The Option Investor Newsletter Sunday 07-11-2004 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: Dead Level Index Trader Wrap: FALL OVER? Editor's Plays: $20 Bet Market Sentiment: Earnings Season Begins Ask the Analyst: Earnings uncertainty, straddles and strangles 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 7-09 WE 7-02 WE 6-25 WE 6-18 DOW 10213.22 - 69.61 10282 - 89.01 10371 - 44.57 + 6.31 Nasdaq 1946.33 - 60.33 2006.66 - 18.81 2025.47 + 38.74 - 13.14 S&P-100 542.63 - 4.54 547.17 - 2.58 549.75 - 5.06 - 0.09 S&P-500 1112.81 - 12.57 1125.38 - 9.05 1134.43 - 0.57 - 1.47 W5000 10842.68 -154.87 10997 - 76.05 11073 + 39.48 - 11.83 SOX 451.14 - 6.17 457.31 - 21.60 478.91 + 25.83 - 23.20 RUT 563.73 - 18.99 582.72 - 4.98 587.70 + 17.16 + 1.42 TRAN 3087.97 - 58.20 3146.17 - 18.01 3164.18 + 95.61 + 43.96 ****************************************************************** Dead Level by Jim Brown After a little more than six months of the year has expired the S&P-500 is trading exactly where it closed 2003 at 1112. Six months of hope, excitement, surprise and disappointment and we have gone nowhere. Of course that is not exactly correct with the highs and lows well away from 1112 but we continue to return to this level. We have spent more time above this level with the high for the year at 1163 and +51 points above Friday's close. We have twice ventured lower by up to -36 points to 1076. This is a perfect picture of a range bound market and the reason so many traders are frustrated and volume is dwindling. Everybody is waiting for the market to pick a direction and nobody is trading to give it a direction. Dow Chart - Daily Nasdaq Chart - Daily SPX - Daily SPX - Weekly The other indexes are not quite as level as the S&P. The Dow closed at 10213 about -240 points below its 2003 close at 10453. The Nasdaq closed today at 1946 and -57 points below the 2003 close at 2003. The broadest measure of the market the Wilshire-5000 is actually showing a +43 point gain from the 2003 close at 10799. I actually believe that the ability of the markets to hold at these levels is positive considering the long rally off the 2003 lows. While it may be positive to consolidate at these high levels, consolidation is never exciting. Volume on Friday failed to reach 3B shares across all markets despite strong earnings comments from GE, the largest company and the proxy for our economy. Internals were better and all the indexes finished in the green but excitement was still missing. The biggest company in the Dow announced earnings before the bell on Friday and beat the street by a penny. The beat was not as important as the comments by GE's Jeff Immelt that "this was the best economy we have seen in years." Those are strong words from Jeff and they backed it up by narrowing their guidance for the year to $1.55 to $1.60. They again said that 2005 should put GE back on track for double digit revenue growth. Of course they have said this for the last couple of years to no avail. Nine of eleven divisions posted gains last quarter but GE still posted overall earnings that were not exciting. The 38 cents included a favorable tax ruling and it was the same 38 cents they earned in Q2-2003. Revenue grew +11% (+$1.05B) illustrating the challenge to grow earnings despite a billion in additional revenue. The expectations for GE were already muted so reaction to the news was positive but calm. GE stock gained only +0.47 cents and Dow component MMM another diverse manufacturer actually lost ground. Still the Immelt comments rescued the markets from the depths of despair and brought them back from the cliff. The Dow gained +41 to close at 10213 and back over its 200dma at 10175. The Nasdaq gained +11 to close at 1945 and traded flat for the day. The only economics came from the Wholesale Trade report and the news was mixed again. May sales rose only +0.5% compared to +0.9% in April. Inventories however shot up +1.2% and well over the +0.2% in April. Durable Goods sales rose only +0.1% with DG inventories jumping +1.5%. One analyst said this divergence in durable goods was the worst in over four years. Inventories rarely shoot up this quickly compared to sales due to much better computerized inventory management and just in time ordering. A jump of this magnitude suggests sales came to a screeching halt in May. This also suggests the June swoon we have seen in consumer numbers may have been stronger then we first expected. I got a kick listening to the talking heads this week as they constantly tried to figure out what happened in June to keep not only consumers but also corporations from making big purchases. Hello, George McFly? I wanted to bang on the TV screen and remind them of the Iraq turnover which many were saying would be a bloodbath both in Iraq and with corresponding terrorist attacks here and abroad. I wanted to shout Fed meeting and rate hike to every one that claimed traders could not understand why corporations deferred purchases of software and hardware in June. With the Fed talking of aggressive hikes if needed I am sure more than one CFO decided to wait for the picture to clear. Consumers were hit with the highest gas prices in history in the U.S. and analysts can't understand why SUV sales died? Makes you wonder what they pay those experts. Speaking of gasoline, oil prices surged over $40 again on Friday on fears that Yukos would halt production to gain some leverage with the Russian government in the fight currently underway. Yukos exports 1.8 million barrels per day and that would be a serious crunch in the supply line. I would not worry about a work stoppage because that oil flow is worth $720 million per day and that will go a long way toward paying their $3 billion tax bill. Still oil closed at $40 and the short squeeze is on again. It will not be long now before companies start warning on earnings due to higher energy prices. $40 oil is a drastically increased expense for almost any manufacturer. Transports gave up some gains early but strengthened late in the day as oil ticked back under $40 by a nickel. For once the earnings news was not all negative. Computer Associates affirmed estimates as did SAP. Considering the carnage in the software sector this was a breath of fresh air for the embattled techs. Spoiling that breath was Unisys which warned that server sales had slowed in the last month earnings would drop to 2-3 cents per share below analysts estimates. The stock was killed far in excess of their warning with a -$2 drop to $11. The problem was the appearance that hardware sales might have stalled in June just as software sales did. Everyone works on the end of quarter stuff the channel sales principle where quotas are made or broken in the last week of the quarter. If Unisys hardware sales were deferred then what about IBM, Dell, Hewlett Packard and the rest of the herd? The Computer Associates earnings affirmation was not without its problems. CA said revenue would be light due to weakness in its services business and an unfavorable product mix. Affirming earnings in spite of the lower revenue saved them from the same fate as Unisys. With nearly 300 companies reporting earnings next week we have to hope that the majority of them repeat the GE claims and talk excitedly about the future. The problem will occur if they all pull a Yahoo instead. Yahoo did not warn but only failed to impress. The expectations were simply way too high and investors hoping for a blowout ran for the exits when it did not appear. Inline earnings are never met with excitement. Inline means fairly valued and no upside to the majority of investors. It means find another horse to ride for the next earnings race. Earnings start off with a whimper on Monday with only 16 companies headlined by NVLS and EFII. Tuesday picks up the pace with about 50 reports led by INTC, JNPR and JNJ. Wednesday has AMD, AAPL, ASML, BAC, GENZ, HDI, MTG, QLGC, SNDK, and a flood of smaller companies. Thursday is the big day headed by IBM, PMCS, NOK, C, RMBS, CY and about 100 others. Before the week is out we should know how the quarter will turn out. The estimates have dropped to +19.4% for the S&P, down from +26% a couple weeks ago and up from +14.6% back in April. We have had a significant ramp from those April estimates and that ramp is rapidly evaporating but still strong. We should have a decent clue by next Friday what the real number will be. +19% would be great and should please the markets but as we all know the guidance is the key. I strongly doubt the software sector was alone in its sales slump. It simply does not make sense that software would slump without a corresponding dip in hardware. So far Unisys is the only company of note that has mentioned soft server sales. It will all come to a head next week and our fate will be known. Next week is also expiration week. As if we did not have enough to worry about we will be dealing with volatility related to an expiration week right in the middle of a critical earnings cycle. We really had very little volatility over the last week as it appears traders are holding their cards close until the last minute while hoping for an earnings move. That suggests we could see an increase in volatility as the earnings begin to flow. With Intel announcing on Tuesday this should make Wednesday option dump day as the market reacts to the Intel news. Right or wrong on direction those options will be losing value with every tick and volume should be huge. Martha lost her last appeal on Friday and she is scheduled to be sentenced on Friday and the betting line is 10-16 months in prison. MSO dropped to its lowest level since May-21st on the news and closed at $8.63. Our economic cycle also ramps up next week with several Fed manufacturing surveys and the return of the much watched PPI/CPI inflation gauges. Where the last week of June was on hold for coming events the next week in July should be anything but slow. There is a lot of pent up trading on both sides of the market and it could break lose with a vengeance next week. The warm up acts are over and the curtain is about to rise on the main performance. How it ends is still unknown but at least the end is near and the waiting is almost over. It is amazing to see how the markets always gravitate to a critical inflection point just before an event that could produce a strong move. The Dow has settled at 10200 for the last four days and refuses to move lower, or higher for that matter. The one lower close on Thursday was immediately retraced on Friday with the GE news. The 200dma rose to 10178 and is providing support while we wait for earnings. This is actually bullish as positive news now has a strong launch point and we are not that far away from the recent highs just below 10500. We have had a week of consolidation of gains in front of the earnings cycle. The Dow is patiently waiting for the answer right in the middle of 10000-10500 range that has held more or less for three months. The Nasdaq tried to hold at 1960 range support but the warnings on Thursday knocked another 20 points off that level. We have been stuck in traffic just above 1940 for two days now. The SOX has actually recovered the 450 support level only two days ahead of Intel earnings. The Russell held on to 560 and 200dma support and managed to close slightly higher in front of weekend event risk. This was a positive sign for me. Russell Chart - Daily All of these factors suggest there are buyers lurking at what they perceive to be a favorable risk level at the bottom of our range. The lack of any material selling over the last couple days despite the negative sentiment is bullish. This was a perfect opportunity for support to fail and investors to dump stock in fear and it did not happen. Volume on Tue/Wed/Thr was strong for a summer week and internals were very negative and the market did not crack. This does not mean we will not move lower if the earnings are a disappointment but it means there is still hope. Keep the faith for one more week and the picture should be much clearer. Intel is the lightning rod for the market on Tuesday. Try not to stand too close. Enter Very Passively, Exit Very Aggressively! Jim Brown ******************** INDEX TRADER SUMMARY ******************** FALL OVER? By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – Not the season, but the decline - in terms of the S&P, the current correction may be at or near an end, based on: the S&P 500 (SPX) being back to its previously broken up trendline, now 'defining' possible support, 2) completion of a 50% retracement of SPX's early-May to mid-June advance, and 3) as suggested by a big jump in put volume last week to a level of bearish sentiment often marking a low. Moreover, the S&P (500) is nearing its 200- day moving average again (at 1100), the same situation seen at the early-May bottom. The Dow (INDU) appeared to find support at its 200-day average at its intraday lows already Thurs and Fri. While the tech-heavy Nasdaq Composite (COMP) is back into its downtrend channel and fell to below it's 200-day moving average (at 1980), COMP has completed a Fibonacci 62% retracement of its early-May to mid-June run up - this amount could also mark a maximum extent of its decline. While another retreat to the 1900 area can't be ruled out (from Fri's close at 1946), the Composite is back down to a long-term weekly support (up) trendline. A wild card is tech stocks here and whether the Nasdaq market will stabilize shortly and cease acting as a drag on the NYSE indices. FRIDAY'S TRADING ACTIVITY – THE NUMBERS – The S&P 500 Index (SPX) closed 3.7 points higher (+0.3%) to 1,112.81 but fell 1.1% on the week. The Dow 30 average (INDU) closed up 41.6 points (+0.4%) at 10,213. The Dow closed 0.7% higher on for the holiday shortened week. The Nasdaq Composite (COMP) ran up 11 points (+0.6%) to close at 1,946.3. The Russell 2000 index (RUT), a benchmark index for smaller stocks, was up a half percent on the day. REPORTS & EARNINGS NEWS – Market bellwether and Dow stock General Electric (GE) reported Q2 earnings that beat estimates by a penny. GE said quarterly revenue totaled $37 billion, up 11% from last year and above analyst forecasts of $35.5 billion as sales increased 14% to $20.6 billion. GE's net earnings were $3.9 billion, or 38 cents a share, versus earnings of $3.8 billion, or 38 cents a share, in the same period a year earlier. As OIN reported on Friday, comments from GE CEO Jeff Immalt regarding the economy and future prospects GE were very upbeat. Immalt indicated that: "This economy is the best we've seen in years and I'm 'confident' our company can grow our earnings 10% to 15% in 2005". GE's stock closed up 1.5% on the day, at $32.17 Wholesale inventories jumped a stronger than expected 1.2% in May, which was above the forecasts for a 0.6% increase. Sales for May rose 0.5% putting the monthly inventory to sales ratio at 1.13, marking the first month since June 2003 where inventory growth exceeded sales growth. April's figures showed a 0.1% decline. After a string of earnings warnings out of the software sector, some stirrings occurred for hardware company Storage Technology (STK), which had a substantial run up after warning the day before of a decline in orders for the recent quarter - putting expected revenues below a prior forecast. What the market seemed to pick up on and which was similar in outlook to the expectations of GE's top exec, were comments from Storage Tech CEO Pat Martin who indicated that he "remains upbeat on the second-half of the year as a product upgrade cycle begins". STK finished at $28.30, +3.05 or up 12%. German software giant SAP (sym: SAP) reported that it expected Q2 revenue to grow 9% from a year ago, topping estimates and bucking the recent software warnings trend (e.g., Computer Associates, Sibel Systems, Veritis and BMC). The U.S. traded shares of SAP rallied $2.08 (5%) to $40.04 at the New York close. THE TALK – GE's numbers were welcome but the mood was one of caution based on uncertainty/anxiety about how Q2 earnings would come in. Evidence for this concern is based on a large number of recent warnings on earnings, especially in the tech sectors. There is concern also related to the recent rebound in oil prices back to $40 and the potential drag of high energy prices on the economy. As one market analyst pointed out, stocks have been moving inversely to oil prices – as oil backed off from a record $40 a barrel, the market went up, but when oil rebounded, stocks corrected. As I note above, we've seen a fast 50% retracement of the early-May to mid-June rally in the S&P 500. OTHER MARKETS – Bonds ended a bit higher, as 10-year yields dropped back to 4.46% from 4.47% the day before – this left the benchmark 10-year T- Note virtually unchanged for the week. The dollar was barely changed against the other major currencies. Oil futures closed below the key $40 a barrel level but the front month crude contract was up more than 4% on the week. The most active August crude futures closed down 37 cents to $39.96. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: I mention in the beginning bullish technical aspects, which are apparent on the chart and with the indicators of: the S&P 500 (SPX) being back to its previously broken up trendline, now 'defining' possible support – see green arrow around 1109-1110; 2) completion of a 50% retracement of SPX's early-May to mid-June advance, and 3) as suggested by a big jump in put volume last week to a level of bearish sentiment often marking a low. While I don't usually don't try to anticipate technical patterns that might form before they actually do, it is interesting to note that at the recent lows or, better, if there was a lower low in the 1100-1090 range, followed by a rebound, a possible head & shoulder's bottom would be in place. All things considered, I would not overstay in index puts due the probability that SPX is at or near a bottom. I pay special attention to the bullish Call/Put readings of last week. SPX is also nearing its 200-day moving average again (at 1100), the same situation seen at the early-May bottom when it rebounded from this area then. [Note: the Dow (INDU) appeared to find support at its 200-day average at its intraday lows already Thurs and Fri.] S&P 100 Index (OEX) – Daily chart: I was looking at the possibility that that there was an emerging uptrend line on the OEX chart below. At least two points are needed to start to draw a trendline – starting with a close-only line chart there is the possibility of such a line of support intersecting around 540 currently. Since it's tentative, something further can be learned to keep the trendline in place and change the chart view to a chart view that includes intraday lows and highs (i.e., bar or candlestick chart type) which will be seen in a daily chart after this one immediately below - S&P 100 Index (OEX) – Daily chart: Interestingly, switching to a bar chart 'view', the trendline becomes an accurate "internal" trendline – one connecting the most number of intraday lows or highs. I also call this a "best fit" trendline. This analysis suggests the possibility – stay tuned on the result! – that 540 is as low as she goes. A move to the 530-532 is a next possible objective if the aforementioned recent lows do not hold. I would be a buyer of OEX calls on such a further decline while holding some purchased in the 540 area. Resistance or selling pressure is anticipated in the 550 area – a close over 550 (or better, two consecutive closes) would suggest a reversal back to the upside. A sideways move between 540 and 550 would not be surprising in the next few sessions. Sometimes trendlines drawn on the RSI indicator chart, like the one above, are also suggestive of where prices will hold. will hold. Nasdaq Composite (COMP) Index – Daily: The Nasdaq Composite (COMP) has more of a tendency than the S&P and the Dow to fall under its 200-day average which was the case last week as can be seen on the next chart. As noted in my opening commentary, COMP has retraced 62% of its prior upswing. This might be as low as it goes, although a further decline to retest the 1900 area can't be ruled out either – I don't have lower objectives than this currently. A move back to the 1900 area, followed by a rebound would also set up a possible head and shoulder's bottom. COMP is nearing an oversold area in terms of its 14-day RSI – there is good tendency in recently months for bottoms to occur when there is a reading(s)in this area, as can be seen in the chart above. Nasdaq 100 (NDX) Index – Hourly: I highlighted before the bearish price/RSI (length: 21) divergence, that proved to be an excellent tip off to the recent top; i.e., the series of higher highs, "unconfirmed" by a similar high in the RSI, suggested a high potential buy of Nasdaq 100 (NDX) index puts. Now, the reverse – a bullish divergence – situation is suggested as prices moved lower, while the RSI has been trending higher. Near support looks to be 1430, with the next area of lower support anticipated in the 1410-1408 area. Resistance is at 1450, then 1460. I gauge more major resistance to be the "gap" area at 1471-1473. Nasdaq 100 tracking Stock (QQQ) Daily: I would be a buyer of the stock in the 35-35.50 area. 35.50 might hold as support or prices may drift lower, along the previously broken up trendline, which is now looking to be a decline "line" of support. The lower envelope line comes in just under 35. My lowest technical objective is to around 34.50 currently. Resistance is at 36.5-36.7 currently. I haven't shown the volume chart as analysis of this indicator isn't telling of anything especially – volume diminished somewhat on Friday as trading tapered off ahead of the weekend. TRADER'S CORNER ARTICLE NOTE: I wrote some more on Dow Theory last week – part 2 – and not the usual things about averages "confirming" each other and the like, but about the typical phases of trends, in bull markets and bear markets. If interested, see – http://www.OptionInvestor.com/traderscorner/tc_070604_2.asp Good Trading Success! ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ************** Editor's Plays ************** $20 Bet This will be short and sweet. Everyone knows that Intel reports earnings on Tuesday night. Expectations are low after they were not exactly bubbling over with enthusiasm at their mid quarter update. The stock has been punished lately after multiple downgrades by a variety of brokers. Currently at $26.50 it is almost midway between the $27.50 call and the $25 put. The call is asking 25 cents and the put 20 cents. That makes one contract a $20-$25 bet on the direction. I do not think Intel will move enough to make it worth buying both and we don't have enough time to sit on them and wait for a multi day move. This is a coin toss, a lottery play. Guess right and double your money. Guess wrong and lose it all. My gut feel is that they will hit their number but lower guidance for the current quarter. If PC sales slowed in June as did software sales then chips could be backing up in the channel. This is just a calculated guess based on their mid quarter report and the many software warnings. The smart move is to remain flat until after a market direction is decided and then pick a real option from the current newsletter play list. I would suggest the $20 put. With support at $26 and any negative guidance we could easily break that and plunge lower. Remember YHOO after inline performance. This market is very nervous. If somebody else warns on Monday or the market breaks that 10200/1940 floor then Intel will already be stretched to the limit on any decline. Conversely a surprise out of Intel and it could easily jump back to the top of its recent range at $28.50-$29. The stock is very depressed and they could be selling chips overseas by the boatload. The call is slightly closer to the money and could easily spike higher on good news. It is your coin. Flip it and choose a side. Warning: This is not a fundamental play or even a play that has a 50:50 chance of success. This is a lottery play and should only be entered with money you can afford to lose. It for gamblers only and provided for entertainment value. Making any option bet regardless of how fundamental during expiration/earning week is extremely dangerous. We have no market direction and a coin toss would predict it as reliably as a room full of analysts. I looked far and wide for a real trade and found none I could recommend in good conscience. EBAY call play? I like it after the recent YHOO drop but earnings in a week and we are tied to whatever direction the market decides after Intel on Tuesday. IWN put play? I like it on a break of 560 on the Russell but that is strong support. Support that once broken could produce a serious drop but still strong support. Too risky ahead of Intel. MSO put? If I took the chance I guarantee she would get probation instead of jail time. Spend the $20-$25 bucks and take a chance. It will be much cheaper and less risk than any other play between now and Wednesday morning. INTC July $25 Put INQ-SE $0.20 For those that like the other side. INTC July $27 Call INQ-GY $0.25 Intel Chart ********************* DJX Put Update $102.13 We got the drop I was expecting but the 10200 level has proven to be very tough. The option rose as high as $1.00 on Tuesday and then a stubborn Dow and time decay started eroding the price. With Intel earnings on Tuesday we knew it was going to be very close. The option expires on Thursday at the close but the play is over. Friday's closing price was 60 cents. The game plan was to close the play on Friday regardless of price. It was 70 cents until noon and that was the price when it was profiled. If you followed the plan you are out now and looking for something else to trade. It was a good idea but the market did not follow through despite the many warnings. http://members.OptionInvestor.com/editorplays/edply_070404_1.asp ********************* Microsoft Running In Place $27.86 Combination play Still waiting for the news on the cash disbursement. http://members.OptionInvestor.com/editorplays/edply_062704_1.asp *********************** News Corp Update $35.00 Not getting any movement on NWS after the last discussion about moving to the U.S. This is a very long term play and we are waiting for some positive momentum to sell covered calls against our position. 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 $13.98 http://members.OptionInvestor.com/editorplays/edply_061304_1.asp **************** MARKET SENTIMENT **************** Earnings Season Begins - J. Brown The markets bounced on Friday when Dow-component General Electric (GE), the world's largest company by market cap, beat earnings estimates by a penny. Comments from Jeff Immelt, GE's Chairman and CEO, briefly lifted investor sentiment when he said the economy is the best he's seen in years. Overall the markets were due for a bounce with the vast majority of sector-specific indices all significantly oversold. The rebound happened to produce some bullish market internals with advancing stocks outnumbering decliners 17 to 10 on the NYSE and 17 to 12 on the NASDAQ. Up volume outweighed down volume but overall volume remained light. The problem is that Friday's bounce did not do much to erase the losses or repair the technical damage done in the last week or so and investor confidence remains shot with the daily parade of earnings warnings. Next week's long awaited Q2 earnings season will hit full swing but odds are we could see more "sell the news" reaction as companies fail to issue positive guidance for the third quarter. The combination of oil back to $40 a barrel, the upcoming terrorist targets.. I mean Democratic and Republican conventions, and fears of a major event at the August Olympics could easily keep a lid on stocks. Although the biggest wet blanket on the markets is probably the upcoming, anybody's-guess presidential election. There is hope that stocks could turn around late in the week with the large number of economic reports due out to hit Wall Street. That's assuming they can offer some positive numbers and not depress us further with concerns that the U.S. economy is slowing. Speaking of slowing I heard that the Chinese GDP numbers might be released this coming week and it could be the first report since the Chinese government actively tried to slow down GDP growth before their economy overheated. That could be a wild card for cyclical stocks. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 8996 Current : 10213 Moving Averages: (Simple) 10-dma: 10288 50-dma: 10229 200-dma: 10181 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 960 Current : 1112 Moving Averages: (Simple) 10-dma: 1125 50-dma: 1117 200-dma: 1101 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1204 Current : 1440 Moving Averages: (Simple) 10-dma: 1475 50-dma: 1448 200-dma: 1444 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.75 -0.42 CBOE Mkt Volatility old VIX (VXO) = 15.42 -0.63 Nasdaq Volatility Index (VXN) = 22.35 -0.33 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.75 614,062 457,710 Equity Only 0.67 468,279 315,317 OEX 1.01 27,847 28,147 QQQ 1.56 45,390 47,685 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 66.0 + 0 Bear Confirmed NASDAQ-100 48.0 - 1 BULL ALERT Dow Indust. 70.0 + 0 Bear Confirmed S&P 500 62.8 + 0 Bear CORRECTION S&P 100 65.0 + 0 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: 1.82 10-dma: 1.54 21-dma: 1.27 55-dma: 1.12 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 1728 1718 Decliners 1026 1247 New Highs 84 37 New Lows 43 94 Up Volume 846M 958M Down Vol. 516M 371M Total Vol. 1406M 1367M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 07/06/04 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercial traders continue to sit tight without much change in their bearish sentiment. Retail traders aren't changing their bullish tune much either but they have grown a bit more optimistic Commercials Long Short Net % Of OI 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%) 07/06/04 402,952 416,526 (13,574) (1.7%) 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 06/15/04 169,595 115,336 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% 07/06/04 132,423 90,748 41,675 18.7% 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 Now we are seeing some money shuffling in the e-minis. Commercial traders have reduced their shorts and raised their long positions but remain overwhelmingly bearish. Small traders have pared back their bullish sentiment. Commercials Long Short Net % Of OI 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%) 07/06/04 287,442 423,583 (136,141) (19.1%) 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 06/15/04 216,759 147,247 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% 07/06/04 219,321 58,567 160,754 27.9% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders remain somewhat bullish on the NASDAQ 100 but only by a small margin. Small traders are much more bearish on technology. Commercials Long Short Net % of OI 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% 07/06/04 42,245 37,343 4,902 6.2% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 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%) 07/06/04 9,345 16,527 (7,182) (27.8%) 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 Commercial traders continue to snooze with little change in their Dow Jones Industrials positions. Small traders have reduced their bearish attitude some but remain negative. Commercials Long Short Net % of OI 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% 07/06/04 27,214 20,775 6,439 13.4% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 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%) 07/06/04 5,969 8,227 (2,258) (15.9%) 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 *************** Earnings uncertainty, straddles and strangles What do you think of a Yahoo! July 35 call and 30 put? On Wednesday afternoon, a trader was looking at a Yahoo! Inc. (NASDAQ:YHOO) $30.11 strangle (an options strategy where both a call and put are purchases on the same underlying security with the same dates of expiration and strike prices equally out the of the money). This strategy is a "neutral" strategy, but the trader is looking for a SIGNIFICANT move, up or down, in order to profit. Once I discussed the strategy, priced it out, and did some technical work with Yahoo's chart using the retracement tool, other traders had questions regarding not only the pricing and interpretation, but what I thought of other option strategies regarding different stocks ahead of quarterly earnings. What a perfect opportunity to try and use the retracement tool, teach some of us how to price out various option strategies, put the information on a chart, look at it, then try and make an educated decision. Especially ahead of quarterly earnings season! While I would love to be able to try and analyze every stock ahead of their earnings report, if I can give you a tool, teach you how to use it, then you might not be reliant on myself or another analyst to discuss the stock YOU'RE interested in ahead of earnings. Once again, we're going to look at BOTH sides of the trade. One side is the BUYER of the call/put strangle, but we're also going to look at it from the OPTION MARKET MAKER's perspective, where this perspective can come in handy when we're not only trying to make a decision if we should BUY the position, but when we should SELL, or CLOSE the position. Here's what we were looking at in the OptionInvestor.com Market Monitor Wednesday afternoon with about an hour and 45-minutes left until the close. Facts: YHOO was trading $32.64, almost smack in the middle of $30 and $35. The July $35 Calls (YHQGG) were offered at $0.60 The July $30 Puts (YHQSF) were offered at $0.60. If I bought 1 contract each, the cost would be $120.00 + Comm. To make money on the strangle, the PURCHASER of the strangle needs YHOO's stock price to either move UP to $36.20 at a minimum ($35 + $1.20 spent on strangle) or FALL to $28.80 at a minimum ($30 - $1.20 spent on strangle). From the OPTION's MARKET MAKER perspective (they are usually selling the calls and options to market participants as they provide liquidity to buyers and sellers), he/she can make money on the trade IF YHOO's stock stays INSIDE of $36.20 to $28.80. Yahoo! Inc. (YHOO) - July 7, 02:47:44 PM EDT Once a trader prices out what it would cost per contract to buy a put and call that make up the strangle, they will often times define a range of profitability. As noted in "Facts" we knew it was going to cost $0.60 for the call and $0.60 for the put. Add the two together and we come up with $1.20. To define the RANGE of profitability, you add this $1.20 to the call strike ($35) for your upper range, and subtract the $1.20 from the put strike ($30) for your lower RANGE of profitability. Once a trader does this, it gives them perspective on what the stock NEEDS TO DO before expiration. Remember! If YHOO's stock were to JUMP HIGHER on the market's reaction to earnings/guidance, the put options go "poof" or fall in price and most likely become worthless and the trader would lose their $60.00 on the put option, so to have the strangle come out profitable ($120.00 was the cost) the trader would need YHOO's price to JUMP HIGHER than $36.20 ($36.20 - $35 = $1.20 * 100 = $120.00). Conversely, if YHOO's stock were to FALL on the market's reaction to earnings/guidance, the call options go "poof" for fall in price and most likely become worthless and the trader would lose their $60.00 on the call option, so to have the strangle come out profitable ($120.00 was the cost) the trader would need YHOO's price to FALL below $28.80 ($28.80 - $30 = $1.20 * 100 = $120.00). OK.... so what happens? YHOO reports earnings that were inline with analysts estimates, but forward guidance wasn't as robust as market participants had hoped for, and the stock fell in after- hours trading (after Wednesday's regular session). Now it gets fun! While I wasn't overly fond of the YHOO strangle, as it seemed a little expensive for what I thought the stock could do in a reaction to earnings, let's pretend we did buy the strangle. Let's also pretend we ONLY BOUGHT THE PUT option, and played a direction play lower with an out-the-money put. Here's the fun part. Also pretend that YOU are the market maker and YOU are trying to stay as PROFITABLE as possible. When you're thinking like a market maker, you're trying to figure out how you can put the screws to other traders in the market as YOU want to make as much money as possible, while controlling you risk. Remember, the market maker most likely sold the $35 calls and $30 puts to strangle traders, and the market maker is OBLIGATED to sell/deliver YHOO stock at $35 or buy YHOO stock at $30. Of course, the MARKET MAKER received $60 per contact, or $0.60 per share when he SOLD the $35 call (that's his/her premium for the RISK they're taking) and the MARKET MAKER received $60 per contract, or $0.60 per share when he SOLD the $30 put. In Wednesday's evening's Market Monitor (you'll find it in Thursday's Market Monitor archive at OptionInvestor.com if you're looking for it) I made some notes as to how YHOO traded in after- hours trade. It looked like somebody was bound and determined to keep YHOO's price as close to $28.80 (where the strangle purchaser needed the stock to fall below to be profitable). Yahoo! Inc. (YHOO) - 5-minute intervals (extended hours) At 04:00 PM EDT when the market's regular session ended, YHOO was within 10-cents of the mid-point of the $30-$35 strangle. When earnings and guidance were released, the stock fell sharply in extended hours to as low as $27.79. But then it "gravitated" right back up near $28.80 when the extended session closed. Hmmmm.... see how the stock actually went above $28.80 and just above $29, then came back to $28.80. To me, this seems like "fine tuning" or somebody is trying to peg the stock at $28.80, as if to KEEP all the money from a $30-$35 strangle. Who in their right mind would try and keep the stock at $28.80 in after-hours? Ahead of the next day's opening bell? Somebody with a profit motive is my thinking. The MARKET MAKER perhaps? Alright.... so a trader that BOUGHT the $30-$35 strangle becomes a little suspicious, has an action plan for the next day, as the holder of the $30-$35 strangle understands that this strangle expires on Friday July 16, and based on after-hours trade, the call portion of the trade looks like it is going to be worthless come expiration, so its the PUT option part of the trade that needs the greatest amount of attention. IF YHOO opens at $28.80 the next morning, what is the MINIMUM the $30 put option would be worth? $30 - $28.80 = $1.20. Now.... let's quickly discuss "why" YHOO might have been able to recover from $28.00 to $28.80 in the extended hours. Options traders don't get a chance to trade their options after 04:00 PM EDT, and if they do, the spread of the bid/ask usually don't allow for very good fills. What can happen is that traders that do hold puts, when they DON'T see an after-hours trade as LOW as they thought the stock might should have fallen, will immediately come in and BUY the UNDERLYING stock. Think of it this way. If YOU own 10 YHOO July $30 puts, and the stock is trading $28.00 in extended hours, you have the RIGHT to sell 1,000 shares of YHOO at $30. Since you can't sell your 10 put contracts for $2.00, you might BUY 1,000 shares of YHOO at $28.00 and immediately lock in the $2.00 per contract difference ($30 - $28 = $2.00). In the context of the $1.20 strangle, you are also capturing the $2.00 per share difference, and going to bed with the knowledge that you made $0.80 per contract on the trade. If the stock opens lower at $27.00, you might have missed out on further profit, but you would most likely EXERCISE your right to SELL the stock you bought in extended hours at $30, so you don't care if the stock opens lower at $27.00. Conversely, if details are released later that have the stock moving higher in the next day's session, or analysts still seem enthused and feel the stock is a bargain after a 13.8% decline and the stock gets upgraded, then while the put option value would be worth less at $30 than it would have been the next morning if the stock opened at $28.80, the stock you bought in extended hours at $28.00 has now appreciated. What does this sound like? It sounds like HEDGING! What are options MARKET MAKERS known for? MANAGING RISK, and knowing how to hedge. Now.... Let's pretend that YOU or I bought the $30-$35 strangle. Where's our profit at? Where's our RISK at? Our risk, or attention should be on the $30 put. We know the $35 calls have gone "poof." What do I do in the morning? I've only got 7 trading days until expiration, and I'm going to lose 2 days worth of premium over the weekend. My/YOUR primary goal is to make money. My/YOUR secondary goal is to lose as little money as possible, if the bet we made doesn't look like it is going to pan out. Let's look at how YHOO has traded since Thursday's open. Yahoo! Inc. (YHOO) - 5-minute intervals (regular session only) At its best, the strangle would have been slightly profitable as the July $30 puts did see a trade at $1.35, but the put price dropped pretty quick in just the first 15-minutes of trade as buyers bid the stock above $30.00. If traders are going to trade strangles and straddles, where PROFIT depends on the STOCK showing VOLATILITY, then that's the MAIN TEST for the trade. By establishing some PROFIT points, or RANGE that the stock MUST MOVE, a trader then has most of the information they need for CLOSING the trade. In the above chart I ask the question, "Why did a strangle buyer actually purchase the strangle?" The reason is that the trader thought the stock would show VOLATILITY or price action AWAY from the price they established the strangle. YHOO certainly showed volatility AWAY from $32.50. However, YHOO did NOT achieve or pass the test of VOLATILITY for PROFIT outside the range we had calculated BEFORE buying the strangle. Since this trade was established so close to July expiration, there was little time to sit and contemplate what the strangle trader should do on Thursday morning. One good rule of thumb is if we are going to play some strangles or straddles ahead of an earnings release, if the STOCK DOES NOT do what we think it should do, in relation to what we PAID for the strangle or straddle, then we should probably take our lumps and close the trade immediately. What if YHOO had gapped lower and opened at $27 the next day? What would you do? At a MINIMUM, where would your profit stop have been placed? Strangle and straddle option strategies are excellent option strategies as a way to be "neutral" into an earnings report, an important FDA drug review, and FOMC meeting, a major economic report. Any event that might be expected to bring VOLATILITY into a security. Hopefully this column gives traders an idea at how to look at your trade, set some parameters, and then have an established action plan set in place AFTER the trade is established, and TRADE MANAGEMENT becomes more crucial. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ARA ARACRUZ CELULOSE S Mon, Jul 12 -----N/A----- 0.70 BRO Brown & Brown Mon, Jul 12 After the Bell 0.45 CTAS Cintas Corp Mon, Jul 12 After the Bell 0.41 EFII Elec for Imaging Mon, Jul 12 -----N/A----- 0.24 HELE Helen of Troy Ltd Mon, Jul 12 Before the Bell 0.45 MTB M&T Bank Corp Mon, Jul 12 Before the Bell 1.45 MDC M.D.C Holdings Mon, Jul 12 After the Bell 1.93 NVLS Novellus Sys, Inc. Mon, Jul 12 -----N/A----- 0.26 STI SunTrust Mon, Jul 12 Before the Bell 1.26 ------------------------- TUESDAY ------------------------------ ADTN ADTRAN, Inc. Tue, Jul 13 Before the Bell 0.26 AMB AMB Property Corp Tue, Jul 13 After the Bell 0.53 ASO AmSouth BanCorp Tue, Jul 13 -----N/A----- 0.46 BBT BB&T Corp Tue, Jul 13 Before the Bell 0.68 CBH Commerce Bancorp Tue, Jul 13 Before the Bell 0.78 CBSH Commerce Bancshares Tue, Jul 13 Before the Bell 0.75 GCI Gannett Tue, Jul 13 Before the Bell 1.30 INTC Intel Corp Tue, Jul 13 After the Bell 0.27 JEF Jefferies Grp Tue, Jul 13 Before the Bell 0.46 JNJ Johnson & Johnson Tue, Jul 13 -----N/A----- 0.79 JNPR Juniper Networks Tue, Jul 13 After the Bell 0.04 MI Marshall & Ilsley Tue, Jul 13 Before the Bell 0.66 MEG Media General Tue, Jul 13 Before the Bell 0.84 PKX POSCO Tue, Jul 13 -----N/A----- N/A RJF Raymond James Tue, Jul 13 -----N/A----- 0.48 PHG Royal Philips Elec Tue, Jul 13 -----N/A----- N/A STT State Street Corp Tue, Jul 13 Before the Bell 0.68 TSCO Tractor Supply Co Tue, Jul 13 Before the Bell 0.75 YUM Yum! Brands, Inc. Tue, Jul 13 After the Bell 0.52 ------------------------ WEDNESDAY ----------------------------- AMD Adv Micro Devices Wed, Jul 14 After the Bell 0.09 AAPL Apple Computer, Inc.Wed, Jul 14 -----N/A----- 0.15 ASML ASML Holdings NV Wed, Jul 14 -----N/A----- 0.15 BAC Bank of America CorpWed, Jul 14 -----N/A----- 1.74 CEC CEC Entertainment Wed, Jul 14 After the Bell 0.39 CYN City Natl Corp Wed, Jul 14 After the Bell 1.02 CNET CNET Networks Wed, Jul 14 After the Bell -0.01 CCK CROWN HOLDINGS INC Wed, Jul 14 After the Bell 0.28 DRL Doral Finl Wed, Jul 14 -----N/A----- 0.91 GENZ Genzyme Corp Wed, Jul 14 -----N/A----- 0.41 HDI Harley-Davidson Wed, Jul 14 Before the Bell 0.75 IFIN Invest Finl Serv Wed, Jul 14 After the Bell 0.48 MOGN MGI Pharma Wed, Jul 14 Before the Bell 0.05 MTG MGIC Investment CorpWed, Jul 14 Before the Bell 1.27 PPDI Pharm Product Dvlp Wed, Jul 14 After the Bell 0.39 PP Prentiss Properties Wed, Jul 14 -----N/A----- 0.76 QLGC QLogic Wed, Jul 14 After the Bell 0.36 RI Ruby Tuesday Wed, Jul 14 After the Bell 0.46 SNDK SanDisk Corp. Wed, Jul 14 After the Bell 0.30 STN Station Casinos Wed, Jul 14 Before the Bell 0.49 TFX Teleflex Incorp Wed, Jul 14 After the Bell 0.88 NYT New York Times Co Wed, Jul 14 Before the Bell 0.50 WWW Wolverine Wrld Wde Wed, Jul 14 Before the Bell 0.27 ------------------------- THUSDAY ----------------------------- ATR AptarGrp Thu, Jul 15 After the Bell 0.62 BRE BRE PROPERTIES INC Thu, Jul 15 After the Bell 0.57 CSL Carlisle Co Thu, Jul 15 Before the Bell 1.08 C CitiGrp Inc. Thu, Jul 15 Before the Bell 0.97 CBCF Citizens Banking Thu, Jul 15 -----N/A----- 0.42 CMA Comerica Incorp Thu, Jul 15 Before the Bell 0.93 CBSS Compass Bancshares Thu, Jul 15 -----N/A----- 0.70 CY Cypress Semicon Thu, Jul 15 Before the Bell 0.23 DJ Dow Jones & Co Inc. Thu, Jul 15 Before the Bell 0.38 ETN Eaton Thu, Jul 15 Before the Bell 1.01 EQT Equitable Res, Inc. Thu, Jul 15 Before the Bell 0.61 FCS Fairchild Semicon Thu, Jul 15 Before the Bell 0.23 FITB Fifth Third Bancorp Thu, Jul 15 Before the Bell 0.79 GPC Genuine Parts Thu, Jul 15 Before the Bell 0.57 GGG Graco Thu, Jul 15 After the Bell 0.40 HIB Hibernia Corp. Thu, Jul 15 -----N/A----- 0.45 IVC Invacare Thu, Jul 15 Before the Bell 0.56 LSTR Landstar System Thu, Jul 15 Before the Bell 0.52 MAR Marriott InterNatl Thu, Jul 15 Before the Bell 0.61 NCF Natl Comm Finl Corp Thu, Jul 15 After the Bell 0.45 NFLX NetFlix.com Thu, Jul 15 After the Bell 0.13 NOK Nokia Thu, Jul 15 -----N/A----- 0.18 PBCT People's Bank Thu, Jul 15 -----N/A----- 0.25 PEP PepsiCo Thu, Jul 15 -----N/A----- 0.60 PMCS PMC-Sierra, Inc. Thu, Jul 15 After the Bell 0.07 PII Polaris Ind Inc. Thu, Jul 15 Before the Bell 0.52 PPG PPG Ind Thu, Jul 15 Before the Bell 1.08 RMBS Rambus Inc. Thu, Jul 15 After the Bell 0.06 RS Reliance Steel Thu, Jul 15 Before the Bell 1.54 RDC Rowan Co, Inc. Thu, Jul 15 Before the Bell -0.03 SEIC SEI Investments Thu, Jul 15 Before the Bell 0.36 SLM SLM Corp Thu, Jul 15 Before the Bell 0.52 LUV Southwest Airlines Thu, Jul 15 Before the Bell 0.16 SYK Stryker Thu, Jul 15 After the Bell 0.34 TCB TCF Finl Corp Thu, Jul 15 Before the Bell 0.88 SSP The E.W. Scripps Co Thu, Jul 15 Before the Bell 0.98 MNI The McClatchy Co Thu, Jul 15 Before the Bell 0.88 TRB Tribune Thu, Jul 15 Before the Bell 0.61 UNH UnitedHealth Grp IncThu, Jul 15 Before the Bell 0.92 VLY Valley Natl Bancorp Thu, Jul 15 -----N/A----- 0.38 WB Wachovia Corp Thu, Jul 15 Before the Bell 0.96 WBS Webster Finl Corp. Thu, Jul 15 Before the Bell 0.91 ------------------------- FRIDAY ------------------------------- CX CEMEX S.A. Fri, Jul 16 -----N/A----- 0.83 DPH Delphi Fri, Jul 16 Before the Bell 0.28 ELUX Electrolux AB Fri, Jul 16 -----N/A----- 1.35 HAS Hasbro, Inc. Fri, Jul 16 Before the Bell 0.08 HBAN Huntington Bancshrs Fri, Jul 16 Before the Bell 0.42 KEY KeyCorp Fri, Jul 16 Before the Bell 0.57 NCC Natl City Fri, Jul 16 Before the Bell 0.69 NAP Natl Processing, IncFri, Jul 16 Before the Bell 0.25 UCBH UCBH Holdings, Inc. Fri, Jul 16 -----N/A----- 0.40 GWW W.W. Grainger Fri, Jul 16 -----N/A----- 0.69 WL Wilmington Trust Fri, Jul 16 Before the Bell 0.54 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable URBN Urban Outfitters Inc 2:1 Jul 9th Jul 12th SLXP Salix Pharms 3:2 Jul 12th Jul 13th MGPI MGP Ingredients 2:1 Jul 15th Jul 16th CCFH CCF Holding Co 3:2 Jul 15th Jul 16th BLUD Immucor, Inc 3:2 Jul 16th Jul 19th KNGT Knight Transportation Inc 3:2 Jul 20th Jul 21st CWTR Coldwater Creek Inc 3:2 Jul 23rd Jul 26th -------------------------- Economic Reports This Week -------------------------- The Q2 Earnings Season is finally here and hits full steam this week. On top of earnings we get a wave of economic data this week. Tuesday brings the Retail sales numbers. Thursday and Friday are packed with a number of reports but headlining the week will be the PPI, CPI, NY Empire state index and Philly Fed report. ============================================================== -For- ---------------- Monday, 07/12/04 ---------------- Trade Balance (BB) May Forecast: -$48.0B Previous: -$48.3B Treasury Budget (DM) Jun Forecast: $14.4B Previous: $21.2B ----------------- Tuesday, 07/13/04 ----------------- Export Prices ex-ag. (BB) Jun Forecast: N/A Previous: 0.2% Import Trices ex-oil (BB) Jun Forecast: N/A Previous: 0.4% Retail Sales (BB) Jun Forecast: -0.5% Previous: 1.2% Retail Sales ex-auto (BB) Jun Forecast: 0.3% Previous: 0.7% ------------------- Wednesday, 07/14/04 ------------------- None ------------------ Thursday, 07/15/04 ------------------ Initial Claims (BB) 07/09 Forecast: 333K Previous: 310K Business Inventories (BB) May Forecast: 0.5% Previous: 0.5% PPI (BB) Jun Forecast: 0.2% Previous: 0.8% Core PPI (BB) Jun Forecast: 0.2% Previous: 0.3% NY Empire State Index (BB) Jul Forecast: 28.0 Previous: 30.2 Industrial Production (BB) Jun Forecast: 0.1% Previous: 1.1% Capacity Utilization (BB) Jun Forecast: 77.7% Previous: 77.8% Philadelphia Fed (DM) Jul Forecast: 25.3 Previous: 28.9 ---------------- Friday, 07/16/04 ---------------- CPI (BB) Jun Forecast: 0.3% Previous: 0.6% Core CPI (BB) Jun Forecast: 0.2% Previous: 0.2% Mich Sentiment-Prel. (DM) Jul Forecast: 97.0 Previous: 95.6 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. 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The Option Investor Newsletter Sunday 07-11-2004 Sunday 2 of 5 In Section Two: Watch List: Biotech, Software, Brokers and more! Dropped Calls: None Dropped Puts: None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Biotech, Software, Brokers and more! ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Eon Labs - ELAB - close: 36.47 change: -2.32 WHAT TO WATCH: Technical players will want to give ELAB another look. Shares have been bouncing from their simple 100-dma for months. Friday's steep decline sent ELAB straight to support at the $35.00 level and its simple 100-dma. There was a sharp intraday bounce suggesting traders were buying the dip. However, the high-volume decline is a concern. We might be cautious bulls on a rebound back above the $38.00 level with a target of $44-45. Look for earnings on July 22nd. Chart= --- Symantec Corp - SYMC - close: 41.09 change: +0.00 WHAT TO WATCH: Software stocks have been crushed in the last several days with several earnings warnings shocking the sector. SYMC has managed to weather the storm pretty well but the stock is still slipping toward support at the $40.00 mark and its simple 200-dma. The MACD is about to produce another sell signal. We'd consider bearish plays under $40.00 or the recent low at $39.40. Watch for earnings on July 21st. Chart= --- Legg Mason - LM - close: 86.50 change: +0.02 WHAT TO WATCH: The broker-dealer sector has been an big under performer lately. LM has followed the sector lower with several declines in the past week or two. Now LM is testing support at the $86 level and its simple 200-dma. The P&F chart, while currently bullish, also looks ready to turn bearish. The MACD is already in a sell signal and we would target the $80 level but watch out for earnings on July 19th. Chart= --- Hughes Supply - HUG - close: 58.99 change: +0.58 WHAT TO WATCH: Bulls will want to keep an eye on HUG. The stock recently raised its earnings forecasts and now shares are consolidating higher toward resistance at $60.00. Currently the P&F chart is bullish and points to a $66 target. A breakout over the $60.00 mark might be a decent entry point. Earnings are expected on August 24th. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- JBLU $25.61 -0.34 - JBLU has recently failed at its 200-dma and now shares are testing support at the $25.00 level. GDT $53.35 +0.15 - GDT has been rolling over from an oversold bounce in early June. Currently the stock's daily chart has a H&S pattern that points to a $47 target. IMCL $79.62 +0.60 - The recent pull back in IMCL has stalled above its simple 40-dma and the stock looks poised to rebound back above the $80 level. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ None *********** DEFINITIONS *********** 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. 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The Option Investor Newsletter Sunday 07-11-2004 Sunday 3 of 5 In Section Three: Current Calls: PD, QCOM, SUN New Calls: ATK, ITT, WFMI Current Put Plays: APPX, DISH, IRF, SLAB New Puts: None ************************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 ****************** Phelps Dodge - PD - close: 79.00 chg: +1.90 stop: 75.49 Company Description: Phelps Dodge Corp. is the world's second-largest producer of copper, a world leader in the production of molybdenum, the largest producer of molybdenum-based chemicals and continuous- cast copper rod, and among the leading producers of magnet wire and carbon black. The company and its two divisions, Phelps Dodge Mining Co. and Phelps Dodge Industries, employ more than 13,500 people in 27 countries. (source: company press release) Why We Like It: We're off to a good start with PD. The stock is seeing some follow through on its technical bull-flag breakout from Wednesday. The metals and mining stocks have been winners this week and both gold and copper prices are moving higher. Its P&F chart still looks strong. Fundamentally investors are bullish on PD due to the improving U.S. and global economies, specifically China, which has been a huge buyer of copper. The bull flag pattern points to an $82.50-85.00 target and that happens to coincide with the $82.00 P&F bullish target. We believe that PD can actually trade to the $84-85 region with overhead resistance at the $85.00 mark. Although PD's immediate challenge is resistance at the round-number, psychological $80.00 mark. Suggested Options: We like the August $75 and $80 calls and that gives us time to ride them into PD's earnings report in late July. !Alert - July options EXPIRE this Friday! BUY CALL AUG 75 PD-HO OI= 484 Current Ask $6.40 BUY CALL AUG 80 PD-HP OI=1570 Current Ask $3.50 Annotated Chart: Picked on July 07 at $ 78.75 Change since picked: + 0.25 Earnings Date 07/27/04 (confirmed) Average Daily Volume: 2.6 million Chart = --- QUALCOMM - QCOM - close: 70.56 change: -0.09 stop: 69.75*new* Company Description: QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2003 FORTUNE 500® company. (source: company press release) Why We Like It: We are growing even more concerned about our bullish play in QCOM. The markets managed a bounce on Friday but QCOM didn't participate. Instead the stock produced another candle in its bearish wedge-like pattern above support at $70.00. This is disappointing. In the last three weeks two brokers have reiterated their "out perform" ratings, two more brokers have raised or reiterated their "buy" ratings and raised the price target on QCOM to $90 and above. Merrill and Piper Jaffray have essentially said QCOM is the best play in the wireless sector. Technically the stock's breakout over the $70 mark looked great and produced a quadruple-top breakout buy signal on its P&F chart. Unfortunately, QCOM can't seem to keep its momentum up. The MACD indicator is about to produce a new sell signal, which is certainly a warning sign. We're willing to keep it as long as support at the $70.00 mark holds up but we'd probably hesitate to initiate new positions until QCOM trades back above the $72.00 mark. We're going to raise our stop loss from $69.00 to $69.75. Keep in mind that we only have a week and a half before QCOM's earnings report and we do not plan to hold over the event. 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. !Alert - July options EXPIRE this Friday! BUY CALL AUG 70 AAO-HN OI= 4362 Current Ask $3.60 BUY CALL AUG 75 AAO-HO OI=11041 Current Ask $1.45 Annotated Chart: Picked on June 29 at $ 71.55 Change since picked: - 0.99 Earnings Date 07/21/04 (confirmed) Average Daily Volume: 8.8 million Chart = --- Sunoco - SUN - close: 66.69 change: +0.02 stop: 62.99 Company Description: Sunoco, Inc., headquartered in Philadelphia, PA, is a leading manufacturer and marketer of petroleum and petrochemical products. With 890,000 barrels per day of refining capacity, approximately 4,900 retail sites selling gasoline and convenience items, over 4,500 miles of crude oil and refined product owned and operated pipelines and 37 product terminals, Sunoco is one of the largest independent refiner-marketers in the United States. Sunoco is a significant manufacturer of petrochemicals with annual sales of approximately five billion pounds, largely chemical intermediates used to make fibers, plastics, film and resins. Utilizing a unique, patented technology, Sunoco also manufactures two million tons annually of high-quality metallurgical-grade coke for use in the steel industry. (source: company press release) Why We Like It: (Original Write up from Thursday) Today was an exception. For the most part energy stocks have been a pocket of strength for the bulls. The rise in crude back above the $40.00 barrel has kept oil and energy equities resistance to profit taking. We're attracted to SUN for multiple reasons. First it is one of the few oil refiners in the U.S. and demand is so high for refined products that the entire industry is working near capacity to pump out as much as they can. Second, we like SUN because it also produced tons of coke for the steel industry. The steel sector has been another group of strength as the U.S. and Chinese economies heat up pushing steel prices to new highs. With demand for steel this high companies ramp up production and that means more demand for SUN's coke. Third we like SUN for its technical breakout over resistance at the $65.00 level. The stock broke out on strong volume. Today's dip looks like an entry point for new bullish positions. Actually, we'd consider any dip above $65.00 as an entry point. Right now we're going to target a move to the $70-72 range. Our initial stop loss will be at $62.99. WEEKEND UPDATE: Hmm... that's not exactly what we expected to see on Friday. Energy stocks were generally positive in spite of crude futures slipping back under the $40.00 mark. Meanwhile SUN traded in a very tight 50-cent range for the majority of Friday's session. The way SUN has coiled into a point we can expect a move soon. The only problem is that it could go either way. Should SUN break downwards wait and look for a bounce from the $64.00 or $65.00 levels. Otherwise, a push through $67.00-67.50 may be our next entry point. Suggested Options: We're going to suggest the August 65s and August 70s as our favorite options to play. !Alert - July options EXPIRE this Friday! BUY CALL AUG 65 SUN-HM OI= 4535 Current Ask $3.50 BUY CALL AUG 70 SUN-HN OI= 1685 Current Ask $1.10 Annotated Chart: Picked on July 08 at $ 66.67 Change since picked: + 0.02 Earnings Date 07/22/04 (confirmed) Average Daily Volume: 973 thousand Chart = ************** NEW CALL PLAYS ************** Alliant Tech - ATK - close: 65.03 chg: +0.87 stop: 61.99 Company Description: ATK is an advanced weapon and space systems company with sales of approximately $2.4 billion and strong positions in propulsion, composite structures, munitions, precision capabilities, and civil and sporting ammunition. The company is the world's leading supplier of solid propulsion systems and the nation's largest manufacturer of ammunition. ATK employs approximately 13,200 people. (source: company press release) Why We Like It: The defense sector has been a huge pillar of strength in the markets soaring from the May lows to hit a string of new highs through most of June. ATK has followed the defense indices higher from its May lows but has spent the last 3 1/2 weeks consolidating sideways between $62.00 and $64.00. Now shares are breaking out through resistance at the $64 level and its MACD has produced a new buy signal. In reality this shouldn't be a surprise. This past week Secretary of Homeland Defense, Tom Ridge, has reminded Americans that we're still at risk. This summer holds high value targets with the Democratic and Republican conventions and the Olympics in Greece. It's only natural for money to flow into defense contractors who will benefit from an uptick in spending. We also like the technical breakout over ATK's long-term trendline of resistance (see chart). We're going to target a move to $70.00 although heaviest resistance appears to be in the 72.50-75.00 range. Suggested Options: We are going to suggest the August 60s and 65 calls. BUY CALL AUG 60 ATK-HL OI= 410 Current Ask $5.90 BUY CALL AUG 65 ATK-HM OI= 425 Current Ask $2.20 Annotated Chart: Picked on July 11 at $ 65.03 Change since picked: + 0.00 Earnings Date 08/05/04 (unconfirmed) Average Daily Volume: 335 thousand Chart = --- ITT Industries - ITT - close: 82.86 chg: +1.75 stop: 80.95 Company Description: ITT Industries, Inc. is a $6 billion global multi-industry company based in White Plains, NY. ITT supplies advanced technology products and services in key markets including: fluid and water management including water treatment; defense communication, opto-electronics, information technology and services; electronic interconnects and switches; and other specialty products. (source: company press release) Why We Like It: We like ITT for its technical picture. Longer-term ITT has been a real momentum winner with investors choosing to jump in as it pulls back to its 40 & 50-dma's or the 100-dma. This time they're buying the dip to its 40 & 50-dma's. Coincidentally the pull back happens to be a 50% retracement of its May through June rally. We see a bullish divergence in its MACD suggesting a new buy signal soon while its short-term technicals like the RSI and stochastics are already turning. We're going to go long here above $82.50 and target a move to $88.00. There is obvious resistance at the $86.00 mark and short-term traders may want to exit at $86.00 for a quick profit. We'll start the play with a stop loss at $80.95. Traders should take note of ITT's earnings report due out on Friday, July 23rd. We do not plan to hold over the event giving this a very short time frame. Suggested Options: We're going to suggest the August 80s and 85s. BUY CALL AUG 80 ITT-HP OI= 1 Current Ask $4.10 BUY CALL AUG 85 ITT-HQ OI=118 Current Ask $1.35 Annotated Chart: Picked on July 11 at $ 82.86 Change since picked: + 0.00 Earnings Date 07/23/04 (confirmed) Average Daily Volume: 532 thousand Chart = --- Whole Foods - WFMI - close: 92.31 change: -1.75 stop: 90.50 Company Description: Founded in 1980 in Austin, Texas, Whole Foods Market® (www.wholefoodsmarket.com ) is the largest natural and organic foods supermarket retailer. The Company had $3.5 billion in sales for the last twelve months ending April 11, 2004 and currently has 159 stores in the United States, Canada, and the United Kingdom. (source: company press release) Why We Like It: We have had our eye on WFMI for weeks as it continued to climb after the breakout above resistance at $80.00. Yet it never gave a decent pull back so we could evaluate new bullish positions. This looks like our chance. This is a pure and simple momentum play. WFMI has been a steamroller driving over shorts that totaled about 8% of the float last time data was available. After peaking near the $96 level a week ago WFMI dipped to $90.53 on Friday morning after UBS downgraded the stock from "neutral" to "reduce" on valuation concerns. Yet surprise, surprise WFMI rebounded strongly in the last hour of the day on rising volume (look at the intraday chart and you'll see strong volume on the early morning weakness and strong volume on the afternoon bounce.) Friday's candlestick looks like a "hammer", which is typically a one-day reversal signal. We admit this is somewhat aggressive and not for everyone, especially with the new MACD sell signal, but we're going to try and reduce our risk with a stop loss under Friday's low ($90.50). True gamblers can place their stop under round-number support at $90.00. Our target is the $99-100 range by its July 28th earnings report. FYI: Odds are good that WFMI will announce a split with earnings. It last split 2-for-1 near the $55 level on June 5th, 2001. Suggested Options: Our favorite would be the August 90s but the 95s look good too. BUY CALL AUG 90 FMQ-HR OI=4738 Current Ask $5.00 BUY CALL AUG 95 FMQ-HS OI= 475 Current Ask $2.55 Annotated Chart: Picked on July 11 at $ 92.31 Change since picked: + 0.00 Earnings Date 07/28/04 (confirmed) Average Daily Volume: 801 thousand Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** American Pharma. - APPX - close: 25.79 chg: -0.57 stop: 27.01*new* 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: Biotech stocks have suffered another tough week. The BTK has fallen back through its simple 200-dma while producing a new MACD sell signal. Likewise shares of APPX have hit new seven-month lows and broken through support at the $30.00 mark. We're encouraged to see APPX consolidate its big drop from Tuesday by churning sideways and Friday's late day drop through the $26.00 level looks great. We initiated this play with a $25.00 target. This close to our exit point we would not suggest new positions. We are lowering our stop loss to $27.01. Suggested Options: We are not suggesting new positions. Readers can be planning their exits. So far the August 32.50 puts have risen from $4.40 to $7.10. The August 30s have climbed from $2.75 to $4.90 and the August 27.50s soared from $1.50 to $3.00. !Alert - July options EXPIRE this Friday! Annotated Chart: Picked on July 04 at $ 29.07 Change since picked: - 2.81 Earnings Date 07/22/04 (confirmed) Average Daily Volume: 910 thousand Chart = --- EchoStar Comm. - DISH - close: 29.29 chg: +0.04 stop: 31.01 Company Description: EchoStar Communications Corporation serves 10 million satellite TV customers through its DISH Network(TM) and is a leading U.S. provider of advanced digital television services. DISH Network's services include hundreds of video and audio channels, Interactive TV, HDTV, sports and international programming, together with professional installation and 24-hour customer service. DISH Network is the leader in the sale of digital video recorders (DVRs). (source: company press release) Why We Like It: Heads up! CIBC initiated coverage on DISH with an "under perform" rating Friday morning. Shares of DISH began to fall from the open. The intraday drop to $28.64 traded through our TRIGGER to initiate bearish plays at $28.99. Unfortunately, DISH managed to rebound back above the $29.00 level rather quickly and churned sideways between $29.00-29.30 for the rest of the session. CIBC believes that DISH is likely to struggle with its attempts to gain subscribers over its cable-TV rivals. Meanwhile we still feel that story behind the SEC's inquiry into DISH's subscriber count has not yet blossomed. We're encouraged to see the new relative low and it did manage to produce a new double-bottom breakdown on its P&F chart. Traders can look for a failed rally under $30.00 as a new entry point or look for a new low under $28.64 to open positions. Suggested Options: July options expire soon so we're going to use the August puts. Our favorite is the August 30s. !Alert - July options EXPIRE this Friday! BUY PUT AUG 32.50 UAB-TZ OI= 217 Current Ask $3.70 BUY PUT AUG 30.00 UAB-TF OI= 267 Current Ask $1.85 BUY PUT AUG 27.50 UAB-TY OI= 703 Current Ask $0.75 Annotated Chart: Picked on July 09th at $28.99 Change since picked: + 0.30 Earnings Date 08/11/04 (unconfirmed) Average Daily Volume = 2.5 mln Chart = --- Int'l Rectifier - IRF - close: 35.34 chg: +0.05 stop: 38.25 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: We remain encouraged by the action in IRF. The SOX semiconductor index has produced a decent oversold bounce in the last three sessions. During that same time IRF has continued to slip to new relative lows toward support at $35.00. If you missed the Thursday update Harris Nesbitt downgraded the chip sector to "negative" and downgraded IRF to a "neutral". We're also happy to see IRF trade under its trendline of support dating back to December. Yet the next test for the bears is the round-number support at $35.00. Readers can look for an oversold bounce and failed rally in the $36-37 range or look for a drop through the $35.00 mark to initiate new plays. The P&F chart looks very bearish with its $25.00 target but we will continue to target the $31-30 range. No change in our stop at $38.25. Suggested Options: We're going to suggest the August 40s and August 35s. If you tend to be more of a gambling type the August 30s could work. !Alert - July options EXPIRE this Friday! BUY PUT AUG 40 IRF-TH OI=2449 Current Ask $5.40 BUY PUT AUG 35 IRF-TG OI= 870 Current Ask $1.95 BUY PUT AUG 30 IRF-TF OI= 69 Current Ask $0.55 Annotated Chart of IRF: Picked on July 6th at $37.00 Change since picked: - 1.66 Earnings Date 07/29/04 (unconfirmed) Average Daily Volume = 1.07 mln Chart = --- Silicon Labs. - SLAB - close: 42.13 chg: +0.68 stop: 45.01 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: This is actually a pivotal spot for shares of SLAB. We're encouraged by the new relative lows and the under performance compared to the SOX. The semiconductor index has managed a decent oversold bounce in the last three sessions. Not so for SLAB. Yet this is a dangerous spot to consider new plays. SLAB is close to our target near the $40.00 level but it also happens to be near the trendline of support formed by its lower lows. Readers might want to consider new bearish positions on a failed rally/roll over under the $45 mark. Otherwise we would not suggest new positions, unless maybe SLAB broke through the $40 level, but then we'd have hit our target. Suggested Options: We are not suggesting new positions in SLAB at this time. !Alert - July options EXPIRE this Friday! Annotated Chart of SLAB: Picked on June 20th at $44.99 Change since picked: - 2.86 Earnings Date 07/26/04 (confirmed) Average Daily Volume = 1.14 mln Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 07-11-2004 Sunday 4 of 5 In Section Four: Option Spreads: It’s Quickie Time Again & Maybe Profit Time, Too ************************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 ************************ It’s Quickie Time Again & Maybe Profit Time, Too By Mike Parnos, Investing With Attitude It’s time for some quickies. A word of caution. These premiums were based on Friday’s closing prices. Three days have gone by and the premiums will not likely be the same. More than likely, they will be less. So, enter these hypothetical trades only if you believe there is enough premium left to make them worthwhile. August Expiration Quickies These quickies can be hazardous to your wealth. In past months we’ve had many more winners than losers. The losers can be expensive, though. These are hypothetical and educational plays, but readers have been known to roll the “quickie” dice. Should you be so inclined, only use hypothetical money you can afford to lose. Would you like to know how I select our monthly quickies? Let me know. ____________________________________________________________ The Hindsight Of A Directional Trader “Don't gamble! Take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.” --Will Rogers ____________________________________________________________ AUGUST QUICKIE POSITIONS Quickie Position #1 – RUT Baby Iron Condor – 563.73 Sell 10 contracts of the 560 puts Buy 10 contracts of the 530 puts Credit of about: $3.60 Sell 10 contracts of the 570 calls Buy 10 contracts of the 590 calls Credit of about: $3.15 Total credit of about $6.75. Maximum profit range: 560 to 570. Safety range: 553.25 to 576.75. Maintenance: $30,000. Potential profit: $6,750. Quickie Position #2 – OEX Short Strangle – 542.63 The short strangle strategy is a risky one. Many traders may not have the trading approval level to do it, but, for those who do, here’s a hypo(thetical) quickie trade for you. Sell 10 OEX July 540 puts Sell 10 OEX July 545 calls Total credit of about: $4.50. Maximum profit range of 540 to 545. Safety range of 530.50 to 549.50. Potential profit: $4,500. Bailout points depend on your personal money management parameters. If you’re willing to risk $2,000 on a trade, you should close the trade when it costs $6,500. Quickie Positions #3 & #4 – QQQ & DJX Straight Option Purchase You know I don’t recommend directional trading. It’s a gamble, pure and simple. However, both the QQQs and the DJXs seem to be near the 200-day moving average and ready for a bounce. My personal 200-day moving average is once a day, but that’s probably TMI and is not entirely relevant. So, for the hell of it, if you want to take a flyer . . . Buy 20 QQQ $36 calls @$.25 - .30 or Buy 20 DJX $103 calls @ $.25 - .30 If you enter such trades, unless you’re around to babysit the position, you might want to put in sell orders at $.50 or $.60 (or whatever figure makes you happy). Just don’t get greedy. This is a crapshoot as it is. If the bounce actually happens, it’s best if it happens on Monday or Tuesday. If it does happen, it may last only a matter of minutes or hours. If it doesn’t happen, you might consider closing the positions to salvage what is left. The delta on the July DJX 103 calls is about .31. That means the DOW would have to move about 100 (or more) points for you to double your money. The delta on the July QQQ 36 calls is about 42. It’s a little better than the DOW, but is still going to require a healthy move. ___________________________________________________________ JULY POSITIONS Position #1 – SPX Iron Condor – 1112.81 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 – 563.73 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 – 1112.81 – See Adjustment 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 Adjustment: As the market went down, so did the S&P. It was time to dance, and dance we did. I closed out the 3 contracts of the July 1125/1100 bull put spread for $12.60 and rolled out to 5 contracts of the August 1125/1150 bear call spread for $8.70. That put an additional $570 potential profit into our pocket – making a total of $2,370 ($1,800 + $570). Our new maintenance is $12,500. Position #4 – SOX (Semi-Conductor Index) – Iron Condor – 451.14 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 -- $35.75 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. Thursdays morning, I rolled out the July $37 puts to the August $37 puts and took in $.40. 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 – 542.63 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 Options Therapist and CPTI Master Strategist 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. 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The Option Investor Newsletter Sunday 07-11-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: A Market With Great Expectations... Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* A Market With Great Expectations... By Ray Cummins Stocks drifted higher Friday after a favorable profit report from General Electric (NYSE:GE) renewed investor optimism about the upcoming quarterly earnings season. The Dow Jones industrial average ended up 41 points at 10,213 on strength in blue-chip manufacturers such as United Technologies (NYSE:UTX), Caterpillar (NYSE:CAT) and 3M Company (NYSE:MMM). The technology-laden NASDAQ Composite Index added 11 points to finish at 1,946 as semiconductor equipment and software shares rebounded. Standard & Poor's 500 Index closed 3 points higher at 1,112, with automotive, railroad, apparel, homebuilding, and aerospace issues among the best performers. Winners outpaced losers 3-to-2 on the major exchanges. Trading activity was moderate, with nearly 1.2 billion shares traded on the New York Stock Exchange and about 1.4 billion shares changing hands on the NASDAQ. In the fixed-income market, the 10-year note ended up 2/32, with its yield falling to 4.46%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 07/09/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 48.32 JUL 42 45 0.30 44.70 0.30 Open YHOO 31.87 30.11 JUL 25 27 0.30 27.20 0.30 Open CFC 69.15 69.90 JUL 60 63 0.35 63.03 0.35 Open QCOM 69.86 70.56 JUL 60 65 0.45 64.55 0.45 Open SWIR 33.83 35.85 JUL 25 30 0.90 29.10 0.90 Open CTSH 24.25 24.81 JUL 20 22 0.27 22.23 0.27 Open NUE 69.54 73.48 JUL 60 65 0.75 64.25 0.75 Open SII 53.26 55.94 JUL 47 50 0.30 49.70 0.30 Open RJR 65.90 65.92 JUL 55 60 0.35 59.65 0.35 Open URBN 60.80 58.01 JUL 50 55 0.40 54.60 0.40 Open AMZN 53.71 48.32 JUL 47 50 0.30 49.70 (1.38) Closed PLT 42.39 40.01 JUL 35 40 0.50 39.50 0.50 Open? FRE 63.57 64.06 AUG 55 60 0.55 59.45 0.55 Open GILD 67.42 65.33 AUG 55 60 0.60 59.40 0.60 Open POT 98.08 96.21 AUG 85 90 0.60 89.40 0.60 Open UOPX 89.09 90.72 AUG 75 80 0.60 79.40 0.60 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) and Maxim Integrated Products (NASDAQ:MXIM) suffered the fate of most chip stocks and the bullish plays on those issues have previously been closed to limit potential losses. Amazon.com (NASDAQ:AMZN); at $50, has also become an "early-exit" victim in the wake of the mediocre profit outlook from Yahoo! (NASDAQ:YHOO) and Plantronics (NYSE:PLT) is definitely on the "watch" list. CALL-CREDIT SPREADS Stock Pick Last Month LC SC Credit CB G/L Status APPX 34.03 25.79 JUL 45 40 0.50 40.50 0.50 Open INSP 34.71 32.46 JUL 45 40 0.65 40.65 0.65 Open WMS 28.75 30.18 JUL 35 30 0.65 30.65 0.47 Open? GS 90.21 90.05 JUL 100 95 0.70 95.70 0.70 Open SYMC 42.42 41.09 JUL 50 45 0.65 45.65 0.65 Open FRX 56.32 51.65 JUL 65 60 0.60 60.60 0.60 Open CTX 47.34 43.77 JUL 52 50 0.30 50.30 0.30 Open SINA 35.60 26.82 JUL 45 40 0.45 40.45 0.45 Open CECO 44.45 44.89 JUL 55 50 0.55 50.55 0.55 Open RYL 75.80 72.60 JUL 85 80 0.60 80.60 0.60 Open LLTC 36.74 37.04 AUG 42 40 0.30 40.30 0.30 Open XLNX 31.53 31.36 AUG 37 35 0.25 35.25 0.25 Open MERQ 46.17 45.08 AUG 55 50 0.65 50.65 0.65 Open SMH 34.58 35.37 AUG 42 40 0.30 40.30 0.30 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss WMS Industries (NYSE:WMS) remains a candidate for early exit and positions in Genzyme (NASDAQ:GENZ), which is currently profitable, 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 35.84 JUL 35 30 2.15 2.35 Closed SNDK 22.90 20.93 JUL 22 22 3.40 3.60 Closed GDT 56.02 53.35 JUL 55 55 4.80 4.50 Closed DNA 54.60 51.35 JUL 55 55 4.25 5.10 Open? OVTI 15.50 13.41 JUL 15 15 2.70 4.00 Open? MDC 64.77 60.50 JUL 65 65 4.00 5.00 Open? Positions in Garmin (NASDAQ:GRMN), Sandisk (NASDAQ:SNDK) and Guidant (NYSE:GDT) have been closed in the name of "capital preservation." Genetech (NYSE:DNA), M.D.C. Holdings (NYSE:MDC) and Omnivision (NASDAQ:OVTI) have offered small profits. CREDIT STRANGLES Stock Pick Last Exp. Sold Sold Initial Current Play Symbol Price Price Month Call Put Credit Debit Status NFLX 32.31 33.43 JUL 37 27 0.55 0.50 Open Netflix (NASDAQ:NFLX) appears comfortable in a range near $29-$35, but it is a volatile issue and the position should be monitored daily. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FAST - Fastenal Company $54.74 *** In A Trading Range? *** Fastenal Company (NASDAQ:FAST) is engaged in the wholesale distribution of industrial and construction supplies through over 1,300 store sites located in 50 states, Puerto Rico, Canada, Mexico and Singapore. In addition to the stores, Fastenal also operates in-plant sites. An in-plant site is a selling unit located in or near a customer's facility that sells product solely to that customer. Fastenal sells over 440,000 different types of industrial and construction supplies in 10 product categories. FAST - Fastenal Company $54.74 PLAY (conservative - bullish/credit spread): BUY PUT AUG-45.00 FQA-TI OI=1112 ASK=$0.30 SELL PUT AUG-50.00 FQA-TJ OI=1022 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$49.40 __________________________________________________________________ PD - Phelps Dodge $79.00 *** Basic Materials Sector *** Phelps Dodge (NYSE:PD) is engaged in the production of copper, carbon black, magnet wire, continuous-cast copper rod and also molybdenum products. The firm consists of two major divisions: Phelps Dodge Mining, which is an international business for its vertically integrated copper operations, and Phelps Dodge Industries, which is the manufacturing division, comprising two individual business segments that produce engineered products for the global energy, telecommunications, transportation and specialty chemicals sectors. PD - Phelps Dodge $79.00 PLAY (conservative - bullish/credit spread): BUY PUT AUG-65.00 PD-TM OI=770 ASK=$0.50 SELL PUT AUG-70.00 PD-TN OI=511 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$79.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ TLB - The Talbots $33.04 *** Profit Warning = Sell-Off! *** The Talbots (NYSE:TLB) is a national specialty retailer and cataloger of women's, children's and men's apparel, accessories and shoes. In addition to its core Misses business, the firm's other main business concepts are Talbots Petites, Talbots Kids, Talbots Accessories & Shoes, Talbots Woman, Talbots Woman Petites, Talbots Collection and Talbots Mens. The retailer offers a range of sportswear, casual wear, dresses, coats, sweaters, accessories and shoes, consisting almost exclusively of Talbots' own branded merchandise, for all ages and styles. TLB - The Talbots $33.04 PLAY (conservative - bearish/credit spread): BUY CALL AUG-40.00 TLB-HH OI=81 ASK=$0.20 SELL CALL AUG-35.00 TLB-HG OI=183 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$35.60 __________________________________________________________________ VAR - Varian Medical Systems $77.24 ** The Downtrend Resumes? ** Varian Medical Systems (NYSE:VAR) is principally engaged in the design and production of integrated systems of equipment for treating cancer with radiation therapy, as well as x-ray tubes for original equipment manufacturers, replacement x-ray tubes and imaging subsystems. In addition to developing medical equipment, Varian also develops software products and devices designed to enhance the productivity and quality of its equipment, devices manufactured by other companies and the delivery of healthcare services. VAR - Varian Medical Systems $77.24 PLAY (conservative - bearish/credit spread): BUY CALL AUG-90.00 VAR-HR OI=1972 ASK=$0.25 SELL CALL AUG-85.00 VAR-HQ OI=1010 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$85.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ DVN - Devon Energy $69.40 *** Oil Sector Volatility *** Devon Energy (NYSE:DVN) is an independent energy company engaged primarily in oil and gas exploration, development and production, the acquisition of producing properties, the transportation of oil, gas, and NGLs and the processing of natural gas. Its North American properties are concentrated within five geographic areas. Operations in the United States are focused in the Permian Basin, the Mid-Continent, the Rocky Mountains and onshore and offshore Gulf Coast. The company's Canadian operations are in the Western Canadian Sedimentary Basin in Alberta and British Columbia. The company's operations outside North America are located primarily in Azerbaijan, China, Egypt, and areas in West Africa, including Equatorial Guinea, Gabon and Cote d'Ivoire. DVN - Devon Energy $69.40 PLAY (speculative - neutral/debit straddle): BUY CALL AUG-70.00 DVN-HN OI=2568 ASK=$2.25 BUY PUT AUG-70.00 DVN-TN OI=162 ASK=$2.80 INITIAL NET-DEBIT TARGET=$4.80-$5.00 INITIAL TARGET PROFIT=$2.10-$2.90 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 07/09/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 15.00 14.60 15.47 0.40 5.63% 2.74% DITC JUL 17.50 16.80 21.45 0.70 8.40% 4.17% SYNA JUL 17.50 16.85 17.18 0.33 3.80% 3.86% PTIE JUL 7.50 7.15 7.79 0.35 9.89% 4.90% BCC JUL 35.00 34.25 34.49 0.24 1.64% 2.19% JILL JUL 20.00 19.45 22.46 0.55 6.72% 2.83% LSS JUL 20.00 19.50 27.18 0.50 6.07% 2.56% OI JUL 15.00 14.65 15.67 0.35 5.64% 2.39% NVTL JUL 15.00 14.65 23.83 0.35 7.34% 2.39% PDII JUL 25.00 24.70 29.57 0.30 3.91% 1.21% RSAS JUL 17.50 17.05 19.17 0.45 6.22% 2.64% STLD JUL 25.00 24.45 28.89 0.55 5.33% 2.25% UPL JUL 30.00 29.55 39.41 0.45 4.14% 1.52% USG JUL 15.00 14.15 18.01 0.85 13.32% 6.01% ATI JUL 12.50 12.20 17.80 0.30 7.44% 2.46% BJS JUL 42.50 41.70 46.57 0.80 4.75% 1.92% LCAV JUL 25.00 24.35 27.21 0.65 6.85% 2.67% NCRX JUL 27.50 26.80 30.14 0.70 7.30% 2.61% NVTL JUL 17.50 17.05 23.83 0.45 8.97% 2.64% SSYS JUL 22.50 22.20 23.13 0.30 4.41% 1.35% SWIR JUL 30.00 28.85 35.85 1.15 10.66% 3.99% SYNA JUL 17.50 16.90 17.18 0.28 4.19% 3.55% YHOO JUL 30.00 29.20 30.11 0.80 6.80% 2.74% AMHC JUL 22.50 21.80 27.03 0.70 9.36% 3.21% CTSH JUL 22.50 22.20 24.81 0.30 4.34% 1.35% CYBX JUL 30.00 29.25 29.31 0.06 0.82% 2.56% ERES JUL 22.50 21.85 26.48 0.65 9.03% 2.97% HLEX JUL 15.00 14.65 15.21 0.35 7.40% 2.39% MINI JUL 20.00 19.65 26.00 0.35 5.89% 1.78% NFI JUL 30.00 29.30 39.56 0.70 9.77% 2.39% PTIE JUL 7.50 7.25 7.79 0.25 11.96% 3.45% RIMM JUL 50.00 49.15 66.74 0.85 6.57% 1.73% SGTL JUL 22.50 22.25 24.53 0.25 4.25% 1.12% BRCM JUL 40.00 39.30 39.31 0.01 0.09% 1.78% CSGP JUL 40.00 39.60 43.85 0.40 3.49% 1.01% DHB JUL 12.50 12.20 14.51 0.30 8.97% 2.46% DY JUL 25.00 24.65 26.34 0.35 4.63% 1.42% ERES JUL 22.50 22.20 26.48 0.30 4.97% 1.35% FWHT JUL 20.00 19.60 19.83 0.23 3.96% 2.04% GVHR JUL 22.50 22.20 23.10 0.30 5.07% 1.35% IMH JUL 20.00 19.75 21.63 0.25 4.41% 1.27% NVTL JUL 17.50 16.90 23.83 0.60 15.07% 3.55% PLMO JUL 25.00 24.55 34.29 0.45 7.28% 1.83% USG JUL 15.00 14.70 18.01 0.30 7.05% 2.04% BCC JUL 35.00 34.55 34.49 (0.06) 0.00% 1.30% CHIC JUL 20.00 19.65 20.11 0.35 7.68% 1.78% CENX JUL 22.50 22.00 24.37 0.50 9.64% 2.27% ENDP JUL 22.50 22.15 21.38 (0.77) 0.00% 1.58% IFIN JUL 37.50 37.05 41.34 0.45 5.93% 1.21% TASR JUL 30.00 29.65 40.61 0.35 6.39% 1.18% USG JUL 15.00 14.70 18.01 0.30 10.67% 2.04% VSAT JUL 22.50 22.20 22.27 0.07 1.32% 1.35% CIMA JUL 30.00 29.60 33.72 0.40 6.65% 1.35% ERES JUL 25.00 24.70 26.48 0.30 6.05% 1.21% ISRG JUL 17.50 17.25 19.48 0.25 7.04% 1.45% MU JUL 15.00 14.70 14.40 (0.30) 0.00% 2.04% NFLX JUL 30.00 29.45 33.43 0.55 9.80% 1.87% NSM JUL 20.00 19.80 19.62 (0.18) 0.00% 1.01% NKTR JUL 17.50 17.15 18.33 0.35 10.49% 2.04% SWIR JUL 30.00 29.75 35.85 0.25 5.32% 0.84% XMSR JUL 25.00 24.65 26.19 0.35 6.82% 1.42% NFI AUG 30.00 29.20 39.56 0.80 5.99% 2.74% NVTL AUG 20.00 19.50 23.83 0.50 5.77% 2.56% CBST AUG 10.00 9.65 11.07 0.35 6.43% 3.63% CACS AUG 12.50 12.00 13.10 0.50 7.03% 4.17% ARXX AUG 12.50 12.10 13.31 0.40 5.71% 3.31% TASR AUG 30.00 29.15 40.61 0.85 5.67% 2.92% PETD AUG 25.00 24.35 27.29 0.65 4.86% 2.67% CRDN JUL 35.00 34.55 38.51 0.45 9.24% 1.30% CRDN JUL 35.00 34.70 38.51 0.30 7.43% 0.86% NFI AUG 30.00 29.40 39.56 0.60 4.68% 2.04% NVTL AUG 20.00 19.50 23.83 0.50 6.11% 2.56% TASR AUG 30.00 29.30 40.61 0.70 4.93% 2.39% EYET AUG 35.00 34.45 45.00 0.55 3.92% 1.60% SCHN AUG 30.00 29.00 31.59 1.00 6.53% 3.45% MGAM AUG 25.00 24.25 26.33 0.75 5.51% 3.09% FRO AUG 30.00 29.30 39.60 0.70 4.97% 2.39% GIVN AUG 30.00 29.45 33.00 0.55 4.21% 1.87% Steel Technologies (NASDAQ:STTX) and Amedisys (NASDAQ:AMED) have been closed to limit potential losses, and only those traders interested in owning Micron (NYSE:MU) should still be in that position. A long list of issues remain on the "watch" list after the recent selling pressure in stocks. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield ASKJ JUL 45.00 45.55 32.38 0.55 6.50% 1.21% AMLN JUL 25.00 25.35 21.78 0.35 5.29% 1.38% ICOS JUL 30.00 30.45 25.15 0.45 5.26% 1.48% OIIM JUL 17.50 17.80 14.51 0.30 5.50% 1.69% INSP JUL 40.00 40.50 32.46 0.50 6.88% 1.23% RHAT JUL 25.00 25.60 20.49 0.60 9.08% 2.34% XMSR JUL 27.50 27.75 26.19 0.25 4.34% 0.90% CECO JUL 65.00 65.90 44.89 0.90 7.19% 1.37% ESI JUL 45.00 45.50 37.31 0.50 5.47% 1.10% FMT JUL 20.00 20.40 17.19 0.40 8.75% 1.96% NBIX JUL 55.00 56.10 50.18 1.10 8.21% 1.96% SLAB JUL 50.00 50.75 42.13 0.75 6.39% 1.48% AGIX JUL 20.00 20.45 16.02 0.45 9.16% 2.20% LEND JUL 30.00 30.55 26.19 0.50 6.63% 1.64% TSS JUL 22.50 22.90 21.90 0.40 8.67% 1.75% PAYX JUL 35.00 35.40 32.00 0.40 4.97% 1.13% FEIC JUL 25.00 25.35 21.38 0.35 6.89% 1.38% WM JUL 40.00 40.30 38.18 0.30 3.79% 0.74% IPXL JUL 20.00 20.40 16.75 0.40 10.18% 1.96% PSFT JUL 20.00 20.25 17.05 0.25 6.99% 1.23% SLAB AUG 50.00 51.00 42.13 1.00 5.30% 1.96% SINA AUG 40.00 40.85 26.82 0.85 7.85% 2.08% ATRS AUG 30.00 30.85 23.41 0.85 6.52% 2.76% MRVL AUG 27.50 27.85 23.75 0.35 3.98% 1.26% MACR AUG 25.00 25.40 21.84 0.40 4.55% 1.57% ISIL AUG 20.00 20.45 18.00 0.45 5.72% 2.20% Although currently profitable, the position in XM Satellite Radio (NASDAQ:XMSR) has previously been closed to limit potential losses. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. The positions with "*" will be included in the weekly summary. Those with "TS" (Target-Shoot) are below our minimum monthly return, but may offer a favorable entry price with a limit order, due to the daily volatility of the underlying issue. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield ATI 17.80 AUG 15.00 ATI TC 0.50 11 14.50 40 2.6% 7.9% BEIQ 26.68 AUG 25.00 GEU TE 1.00 10 24.00 40 3.2% 7.6% NFLX 33.43 AUG 27.50 QNQ TY 0.80 1461 26.70 40 2.3% 7.4% ESIO 27.24 AUG 25.00 EQO TE 0.80 424 24.20 40 2.5% 6.4% AMHC 27.03 AUG 25.00 QMH TE 0.75 68 24.25 40 2.4% 6.0% VTS 24.19 AUG 22.50 VTS TX 0.65 25 21.85 40 2.3% 5.7% OSTK 37.77 AUG 30.00 QKT TF 0.60 127 29.40 40 1.6% 5.6% KWK 35.35 AUG 30.00 KWK TF 0.50 50 29.50 40 1.3% 4.1% 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). __________________________________________________________________ ATI - Allegheny Technologies $17.80 *** Strong Sector! *** Allegheny Technologies (NYSE:ATI) is a diversified producer of specialty materials in three major business segments: flat-rolled products, high-performance metals and industrial products. The company produces, converts and distributes stainless steel, and specialized alloys, tungsten powder, tungsten carbide materials and carbide cutting tools. The company produces large grey and ductile iron castings and carbon alloy steel forgings. ATI - Allegheny Technologies $17.80 AUG 15.00 ATI TC LB=0.50 OI=11 CB=14.50 DE=40 TY=2.6% MY=7.9% __________________________________________________________________ BEIQ - BEI Technologies $26.68 *** Unique Product *** BEI Technologies (NASDAQ:BEIQ) designs, manufactures and sells electronic devices that provide sensory input and actuation for the control systems of advanced machinery and automation systems. Sensors designed by the company, most of which are concerned with physical motion, aim to provide information that is essential to logical, safe and efficient operation of sophisticated machinery. BEIQ - BEI Technologies $26.68 AUG 25.00 GEU TE LB=1.00 OI=10 CB=24.00 DE=40 TY=3.2% MY=7.6% __________________________________________________________________ NFLX - Netflix $33.43 *** 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 $33.43 AUG 27.50 QNQ TY LB=0.80 OI=1461 CB=26.70 DE=40 TY=2.3% MY=7.4% __________________________________________________________________ ESIO - Electro Scientific Industries $27.24 *** Entry Point? *** Electro Scientific Industries (NASDAQ:ESIO) provides high-tech manufacturing equipment to the global electronics market. In addition, the company produces laser drilling systems for high density interconnect circuit boards and advanced semiconductor packaging, as well as passive component inspection systems and original equipment manufacturer machine vision products. Its customers are primarily manufacturers of semiconductors, passive electronic components and electronic interconnect devices. ESIO - Electro Scientific Industries $27.24 AUG 25.00 EQO TE LB=0.80 OI=424 CB=24.20 DE=40 TY=2.5% MY=6.4% __________________________________________________________________ AMHC - American Healthways $27.03 *** Uptrend Intact! *** American Healthways (NASDAQ:AMHC) provides specialized healthcare enhancement and disease management services to individuals in all 50 states, the District of Columbia, Puerto Rico and Guam. The firm's integrated care enhancement programs serve entire health plan populations through its member and physician care support interventions, advanced neural network predictive modeling and a confidential, secure Internet-based application that provides patients and physicians with individualized health information and data. AMHC - American Healthways $27.03 AUG 25.00 QMH TE LB=0.75 OI=68 CB=24.25 DE=40 TY=2.4% MY=6.0% __________________________________________________________________ VTS - Veritas $24.19 *** New Multi-Year High! *** Veritas (NYSE:VTS) provides integrated geophysical services to the petroleum industry worldwide. Its primary customers include national and independent oil and gas companies that utilize geophysical technologies to identify new areas where subsurface conditions are favorable for the production of hydrocarbons, determine the size and structure of previously identified oil and gas fields and optimize development and production of hydrocarbon reserves. VTS - Veritas $24.19 AUG 22.50 VTS TX LB=0.65 OI=25 CB=21.85 DE=40 TY=2.3% MY=5.7% __________________________________________________________________ OSTK - Overstock.com $37.77 *** Internet Retail *** Overstock.com (NASDAQ:OSTK) is an online "closeout" retailer offering discount, brand-name merchandise for sale primarily over the Internet. The company's merchandise offerings include bed-and-bath goods, kitchenware, watches, jewelry, electronics, sporting goods and designer accessories. Overstock offers its customers an opportunity to shop for bargains conveniently, while offering an alternative inventory liquidation distribution channel to its suppliers. The company typically offers around 5,000 non-media products and over 100,000 media products (books, CDs, DVDs, video cassettes and video games) in seven departments on its Websites, www.overstock.com, www.overstockb2b.com and www.worldstock.com. OSTK - Overstock.com $37.77 AUG 30.00 QKT TF LB=0.60 OI=127 CB=29.40 DE=40 TY=1.6% MY=5.6% __________________________________________________________________ KWK - Quicksilver Resources $35.35 *** Energy Sector *** Quicksilver Resources (NYSE:KWK) is an independent oil and gas company engaged in the acquisition, development, exploration, production and sale of natural gas, crude oil and natural gas liquids, as well as the marketing, processing and transmission of natural gas. Quicksilver sells natural gas and crude oil to a variety of customers, including utilities, oil/gas companies or their affiliates, industrial companies, large trading and energy marketing companies, refineries and other users of petroleum products. KWK - Quicksilver Resources $35.35 AUG 30.00 KWK TF LB=0.50 OI=50 CB=29.50 DE=40 TY=1.3% MY=4.1% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ELAB - Eon Labs $36.47 *** A Big "Down" Day! *** Eon Labs (NASDAQ:ELAB) is a generic pharmaceutical firm engaged in developing, licensing, manufacturing, selling and distributing a range of prescription pharmaceutical products primarily in the United States. The company focuses on drugs in a broad range of solid oral dosage forms, utilizing both immediate and sustained release delivery, in tablet, multiple layer tablet, film-coated tablet and capsule forms. Eon Labs obtains new generic products primarily through internal product development and from strategic licensing or co-development arrangements with Hexal AG, as well as with other companies. ELAB - Eon Labs $36.47 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 45 ESQ HI 324 0.40 45.40 4.0% 0.9% __________________________________________________________________ FLML - Flamel Technologies $20.83 *** Sell-Off In Progress! *** Flamel Technologies (NASDAQ:FLML) is a biopharmaceutical company engaged mainly in the development of two polymer-based delivery technologies for medical applications. The company's Micro-pump technology is a multi-particulate technology for oral ingestion of small molecule drugs with applications in controlled release, tastemasking and bioavailability enhancement. The company has three major products based on its Micropump technology: Asacard, a controlled-release formulation of aspirin for the treatment of cardiovascular disease; Metformin XL, a controlled-release form of Metformin that is in development for use for the treatment of Type II diabetes, and Genvir, a controlled-release acyclovir for the treatment of genital herpes. In addition, FLML has developed new herbicide delivery systems and has patented a biomaterial, ColCys. FLML - Flamel Technologies $20.83 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 25 FLU HE 1786 0.50 25.50 8.1% 2.0% __________________________________________________________________ OTEX - Open Text $26.73 *** Stuck In A Range? *** Open Text (NASDAQ:OTEX) develops, markets, licenses and supports collaboration and knowledge management software for intranets, extranets and the Internet, enabling users to find electronically stored information, work together in creative and collaborative processes, perform group calendaring and scheduling and distribute or make available to users across networks or the Internet the resulting work product and other information. The firm's principal product line is Livelink, a collaboration and knowledge management software for global enterprises. Livelink offers several engines, including, but not limited to, search, collaboration, workflow, group calendaring and scheduling and document management. OTEX - Open Text $26.73 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 30 QFT HF 584 0.65 30.65 6.1% 2.1% __________________________________________________________________ TELK - Telik $21.90 *** Next Leg Down? *** Telik (NASDAQ:TELK) is a biopharmaceutical company working to discover, develop and commercialize small-molecule drugs to treat serious diseases, including cancer and diabetes. Among Telik's most advanced product development programs is TLK286. TLK286 is a small-molecule tumor-activated cancer drug that the company is evaluating initially to treat cancers which are resistant to standard chemotherapy drugs. Another advanced product, TLK199, is a small-molecule bone marrow stimulant being developed for the treatment of blood disorders associated with low white blood cell levels. TLK19781 is a proprietary, orally active small-molecule insulin receptor activator for the potential treatment of Type II diabetes and other conditions related to insulin resistance. TELK - Telik $21.90 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL AUG 25 ZUL HE 645 0.45 25.45 5.6% 1.8% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... 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