the DECLINE in Treasury YIELD this week, as I think it came largely from a overly worried, or BEARISH scenario regarding inflation, which would push the Fed to raise interest rates more aggressively. I'll continue to monitor for signals of inflation, but from what I also see in the hard economic numbers, it what I've discussed regarding how a NEW economic cycle of expansion unfolds after a recession. After a recession, there HAS to be some type of inflation. However, I thought that RAMPID INFLATION wasn't, or isn't likely, simply due to the thought, based on past economic reports, that there was a lot of production shut down during the recession. When the economy began to revive, and demand increased, the more limited supply had to have some prices rising. But, as thought, production figures also increased to meet that demand, it catching up, and the hard numbers from the economic reports now appear to reflect such notions. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- None ------------------------- TUESDAY ------------------------------ AYI Acuity Brands Tue, Jul 06 Before the Bell 0.44 ------------------------ WEDNESDAY ----------------------------- ACN Accenture Wed, Jul 07 Before the Bell 0.37 AA ALCOA Inc Wed, Jul 07 After the Bell 0.47 DNA Genentech, Inc. Wed, Jul 07 After the Bell 0.19 ISCA International SpeedwayWed, Jul 07 Before the Bell 0.32 MSM MSC Industrial Direct Wed, Jul 07 -----N/A----- 0.31 SCHN Schnitzer Steel Ind Wed, Jul 07 After the Bell 1.25 YHOO Yahoo, Inc. Wed, Jul 07 -----N/A----- 0.08 ------------------------- THUSDAY ----------------------------- LI Laidlaw Intl, Inc. Thu, Jul 08 After the Bell 0.22 OCENY Océ N.V. Thu, Jul 08 -----N/A----- N/A PBG Pepsi Bottling Group Thu, Jul 08 -----N/A----- 0.51 ------------------------- FRIDAY ------------------------------- ABT Abbott Laboratories Fri, Jul 09 Before the Bell 0.54 GE General Electric Fri, Jul 09 Before the Bell 0.37 WMMVY.PK Wal-Mart Mexico Fri, Jul 09 -----N/A----- N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable BPOP Popular Inc. 2:1 Jul 8th Ju1 9th URBN Urban Outfitters Inc 2:1 Jul 9th Ju1 12th SLXP Salix Pharmaceuticals 3:2 Jul 12th Ju1 13th MGPI MGP Ingredients 2:1 Jul 15th Ju1 16th CCFH CCF Holding Company 3:2 Jul 15th Ju1 16th BLUD Immucor, Inc 3:2 Jul 16th Ju1 19th -------------------------- Economic Reports This Week -------------------------- The economic calendar is a little light but we will get the ISM services index data on Tuesday. Tuesday also kicks off the Q2 earnings season with reports from AA, DNA and YHOO. The real Q2 action doesn't pick up until the following week. ============================================================== -For- ---------------- Monday, 07/05/04 ---------------- Market Holiday ----------------- Tuesday, 07/06/04 ----------------- ISM Services (DM) Jun Forecast: 65.0 Previous: 65.2 Federal Reserve Governor Broaddus speaks on the economy ------------------- Wednesday, 07/07/04 ------------------- None ------------------ Thursday, 07/08/04 ------------------ Initial Claims (BB) 07/02 Forecast: N/A Previous: 351K Consumer Credit (DM) May Forecast: $7.5B Previous: $3.9B ---------------- Friday, 07/09/04 ---------------- Wholesale Inventories (DM) May Forecast: 0.5% Previous: -0.1% Federal Reserve Governor Hoenig speaks on monetary policy 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. 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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 07-04-2004 Sunday 2 of 5 In Section Two: Watch List: AMGN, ITW, GDW, MSTR, PFCB Dropped Calls: CAT, MERQ, MMM 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 ********** Amgen Inc - AMGN - close: 55.20 change: +0.44 WHAT TO WATCH: AMGN, the largest component in the BTK biotech index, has been stuck in a descending channel since the beginning of February. Yet in the last week shares have managed a rebound from its lows and in the last two sessions AMGN has pushed through the top of its channel and technical resistance at the simple 40-dma. Bulls might watch AMGN for some confirmation and a breakout over the 50-dma. We'd consider a trade above $56 as a potential entry point with a target at the 200-dma near $60. AMGN's P&F chart remains very bearish but the downside target has already been achieved. Earnings are expected around July 22nd. --- Illinois Tool Works - ITW - close: 93.63 change: -1.04 WHAT TO WATCH: ITW has been a big winner in the industrials sector. Shares have rallied from $75 to more than $95 in the last 3 1/2 months and the stock was recently named to Lehman Brother's top 10 uncommon values for 2004-2005. Now the stock is seeing some profit taking and short-term technicals all look bearish. We would watch ITW for a pull back to the $91.00 area and wait for a bounce. Such a move would be an entry point to buy at its rising trendline of support. Earnings are expected on July 21st. --- Golden West Financial - GDW - close: 107.42 change: +1.37 WHAT TO WATCH: Banking stocks were one of the few sectors that managed to close in the green on Friday. GDW drew our attention with its rebound from the simple 50-dma and round-number support at $105. Its MACD indicator is bearish but its shorter-term stochastics and RSI are turning upward again. We still think GDW might be a profitable bullish play if it can ever breakout over resistance at $110. Look for earnings on or near July 20th. --- MicroStrategy - MSTR - close: 40.71 change: -0.82 WHAT TO WATCH: MSTR has been in a steady downtrend ever since its double-top near $65.00 in February and March. Now the trend of lower highs and lower lows is about to break round-number, psychological support at $40.00. Daily and weekly technicals like the RSI and stochastics are bearish without being too oversold yet. Currently the P&F chart shows the same pattern of highs and lows and points to a $32.00 price target. Traders might want to consider an entry under $40.0 with a target of $35.00. --- P.F.Chang's Bistro - PFCB - close: 39.89 change: -0.39 WHAT TO WATCH: It's been a tough quarter for PFCB. The stock is down from its April highs near $52.50 and has recently broken through support at $42.50. Friday's decline actually sent PFCB through round-number support at $40.00. Shares do look oversold. A failed rally near the 21-dma appears to be the most favorable entry point for shorts but stock could be picking up momentum to the downside. The next support level appears to be the $36-35 region. Its P&F chart is very bearish and points to a $28 price target. Earnings are expected near July 21st. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- IBM $87.04 -0.46 - There are less than two weeks to go till IBM's earnings report and shares appear to be sliding into the announcement. CFC $71.43 +1.18 - Mortgage lender CFC has survived a revenue warning from rival WM and rebounded back toward its highs. A move over $72.50 could be a bullish entry point. S $36.64 -1.10 - Uh oh! Sears is slipping again and hitting new one-year lows. There might be support at $35.00 but the weekly chart suggests support is at $30.00. ************************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 ^^^^^ Caterpillar, Inc. - CAT - close 76.72 change: -1.46 stop: 76.00 Our CAT play was full of promise with its recent breakout over the $78 level and it teased us for most of last week, bouncing between support at $77 and resistance near $79.50. In the end though, the bears won out in the wake of the FOMC meeting and the bottom of the trading range broke with emphasis on Friday, with price cracking below the 200-dma. Our stop hasn't been violated quite yet and certainly we could see a rebound from the site of the 50- dma early next week. But with the fresh Sell signals across all the daily oscillators, odds favor the downside and we're going to err on the side of caution and drop coverage on CAT this weekend. We'd suggest using any sort of rebound early next week as a more attractive exit point, not as an invitation for opening new bullish positions. Picked on June 24th at $79.10 Change since picked: -2.38 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.35 mln --- Mercury Interactive - MERQ - cls: 48.00 change: -1.02 stop: 48.50 As we talked about over the past week, the $49 level and the 20- dma were going to be key support for our MERQ play. Sure enough, the pullback from the run at $51 stalled right at that level on Thursday, leaving us in limbo as to whether to drop the play or not. Well, we chose poorly and the market drove that point home as it drove MERQ below the $48 level on increasing volume on Friday. That smashed through our $48.50 stop and has us dropping the play tonight, not far above where we initiated coverage nearly a month ago. Clearly any open positions should now be closed. Picked on June 6th at $47.56 Change since picked: +0.44 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 2.07 mln --- 3M Co - MMM - close: 87.50 change: -0.67 stop: 87.49 The sharp sell-off on Thursday in the market and especially in the Dow Industrials was too much for this Dow-component. Shares of MMM broke through minor support at the $88.00 level on Thursday but managed to rebound from $87.79 to close back above the $88.00 mark. Unfortunately, the Dow's 51-point drop on Friday was enough to send MMM back under the $88 level and we were stopped out at $87.49. The new MACD sell signal on the daily chart is a concern and the stock may be headed back toward support in the $86-85 region. Picked on June 30 at $ 90.11 Change since picked: - 2.61 Earnings Date 07/19/04 (confirmed) Average Daily Volume: 2.5 million 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 07-04-2004 Sunday 3 of 5 In Section Three: Current Calls: AHC, DHR, ETN, EBAY, QCOM New Calls: INFY, BOL Current Put Plays: OMC, SLAB, GCI, NTES New Puts: IRF, APPX ! 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: 79.33 change: -0.56 stop: 77.50 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: Our AHC play certainly sent us on a wild ride last week, but for traders willing to take advantage of it, the plunge near $75 on Monday provided a terrific entry opportunity. We had been looking for support to hold at a higher level, but we certainly weren't going to look the gift horse in the mouth! After that dip, AHC screamed higher, tapping the $80 level on Thursday and settling just a bit off that mark on Friday. That's not bad, especially considering the carnage in the rest of the market. So the big question is whether AHC has enough energy to make a run at our $82-83 area (our final target) or if it is in the process of topping out here. We obviously think there's more room to the upside and we'll play it accordingly. Look for entry opportunities on dips and rebounds from above the $78 level, although more aggressive traders can consider new positions (for a quick play) above the $80.25 level. In either case, be aggressive about harvesting gains in the $82-83 area. Note that our $77.50 stop will be solidly below the 10-dma ($77.47) by Tuesday. Suggested Options: Shorter Term: The July $80 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 $85 Call, while the more conservative approach will be to use the August $80 Call. Our preferred option is the August $80 strike, as it is currently near the money and should provide sufficient time for the play to move in our favor. ! Alert - July options expire in 2 weeks! BUY CALL JUL- 75 AHC-GO OI=2150 last traded @ $4.80 BUY CALL JUL- 80 AHC-GP OI=1922 last traded @ $1.35 BUY CALL AUG- 80*AHC-HP OI=1096 last traded @ $2.90 BUY CALL AUG- 85 AHC-HQ OI= 241 last traded @ $1.15 Annotated Chart of AHC: Picked on June 17th at $74.15 Change since picked: +5.18 Earnings Date 7/28/04 (unconfirmed) Average Daily Volume = 1.12 mln --- Danaher Corp. - DHR - close 50.27 change: -0.71 stop: 50.00 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: After charging to new highs just over $52 by mid-week, our DHR play ended the week on a sour note. We knew the stock was due for some profit taking after the nearly uninterrupted rise from the $45 area. But the depth of the pullback over the past 2 days is rather disconcerting. DHR hasn't yet reached our stop at $50, but the close below the 10-dma ($50.52) on Friday doesn't look good. Should the stock turn around early next week and rebound higher, this could turn out to be a solid entry point, but with the fresh Sell signals on the daily oscillators, odds favor a breakdown. Only aggressive traders should consider buying this dip. Maintain stops at $50. Suggested Options: Shorter Term: The July $50 Call will offer short-term traders the best return on an immediate move, as it is currently at the money. Longer Term: Aggressive longer-term traders can use the August $55 Call, while the more conservative approach will be to use the August $50 Call. Our preferred option is the August $50 strike, as it is currently at the money and should provide sufficient time for the play to move in our favor. ! Alert - July options expire in 2 weeks! BUY CALL JUL- 50 DHR-GJ OI=1282 last traded @ $1.15 BUY CALL AUG- 50*DHR-HJ OI=1015 last traded @ $1.95 BUY CALL AUG- 55 DHR-HK OI= 568 last traded @ $0.30 Annotated Chart of DHR: Picked on June 20th at $48.74 Change since picked: +1.53 Earnings Date 4/22/04 (confirmed) Average Daily Volume = 1.55 mln --- Eaton Corp - ETN - close: 62.26 chg: -1.42 stop: 61.85 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: After several days of slowly inching higher ETN has fallen sharply in the last two sessions to test critical support at the $62.00 level. The market-wide sell-off in the last two days has prompted traders to do a little profit taking in winners like ETN. Fortunately, old resistance tends to become new support. This may prove to be a new entry point for bullish positions but we suggest waiting to see ETN begin to rebound first. We initially added ETN on the breakout above resistance at $62.00 and planned to play the head-and-shoulders pattern. Currently the H&S pattern points to a $71 target. Our target is the $70 region. It's not uncommon for stocks, after breaking out over significant resistance to pull back and retest the same level as support but with all the short-term technicals turning negative we would wait for signs of a bounce before initiating new positions. Remember, we only have a couple of weeks left before ETN's earnings report and we don't plan to hold over the announcement. 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= 325 Current ask @ $2.90 BUY CALL JUL 62.50 ETN-GZ OI= 945 Current ask @ $1.20 BUY CALL JUL 65.00 ETN-GM OI= 347 Current ask @ $0.40 Annotated Chart: Picked on June 18 at $ 62.05 Change since picked: + 0.21 Earnings Date 07/15/04 (confirmed) Average Daily Volume: 1.0 million --- eBay Inc - EBAY - close: 91.27 change: +0.68 stop: 87.50 Company Description: eBay is The World's Online Marketplace®. Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Through an array of services, such as its payment solution provider PayPal, eBay is enabling global e- commerce for an ever-growing online community. (source: company press release) Why We Like It: EBAY is giving bulls a second chance. We've been watching EBAY for weeks and suggested days ago that the breakout over $88.00 was an entry point for bullish positions. We finally added it to the play list when it broke through resistance at $90.00. The stock is an incredible momentum player and its relative strength is amazing. Even with tech stocks leading the declines this week EBAY managed to hold support at $90.00 and rebound from the $89.50 region this afternoon. The stock is not only moving higher on plain old momentum but traders are bidding shares higher on expectations for a strong earnings announcement and a potential stock split announcement. We've got about 2 1/2 weeks left for EBAY to hit our target price of $100.00. That just happens to be the same target forecasted by its previous bull-flag breakout. The bullish P&F chart points to a long-term target of $117. The pull back to $90 is a new entry point opportunity. Suggested Options: We're going to suggest the August calls because the July calls will expire before EBAY's earnings announcement. Our favorites are the 90s and 95s, unless EBAY dips back to $88.00 and then the 85s would work nicely. BUY CALL AUG 85 XBA-HQ OI=1432 Current Ask $8.40 BUY CALL AUG 90 XBA-HR OI=6290 Current Ask $5.10 BUY CALL AUG 95 XBA-HS OI=4109 Current Ask $2.75 BUY CALL AUG100 XBA-HT OI=2345 Current Ask $1.40 Annotated Chart: Picked on June 27 at $ 90.72 Change since picked: + 0.56 Earnings Date 07/21/04 (confirmed) Average Daily Volume: 8.3 million --- QUALCOMM - QCOM - close: 72.27 change: +0.22 stop: 69.00 Company Description: QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2003 FORTUNE 500® company. (source: company press release) Why We Like It: So far so good. QCOM has managed to hold on to most of its gains this week after breaking out over major resistance at the $70.00 mark. The technical breakout over $70.00 was fueled by big volume and it produced a quadruple-top breakout buy signal on its P&F chart with a $90.00 price target. Coincidentally, Merrill Lynch recently raised their price target from $75 to $90. The broker also reiterated their "buy" outlook and said QCOM was a great way to play the next 3G upgrade cycle in telecom. In Thursday's update we mentioned the recent court decision regarding QCOM's lawsuit against Texas Instruments. It would sounds like a few of our readers might be confused about the issue. The two companies sued each other back in the year 2000 over CDMA technology. QCOM claims they have "won" because the court ruled that TXN did breach their contract. TXN claims it "won" because the court ruled the breach was not material and it gets to keep its CDMA license. Looking at the price action in QCOM shares it would appear Wall Street doesn't care anymore or they're not worried about it. We're still bullish on QCOM and would consider new positions at current levels but if QCOM dipped a bounce anywhere above $70 would also qualify as an entry point. Suggested Options: We're going to suggest the August calls even though we plan to close the play before QCOM's July 21st earnings report. Our favorites are the August 70s. BUY CALL AUG 70 AAO-HN OI= 3524 Current Ask $4.60 BUY CALL AUG 75 AAO-HO OI= 8187 Current Ask $2.05 Annotated Chart: Picked on June 29 at $ 71.55 Change since picked: + 0.69 Earnings Date 07/21/04 (confirmed) Average Daily Volume: 8.8 million ************** NEW CALL PLAYS ************** Infosys Tech. - INFY - close: 95.49 change: +3.37 stop: 90.95 Company Description: Infosys Technologies Limited is a global information technology services company. Progeon Limited, Infosys Technologies (Australia) Pty. Limited (Infosys Australia), Infosys Technologies (Shanghai) Co. Limited (Infosys China) and Infosys Consulting, Inc. are the Company's majority-owned and -controlled subsidiaries. Infosys provides end-to-end business solutions that leverage technology for its clients across the entire software life cycle: consulting, design, development, re-engineering, maintenance, systems integration and package evaluation and implementation. The Company also provides software products to the banking industry, as well as business process management services firms through Progeon. Why we like it: It's a pretty safe bet that there were more than a few bears caught in the trap when shares of INFY broke down below the $75 level back in the middle of May, but that's the last time you could have made a bearish case for the stock. After a quick snap back to over the 200-dma (currently $83.91), the stock consolidated above that average, then scaled the 50-dma before getting serious about the current rally with the 10-dma ($91.44) and 20-dma ($88.12) launching skyward. The first real serious sign of bullish intent came with the breakout over the $90 level, which took out the highs from April, setting the stage for the sharp bullish move that took place just over a week ago. The pullback from that sharp rally found support just over the $91 level last week -- curiously right at the site of the February highs -- before Friday's strong rebound from the 10-dma. The PnF chart is strongly bullish, with an upside target of $112! Clearly INFY has been volatile in recent months, but with that volatility comes opportunity and right now, the stock is in the midst of a strong bullish leg. Let's go along for the ride. Obviously a pullback near the $92 level would make for a great entry point for aggressive traders, but that could be a little nerve-wracking, considering that we're placing our initial stop just under Friday's intraday low. Actually, the more conservative approach will be to take a breakout entry above last Monday's $97 high. Looking at the daily chart, we can see solid resistance lying in wait at the $102.50 level and we ought to expect at least some consolidation and perhaps a minor pullback following the first test of that level. But with the strength of both the candle and PnF charts, we're going to bet on a breakout and run northwards to the $110 area. Suggested Options: Shorter Term: The July $95 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 $100 Call, while the more conservative approach will be to use the August $95 Call. However, our preferred option is the July $95 strike, due to the very low open interest on the August strikes. Wait for an increase in the open interest in August before choosing those strikes. ! Alert - July options expire in 2 weeks! BUY CALL JUL- 95 IUN-GS OI= 84 last traded @ $3.40 BUY CALL JUL-100 IUN-GT OI= 151 last traded @ $1.30 BUY CALL AUG- 95*IUN-HS OI= 5 last traded @ $5.90 BUY CALL AUG-100 IUN-HT OI= 2 last traded @ $3.50 Annotated Chart of INFY: Picked on July 4th at $95.49 Change since picked: +0.00 Earnings Date N/A Average Daily Volume = 292 K --- Bausch Lomb - BOL - close: 65.05 change: +0.77 stop: 62.99 Company Description: Bausch & Lomb is the eye health company, dedicated to perfecting vision and enhancing life for consumers around the world. Its core businesses include soft and rigid gas permeable contact lenses and lens care products, and ophthalmic surgical and pharmaceutical products. The Bausch & Lomb name is one of the best known and most respected healthcare brands in the world. Celebrating its 150th anniversary, the Company is headquartered in Rochester, New York. Bausch & Lomb's 2003 revenues were $2 billion; it employs approximately 11,500 people worldwide and its products are available in more than 100 countries. (source: company press release) Why We Like It: We think it's time for bulls to turn their attention to BOL. The stock was an incredible momentum machine through most of 2003 and into early April 2004. The stock then began to churn sideways between $66 and $60. The stock has recently rebounded from the bottom of its trading range and looks poised to breakout. On top of the technical picture BOL had some decent news on Friday with an announcement that it and Ciba Vision, the eye care unit for Switzerland's Novartis drug company (NYSE:NVS), had come to an agreement on their lawsuit. BOL would resume selling the PureVision brand of contact lenses and pay royalties on them to Ciba through 2014. BOL's P&F chart is bullish and is building what will be a triple- top breakout buy signal IF it can break through the $67.00 mark. We're going to jump the gun a bit. We'll start the play with a TRIGGER at $66.01. Aggressive players can try and jump in now on the move above $65.00 but we're going to wait for it to trade above the current trendline of resistance (see chart). We'll start with a stop loss at 62.99. The stock might be able to trade toward the $75 area with obvious round-number psychological resistance at $70.00. Suggested Options: We're going to suggest the August calls. Our favorite is the August 65's. Be careful. Volume is pretty light on the August calls. BUY CALL AUG 60 BOL-HL OI= 0 Current Ask $6.00 BUY CALL AUG 65 BOL-HM OI= 4 Current Ask $2.45 BUY CALL AUG 70 BOL-HN OI= 0 Current Ask $0.75 Annotated Chart: Picked on July xx at $ xx.xx <-- See TRIGGER Change since picked: + 0.00 Earnings Date 07/29/04 (confirmed) Average Daily Volume: 490 thousand ************************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 ***************** Omnicom Group - OMC - close: 73.42 change: -0.88 stop: 77.50 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: It was a stellar week for our OMC play, with the prior week's rollover from the 10-dma (now $75.77) setting the stage for a plunge through some serious support. The rollover was rather tenuous through the middle of the week, as price inched down to just below $76. But the post-FOMC reaction in the broad market sent the stock plunging on Thursday, with the prior lows from March barely slowing the decline. The bears were active again on Friday, sending the stock through the $74 level to close on its low of the day and it looks like we'll see price continue to decline until reaching first decent support in the $71-72 area. That support test ought to provide for another rebound attempt, which hopefully will offer another rollover entry in the $75 area, as former support turns to resistance. We would not encourage momentum entries at this point, with the stock so close to that $72 support. Conservative traders might even want to harvest some gains when that support is first tested, looking to re-enter on that failed rebound later in the week. For now, we'll maintain our stop at $77.50, just over the high of that failed rebound and above the 20-dma ($77.66) by Tuesday's open. Suggested Options: Aggressive traders will want to use the July 75 Put while those with a more conservative approach will want to use the August 70 strike due to its greater time until expiration. Our preferred option is the August 70 strike. ! Alert - July options expire in 2 weeks! BUY PUT JUL-75 OMC-SO OI= 907 last traded @ $2.20 BUY PUT JUL-70 OMC-SN OI=1157 last traded @ $0.30 BUY PUT AUG-70*OMC-TN OI= 70 last traded @ $1.25 Annotated Chart of OMC: Picked on June 20th at $77.14 Change since picked: -3.72 Earnings Date 4/27/04 (confirmed) Average Daily Volume = 1.09 mln --- Silicon Labs. - SLAB - close: 43.72 change: -1.39 stop: 47.00*new* 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: Talk about barely hanging on, our SLAB play really tried our patience just over a week ago, when it blasted higher from the apparent breakdown under the $45 level. That rally attempt stalled out literally 2 pennies below our $48.50 stop before working steadily lower throughout last week, which ended with the stock once again below the $44 level and poised for a break below the prior low at $42.88. Traders that just sold the rollover up near the $48 level have got to be feeling pretty smug right about now, as they're sitting on a nicely profitable play, that looks poised to deliver more gains in the week ahead. Helping with the bearish price action has been the Semiconductor index (SOX.X), which shed another 2% on Friday, capping off a 6% 2-day slide. Key support for the SOX comes in at the short-term rising trendline ($453) and if it is broken, we can look for SLAB to make a quick trip down towards our $40 target. Aggressive traders can still look for rollover entries in the $45-46 area or on a break below $42.80, but the best entries for this play are most likely behind us. Lower stops to $47, just over both Wednesday's intraday high ($46.95) and the 20-dma ($46.87) Suggested Options: Aggressive traders will want to use the July 45 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. ! Alert - July options expire in 2 weeks! BUY PUT JUL-45*QFJ-SI OI=4982 last traded @ $2.30 BUY PUT JUL-40 QFJ-SH OI= 739 last traded @ $0.45 BUY PUT AUG-40 QFJ-TH OI=2176 last traded @ $1.75 Annotated Chart of SLAB: Picked on June 20th at $44.99 Change since picked: -1.27 Earnings Date 4/26/04 (confirmed) Average Daily Volume = 1.14 mln --- Gannett Co - GCI - close: 83.52 change: -0.18 stop: 86.05 Company Description: Gannett Co., Inc. is a leading international news and information company that publishes 101 daily newspapers in the USA, including USA TODAY, the nation's largest-selling daily newspaper. The company also owns more than 500 non-daily publications in the USA and USA WEEKEND, a weekly newspaper magazine. Gannett subsidiary Newsquest is the United Kingdom's second largest regional newspaper company. Newsquest publishes more than 300 titles, including 17 daily newspapers, and a network of prize-winning Web sites. Gannett also operates 22 television stations in the United States and is an Internet leader with sites sponsored by its TV stations and newspapers including USATODAY.com, one of the most popular news sites on the Web. (source: company press release) Why We Like It: The market sell-off on Thursday was just what we needed to get GCI to break eight-month old support at the $84.00 level. The move produced a quadruple-bottom breakdown sell signal on its P&F chart with a $79.00 price target. We're actually aiming for the $80.00 level, which as old resistance should become new support. Fundamentally GCI is suffering due to the newspaper scandal that erupted a couple of weeks ago. Two major newspapers were caught inflating their circulation numbers and the markets reacted negatively on fears it was an industry-wide problem. Plus, the industry is suffering from a delayed rebound in the advertising market. With the upcoming Olympics and the hotly contested Presidential race ad spending was expected to be strong this year. So far it has failed to meet estimates and the circulation issue is going to make advertisers even more reluctant. We were triggered on Thursday at $83.95 and plan to exit near $80.00, however, the H&S pattern points to a $76.00 target. Our current stop near $86.00 is just over the 200-dma. Suggested Options: While we plan to exit before the July options expire we'd still prefer to play the August puts. Our favorites are the August 85s. BUY PUT AUG 85 GCI-TQ OI= 350 Current Ask $3.00 BUY PUT AUG 80 GCI-TP OI= 46 Current Ask $0.95 Annotated Chart: Picked on July 01 at $ 83.95 Change since picked: - 0.33 Earnings Date 07/13/04 (confirmed) Average Daily Volume: 957 thousand --- Netease.com - NTES - close: 38.86 chg: -0.52 stop: 42.26*new* Company Description: NetEase.com, Inc. is a leading China-based Internet technology company that pioneered the development of applications, services and other technologies for the Internet in China. Our online communities and personalized premium services have established a large and stable user base for the NetEase Web sites, which are operated by our affiliate. As of March 31, 2004 we had approximately 194 million accumulated registered accounts, and our average daily pageviews for the month ended March 31, 2004 exceeded 341 million. (source: company press release) Why We Like It: (Thursday's original update) Any time we play one of the Chinese Internets we like to add an extra note of caution. They're not for everyone as the group can still be volatile. Now having said that the entire niche has been weak the last couple of sessions and today's breakdown in NTES looks good for bearish plays. On top of the general market weakness today the Chinese Internets were hit extra hard due to a downgrade by one analyst reducing expectations for the group. Concerns over business not building fast enough and some regulatory hurdles were to blame for the reduced outlook. We like the technical picture for NTES. Its daily chart shows the breakdown below round-number psychological support at $40.00 on rising volume that is nearly double the average trading volume. Weekly and daily technicals like the RSI and stochastics are bearish and its P&F chart is weak and points to a $33 target. We do note that NTES has support near $35.50 and we're going to make that our initial target but the stock appears to be trading in a wide descending channel and a lower target is possible. Earnings are expected in about three weeks but the date is not confirmed. WEEKEND UPDATE: Friday's session was a sleeper for NTES. The stock was somewhat volatile in early trading first dropping and then rocketing back toward resistance at $40.00. After failing to breakout the stock spent the majority of the session sliding sideways in a very tight 30-cent range. We're encouraged by the second close under the $40.00 mark but it wouldn't surprise us to see another bounce toward $41. So far so good. We're going to lower our stop to $42.26. Suggested Options: We're going to suggest the August puts. Our favorites are the 40s but the 45s have relatively low time premium and the 35s are cheap. BUY PUT AUG 45 NQG-TI OI= 119 Current Ask $7.30 BUY PUT AUG 40 NQG-TH OI= 527 Current Ask $3.90 BUY PUT AUG 35 NQG-TG OI= 889 Current Ask $1.60 Annotated Chart: Picked on July 01 at $ 39.38 Change since picked: - 0.52 Earnings Date 07/26/04 (unconfirmed) Average Daily Volume: 1.7 million ************* NEW PUT PLAYS ************* Int'l Rectifier - IRF - close: 37.66 change: -1.63 stop: 41.60 Company Description: International Rectifier Corporation is a designer, manufacturer and marketer of power management products and a worldwide supplier of a type of power semiconductor, MOSFET (a metal oxide semiconductor field effect transistor). Power semiconductors process electricity into a form more usable by electrical products. The company's products are divided among three broad product categories: analog integrated circuits (ICs) and advanced circuit devices, power systems and power components. IRF's products are used in a range of end markets, including consumer electronics, information technology, automotive, aerospace and defense, communications and industrial. Why we like it: Topping out near the $57 level in early December, shares of IRF have been in a long, steady decline ever since. Every apparent rebound results in a new lower high, which is then followed by a new lower low. At each point along the way, a point could be made that "key support" just below the most recent low would hold, and therefore a bearish play was too 'risky'. But this time, things are different. Friday's sharp drop pushed IRF below the May lows to its lowest point since late September of last year when the stock was trading near the $37 level. A quick look at the daily chart shows that below $37 there's not much of anything to provide support until the stock reaches solid support near $30. That's more than 20% below current levels, so clearly we have the potential for a major move on our hands. The PnF chart certainly bears out the bearish picture, with the recent drop from the $44 level producing a very convincing Sell signal, that currently is working with a downside target of $31. Of course, with the column of O's not yet complete, that target could continue to fall. We want to make the play prove its weakness to us before playing, so we're setting a trigger at $37. If that level is traded, it will lengthen the current column of O's and will be solidly below both last Friday's lows, as well as the September lows. Momentum traders can certainly view that breakdown as a viable entry point, as it would also represent a break into the gap left behind in June of 2002. More conservative traders will want to watch for a subsequent bounce back to test resistance in the $38- 39 area, entering on the rollover. In either case, we'll target a move to the $30-31 area over the next couple weeks. Due to the size of the downside potential, we're starting our coverage with a rather liberal stop at $41.60, just over last week's intraday high, as well as the resistive 50-dma ($41.18). Suggested Options: Aggressive traders will want to use the July 30 Put while those with a more conservative approach will want to use the July 35 strike. Traders looking for more insulation against time decay may want to consider the October strike, or the August strike (not listed) when they have some open interest. Our preferred option is the July 35 strike, as it is currently in the money. ! Alert - July options expire in 2 weeks! BUY PUT JUL-40*IRF-SH OI= 850 last traded @ $2.80 BUY PUT JUL-35 IRF-SG OI= 501 last traded @ $0.40 BUY PUT OCT-35 IRF-TG OI= 93 last traded @ $1.35 Annotated Chart of IRF: Picked on July 4th at $37.66 Change since picked: +0.00 Earnings Date 4/29/04 (confirmed) Average Daily Volume = 1.07 mln --- American Pharma. - APPX - close: 29.07 chg: -1.19 stop: 31.51 Company Description: American Pharmaceutical Partners, Inc. is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on the oncology, anti-infective and critical care markets. APP has acquired the exclusive North American rights to manufacture and market ABRAXANE(TM), a proprietary nanoparticle injectable oncology product that has completed Phase III clinical trials for metastatic breast cancer. The company believes that it has established the only commercial scale protein-engineered nanoparticle manufacturing capability in the United States. (source: company press release) Why We Like It: The first part of June was tough on biotech stocks. Investors decided to "sell the news" during and after the giant ASCO conference for biotech companies this year. What makes APPX different is that the biotech sector managed to rebound in the second half of June while APPX did not. The stock is significantly under performing its peers and the technical breakdown through support at $30.00 on Friday looks pretty nasty. Its P&F chart is extremely bearish and currently points to a $12.00 price target. That's a long-term target. We're going to aim for a short-term move toward the $25.00 region. Suggested Options: We're going to suggest the August puts even though we do not plan on holding over the July 22nd earnings report (currently unconfirmed). Our favorite puts would be the August $30s. BUY PUT AUG 32.50 AQO-TZ OI= 60 Current ask $4.40 BUY PUT AUG 30.00 AQO-TF OI=243 Current ask $2.75 BUY PUT AUG 27.50 AQO-TY OI=182 Current ask $1.50 Annotated Chart: Picked on July 04 at $ 29.07 Change since picked: - 0.00 Earnings Date 07/22/04 (unconfirmed) Average Daily Volume: 910 thousand ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-04-2004 Sunday 4 of 5 In Section Four: Leaps: See Note Option Spreads: “Getting Fixed” Doesn’t Have To Be Painful – Covered Calls III ************************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 ***** Look for Mark Phillips Leap Section This Tuesday! ************************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 ************************ “Getting Fixed” Doesn’t Have To Be Painful – Covered Calls III By Mike Parnos, Investing With Attitude Everybody screws up. It’s human nature. I spent two entire columns explaining what TO do – and what NOT to do – when using the covered call strategy. Did it sink in? Who knows? Studies have shown that you have to be exposed to something a minimum of seven times before you comprehend it. So read on. You may think you already understand what I’m about to explain, however, there’s more than a reasonable chance that you may be a little fuzzy on the subject. Due to the seeming simplicity of trading covered calls, dozens of books have covered the topic. They devote chapters upon chapters painting blue sky with potential profits. It titillates that greedy part of the brain and sends the uneducated racing to the phone to put on covered calls. Unfortunately, these “would-be” traders rush in where angels fear to tread. There’s no better example of “a fool and his money are soon parted” than in the options market. However, in these publications, only a few paragraphs explain what to do if the trade turns to mierde. But, it’s a rare occasion when someone will tell you “like it is.” Well, as you know, that’s my mission in life. If your therapist won’t tell you, who will? I don’t enjoy the role as the prophet of doom, but someone has to do it. Don’t get me wrong. I don’t purport to have the cure for the disease. An ounce of prevention . . . and all that. If you’re going to trade strategies without all the information, eventually it will be fatal. Your brokerage account will die a slow (sometimes not-so-slow) and painful death. It won’t do much for your ego, either. All I can do is try to temporarily resuscitate you, put on a bandage on the wound, and pour some medicinal information into that black hole we call the void of trading knowledge. What Went Wrong? You had it all planned out. You bought 1,000 shares of XYZ stock at $32.80 and sold the next month’s $35 call option for $.75. That $750 looked so good in your brokerage account the next day, didn’t it? One week goes by, XYZ is at $33.75. So far, so good. You have dollar signs in your eyes. Another week passes. XYZ is at $32.65. Not bad. Then, the Tuesday morning of expiration week, you turn on CNBC and hear that XYZ has announced an earnings warning, followed closely by a few analyst downgrades. In pre-market trading, XYZ is selling at $27.00. Wait! How can that be? You thought XYZ was going up. All your research said . . . yada, yada, yada . . . Well, Sherlock, you were wrong. The market wasn’t wrong. It never is. YOU were wrong. Once you admit it, we can try to start salvaging what we can from this disaster. Here’s The Situation First, you must have a belief that XYZ is capable of rebounding. If not, you should take your loss, lick your wounds, and find another vehicle to use to make your money back. With XYZ trading at $27, let’s check out the option chain for XYZ calls for the following month. Stock Strike Bid Ask XYZ $25.00 call 2.60 2.80 XYZ $30.00 call 1.40 1.60 You still own your 1,000 shares of XYZ stock. So, here’s what we’re going to do. 1. Sell 10 contracts of the $30 call for $1.40 2. Buy 10 contracts of the $25 call for $2.80 3. Sell another 10 contracts of the $30 call for $1.40 The sale of the first 10 contracts (step 1) is covered by your 1,000 shares of stock. In reality, it’s just another covered call. In steps 2 & 3, we’re buying the $25 calls and selling the $30 – establishing a bull call spread. Let’s take a closer look. Our total out-of-pocket expenditure is $2.80 for the $25 calls (step 2). What are we bringing in? In steps 1 & 3 we brought in $1.40 + $1.40. That’s a total of $2.80. We spent $2.80 and we took in $2.80. So far, all this maneuvering has cost us nothing. What have we accomplished? We have put ourselves into a position to double our participation in XYZ’s move back up. Therefore, in order for us to recoup our losses, XYZ does not have to go very far. Calculating Breakeven Your XYZ shares were valued at $32.80 before you put on the covered call position. When you put on the repair position, XYZ was trading at $27. You were facing a deficit of $5.80 ($32.80 less $27). With the repair position, you would be participating in XYZ’s move TWICE as fast. When XYZ is at $28.90, your shares would have gained $1.90 (from $27) and your $25 call will be worth $3.90. Together, the $1.90 and $3.90 will make up the $5.80 deficit. Had you just held the stock, XYZ would have had to move all the way from $27 back to $32.80 – a $5.80 move. Using the repair strategy enables you to recoup your losses when XYZ moves from $27 up to $28.90 – only a $1.90 move. What If . . . If XYZ moves back up and closes over $30, a) Your stock will be called away at $30 (good riddance!); and b) Your $25 bull call spread will be worth $5.00. That would give you a total value of $35. The value of XYZ when you first entered the position was $32.80. That means you will realize a profit of $2.20. Reality What you just read is possible in many covered call situations, but not all. The stock may not be at a good level or there isn’t sufficient premium to make this repair strategy worthwhile. In the above example, the repair strategy did not cost anything. It may actually cost a little to put on the additional bull call spread. Is it worth it? You’ll have to be the judge – basing your decision on your realistic evaluation of the stock. Wishful thinking doesn’t enter into the equation. I know all about wishful thinking. Everyday, when I wake up and Carmen Electra isn’t making me breakfast, I suffer disappointment. The difference is that my wishful thinking doesn’t cost a thing. _________________________________________________________________ Words To Live By (I Do!) "Life is too short to spend your precious time trying to convince a person (or company) who wants to live in gloom and doom otherwise. Give lifting that person your best shot, but don't hang around long enough for his or her bad attitude to pull you down. Instead, surround yourself with optimistic people." -- Zig Ziglar _________________________________________________________________ JULY POSITIONS Position #1 – SPX Iron Condor – 1125.38 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 sold 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 – 582.72 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 – 1125.38 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 – 457.31 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. ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $36.82 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. June $34 calls and $37 puts -- total net credit of $750. We rolled out to the July $34 calls ($.20 credit) and $37 puts ($.60 credit) and took in a 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 – 547.17 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 was $4,390 plus unused $1,700 = $6,090. From the June option cycle, we are able to officially add $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. _________________________________________________________________ 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. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-04-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: A Market In Need Of A Holiday... Premium-Selling Plays: NAKED PUTS & CALLS ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* A Market In Need Of A Holiday... By Ray Cummins The major equity averages drifted lower Friday as investors soured on stocks after a disappointing labor report and some mediocre profit forecasts from the technology segment. The Dow Jones Industrial Average finished the day 51 points lower at 10,282 on weakness in Caterpillar (NYSE:CAT), General Electric (NYSE:GE), and United Technologies (NYSE:UTX). The NASDAQ Composite retreated 9 points to close at 2,006, with chip stocks among the biggest losers after a less than stellar report from the Semiconductor Industry Association. The S&P 500 Index slid 3 points to 1,125 with only homebuilders, REITS and precious metals enjoying noticeable buying pressure. The pre-holiday session produced relatively light volume of 1.08 billion on the New York Stock Exchange and 1.19 billion on the NASDAQ. Breadth was mixed with winners ousting losers by a 2 to 1 margin on the Big Board, while advancers and decliners on the technology exchange were roughly even. Bond prices soared to recent highs and the benchmark 10-year note closed up 28/32, with its yield dropping to 4.46%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 07/02/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 AMZN 50.95 52.59 JUL 42 45 0.30 44.70 0.30 Open YHOO 31.87 33.94 JUL 25 27 0.30 27.20 0.30 Open CFC 69.15 71.43 JUL 60 63 0.35 63.03 0.35 Open QCOM 69.86 72.27 JUL 60 65 0.45 64.55 0.45 Open SWIR 33.83 36.53 JUL 25 30 0.90 29.10 0.90 Open CTSH 24.25 24.76 JUL 20 22 0.27 22.23 0.27 Open NUE 69.54 73.85 JUL 60 65 0.75 64.25 0.75 Open SII 53.26 56.76 JUL 47 50 0.30 49.70 0.30 Open MXIM 51.62 49.22 JUL 45 50 0.70 49.30 (0.08) Open? RJR 65.90 66.74 JUL 55 60 0.35 59.65 0.35 Open PHTN 34.93 31.40 JUL 30 32 0.30 32.20 (0.80) Closed URBN 60.80 61.64 JUL 50 55 0.40 54.60 0.40 Open AMZN 53.71 52.59 JUL 47 50 0.30 49.70 0.30 Open PLT 42.39 41.88 JUL 35 40 0.50 39.50 0.50 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Ishares Russell 2000 Index (IWM) was not available at the recommended price. Photon Dynamics (NASDAQ:PHTN) suffered the fate of most semiconductor equipment stocks and conservative traders should close the bullish spread to limit potential losses. Maxim Integrated Products (NASDAQ:MXIM) is also a candidate for early exit. CALL-CREDIT SPREADS Stock Pick Last Month LC SC Credit CB G/L Status APPX 34.03 29.07 JUL 45 40 0.50 40.50 0.50 Open INSP 34.71 36.61 JUL 45 40 0.65 40.65 0.65 Open WMS 28.75 30.30 JUL 35 30 0.65 30.65 0.35 Open? GS 90.21 93.61 JUL 100 95 0.70 95.70 0.70 Open SYMC 42.42 42.94 JUL 50 45 0.65 45.65 0.65 Open FRX 56.32 57.21 JUL 65 60 0.60 60.60 0.60 Open CTX 47.34 46.01 JUL 52 50 0.30 50.30 0.30 Open SINA 35.60 30.80 JUL 45 40 0.45 40.45 0.45 Open CECO 44.45 42.25 JUL 55 50 0.55 50.55 0.55 Open RYL 75.80 78.96 JUL 85 80 0.60 80.60 0.60 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss WMS Industries (NYSE:WMS) has continued to recover this week and is now a candidate for early exit. Ryland Group (NYSE:RYL) and Goldman Sachs (NYSE:GS) are on "watch" list. Positions in Genzyme (NASDAQ:GENZ) and the Oil Service Holdrs (AMEX:OIH) have previously been closed to limit potential losses. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status GRMN 32.60 34.41 JUL 35 30 2.15 2.35 Open? SNDK 22.90 20.93 JUL 22 22 3.40 3.60 Open GDT 56.02 55.03 JUL 55 55 4.80 4.50 Open DNA 54.60 55.35 JUL 55 55 4.25 4.10 Open OVTI 15.50 14.68 JUL 15 15 2.70 4.00 Open MDC 64.77 64.39 JUL 65 65 4.00 4.50 Open M.D.C. Holdings (NYSE:MDC) may have been a difficult position to enter (on a simultaneous order basis), due to the volatility on Monday, however that straddle, along with Omnivision (NASDAQ:OVTI) and Sandisk (NASDAQ:SNDK) has offered small profits. With the market in a trading range, there has been very little noteworthy activity in the debit straddles portfolio. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FRE - Freddie Mac $63.57 *** Interest Rate Speculation *** Federal Home Loan Mortgage Corporation (NYSE:FRE) or Freddie Mac, is a stockholder-owned corporation established by Congress in 1970 to support home ownership and rental housing. Freddie Mac purchases single-family and multi-family residential mortgages and mortgage-related securities, which it finances mainly by issuing mortgage pass-through securities and debt instruments in the capital markets. The Federal Home Loan Mortgage Corporation guarantees these securities and mortgage lenders sell their loans to the company and use the proceeds to fund new mortgages, which in turn increases the money supply to homebuyers. Freddie Mac does not make loans directly to the homebuyer, but puts private investor capital to work for homebuyers in general. FRE - Freddie Mac $63.57 PLAY (conservative - bullish/credit spread): BUY PUT AUG-55.00 FRE-TK OI=1112 ASK=$0.20 SELL PUT AUG-60.00 FRE-TL OI=1022 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.55-$0.65 POTENTIAL PROFIT(max)=12% B/E=$59.45 __________________________________________________________________ GILD - Gilead Sciences $67.42 *** Testing 2004 Highs! *** Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical company that discovers, develops and commercializes therapeutics to advance the care of patients suffering from life-threatening diseases. The company has five products that are marketed in the United States and in other countries worldwide. These are Viread, a drug for treating HIV infection; AmBisome, a drug for treating and preventing life-threatening fungal infections; Tamiflu, a drug for treating and preventing influenza; Vistide, a drug for treating cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome, a drug for treating AIDS-related Kaposi's sarcoma. GILD - Gilead Sciences $67.42 PLAY (conservative - bullish/credit spread): BUY PUT AUG-55.00 GDQ-TK OI=2391 ASK=$0.45 SELL PUT AUG-60.00 GDQ-TL OI=2179 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$59.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ LLTC - Linear Technology $36.74 *** In A Trading Range? *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $36.74 PLAY (conservative - bearish/credit spread): BUY CALL AUG-42.50 LLQ-HV OI=3309 ASK=$0.25 SELL CALL AUG-40.00 LLQ-HH OI=6453 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.35-$0.45 POTENTIAL PROFIT(max)=16% B/E=$40.35 __________________________________________________________________ XLNX - Xilinx $31.53 *** Sell-Off In Progress! *** Xilinx (NASDAQ:XLNX) designs, develops and markets complete programmable logic solutions, including advanced integrated circuits, software design tools, predefined system functions delivered as intellectual property cores, design services, customer training, field engineering and technical support. The programmable logic devices include field programmable gate arrays and complex programmable logic devices. These devices are standard products that its customers program to perform desired logic functions. Its products are designed to provide high integration and quick time-to-market for electronic equipment manufacturers primarily in the telecommunications, networking, computing, industrial and consumer markets. XLNX - Xilinx $31.53 PLAY (conservative - bearish/credit spread): BUY CALL AUG-37.50 XLQ-HT OI=517 ASK=$0.20 SELL CALL AUG-35.00 XLQ-HG OI=2330 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$35.30 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ NFLX - Netflix $32.31 *** Volatility = Premium! *** Netflix (NASDAQ:NFLX) is an online movie rental subscription service in the United States, providing more than 1,487,000 subscribers access to a library of more than 18,000 movies, television and other filmed entertainment titles. Customers select titles at Netflix's Website, www.netflix.com, aided by the company's recommendation service, receive them on DVD by first-class mail and return them at their convenience using the company's prepaid mailers. The company also provides information on DVD movies, including critic reviews, member reviews, online trailers, ratings and personalized movie recommendations. NFLX - Netflix $32.31 PLAY (speculative - neutral/debit strangle): SELL CALL JUL-37.50 QNQ-GU OI=8156 BID=$0.30 SELL PUT JUL-27.50 QNQ-SY OI=2364 BID=$0.25 INITIAL NET-CREDIT TARGET=$0.55-$0.60 MAXIMUM PROFIT (MARGIN) = 8% UPSIDE B/E=$38.05 DOWNSIDE B/E=$26.95 ************************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 07/02/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 CVTX JUL 15 14.60 16.47 0.40 5.63% 2.74% DITC JUL 17 16.80 22.04 0.70 8.40% 4.17% SYNA JUL 17 16.85 17.89 0.65 7.48% 3.86% PTIE JUL 7 7.15 8.02 0.35 9.89% 4.90% BCC JUL 35 34.25 37.26 0.75 5.12% 2.19% JILL JUL 20 19.45 23.61 0.55 6.72% 2.83% LSS JUL 20 19.50 27.97 0.50 6.07% 2.56% OI JUL 15 14.65 16.00 0.35 5.64% 2.39% NVTL JUL 15 14.65 25.52 0.35 7.34% 2.39% PDII JUL 25 24.70 29.98 0.30 3.91% 1.21% RSAS JUL 17 17.05 19.70 0.45 6.22% 2.64% STLD JUL 25 24.45 28.03 0.55 5.33% 2.25% UPL JUL 30 29.55 37.23 0.45 4.14% 1.52% USG JUL 15 14.15 17.31 0.85 13.32% 6.01% ATI JUL 12 12.20 17.49 0.30 7.44% 2.46% BJS JUL 42 41.70 46.00 0.80 4.75% 1.92% LCAV JUL 25 24.35 28.34 0.65 6.85% 2.67% NCRX JUL 27 26.80 31.05 0.70 7.30% 2.61% NVTL JUL 17 17.05 25.52 0.45 8.97% 2.64% SSYS JUL 22 22.20 24.04 0.30 4.41% 1.35% SWIR JUL 30 28.85 36.53 1.15 10.66% 3.99% SYNA JUL 17 16.90 17.89 0.60 8.98% 3.55% YHOO JUL 30 29.20 33.94 0.80 6.80% 2.74% AMHC JUL 22 21.80 27.07 0.70 9.36% 3.21% CTSH JUL 22 22.20 24.76 0.30 4.34% 1.35% CYBX JUL 30 29.25 32.56 0.75 10.31% 2.56% ERES JUL 22 21.85 27.62 0.65 9.03% 2.97% HLEX JUL 15 14.65 16.28 0.35 7.40% 2.39% MINI JUL 20 19.65 27.50 0.35 5.89% 1.78% NFI JUL 30 29.30 39.22 0.70 9.77% 2.39% PTIE JUL 7 7.25 8.02 0.25 11.96% 3.45% RIMM JUL 50 49.15 70.91 0.85 6.57% 1.73% SGTL JUL 22 22.25 26.71 0.25 4.25% 1.12% BRCM JUL 40 39.30 43.15 0.70 6.43% 1.78% CSGP JUL 40 39.60 45.92 0.40 3.49% 1.01% DHB JUL 12 12.20 15.41 0.30 8.97% 2.46% DY JUL 25 24.65 27.60 0.35 4.63% 1.42% ERES JUL 22 22.20 27.62 0.30 4.97% 1.35% FWHT JUL 20 19.60 21.41 0.40 6.89% 2.04% GVHR JUL 22 22.20 26.02 0.30 5.07% 1.35% IMH JUL 20 19.75 22.11 0.25 4.41% 1.27% NVTL JUL 17 16.90 25.52 0.60 15.07% 3.55% PLMO JUL 25 24.55 34.66 0.45 7.28% 1.83% USG JUL 15 14.70 17.31 0.30 7.05% 2.04% BCC JUL 35 34.55 37.26 0.45 5.53% 1.30% CHIC JUL 20 19.65 20.90 0.35 7.68% 1.78% CENX JUL 22 22.00 24.29 0.50 9.64% 2.27% ENDP JUL 22 22.15 23.16 0.35 6.56% 1.58% IFIN JUL 37 37.05 42.98 0.45 5.93% 1.21% STTX JUL 22 22.05 21.17 (0.88) 0.00% 0.00% * TASR JUL 30 29.65 44.30 0.35 6.39% 1.18% USG JUL 15 14.70 17.31 0.30 10.67% 2.04% VSAT JUL 22 22.20 25.05 0.30 5.67% 1.35% AMED JUL 30 29.50 29.24 (0.26) 0.00% 0.00% CIMA JUL 30 29.60 33.78 0.40 6.65% 1.35% ERES JUL 25 24.70 27.62 0.30 6.05% 1.21% ISRG JUL 17 17.25 18.67 0.25 7.04% 1.45% MU JUL 15 14.70 14.68 (0.02) 0.00% 0.00% NFLX JUL 30 29.45 32.31 0.55 9.80% 1.87% NSM JUL 20 19.80 20.31 0.20 4.91% 1.01% NKTR JUL 17 17.15 19.46 0.35 10.49% 2.04% SWIR JUL 30 29.75 36.53 0.25 5.32% 0.84% XMSR JUL 25 24.65 27.83 0.35 6.82% 1.42% Steel Technologies (NASDAQ:STTX) and Amedisys (NASDAQ:AMED) are candidates for "early-exit" and Micron (NYSE:MU) has suffered from the selling pressure in chip stocks. A number of issues are on the "watch" list after the Friday's retreat in technology shares. NAKED CALLS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield AMLN JUL 25 25.35 23.05 0.35 5.29% 1.38% ICOS JUL 30 30.45 29.84 0.45 5.26% 1.48% OIIM JUL 17 17.80 15.65 0.30 5.50% 1.69% INSP JUL 40 40.50 36.61 0.50 6.88% 1.23% RHAT JUL 25 25.60 22.18 0.60 9.08% 2.34% XMSR JUL 27 27.75 27.83 (0.08) 0.00% 0.00% * CECO JUL 65 65.90 42.25 0.90 7.19% 1.37% ESI JUL 45 45.50 37.90 0.50 5.47% 1.10% FMT JUL 20 20.40 17.85 0.40 8.75% 1.96% NBIX JUL 55 56.10 50.73 1.10 8.21% 1.96% SLAB JUL 50 50.75 43.73 0.75 6.39% 1.48% AGIX JUL 20 20.45 18.78 0.45 9.16% 2.20% LEND JUL 30 30.55 27.41 0.50 6.63% 1.64% TSS JUL 22 22.90 21.51 0.40 8.67% 1.75% PAYX JUL 35 35.40 33.34 0.40 4.97% 1.13% FEIC JUL 25 25.35 23.32 0.35 6.89% 1.38% WM JUL 40 40.30 38.25 0.30 3.79% 0.74% IPXL JUL 20 20.40 19.12 0.40 10.18% 1.96% PSFT JUL 20 20.25 17.21 0.25 6.99% 1.23% As mentioned on Tuesday, a new stock on the "early-exit" list is XM Satellite Radio (NASDAQ:XMSR), which has reversed course during the last few sessions and appears to be "bullish" in the near-term. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield CRDN 38.50 JUL 35.00 AUE SG 0.45 722 34.55 12 3.3% 9.2% CACS 14.00 AUG 12.50 CQQ TV 0.50 0 12.00 47 2.7% 7.0% CBST 11.38 AUG 10.00 UTU TB 0.35 5567 9.65 47 2.3% 6.4% NFI 39.22 AUG 30.00 NFI TF 0.80 613 29.20 47 1.8% 6.0% NVTL 25.52 AUG 20.00 NVU TD 0.50 6 19.50 47 1.7% 5.8% ARXX 13.95 AUG 12.50 ARX TV 0.40 23 12.10 47 2.1% 5.7% TASR 44.30 AUG 30.00 QUR TF 0.85 29 29.15 47 1.9% 5.7% PETD 28.32 AUG 25.00 PHQ TE 0.65 173 24.35 47 1.7% 4.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without margin), MY-Maximum Yield (monthly basis - using margin). __________________________________________________________________ CRDN - Ceradyne $38.50 *** New All-Time High! *** Ceradyne (NASDAQ:CRDN) develops, manufactures and sells advanced technical ceramic products and components for defense, industrial, automotive and commercial applications. The company's primary products include lightweight ceramic armor for soldiers and military helicopters; aesthetic ceramic orthodontic brackets; durable, reduced friction, ceramic diesel engine components; ceramic-impregnated dispenser cathodes for microwave tubes, lasers and cathode ray tubes, and ceramic industrial components for erosion and corrosion resistant applications. CRDN - Ceradyne $38.50 JUL 35.00 AUE SG LB=0.45 OI=722 CB=34.55 DE=12 TY=3.3% MY=9.2% __________________________________________________________________ CACS - Carrier Access $14.00 *** Rally Underway! *** Carrier Access (NASDAQ:CACS) is engaged in the design, production and sales of broadband access equipment to communications service providers. Its products are used to upgrade capacity of wireline and wireless communications networks. The firm's unique product portfolio features eight platforms that reside in a variety of locations, including the service providers' central office, cell site and wireless hub locations, and end users' business premises. CACS - Carrier Access $14.00 AUG 12.50 CQQ TV LB=0.50 OI=0 CB=12.00 DE=47 TY=2.7% MY=7.0% __________________________________________________________________ CBST - Cubist Pharmaceuticals $11.38 *** Bottom-Fishing! *** Cubist Pharmaceuticals (NASDAQ:CBST) is engaged in the research, development and commercialization of novel antimicrobial drugs to combat serious and life-threatening infections. In the United States, the company markets Cubicin (daptomycin for injection, previously known as Cidecin) for the treatment of complicated skin and skin structure (cSSS) infections caused by Gram-positive bacteria, including those caused by MRSA (methicillin-resistant staphylococcus aureus) and MSSA (methicillin-susceptible S. aureus). Cubicin is an antibacterial agent from a new class of antibiotics called cyclic lipopeptides, and has clinical use in the treatment of infections caused by aerobic Gram-positive bacteria. CBST - Cubist Pharmaceuticals $11.38 AUG 10.00 UTU TB LB=0.35 OI=5567 CB=9.65 DE=47 TY=2.3% MY=6.4% __________________________________________________________________ NFI - NovaStar Financial $39.22 *** Premium-Selling 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 $39.22 AUG 30.00 NFI TF LB=0.80 OI=613 CB=29.20 DE=47 TY=1.8% MY=6.0% __________________________________________________________________ NVTL - Novatel Wireless $25.52 *** Entry Point? *** Novatel Wireless (NASDAQ:NVTL) is a provider of wireless data access solutions, including wireless data modems and software, for use with portable personal computers (PCs) and with handheld computing devices. The company delivers comprehensive solutions that help businesses and consumers to access personal, corporate and public information through e-mail, enterprise networks and the Internet. Novatel also offers wireless data modems as well as custom software and hardware engineering services and systems integration services to its customers to facilitate use of its products. NVTL - Novatel Wireless $25.52 AUG 20.00 NVU TD LB=0.50 OI=6 CB=19.50 DE=47 TY=1.7% MY=5.8% __________________________________________________________________ ARXX - Aeroflex $13.95 *** Upgrade = Rally! *** Aeroflex (NASDAQ:ARXX) uses its advanced design, engineering and manufacturing abilities to produce microelectronic and testing solutions. Its products are used in the aerospace, defense and broadband communications markets. Aeroflex also designs and builds motion control systems and shock and vibration isolation systems, which are used for commercial, industrial and defense applications. The company's operations are grouped into three segments: Microelectronic Solutions, Test Solutions and Isolator Products. ARXX - Aeroflex $13.95 AUG 12.50 ARX TV LB=0.40 OI=23 CB=12.10 DE=47 TY=2.1% MY=5.7% __________________________________________________________________ TASR - TASER International $44.30 *** More Premium-Selling! *** 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. TASR - TASER International $44.30 AUG 30.00 QUR TF LB=0.85 OI=29 CB=29.15 DE=47 TY=1.9% MY=5.7% __________________________________________________________________ PETD - Petroleum Development $28.32 *** Oil Sector *** Petroleum Development (NASDAQ:PETD) is an independent energy company engaged primarily in the development, production and marketing of natural gas and oil. The company has grown primarily through drilling and development activities, the acquisition of natural gas and oil producing wells and the expansion of its natural gas marketing activities. PETD - Petroleum Development $28.32 AUG 25.00 PHQ TE LB=0.65 OI=173 CB=24.35 DE=47 TY=1.7% MY=4.9% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ATRS - Altiris $26.85 *** Stuck In A Range? *** Altiris (NASDAQ:ATRS) offers a range of Web-enabled solutions that empower organizations to easily manage desktops, notebooks, handhelds, and Windows, Linux and UNIX servers throughout the IT lifecycle. Altiris provides fully integrated, complete systems management solutions for client and mobile, server, and asset management. The company automates, simplifies, and reduces the cost and complexity of IT lifecycle management with a rapid return on investment. ATRS - Altiris $26.85 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 30 QJI HF 12 0.85 30.85 6.5% 2.8% __________________________________________________________________ SINA - SINA Corporation $30.80 *** Premium-Selling Only! *** SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an online media company and value-added information service provider for China and the global Chinese communities. With a branded network of localized Websites targeting China and overseas Chinese, the company provides an array of services to its users including region-focused online portals, search, directory, interest-based and community-building channels, free and premium e-mail, wireless short messaging, online games, virtual Internet service provider, classified listings, e-commerce, e-learning, and enterprise e-solutions. SINA generates revenue through advertising, various fee-based services, e-commerce and enterprise services. SINA - SINA Corporation $30.80 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 40 NOQ HH 2267 0.85 40.85 7.8% 2.1% __________________________________________________________________ SLAB - Silicon Laboratories $43.73 *** Next Leg Down? *** Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells proprietary high-performance mixed-signal integrated circuits for the wireless, wireline and optical communications industries. Mixed-signal ICs are electronic components that convert real-world analog signals, such as sound waves, into digital signals that electronic products can process. The company's mixed-signal engineers use standard complementary metal oxide semiconductor (CMOS) technology to create ICs that can reduce the cost, size and system power requirements of devices that the company's customers sell to their end user customers. SLAB - Silicon Laboratories $43.73 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 50 QFJ HJ 508 1.00 51.00 5.3% 2.0% ************************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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