The Option Investor Newsletter Tuesday 08-24-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Sitting here in No-man's Land. Futures Markets: See Note Index Trader Wrap: Bulls and bears struggle for a footing as oil slides to $45 Market Sentiment: No Bounce from Oil Drop Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 08-24-2004 High Low Volume Adv/Dcl DJIA 10098.63 + 25.58 10146.79 10062.13 1.34 bln 1612/1226 NASDAQ 1836.89 - 1.81 1850.29 1828.51 1.28 bln 1637/1364 S&P 100 534.98 + 0.09 537.46 533.43 Totals 3249/2590 S&P 500 1096.19 + 0.51 1100.94 1092.82 SOX 380.27 - 9.82 391.92 378.12 RUS 2000 545.01 + 1.54 548.58 542.56 DJ TRANS 3102.17 + 34.08 3103.72 3070.05 VIX 15.33 - 0.55 15.81 15.33 VXO (VIX-O)15.21 - 0.65 15.87 14.91 VXN 21.97 - 0.57 22.73 21.97 Total Volume 2,620M Total UpVol 1,141M Total DnVol 1,362M Total Adv 3249 Total Dcl 2590 52wk Highs 116 52wk Lows 59 TRIN 1.47 PUT/CALL 0.79 ************************************************************ Sitting here in No-man's Land. The Dow gained 25.58 points to settle at 10098.63. The Nasdaq slid 1.81 to end the day at 1836.89 and the S&P ended pretty well flat at 1096.19. The biggest sector percentage loser today was the AMEX Gold Bug Index (HUI) with a loss of -5.50 or 2.68%. I'm sure this will be addressed more fully in the Futures Wrap tonight. The next on the list of the top five sector losers was the Semiconductor Index (SOX) with a loss of -9.82 points or 2.51%. Rounding out the list of the top five sectors losers were the Networking Index at -2.45 points or -1.14%, the Oil Index (OIX) at -2.88 points or -0.81% and the software index (GSO) at -0.50 or -0.37% loss. Your top five gainers were lead by the Airline index (XAL) with a jump of +1.14 or +2.43%, Transportation Index (TRAN) with a rise of +34.08 or +1.11%, both reflecting the drop in Crude Oil. Third on the list is the Banking Index (BIX) with a rise of +1.52 or 0.42%, fourth is the insurance index (IUX) with a rise of 0.75 or 0.24% and finishing off the list was the Morgan Stanley Healthcare Index (HMO) with a increase of +1.82 or 0.19%. Today's news Iraq resumed exporting oil today and the October Crude Oil contract traded under $45 a barrel. After posting all time highs for most of August, oil prices have fallen more than $3.50 in the past three trading sessions. The September crude contract, which set the all-time high of $49.40, expired on Friday. Earlier this month Toys "R" Us Inc. (TOY) said it might abandon its toy business, but is now cautioning that this speculation may have been premature. John Eyler, chief executive of TOY recently said "while this remains a possibility, our focus ... remains on running our company and taking advantage of our place in the market as the world's largest specialty toy retailer." He also said the company's toy business remains lucrative generating about $6.5 billion in sales last year and with an operating income in excess of $100 million. TOY ended the day +0.17 at 16.21. A report from Semiconductor International Capacity Statistics states that the demand for the chips used in cellphones and digital products has boosted the world's chipmakers operating capacity to 95.4% utilization rate. This is the highest utilization percentage in nearly four years and crosses the threshold at which manufacturers start building new factories. The factory utilization rate was the sixth straight quarter of increasing output and the highest since 96.4 percent in the third quarter of 2000. When utilization rates are above 90 percent, chip makers typically begin building new factories. Economic reports July sales of existing homes declined from the previous month showing we have hit a soft spot in the housing market even though mortgage rates remain relatively low. The National Association of Realtors' Existing-homes Sales failed to meet Wall Street expectations when it fell 2.9% to a seasonally adjusted annual rate of 6.72 million units last month. This is down from a downwardly revised 6.92 million unit pace in June. NAR Chief Economist David Lereah said July's numbers were the first drop since January and the third best annualized rate of home resales ever and thinks this is a healthy pullback in the housing market and is due to rising interest rates. Although mortgage rates rose sharply in last two months, they have settled well below 6.0% in recent weeks to an average of 5.81% last week. The average interest rate for a 30-year fixed- rate mortgage hovered around 6.0% for most of July, compared to an average of 6.29% in June and 6.27% in May. Earnings Despite an increase in sales from the year-earlier fiscal first quarter, H.J. Heinz Co.'s (HNZ) profit slid 9%. The maker of processed foods such as ketchup and baked beans said it earned $194.8 million, or 55 cents a share, for the first quarter ended July 28, down from $214 million, or 60 cents a share, for the year-earlier quarter. HNZ ended the day +1.03 at 37.63. On to the charts In my August 19th Market Wrap, I drew a bunch of red boxes where I thought we would see resistance. I would now like to revisit those resistance zones and see how well they are holding up. Annotated Daily Chart of the NYA : NYA is the strongest market of all the major markets so resistance holding here would not bode well for the stock market in general. So far there is no evidence that the resistance will break and NYA is in the process of making an ominous double top. But we are way too premature here because we also have little evidence this resistance will not break. I think more than a 50% retracement of the move from August 12th lows to august 23rd highs would tell us the resistance has held and we are destined for lower lows. A 50% retracement is a trade below 6318. Although I hesitate to mention bearish patterns because I can be labeled as too bearish, the swing high on August 23rd was lower than the swing high on August 2nd making the bearish case just a tad stronger. But then on the bullish side you have a huge positive MACD divergence and those cannot be ignored. However, the RED box on this chart is very important and one you need to watch. Annotated Daily Chart of the RUT: The blue line joins the March lows with the June lows but notice the August highs are lower. Then we have the August 23 high lower than the August 2nd high and I am looking at a market that needs some of mom's chicken soup because it does not look healthy. Qcharts does not do a great job of volume on the major indexes so I use a proxy for my volume studies. The proxy I will use here is Russell 2000 Ishare IWM to show you the declining volume as the market advances. The Red arrows show IWM advancing on declining volume, then the magenta arrows show IWM falling on advancing volume and since August 16th (blue arrows) IWM is advancing on declining volume again. Annotated Daily Chart of the SPX: SPX has continued to advance but is hitting its red box also. I expect SPX to make it at least to the red arrow which is the swing high made on August 2nd and then make a decision as to if it wants to move on up or retest August lows at 1060. Volume here is quite bearish also. I have used the SPY for the volume chart. The Red arrows show SPY advancing on declining volume. The magenta arrows show SPY falling on advancing volume and since August 16th (blue arrows) SPY is advancing on declining volume again. Annotated Daily Chart of the DOW: The 50 and 200 MAs are diverging more now than they were when I showed them on August 19 but they will still work as resistance because right in the middle of them is the red arrow from the August 2nd highs. When I wrote my wrap on August 19th I didn't think MACD was showing a positive divergence but I see that it really is. It is also making a higher high while price is not and is another positive divergence. For volume studies I used the Diamonds (DIA) As you can see it is the same story here as in the SPY and IWM. Annotated Daily Chart of the COMPX: This market is not yet testing the Red Box and I still don't see anything bullish about this chart. The 200 and 50 MA have diverged so much in this market that you cannot use them both for a resistance zone so I have used the August 2nd highs, of course, then the 50 MA and the 50% retracement from June highs to August lows for resistance. For the volume studies I used the QQQs Volume is the same story in this market as it is in the others. Tomorrows Earnings and Economic Releases Tomorrow at 8:30 ET the Department of Commerce will release data for July's Durable Goods. Consensus is for a 1.0% rise. Briefing.com gives and importance rating to the economic releases from A to F and this report got a B for importance. Also out tomorrow, the Commerce Department will release data on new-home sales at 10:00 ET but this should not be a market mover. Economists surveyed by Dow Jones Newswires and CNBC expect a 2.3% decrease. Briefing.com gave this report a C+ for importance. Tomorrow look for earnings from CWTR, DLTR, MEDW, MIK, NTWK, RAZF, TOL and WSM. Outlook As I said in my August 19 Market Wrap I will be keeping my powder dry and continue to sit here in No-Man's Land until I see the markets break some Red boxes and if not then break August 16th lows. And remember Plan your Trade and Trade your Plan. Jane Fox *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************Advertisement************************* 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 ************************************************************** ***************** INDEX TRADER WRAP ***************** Bulls and bears struggle for a footing as oil slides to $45 It was an up, then down, then back to relatively unchanged trade as the major indices finished unchanged for a second-straight session as oil prices briefly dipped below the $45 level, which helped offset a slightly weaker-than-forecasted existing home sales report for July. U.S. Market Watch - 08/24/04 Close The dollar found gains again today as October Crude Oil futures (cl04v) 45.15 -1.95% slipped further from their recent contract highs of $48.37. The dollar's strength had the AMEX Gold Bugs Index ($HUI.X) 199.35 -2.68% giving back some of last week's gains, while October Gold futures (gc04v) were drilled lower by $7.20, but still hold above the psychological $400.00 level. Oils decline continues to lend itself to bullish sentiment as the S&P Retail Index (RLX.X) 388.05 +0.60% managed to close above both its rounding flat 200-day SMA (386.76) and trending lower 50-day SMA (387.28). As of Monday evening's close, Dorsey/Wright and Associates' Retail Bullish % (BPRETA) was still reading "bear confirmed" at 42.15%, where a reversing higher reading of 46% would be needed to achieve "bear correction" status. Treasuries were little-changed as bond traders get ready for tomorrow's 2-year auction. October Crude Oil futures (cl04v) - 30-minute intervals Today's trade at $45.25 had the October Crude Oil futures (cl04v) slipping below its WEEKLY S1 ($45.26), but perhaps more importantly, generating a double bottom sell signal on its $0.25 box scale point and figure chart. A near-term "oversold" bounce might have this contract bouncing back to its WEEKLY Pivot of $46.78, but much more than that and one could only consider the recent decline as some profit taking. The 30-minute interval chart allows us to quickly overlay the QCharts-derived weekly pivot analysis levels for this futures contract where I would have to go back to the week of 06/28/04-07/02/04 to find a period when this futures contract traded below its WEEKLY S1. That week, this contract traded BELOW its WEEKLY S2 of $36.29 early in the week, then rallied to trade just shy of its WEEKLY S2 ($39.09) by week's end. It may not be a stretch at this point to associated Oil's WEEKLY Pivots with those for the major indices (INDU/SPX/OEX/NDX) in our Pivot Matrix. Market Snapshot / Internals - 08/24/04 It certainly looked like bulls were on the ropes mid-session as advance/decline lines turned modestly negative while the weaker Semiconductor Index (SOX.X) 380.27 -2.52% challenged the recently resurgent AMEX Gold Bugs Index ($HUI.X) 199.35 -2.68% for downside leadership. By session's end, the major pulled right back up to close at today's DAILY Pivots, where many intra-day observations I was able to make had a lot of stocks and indices hanging pegging some of their own DAILY S1s, Pivots and R2s. Baffling was the rising TRIN above 1.00 and its DAILY Pivot, while the Market Volatility Index (VIX.X) 15.33 -3.46% fell from the opening bell. The TRIN and VIX.X indication have me counting "2 bearish" and "1 bullish" on the session, where price action was somewhat reflective of a modestly bearish, yet split decision. Dow Industrials (INDU) Chart - Daily Intervals Not unlike the S&P 500 Index (SPX.X) which struggles with my old, yet primary downward trend, the narrower Dow Industrials (INDU) 10,098.63 +0.25% did battle with its trend just as the July existing home sales figures were released. The Dow looks range- bound near-term from a rather correlative curling higher 21-day SMA and WEEKLY Pivot, while bound by resistance at the intermediate-term 50-day SMA and MONTHLY Pivot. One could say that stocks anticipated the recent pullback in oil prices, but after a rather quick 6% decline in oil prices and the closely monitored PRELIMINARY second-quarter GDP figures due out Friday, traders seem little eager to make any meaningful bets, where volumes at both the NYSE and NASDAQ were relatively light. Pivot Analysis Matrix - The Semiconductor Index (SOX.X) 380.27 -2.51% found some elastic- type of snap near the close, but is the first equity-based index in our Pivot Matrix to see a trade a lower trade at its WEEKLY Pivot of 379.00. While 2-points difference, I've marked correlative support at SOX.X DAILY S1 and MONTHLY S1, which would be the only levels of support between current trade and the recent August 13 52-week low of 360.61. A quick check of Dorsey/Wright and Associates' Semiconductor Bullish % (BPSEM) has their bullish % still reading "bear confirmed" at 11.04% as of Monday evening, and it would take a reversing higher reading of 12% to reverse up to "bull alert" status. Very weak, yet very oversold internals here. I've marked tomorrow DAILY S1 for the SPX.X as I see that level is very correlative with the SPX chart shown in last night's wrap, where the MONTHLY 61.8% retracement (1,092.47) is rather correlative, and where buyers lurked just above in today's trade. Jeff Bailey **************** MARKET SENTIMENT **************** No Bounce from Oil Drop - J. Brown Over the last few weeks the markets have been begging for crude oil to drop. It was only a few days ago that stocks surged on the hope that crude prices had topped. That was before oil surged to $49 a barrel. Now that we've seen crude prices slide three days in a row there's no reaction. This could leave the little investor wondering, "what's going on?" If you ask the "professionals" on the floor they'll say that a drop in price has already been priced into the market. Sure, it's priced in. Sounds like they don't know either. While the drop in oil prices is good news the disappointing home sales numbers was bad news for the markets today. Yet this didn't have the same impact that the semiconductor sector did. The SOX slipped 2.5% turning in the worst performance among the major sector indices. The move was sparked by a CSFB downgrade of Broadcom. The analyst firm said channel checks predicted potentially weak sales and the firm lowered their price target on BRCM from $54 to $38. Pouring salt in the wound were comments from the management at semiconductor maker Infineon. They said they did not believe the U.S. chip market would grow at 25 to 30 percent in 2005 as previously expected. This undermined the whole group. There was a lot of talk today about the upcoming Republican National Convention (RNC), which is due to hit New York City a week from yesterday. Bob Pisani, on CNBC, estimated that 50% of Wall Street was planning to take the week off and avoid downtown. This will turn what is normally a weak trading period into a ghost town. Volume will probably hit its lows for the year and stock movements will likely be exacerbated both directions. Investors will need to be careful tomorrow. Late this evening news spread that two passenger jets in Russia have crashed. The first question in everyone's mind is "could it be terrorist?" With two jets dropping in the same few minutes it certainly seems like a possibility. Wednesday morning could see an initial reaction to sell first and ask questions later. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 10098 Moving Averages: (Simple) 10-dma: 9991 50-dma: 10157 200-dma: 10247 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 983 Current : 1096 Moving Averages: (Simple) 10-dma: 1084 50-dma: 1105 200-dma: 1110 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1256 Current : 1369 Moving Averages: (Simple) 10-dma: 1342 50-dma: 1409 200-dma: 1441 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.33 –0.55 CBOE Mkt Volatility old VIX (VXO) = 15.21 –0.65 Nasdaq Volatility Index (VXN) = 21.97 –0.57 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.79 581,836 458,150 Equity Only 0.59 475,033 282,587 OEX 1.18 10,356 12,211 QQQ 0.27 55,859 15,399 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 54.0 + 0 Bear Confirmed NASDAQ-100 29.0 + 0 Bear Confirmed Dow Indust. 46.6 + 0 Bear Confirmed S&P 500 49.0 + 0 Bear Confirmed S&P 100 46.0 + 0 Bear Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.90 10-dma: 1.08 21-dma: 1.20 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 1612 1637 Decliners 1226 1364 New Highs 78 38 New Lows 20 39 Up Volume 638M 503M Down Vol. 658M 704M Total Vol. 1342M 1284M 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************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. 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The Option Investor Newsletter Tuesday 08-24-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: AET, BOL, INSP, MHK, POT, RAI, TDS, TXT, ZBRA New Calls Plays: FMC Put Play Updates: HIG, SPW New Put Plays: KLAC **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** PUTS: ***** ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Aetna - AET - close: 92.08 change: -1.54 stop: 89.95 We were expecting some resistance near the $95.00 level and sure enough there it is. That's why our Sunday update suggested short-term traders consider taking some profits off the table. Now we can look to see where AET will bounce. Will the stock bounce from the minor support in the $91.50-91.80 range that it saw last week or will it retest the $90.00 mark? Traders have time to be patient and choose their entry carefully. Picked on August 15th at $90.72 Change since picked: + 1.36 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 1.4 million Chart = --- Bausch Lomb - BOL - close: 65.70 change: -0.45 stop: 62.50 There is good news for the bulls in BOL. Traders bought the dip toward the $65.00 level today and volume was pretty light compared to the recent rally. This could be an entry point for more aggressive players but we're still waiting for BOL to confirm the breakout and hit our TRIGGER at $66.51. 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 This week started off with a bang for INSP. The company announced that Britain's Virgin Mobile had chosen INSP to provide media content downloads to their clients. One firm, Wedbush Morgan, was impressed enough by the news to reiterate their "buy" rating on the stock. Shares of INSP climbed to $41.10 before giving it all back and more by Monday's closing bell. Our play was not looking so hot. Yesterday's session looked like a major failed rally and we were triggered at $40.10 on the move. Fortunately, INSP found some strength near the $38 level today and the intraday chart suggests the stock could bounce tomorrow. The OI newsletter is hypothetically long the stock at $40.10 but we suggest readers look for another move over $40 before considering new bullish positions. Our Sunday update did suggest that aggressive traders look for a bounce from the $38 level as a potential entry point. Picked on August 23rd at $40.10 Change since picked: - 1.65 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 1.1 million Chart = -- Mohawk Industries - MHK - close: 76.00 change: +1.88 stop: 72.45 Good news Mohawk fans! MHK's recent consolidation under the simple 200-dma yet above the exponential 200-dma has produced a strong breakout over resistance at the $75.00 mark. We're very encouraged by the move with volume about 65 percent above the average. Our TRIGGER to go long was at $75.51. This is a bullish breakout over the top of MHK's 3 1/2 month trading range. It is somewhat odd that we can't find a catalyst for the move but we're not complaining. Readers may consider new positions now at current levels or on a bounce from $75.00, which should now act as support. FYI: the bullish P&F price target has risen from $84 to $87. Picked on August 24th at $75.51 Change since picked: + 0.49 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 397 thousand Chart = --- Potash - POT - close: 51.66 change: +1.37 stop: 49.49 *new* Monday's session was looking pretty dire for our bullish play in POT. The stock had produced a small bearish engulfing candlestick and was testing support at the $50.00 mark by Monday afternoon. It was do or die time and buyers need to step in to buy POT at support. Fortunately, buyers got a dose of courage on Tuesday morning after Merrill Lynch upgraded POT from a "neutral" to a "buy" with a $60 price target. The firm said POT's core business should remain strong for the foreseeable future. More conservative traders may want to snug their stop up under the $50.00 level. We're going to raise ours to $49.49. Our target remains the $55 region. Picked on August 10th at $ 51.08 Change since picked: + 0.58 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 180 thousand Chart = -- Reynolds American - RAI - close: 72.95 change: -0.14 stop: 69.36 RAI has been struggling with resistance near $73.75 for the last two days. Monday's afternoon dip saw some follow through this morning but traders stepped in to buy the dip near $72.50 and by the afternoon RAI was looking up again. This may prove to be a new bullish entry point in RAI. Now if we could just see some strong volume help push this stock higher we'd really get excited. 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 Yeah! TDS flexed its relative strength muscles today and managed to breakout over resistance at the $78.00 level. We've been triggered at $78.05. We're encouraged that TDS closed at $78.00 and not under it and we're encouraged by what appears to be a bullish development in its MACD indicator. Remember this is an aggressive, higher-risk play so plan your trades carefully and watch your risk. Volume is low on this stock and so it the option volume. Readers can choose to look for a bounce from the 21-dma or a new high above $78.40 as an entry point if they don't like buying at $78. Picked on August 24th at $78.05 Change since picked: - 0.05 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 195 thousand Chart = --- Textron - TXT - close: 64.25 change: +0.55 stop: 61.99 *new* The rally continues for TXT as it too shows off some relative strength today. Shares have broken through minor resistance at the $64.00 level to hit new four-year highs. Short-term technicals like the RSI and stochastics are bullish and its P&F chart continues to point to a $76 target. Readers should note that TXT is nearing our initial profit target of $65 to $66. Short-term traders can plan their exits at $65.00. Right now we're willing to be a little greedy and aim for $66. We are going to raise our stop loss to $61.99. Picked on July 26th at $60.72 Change since picked: + 3.53 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 622 thousand Chart = --- Zebra Tech. - ZBRA - close: 83.20 chg: +0.59 stop: 79.95 Heads up! Tomorrow (Wednesday, August 25th) is your last chance to exit if you're worried about any post-split depression. Shares of ZBRA will begin trading on a post-split basis (3-for-2) on Thursday morning. At this time we've decided to hold over the split. Our new trigger will drop from $84.35 to just over $56. Our target will fall from $90 to $60. Our new stop loss will move from $79.95 to $53.25. Keep a close eye on the $83.50 (or post-split 55.60) level as it seems to be a tight lid on the stock. We remain un-triggered. 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 ************** F M C Corp - FMC - close: 45.87 change: +1.81 stop: 42.00 Company Description: FMC Corporation is a diversified chemical company serving agricultural, industrial and consumer markets globally for more than a century with innovative solutions, applications and quality products. The company employs approximately 5,300 people throughout the world. The company operates its businesses in three segments: Agricultural Products, Specialty Chemicals and Industrial Chemicals. (source: company press release) Why We Like It: The month of July was a painful one for FMC as shares slowly melted day after day in the summer sun. Then the stock exploded higher after the company reported earnings that blew away the estimates. There were a couple of warts on the report but investors focused on the strong profit picture and FMC's newly raised guidance for FY04. The investment team at Standard & Poor's agrees that FMC's profit outlook is improving. That's their main investment rationale for putting FMC in their Top 10 portfolio with a $54 price target. We like the today's bullish breakout over five-month resistance at the $45.00 level on double the average volume. The P&F chart is bullish and currently points to an $88 target. We are a little surprised by the high-volume move today because there appears to be no catalyst for the move. We believe the $50.00 level is a good short-term target while longer-term investors might target the $55 plus region. There is one caveat. FMC topped out near $48.00 back in 1997 but that was so long ago we're not going to count it as resistance. Let's hope that doesn't come back to bite us. Suggested Options: Option volume is pretty sparse except near the ATM strikes. We like the October 45s. If you're feeling daring the October 50s work but there is no current open interest. BUY CALL OCT 40 FMC-JH OI=400 current ask $6.60 BUY CALL OCT 45 FMC-JI OI=498 current ask $2.95 BUY CALL OCT 50 FMC-JJ OI= 0 current ask $0.95 Annotated chart: Picked on August 24 at $45.87 Change since picked: + 0.00 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 265 thousand Chart = ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Hartford - HIG - close: 59.84 change: +0.25 stop: 61.26 We are starting to turn more cautious on our HIG put play. The Monday reversal back under the $60.00 level is very favorable but the lack of follow through makes us wonder if we have a lack of sellers here. We also need to keep an eye on the IUX Insurance index. The IUX has rallied over the last couple of weeks but we've seen it stall and struggle with its simple 50-dma as overhead resistance for the last three sessions. A bullish breakout in the IUX could immediately put our HIG play in danger. At this point we'd probably shy away from new bearish plays unless shares of HIG traded back under the $59.00 level. Be careful here. Picked on August 12 at $59.17 Change since picked: + 0.67 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 1.4 million Chart = -- SPX Corp - SPW - close: 36.41 change: -0.46 stop: 38.26 SPW has so far acted as we expected it to. The neutral consolidation has broken downwards and SPW has broken its trend of higher lows. The stock did manage a weak bounce from the $36 level today but shares look poised for more weakness. Our TRIGGER to open new put plays is on a drop through $35.75. 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 ************* KLA-Tencor - KLAC - close: 37.01 change: -0.76 stop: 38.51 Company Description: About KLA-Tencor: KLA-Tencor is the world leader in yield management and process control solutions for semiconductor manufacturing and related industries. Headquartered in San Jose, Calif., with operations around the world, KLA-Tencor ranked #6 on S&P's 2002 index of the top 500 companies in the U.S. (source: company press release) Why We Like It: CSFB issued some negative comments about potentially weak sales for specialty chipmaker BRCM and the stock went south. Yet when you add comments from semiconductor maker Infineon who said the U.S. semiconductor market would not grow 25 to 30 percent in 2004, as previously expected, then you have reason for the whole sector to drop. Drop it did as the SOX index slipped 2.5 percent under performing the entire market. One day does not a trend make but there is too much coincidence with so many semiconductor stocks rolling over from the tops of their descending channels. KLAC is one of them (see the chart below). We will stick an aggressive label on this play because the chip stocks have been somewhat unpredictable lately. We hope to lower our risk by using a relatively tight stop loss at $38.51, just over the recent high. Our short-term target is $34.00 but the bottom of the channel could be closer to $30.00. KLAC's bearish P&F chart currently points to a $26.00 target. Suggested Options: We're going to suggest the September or October puts but our favorites are probably the Septembers since this should be a short-term play. BUY PUT SEP 40.00 KCQ-UH OI=4390 current ask $3.50 BUY PUT SEP 37.50 KCQ-UU OI=2329 current ask $1.80 BUY PUT SEP 35.00 KCQ-UG OI=4673 current ask $0.80 Annotated Chart: Picked on August 24 at $37.01 Change since picked: - 0.00 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 6.7 million 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. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 08-24-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: A to Q: a list of bullish candidates Spreads & Straddles: Another Listless Session... Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** A to Q: a list of bullish candidates ___________________________________________________________________ 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. ___________________________________________________________________ Allstate - ALL - close: 47.94 change: +0.28 WHAT TO WATCH: Hurricane? What hurricane? Shares of ALL have been very strong considering the damage caused by hurricane Charley. The sector seems to be doing pretty well considering they were better prepared this time and that analysts believe they'll be able to raise rates next year. Readers can watch for a breakout over resistance at $48.00. This should reverse ALL's current bearish P&F chart into a bullish one. Chart= --- Boeing - BA - close: 50.91 change: +0.26 WHAT TO WATCH: Bulls may want to keep an eye on BA. The stock has been building a strong trend of higher lows since it bounce from $46.40 in July. The defense contractor is coiling for a bullish breakout over resistance at $51.50. At the same time the DFI defense index is coiling for a bullish breakout to new highs. The bullish P&F chart for BA currently points to a $62 target. Readers may want to use a breakout over $51 as an entry point. Chart= --- QUALCOMM - QCOM - close: 38.01 change: +0.04 WHAT TO WATCH: We've had QCOM on the watch list recently for a breakout above $36.50. That move came on Friday with above average volume. Monday saw some follow through and Tuesday surged higher at the open as well but fell to some profit taking. Readers may want to watch QCOM for a dip back to $37.00-36.50 and buy a bounce. The bullish P&F chart points to a $66 target. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- NCEN $53.10 +1.10 - This mortgage lender continues to climb. We're watching it for a bullish entry point. HRB $51.23 +1.26 - HRB broke out over resistance at its simple 200-dma but then disappointed on earnings. Shares are trading under $48.00 in after hours trading. SSD $59.05 +2.55 - This bullish breakout looks great but we hesitate to suggest plays because volume is so low on the stock. ZMH $71.66 -1.05 - Looking for a put play? Check out ZMH. The stock is faltering. A drop under $70.00 may be an entry point. STJ $66.73 -0.86 - STJ is in the same boat as ZMH. They're both sinking after the recent oversold bounce. Aggressive traders can look for puts now, otherwise watch for a drop under $65. ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* Another Listless Session... By Ray Cummins Stocks traded in mixed fashion Tuesday as renewed weakness in the semiconductor segment weighed heavily on the NASDAQ while shares of Caterpillar (NYSE:CAT) bolstered blue-chip gains. Traders noted the current pullback in oil has largely been priced into stocks, thus the market appears to have little impetus for additional upside in the near-term. The Dow Jones Industrials closed up 25 points at 10,098, well off an intraday low of 10,062. The NASDAQ Composite ended down 1 point at 1,836, with Broadcom (NASDAQ:BRCM) among the most prominent hi-tech losers on news of order weakness in the current quarter. The Standard & Poor's 500 stock index was unchanged at 1,096, with construction equipment, airlines, retail and restaurants among the bullish groups. Volume was light with 1.1 billion shares changing hands on the Big Board while 1.3 billion shares were exchanged on the NASDAQ. Advancers had a slight edge over decliners on the New York Stock Exchange, and the ratio was similar for technology stocks. U.S. treasury prices were under pressure for a third consecutive session, but the benchmark 10-year note ended up 1/32 with its yield unchanged at 4.28%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 08/22/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 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 CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status 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 previously closed 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 Special Tuesday note: Our new straddle in Ditech (NASDAQ:DITC) was a big winner in "after-hours" trading as the issue jumped over $4 on a strong earnings report and the announcement of two additional customers in Asia. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NCEN - New Century Financial $53.10 *** Rally Mode! *** New Century Financial Corporation (NASDAQ:NCEN) is one of the nation's largest specialty mortgage companies, providing first and second mortgage products to borrowers nationwide through its operating subsidiaries. It offers mortgage products to borrowers who generally do not satisfy the credit, documentation or other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. New Century is committed to serving the communities in which it operates with fair and responsible lending practices. NCEN - New Century Financial $53.10 PLAY (less conservative - bullish/credit spread): BUY PUT SEP-45.00 URE-UI OI=150 ASK=$0.30 SELL PUT SEP-50.00 URE-UJ OI=743 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$49.40 __________________________________________________________________ SEPR - Sepracor $49.35 *** Consolidation Complete? *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical compounds, including product candidates directed toward serving unmet medical needs. The firm's proprietary compounds are either single-isomer or active metabolite forms of existing drugs, which Sepracor refers to as improved chemical entities, or new chemical entity compounds, which are unrelated to current products. SEPR - Sepracor $49.35 PLAY (less conservative - bullish/credit spread): BUY PUT SEP-42.50 ERU-UV OI=1352 ASK=$0.40 SELL PUT SEP-45.00 ERU-UI OI=1028 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=17% B/E=$44.65 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ GDT - Guidant $56.26 *** Stent Design Woes? *** Guidant Corporation (NASDAQ:GDT) provides therapeutic medical solutions of distinctive value for customers, patients and healthcare systems worldwide. The company develops, makes and markets implantable defibrillator systems, implantable pacemaker systems, coronary stent systems, angioplasty systems and cardiac surgery systems. Guidant's lifesaving medical technologies are designed to extend the lives and improve the quality of life of millions of patients suffering from life-threatening cardiac and vascular disease. Its products treat the heart, managing its rhythms, clearing its arteries and permitting less-invasive surgeries. GDT - Guidant $56.26 PLAY (less conservative - bearish/credit spread): BUY CALL SEP-65.00 GDT-IM OI=3444 ASK=$0.40 SELL CALL SEP-60.00 GDT-IL OI=13134 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$60.65 __________________________________________________________________ OSTK - Overstock.com $31.03 *** Pure Premium-Selling! *** Overstock.com (NASDAQ:OSTK) is an online "closeout" retailer offering discount, brand-name merchandise for sale primarily over the Internet. The company's merchandise offerings include bed-and-bath goods, kitchenware, watches, jewelry, electronics, sporting goods and designer accessories. Overstock offers its customers an opportunity to shop for bargains conveniently, while offering an alternative inventory liquidation distribution channel to its suppliers. The company typically offers around 5,000 non-media products and over 100,000 media products (books, CDs, DVDs, video cassettes and video games) in seven departments on its Websites, www.overstock.com, www.overstockb2b.com and www.worldstock.com. OSTK - Overstock.com $31.03 PLAY (less conservative - bearish/credit spread): BUY CALL SEP-40.00 QKT-IH OI=938 ASK=$0.35 SELL CALL SEP-35.00 QKT-IG OI=2054 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$35.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ No straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 08/22/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 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% Special Tuesday note: The bullish position in Possis Medical (NASDAQ:POSS) was closed today after the stock plunged on disappointing results from a study of its AngioJet catheter. Connetics (NASDAQ:CNCT) and Dillards (NYSE:DDS) moved sharply lower on heavy volume, suggesting an early exit in those plays as well. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield 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% 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) has previously been closed to limit potential losses. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 ESLT 21.50 SEP 20.00 EQX-UD 0.70 25 19.30 25 4.4% 10.9% IVX 24.89 SEP 22.50 IVX-UX 0.60 4044 21.90 25 3.3% 8.9% SRDX 24.01 SEP 22.50 UZF-UX 0.60 63 21.90 25 3.3% 8.4% FCN 17.84 SEP 17.50 FCN-UW 0.45 184 17.05 25 3.2% 7.6% MEE 26.94 SEP 25.00 MEE-UE 0.55 452 24.45 25 2.7% 7.1% SONO 23.99 SEP 22.50 UZS-UX 0.45 20 22.05 25 2.5% 6.4% ARO 32.42 SEP 30.00 ARO-UF 0.50 387 29.50 25 2.1% 5.5% AAPL 31.95 SEP 30.00 AAQ-UF 0.50 8011 29.50 25 2.1% 5.4% BSTE 49.12 SEP 45.00 BQS-UI 0.55 245 44.45 25 1.5% 4.2% 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. __________________________________________________________________ ESLT - Elbit Systems $21.50 *** 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 $21.50 SEP 20.00 EQX-UD LB=0.70 OI=25 CB=19.30 DE=25 TY=4.4% MY=10.9% __________________________________________________________________ IVX - IVAX Corporation $24.89 *** 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 $24.89 SEP 22.50 IVX-UX LB=0.60 OI=4044 CB=21.90 DE=25 TY=3.3% MY=8.9% __________________________________________________________________ SRDX - SurModics $24.01 *** In A Trading Range? *** SurModics (NASDAQ:SRDX) is a provider of surface-modification solutions for medical device and biomedical applications. Its PhotoLink chemistry is the core technology platform on which many of its surface-modification capabilities are based. This technology helps modify and enhance the surface characteristics of medical devices and biomedical applications, thus improving performance, and, in some cases, enabling the development of new products. The firm commercializes its surface-modification technologies through licensing and royalty arrangements with medical device manufacturers that apply coatings to their own products. SRDX - SurModics $24.01 SEP 22.50 UZF-UX LB=0.60 OI=63 CB=21.90 DE=25 TY=3.3% MY=8.4% __________________________________________________________________ FCN - FTI Consulting $17.84 *** Bottom-Fishing Only! *** FTI Consulting (NYSE:FTN) is a national provider of forensic accounting and litigation, corporate finance/restructuring and economic consulting services in the United States. During 2003, the firm completed three strategic acquisitions of best-in-class consulting practices that fit within its business model. The Lexecon business is an economic consulting firm in the United States, concentrating in litigation support and expert analysis, public policy analysis, anti-trust and competition and general business services. The company's four primary practices are Forensic Accounting and Litigation Practice, Corporate Finance and Restructuring Practice, Economic Consulting and Related Expert Services. FCN - FTI Consulting $17.84 SEP 17.50 FCN-UW LB=0.45 OI=184 CB=17.05 DE=25 TY=3.2% MY=7.6% __________________________________________________________________ MEE - Massey Energy $26.94 *** Energy Sector Hedge! *** Massey Energy (NYSE:MEE) produces, processes and sells bituminous, low sulfur coal of steam and metallurgical grades through its 19 processing and shipping centers, called resource groups, many of which receive coal from multiple coal mines. The firm's resource groups or mining complexes blend, process and ship coal that is produced from one or more mines, with a single complex handling the coal production of as many as eight distinct underground or surface mines. These mines are at strategic locations in close proximity to the Massey preparation plants and rail facilities. Coal is transported from its mining complexes to customers by means of railroad cars or trucks. Massey operates 30 underground mines and 13 surface mines in West Virginia, Kentucky and Virginia. The company's steam coal is primarily purchased by utilities and industrial clients as fuel for power plants. MEE - Massey Energy $26.94 SEP 25.00 MEE-UE LB=0.55 OI=452 CB=24.45 DE=25 TY=2.7% MY=7.1% __________________________________________________________________ SONO - SonoSite $23.99 *** Testing Recent Highs! *** SonoSite (NASDAQ:SONO) is global developer of high-performance, hand-carried ultrasound imaging systems for use in a variety of clinical applications and settings. The company's products include the SonoSite TITAN system, for general imaging and cardiology applications, the SonoSite 180PLUS system, for general ultrasound imaging, and the SonoHeart ELITE, configured for cardiovascular applications. The iLook 25 imaging tool is designed to provide visual guidance for physicians and nurses while performing vascular access procedures and the iLook 15 imaging tool is designed to provide visual imaging of the chest and abdomen for physicians and nurses while performing other procedures and examinations. SONO - SonoSite $23.99 SEP 22.50 UZS-UX LB=0.45 OI=20 CB=22.05 DE=25 TY=2.5% MY=6.4% __________________________________________________________________ ARO - Aeropostale $32.42 *** Bullish Retailer! *** Aeropostale (NYSE:ARO), together with its subsidiary, Aeropostale West, is a mall-based specialty retailer of casual apparel and accessories that target both young women and young men aged 11 to 20 years. The firm provides its customers with a selection of active-oriented, fashion basic merchandise. Aeropostale maintains control over its proprietary brand by designing and sourcing all of its merchandise. The company's products can be purchased only at its stores or organized sales events at college campuses. The company plans to open approximately 95 new stores in fiscal 2004. ARO - Aeropostale $32.42 SEP 30.00 ARO-UF LB=0.50 OI=387 CB=29.50 DE=25 TY=2.1% MY=5.5% __________________________________________________________________ AAPL - Apple Computer $31.95 *** An Apple A Day... *** Apple Computer (NASDAQ:AAPL) designs, manufactures and markets personal computers (PCs) and related software, peripherals and personal computing and communicating solutions. Its products include the Macintosh line of desktop and notebook computers, the Mac OS X operating system, the iPod digital music player and a portfolio of software and peripheral products for education, creative, consumer and business customers. The company sells its products through its online stores, direct sales force, third-party wholesalers and resellers and its retail stores. AAPL - Apple Computer $31.95 SEP 30.00 AAQ-UF LB=0.50 OI=8011 CB=29.50 DE=25 TY=2.1% MY=5.4% __________________________________________________________________ BSTE - Biosite $49.12 *** Next Leg Up? *** Biosite (NASDAQ:BSTE) is a provider of medical diagnostics that aid a physician to diagnose diseases and health conditions. The firm provides tests for drug screening, heart attack, congestive heart failure (CHF), acute coronary syndromes (ACS) and certain bacterial and parasitic infections. Its commercialized products include Triage MeterPlus, Triage BNP Test, Triage Cardiac Panel, Triage Cardio ProfilER, Triage Drugs of Abuse and Triage Microbiology Panels. BSTE - Biosite $49.12 SEP 45.00 BQS-UI LB=0.55 OI=245 CB=44.45 DE=25 TY=1.5% MY=4.2% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BRCM - Broadcom $28.96 *** Sector Slump! *** Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated silicon solutions that enable broadband communications and the networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for all broadband communications markets. Their diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/O(TM) server solutions. BRCM - Broadcom $28.96 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 32.5 RCQ-IZ 7279 0.40 32.90 5.8% 1.2% _________________________________________________________________ ELAB - Eon Labs $26.77 *** Next Leg Down? *** Eon Labs (NASDAQ:ELAB) is a generic pharmaceutical firm engaged in developing, licensing, manufacturing, selling and distributing a range of prescription pharmaceutical products primarily in the United States. The company focuses on drugs in a broad range of solid oral dosage forms, utilizing both immediate and sustained release delivery, in tablet, multiple layer tablet, film-coated tablet and capsule forms. Eon Labs obtains new generic products primarily through internal product development and from strategic licensing or co-development arrangements with Hexal AG, as well as with other companies. ELAB - Eon Labs $26.77 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 ESQ-IF 1771 0.55 30.55 8.3% 1.8% _________________________________________________________________ IDXC - IDX Systems $27.82 *** Downtrend Intact! *** IDX Systems (NASDAQ:IDXC) is a provider of software, services and technologies for healthcare organizations. The company provides information systems and services for physician group practices, hospitals and integrated delivery networks. IDX System's patient access, financial and business intelligence products for hospitals, integrated delivery networks and group practices are packaged as IDX Flowcast and IDX Groupcast. The clinical solutions are packaged as the IDX Carecast System and its radiology and imaging products are sold as IDX Imagecast. IDXC - IDX Systems $27.82 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 XQW-IF 24 0.30 30.30 3.9% 1.0% TS _________________________________________________________________ MRVL - Marvell Technology $22.85 *** Premium-Selling Only! *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. MRVL - Marvell Technology $22.85 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 25 UVM-IE 3535 0.35 25.35 5.8% 1.4% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. 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