The Option Investor Newsletter Sunday 08-22-2004 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: Oversupply and Undersupply Stories Futures Wrap: See Note Index Trader Wrap: HOW MUCH MORE BOUNCE? Editor's Plays: See Note Market Sentiment: End of Summer Ask the Analyst: First the TRIN, then the VIX with Pivot Analysis 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 8-20 WE 8-13 WE 8-06 WE 7-30 DOW 10110.14 +284.79 9825.35 + 10.02 9815.33 -324.38 +177.49 Nasdaq 1831.02 + 73.80 1757.22 - 19.67 1776.89 -110.47 + 38.27 S&P-100 536.04 + 15.32 520.72 - 1.11 521.83 - 15.84 + 7.29 S&P-500 1098.35 + 33.55 1064.80 + 0.83 1063.97 - 37.75 + 15.52 W5000 10648.75 +344.09 10304.66 - 3.18 10307.84-393.81 +147.83 SOX 386.00 + 19.35 366.65 - 20.23 386.88 - 29.55 + 10.85 RUT 547.92 + 30.53 517.39 - 2.26 519.65 - 31.64 + 12.07 TRAN 3090.87 +123.95 2966.92 + 0.84 2966.08 -145.61 + 68.25 ****************************************************************** Oversupply and Undersupply Stories Linda Piazza Jim Brown attends a conference this week, and will return next week. Writers and subscribers alike look forward to his return. Oversupply and undersupply stories dominated reports early Friday morning, with those reports pressuring markets. Futures eased during the overnight session. Cash markets dipped at the open, too. They soon found support and waffled around for a number of hours, looking for next direction before heading higher through the afternoon until a steep dip off the highs in the last few minutes. Internals had been strong all day, with advancers ahead of decliners on both exchanges throughout the day. TRIN had trended down from bearish to neutral in the early period and then quickly into bullish territory, signaling the up-thrust to come in the equities before it actually arrived. Those oversupply and undersupply stories did not start the day on a bullish theme, however. They included oversupply issues related to LCD's. Isupply Corporation, a California-based business, reported that global supply of LCD's needed for computer and television screens surpassed demand in the first half of the year, and that the excess was likely to widen. In European trading, companies such as Royal Philips Electronics had already headed down before the U.S. open. As James Brown reported later in the day on OIN's Market Monitor, CNBC later reported that the oversupply was likely to bring prices lower on flat-panel televisions. Concerns about rising inventories in semiconductor and tech stocks have pressured semi-related stocks lower through the summer months until August's bounce. Figures released by the Semiconductor Equipment and Materials International after the close Thursday did not ease those concerns. According to a Bloomberg article, the semi-book-to-bill report showed the smallest month-to-month increase in global orders since August, 2003. Although the book-to-bill ratio remained above the benchmark 1.00, the July ratio fell to 1.05 from June's revised 1.07. Credit Suisse First Boston reportedly termed the number worse than expected, with CSFB expecting 1.08 from a revised 1.07 for June. As Jim Brown has often reminded us, that book-to-bill ratio reflects a three-month average. That means that the July number must have been lower than 1.05 to achieve that lower three-month-average. For those who would like to view the complete report, it can be accessed www.semi.org. During the morning, the SOX's behavior remained lackluster, dragging down other indices that appeared to want to bounce from support, then doing some waffling of its own. That waffling took the form of a neutral triangle before the SOX finally pushed above that triangle and joined other indices that were breaking out at the same time. Annotated 15-Minute Chart of the SOX: Gap Inc. (GPS) might have experienced a bit of an oversupply problem, too. Poor attendance at summer clearance sales impacted the retailer, causing it to be lumped together with JWN and NOVL, other companies with earnings reports deemed disappointing. The RLX, the S&P Retail Index, managed a gain Friday, but that gain straddled the 200-dma, showing the RLX spending a fourth day testing that average. Annotated Daily Chart of the RLX: The RLX looks ready to roll down into a right shoulder or punch up through the converging 50- and 200-dma's. Another oversupply story concerned GM. According to a WSJ story, GM may trim production as much as five percent due to dealers cutting back their orders as they experience rising inventories. GM opened $0.54 below Thursday's close, but managed to make up all but $0.21 or 0.51 percent of those losses. Rising fuel costs number among the reasons for those rising inventories that car manufacturers and others experience. Crude costs and the reasons behind those costs composed the undersupply story for the day. In the overnight session, crude futures for September delivery traded a new record high, variously reported as $49.20 and $49.27, on supply concerns. The clash between radical cleric Muqtada al-Sadr's militia and U.S. and Iraqi troops escalated overnight, with one headline Friday morning mentioning 77 killed and 70 wounded in the fighting since Thursday morning. The cleric's militia had threatened to attack Iraq's pipeline and other elements of the oil infrastructure. By midmorning, reports began surfacing that Iraqi police had gained control of the Iman Ali Mosque, the shrine where the cleric had taken refuge. Witnesses had reported seeing Iraqi police transporting arms out of the mosque. Markets began hesitant climbs off their lows of the day. Some speculated that the cleric had fled the mosque, and Iraq's Interior Ministry spokesman appealed to the cleric to turn himself in, saying that the police were in control of the shrine. Those reports were soon disputed, however. A senior aide of the cleric claimed that the shrine was still in control of the Mehdi army. News correspondents associated with the U.S. Marines reported that the Marines were unable to verify the reports that Iraqi police had taken control, with witnesses reporting fighting continuing near the shrine where Mehdi militia have been holed up in the mosque complex, the adjoining cemetery, and the alleyways leading to the mosque. The Iraqi national security adviser reported an inability to establish communications with the governor and chief of police of Najaf and verify those earlier reports. Later in the afternoon, U.S. time, witnesses began reporting the Mehdi militia in charge of the shrine and its approaches, with Iraqi police not seen. One must wonder whether the initial reports of a takeover of the shrine and a disarming of the cleric's militia were not intended to convince Sadr to turn himself over and call off his militia. As this report was prepared Friday evening, Iraqi police in Najaf had reportedly just confirmed that they did not control the site. Sadr's aide said that talks were underway to transfer control of the site to another cleric. As the day wore on, however, markets seemed to care less and less about what was happening in Najaf. Perhaps some reasoned that the conflict was drawing to close, whether that close came on Friday or another day. Crude futures dropped throughout the afternoon, with crude futures for September delivery dropping from that overnight high all the way to $47.60. Equity markets began bouncing as crude futures dropped. As the conflict dragged through the week, at least some of the quick inflation in crude futures might have been attributed to the fast-approaching expiration of crude futures for September delivery, however, with that expiration occurring Friday. Shorts who had expected a resolution any day as the cleric agreed to ceasefires and then rescinded his agreement almost as quickly must have been feeling the squeeze as expiration Friday approached. Rising crude costs have benefited the OSX, of course, and Lehman Brothers upgraded the group to a positive rating from its previous neutral rating. The firm also upgraded companies CAM, CLB, TDW, OII, RIG, GSF, NE, and SII. Almost all of those stocks gapped higher Friday, but although none closed the gap, most could not hold onto all their gains and printed bearish shooting stars Friday. The intraday chart for the SOX shown above indicated that the SOX also could not hold onto its gains. Wednesday's Wrap had suggested that indices might print small-bodied candles at resistance, perhaps through Friday, and the SOX followed that scenario. Annotated Daily Chart for the SOX: The theory presented Wednesday had been that many indices had seen strong gains Wednesday, and might need a day or two to consolidate their gains. Many indices also displayed the possibility of forming inverse H&S, with either descending necklines if the indices turned down from then-current levels or from horizontal ones if they rose up to next resistance. The expectation had been for many indices to print candles like the ones shown on the SOX daily chart for Thursday and Friday. That did happen for the RLX and some other indices as well as the SOX. However, other indices confounded that theory by showing larger- range days than expected Thursday and Friday while still maintaining the possibility of turning down into another shoulder. Annotated Daily Chart of the SPX: The bearish 50/200 cross and the continued trade within the descending regression channel still suggest that selling rallies remains the preferred strategy, but the possibility that the SPX could trade all the way up to the top of that descending regression channel or even break out of the channel cannot be ignored. The weekly chart presents a more bullish view of the SPX's actions. Annotated Weekly Chart of the SPX: Because of the possibility that the SPX's weekly morning-star pattern could be signaling a reversal up through its descending regression channel, those who prefer to play the bullish side could wait for a test of the 200-dma, with a move above it confirmed by a move above the 100-dma. Plans should be made to protect profits in the 1130-1135 zone, however, in case the SPX turns down again instead of breaking out through resistance line. In actuality, with the exception of the breakout above 1080, it has been difficult to find a safe place from which to suggest a bullish play because of multiple resistance zones ahead as the SPX moves up through that congestion zone. The Nasdaq printed its own potential reversal signal on the weekly chart, although not in as classic form as did the SPX. The daily chart shows that the Nasdaq stopped short Friday at a descending trendline that has been in place for more than a month, also the site of the diving 30-dma. Annotated Daily Chart of the Nasdaq: The descending red trendline depicted above could serve as the neckline for an inverse H&S, but the Nasdaq oscillators indicate that the Nasdaq could push higher. Those who prefer to play the bullish side could watch for a push above that trendline, confirmed by a move above the 30-dma, but should have profit- protecting plans in place as the Nasdaq approaches 1890-1900, the likely site of the descending 50 and 200-ema's by the time that level could be approached. If the Nasdaq is to form an inverse H&S from a horizontal neckline, that would be the appropriate spot for a rollover into another shoulder. Like the other indices, however, bearish MA crossovers suggest that selling rallies could still be the preferred strategy, with the knowledge that crossovers tend to come late in a movement. Bullish MA crossovers, confirming strength, could come just as late in the movement. Out of all the indices, the Russell 2000 may be the closest to reaching an appropriate rollover level from a horizontal neckline or a push through the neckline, rejecting the potential formation and preparing for a climb up toward the 200-dma. Annotated Daily Chart of the Russell 2000: Like the positioning of the oscillators on other indices, their positioning on the Russell 2000's daily chart presents the possibility of more upside. A rollover at the potential horizontal neckline for an inverse H&S may not occur, and the Russell 2000 may instead shoot up to test its more closely watched 200-sma and then perhaps the top of its regression channel. A bullish trade in the Russell remains problematic, however, as there has just been a bearish 100/200-sma cross, it does still remain within a descending regression channel, and so many potential pitfalls in the form of various MA's exist in the path of any bullish play. Some oscillators signal incipient bearish divergence as they've already reached higher highs when compared to the early August period while price has not. The Russell 2000 can erase that potential divergence, however, by the simple method of climbing higher than that early August high. The Dow, too, may be aiming for a horizontal neckline to a potential inverse H&S, if it intends to form one. Annotated Daily Chart for the Dow (using DJX as proxy): The Dow also produced a nice-looking morning-star reversal signal on its weekly chart. It had also been showing bullish divergence on this daily chart. Note that the last approach to the bottom of the regression channel stopped before touching that channel, when the previous approach had not only touched it, but breached it. However, a bullish trade in the Dow appears as problematic as one in the Russell 2000, with a group of important moving averages converging overhead. While the Dow can plow through those averages, it appears more likely that it would need consolidation or a pullback from that resistance before doing so. Look for a test of 10,130-10,170 and a rollover from that zone as an opportunity for a bearish play. A break above the 200-sma would be one indication for a bullish play, but profit-protecting plans should be in place as the top of the descending regression channel is approached. If indices begin rollovers sometime next week instead of punching up through next resistance levels, special note should be taken of the shoulder levels in the possible inverse H&S formations. If in bearish plays, profit-protecting plans should be place ahead of tests of those potential shoulder levels. OIN readers are not the only ones capable of noting potential formations, and those intending to buy could step in ahead of the actual shoulder level. Anywhere ahead, actually. With weekly charts showing bullish reversal signals and daily charts presenting the possibility that even a pullback could be part of a bullish inverse H&S formation, some might be willing to buy well ahead of such a test of the shoulder level. Those profit-protecting plans could include plans that allow for participation in further downside if the shoulder levels are violated. Taking over for the SOX lately as an indicator index, the TRAN may provide our first clue as to whether other indices are likely to roll over or break out to the upside. Annotated Daily Chart of the TRAN: Unlike some other indices, the TRAN has the support of both the 200-sma and -ema below it. The indices are printing beautiful potential reversal signals on their weekly charts. Some have broken above the midlines of their regression channels. Daily chart oscillators still indicate there's plenty of upside to go. What could precipitate a rollover now? Crude could, of course. If the theory about an expiration- related run-up in crude coupled with an actual price increase is wrong, crude could continue higher next week. An incident in the final days of the Olympics or a blown-up pipeline in Iraq could precipitate a rollover, although it's difficult to even give words to that first possibility. The terrible historical trading pattern for the last week in August, mentioned by James Brown in OIN's Market Monitor on Monday, could reassert itself this year, resulting in a rollover. Fear of the GDP could also do it. That GDP will be released Friday. No important economic releases are scheduled for Monday, and the calendar for the entire week will be lighter than last week's heavy calendar, although not without its share of weighty releases. Tuesday sees July's Existing Home Sales at 10:00 EST. Expectations are for a decrease to 6.78 million, down from the prior month's 6.95 million. Wednesday's numbers include July's Durable Orders at 3:30, with expectations for that number at a 0.8 percent rise after June's 0.9 percent climb. Wednesday's releases also include July's New Homes Sales, with expectations for 1,280 thousand sales, down from June's 1,326 thousand sales. Also, Wednesday has become important because of the 10:30-11:00 releases of the Department of Energy and API figures for crude, distillate, and gasoline inventories. Thursday, natural gas inventories, watched less closely lately, will be released, but more might be watching for the earlier, 8:30 release of Initial Claims and the 10:00 release of July's Help-Wanted Index. Economists expect the Help-Wanted Index to show an increase to 39 from June's 38. Friday draws more attention, however, with the 8:30 release of the second-quarter preliminary Chain Deflator and GDP, and the 10:30 release of August's Revised Michigan Sentiment. Earlier this week, a French minister quantified the effect he expected rising crude to have on the French GDP, saying that if crude reached $50/barrel and stayed at that level, he expected the GDP gain to decrease by one percent. During much of the second quarter, crude futures were retracing gains and hadn't approached $40.00, so that preliminary GDP might not yet show the effect of increasing crude costs. Crude futures for September delivery increased from the March 31 close at $33.65 to the June 30 close at $37.14. However, Japan's shocking Q2 GDP number certainly could make markets jittery, concerned that the U.S. could be in for a similar downside surprise. That's especially true since June's trade balance, released last week, showed that the gap had widened to a record $55.8 billion, with prices paid for crude oil and other industrial supplies showing up as one of the factors in that increasing deficit. Perhaps those crude costs earlier this summer, although minimal by comparison to today's costs, were still high enough to impact the GDP figure, too, some might wonder. That widening trade balance last week also revealed that exports had decreased. Upon the release of that number, some began speculating that growth estimates for the U.S. economy might require revision. The too-low estimate for June's trade gap had probably been folded into the calculations for economic growth, some commented. Forecasts for the preliminary GDP are for 2.8 percent, a small decrease from the previous 3.0 percent. Estimates for the preliminary Chain Deflator are for a flat 3.2 percent, and no change in expected in the revised Michigan Sentiment number, either, according to one source. Monday begins a week that's been bearish for six out of the last seven years, with drops in the major indices averaging more than 3.5 percent. We begin that week with weekly charts showing beautifully completed morning-star reversal signals. Switching back and forth from weekly, daily, and intraday charts show differing pictures for the indices, so that one could form wildly differing market outlooks. Weekly says up. Daily bar charts say up, but maybe with pullback first. Daily nested Keltner charts suggest that the two S&P's, at least, are nearly jammed up against next strong resistance. Facing Friday's possible GDP downside surprise and uncertainty over what will happen with crude costs, trade carefully during this traditionally bearish week, prepared for a rollover into shoulders for potential inverse H&S formations or for moves up through to the tops of the descending regression channels on daily charts. Be prepared to jump out of the way if your bias is proved wrong and indices head the other direction. ************ FUTURES WRAP ************ Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ******************** INDEX TRADER SUMMARY ******************** HOW MUCH MORE BOUNCE? By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE - The market had a substantial "oversold" rebound this past week, after declines that totaled 25% and 38% respectively for the '01- '04 advance in the S&P 500 and the Nasdaq Composite. It was easier to see that the indices were at or near a tradable bottom than to now anticipate just how high this rally can carry. Time to windex that crystal ball! Somewhat higher is what I see, per my individual index comments below. Since Oil prices are pretty key to what stocks can manage, I include an analysis and look at some key charts for this sector below. I think oil has reached a peak for now and this should help out stocks. I don't buy the $60 a barrel scenario based on what I see on the charts. $50 was the level I thought oil could get to. But, there is a tendency for pit traders (who are not the best prognosticators) to pick a higher number as further upside potential once an important level is reached. Since the talking heads on market cable know next to nothing themselves, hey why not! The traders must have an idea. FRIDAY'S TRADING ACTIVITY - THE NUMBERS - The S & P 500 index (SPX) ran up 7 points (+0.7%) to 1,098.35 and was up a respectable 3.2% on the week. The Dow (INDU) closed 69 points higher at 10,110 and gained 2.9% for the week. The Nasdaq Composite (COMP) rallied 18 points (+1%) to 1,838 and gained 4.6% on a week over week basis. The Russell 2000 index (RUT) rallied nearly 2%, to 547.9. These market sectors were of course down the most from their highs of earlier this year. REPORTS & ECONOMIC NEWS - On Friday, the market rallied in what seemed to both short- covering and some new bargain hunting type buying based on cautious optimism about an end to the immediate threat to Iraqi oil supplies. Higher oil prices, were they to continue would really be a damper to the economic recovery underway in the U.S., which may be somewhat fragile anyway based on a slowdown in new job creation. The Iraqi news was of a potential resolution to the standoff in Najaf. Investors found relief in the stories that militiamen loyal to rebel cleric Muqtada al-Sadr had removed their weapons from the revered Imam Ali Shrine in Najaf. Volatility was in evidence on Friday also because of triple- witching activity relating to options, index options and index futures contracts all expiring. U.S. Treasury Secretary John Snow said oil supplies have not been disrupted enough to justify releasing petroleum from the U.S. Strategic Petroleum Reserve. "I don't think we're there yet," he said in an interview on CNBC. Snow said the Bush administration intends to keep adding oil to the reserve. With oil at such levels, investors remained as I said quite concerned about the effect of high energy prices on economic growth. The Philly Federal Reserve Bank reported Friday that economists have lowered their growth forecasts for the U.S. economy for the rest of this year and the next. For 2004, the survey now sees growth at 4.3%, down from 4.6 percent in the last survey. Growth should average 3.8 percent annualized in the last half of the year, down from 4.1 percent earlier. Growth in 2005 was lowered to 3.7 percent from 3.9 percent. OIL - Crude oil for September delivery climbed toward 50, getting as high as $49.40 a barrel on the New York Mercantile Exchange. The contract then dropped back to close at $47.86, down 84 cents for the session. After reaching intraday records every day this week, the contract still closed almost 3% above the prior week's close of $46.58. The October contract,became the lead-month contract on Friday and finished at $46.72, down 92 cents for the day. Militants loyal to Muqtada al-Sadr in Iraq were reported to have removed weapons from the Imam Ali mosque in Najaf, but remained in control of the site, according to the newswires. Guess where prices got to on the charts - exactly to the top end of the price channel per the Sept and Oct contract charts below. The touch to the top of the channel was accompanied by a very overbought extreme on the 14-day RSI. The problem with believing that oil was going to go much higher was suggested by the next chart - that of the OIL stock Index, OIX, which made a minor top and then started trending lower, slipping under its 50-day moving average after a bearish price/RSI divergence. If oil prices were going to be sustained at higher levels the Oil Stock Index would have been going up along with it. OTHER MARKETS - Bonds ended lower on the rally in stocks following the news out of Iraq. That news dampened bond-market gains tied to record crude prices, which may force the Fed to slow the pace of its expected interest-rate hikes. The benchmark 10-year note closed down 3/32 at 100 6/32 to yield 4.23%, versus 4.22% on Thursday. The euro fell 0.5% against the dollar, to $1.2304, while the British pound fell 0.7% to $1.8178. Against the yen, the dollar saw early gains slip away and ended down 0.2% at 109.22. Gold futures ended at their highest levels in 4 months as record oil prices weighed on the broader market - this an the MidEast uncertainty raised investment demand for gold. MY INDEX OUTLOOKS - S&P 500 Index (SPX) - Daily chart: The rally of this past week was substantial, better than I Anticipated with oil prices climbing like they were. Helping out this rally was the fact that traders didn't get immediately overly bullish, at least as suggested by my call/put model ran. SPX resistance is at 1110, especially on a closing basis - an important level at both the prior upswing high and at the key 200-day moving average. Next resistance I figure at around 1120. Key support is at 1080. If this rally is going to mark much of a turnaround 1080-1085 should hold as support. I mentioned last week a tendency for a good rebound after 2-3 touches to the lower envelope line, at least back to the 21-day average. That this average was exceeded suggested good upside momentum that should carry still further in the coming week. I figure SPX can make it to at least the 1110 area, maybe up toward 1120, which also looks to be a good place to take profits on calls. S&P 100 Index (OEX) - Hourly chart: I thought that the last decline to under 520 looked like an area to exit puts and do some call buying, looking for a move to at least 530 - too conservative of an estimate. OEX broke out above resistance implied by the top end of the hourly downtrend channel. Next key resistance is in the 540 area per the level line and red (down) arrow on the chart. Above 540, I expect resistance at 550 at the previously broken up trendline - a prior support "becomes" possible new resistance. And, prior resistance (or a line of resistance), once penetrated, will tend to become new support on pullbacks: so key support now looks like 530. Given the near-term overbought situation, I look for sideways to lower price action at some point, say by Tuesday. If there was pause/pullback and a less overbought condition if would then seem more likely for a further advance. This is just a tendency but you can see the frequency of pullbacks from overbought extremes when using the stochastic set at "length" 21 as on the chart above. Dow 30 (INDU) - Daily chart: The rally in the Dow (INDU) occurred from the low end of a well- defined price channel as in the chart below. Support is apparent in the 9800 area. Likely resistance comes in around 10200 at the prior (up) swing high, extending to around 10250 at the 200-day moving average. The top of the channel suggest even more significant resistance and possible selling pressure coming in the 10400 area. As I said last week, the close above 10200 suggests possible ultimate potential to the top end of the downtrend channel on the daily chart, which is around 10400 - I would both exit calls in this area, if reached and look to buy some DJX puts. PRICE/KEY INDICATORS SUMMARY - S&P: The S&P (both SPX and OEX) as well as the Industrials (INDU) reached an oversold area and as pointed out in my last weekly commentary, the RSI oscillator had a bullish divergence - as seen in the higher low made by the RSI indicator contrary to price action (and noted on the RSI chart). [When the price pattern turns bullish or bearish and the indicators confirm, I note the occurrences with either up or down arrows under that part of the chart.] NYSE Up Volume got back to its recent "baseline" and then turned up, suggesting a bottom, as did my "Sentiment" indicator. Note that the Call/Put reading is the one most likely to precede a rally. But all - price action and my key indicators - taken together suggested a high probability for the rally that followed this past week. Nasdaq Composite (COMP) - Price/Key Indicators - Daily: 1840, at a prior closing low (support becomes resistance) is a key area in my mind that the Composite needs to clear next. Above that, 1892 (Columbus sailed the ocean blue!) is the prior high close and an even more key level. I have some doubt whether COMP can get above this area in the coming week - mostly I judge this by looking at key tech stocks. Not a lot of em are yet in gear on the upside. Besides price considerations, always number 1 on my list, the same bullish price/RSI divergence seen in the S&P set up in the Nasdaq Composite - this from an area that looked like it could be the low end of a downtrend channel on a close-only ("line" chart) basis - see below: The decline to a common "baseline" and then the turn up from there by the 10-day average of Nasdaq daily Advancing (Up) Volume was a bullish confirming indicator this past week. I had more on this aspect, this indicator, in my Trader's Corner article the other week. See - http://www.OptionInvestor.com/traderscorner/tc_081504_2.asp This indicator and the other main ones I use got bullish in March and May. The up volume indicator is of use for indications of bottoming action only. I'll note as before re the chart above, that I use the same Call to Put ratio for the Nasdaq as for the S&P and Dow Indices. When option traders do a lot of call buying relative to puts in equities options in general, or the reverse, the possible "overdone" aspect tends to hold true for both markets. Nasdaq 100 (NDX) Index - Daily: Bullish price action first occurred when the rally decisively penetrated the (downside) gap area. I thought that lows around 1315-1310 offered call buying potential and the upside exceeded my initial expectations for a rally back up to 1350-1355. Now what? Key resistance in the Nas 100 (NDX) is noted at the prior rally highs around 1410. I estimate near technical support to now be in the 1357-1360 area. A close under 1357 would be a bearish note. The upper envelope line around 1430 currently is a next area where this index would be extended or overbought. 1357 is the level of the 21-day moving average currently - this average tends to alternate as a key support or resistance, as can be seen from prior price action. Nasdaq 100 tracking Stock (QQQ) Daily: Well, the Q's didn't make it back to 32, but did get to the support zone I highlighted in the chart. 34 looks to be pretty a pretty significant resistance overhang - there as a lot of buying in this area, at what was the low end of the March - July price range prior to the sharp early-August break. This then tends to be "breakeven" for many and is their first change to get out whole so to speak. A close above 35 and the ability of the stock to hold this area on subsequent pullbacks is needed to suggest higher levels near- term such as back up the 35 area, or even 36. Support is estimated around 33.50, then at 32-32.25. I still favor shorting the stock on rallies that get to and falter at either the 35 or 36 areas. 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 ************** Look for the next edition of the Editor's Plays in next Sunday's email. **************** MARKET SENTIMENT **************** End of Summer - J. Brown It has been an interesting summer thus far. June was strong. July was terrible and August has just been plain volatile. If we use Memorial Day as the unofficial start of summer then we haven't moved very far. The Dow Industrials are only down 78 points from May 28th. The NASDAQ looks a lot worse because July was so painful. The NASDAQ Composite is down 148 points from Memorial Day. Meanwhile the S&P 500, which better represents the market as a whole, is down about 22 points for the summer. That's really not too bad considering the carnage from July 1st through the first week of August. During the same time period crude oil has risen 21.6% from May 28th through Friday's close (using the recently expired September contract). Crude is up almost 34% from its June lows, where stocks peaked. Oil continues to be the main story affecting the markets and it almost hit $50 a barrel on Friday morning as fighting raged in Najaf and investors responded to stories late Thursday of Iraqi oil company buildings being burnt down by militants. Fortunately, oil began to subside as the weekend approached and stocks pushed higher into the close. The question now is what are investors feeling? The recent rally has produced some positive bullish reversals in a number of stocks and indices. Is it a new bullish entry point? Or will it become a new lower high in the market's seven-week downtrend. The bounce from 10,000 in the Industrials on Friday is encouraging but the S&P 500's inability to breakout and close over the 1100 level is equally discouraging. If you look at the volatility indices they have all fallen sharply from their recent highs indicating that investors are feeling more confident (a.k.a. bullish) on stocks. Friday's market internals were certainly positive. Advancers outpaced decliners by 21 to 6 on the NYSE and almost 22 to 8 on the NASDAQ. Up volume outweighed down volume on both exchanges but overall volume was pretty light. Odds are volume will continue to be light until after Labor day. On Thursday I noted that most of the professionals were echoing comments made by Jim a couple of weeks ago that there really isn't any reason for stocks to rally before Labor Day. Yes, we could see an oversold bounce but any meaningful uptrend is likely to remain absent. We still have another week of Olympics but the real threat is the upcoming Republican National Convention in New York City that begins a week from Monday. The temptation for terrorists to strike at both the President's political party and the financial capital of the world New York City has to be a big one. Whether anything happens or not the threat of an event could easily keep a lid on stocks. Volume in the markets is expected to dry up and shrivel away during the week of the RNC. Yet that's still a week away. This coming week doesn't offer us any reprieve either. Stocks are starting to look bullish with the bounce from August 16th but the Stock Trader's Almanac has bad news for us. As reported earlier the Almanac states that the last five days of August have been extremely painful 6 out of the last 7 years. The average loss in the Dow is -4.0%, on the S&P 500 it's -3.8% and on the NASDAQ it's -3.5%. If the markets follow this historical trend then the end of August could witness the Industrials near 9700, the S&P 500 near 1056 and the NASDAQ near 1775. Of course if you're feeling optimistic you could round the numbers up a bit and just look for the major indices to retest their August lows. Then if you're feeling really optimistic imagine the whole scenario as an opportunity for a big double-bottom to lead us into the fall. Unfortunately, this is all just conjecture and what-if's. The facts are that we still have to face the month of September, which has historically been the WORST month of the year for all three indices. Now we could see stocks buck this trend if crude oil suddenly reverses on us but that's a big if right now. Investors need to shed their personal bias on the markets and consider the following. Not only are we facing some painful historical trends but record high oil prices, rising terror fears, concerns over a slowing economy and major uncertainty over the upcoming Presidential election do not nurture a bullish environment for stock prices. Bulls say the markets usually need a wall of worry to climb. Well they've got one and it's looking pretty steep. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 10110 Moving Averages: (Simple) 10-dma: 9999 50-dma: 10144 200-dma: 10229 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 983 Current : 1098 Moving Averages: (Simple) 10-dma: 1079 50-dma: 1099 200-dma: 1109 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1256 Current : 1366 Moving Averages: (Simple) 10-dma: 1334 50-dma: 1392 200-dma: 1442 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 16.00 -0.96 CBOE Mkt Volatility old VIX (VXO) = 16.30 -0.97 Nasdaq Volatility Index (VXN) = 23.06 -0.85 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.95 1,049,280 1,001,436 Equity Only 0.72 784,646 566,482 OEX 1.07 82,678 88,318 QQQ 1.20 90,233 107,960 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 54.0 + 1 Bear Confirmed NASDAQ-100 29.0 + 2 Bear Confirmed Dow Indust. 46.7 + 0 Bear Confirmed S&P 500 49.0 + 1 Bear Confirmed S&P 100 46.0 + 1 Bear Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.66 10-dma: 1.00 21-dma: 1.27 55-dma: 1.24 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 2147 2189 Decliners 650 824 New Highs 87 35 New Lows 13 26 Up Volume 1183M 967M Down Vol. 866M 347M Total Vol. 1439M 1330M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 08/17/04 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 There has been very little change in the commercial traders' positions. They remain slightly net short while small traders are net long (bullish). Commercials Long Short Net % Of OI 07/27/04 397,354 422,914 (25,560) (3.1%) 08/03/04 401,619 419,429 (17,810) (2.2%) 08/10/04 397,576 419,734 (22,158) (2.7%) 08/17/04 398,472 416,109 (17,637) (2.2%) 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 07/27/04 135,136 90,433 44,703 19.8% 08/03/04 128,510 88,833 39,677 18.3% 08/10/04 135,689 93,897 41,792 18.2% 08/17/04 138,550 97,792 40,758 17.2% 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 In the e-mini contracts we see commercial traders upping both their long and short positions but they remain net bearish. Small traders have done the same by increasing positions overall and they have increased their bullish sentiment. Commercials Long Short Net % Of OI 07/27/04 337,615 429,477 ( 91,862) (12.0%) 08/03/04 340,053 428,736 ( 88,683) (11.5%) 08/10/04 369,547 441,055 ( 71,508) ( 8.8%) 08/17/04 404,065 457,372 ( 53,307) ( 6.2%) 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 07/27/04 186,211 68,930 117,281 46.0% 08/03/04 195,105 68,717 126,388 47.9% 08/10/04 179,940 89,239 90,701 33.7% 08/17/04 192,939 92,361 100,578 35.3% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders have increased both their longs and shorts in the NDX but shorts made a stronger comeback. Commercial traders remain net bullish but the strength of their sentiment is decreasing at least as of Aug. 17th. Small traders have turned sharply bullish with a big switch in positions. Commercials Long Short Net % of OI 07/27/04 43,042 35,935 7,107 9.0% 08/03/04 42,771 36,863 5,908 7.4% 08/10/04 43,968 38,351 5,617 6.8% 08/17/04 44,743 41,535 3,208 3.7% 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 07/27/04 14,543 14,518 25 0.0% 08/03/04 8,995 13,901 (4,906) (21.4%) 08/10/04 10,081 10,858 ( 777) ( 3.7%) 08/17/04 12,256 8,352 3,904 18.9% Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders are at a virtual standstill during the latest period and remain net bullish on the Industrials. Naturally small traders are making the opposite bet and have turned more bearish. Commercials Long Short Net % of OI 07/27/04 27,577 21,427 6,150 12.5% 08/03/04 30,118 25,029 5,089 9.2% 08/10/04 30,634 22,994 7,640 14.2% 08/17/04 30,271 22,809 7,462 14.1% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 07/27/04 5,310 6,099 ( 789) ( 6.9%) 08/03/04 4,325 5,212 ( 887) ( 9.3%) 08/10/04 6,450 8,488 (2,038) (13.6%) 08/17/04 4,388 7,089 (2,701) (23.5%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ----------------------------------------------------------------- ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** I thought your column from last week was the most interesting and useful column for day traders that you have written. I've utilized other techniques you've taught in my trading, both day and swing trading, but as I learn more about pivot analysis, it has become a pillar for which my trading is centered around. While your article discussing the TRIN and pivot analysis was a real eye-opener and gave me a better understanding of what TRIN really does, and how I can actually apply levels during the day to interpret building strength or weakness, I started looking at the Market Volatility Index, which you seem follow. Like most traders I know, I always used to just assume weakness was building above 1.0 and strength was building below 1.0, but this week's trade, as well as reviewing historical trade, really shows how, or where an intra-day reversals took place, especially at the daily pivot. I was flabbergasted when I used my Q-charts daily pivots and made some observations as to how the VIX also seems to track the daily pivots, where using a similar set of rules, or assumptions during a trading day, the VIX and TRIN seem to be a killer combination. Like you said though, nothing is "foolproof," and while I had some losing trades this week, I had a pretty good feeling from the TRIN and the VIX when it was time to cut the loss. Reply: Wow! This trader sent me a much longer e-mail, question, and some observations that I'm not fully printing, and unfortunately for some traders, I didn't get a chance to really "test" until Friday afternoon. I wish I had, as it would have saved me, and a some other traders from a loss in a bearish QQQ trade early Friday morning. Conversely, I see just that bullish trade in Research in Motion (NASDAQ:RIMM) performed so well. If you've ever tried trading off the VIX.X by itself, you'll most likely find that using the TRIN is beneficial. If you've always used the TRIN by itself, then adding the VIX.X as an observation can have great impact. While I have noticed how the VIX.X seems to "peg" its QCharts' daily pivot levels, what blew my mind was the trader's observations he alerted me to, and how traders observing the VIX and the TRIN together, get somewhat of a three- dimensional view of things. OK, two dimensional (VIX and TRIN), but you really get some "depth" that the TRIN and VIX by themselves don't necessarily show. Quick review of the Market Volatility Index (VIX.X). This indicator portends to measures the volatility of the U.S. stock market and is updated throughout the day by the Chicago Board Option Exchange (CBOE) in real-time using the OEX bid/ask quotes. The VIX is calculated by taking the weighted average of the implied volatility of eight OEX calls and puts with an average time to maturity of 30 days. The VIX is therefore a measurement of 30 day index options. It is not a measure of the volatility of any one individual stock or option, and it does not measure the implied volatility of any other index other than the OEX. However, many traders use it as a general indication of index option implied volatility. Laughing to myself.... Do you want to know how I think of the VIX? If it's going up, then that means there is more put buyers and call sellers (bearish), than there are put sellers and call buyers (bullish). If it is going down, then there are more call buyers and put sellers (bullish) than there are call sellers and put buyers (bearish). Now... close your eyes for 10-seconds, and take a deep breath, then open them up and makes some observations that I think will get your juices flowing. VIX.X and TRIN comparisons - 10-minute intervals We talked about the TRIN and DAILY Pivot analysis levels in last weekend's column, now look at the top chart of the VIX.X with the QCharts-derived daily pivot analysis levels. Doesn't it look as if the VIX.X trades "levels?" A general observation. When VIX.X is BELOW its DAILY Pivot, there seems to be a BULLISH bias to that session. On the (TRIN) chart I labeled each day with OEX and QQQ gains or losses. Look back at the upper VIX.X chart. See how VIX.X below daily pivot resulted in a more BULLISH session? Thursday was a bearish session. What was the VIX.X doing that day? Good gravy! It's somewhat notable on Thursday how both the VIX.X and TRIN traded right up to their respective DAILY R2. Spend a little time right now, and use your "rules" that we outlined last weekend related to TRIN and the 1.00 level, as well as where TRIN was trading in relation to its DAILY Pivot. Then look at the VIX.X. Now, here's a question I (Jeff Bailey) had, as well as other traders, when we were using observations ONLY from the TRIN this week. I and others wondered why the TRIN would seeming "stop" itself at some area that was nowhere close to a DAILY Pivot Analysis level, and when it did, it seemed as if an intra-day relative high or low, excluding the first 10-minutes or so when TRIN could settle down, would seemingly have the QQQ making a sudden move (lower or higher) inverse to the TRIN. Friday was a perfect example. Look at the TRIN chart after it fell below 1.00 and its DAILY Pivot, where its seems to stop ABOVE its DAILY S1 of 0.61. See where I point to "little move lower to session low," which still doesn't quite trade to 0.61? We saw a nice extension of Friday's mid-session gains on that "little TRIN move lower." Now look up a your VIX.X chart. Here I point to "Boom!" as the VIX.X had edged below its DAILY S1, and then the "Boom!" as volatility imploded. Maybe, if I had just set an alert at VIX.X DAILY S1 of 16.32, that alert could have given me a 20-minute "heads up" for further bullishness. In Friday's Market Monitor at 12:53:18, I issued a "TRIN alert" at 0.70 as the TRIN made a session low. Mind you, I was NOT looking at, or paying too much attention to the VIX.X, other than to have noticed it moving lower during the day. Hold that thought for a minute. In Thursday evenings Index Trader Wrap at OptionInvestor.com, I stated that I was carrying a BEARISH bias into Friday's trade. I backed up that observation with the TRIN, where for the first time this week, it closed above 1.00, and most likely was going to open above Friday's TRIN daily pivot. Well, I've never been one to deviate from a plan that I had outlined, and as I saw the TRIN fall back to the 1.00 level, and find "support" above DAILY Pivot, the QQQ was trading BELOW its DAILY Pivot. I had to go short the QQQ at $33.57, stop $33.75 (I did nudge it up to $33.77 as TRIN was finding support at its daily pivot). Now look at the VIX.X. It was BELOW its DAILY Pivot. Hmmmm.... I can perhaps see what I did "wrong," with trying to short the QQQ so early in the session, but based ONLY on TRIN, I still think it was a good trade idea. However, next time I'll want to see what the VIX.X is doing. Especially on an option expiration Friday!!!!!! OK. Now lets get down to what really counts. Remember, it is PRICE that matters most. You cant put food on the table if your ONLY looking at TRIN and VIX. What are the indices or securities doing that you're trading? S&P 100 (OEX.X) and QQQ Comparisons - 10-minute intervals After you get a "feel" for the VIX.X and TRIN trade within their DAILY Pivot levels, now look at how the indices PRICE played out. Stock traders will interpret an index, then go looking for stocks to trade based on their interpretation of a MARKET or SECTOR. On Friday I traded short the QQQ just after the open. While still "hopeful" that the QQQ would slip back below its DAILY Pivot and have TRIN rising from its DAILY Pivot and back above 1.00, that didn't happen. It was time to admit the mistake, and start looking to get long. I like to review my mistakes/losses. I also like to review my winners. Intel (INTC) and Research in Motion (RIMM) Charts - 10-min int. Two bullish trades in RIMM this week treated traders pretty good. A swing trade bullish on Wednesday with a close out at our target on Thursday morning. After getting stopped on the QQQ bearish trade Friday, RIMM was the first stock I thought of when it became evident the QQQ was going to at least make a move to its DAILY R1, if not its DAILY R2 with TRIN headed below its DAILY Pivot. It just so happened that RIMM wash challenging its DAILY Pivot. Since RIMM treated us well on Wednesday, it deserved another shot. Long at $59.40, target $61.00. Good gravy! I meant to target $61.27! (grin) When Thursday's TRIN indications were more bearish, we traded Intel (INTC) short at $22.06 and closed out at $21.85 for a 0.95% gain. We did a little bit better than the percentage declines of the QQQ the entire day. Look how different RIMM and INTC traded in recent sessions, where despite some bullish TRIN and VIX.X indications, where QQQ/OEX trade bullish, INTC not as bullish. When TRIN and VIX.X indications more bearish, INTC has been good short. Whew! The trader that sent me the e-mail I used for today's column was a rather long one, and he had some EXCELLENT observations, as well as a lot of questions, where I've tried to roll many of them into this article. Now, he also asked about the WEEKLY Pivots for swing trading, where he likes to use some additional capital he can't possibly day trade, as there's NO WAY a trader can really keep track of 5 or 6 different day trades he/she may have open in a session. I have to do some analysis and back testing, which may take awhile. I'll try and answer some of those questions in a later article. I've also received questions regarding point and figure chart comments I made this week. I need to address those too. If you've got a question, shoot me an e-mail. I can't promise that I can respond to all, or use YOUR specific question in an Ask the Analyst column, but I might be able to incorporate it with another trader/investor's question. Have a great weekend and with Jim Brown coming back from some seminar (i.e. vacation) we can probably look for the major indices to fall after a rather bullish week. I've got to get my jabs in on Jim from time to time. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- TOY Toys R Us Mon, Aug 23 Before the Bell -0.04 ------------------------- TUESDAY ------------------------------ BMO Bank Of Montreal Tue, Aug 24 During the Market N/A HRB H&R Block, Inc. Tue, Aug 24 After the Bell -0.05 HNZ H.J. Heinz Company Tue, Aug 24 Before the Bell 0.55 HUG Hughes Supply Tue, Aug 24 After the Bell 1.16 MRX Medicis Tue, Aug 24 After the Bell 0.36 RGS Regis Corporation Tue, Aug 24 Before the Bell 0.59 STOSY Santos Ltd. Tue, Aug 24 -----N/A----- N/A SMTC Semtech Tue, Aug 24 After the Bell 0.21 TKA Telekom Austria AG Tue, Aug 24 Before the Bell N/A TTC Toro Tue, Aug 24 Before the Bell 1.28 ------------------------ WEDNESDAY ----------------------------- ADCT ADC Wed, Aug 25 After the Bell 0.01 BTH Blyth Inc. Wed, Aug 25 -----N/A----- 0.23 BCM Can Imp Bank CmmerceWed, Aug 25 -----N/A----- N/A DLTR Dollar Tree Stores Wed, Aug 25 After the Bell 0.26 SJM J. M. Smucker Co Wed, Aug 25 Before the Bell 0.56 MIK Michaels Stores Wed, Aug 25 -----N/A----- 0.40 NDSN Nordson Wed, Aug 25 -----N/A----- 0.47 REXMY REXAM PLC Wed, Aug 25 -----N/A----- N/A TOL Sulzer Wed, Aug 25 -----N/A----- N/A WSM Wi-Lan Inc Wed, Aug 25 After the Bell -0.05 ------------------------- THUSDAY ----------------------------- BFb Brown-Forman Corp Thu, Aug 26 Before the Bell 0.38 CHS Chico's FAS Thu, Aug 26 After the Bell 0.38 DG Dollar General Corp.Thu, Aug 26 Before the Bell 0.20 OTE Hellenic Telecomm Thu, Aug 26 Before the Bell N/A JOYG Joy Global Inc. Thu, Aug 26 Before the Bell 0.32 KWD Kellwood Company Thu, Aug 26 After the Bell 0.35 AHO Koninklijke Ahold NVThu, Aug 26 -----N/A----- N/A PDCO Patterson Dental Thu, Aug 26 -----N/A----- 0.59 SCO Scor Thu, Aug 26 Before the Bell N/A SFD Smithfield Foods Thu, Aug 26 Before the Bell 0.47 TECD Tech Data Corp Thu, Aug 26 After the Bell 0.49 TKS Tomkins PLC Thu, Aug 26 -----N/A----- N/A TD Toronto Dominion BnkThu, Aug 26 -----N/A----- N/A VIP Vimpel Comm Thu, Aug 26 -----N/A----- N/A ------------------------- FRIDAY ------------------------------- PNY Piedmont Natural GasFri, Aug 27 -----N/A----- -0.40 RY Royal Bank Of CanadaFri, Aug 27 -----N/A----- N/A ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Co Name Ratio Payable Executable HTLD Heartland Express 3:2 Aug 20th Aug 23rd TOX MEDTOX Scientific, Inc 3:2 Aug 20th Aug 23rd IVX IVAX Corporation 5:4 Aug 24th Aug 25th ZBRA Zebra Tech Corp 3:2 Aug 25th Aug 26th WOOF VCA Antech, Inc 2:1 Aug 25th Aug 26th PGTV Pegasus Comm Corp 2:1 Aug 26th Aug 27th BAC Bank of America 2:1 Aug 27th Aug 28th CFC Countrywide Financial Corp2:1 Aug 30th Aug 31st VNBC Vineyard National Bancorp 2:1 Aug 30th Aug 31st HOC Holly Corp 2:1 Aug 30th Aug 31st TRBS Texas Regional Bancshares 3:2 Aug 30th Aug 31st ENSI EnergySouth, Inc 3:2 Sep 1st Sep 2nd CHD Church & Dwight Co. Inc 3:2 Sep 1st Sep 2nd TCB TCF Financial Corp 2:1 Sep 3rd Sep 6th -------------------------- Economic Reports This Week -------------------------- The Olympics will move into its second week but Wall Street will look with wary eyes on the upcoming Republican National Convention that starts a week from Monday. This week we'll see new and used home sales, the preliminary GDP numbers and revised sentiment figure. ============================================================== -For- ---------------- Monday, 08/23/04 ---------------- None ----------------- Tuesday, 08/24/04 ----------------- Existing Home Sales (DM) Jul Forecast: 6.80M Previous: 6.95M ------------------- Wednesday, 08/25/04 ------------------- Durable Orders (BB) Jul Forecast: 1.0% Previous: 0.9% New Home Sales (DM) Jul Forecast: 1292K Previous: 1326K Federal Reserve Governor Guynn speaks on U.S. Economy ------------------ Thursday, 08/26/04 ------------------ Initial Claims (BB) 08/21 Forecast: N/A Previous: 331K Help-Wanted Index (DM) Jul Forecast: 38 Previous: 38 ---------------- Friday, 08/27/04 ---------------- GDP-Prel. (BB) Q2 Forecast: 2.8% Previous: 3.0% Chain Deflator-Prel. (BB) Q2 Forecast: 3.2% Previous: 3.2% Mich Sentiment-Rev. (DM) Aug Forecast: 94.0 Previous: 94.0 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 08-22-2004 Sunday 2 of 5 In Section Two: Watch List: Credit Cards to Cruises 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 ********** Credit Cards to Cruises 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. ___________________________________________________________________ Capital One Financial - COF - close: 70.85 change: +0.90 WHAT TO WATCH: We came very close to adding COF to the play list as a call this weekend. The we like the double bottom at its exponential 200-dma. We like the bullish breakout over all its moving averages and the $70.00 mark. Plus, we really like the bullish triangle breakout on its P&F chart with a target of $82.00. However, we chose to wait and see if COF can climb past its June highs and resistance near $72.50. Chart= --- Royal Caribbean Cruises - RCL - close: 39.30 change: -0.80 WHAT TO WATCH: It wasn't easy to find a bearish candidate this weekend but we did. The stock has been sinking for the last several weeks and failed to participate in the market's rally the past couple of days. RCL has been slipping on rising volume and Friday's 2% decline broke through its simple 200-dma. There is still more support near the $38.00 level but this one could be worth watching for a put play. A move under $39.00 should produce a new sell signal on its P&F chart. Chart= --- Nucor Corp - NUE - close: 84.21 change: +0.94 WHAT TO WATCH: There were a lot of bullish moves in the metals and mining stocks this past week. We like the bullish trend of higher lows in NUE. The stock is consolidating under resistance at $85.00 and looks ready to breakout. Technicals are positive and its MACD is very close to a new buy signal. Consider a move over $85 as an entry point and target a run to $90. Chart= --- Fastenal Co - FAST - close: 61.89 change: +1.93 WHAT TO WATCH: A careful look at FAST's chart and you'll see that the stock has been consolidating sideways for the past four weeks. FAST has been building a neutral pennant-type formation with higher lows and lower highs. You can see a similar consolidation in its short-term oscillators like the RSI and stochastics. While normally a pennant is neutral in its technical bias we believe FAST is going to breakout to the upside. Look for a move over $62.65 or $64.00 as potential entry point for bullish positions. The P&F chart is currently bullish with an $81 target. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- FMC $43.94 +0.92 - We're still watching FMC for a breakout over $45.00. UNH $65.57 +0.67 - Keep an eye on UNH for a breakout over $66.00. OSIP $60.30 +1.10 - The push past $60.00 is impressive but OSIP still has resistance at its 50 and 100-dma's as well as its July high. Look for a move over $62.00 as a bullish entry point. WFMI $78.87 +1.51 - This continues to look like a potential bottom in WFMI with the MACD in a new buy signal. EBAY $81.37 +1.69 - EBAY has been very strong the past two weeks and broken out over the $80.00 level. Now look for it to push past its 50 and 100-dma's. ************************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. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. 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The Option Investor Newsletter Sunday 08-22-2004 Sunday 3 of 5 In Section Three: Current Calls: AET, MHK, POT, RAI, TDS, TXT, ZBRA New Calls: BOL, INSP Current Puts: HIG, SPW 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 ****************** Aetna - AET - close: 94.23 change: +1.78 stop: 89.95*new* Company Description: As one of the nation's leading providers of health care, dental, pharmacy, group life, disability and long-term care benefits, Aetna puts information and helpful resources to work for its approximately 13.4 million medical members, 11.4 million dental members, 8.1 million pharmacy members and 12.6 million group insurance members to help them make better informed decisions about their health care and protect their finances against health-related risks. Aetna provides easy access to cost- effective health care through a nationwide network of more than 633,000 health care professionals, including over 377,000 primary care and specialist doctors and 3,866 hospitals. (source: company press release) Why We Like It: Up, up and away! Shares of AET have been very strong the past two weeks pushing past resistance near $88 and $90. We've been very encouraged by the results this past week and now that AET is nearing its first hurdle with overhead resistance at $95.00 short-term traders may want to scalp their profits now. AET is overdue for a pull back so interested readers looking for an entry point will probably want to be patient and look for a dip. Point & Figure chart readers will notice that AET has extended its upside target to $115. That's good news but we're going to keep our target at $100 for now. We are going to raise our stop loss to $89.95. In the news AET announced on Friday that it was buying privately held Strategic Resource Co. for $250 million. The announcement did not affect the stock price and it probably shouldn't since the purchase is relatively small for a company like AET with almost $19 billion in annual revenues. Suggested Options: We like the September calls. Our favorites are the $90 strikes although the $95s work well too. BUY CALL SEP 90 AET-IR OI=4319 current ask $5.60 BUY CALL SEP 95 AET-IS OI=7052 current ask $2.35 BUY CALL SEP 100 AET-IT OI= 488 current ask $0.75 Annotated Chart: Picked on August 15th at $90.72 Change since picked: + 3.51 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 1.4 million Chart = --- Mohawk Industries - MHK - close: 73.42 change: +0.16 stop: 72.45 Company Description: Mohawk is a leading supplier of flooring for both residential and commercial applications. Mohawk offers a complete selection of broadloom carpet, ceramic tile, wood, stone, laminate, vinyl, rugs and other home products. These products are marketed under the premier brands in the industry, which include Mohawk, Karastan, Ralph Lauren, Lees, Bigelow, Dal- Tile and American Olean. Mohawk's unique merchandising and marketing assist our customers in creating the consumers' dream. Mohawk provides a premium level of service with its own trucking fleet and over 250 local distribution locations. (source: company press release) Why We Like It: Looking at MHK's chart and you can see why we choose to use a trigger. The rally to resistance at $75.00 looked good but we wanted confirmation. Shares of MHK have pulled back and slipped under its simple 100-dma again. However, we have good news. MHK did test the exponential 200-dma as support twice in the last two days. We are looking for MHK to rally again but we're not going to open the play until MHK can trade at or above our TRIGGER of $75.51. If you missed the original play description's details, we added MHK to the call list last Wednesday. Fortunately, MHK's P&F chart remains bullish with an $84 target. Suggested Options: Traders need to be careful here. We're not suggesting any big positions. The September calls are our favorites but volume is very light. Novembers are available but that's two extra months we don't think we need. BUY CALL SEP 70 MHK-IN OI= 2 current ask $4.50 BUY CALL SEP 75 MHK-IO OI= 19 current ask $1.35 BUY CALL SEP 80 MHK-IP OI= 3 current ask $0.30 BUY CALL NOV 75 MHK-KO OI=1122 current ask $3.00 BUY CALL NOV 80 MHK-KP OI= 70 current ask $1.30 Annotated Chart: Picked on August xxth at $xx.xx <-- See TRIGGER Change since picked: + 0.00 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 397 thousand Chart = --- Potash - POT - close: 51.12 change: +0.35 stop: 48.75 Company Description: Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash, fourth largest in phosphate and third largest in nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and one of only three North American suppliers of industrial phosphates. (source: company press release) Why We Like It: POT is holding up pretty well. We haven't seen any post-split depression. The technical picture is looking a little muddy with most of the oscillators churning sideways and the MACD actually producing a weak sell signal but the price action is still bullish. POT is still building on its short-term trend of higher lows. The bounce from $50.00 is looking like a bullish entry point just like we suggested. Remember, if you opened a position prior to the split you should double check your option symbols with your broker because they have changed. Our post-split stop loss is now $48.75 and our post-split profit target is $55.00. If you're feeling a little iffy about buying the bounce from fifty then look for a new high over $51.50 instead. We are still recommending that you confirm the broader market direction first before considering new bullish positions in POT or anything else for that matter. Suggested Option: We're going to suggest the September calls. We like the September 50s. BUY CALL SEP 47.50 POT-IW OI=146 current ask $4.30 BUY CALL SEP 50.00 POT-IJ OI=132 current ask $2.35 BUY CALL SEP 52.50 POT-IX OI=205 current ask $1.15 Annotated Chart: Picked on August 10th at $ 51.08 Change since picked: + 0.04 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 180 thousand Chart = --- Reynolds American - RAI - close: 72.95 change: +0.07 stop: 69.36 Company Description: Reynolds American Inc. is the parent company of R.J. Reynolds Tobacco Company, Santa Fe Natural Tobacco Company, Inc., Lane Limited and R.J. Reynolds Global Products, Inc. R.J. Reynolds Tobacco Company, the second- largest U.S. tobacco company, manufactures about one of every three cigarettes sold in the United States, including five of the nation's 10 best-selling brands: Camel, Winston, KOOL, Salem and Doral. Santa Fe Natural Tobacco Company, Inc. manufactures Natural American Spirit cigarettes and other tobacco products, and markets them both nationally and internationally. Lane Limited manufactures several roll-your-own, pipe tobacco and little cigar brands, and distributes Dunhill tobacco products. R.J. Reynolds Global Products, Inc. manufactures, sells and distributes American-blend cigarettes and other tobacco products to a variety of customers worldwide. (source: company press release) Why We Like It: (Original Play from Thursday) Up on a down day. That's what caught our attention in shares of Reynolds American, the newly combined RJR Reynolds and Brown & Williamson Tobacco. Shares hit a new high in early August and have slowly faded back toward support near $70.00. Now we're seeing investors buy the dip. The company recently said its on its way toward reaching its goal of $1 billion in cost savings by the end of the year and it should also save an additional $500 million or so in merger-related savings. The newly combined entity is supposed to be a leaner, meaner fighting machine to compete with larger rival Phillip Morris (a.k.a. Altria Group). Investors are also attracted to RAI for its dividend yield. With the market going south to sideways a 5.2% yield is pretty attractive. RAI just recently announced that its next quarterly cash dividend payment will be delivered on October 1st to shareholders on record as of September 10th. We like the relative strength evident in RAI and the bounce from support/resistance near $70 looks like an entry point. The P&F chart is bullish and points to a $103 target. Right now we'd probably be happy with a run toward $77.50-80.00. Now there are risks involved when trading a tobacco company. One never knows when the U.S. government might announce some new legislation or some court decision but from the looks of RAI's stock price there doesn't seem to be any imminent threats. Weekend Update: RAI is more of a defense stock and it can usually take a back seat if the rest of the market is in rally mode. Having said that we're still bullish on it and the intraday action on Friday looks encouraging. If RAI does dip next week look for a bounce from $71.75 to $72.00 as a potential entry point. Suggested Options: We like the September and November calls although our favorites are probably the September 70s and 75s. BUY CALL SEP 70 RAI-IN OI=1252 current ask $4.10 BUY CALL SEP 75 RAI-IO OI=1232 current ask $1.25 BUY CALL NOV 70 RAI-KN OI=7971 current ask $5.70 BUY CALL NOV 75 RAI-KO OI=1735 current ask $3.10 Annotated Chart: Picked on August 19 at $72.88 Change since picked: + 0.07 Earnings Date 08/02/04 (confirmed) Average Daily Volume = 1.2 million Chart = -- Telephone & Data Sys - TDS - cls: 77.65 change: +0.45 stop: 74.00 Company Description: TDS Telecom is a growing communications company serving more than 1 million residential and business customers in small rural and suburban communities in 30 states. The company's goal is to provide the most effective communication technology and high- quality services in its chosen markets. TDS Telecom is a subsidiary of Telephone and Data Systems, Inc., a diversified telecommunications corporation founded in 1969 and a FORTUNE 500 company, that operates primarily by providing wireless and local telephone service through its strategic business units, U.S. Cellular and TDS Telecom. (source: company press release) Why We Like It: TDS continues to creep higher and it's moving closer to our TRIGGER at $78.05 to go long. If you missed Wednesday's newsletter we added TDS as an aggressive play. The stock doesn't have the average trading volume we normally look for in a stock and its options volume is pretty low as well. That can make for a volatile stock and dangerous fills on your option order. While we do like the bullish consolidation between $75 and $78 we also felt that TDS was somewhat aggressive due to potential resistance near the $80.00 mark. No change in the bullish P&F chart with the $94 target. Our target is the $85.00 region. Suggested Options: We want to warn you again that option volume is very low here. Choose carefully. BUY CALL SEP 75 TDS-IO OI= 0 current ask $3.90 BUY CALL SEP 80 TDS-IP OI=10 current ask $1.05 BUY CALL SEP 85 TDS-IQ OI= 0 current ask $0.30 BUY CALL NOV 75 TDS-KO OI=105 current ask $5.60 BUY CALL NOV 80 TDS-KP OI= 0 current ask $2.95 BUY CALL NOV 85 TDS-KQ OI= 0 current ask $1.35 Annotated Chart: Picked on August xxth at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 195 thousand Chart = --- Textron - TXT - close: 63.33 change: +0.46 stop: 59.99 Company Description: Textron Inc. is a $10 billion multi-industry company with more than 43,000 employees in nearly 40 countries. The company leverages its global network of aircraft, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna Aircraft, Kautex, Lycoming, E-Z-GO and Greenlee, among others. (source: company press release) Why We Like It: TXT's bullish trend higher continues as it builds on the current trend of higher lows. There does seem to be some minor resistance near $64 but we don't expect it to last. We've been targeting a move toward the $65-66 range but given the questionable market environment we're going to officially set our exit point at $64.90. Should TXT trade there on an intraday basis we're going to exit. Readers looking for new positions might want to consider buying a bounce from the $62.00 level. We expect Monday to be somewhat bullish for TXT due to some good news on Friday afternoon. Moody's Investors Service raised its outlook on TXT from "negative" to "stable". The improvement, according to Moody's, reflects an improved market environment, "especially in commercial aircraft and helicopters, and the company's significant debt reduction over the last several years..." (-Reuters). Suggested Options: Our favorites are currently the September strikes. The 60s look good. BUY CALL SEP 55 TXT-IK OI= 580 Current Ask $8.80 BUY CALL SEP 60 TXT-IL OI= 437 Current Ask $3.90 BUY CALL SEP 65 TXT-IM OI=1480 Current Ask $0.80 Annotated Chart: Picked on July 26th at $60.72 Change since picked: + 2.61 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 622 thousand Chart = --- Zebra Tech. - ZBRA - close: 83.00 chg: +0.38 stop: 79.95 Company Description: Zebra Technologies Corp. delivers innovative and reliable on- demand printing solutions for business improvement and security applications in 90 countries around the world. More than 90 percent of Fortune 500 companies use Zebra-brand printers. A broad range of applications benefit from Zebra-brand thermal bar code, "smart" label, receipt, and card printers, resulting in enhanced security, increased productivity, improved quality, lower costs, and better customer service. The company has sold four million printers, including RFID printer/encoders and wireless mobile solutions, and also offers software, connectivity solutions and printing supplies. (source: company press release) Why We Like It: ZBRA is another bullish play we added last Wednesday. The stock has rebounded strongly from its August lows near the simple 100- dma. Technicals are positive and its MACD indicator is in a new "buy" signal. However, we choose to use a TRIGGER over resistance at $84.00. The plan is to only commit capital if ZBRA can generate enough momentum to run toward its highs near $90.00. We were expecting ZBRA's upcoming 3-for-2 split to help generate some of that momentum. Normally we don't like to hold over a split but this time we're considering it. Keep in mind that our $90 target will become a $60 target on a post-split basis and the $84.35 trigger will become a trigger over $56. ZBRA begins trading at its post-split price on August 26th. Suggested Options: Our favorites are the September calls but the Novembers have more volume. You might want to ask your broker now how the symbols will change after ZBRA splits 3-for-2 next week. BUY CALL SEP 80 ZBQ-IP OI= 49 current ask $4.50 BUY CALL SEP 85 ZBQ-IQ OI=655 current ask $2.05 BUY CALL NOV 85 ZBQ-KQ OI=409 current ask $4.60 BUY CALL NOV 90 ZBQ-KR OI=929 current ask $2.75 Annotated Chart: Picked on August xxth at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 419 thousand Chart = ************** NEW CALL PLAYS ************** Bausch Lomb - BOL - close: 65.91 change: +1.54 stop: 62.50 Company Description: Bausch & Lomb is the eye health company, dedicated to perfecting vision and enhancing life for consumers around the world. Its core businesses include soft and rigid gas permeable contact lenses and lens care products, and ophthalmic surgical and pharmaceutical products. The Bausch & Lomb name is one of the best known and most respected healthcare brands in the world. Celebrating its 150th anniversary, the Company is headquartered in Rochester, New York. Bausch & Lomb's 2003 revenues were $2.0 billion; it employs approximately 11,500 people worldwide and its products are available in more than 100 countries. (source: company press release) Why We Like It: In this market we're looking for relative strength and a good story to back it up. BOL has both. Business is doing pretty well and on July 29th the company reported earnings that beat estimates by 12 cents. Management followed up by guiding the rest of 2004 above analysts' expectations. Several days later BOL announced that the FDA had sent them an "approvable" letter for its experimental eye treatment Zylet. Since then BOL has outpaced the market's rally and is now nearing major resistance near $66.00-66.50. We are going to suggest a bullish call play on BOL if it can breakout above resistance. We will use a TRIGGER at $66.51 to open the play. If opened our initial stop will be $62.50 and our target will be very old resistance near $72.50, although we do expect the round-number $70 level to present a short-term obstacle. The bullish P&F chart has already reversed into a new buy signal that currently points to an $83 target but this could move higher. Suggested Options: Short-term traders can choose from the September or October calls. We like both months at the $65 strike. BUY CALL SEP 65 BOL-IM OI=195 current ask $2.40 BUY CALL SEP 70 BOL-IN OI= 0 current ask $0.60 BUY CALL OCT 65 BOL-JM OI=186 current ask $3.35 BUY CALL OCT 70 BOL-JN OI= 58 current ask $1.15 Annotated Chart: Picked on August xxth at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 397 thousand Chart = --- InfoSpace - INSP - close: 39.41 change: +2.14 stop: 36.50 Company Description: InfoSpace, Inc. is a diversified technology and services company that develops Internet and wireless solutions for a wide range of customers. InfoSpace Search & Directory provides Web search and online directory products that help users find the information they need while creating opportunities for merchants. InfoSpace Mobile develops infrastructure, tools and applications that enable carriers and content providers to efficiently develop and deliver mobile data services across multiple devices. (source: company press release) Why We Like It: INSP is offering us a bullish earnings forecast and technicals so it's no surprise that shares rallied more than 5% on above average volume this past Friday. Near the end of July the company reported earnings that beat estimates by 13 cents. Management then guided higher and the stock gapped up on the news. Since then INSP has endured a brief consolidation followed by a surge to a new 2 1/2 month high. More importantly Friday's rally broke through the neckline of a bullish reverse Head-and- shoulders pattern. The bullish inverse H&S pattern points to a $49 price target. We suspect the $46 level, which was the April highs, could be a tough hurdle but we're willing to target the $47.50 region. The bullish P&F chart points to a $61 target. INSP may have all these factors in its favor but we're still going to use a trigger to open the play. We want to see INSP breakout over round-number resistance at $40.00. We'll use a TRIGGER at $40.10 to open the play. More aggressive traders can look for a bounce from $38. Suggested Options: Short-term traders can choose from the September or October strikes. We like the $35s and $40s. It may be noteworthy that the September 45s have a lot of open interest (relatively speaking). BUY CALL SEP 35 IOU-IG OI= 334 current ask $5.50 BUY CALL SEP 40 IOU-IH OI= 725 current ask $2.55 BUY CALL OCT 40 IOU-JH OI= 853 current ask $3.50 BUY CALL OCT 45 IOU-JI OI= 386 current ask $1.70 Annotated Chart: Picked on August xxth at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 1.1 million Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Hartford - HIG - close: 60.60 change: +0.77 stop: 61.26*new* Company Description: The Hartford is one of the nation's largest financial services and insurance companies, with 2003 revenues of $18.7 billion. The company is a leading provider of investment products, life insurance and group benefits; automobile and homeowners products; and business property-casualty insurance. (source: company press release) Why We Like It: Danger! Property and casualty insurance stocks aren't not seeing much of a bearish follow through even through hurricane Charley may prove to be the second most expensive storm in our history. Part of the bullishness is due to speculation that insurance companies will be able to raise rates next year due to the storm. We really weren't worried about HIG because most of the week the stock was struggling to break above the $60 level. Unfortunately, that changed on Friday. Volume was low but the technicals have certainly turned positive and the close over its simple 10-dma is bullish as well. We're not willing to give up just yet as HIG does have significant resistance at the $61.00 level. Yet we will try and protect ourselves by lowering the stop to $61.26. It's perfectly reasonable to exit now and we would suggest doing so for more conservative traders. Suggested Options: We are not suggesting new positions at this time. Annotated Chart: Picked on August 12 at $59.17 Change since picked: + 1.43 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 1.4 million Chart = -- SPX Corp - SPW - close: 37.17 change: +0.25 stop: 38.26 Company Description: SPX Corporation is a global provider of technical products and systems, industrial products and services, flow technology, cooling technologies and services, and service solutions. (source: company press release) Why We Like It: We're still in wait-mode for SPW. The stock has been consolidating in a neutral pennant-type pattern with higher lows and lower highs. This may be a neutral pattern but we're still betting on the prevailing, bearish trend to dictate the next breakout. The P&F chart is very bearish with a $32 target. We believe that SPW, if it breaks down, can actually fall toward the $31-30 range. Our trigger to buy puts is at $35.75. Suggested Options: We like the September puts. Our favorites are the $37.50s and $35s. !Alert - August options EXPIRE this Friday, Aug. 20th! BUY PUT SEP 37.50 SPW-UU OI=4371 current ask $1.90 BUY PUT SEP 35.00 SPW-UG OI=1573 current ask $0.95 BUY PUT SEP 32.50 SPW-UZ OI= 28 current ask $0.40 Annotated Chart: Picked on August xxth at $xx.xx <-- see TRIGGER Change since picked: - 0.00 Earnings Date 08/02/04 (confirmed) Average Daily Volume = 814 thousand 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 08-22-2004 Sunday 4 of 5 In Section Four: Leaps: Now What? ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ***** LEAPS ***** Now What? For those leap buyers wanting to get in on the bottom floor we suffered a severe setback with the market rally. This rebound before the end of the Olympics and before the Republican convention in New York is questionable at best. The rebound has sent prices back to levels where we do not want to be buyers and well above levels we where expecting. While I am glad to see some bullishness return to the market I feel like we were left at the station waiting for the bus that never came. But, we should not be discouraged because there are still two rough months ahead and we are better off in cash than spending more than is reasonable for our entries. New Plays I am not suggesting any new plays this week. We are at the top of a week long bounce and at strong resistance. I want to wait until we see what next week brings as we near the Republican convention. I do not like buying at the top of a rally. We need the call premiums to deflate first and once we see if the rally will continue or the downtrend return we can make better entry decisions. Portfolio Update RHAT $12.45 ** Stopped out ** Red Hat announced on Wednesday that the SEC had approved registration of its $600 million in Senior Convertible Debentures and the stock plummeted on both Thursday and Friday. Since this was an event that occurred in January I fail to see the relevance but evidently there were traders that saw it as a future negative to price. Since the debentures can only be converted prior to their 2024 maturity only under specifically limited circumstances there is little near term risk. We were stopped out on the play at $12.50 after seeing the stock drop on the Cisco news the week before. Our entry in the 2006-$20 LEAP Call was $2.75 and the exit should have been in the $1.75 range. The Sept $12.50 insurance put is currently worth $1.05 and +50 cents over the price at entry. This represents a combined -50 cent loss on the play if both were exited on Friday. If you are still in the insurance put I would continue to hold it until RHAT begins to bounce. Who knows, you may recover that 50 cents. This is a prime example of why we use those puts on leap plays. TYC - Tyco Intl. $31.29 **Stop $28.00** Tyco recovered with the broader market and rebounded to $31.29 from the $29.73 low the prior week. I had lowered the stop thinking the market weakness dragging it down would continue. We are now back into the recent trading range and out of danger for the immediate future. I really like Tyco and would view any further dips in Sep/Oct as buying opportunities. JNPR - Juniper Networks $21.98 **Stop $19.00** Juniper rallied out of the tech disaster with only one more attempt at selling that took it down to $20.01 on Monday. The rebound took us out of immediate danger and I am going to place the stop at $19.00. We have really strong support at $20 and want to allow the play a little room under that $20 level for buyers to appear. The 2006 $25 LEAP call WBW-AE is currently $4.20 and up from the $3.50 entry from the prior Friday. SMH - Semiconductor Holders $30.29 **Stop 31.25** The SOX rebounded with the rest of the market but the rebound was weak. The SMH came within 28 cents of out profit target of $28 before rebounding. Hopefully many readers thought that was close enough and exited. For those that didn't I am going to continue the play. I originally profiled this as an insurance play against further tech weakness. I believe the rebound may have run its course and a new leg down will begin next week. The profit target is still $28 but should we get a real washout I would want to follow the SOX down to 350 for an expected bounce. **************************** Current Portfolio: SMH - Semiconductor Holders $30.29 **Stop $31.25** Entry $32.50 August 2nd Profit Target = SMH $28 ($28.30 low hit 8/13) Current position: Nov-$30 Put SMH-WF cost $1.40 current $1.90 Nov-$35 Put SMH-WG cost $3.80 current $5.10 Initial play description: http://members.OptionInvestor.com/leaps/Lp_080104_1.asp SMH Chart TYC Tyco $31.29 **Stop $28.00** Entry $28.32 2005 $30 LEAP Call TYC-AF cost $2.15 current $3.00 2006 $30 LEAP Call WPA-AF cost $4.00 current $5.10 July $25 insurance put - expired - cost $.55 Tyco Chart JNPR - Juniper Networks $21.98 **Stop $19.00** Entry $20.19 2006 $25 LEAP Call WBW-AE cost $3.50 current $4.20 Insurance = Sept-$17.50 Put JUX-UW cost 50 cents. http://members.OptionInvestor.com/leaps/Lp_081504_1.asp JNPR Chart Position Summary Graph LEAPS Watch List **Editors Note** In the event of a market drop due to a terrorist attack on U.S. soil all entry targets should be immediately cancelled. Watch List Update: The rebound took many of our watch list candidates out of range from the target entry points. I am not convinced the rally will stick so I am not changing them today. EBAY - EBAY $81.37 target entry $72.00 EBAY is one that may not have a chance of coming back to our entry point. I am going to maintain the target price at the red uptrend line currently at $72. 2006 $80 LEAP Call YEU-AP http://members.OptionInvestor.com/leaps/Lp_072504_1.asp EBAY Chart MER - Merrill Lynch $61.87 target entry $46.00 2006 $50 LEAP Call WZM-AJ http://members.OptionInvestor.com/leaps/Lp_071804_1.asp MER Chart INTC - Intel $21.62 target entry $20.00 Intel definitely did not take part in the rally and I still think we have a good chance of hitting the $20 target. 2006 $22 LEAP Call WNL-AX 2006 $25 LEAP Call WNL-AE http://members.OptionInvestor.com/leaps/Lp_071804_1.asp INTC Chart MMM - 3M Company - $80.27 Target entry $75, add to position at $70. MMM also did not really take part in the rally. Should the market roll over again I think we still have a good chance of filling at $75. 2006 $80 LEAP Call VMU-AP 2006 $85 LEAP Call VMU-AQ http://members.OptionInvestor.com/leaps/Lp_080804_1.asp MMM Chart C - Citigroup $45.95 LEAP Call Enter 1/2 position at $42.50 Enter 1/2 position at $40.00 2006 $45 LEAP Call WRV-AI http://members.OptionInvestor.com/leaps/Lp_080804_1.asp Citigroup Chart SYMC - Symantec - $48.04 - Target $41 SYMC may be a lost cause. the rebound took us well away from the $41 target but we still have two bad months ahead. 2006 $45 LEAP Call YAG-AI current $9.20, target $6.00 2006 $50 LEAP Call YAG-AJ current $7.10, target $5.00 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp SYMC Chart WMT - Wal-Mart $54.65 Target $51.00 2006 $55 LEAP Call WW-TAK Insurance = Sept-$50 Put WMT-UJ http://members.OptionInvestor.com/leaps/Lp_081504_1.asp WMT Chart GE $32.65 LEAP Call Target GE at $30 to enter the position. 2006 $30 LEAP Call WGE-AF $4.20, target $3.50 2006 $35 LEAP Call WGE-AG $2.00, target $1.75 I am not suggesting insurance on GE but the December $27.50 put is only 40 cents. We would need a serious national disaster to see GE break $30 and I think it would only be temporary. GE Chart ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. 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The Option Investor Newsletter Sunday 08-22-2004 Sunday 5 of 5 In Section Five: Covered Calls: Spreads and Straddles: Stocks Climb As Oil Prices Retreat... Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ************** COVERED CALLS ************** Many investors find that writing "in-the-money" covered-calls fits their criteria for a conservative, easy-to-manage options strategy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL CANDIDATES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of potential candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. __________________________________________________________________ Sequenced by Target Yield (monthly basis) Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield IMMR 5.75 SEP 5.00 IMU-IA 1.15 64 4.60 29 9.1% GLBCE 15.85 SEP 15.00 GQC-IC 1.85 5367 14.00 29 7.5% SEAC 17.34 SEP 15.00 UEG-IC 2.90 203 14.44 29 4.1% CLHB 10.90 SEP 10.00 QPB-IB 1.25 135 9.65 29 3.8% PSSI 11.27 SEP 10.00 PYQ-IB 1.60 43 9.67 29 3.6% RDWR 18.38 SEP 17.50 AUD-IW 1.45 419 16.93 29 3.5% IDBE 11.40 SEP 10.00 QQ-IB 1.70 2934 9.70 29 3.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). __________________________________________________________________ IMMR - Immersion Corporation $5.75 Immersion Corporation (NASDAQ:IMMR) is a provider of haptic technology that brings the sense of feel/touch to markets. The company develops, manufactures, licenses and supports a range of hardware and software technologies that let users interact with digital devices using their sense of touch. It focuses on four major application areas: consumer, computing and entertainment; industrial and automotive; three-dimensional and professional products, and medical simulation. IMMR - Immersion Corporation $5.75 SEP 5.00 IMU-IA LB=1.15 OI=64 CB=4.60 DE=29 TY=9.1% __________________________________________________________________ GLBCE - Global Crossing $15.85 Global Crossing (NASDAQ:GLBCE) is a provider of telecom services to carriers and commercial enterprises around the world. The principal services the company offers to its customers include voice, data and conferencing services. Global Crossing offers these services using a global Internet protocol-based network that directly connects more than 300 cities in over 30 countries and delivers services to more than 500 major cities in over 50 countries around the world. The firm also provides installation and maintenance services for subsea telecommunications systems through its subsidiary, Global Marine Systems Limited. GLBCE - Global Crossing $15.85 SEP 15.00 GQC-IC LB=1.85 OI=5367 CB=14.00 DE=29 TY=7.5% __________________________________________________________________ SEAC - SeaChange International $17.34 SeaChange International (NASDAQ:SEAC) is a developer, builder, and marketer of video storage systems that automate the management and distribution of long-form video streams, such as movies or other feature presentations, and short-form video streams, such as advertisements. The company's digital video systems provide storage and retrieval capabilities, multichannel content delivery and highly-automated information and order processing. SEAC - SeaChange International $17.34 SEP 15.00 UEG-IC LB=2.90 OI=203 CB=14.44 DE=29 TY=4.1% __________________________________________________________________ CLHB - Clean Harbors $10.90 Clean Harbors (NASDAQ:CLHB) provides a range of environmental services and solutions and is managed in two primary segments: Technical Services and Site Services. Technical Services does treatment and disposal of industrial wastes, which includes physical treatment, resource recovery and fuels blending, incineration, landfills, wastewater treatment, lab chemical disposal and explosives management, collection, transportation and logistics management, specialized packaging, transportation and disposal of laboratory chemicals and household hazardous wastes. Site Services provide experts using specialty equipment and resources to perform services such as industrial maintenance, surface remediation, groundwater restoration, site and facility decontamination, emergency response, remediation, transformer decommissioning and oil disposal. CLHB - Clean Harbors $10.90 SEP 10.00 QPB-IB LB=1.25 OI=135 CB=9.65 DE=29 TY=3.8% __________________________________________________________________ PSSI - PSS World Medical $11.27 PSS World Medical (NASDAQ:PSSI) is a specialty marketer and distributor of medical products, equipment and pharmaceutical products to alternate-site healthcare providers, including physician offices, long-term care facilities and home care providers through 43 full-service distribution centers that serve all 50 states throughout the United States of America. The company is focused on improving business operations and management processes, maximizing its distribution capability and efficiency and developing and implementing new marketing strategies. PSSI - PSS World Medical $11.27 SEP 10.00 PYQ-IB LB=1.60 OI=43 CB=9.67 DE=29 TY=3.6% __________________________________________________________________ RDWR - Radware $18.38 Radware (NASDAQ:RDWR) develops, manufactures and markets intelligent application switching solutions that enable continuous application availability, optimize application performance and provide site-wide security. Radware offers a wide range of solutions to service providers, e-commerce businesses and corporate enterprises to optimize operations of Web and application servers, firewalls, virtual private networks, intrusion detection systems, Internet service providers links, anti-virus gateways and cache servers. RDWR - Radware $18.38 SEP 17.50 AUD-IW LB=1.45 OI=419 CB=16.93 DE=29 TY=3.5% __________________________________________________________________ IDBE - ID Biomedical $11.40 ID Biomedical Corporation (NASDAQ:IDBE) is a biotechnology firm focused on the development of subunit vaccines, including those based on its Proteosome protein intranasal adjuvant/delivery technology. The technology potentially serves as both a vaccine adjuvant (stimulant of immune responses) and mucosal delivery system that may enhance a vaccine's effectiveness and/or ease of use. The company also is developing subunit vaccines for the prevention of a number of different diseases. Their product candidates in clinical development are StreptAvax vaccine against group A streptococcus and FluINsure vaccine against influenza. IDBE - ID Biomedical $11.40 SEP 10.00 QQ-IB LB=1.70 OI=2934 CB=9.70 DE=29 TY=3.2% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER IN SECTION ONE ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ******************* SPREADS & STRADDLES ******************* Stocks Climb As Oil Prices Retreat... By Ray Cummins The major equity averages rallied Friday as investors shopped for bargains amid a retreat in crude oil prices. The Dow Jones Industrial Average ended up 69 points at 10,110 in a second consecutive week of gains. The NASDAQ Composite advanced 18 points to finish at 1,838, bolstered by a rebound in internet shares. The S&P 500 index was 7 points higher at 1,098 as virtually every sector enjoyed some buying interest. Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where volume reached 1.19 billion shares. NASDAQ volume was 1.39 billion with winners outpacing losers nearly 3 to 1. Analysts said trading volume was anemic, considering that it was a monthly options expiration session. In the bond market, the benchmark 10-year note fell 4/32, with its yield climbing to 4.23%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 08/20/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 Mon L/P S/P Credit CB G/L Status FRE 63.57 66.63 AUG 55.0 60.0 0.55 59.45 0.55 Closed POT 49.04 51.12 AUG 42.5 45.0 0.30 44.70 0.30 Closed UOPX 89.09 81.00 AUG 75.0 80.0 0.60 79.40 0.60 Closed FAST 54.74 61.89 AUG 45.0 50.0 0.60 49.40 0.60 Closed PD 79.00 80.20 AUG 65.0 70.0 0.60 69.40 0.60 Closed FSH 58.66 56.75 AUG 50.0 55.0 0.65 54.35 0.65 Closed WBSN 38.19 39.84 AUG 30.0 35.0 0.45 34.55 0.45 Closed RTP 105.00 104.78 AUG 95.0 100.0 0.55 99.45 0.55 Closed FRE 65.04 66.63 SEP 55.0 60.0 0.40 59.60 0.40 Open FPL 67.73 67.99 SEP 60.0 65.0 0.45 64.55 0.45 Open MCO 67.33 68.33 SEP 60.0 65.0 0.65 64.35 0.65 Open BSTE 44.14 47.23 SEP 35.0 40.0 0.55 39.45 0.55 Open ISCA 53.40 51.82 SEP 45.0 50.0 0.55 49.45 0.55 Open LEND 33.89 37.41 SEP 25.0 30.0 0.60 29.40 0.60 Open PIXR 69.93 74.27 SEP 60.0 65.0 0.45 64.55 0.45 Open PD 80.77 80.20 SEP 65.0 70.0 0.40 69.60 0.40 Open RYL 86.01 86.55 SEP 75.0 80.0 0.65 79.35 0.65 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Positions in Apple Computer (NASDAQ:AAPL), Anyss (NASDAQ:ANSS), Gilead Sciences (NASDAQ:GILD), and University of Phoenix Online (NASDAQ:UOPX), which ended the expiration period profitable, as well as Anthem (NYSE:ATH), BJ Services (NYSE:BJS), and Wellpoint (NYSE:WLP), have previously been closed to limit losses. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status LLTC 36.74 37.17 AUG 42.5 40.0 0.30 40.30 0.30 Closed XLNX 31.53 28.08 AUG 37.5 35.0 0.25 35.25 0.25 Closed MERQ 46.17 36.28 AUG 55.0 50.0 0.65 50.65 0.65 Closed SMH 34.58 30.29 AUG 42.5 40.0 0.30 40.30 0.30 Closed TLB 33.04 27.55 AUG 40.0 35.0 0.60 35.60 0.60 Closed VAR 77.24 33.42 AUG 90.0 85.0 0.50 85.50 0.50 Closed KLAC 43.33 37.50 AUG 50.0 47.5 0.25 47.75 0.25 Closed NVLS 29.23 25.34 AUG 35.0 32.5 0.20 32.70 0.20 Closed BZH 90.65 99.32 AUG 105.0 100.0 0.45 100.45 0.45 Closed LLY 64.67 64.50 AUG 75.0 70.0 0.65 70.65 0.65 Closed ACS 51.80 52.79 AUG 60.0 55.0 0.45 55.45 0.45 Closed DIGE 33.08 26.60 AUG 40.0 35.0 0.55 35.55 0.55 Closed SRCL 48.00 47.21 AUG 55.0 50.0 0.30 50.30 0.30 Closed KMRT 64.60 76.55 SEP 80.0 75.0 0.60 75.60 (0.95) Closed VIP 85.00 95.65 SEP 100.0 95.0 0.45 95.45 (0.20) Closed PDCO 73.40 76.29 SEP 85.0 80.0 0.55 80.55 0.55 Open CDWC 59.25 58.97 SEP 65.0 60.0 0.45 60.45 0.45 Open BGG 69.80 73.33 SEP 80.0 75.0 0.45 75.45 0.45 Open DNA 44.23 47.87 SEP 52.5 50.0 0.35 50.35 0.35 Open EASI 43.53 42.35 SEP 55.0 50.0 0.40 50.40 0.40 Open VLO 64.36 65.69 SEP 75.0 70.0 0.60 70.60 0.60 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Kmart Holdings (NASDAQ:KMRT) and Vimple Communications (NYSE:VIP) were closed early in the week in order to limit potential losses. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status DVN 69.40 66.12 AUG 70.00 70.00 5.00 5.20 Closed TBL 60.26 57.02 AUG 60.00 60.00 4.75 6.75 Closed UTSI 15.00 16.48 AUG 15.00 15.00 1.00 1.50 Closed SHRP 17.80 17.49 AUG 17.50 17.50 1.25 1.60 Closed All of the straddle candidates offered for the August expiration period provided profitable trading opportunities. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FRO - Frontline $40.05 *** Testing 2004 Highs! *** Frontline (NYSE:FRO) is engaged in the ownership and operation of oil tankers, including oil/bulk/ore carriers. The company operates tankers of two sizes: very-large crude carriers, which are between 200,000 and 320,000 deadweight tons and Suezmaxes, which are vessels between 120,000 and 170,000 deadweight tons. Frontline operates through subsidiaries and partnerships located in Bermuda, Isle of Man, Liberia, Norway, Panama, Singapore, Sweden, Cayman Islands, the United States and the Bahamas. The company is also involved in the charter, purchase and sale of vessels. FRO - Frontline $40.05 PLAY (conservative - bullish/credit spread): BUY PUT SEP-30.00 FRO-UF OI=64 ASK=$0.20 SELL PUT SEP-35.00 FRO-UG OI=169 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$34.40 __________________________________________________________________ NIHD - NII Holdings $37.59 *** Next Leg Up? *** NII Holdings (NASDAQ:NIHD) offers digital wireless communication services targeted at meeting the needs of business customers located in selected Latin American markets. The firm principal operations are located in major business centers and related transportation corridors of Mexico, Brazil, Argentina and Peru. Its digital mobile networks support multiple digital wireless services including digital mobile telephone service, including advanced calling features such as speakerphone, conference calling, voice-mail, call forwarding and additional line service. NIHD - NII Holdings $37.59 PLAY (less conservative - bullish/credit spread): BUY PUT SEP-33.37 QHQ-UQ OI=67 ASK=$0.65 SELL PUT SEP-35.00 QHQ-UG OI=400 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.25-$0.30 POTENTIAL PROFIT(max)=17% B/E=$34.75 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FD - Federated Department Stores $44.60 *** New Downtrend? *** Federated Department Stores (NYSE:FD) is a retail organization operating department stores that sell a range of merchandise, including men's, women's and children's apparel and accessories, cosmetics, home furnishings and other consumer goods. Most of the company's stores are located at urban or suburban sites, principally in densely populated areas across the United States. FD - Federated Department Stores $44.60 PLAY (conservative - bearish/credit spread): BUY CALL SEP-50.00 FD-IJ OI=146 ASK=$0.15 SELL CALL SEP-47.50 FD-IW OI=578 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$47.80 __________________________________________________________________ PHS - Pacificare Health $32.42 *** Resistance at $35? *** Pacificare Health Systems (NYSE:PHS) offers managed care and other health insurance products to employer groups and Medicare beneficiaries, mainly in eight western states and Guam. These programs include health maintenance organizations, preferred provider organizations and Medicare Supplement products. The company also offers specialty managed care products and services that employees can buy as a supplement to its basic commercial and senior medical plans or as stand-alone products. Products include pharmacy benefit management services, behavioral health services, group life and health insurance and dental and vision benefit plans. PHS - Pacificare Health $32.42 PLAY (conservative - bearish/credit spread): BUY CALL SEP-37.50 PHS-IU OI=119 ASK=$0.25 SELL CALL SEP-35.00 PHS-IG OI=166 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$35.30 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ DITC - Ditech Communications $17.97 *** Earnings Play! *** Ditech Communications (NASDAQ:DITC) is a global telecom equipment supplier for voice networks. The firm's voice-processing products focus on echo cancellers, used to eliminate echo, a common problem in existing and emerging voice networks. The company's newest voice-processing products not only provide customers with the traditional echo cancellation features, but also can be used to provide voice quality assurance features that address issues, such as background noise and other voice quality issues in wireline and wireless communications. The company's earnings report is due on August 24, 2004. DITC - Ditech Communications $17.97 PLAY (speculative - neutral/debit straddle): BUY CALL SEP-17.50 QZD-IW OI=898 ASK=$1.85 BUY PUT SEP-17.50 QZD-UW OI=1107 ASK=$1.35 INITIAL NET-DEBIT TARGET=$3.00-$3.10 INITIAL TARGET PROFIT=$0.90-$1.75 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 08/20/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 NFI AUG 30.00 29.20 39.99 0.80 5.99% 2.74% PETD AUG 25.00 24.35 29.98 0.65 4.86% 2.67% NFI AUG 30.00 29.40 39.99 0.60 4.68% 2.04% SCHN AUG 30.00 29.00 29.00 0.00 0.00% 0.00% FRO AUG 30.00 29.30 40.05 0.70 4.97% 2.39% GIVN AUG 30.00 29.45 34.49 0.55 4.21% 1.87% ATI AUG 15.00 14.50 18.57 0.50 7.89% 3.45% BEIQ AUG 25.00 24.00 27.18 1.00 7.61% 4.17% AMHC AUG 25.00 24.25 26.82 0.75 5.98% 3.09% VTS AUG 22.50 21.85 21.91 0.06 0.53% 2.97% OSTK AUG 30.00 29.40 33.50 0.60 5.60% 2.04% ATI AUG 15.00 14.75 18.57 0.25 4.68% 1.69% EYET AUG 30.00 29.55 32.51 0.45 3.85% 1.52% CTSH AUG 22.50 22.05 26.52 0.45 4.61% 2.04% STLD AUG 30.00 29.60 31.84 0.40 3.50% 1.35% SRDX AUG 20.00 19.50 23.85 0.50 7.27% 2.56% NFI AUG 35.00 33.85 39.99 1.15 9.90% 3.40% ISG AUG 30.00 29.05 30.81 0.95 7.59% 3.27% DHB AUG 12.50 12.15 13.20 0.35 8.54% 2.88% MSO AUG 10.00 9.65 11.27 0.35 9.88% 3.63% EENC AUG 12.50 12.25 13.84 0.25 4.83% 2.04% NFI AUG 35.00 34.25 39.99 0.75 7.63% 2.19% CERN AUG 35.00 34.35 46.05 0.65 6.54% 1.89% VLCCF AUG 25.00 24.35 27.20 0.65 8.65% 2.67% KRON AUG 40.00 39.40 41.99 0.60 6.74% 1.52% UTHR AUG 22.50 22.20 30.87 0.30 6.05% 1.35% CYTC AUG 22.50 22.10 23.64 0.40 7.64% 1.81% TOY AUG 15.00 14.75 15.61 0.25 7.45% 1.69% TOY AUG 15.00 14.75 15.61 0.25 8.30% 1.69% KIND AUG 22.50 22.10 25.46 0.40 8.57% 1.81% ODSY AUG 17.50 17.25 17.70 0.25 6.78% 1.45% NFI AUG 30.00 29.55 39.99 0.45 9.02% 1.52% AH AUG 35.00 34.60 36.20 0.40 5.47% 1.16% ING AUG 22.50 22.25 24.01 0.25 7.30% 1.12% IVX SEP 20.00 19.55 24.72 0.45 5.52% 2.30% MCIP SEP 15.00 14.30 17.43 0.70 8.50% 4.90% PAAS SEP 12.50 12.05 14.91 0.45 6.87% 3.73% UTHR SEP 25.00 24.70 30.87 0.30 3.01% 1.21% AMED SEP 25.00 24.25 26.50 0.75 6.54% 3.09% PHM SEP 50.00 49.25 58.76 0.75 3.32% 1.52% KOSP SEP 30.00 29.25 36.55 0.75 5.48% 2.56% GLBCE SEP 12.50 11.90 15.85 0.60 11.90% 5.04% ECLP SEP 12.50 12.10 14.10 0.40 6.90% 3.31% OMM SEP 12.50 12.10 13.66 0.40 6.51% 3.31% CNCT SEP 25.00 24.10 26.70 0.90 7.11% 3.73% TOY SEP 15.00 14.45 15.61 0.55 7.51% 3.81% ACF SEP 20.00 19.25 21.00 0.75 7.16% 3.90% PLMO SEP 30.00 29.45 38.15 0.55 5.05% 1.87% ION SEP 25.00 24.50 25.75 0.50 4.17% 2.04% ESLT SEP 20.00 19.20 21.49 0.80 7.95% 4.17% WBSN SEP 35.00 33.75 39.84 1.25 8.46% 3.70% NTMD SEP 12.50 12.15 19.55 0.35 8.12% 2.88% UTHR SEP 25.00 24.30 30.87 0.70 7.30% 2.88% CNCT SEP 25.00 24.30 26.70 0.70 6.65% 2.88% DDS SEP 20.00 19.50 20.91 0.50 6.31% 2.56% MEE SEP 22.50 22.00 27.35 0.50 5.93% 2.27% FOSL SEP 25.00 24.35 29.10 0.65 5.95% 2.67% HUM SEP 17.50 17.10 18.85 0.40 5.34% 2.34% SCSC SEP 50.00 49.40 61.75 0.60 3.30% 1.21% POSS SEP 25.00 24.20 29.68 0.80 8.82% 3.31% JOSB SEP 24.00 23.52 27.27 0.48 5.27% 2.04% ECLP SEP 12.50 12.20 14.10 0.30 6.57% 2.46% WBSN SEP 35.00 34.05 39.84 0.95 7.44% 2.79% ARO SEP 30.00 29.05 31.90 0.95 7.67% 3.27% MW SEP 25.00 24.60 28.11 0.40 4.22% 1.63% TOL SEP 40.00 39.05 42.72 0.95 6.19% 2.43% A number of positions, many of which ended the expiration period profitable, have previously been closed to limit potential losses. These include: ARXX, BLUD, BR, CRK, CACS, CBST, CRDN, ELN, ERES, ESIO, EYET, FARO, GPRO, KWK, KYPH, JCOM, JNPR, LCAV, MGAM, NVTL, OSTK, TECH, and TASR. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield SLAB AUG 50.00 51.00 34.16 1.00 5.30% 1.96% SINA AUG 40.00 40.85 20.43 0.85 7.85% 2.08% ATRS AUG 30.00 30.85 24.48 0.85 6.52% 2.76% MRVL AUG 27.50 27.85 23.98 0.35 3.98% 1.26% MACR AUG 25.00 25.40 19.53 0.40 4.55% 1.57% ISIL AUG 20.00 20.45 18.19 0.45 5.72% 2.20% FLML AUG 25.00 25.50 16.49 0.50 8.15% 1.96% OTEX AUG 30.00 30.65 22.53 0.65 6.12% 2.12% TELK AUG 25.00 25.45 19.35 0.45 5.60% 1.77% ASKJ AUG 40.00 40.50 27.74 0.50 5.97% 1.23% DRIV AUG 30.00 30.85 25.59 0.85 7.92% 2.76% SINA AUG 35.00 35.45 20.43 0.45 6.42% 1.27% BSX AUG 40.00 40.50 34.52 0.50 3.58% 1.23% ICUI AUG 30.00 30.80 25.96 0.80 8.64% 2.60% WMGI AUG 35.00 35.65 25.84 0.65 5.46% 1.82% LSCP AUG 30.00 30.70 19.05 0.70 11.15% 2.28% ERICY AUG 30.00 30.65 26.73 0.65 8.01% 2.12% NTES AUG 40.00 40.45 33.95 0.45 6.31% 1.11% SPW AUG 45.00 45.40 37.17 0.40 5.03% 0.88% MXIM AUG 50.00 50.45 45.70 0.45 5.06% 0.89% YHOO AUG 32.50 32.70 28.61 0.20 4.20% 0.61% MRVL AUG 25.00 25.30 23.98 0.30 8.23% 1.19% CRDN SEP 40.00 40.50 39.30 0.50 5.29% 1.23% SWIR SEP 35.00 35.60 23.88 0.60 7.40% 1.69% AVID SEP 50.00 50.50 44.33 0.50 3.56% 0.99% USPI SEP 37.50 38.05 36.23 0.55 3.90% 1.45% BDY SEP 25.00 25.75 23.60 0.75 7.42% 2.91% DRIV SEP 30.00 30.30 25.59 0.30 4.51% 0.99% SINA SEP 30.00 30.35 20.43 0.35 5.84% 1.15% DKS SEP 30.00 30.40 32.41 (2.01) 0.00% 0.00% ERES SEP 22.50 22.80 20.18 0.30 6.66% 1.32% MRVL SEP 25.00 25.40 23.98 0.40 8.22% 1.57% ICUI SEP 30.00 30.65 25.96 0.65 7.56% 2.12% SWIR SEP 30.00 30.30 23.88 0.30 5.90% 0.99% UPL SEP 45.00 45.40 38.65 0.40 4.90% 0.88% Dick's Sporting Goods (NYSE:DKS) became an early-exit candidate after the company posted favorable earnings on Tuesday. Other issues on the "watch" list are: Ceradyne (NASDAQ:CRDN), United Surgical (NASDAQ:USPI), and Marvell Electronics (NASDAQ:MRVL). There was no viable position in Eon Labs (NASDAQ:ELAB), Accredo Health (NASDAQ:ACDO) or Ultralife Batteries (NASDAQ:ULBI), due to "gap-down" trading activity after those plays were listed. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 SEAC 17.34 SEP 15.00 UEG-UC 0.60 3129 14.40 29 4.4% 12.1% CLHB 10.90 SEP 10.00 QPB-UB 0.40 0 9.60 29 4.4% 10.9% ESLT 21.49 SEP 20.00 EQX-UD 0.80 13 19.20 29 4.4% 10.6% NAVR 14.72 SEP 12.50 QIG-UV 0.35 568 12.15 29 3.0% 9.1% UTHR 30.87 SEP 25.00 FUH-UE 0.60 1215 24.40 29 2.6% 8.9% NTMD 19.55 SEP 15.00 QNR-UC 0.35 116 14.65 29 2.5% 8.6% MYGN 15.99 SEP 15.00 GSQ-UC 0.45 20 14.55 29 3.2% 8.1% IVX 24.72 SEP 22.50 IVX-UX 0.55 40 21.95 29 2.6% 7.0% Abbreviations: 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 with margin), TS-Target Shoot. __________________________________________________________________ SEAC - SeaChange International $17.34 *** Rally Mode! *** SeaChange International (NASDAQ:SEAC) is a developer, builder, and marketer of video storage systems that automate the management and distribution of long-form video streams, such as movies or other feature presentations, and short-form video streams, such as advertisements. The company's digital video systems provide storage and retrieval capabilities, multichannel content delivery and highly-automated information and order processing. SEAC - SeaChange International $17.34 SEP 15.00 UEG-UC LB=0.60 OI=3129 CB=14.40 DE=29 TY=4.4% MY=12.1% __________________________________________________________________ CLHB - Clean Harbors $10.90 *** Environmentally Friendly! *** Clean Harbors (NASDAQ:CLHB) provides a range of environmental services and solutions and is managed in two primary segments: Technical Services and Site Services. Technical Services does treatment and disposal of industrial wastes, which includes physical treatment, resource recovery and fuels blending, incineration, landfills, wastewater treatment, lab chemical disposal and explosives management, collection, transportation and logistics management, specialized packaging, transportation and disposal of laboratory chemicals and household hazardous wastes. Site Services provide experts using specialty equipment and resources to perform services such as industrial maintenance, surface remediation, groundwater restoration, site and facility decontamination, emergency response, remediation, transformer decommissioning and oil disposal. CLHB - Clean Harbors $10.90 SEP 10.00 QPB-UB LB=0.40 OI=0 CB=9.60 DE=29 TY=4.4% MY=10.9% __________________________________________________________________ ESLT - Elbit Systems $21.49 *** Volatility = Premium! *** Elbit Systems (NASDAQ:ESLT) develops, manufactures and integrates defense electronic and electro-optic systems for customers around the world. The company focuses on designing, developing, making and integrating command and control, communication, computer, intelligence, surveillance and reconnaissance systems for defense and homeland security applications. The company also performs upgrade programs for airborne, land and naval defense platforms, often as a prime contractor. ESLT - Elbit Systems $21.49 SEP 20.00 EQX-UD LB=0.80 OI=13 CB=19.20 DE=29 TY=4.4% MY=10.6% __________________________________________________________________ NAVR - Navarre $14.72 *** An Entertaining Stock! *** Navarre Corporation (NASDAQ:NAVR) publishes and distributes a range of home entertainment and multimedia products, including computer software, audio & video titles and interactive games. The company's business is divided into two primary segments: Distribution, which it operates, and Publishing, operated by Encore Software and BCI Eclipse. The company also performs fulfillment and distribution services including the sale of PC software, prerecorded music and digital video disc/video home system videos and video games. NAVR - Navarre $14.72 SEP 12.50 QIG-UV LB=0.35 OI=568 CB=12.15 DE=29 TY=3.0% MY=9.1% __________________________________________________________________ UTHR - United Therapeutics $30.87 *** Another Entry Point? *** United Therapeutics (NASDAQ:UTHR) is a biotechnology company focused on the development and commercialization of therapeutics to treat chronic and life-threatening diseases in 3 therapeutic areas: cardiovascular medicine, infectious disease and oncology. It has 5 therapeutic platforms: Prostacyclin analogs are stable synthetic forms of a molecule that has effects on blood-vessel health and function; Remodulin has been approved in the United States for the treatment of pulmonary arterial hypertension in patients with New York Heart Association Class II-IV symptoms; Immunotherapeutic monoclonal antibodies are antibodies that activate patients' immune systems to treat cancer; Glycobiology anti-viral agents are a class of small molecules that may be effective as an oral therapy for hepatitis C or other infections, and Telemedicine involves portable digital devices that enable physicians to remotely monitor patients' bodily measurements. UTHR - United Therapeutics $30.87 SEP 25.00 FUH-UE LB=0.60 OI=1215 CB=24.40 DE=29 TY=2.6% MY=8.9% __________________________________________________________________ NTMD - NitroMed $19.55 *** Premium-Selling Only! *** NitroMed (NASDAQ:NTMD) is an emerging pharmaceutical company with substantial expertise and intellectual property in nitric oxide-based drug development. The firm is applying its nitric oxide technology to develop new pharmaceuticals, as well as safer and more effective versions of existing pharmaceuticals to target diseases and commercial markets. Its lead nitric oxide-enhancing medicine, BiDil, which is being developed to reduce mortality and hospitalization and to improve quality of life for African Americans diagnosed with heart failure is the subject of a Phase III confirmatory clinical trial. NTMD - NitroMed $19.55 SEP 15.00 QNR-UC LB=0.35 OI=116 CB=14.65 DE=29 TY=2.5% MY=8.6% __________________________________________________________________ MYGN - Myriad Genetics $15.99 *** Flurizan Speculation *** Myriad Genetics (NASDAQ:MYGN) is a biopharmaceutical company focused on the development of novel therapeutic products and the development and marketing of predictive medicine products. The company's researchers have made important discoveries in the fields of cancer, Alzheimer's disease, viral diseases (such as HIV), depression and obesity. Flurizan, the company's lead therapeutic candidate for the treatment of prostate cancer, is in a large, multi-center human clinical trial. Myriad is also conducting a Phase I human clinical trial for the evaluation of Flurizan for the treatment of Alzheimer's disease. MYGN - Myriad Genetics $15.99 SEP 15.00 GSQ-UC LB=0.45 OI=20 CB=14.55 DE=29 TY=3.2% MY=8.1% __________________________________________________________________ IVX - IVAX Corporation $24.72 *** More Drug Speculation! *** IVAX Corporation (NYSE:IVX) is a multinational company engaged in the research, development, manufacture and marketing of pharmaceutical products. The company manufactures and/or sells several brand name pharmaceutical products and a variety of brand equivalent and over-the-counter pharmaceutical products, primarily in the United States, Europe and Latin America. It also has subsidiaries throughout the world that specialize in the development, manufacture and marketing of respiratory drugs, primarily for asthma, delivered by metered-dose and dry-powder inhalers. IVX - IVAX Corporation $24.72 SEP 22.50 IVX-UX LB=0.55 OI=40 CB=21.95 DE=29 TY=2.6% MY=7.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CMX - Caremark Rx $28.05 *** Business Practices Probe! *** Caremark Rx (NYSE:CMX) is a pharmaceutical services company that provides pharmacy benefit management involving the design and administration of programs for reducing costs and improving the safety, effectiveness and convenience of prescription drug use. The company's customers are primarily sponsors of health benefit plans and individuals located throughout the U.S. The company dispenses pharmaceuticals to eligible participants in benefit plans maintained by its customers and utilizes its information systems to perform safety checks, drug interaction screening and generic substitution. CMX - Caremark Rx $28.05 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 30 CMX-IF 5199 0.45 30.45 4.9% 1.5% _________________________________________________________________ EYET - Eyetech Pharmaceuticals $32.51 *** Premium-Selling! *** Eyetech Pharmaceuticals (NASDAQ:EYET) is a biopharmaceutical firm that specializes in the development and commercialization of novel therapeutics to treat diseases of the eye. Its initial focus is on diseases affecting the back of the eye, particularly the retina. The company's most advanced product candidate is Macugen, which it is developing for wet age-related macular degeneration (AMD) and diabetic macular degeneration (DME). EYET - Eyetech Pharmaceuticals $32.51 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 45 QUJ-II 4932 0.75 45.75 10.8% 1.6% _________________________________________________________________ MCHP - Microchip Technology $27.95 *** In A Trading Range? *** Microchip Technology (NASDAQ:MCHP) develops and manufactures specialized semiconductor products used by its customers for embedded control applications. The company's product portfolio consists of the PIC micro field-reprogrammable (Flash) reduced instruction set computer microcontrollers that serve embedded control applications, along with linear and mixed-signal, power management and thermal management devices. The firm also offers microperipheral products, including interface devices, serial electrically erasable programmable read only memory and its application-specific standard products. MCHP - Microchip Technology $27.95 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 30 QMT-IF 1144 0.65 30.65 7.0% 2.1% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ***************************************** ************************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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