The Option Investor Newsletter Sunday 09-05-2004 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: OK, Now What Futures Wrap: See Note Index Trader Wrap: TIME OUT Editor's Plays: Google This! Market Sentiment: Buckle Your Seat Belts Ask the Analyst: Have fun, make money, and let the trade come to you! Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 9-03 WE 8-27 WE 8-20 WE 8-13 DOW 10260.20 + 65.19 10195.0 + 84.91 10110.1 +284.79 + 10.02 Nasdaq 1844.48 - 17.61 1862.09 + 31.07 1831.02 + 73.80 – 19.67 S&P-100 541.06 + 0.18 540.88 + 4.84 536.04 + 15.32 - 1.11 S&P-500 1113.63 + 5.86 1107.77 + 9.42 1098.35 + 33.55 + 0.83 W5000 10820.88 + 65.86 10755.0 +106.22 10648.8 +344.09 - 3.18 SOX 357.84 - 24.50 382.34 - 3.66 386.00 + 19.35 – 20.23 RUT 556.24 + 4.57 551.67 + 3.75 547.92 + 30.53 - 2.26 TRAN 3141.85 + 33.05 3108.80 + 17.93 3090.87 +123.95 + 0.84 ****************************************************************** OK, Now What by Jim Brown The conventions are over and the Olympics have ended. The biggest event risks for the year have passed. The Jobs report is history and the dog days of summer have turned into crisp clear days of fall. We are two thirds done with the third quarter and a full two months remain before the election. The markets are finally free to trade on their fundamentals. Now there is some real event risk! Dow Chart - Daily Nasdaq Chart - Daily There were only two economic reports on Friday and the biggest report was the Jobs number. The headline number of +144,000 jobs was only slightly less than expected and actually surprised quite a few analysts. The July numbers were revised up from 32K to 73K and the June number was revised up from 78K to 96K. Including the revisions this amounted to a net gain of +203,000 jobs. Traders were more stunned than excited and you got the feeling nobody believed it. The unemployment rate fell to 5.4% but it was due to a reduction in the labor force rather than more people finding jobs. The number of workers actually employed rose only a very weak +21,000 compared to the +629,000 gain in July. The revisions to the two prior months suggests Greenspan's soft patch was not as soft as previously expected. The Fed kept telling us jobs were being created yet traders remained skeptical. The muted reaction on Friday may have appeared to be continued disbelief but I believe it was just very light pre holiday volume instead. With summer over the jobs risk should diminish. The ramp up for the holidays as well as the normal seasonal hiring bounce should continue to give us positive numbers until spring. This August gain will insure another Fed rate hike on the 21st. The Fed Funds Futures had been showing the potential for only a 1.75% rate by year end but after this report they immediately jumped back to a full 2.0% by the Dec-14th meeting. More disconcerting than the Jobs report was the ISM Services report that posted a headline number of 58.2 and a drop from last months 64.8. This was well below the consensus estimates of 62.9 and twice in the last three months that we have dipped below 60. Considering the services sector was thought to be bullet proof this is a disturbing drop. New Orders fell to 58.6 from 66.4 while most of the other components remained stable. This could be just a seasonal summer lull and the Sept report will be scrutinized carefully for further signs of weakness. Our economy may actually have reached self sustaining status but it may be to soon to push the life support equipment out into the hall. The economy is breathing on its own but not yet ready to climb the wall of worry ahead. There are no material economic reports next week until Friday's PPI. Lots of small ones but they should not impact the market. Of more concern to us is the coming earnings warning season. The warning season should begin in earnest the week of the 13th but as you may have noticed we have seen quite a few already and the pace is accelerating. The Intel news was mostly trumped by the positive Jobs report but the SOX still managed to drop -5% intraday to 357. Intel opened at $20 and held that level most of the day. Adding to the SOX decline was warnings from Cypress Semi and 3Com. CY fell to a new 52-week low after saying weak demand and soft customer orders would cause them to miss prior estimates. CY said they would earn in the range of 11 cents where analysts had been expecting 26 cents. That is some serious order weakness. 3Com, a competitor to Cisco and Juniper, cut its forecast and reversed its prior guidance. In June the CEO had said conditions were improving and gave revenue estimates of $183 million for the quarter. They now expect revenue of only $160-$164 million. This is another serious change in outlook. They also said margins would be lower than expected. EFII warned on Friday that profit and revenue would fall short of analyst estimates. EFII now projects earnings in the range of 12-14 cents. Analysts were expecting 26 cents. EFII fell -4.30 to $16.30 in heavy volume. On Thursday IDTI warned and that suggests we could see a warning from PMCS. They have the same customers and address much of the same markets. With the Intel warning of a reduction in capex spending we could see warnings from AMAT and others in the chip equipment business. The dominos are lined up could begin falling soon. The coming weeks have not been kind to the markets in the past. In fact Friday was the anniversary of the Dow's high in 1929 when it topped out at 380. We all know the history of the market and the ensuing crash. The Dow retraced -89% of its height to reach a whopping low of 42 on July-8th 1932. It took more than 25 years for the Dow to reach the 380 level once again. Most of us were too young to have been traders back then but imagine an 89% drop. Just to return to the prior level requires a 900% gain. There is nothing in the cards to suggest we will see a drop of that magnitude again in this decade but there is always a chance of a correction in our future. Despite putting all the summer event risk behind us we may see a different market when traders return from vacation next week. There are many conflicting conditions that should provide an active market over the next four months. It should be directional although not always in the same directional. The potential for a flat and boring market is very slim. There are huge amounts of money waiting patiently on the sidelines. According to some analysts cash could be at record levels for recent times. This should keep a bid under the market until the election although we may not see it immediately. Corporate earnings are rising although comps are declining. That means we are seeing an increase in profits on a quarterly basis but that rate of increase is just lower than the same quarter last year. This is one major cause of the current flurry of warnings. Is it bad if your earnings only increased +15% in Q3 this year compared to +20% in Q3 last year? Last year we saw nearly $100 billion in tax rebate cash hit the retail sector and that sent a ripple of profit through the economy. Remember the GDP was up +7.4% last Q3 and we are going to have to struggle to hit +3% this year. Bottom line I do not feel that a lower rate of profits is a material reason not to buy stocks as long as profits are increasing overall. However, we often talk about PE compression and that is what we may have ahead of us. This means stocks are priced for a specific PE ratio, say 20, based on their expected 2004 earnings. Sometimes it is based on 2005 or even 2006 earnings at this point on the calendar. This PE ratio assumes an historical rate of growth. The strong Q3-Q4 profits last year have skewed that historical PE ratio to a higher than normal ratio. Once the warnings begin to appear on a broader basis there will be PE compression cycle where stocks still racing ahead will attract investors and those slowing will lose investors. Why am I going through this lengthy discussion today? Because September and October are typically when this rapid PE compression takes place. Summer months tend to drag on earnings and this puts a higher number of earnings warnings into Sept and earnings misses into October. This is the period where mutual funds tend to shuffle the deck and discard the names out of favor and add those names currently on fire. For the market Sept/Oct is a big garage sale, or yard sale as you would say in some parts of the country. Once the portfolio has been swept clean and the sectors balanced neatly on the shelves the managers go shopping to fill those blank spots in the pantry. This is not a bad thing for the markets it is just how they work. If you are a gardener it is similar to a pruning. I know each year my fence of climbing roses tends to look pretty straggly by October. Those limbs that ran wild can be 5-6 feet long and ready to snag anyone that walks by. If I don't prune them back to the same level as the rest they will be laying on the ground next spring and the entire bush will suffer. To put this in perspective funds are preparing their list now of those stocks that have run away from the market and may be overextended or they just have too much cash/profit tied up for the expected growth ahead. They need to prune these fast growers and invest in some more plants to expand their garden. This decreases their risk by reallocating the cash and gives them a wider exposure to future fast growers. While the Sept/Oct decline does not always happen the potential is very strong. Everyone remembers the rally in 2003 where the market exploded off the lows in March and never looked back until February of this year. Well that may not be exactly correct. Even in the middle of that very strong directional move September had two significant dips and one in October. The Dow reached a high of 9609 on Sept-4th and dropped -240 points to 9380 on the 12th. It rallied again to a high of 9686 on the 19th but then dropped -456 points to a lower low of 9230 on the 30th. The first two weeks of October saw a strong rebound of +620 points to 9850 on Oct-15th. The damage was not over with a -350 point drop over the next six days to 9497. I recapped those moves to prove a point. We were in the midst of a very bullish period in the market and the Dow managed to move 1666 points in four direction changes over the two month period but only finished +278 points higher on Oct-30th than where it closed on Sep-2nd. The point I am trying to make is that regardless of your market bias, bullish or bearish, we are entering a period where volatility reigns. About the only guarantee we have is the promise of a post election bounce in Nov/Dec. That potential bounce is a historical trend and should keep the real bears at bay. Remember the overriding market imperative for the next couple months is to be fully invested by Halloween. If you agree with that then you should have ample opportunity to initiate positions over the next six weeks. I say six weeks because the elections give us a target date for the move and we know the majority of funds will not wait until the last minute. They will be moving quickly over the next 4-6 weeks to shuffle their portfolios and get ready for a typical year end rally. This also suggests the selling could accelerate into September. The key here is the earnings warnings. This is what institutional investors are looking for to give them the final clues as to what to dump and what to keep. The roadmap is clear today only there are no cars yet on the road. Traffic should pickup significantly next week. The Dow appears perfectly poised for the next two months of activity. The recent rebound took it back to very near the downtrend resistance since February. The Dow closed at 10260 on Friday and that downtrend resistance is lurking just below 10350. If we do get the historical post Labor Day bounce then 10350 would be well within range. The Nasdaq is the weakest link here with the Intel news knocking it back to 1845. Strong resistance is currently 1890-1900 and with the chip weakness it would take a major reversal to get us back to test that resistance. SOX Chart - Daily The SOX is the anchor holding the market down and it may not be long before we begin springing other leaks. The SOX set a new 52-week low today with a close at 357.91 and is very close to my target from last week of 342-350 for decent support. With every broker on the planet negative on chips it may be about time to pick some up. I think that thought process will start to appear once we break that 350 level. Should conditions worsen there is risk to 300 but I think there is too much money on the sidelines for that to happen in 2004. So what now? Traders should look for a potential bump next week on event risk relief and then the bears may begin their fall feast. For long-term investors I would look for stocks I really want to own and start staging orders at levels you would be comfortable owning the stock. I did not say levels where you think they would bottom because unless you have very accurate crystal ball nobody knows those numbers. We need to pick entry points where we would be comfortable owning the stock or option for the next several months. For instance I would love to see EBAY pull back to its 200dma at $74 but with it currently ay $89 I am not holding my breath. To knock EBAY back that far the market would have to suffer a major retracement and I don't see it. Next week get out your shopping list and get ready for the blue light special to appear soon. Those of you that go both ways should look at any post Labor Day bounce as an opportunity to unload the dead wood. Get ready to add a few put options to keep that adrenaline flowing while we wait for the bears to finish feasting and go into hibernation. Have a great weekend! Enter Very Passively, Exit Very Aggressively! Jim Brown ************ 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 ******************** TIME OUT By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – The S&P 500 (SPX), at 1120 and the Dow 30 (INDU) in the 10,300 area, have met my upside objectives for now. While SPX could still reach the 1029-1030 area and the Dow 10,350 or so, the rally potential looks limited with the latest tech wreck and the most recent rebound in crude oil prices [and the OIX: Oil Index]. While the market is nearing an overbought extreme, another rally to slight new highs would be pointed to by the fact that bullish conviction among traders has been fickle. As soon as the recent rally faded, call activity slowed down significantly. The Nasdaq is hurting and rallies are weak with key tech stocks getting battered of late. Nothing robust, like the NYSE indices. With Microsoft (MSFT), Cisco Systems (CSCO) and especially Intel (INTC) with bearish chart patterns, I don't see how the rest of the market chugs higher ignoring this. In terms of the Nasdaq 100 Index (NDX) my upside target was met on the recent move to the 1400 area, with only an outside chance of hitting 1410. QQQ is only barely hanging about 34, where it should be above to suggest another re-try for 35. Volume patterns show some of feign signs of accumulation of the stock however. FRIDAY'S TRADING ACTIVITY – THE NUMBERS – The Standard & Poor 500 (SPX) fell 4.7 points (-0.4%), to 1,113.63 Friday, but was up 0.5% for the week. The Dow Average (INDU) had four of its 30 stocks up enough to keep the fall a bit less than the broader market: Boeing (BA), Exxon Mobil (XOM), Procter and Gamble (PG) and Verizon (VZ) all going to new 52- week highs during the session. The Dow Average ended down 30 points or -0.3% to 10,260.2 - for the week however the Dow was up a fraction of a percent (+0.6%), marking a 4th consecutive week its been higher. The tech-heavy Nasdaq Composite (COMP) fell 28.9 points for a loss of fully 1.5%, to close at 1,844.48. For the week, COMP was down 1%. REPORTS & ECONOMIC NEWS – In what might have, on another day, helped trigger a rally, August non-farm payrolls rose 144,000 and were in line with projections, snapping back after 2 months of disappointing numbers. Payroll growth for June and July were also revised upwards. Of interest to Presidents and the public was that the U.S. unemployment rate fell to its lowest level in 3 years. It was also pointed out that most of the unemployment decline was due to the number of job seekers who stopped looking. Hey, put that into a 30-second sound bite – NOT! The Labor Department estimated the unemployment rate fell by a tenth of a percent to 5.4%, the lowest since October '01. STOCK SHOCK – Moving the market down from the opening was Intel (INTC) falling sharply - some 7% on the opening - after the giant chip making company cut its Q3 revenue estimate to $8.3 to $8.6 billion, from a range of $8.6 – 9.2. The company cut its gross margins target to 58% from 60. In its mid-quarter update, the 800-pound gorilla/Silicone valley based chipmaker also said its chip inventory would increase again instead of remaining flat. Some analysts, following the stock for their Wall Street clientele, promptly lowered their forecasts in reaction to this update. Others kept a bullish recommendation on Intel, saying valuation levels were getting attractive. Disappointment wasn't limited to Intel, as Altera, Cypress Semiconductor and Integrated Device Technology also lowered their outlooks. Altera (ALTR) said it expects Q3 sales to come in below its prior predictions. Cypress (CY) also dropped its Q3 earnings forecast and expected a decline in revenue 5-10% below its second quarter. Integrated Device (IDTI) joined the bandwagon, saying that it expected next quarterly revenues to be down as much as 5% from its last quarter. Hell hath no fury like a tech investor scorned - Altera fell 6.6%, Cypress 8.9% and Integrated Device by 5.6%. The Institute for Supply Management reported that its key index fell to 58.2 percent from 64.8 percent in July, indicating a slower economic expansion. This wasn't such great news but the corker was Intel raining on the market scene! OTHER MARKETS – Treasury bond prices fell after the jobs date in a light volume and shortened session, with the benchmark 10-year note closing down 18/32 at 99 24/32, as its yield climbed to 4.28 percent. The non-farm payroll number was seen as being strong enough to keep the Federal Reserve on a path of measured rate hikes, including an anticipated quarter percent point rate hike at their Sept. 21 meeting. The U.S. dollar rallied in the wake of the U.S. jobs report. The buck rose 0.9% against the Japanese Yen to 110.46, and 0.9 percent versus the euro, reaching $1.2058. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: The S&P 500 hit my second level resistance in the 1120 area and then retreated. A move to as high as 1130, back to the top end of the current downtrend channel can't be ruled out, but that would be my most bullish expectation. A close above 1130 would suggest a possible new up leg however. Near support is at 1100, then 1090 marked by the green up arrows on the SPX chart below. 1090 is my guess at key support, at the 21-day moving average. If the 21-day average does mark support, a move back up toward the upper trading band or envelop is suggested – otherwise, usually, Fagidaboutit! I suggest playing the downside potential here by buying puts in the case of a further advance such as and especially to 1130 – from there downside potential is back down 1100-1090 at least. If 1090/1100 is seen first, I'll be evaluating a call buy in this area for a trade. What is common at tops of significance is a more bullish call to put reading than what has registered this past week. Ability to rally to new highs around estimated resistance at 1130, could cause such a build up of bullish sentiment – stay tuned on that! If the index dips first, the next extreme on my above call/put indicator should be a bullish reading. S&P 100 Index (OEX) – Hourly chart: If the OEX can hold 540 and rally, there may yet be a test of my anticipated technical resistance around 545; a stronger selling interest should come on any rally toward that prior top formation – that's the reason for the highest (red) down arrow that is shown on the chart below, at just under 550 – If another rally develops first from the 540 area, without much of a further decline, a put buy is suggested between 545 and 549- 550. If there's no move to a new high and a decline comes from here, 535, around that prior low hourly close, is key technical support – below that, I don't see much technical support before the 528 area. We haven't seen the pattern for some time of multiple touches to an overbought reading on the RSI (length: 21). The RSI has been showing an overbought extreme on and off but I remind myself and other traders often that markets can stay at extremes for some time; eventually it does suggest an Index top for a time. Dow 30 (INDU) – Daily chart: I figured resistance at around what the Dow got to per the way the downtrend channel is highlighted on the daily chart – A move back up to the downtrend line shown at around 10,350, without much upside follow through, suggests a put play. A close above 10,350 I'd consider a breakout move, where I'd then be looking at the prior rally highs for a possible re-test of its June peak around 10,490. Near support is at 10,100, with next lower support at around 9950. I know 10,000 gets some attention but on the last decline the Dow was under there by nearly a 100 points. The Stochastic on the daily Dow chart above is at a typical overbought extreme - it will be interesting to see if it hangs up in this area like the last peak in June. The overarching consideration is price action – if we continue to have a pattern of declining rally highs and a lower lows, it's the definition of a downtrend. Nasdaq Composite (COMP) Index – Daily: The anemic rally of the past week didn't get near challenging the prior closing high at 1892, and the Composite promptly headed back down toward 1840 – well almost. The weakness in COMP was not surprising given the weakness in the Semiconductor stocks, led by the sharp break in Intel (INTC). The Semiconductor Index (SOX) fell to a new low below 360. The RSI indicator is not quite into overbought territory. My other key indicators are trending lower especially Nasdaq daily up volume totals. I will be keying off the ability of the COMP to hold 1840, or not, as a clue for which way on the next move. The recent rally attempts are lackluster so far - Nasdaq 100 (NDX) Index – Daily: I figured 1410 as resistance, starting around 1400, where the Nas 100 (NDX) got to this past week. It's hard to figure where NDX goes next. The 1400 area seems key. I'm watching the 1350 area on the downside, at the 21-day moving average. A decline to below the 21-day average is most often followed by a fall toward the lower trading envelope line, suggesting we might see a re-test of the 1300 support area. Stay tuned for a breakout in either direction as the way to be trading NDX. What would attract me for a next trade is a continued rally approaching 1420 – if this unfolded I will be looking at buying puts, with a close above 1425 as my exit point. Buying calls in the 1340-1350 area is a possible trade, but would want to see how the market was then to believe it. This market has just been too weak to want to play the upside except selectively; e.g., calls bought in the 1300 saw a 100-point rebound follow. Nasdaq 100 tracking Stock (QQQ) Daily: QQQ remains quite weak or bearish in its technical pattern if it can't even mount a rally to 35 and above. Those buyers are quick to get gone – tech is just too weak. If QQQ stays above 33.7 – 34 we could see a second up move to higher levels than last week. The key if is whether 35 gets pierced and QQQ stayed above this level – if so a rally toward 36 could still happen. And, if so, put purchases and/or shorting the stock looks warranted at 35.7 – 36. The glimmer that another rally could get going is that the On Balance Indicator (OBV) is chugging higher against an overall downtrend in volume. Volume has been light for the past month - we'll see what gives after Labor Day. Maybe the stocks are getting "cheap" but they can get cheaper still! 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 ************** Google This! Looking good from my viewpoint on the Google puts from last week. The play was profiled at $106 and we closed on Friday at $100. The March $100 put was profiled at $11.90 and it closed Friday at $14.00 and we are just getting started. The first lockup period passed and an additional 4.5M shares were free to trade and the stock dropped as they hit the market. The first lockup release on Thr was minor compared to the next one coming in mid November for 39 million shares. That will more than double the current 30 million shares in the market. This was a long-term play planned on capturing all the lockups between now and next February when all 260 million additional shares will have been released to trade. So far, so good. I am sure there is still some hope that investors will flock to the new IPO and push the prices higher than the $100 close on Friday. As that hope fades and any Sept/Oct volatility appears we could see some exciting times ahead. We will get to see two quarterly earnings cycles as well and that space is getting really crowded. Should be fun. Google Chart September Weakness Ahead? While there may be a post Labor Day rally if historical trends repeat, it may not be lasting and it could just be a springboard for the fall correction. I had originally wanted to enter a play on the SOX using the SMH but the Intel news has already pushed the SOX to new 52-week lows. I hate to jump on the ride when it is so close to the end. Obviously I have no crystal ball and it could run all the way to 300 but I suspect the 342-350 range could provide significant support. Therefore I am passing on the SMH. With the Dow rally to two-month highs I think we are looking at something near a potential September high. I would target 10350 as strong down trend resistance that may be hard to break. I think any drop could come quickly and I am going to suggest using September puts to play a potential Dow decline. The DJX Sept-102 put is only 65 cents today with the Dow at 102.67 in DJX terms. We could easily return to 10100 or lower before the September options expire. Should you want more time the October 102 puts are only $1.40. I want to buy one contract on Tuesday at the open. Buy one contract with any bounce to 10300 and another on any bounce to 10350. Obviously you can multiply those one contract increments by any number you wish. If we get the right fills we should end up with a cost basis of about 50 cents and we are going to target $1.00 for an exit. The stop loss will be 10400 but I doubt they will be worth much if that level is reached. Buy Sept $102 DJX Put DJV-UX currently 65 cents. DJX Chart - 120 min ********************** PVN Call Update $14.71 http://members.OptionInvestor.com/editorplays/edply_061304_1.asp ********************** NWS Leaps have been moved to the LEAPs section **************** MARKET SENTIMENT **************** Buckle Your Seat Belts - J. Brown Hold on tight! Summer is over. Mom and dad are happy the kids are back in school. Corporate America is happy the third quarter is moving into the home stretch and they can look forward to historically stronger fourth quarter/Christmas shopping season. Wall Street is happy because the big traders should all be back from vacation and ready to do some investing. But if you read the market wrap this weekend Wall Street firms and money managers are probably going to do some house cleaning first. The third quarter is typically the weakest time of year and this produces a higher number of earnings warnings (that begin in two weeks - actually considering this week it feels like they've already begun) and a higher number of earnings misses when the reporting season begins in October. It's no coincidence that September is the worst month of the year for stocks and the first two weeks of October can be very bearish too. Everyone in the investment world knows that September is historically bearish and commercial traders are lining up to profit from it. The action in the S&P e-mini contracts (see below) saw short interest soar producing the most bearish reading in weeks. Now consider the following: The Dow Industrials and the S&P 500 are both up four weeks in a row. The VIX and VXO are both back to their lows near 14, which has typically signaled a new short-term market top. Add it all together (historically weak September, stocks up for four weeks, VIX at bearish reversal levels) and we have a perfect recipe for a significant downturn. Now we don't have any guarantees that stocks are going to turn south soon but it sure looks like it. However, this year we have a couple of wild cards that can and will influence direction and the speed of any ascent/descent. Crude oil will continue to be a major factor in the markets. Yet the real wild card is the November elections. This column has already mentioned the idea that the markets don't like uncertainty and prefer to see the incumbent win. Considering Bush's recent lead over Kerry in the polls this should be bullish for stocks. While this might not prevent any September sell-off it may lessen the sting a bit. Looking ahead the shortened holiday week is full of economic reports but the headliners are likely to be Greenspan's appearance before the House Budget committee and the PPI report on Friday. Look for a lot of action on Tuesday when the U.S. markets open again. The day after Labor Day has been up 7 out of the last 9 years. We could see stocks tick higher again and we can use it as a chance to do some profit taking on our long plays while also trying to snag a better entry on our new bearish plays. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 10260 Moving Averages: (Simple) 10-dma: 10175 50-dma: 10125 200-dma: 10264 S&P 500 ($SPX) \52-week High: 1163 52-week Low : 990 Current : 1113 Moving Averages: (Simple) 10-dma: 1105 50-dma: 1101 200-dma: 1112 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1371 Moving Averages: (Simple) 10-dma: 1378 50-dma: 1394 200-dma: 1440 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 13.91 –0.37 CBOE Mkt Volatility old VIX (VXO) = 13.90 -0.47 Nasdaq Volatility Index (VXN) = 21.06 -0.56 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.03 460,669 472,480 Equity Only 0.78 331,306 260,532 OEX 1.22 19,510 23,817 QQQ 7.79 5,721 44,569 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 57.2 + 0 Bear Confirmed NASDAQ-100 38.0 + 2 Bull Alert Dow Indust. 53.3 + 0 Bear Confirmed S&P 500 54.4 + 0 Bear Correction S&P 100 54.0 + 0 Bear Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.46 10-dma: 1.21 21-dma: 1.19 55-dma: 1.28 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 1169 1108 Decliners 1607 1802 New Highs 148 46 New Lows 15 36 Up Volume 450M 166M Down Vol. 663M 1059M Total Vol. 1130M 1236M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 08/31/04 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 The latest data shows commercial traders reducing their short positions just a tad. They remain net bearish by only by a small margin. Retail traders have upped both their longs and shorts and the net result has been a reduction in their bullish enthusiasm. Commercials Long Short Net % Of OI 08/10/04 397,576 419,734 (22,158) (2.7%) 08/17/04 398,472 416,109 (17,637) (2.2%) 08/24/04 402,599 420,478 (17,879) (2.2%) 08/31/04 406,637 416,778 (10,141) (1.2%) 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 08/10/04 135,689 93,897 41,792 18.2% 08/17/04 138,550 97,792 40,758 17.2% 08/24/04 135,151 100,351 34,800 14.7% 08/31/04 144,120 114,343 29,777 11.5% 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 Wow! We're seeing some action in the e-minis. Commercial traders or "smart money" has really upped their shorts while reducing their longs. This has produced the most bearish reading in a long time. Without missing a cue the retail traders have upped their longs to produce the most bullish reading in a while. Commercials Long Short Net % Of OI 08/10/04 369,547 441,055 ( 71,508) ( 8.8%) 08/17/04 404,065 457,372 ( 53,307) ( 6.2%) 08/24/04 392,065 473,911 ( 81,846) ( 9.4%) 08/31/04 372,071 543,100 (171,029) (18.7%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 08/10/04 179,940 89,239 90,701 33.7% 08/17/04 192,939 92,361 100,578 35.3% 08/24/04 211,995 76,184 135,811 47.1% 08/31/04 258,624 77,036 181,588 54.0% 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 appear to be happy to sit still in the NDX futures but small traders have increased their long positions. Commercials Long Short Net % of OI 08/10/04 43,968 38,351 5,617 6.8% 08/17/04 44,743 41,535 3,208 3.7% 08/24/04 48,624 43,222 5,402 5.8% 08/31/04 48,167 43,411 4,756 5.2% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 08/10/04 10,081 10,858 ( 777) ( 3.7%) 08/17/04 12,256 8,352 3,904 18.9% 08/24/04 11,666 10,068 1,598 7.3% 08/31/04 14,635 10,572 4,063 16.1% Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Traders don't seem very willing to change their bets on the Industrials. Neither the commercials or the small traders are shifting any money around. Commercials Long Short Net % of OI 08/10/04 30,634 22,994 7,640 14.2% 08/17/04 30,271 22,809 7,462 14.1% 08/24/04 28,919 23,658 5,261 10.1% 08/31/04 29,143 24,147 4,996 9.3% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 08/10/04 6,450 8,488 (2,038) (13.6%) 08/17/04 4,388 7,089 (2,701) (23.5%) 08/24/04 5,052 7,214 (2,162) (17.6%) 08/31/04 4,929 7,122 (2,193) (18.2%) 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 *************** Have fun, make money, and let the trade come to you! Here's something I saw in this week's Market Monitor at OptionInvestor.com that I thought was rather silly at first, but after the market closed, I played around with it. I don't know how fellow analyst Mark Davis found this, but he posted a link to a web page that has a fly swatter on the screen that you can move around and try and swat a bunch of mosquitoes that are flying around on it. As I played around with this web page at http://www.shockhaber.com/zzzzzzzzzzzzzzz.htm I started moving my mouse around, which controls the fly swatter and tried swatting the fast moving mosquitoes that were moving quickly across the screen. After trying to swat the mosquitoes, which are small and fast moving at first, it took me about 5 or 6 left-clicks with my mouse button before I finally squished one. Here, you try. You MUST try. There is a point to be made as it relates to entering a trade on a stock your are considering trading long, or selling short. Swat the mosquito - (Screen Capture) Think of the fast moving mosquitoes as a stock you are looking to trade, then think of the fly swatter as your mouse cursor and when you are ready to execute your trade and enter the position (initiate a long or short position). Go ahead, try and swat the mosquitoes. Now, I've always had pretty good hand-eye coordination, but when I first opened this web page, the mosquitoes were small, and fast moving. I think it took me several tries before I actually swatted one of the mosquitoes. So.... how did you do? After 20 swats, how many mosquitoes did you squash? Five? Ten? Fifteen? All twenty with twenty swats? If you got 5 out of 20, then you scored 25%. OK.... what do you notice as you play with this web page over time? If you just sit there and do nothing, you'll notice that the mosquitoes start getting bigger, and they start moving slower. They're easier to swat that way. Hmmmmm..... I thought to myself. This is kind of like trading stocks. The more I sit and observe a stock, and how it trades, the more familiar I become with that stock. I don't know about you, but while my trading is not 100% profitable all the time, have YOU ever noticed that you have a better feel for some stocks, or better trading success with a stock that you tend to follow on a regular basis? Well, that's one thing I noticed. There are a lot of things in life I associate with swatting mosquitoes, or flies. Always looking to improve my trading, and mosquito swatting abilities, I began to think. What if I don't "chase" the fast moving mosquitoes on the screen, but instead just leave my fly swatter in the middle of the screen, then wait for a mosquito to fly INTO the fly swatter and then right-click my mouse for execution. Like "execute" that darned mosquito. Swat the mosquito; Initiate your trade - (Screen Capture) Instead of "chasing" the mosquitoes with your fly swatter, try leaving your swatter in one place. Then when a mosquito flies INTO your swatter, like a stock will trade into your defined entry zone, then try swatting it and see if you get a good "execution." Be patient, wait, and let the mosquitoes come to you! Try this 20-times. Now what do you observe? I observed that sometimes a mosquito came into the defined parameters of the swatter and "swat" I got one. I observed that where my swatter was located, that one mosquito I wanted to swat kept flying the same pattern, and my swatter was nowhere close to his flight pattern. Either I'm not going to be able to swat him, or I need to move my swatter up where is flight pattern has been, then sit and wait for him to fly into the swatter. Ooops! That second one flew by too fast and I didn't even try an execution. I simply missed it. That's OK, there will be others. Swat! Shoot, I missed that one. That bugger was moving too fast. As an analogy to trading stocks, fast moving stocks, or volatile stocks are harder to trade. They can be rewarding when you get a real good entry point and catch the move just right, but they can also move against your/my analysis. Swat! Squish! Got that one. I saw him coming, was focused, and didn't let the other mosquitoes distract me. Swat! Missed again. He was too small, illiquid. A herky-jerky micro-cap that I wasn't all that familiar with. Swat! BIG SPLAT! BIG WINNER! I watched that one for months, got real familiar with how it traded. That BIG SPLAT was a big winner and very profitable too. Good execution right where I thought the stock would make its move from. Swat! Cool! I got two at the same time. Both of those were "retailers" and when the sector made its move, both of those stocks moved along with it at their WEEKLY Pivots. That was too easy! The stars, I mean the mosquitoes aligned. I swatted 16 out of 20 when I kept my swatter in the same place. You can go 20 for 20 if you just sit and observe for about 2 minutes. The mosquitoes get REALLY BIG and move REALY SLOW. Well, I will be out of the office this week, and won't be writing an Ask the Analyst column until Sunday September 2, 2004. I'm supposed to be on the road by Friday afternoon at 04:30 PM EDT, and at this point, I have done no packing, and I'm running way behind. I thought this would be a "fun" article to write. It really reminded me of how important, and profitable it can be to really get familiar with the stocks we try and trade. As I'm sitting under a tree next week, in the mountains of Colorado, I'm going to be thinking of this. I really need to get a focus list of stocks to trade. I don't have a problem with running stock scans for trade candidates, but I will admit that I'm a much better trader when I'm focused in on how a stock trades, how its correlative sector or index has been trading. And my win and profit record is much better when I've let the stock tell me what to do when it enters my action point range or level. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- -no major earnings announcements- ------------------------- TUESDAY ------------------------------ FLE Fleetwood Entrprs. Tue, Sep 07 Before the bell 0.06 HOV Hovnanian Entrprs. Tue, Sep 07 Before the bell 1.35 NMG.A Neiman Marcus Tue, Sep 07 After the close 0.36 STX Seagate Tech. Tue, Sep 07 Before the bell 0.03 UTIW UTi Worldwide Tue, Sep 07 -----N/A------ 0.44 ------------------------ WEDNESDAY ----------------------------- CMVT Comverse Technology Wed, Sep 08 After the close 0.05 DAB Dave & Busters Wed, Sep 08 Before the bell 0.14 GLH Gallaher Group Wed, Sep 08 -----N/A------ 2.01 IMMU Immonomedics Wed, Sep 08 -----N/A------ n/a KFY Korn Ferry Intl Wed, Sep 08 -----N/A------ 0.14 MATK Martek Biosciences Wed, Sep 08 -----N/A------ 0.15 ULCM Ulticom Wed, Sep 08 After the close 0.05 ------------------------- THUSDAY ----------------------------- CRMT America's Car-Mart Thr, Sep 09 Before the bell 0.59 CAND Candie's Inc Thr, Sep 09 Before the bell n/a CBRL CBRL Group Thr, Sep 09 Before the bell 0.66 JOSB Jos. A Bank Clothier Thr, Sep 09 ------N/A------ 0.23 NSM National Semiconduct Thr, Sep 09 ------N/A------ 0.26 TTWO Take-Two Interactiv Thr, Sep 09 After the close -0.30 ZQK Quiksilver Thr, Sep 09 ------N/A------ 0.29 ------------------------- FRIDAY ------------------------------- -no major earnings announcements- ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable TCB TCF Financial Corp 2:1 Sep 3rd Sep 6th TCHC 21st Century Holding 3:2 Sep 7th Sep 10th CVX ChevronTexaco 2:1 Sep 10th Sep 13th SSP E.W.Scripps Co 2:1 Sep 10th Sep 13th POOL SCP Pool Corp 3:2 Sep 10th Sep 13th BLL Ball Corp 2:1 Sep 15th Sep 16th SF Stifel Financial 4:3 Sep 15th Sep 16th -------------------------- Economic Reports This Week -------------------------- Monday the markets are closed for the Labor Day holiday but the shortened week is full. Wall Street will digest the consumer confidence numbers on Tuesday, Alan Greenspan on Wednesday, the Chicago Fed Manufacturing index on Thursday and the PPI on Friday. ============================================================== -For- ---------------- Monday, 09/06/04 ---------------- - U.S. Markets are CLOSED for Labor Day Holiday - ----------------- Tuesday, 09/07/04 ----------------- Challenger Layoff Survey (DM) Forecast: Previous: +8% Consumer Confidence Numbers Federal Reserve Governor McTeer speaks in Dallas ------------------- Wednesday, 09/08/04 ------------------- Federal Reserve's Beige Book (DM) July Consumer Credit (DM) MBA Refinancing Index Chain Store Sales Redbook Retail Sales data Federal Reserve Chairman Greenspan speaks to House Budget Cmt. ------------------ Thursday, 09/09/04 ------------------ Initial Jobless Claims (BB) Forecast: Previous: 362K Import/Export Prices for August Wholesale Inventories for July Chicago Fed Manufacturing Index Fedeal Reserve Governor Yellen talks in Seattle Crude Oil Inventories Gasoline Inventories Natural Gas Inventories Money Supply numbers. ---------------- Friday, 09/10/04 ---------------- PPI Index for August Forecast: Previous: +0.1% Core PPI for August Forecast: Previous: +0.1% Trade Balance for July Forecast: Previous:$55.8B Federal Reserve Governor McTeer talks in Dallas Federal Reserve Governor Pianalto talks in N. Mexico Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 09-05-2004 Sunday 2 of 5 In Section Two: Watch List: BBOX, MERQ, KMB, ZMH 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 ********** Networking to Medical Devices 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. ___________________________________________________________________ Black Box - BBOX - close: 36.95 change: -0.82 WHAT TO WATCH: Networking stocks will probably follow the NASDAQ and semiconductor sector lower. CSCO is already rolling over while NT looks ready to drop again. BBOX looks interesting because shares just failed to breakout over $38.00 and its 40- dma. Oscillators are starting to roll and its MACD is losing momentum. Watch for a drop under $36.00 and target a move toward $32-30. The P&F chart is already bearish with a $23.00 target. Chart= --- Mercury Interactive - MERQ - close: 33.89 change: -1.20 WHAT TO WATCH: The GSO software index is struggling under resistance at 135 and looks ready to roll over. Software maker MERQ is already weak and its MACD is very close to a new "sell" signal. The P&F chart is bearish with a $17.00 target. Watch for a breakdown under $33.00-32.75 as a potential entry point. Chart= --- Kimberly Clark - KMB - close: 68.13 change: +0.92 WHAT TO WATCH: KMB has been very strong the last couple of weeks and has now broken out over major resistance at the $67 level. The move has produced a new triple-top breakout buy signal on its P&F chart with a $100 target. This could be an ominous sign that investors are turning to defensive stocks since KMB is usually a "safe haven" play. The breakout has sent KMB to new three-year highs. Watch for a dip back to $67.00 and consider buying a bounce. Chart= --- Zimmer Holdings - ZMH - close: 74.74 change: -0.98 WHAT TO WATCH: The medical equipment makers have been struggling the last couple of months but most of them, including ZMH, have rally sharply in the last few days. Except now ZMH is struggling with technical resistance at its converging 50 and 200-dma's. Aggressive bears may take a stab at ZMH now but we'll watch for a drop through the $70.00 level. Bulls can watch for a rally through the $78.00 level, which would produce a new P&F buy signal. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- IMCL $53.53 -0.10 - IMCL just failed at its simple 200-dma. We're watching for a drop under $50.00. HIT $61.43 -1.31 - Hitachi is rolling over at its oversold bounce failed under the exponential 200-dma and the 50-dma. Looks like a target for a drop towards $55. AET $94.03 +0.52 - If AET breaks the $95 level consider riding it toward the $100 mark. STRA $112.75 +2.72 - The rally in STRA has been very sharp these past two weeks. Now shares are breaking out over its simple 100 and 200-dma's and the $110 level. If the stock wasn't so overbought we'd consider a $120 target. ************************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. Access To All Futures Markets Toll Free 888-281-9569 Stock Option Principals www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 09-05-2004 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/oi_f05a_3.asp In Section Three: Current Calls: AHC, BOL, DGX, FMC, FO, MHK, PD, RAI, TDS, ZBRA New Calls: None Current Puts: IVGN, SPW New Puts: LXK, MSTR, IRF ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Amerada Hess - AHC - close: 82.28 chg: -0.20 stop: 79.00 *new* Company Description: Amerada Hess Corporation is a leading global independent energy company, engaged in the exploration and production of crude oil and natural gas, as well as in refining and in marketing refined petroleum products, natural gas, and electricity. (source: company website) Why We Like It: The rally in AHC appears to have stalled. The stock gapped above the $82.00 level on Thursday after an upgrade by CSFB but shares have traded sideways in a tight 75-cent range for the last two sessions. We remain bullish on the stock and the oil group but traders may want to watch for a dip and bounce from the $81.00 level. The OIX and OSX indices have been very strongly recently and look due for some profit taking. Remember, that we were only targeting a quick run toward the $85.00 level as our initial target. If AHC can climb above $84.50 we may exit early. We are going to raise our stop loss to $79.00. Suggested Options: We like the October and November strikes. Our favorites would be the 75s and 80s. Keep in mind this is a tough spot to consider new positions. Look for a bounce from $80-81 as an entry. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT 80 AHC-JP OI=248 current ask $4.30 BUY CALL OCT 85 AHC-JQ OI=149 current ask $1.80 BUY CALL NOV 80 AHC-KP OI=1262 current ask $5.50 BUY CALL NOV 85 AHC-KQ OI= 836 current ask $3.00 Annotated Chart: Picked on August 31st at $80.50 Change since picked: + 1.78 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 1.0 million Chart = --- Bausch Lomb - BOL - close: 66.38 change: -1.49 stop: 64.75 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: After patiently waiting for two weeks BOL finally broke out over resistance at the $66.50 level last Wednesday. Thursday's session was a very strong follow through and things were looking up but we knew Friday would be a day for profit taking. We suspected that the $66 level would be short-term support and now comes the moment of truth. BOL has dipped back to $66.15 and its simple 10-dma but will it bounce? If it does bounce then we can use this as a new bullish entry point. However, we're turning cautious on all our call plays considering the historical trend that September is the worst month of the year for stocks. BOL may be able to out perform its peers considering its relative strength but it's also a target for more profit taking over the next month because of its strong rebound from the July lows. Technically we're encouraged that the recent breakout has produced a spread triple-top breakout on its P&F chart with an $86 target. Consider positions very carefully. We're going to leave our stop under support at $65.00. Suggested Options: We're turning cautious on most of our bullish plays but if BOL can hold up we like the October calls. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT 65 BOL-JM OI=199 current ask $3.20 BUY CALL OCT 70 BOL-JN OI= 87 current ask $0.95 Annotated Chart: Picked on September 01 at $66.51 Change since picked: - 0.13 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 397 thousand Chart = --- Quest Diagnostic - DGX - close: 86.31 chg: -0.51 stop: 83.50*new* Company Description: Quest Diagnostics Incorporated is the nation's leading provider of diagnostic testing, information and services, providing insights that enable healthcare professionals to make decisions that improve health. The company offers the broadest access to diagnostic testing services through its national network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff. Quest Diagnostics is the leading provider of esoteric testing, including gene-based medical testing, and provides advanced information technology solutions to improve patient care. Quest Diagnostics' healthcare information technology subsidiary, MedPlus, is a leading developer and integrator of clinical connectivity and data management solutions for healthcare organizations and clinicians. (source: company press release) Why We Like It: Our technical breakout play in DGX is holding up pretty well. The stock only dropped 51-cents in Friday's profit taking. The bullish P&F chart still looks good and points to a $102 target. We'd like to see DGX bounce from $86.00 but we suspect that shares will dip back toward the $85.00 level again. Traders can use a bounce from $85.00 as a new entry point. However, keep in mind that we're turning cautious on all our call plays due to September's historical weakness. We're going to cinch our stop loss up a bit to $83.50. If DGX breaks the $85 level we probably don't want to be long. Suggested Options: We're going to suggest the October or November calls. Our favorites are the 80s and 85s. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT 80 DGX-JP OI=362 current ask $7.30 BUY CALL OCT 85 DGX-JQ OI=440 current ask $3.60 BUY CALL OCT 90 DGX-JR OI=384 current ask $1.15 BUY CALL NOV 85 DGX-KQ OI=1904 current ask $4.80 BUY CALL NOV 90 DGX-KR OI=1190 current ask $2.25 Annotated Chart: Picked on August 31st at $85.60 Change since picked: + 0.71 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 578 thousand Chart = --- F M C Corp - FMC - close: 46.35 change: -0.50 stop: 44.90*new* 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: We don't have much new to report on for FMC. The stock continues to climb higher using its simple 10-dma as short-term support. We expected it to dip on Friday as investors did some profit taking ahead of the weekend and FMC held up better than we thought it might. Readers can use a bounce from the $46.00 level as a new entry point but remember that we're turning cautious on all of our bullish plays consider September's historical weakness. Keep your stops tight. We're going to raise our stop loss to $44.90. Our short-term target remains the $50.00 region. You may want to keep an eye on the CYC cyclical index. The CYC has broken out above minor resistance at the 690 level but is still under resistance at the 700 mark. 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. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT 40 FMC-JH OI=400 current ask $6.90 BUY CALL OCT 45 FMC-JI OI=642 current ask $2.90 BUY CALL OCT 50 FMC-JJ OI= 70 current ask $0.75 Annotated chart: Picked on August 24 at $45.87 Change since picked: + 0.48 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 265 thousand Chart = --- Fortune Brands - FO - close: 74.40 change: -0.01 stop: 72.99*new* Company Description: Fortune Brands, Inc. is a $6 billion leading consumer brands company. Its operating companies have premier brands and leading market positions in home and hardware products, spirits and wine, golf equipment and office products. Home and hardware brands include Moen faucets, Aristokraft, Schrock, Diamond and Omega cabinets, Therma-Tru door systems, Master Lock padlocks and Waterloo tool storage sold by units of Fortune Brands Home & Hardware, Inc. Major spirits and wine brands sold by units of Jim Beam Brands Worldwide, Inc. include Jim Beam and Knob Creek bourbons, DeKuyper cordials, The Dalmore single malt Scotch, Vox vodka and Geyser Peak and Wild Horse wines. Acushnet Company's golf brands include Titleist, Cobra and FootJoy. Office brands include Swingline, Wilson Jones, Kensington and Day-Timer sold by units of ACCO World Corporation. (source: company press release) Why We Like It: We've been suggesting that conservative traders wait for FO to breakout over the $75.00 mark for a reason. Shares tried to rally through this level on Friday and couldn't. Now the three- day bounce looks like a potential failed rally. Fortunately, FO still has decent uptrend and if it dips we'll look for a bounce from the simple 10-dma near $73.25. It's also noteworthy that FO's breakout above the $74.00 mark did produce the new bullish P&F buy signal, which now points to an $85 target. The P&F chart is actually a "bear trap", which of course is bullish for us. On all of our call plays we've been reminding readers that September is historically the weakest month of the year for stocks. That's not a good environment to buy calls. If you're feeling bullish be sure to manage your risk in case of turnaround. We're going to raise our stop loss to $72.99. Suggested Options: We're suggesting the October calls for short-term positions. We like the October $70 and $75 strikes. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT 70 FO-JN OI= 4 current ask $5.40 BUY CALL OCT 75 FO-JO OI= 187 current ask $1.85 Annotated Chart: Picked on August 29th at $74.08 Change since picked: + 0.32 Earnings Date 07/23/04 (confirmed) Average Daily Volume = 636 thousand Chart = --- Mohawk Industries - MHK - cls: 79.05 chg: +0.11 stop: 76.25*new* 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: MHK continues to out perform and hit an intraday high of $79.27 on Friday. We're very encouraged by its relative strength but given the onset of September we're feeling that it's time to take some profits here. The September options we suggested have doubled or tripled in value and it looks like a good time to cash in. Now we're not closing the play yet but if MHK can reach the $80.00 level we're going to exit. Longer-term investors can take comfort in the bullish P&F chart with the $96 target. We're going to raise our stop loss to $76.25. Suggested Options: This close to our target we're not going to suggest new entries. Readers can prepare to exit. Annotated Chart: Picked on August 24th at $75.51 Change since picked: + 3.54 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 397 thousand Chart = --- Phelps Dodge - PD - close: 82.05 chg: -0.15 stop: 77.00 Company Description: Phelps Dodge Corp. is the world's second-largest producer of copper, a world leader in the production of molybdenum, the largest producer of molybdenum-based chemicals and continuous- cast copper rod, and among the leading producers of magnet wire and carbon black. The company and its two divisions, Phelps Dodge Mining Co. and Phelps Dodge Industries, employ more than 13,500 people in 27 countries. (source: company press release) Why We Like It: We haven't heard any more about the potential labor strike in Peru that was going to affect one of PD's rivals and the world's copper supply. However, considering the recent drop in copper prices the crisis may have abated. Yet that shouldn't discourage the bulls. Copper did bounce from support at $1.22 per pound on Friday and shares of PD are still bouncing from the $80.00 level. We like the solid trend of higher lows in shares of PD and its P&F chart remains very bullish with a major breakout and a $96 target. If the broader market sees any weakness we'll be watching to see if PD shows any strength as a "safe haven" play. After all the world's demand for copper isn't going down and current prices mean big bucks for the miners. Suggested Options: We're going to suggest the October calls. The $80 and $85 strikes should work well. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT 80 PD-JP OI=2939 current ask $5.20 BUY CALL OCT 85 PD-JQ OI=1968 current ask $2.55 Annotated Chart: Picked on August 26th at $82.10 Change since picked: - 0.05 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 2.1 million Chart = --- Reynolds American - RAI - cls: 75.60 chg: -0.17 stop: 71.95 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: So far so good. Our call play in RAI is right on target. Shares broke out over the $76 level on Friday but slipped backwards as investors headed for the weekend. We're very encouraged by the steady trend of small gains and RAI's breakout over the early August high near $75.00. Looking ahead it wouldn't surprise us to see RAI dip again but the $74-75 region should offer support. Don't forget that the government's racketeering case against the U.S. tobacco industry will begin on September 21st. That could be pressure on the stock but we're not seeing any yet. Our target remains the $77.50-80.00 range. Suggested Options: We like the October and November calls although our favorites are probably the November 70s and 75s. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT 70 RAI-JN OI= 5 current ask $6.00 BUY CALL OCT 75 RAI-JO OI= 677 current ask $2.45 BUY CALL NOV 70 RAI-KN OI=7966 current ask $6.90 BUY CALL NOV 75 RAI-KO OI=1903 current ask $3.60 Annotated Chart: Picked on August 19 at $72.88 Change since picked: + 2.72 Earnings Date 08/02/04 (confirmed) Average Daily Volume = 1.2 million Chart = -- Telephone & Data Sys - TDS - cls: 79.29 change: -0.41 stop: 75.95 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: It was an important week for TDS. We were getting close to closing the play for lack of action and suddenly shares rallied forth to break through the top of its six-week trading range. We knew the $80.00 level might be resistance and that's what we're seeing now in shares of TDS. Fortunately, the profit taking on Friday was pretty mild - just 41 cents. We're also encouraged by the new MACD "buy" signal. The P&F chart remains bullish with a $103 target. This remains an aggressive play because stock volume and options volume is very low. We are willing to suggest new positions but look for a bounce from $78.00 or a breakout over $80.00 as the entry point. Remember that September is historically a very bad month for stocks. If you're feeling bullish trade or don't trade accordingly. In the news TDS said they would present at the Morgan Stanley Media and Communications conference on Sept. 8th. Suggested Options: The October strikes have pretty low volume so we'd suggest the Novembers but even these are low. !Alert - September options EXPIRE in TWO Weeks! BUY CALL OCT-75 TDS-JO OI= 0 current ask $5.50 BUY CALL OCT-80 TDS-JP OI=32 current ask $2.30 BUY CALL NOV-75 TDS-KO OI=105 current ask $6.20 BUY CALL NOV-80 TDS-KP OI= 40 current ask $3.20 BUY CALL NOV-85 TDS-KQ OI= 0 current ask $1.50 Annotated Chart: Picked on August 24th at $78.05 Change since picked: + 1.24 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 195 thousand Chart = --- Zebra Tech. - ZBRA - close: 58.10 chg: -0.81 stop: 54.99 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 remains within striking distance of our profit target but the rally stalled as traders did some profit taking on Friday. This close to our target we're not going to suggest new positions at this time. We're still planning to exit if ZBRA can rise into the $59.50-60.00 range. Hopefully that will be Tuesday since 7 out of the last 9 post-Labor day weekend weeks start with a rally. Look for support at the simple 10-dma near $57. Suggested Options: We're not suggesting new entries at this time. !Alert - September options EXPIRE in TWO Weeks! Annotated Chart: Picked on August 25th at $56.18 Change since picked: + 1.87 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 419 thousand Chart = ************** NEW CALL PLAYS ************** ************************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 ***************** Invitrogen - IVGN - close: 50.64 change: +0.75 stop: 51.51 Company Description: Invitrogen Corporation provides products and services that support academic and government research institutions and pharmaceutical and biotech companies worldwide in their efforts to improve the human condition. The company provides essential life science technologies for disease research, drug discovery, and commercial bio-production. Invitrogen's own research and development efforts are focused on breakthrough innovation in all major areas of biological discovery including functional genomics, proteomics, bioinformatics and cell biology -- placing Invitrogen's products in nearly every major laboratory in the world. Founded in 1987, Invitrogen is headquartered in Carlsbad, California and conducts business in more than 70 countries around the world. The company globally employs approximately 4,000 scientists and other professionals. (source: company press release) Why We Like It: Normally seeing our put play IVGN rebound back above the $50.00 mark would be a concern. It's certainly not good news for current shorts. However, we're still un-triggered as we wait for IVGN to break minor support at $49.00 and hit our trigger to buy puts at $48.95. Looking more closely at IVGN's intraday chart it would appear that Friday's bounce struggled near the closing bell under the $51.00 level. Hopefully this would suggest that IVGN will see some additional selling come next week. Suggested Options: We like the October and November puts. Our favorites are the 55s, 50s, 47.50s and 45s. !Alert - September options EXPIRE in TWO Weeks! BUY PUT OCT 55.00 IUV-VK OI= 5 current ask $5.30 BUY PUT OCT 50.00 IUV-VJ OI=23 current ask $2.30 BUY PUT OCT 47.50 IUV-VW OI=94 current ask $1.40 BUY PUT OCT 45.00 IUV-VI OI=53 current ask $0.85 BUY PUT NOV 50.00 IUV-WJ OI=535 current ask $3.30 BUY PUT NOV 47.50 IUV-WW OI=489 current ask $2.30 BUY PUT NOV 45.00 IUV-WI OI=114 current ask $1.60 Annotated Chart: Picked on September xth at $xx.xx <-- see TRIGGER Change since picked: - 0.00 Earnings Date 07/21/04 (confirmed) Average Daily Volume = 1.3 million Chart = --- SPX Corp - SPW - close: 36.10 change: -0.91 stop: 37.51 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: Thursday morning news that SPW had won five new orders worth $60 million for dry cooling systems helped send the stock higher. Yet despite the news the rally couldn't break the three-week trend of lower highs. Friday the stock turned tail and gave back all of Thursday's gains. Selling ahead of the weekend was part of the problem but comments from a Prudential analyst didn't help either. Forbes.com quoted the analyst as saying SPW could see further downside risk and they do not detect any hidden value making the recent weakness a worthwhile entry point. The analyst has an "under weight" rating and lowered the SPW price target to $32. Technically we're encouraged by the reversal and the fact that SPW traded under the $36.00 level for the first time in a month. Our TRIGGER to buy puts is at $35.75. Until SPW trades at or below this level we'll sit tight. Suggested Options: We like the October puts. Our favorites are the $37.50s and $35s. !Alert - September options EXPIRE in TWO Weeks! BUY PUT OCT 37.50 SPW-VU OI=120 current ask $2.60 BUY PUT OCT 35.00 SPW-VG OI= 50 current ask $1.30 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 ************* Lexmark Intl - LXK - close: 86.10 chg: -2.28 stop: 90.01 Company Description: Lexmark International, Inc. is a leading developer, manufacturer and supplier of printing solutions -- including laser and inkjet printers, multifunction products, associated supplies and services -- for offices and homes in more than 150 countries. Founded in 1991, Lexmark reported more than $4.8 billion in revenue in 2003. (source: company press release) Why We Like It: You may have heard that September is historically the worst month of the year for stocks. It's true. Now past performance is never a guarantee of the future but this seasonal trend usually shows up on time. We think the combination of the Industrials and S&P 500 at four-week highs and the VIX near its bearish- reversal lows and Intel's disappointing news undermining confidence in the tech sector all add a lot of punch to what is typically a weak month in September. So why choose LXK as a put play? We suspect that this higher- dollar tech stock could be a prime candidate for profit taking. Shares are still up for the year but the oversold bounce from the August lows is fading. LXK has been struggling with the simple 50-dma as overhead resistance for the last week and its technical oscillators are bearish with the MACD on the verge of a new "sell" signal. Friday's 2.5 percent drop was on strong volume and the stock broke down through its simple 40 and 200-dma's. Although bulls will point out that LXK did manage a meager bounce off its exponential 200-dma on Friday. Technically LXK's P&F chart is also very bearish with the stock's rebound failing at overhead resistance and the chart pointing to a $70 target. Plus, this past week brought some negative broker comments over LXK facing stiff competition from DELL with its lower-priced printers. Here's our plan - We want to plan an entry in the next week and ride LXK down through September. Now normally the first day back after Labor Day is typically bullish. So if LXK bounces we can look for an entry point in a failed rally below $87.50-88.00. If LXK doesn't bounce then momentum traders can pick an entry on a drop below $85.00. Either entry works for us so we're going to "open" the play at current levels. Keep your ears open for any news when LXK presents at the Smith Barney Citigroup Tehnology conference on September 8th. We're going to use an initial stop at $90.01. This may seem a little wide but until we see whether LXK bounces or breaks we want to give it some room. Suggested Options: Right now traders can choose from the October or January puts. We believe November strikes will be added eventually. We're going to suggest the October's. BUY PUT OCT 90 LXK-VR OI= 729 current ask $5.80 BUY PUT OCT 85 LXK-VQ OI= 786 current ask $3.30 BUY PUT OCT 80 LXK-VP OI=2138 current ask $1.70 Annotated Chart: Picked on September 5th at $86.10 Change since picked: - 0.00 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 1.2 million Chart = --- MicroStrategy - MSTR - close: 33.30 chg: -1.49 stop: 36.01 Company Description: Founded in 1989, MicroStrategy is a worldwide leader in the increasingly critical business intelligence software market. Leading Fortune 2000 companies are integrating MicroStrategy's industrial-strength software into virtually all facets of their businesses. The MicroStrategy Business Intelligence Platform(TM) distills vast amounts of data into vital, probing insight to help drive cost-efficiency, productivity, customer relations and revenue-generation. MicroStrategy offers exceptional capabilities -- excellent scalability, powerful analytics, user-friendly query and reporting features and an outstanding, easy-to-use Web interface. Top companies are using MicroStrategy to cost- effectively harness large, multi-terabyte databases; empower thousands of employees at all operational levels; and extend the benefits of business intelligence enterprise-wide and beyond to customers, partners and suppliers. (source: company press release) Why We Like It: MSTR is our willing sacrifice... err we mean volunteer from the software sector. All the major tech indices are suffering and the GSO software index is struggling with resistance near 135 and looks ready to roll over into a new leg down. Likewise MSTR is beginning to roll over under resistance near $36.00 at the top of its descending channel (see chart). Oscillators confirm the bearish direction and its MACD is very close to producing a new "sell" signal. The P&F chart is very bearish but we'll admit that the initial price target of $32 has already been achieved. We think this is one of those times when the stock exceeds the vertical count target. Like our LXK play we want to give MSTR room to bounce. A rally back toward $34.50-35.00 is just as much an entry point as a new low under $33 but we're willing to initiate positions at current levels. The first target is probably round-number support at $30.00 but the bottom of the channel is closer to $27.50 or less. Look for potential news on September 8th when MSTR presents at the CSFB software conference. Suggested Options: Short-term traders can choose the October or January puts. We'll suggest the Octobers. BUY PUT OCT 35 EOU-VG OI= 92 current ask $3.50 BUY PUT OCT 30 EOU-VF OI=551 current ask $1.20 Annotated Chart: Picked on September 5th at $33.30 Change since picked: - 0.00 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 376 thousand Chart = --- Intl Rectifier - IRF - close: 32.18 chg: -1.49 stop: 35.01 Company Description: International Rectifier is a world leader in power management technology. IR's analog and mixed signal ICs, advanced circuit devices, integrated power systems and components enable high performance computing and reduce energy waste from motors, the world's single largest consumer of electricity. Leading manufacturers of computers, energy efficient appliances, lighting, automobiles, satellites, aircraft and defense systems rely on IR's power management benchmarks to power their next generation products. (source: company press release) Why We Like It: We like IRF because it's a great candidate from the semiconductor sector to round out our tech threesome in our effort to catch any historical September weakness. Shares of IRF have been withering under a long-term trend of lower highs for months and Intel's disappointing news on Thursday night will continue to undermine investor confidence and promote rotation out of IRF. Keep an eye on the SOX. The SOX is the mill-stone around the NASDAQ's neck and together they should be able to sink into September's murky depths. More conservative traders may want to wait and watch for IRF to trade under the $32.00 level, which appears to be short- term support. Fortunately, P&F chart traders don't need to wait. The P&F chart is already bearish with a $21.00 target. Our initial target will be the $27.50 region but we do expect some support near $30.00. If IRF manages to bounce next week look for a failed rally near $34.00 as a potential entry point. We're going to give IRF a wide stop at $35.01. Suggested Options: Short-term traders can choose from October or December options. We like the October 35s and 30s. BUY PUT OCT 35 IRF-VG OI=251 current ask $3.90 BUY PUT OCT 30 IRF-VF OI= 44 current ask $1.25 Annotated Chart: Picked on September 5th at $32.18 Change since picked: - 0.00 Earnings Date 07/29/04 (confirmed) Average Daily Volume = 1.3 million Chart = ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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 09-05-2004 Sunday 4 of 5 In Section Four: Leaps: Shopping Season Ahead ************************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 ***** Shopping Season Ahead I hate to keep repeating this but it is a historical fact that the first week of September is many times the high for the month. It seems lately every stock I put on the watch list instantly explodes to new highs without even a glance a lower levels. There is a saying that everything comes to those that wait. I am getting tired of waiting but I know it will pay off. New Plays No New Plays. I do not want to add anything after last weeks spike and in front of the potential September weakness. Plenty of opportunities ahead for our watch list to mature. Portfolio Update SMH - Semiconductor Holders $28.30 ** CLOSED ** Chalk this one up a winner and take the money off the table. We missed our exit back on Aug-13th when the SMH dropped to 28.30 on a Friday only to gap open the following Monday. Our target exit price was $28. Well after the Intel news the SMH closed at $28.32 this Friday and an almost perfect double bottom. While there may be further weakness ahead I am not willing to risk our profits again. Hold longer if you want but I am closing the play today. NOV-$30 put at $1.40 closed Friday at $2.75 (+93%) NOV-$35 put at $3.80 closed Friday at $6.74 (+76%) ********************** INTC - Intel Corp $20.05 **Stop $17.00** We were triggered on the Intel LEAPS on Friday when Intel trade at $20 at the open. Various analysts are looking at risk to $18 maybe as low as $17 but I am more optimistic. We saw Intel cling to $20 all day Friday on volume of 172 million shares. If they can't push it lower on that kind of volume it is going to be a battle to hit $17-$18. 2006 $22 LEAP Call WNL-AX at $2.20 currently $2.30 2006 $25 LEAP Call WNL-AE at $1.45 currently $1.55 ********************** TYC - Tyco Intl. $31.55 **Stop $28.00** Tyco continues to press the recent highs with $32 as resistance. We probably have some rough weather ahead and I am going to leave the stop low to get us through it. Tyco may be holding its own but in a weak market all stocks suffer. ********************** JNPR - Juniper Networks $23.17 **Stop $19.00** Juniper set a new high for the month on Thursday at $23.79 but caved in on Friday in light of the Intel, COMS, IDTI, EFII, ALTR earnings warnings. Again I am leaving the stop low to keep us in this position. ********************** COP - Conoco Phillips $76.19 **Stop 69.00** What a great start for this play. We got a small dip on Monday that should have let everyone in a little cheaper than profiled and then a rocket ride from $73 to $76 and no weakness into the weekend. The next resistance is $80 and the next pop in oil prices could get there quickly. The LEAP is already up +20%. **************************** Current Portfolio: **************************** SMH - Semiconductor Holders $28.30 **CLOSED TODAY** 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 $2.75 (+93%) Nov-$35 Put SMH-WG cost $3.80 current $6.74 (+76%) Initial play description: http://members.OptionInvestor.com/leaps/Lp_080104_1.asp SMH Chart TYC Tyco $31.56 **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 $5.00 July $25 insurance put - expired - cost $.55 Tyco Chart JNPR - Juniper Networks $23.15 **Stop $19.00** Entry $20.19 2006 $25 LEAP Call WBW-AE cost $3.50 current $4.90 Insurance = Sept-$17.50 Put JUX-UW cost 50 cents. http://members.OptionInvestor.com/leaps/Lp_081504_1.asp JNPR Chart COP - Conoco Phillips $76.19 **Stop 69.00** Entry $73.30 August 30th Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 currently $8.20 Initial play description: http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart INTC - Intel Corp $20.05 **Stop $17.00** Entry $20.00 Sept 3rd Current position: 2006 $22 LEAP Call WNL-AX at $2.20 currently $2.30 2006 $25 LEAP Call WNL-AE at $1.45 currently $1.55 Initial play description: http://members.OptionInvestor.com/leaps/Lp_071804_1.asp Intel Chart Intel Chart - Weekly NWS - News Corp $30.76 This play was originally in the Editors Play section. I moved it here because of the long term nature. You can read the original play description here. http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp The play was going according to plan until the exchanges said NWS could not dual list on both the Australian exchange and the NYSE. NWS is moving to the NYSE next year. Fund holders began selling the Australian shares when it became evident those holders would have to liquidate. The plan was to sell calls against the NWS position to average cost down but with the stock in a decline there has been no premium to sell. A -$7.85 drop in BskyB also hit NWS as a major holder of BskyB stock. Long term support is $30 and I am reluctant to close the position as long as that support holds. Current position: Jan-2006 $40 Calls WLN-AH @ $3.83 NWS Chart Position Summary Graph LEAPS Watch List Dropped Entry WMT $53.25 I am dropping Wal-Mart based on the continued weak consumer sector. I originally had hoped WMT would rebound from $52 and return to a new high over $60 but the pattern is not developing. ************************* New Entry UPL - Ultra Petroleum $43.30 **Target $38.00** I hesitate to add this to the watch list because every time I look at it I can't believe how far it has run. The only saving grace is that it does have a pattern of pulling back to the 100dma every couple of months. Currently at $37 it was just hit on Aug 24th. Each time it hits it bounces a mile. I am putting UPL on the watch list at $38 in hopes the next technical correction in the price of oil knocks both it and OXY back into range. UPL had a market cap four years ago of $35 million. Today it has a market cap over $3 billion. There has got to be a few holders that think their slot machine has hit the jackpot and will bail out soon. UPL acquired several fields in Wyoming that have proved to be huge winners. The first two fields have already proven to have more than one TRILLION cubic feet of gas and the company has barely begun to drill exploratory holes. The company says the eventual size of the reserves could be in the 20-30 TRILLION feet of gas. The company has staked out 600 drilling sites on the Wyoming lease. On July 18th the company began drilling wells in Bohai Bay China and expects to produce 30,000 barrels per day soon and 65,000 barrels per day in 2005. Earnings are expected to jump +88% for the year and could double next year. JAN-2006 $45 LEAP Call WSS-AI $10.50 target $8.50 JAN-2006 $50 LEAP Call WSS-AJ $ 8.70 target $6.50 UPL Chart *********************** OXY - Occidental Petroleum $53.40 Target $51.00 I might as well just write OXY off early with that +3 jump right after I listed it. But, I am hard headed and still think we could have a chance on any market weakness. Surely somebody has some profit in OXY they need to harvest. We will keep it another week. 2006 $50 JAN LEAP Calls WXY-AJ currently $7.00 2006 $55 JAN LEAP Calls WXY-AK currently $5.10 http://members.OptionInvestor.com/leaps/Lp_082904_1.asp OXY Chart EBAY - EBAY $89.38 target entry $75.00 Raised the entry again to $75 but with this weeks news and gains I think it may be hopeless. I am going to leave it on the watch list and we will target a better entry based on what the market gives us over the next four weeks. 2006 $80 LEAP Call YEU-AP http://members.OptionInvestor.com/leaps/Lp_072504_1.asp EBAY Chart MER - Merrill Lynch $51.85 target entry $46.00 MER failed to impress this week although it did rebound from a promising dip to near $50. Still waiting for the September weakness and a retracement of that Aug-16th spike. 2006 $50 LEAP Call WZM-AJ http://members.OptionInvestor.com/leaps/Lp_071804_1.asp MER Chart MMM - 3M Company - $83.94 Target entry $80, add to position at $75. After the MMM spike on Thursday I raised the entry point this weekend. When any real market weakness appears the funds will be dumping high dollar winners to speculate on low dollar small caps. I am still hopeful we will get an entry here. 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 $46.91 LEAP Call I raised the entry point on Citigroup based on the Thursday spike and speculation of where any weakness might lead. Enter 1/2 position at $45.75 Enter 1/2 position at $44.00 2006 $50 LEAP Call WRV-AJ http://members.OptionInvestor.com/leaps/Lp_080804_1.asp Citigroup Chart SYMC - Symantec - $48.67 - Target $45 I raised the entry point to $45 from $43. I thought we were out of the ballpark on Thursday but Friday brought it back within range. 2006 $50 LEAP Call YAG-AJ current $8.17, target $5.00 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp SYMC Chart GE $32.86 LEAP Call Target $31.00 2006 $30 LEAP Call WGE-AF $4.80, target $4.00 2006 $35 LEAP Call WGE-AG $2.15, 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 09-05-2004 Sunday 5 of 5 In Section Five: Covered Calls: CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS Spreads and Straddles: Do You Have What It Takes? Girlie-men Need Not Apply 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/no margin) Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield CLHB 10.93 OCT 10.00 QPB-JB 1.45 293 9.48 39 4.3% SNDA 21.70 OCT 20.00 QKU-JD 2.70 80 19.00 39 4.1% EPIX 21.52 OCT 20.00 FCU-JD 2.40 1 19.12 39 3.6% MOGN 29.28 OCT 27.50 QOG-JY 3.00 1876 26.28 39 3.6% VICL 5.46 OCT 5.00 VAQ-JA 0.65 53 4.81 39 3.1% TTEC 8.44 OCT 7.50 QTC-JU 1.20 260 7.24 39 2.8% MXT 8.19 OCT 7.50 MXT-JU 0.95 3820 7.24 39 2.8% RAE 5.94 OCT 5.00 RAE-JA 1.10 8 4.84 39 2.6% TSO 24.25 OCT 22.50 TSO-JX 2.45 28 21.80 39 2.5% 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). _________________________________________________________________ CLHB - Clean Harbors $10.93 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 $10.93 OCT 10.00 QPB-JB LB=1.45 OI=293 CB=9.48 DE=39 TY=4.3% _________________________________________________________________ SNDA - Shanda Interactive Ent. $21.70 Shanda Interactive Entertainment (NASDAQ:SNDA) is an operator of online games in China. The games, licensed from third parties, as well as developed in-house by the company, include The Legend of Mir II and The World of Legend. The company's commercially launched games have approximately 1.4 million peak concurrent users and 931,570 average concurrent users. Shanda also provides multiplayer online games, including role-playing games and casual online games, which allow thousands of users to interact in a virtual world by assuming ongoing roles or characters with many different features. SNDA - Shanda Interactive Ent. $21.70 OCT 20.00 QKU-JD LB=2.70 OI=80 CB=19.00 DE=39 TY=4.1% _________________________________________________________________ EPIX - EPIX Medical $21.52 EPIX Medical (NASDAQ:EPIX) is a developer of targeted contrast agents that are designed to improve the diagnostic quality of images produced by magnetic resonance imaging (MRI). MRI is an imaging technology for range of applications, including the identification and diagnosis of a variety of medical disorders. The company is developing two products, MS-325 and EP-2104R, for use in MRI to improve the diagnosis of multiple cardiovascular diseases affecting the body's arteries and veins (the vascular system). EPIX - EPIX Medical $21.52 OCT 20.00 FCU-JD LB=2.40 OI=1 CB=19.12 DE=39 TY=3.6% _________________________________________________________________ MOGN - MGI PHARMA $29.28 MGI PHARMA (NASDAQ:MOGN) is an oncology-focused biopharmaceutical company that acquires, develops and commercializes proprietary pharmaceutical products that meet cancer patient needs. The company's marketed products include Aloxi injection, for the prevention of chemotherapy-induced nausea and vomiting; Salagen Tablets, as a treatment for the symptoms of radiation-induced dry mouth in head and neck cancer patients and to rheumatologists as a treatment for dry mouth associated with the autoimmune disease Sjogren's syndrome; and Hexalen capsules, which are an orally administered chemotherapeutic agent. MOGN - MGI PHARMA $29.28 OCT 27.50 QOG-JY LB=3.00 OI=1876 CB=26.28 DE=39 TY=3.6% _________________________________________________________________ VICL - Vical $5.46 Vical (NASDAQ:VICL) is engaged in the research and development of biopharmaceutical products based on its deoxyribonucleic acid delivery technologies for the prevention and treatment of serious or life-threatening diseases. The firm's independent development focus is on novel DNA vaccines for cytomegalovirus and anthrax, as well as cancer immunotherapeutic. Vical is able to enhance technologies through licensing and collaborative agreements. VICL - Vical $5.46 OCT 5.00 VAQ-JA LB=0.65 OI=53 CB=4.81 DE=39 TY=3.1% _________________________________________________________________ TTEC - TeleTech Holdings $8.44 TeleTech Holdings (NASDAQ:TTEC) serves its clients through two primary businesses, Customer Management Services and Database Marketing and Consulting. The Customer Management Services business provides outsourced customer support and marketing services for a variety of industries via call centers (customer management centers) throughout the world. The Database Marketing and Consulting business provides outsourced database management, direct marketing and related customer retention services for automotive dealerships and manufacturers in North America. TTEC - TeleTech Holdings $8.44 OCT 7.50 QTC-JU LB=1.20 OI=260 CB=7.24 DE=39 TY=2.8% _________________________________________________________________ MXT - Metris Companies $8.19 Metris Companies (NYSE:MXT) provides financial products and services throughout the United States. Its primary line of business is the credit card business. The company's credit card products are primarily unsecured credit cards issued through a subsidiary, Direct Merchants Credit Card Bank, National Association. These credit cards generate consumer loans, which, in turn, generate income and cash flow from principal, interest and fee payments. Sales of the company's other consumer financial products, such as credit protection products, generate additional cash flow. MXT - Metris Companies $8.19 OCT 7.50 MXT-JU LB=0.95 OI=3820 CB=7.24 DE=39 TY=2.8% _________________________________________________________________ RAE - RAE Systems $5.94 RAE Systems (NYSE:RAE) is a global developer and manufacturer of rapidly deployable, multi-sensor chemical detection monitors, networks for homeland security and industrial applications. In addition, RAE offers a line of portable single-sensor chemical and radiation detection products. The company's unique products include portable, wireless and fixed atmospheric monitors and photo-ionization detectors and gamma and neutron detectors, which enable the military and first responders, such as firefighters, law enforcement and emergency management personnel to detect and provide early warning of weapons of mass destruction and other hazardous materials. RAE - RAE Systems $5.94 OCT 5.00 RAE-JA LB=1.10 OI=8 CB=4.84 DE=39 TY=2.6% _________________________________________________________________ TSO - Tesoro Petroleum $24.25 Tesoro Petroleum (NYSE:TSO) is an independent is refiner and marketer of petroleum products with two operating segments, Refining and Retail. Through its refining segment, Tesoro manufactures products, primarily gasoline and blendstocks, jet fuel, diesel fuel and heavy fuel oils, for sale to a variety of commercial customers. Tesoro's retail segment distributes motor fuels through a network of branded gas stations, primarily trading under the Tesoro and Mirastar brands. The company markets its products to wholesale and retail customers, as well as commercial end users. TSO - Tesoro Petroleum $24.25 OCT 22.50 TSO-JX LB=2.45 OI=28 CB=21.80 DE=39 TY=2.5% ******************* SPREADS & STRADDLES ******************* Do You Have What It Takes? Girlie-men Need Not Apply By Mike Parnos, The Options Therapist It takes patience. It takes vision. It takes time. It takes discipline. It takes skill. It takes character. It takes intestinal fortitude. It takes an investment. Do you have all of the qualities? This may sound like I'm selling time-shares or an MLM program, but that's not the case. I don't sell anything. I teach. I coach. I mentor. It's up to you to take the information and put it to good use. If you do it right, there's an excellent chance of profit. If you answer "yes" to the questions above, you just might, and I repeat "might," be able to generate an average of 6%-7% a month. If you mess it up, it will be a self-inflicted wound. You can put a band-aid on it, but nobody in the market is handing out Purple Hearts – or painting them on the band-aids. And you won't be elected president of your investment club. In our "Ongoing Positions" Section, we've been tracking the progress of a QQQ ITM Strangle that was originally put on in October of 2003. We've done reasonably well, but some of my monthly adjustment positions could have been better. We're still on schedule to make a very respectable return. (see "ongoing positions" below) It Ain't Easy Makin' Green We're going to take a long hard look at the QQQ ITM Strangle strategy. We're going to look inside and out and cover the good, the bad, and the ugly parts of the strategy. It may take three, four, or five columns, but, if your mind is open, we'll try and put something worthwhile in there. This may be a bit of a review for some CPTI students. I look at it as "initiation" for those newer members of our Couch Potato Trading Institute. I'm going to start out with the basics – always a good place to start. This is going to sound like a "can't miss" kind of strategy. Maybe it is, but, if you don't know what you're doing, you can find a way to screw it up. Before you know it, you'll be back watching fishing on ESPN2 – with a lot less money in your pocket. So, read the following carefully and make sure you understand it well before you venture into a position. If you simply can't resist the temptation, look into the CPTI archives from a few years ago and find where I discussed the strategy. I also devoted a number of columns to answering specific reader questions on the strategy. As they said at the Olympics, "Let the games begin." Let's go for the gold. ___________________________________________________________ THE POSITION QQQ ITM Strangle consists of owning in-the-money put and call QQQ LEAPS and selling near term options to generate income. Essentially, it's a put calendar spread along with a call calendar spread. Using Friday's (Sept. 3rd) closing prices, let's construct a new "hypothetical" QQQ ITM Strangle. We'll use a 10-contract position for our example. The LEAPS Buy 10 QQQ January 2006 $30 LEAPS call @ $7.10 ($7,100) Buy 10 QQQ January 2006 $40 LEAPS put @ $7.10 ($7,100) Total out of pocket is $14,200. Take a closer look at what we just created. It's an in-the-money strangle. With the QQQs trading at $34.14, both the long put and long call are in-the-money. The question arises, "How much is at risk?" On the surface it looks like there is $14,200 out there in jeopardy. However, in every long strangle, we also create some "intrinsic" value. It is the difference between the strike prices. In this case, since we own the $30 calls and $40 puts, our "intrinsic" value is $10 (x 10 contracts) or $10,000. Regardless of where the QQQs trade, between now and January 2006 expiration, the strangle will have a minimum value of at least $10. So, in reality, there is not $14,200 at risk. The risk is only $4,200. The Near Term Options Now comes the fun part. This is where we make the money. Don't get too excited. It's not going to be a lot. Remember, I said this is a long-term strategy. By long-term I means years -- not days or weeks or months. If you're going to close out this position in six months because you need to to pay for a liposuction procedure, don't waste your time or money on this strategy. If you can, with a clear conscience, make the necessary commitment, here's the next step. Sell 10 QQQ October $34 puts @ $.85 ($850) Sell 10 QQQ October $35 calls @ $.55 ($550) Total premium received: $1.40 ($1,400) You have just taken in $1,400 on a total investment of $14,200. That's almost 10%. Sounds good, right? But, it's a little deceiving. There are actually six weeks left until October expiration. That explains the higher premium. Usually, in a month, we will be able to bring in from $.60 ($600) to $1.20 ($1,200). Over the life of this position, we can hope to average about $.90 ($900) per month. This average will depend, to a large extent, on your trading skills – and a little luck, too. Do The Math There are 16 option cycles remaining until the LEAPS expire in January 2006. That means there are 16 opportunities to sell near term premium against the LEAPS. Multiply 16 option cycles times $900 and you'll get $14,400 in premium taken in over the life of the position. In January 2006, the LEAPS will expire. We will retain the $10 of intrinsic value, but the $4,200 of money at risk will have eroded away. But, that's OK. We took in $14,400. Only $4,200 eroded away. That leaves $10,200 in premium that is ours – free and clear. The Return Calculations We can calculate the return a few different ways. a) Return on Total Investment. Over 16 months, we show a profit of $10,200 on a total investment of $14,200. Divide our profit of $10,200 by our total investment of $14,200 and you get a return of 71.8% -- for 16 months. Annualized, that's about 54% a year. b) Return on Risk. Over 16 months, we show a profit of $10,200 on a total investment of $14,200. But our actual risk is only $4,200. Divide our profit ($10,200) by our amount at risk ($4,200) and you get a return on risk of an incredible of 242.8% -- for 16 months. Too Good To Be True? Do you like those numbers? Beats the hell out of a CD, doesn't it? Well, now that you've been sufficiently teased, I will leave you to ponder. With these kind of returns, I know that some of you will already be planning your retirement. Don't get carried away. It's not a sure thing. Far from it. As I said before, it will depend on your knowledge and trading skills. By the same token, don't be intimidated either. It's not brain surgery. But, before you indulge, you should have a mental procedure I like to call: an information implant. And that's why you're here . . . Stay tuned to this station for further developments – and the next in our QQQ ITM Strangle series. Have a great Labor Day weekend! ________________________________________________________________ SEPTEMBER CPTI POSITIONS September Position #1 – SPX Iron Condor – 1113.63 The SPX has become our favorite index. The premiums are respectable. The spreads are wide enough to do a little shaving, and we can create some huge trading ranges for safety purposes. We sold 10 Sept. SPX 1015 puts and bought 10 September SPX 995 puts for a credit of about: $1.10 ($1,100). Then we sold 10 September SPX 1140 calls and bought 10 September SPX 1160 calls for a credit of about $1.40 ($1,400). Total credit and potential profit of $2,500. Maximum profit range: 1015 to 1140. That's a 125-point range. It is going to require $20,000 in maintenance. The return on risk will be about 14.3%. September Position #2 – RUT Iron Condor – 556.24 We sold 10 RUT September 500 puts and bought 10 RUT September 490 puts for a credit of about: $1.00 ($1,000). Then we sold 10 RUT September 580 calls and bought 10 RUT September 590 puts Credit of about $1.00 ($1,150). Total credit and profit potential of $2,000. It's a nice size maximum profit range of 500 to 580. The maintenance requirement is only $10,000. The return on risk will depend on what premium you take in. If you take in $2,000, the return on risk will be 25%. September Position #3 – SPX "Sure Thing" – 1113.63 In this August cycle, our Credit Spread Boogie play is going to be 100% profitable. It may have taken two months to make this money, but it was well worth it. So, let's do it again. We sold 3 September SPX 1105 calls and bought 3 September SPX 1130 calls for a credit of about $7.00 ($2,100). When the market moved up quickly, we closed out our Sept. 1105/1130 bear call spread at a cost of $13.90 ($4,170). We then put on 7 contracts a bull put spread (1110/1085) at $6, taking in $4,200. Our new maintenance requirement is $17,500. September Position #4 – OEX Iron Condor – 541.06 This position is in response to some requests for an OEX play. We sold 10 September OEX 505 puts and bought 10 September OEX 495 puts for a credit of about: $.65 ($650). Then we sold 10 September OEX 555 calls and bought 10 September OEX 565 calls for a credit of about $.75 ($750). Total net credit of about $1.40 ($1,400). Maximum profit range: 505 to 555. Potential return on risk of about 16%. _________________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $34.14 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We make money by selling near term puts and calls every month. Here's what we've done so far: Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts and calls – credit of $1,150. Dec. $34 puts and calls – credit of $1,500. Jan. $34 puts and calls – credit of $850. Feb. $34 calls and $36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34 calls and $37 puts – credit of $750. May $34 calls and $37 puts – credit of $800. June $34 calls and $37 puts -- total net credit of $750. We rolled out to the July $34 calls ($.20 credit) and $37 puts ($.60 credit) and took in a credit of $.80 ($800). We rolled to the August $34 calls and $37 puts, taking in a credit of $900. For the September cycle, we rolled to the Sept. $34 calls and $37 puts, only yielding $.45 or $450 for the cycle. Our new total credit is now $11,750. Note: We haven't included the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! And it's a great cash flow generating strategy – see write up in today's column text. ZERO-PLUS Strategy. OEX – 541.06 In my Feb. 8th column, I outlined a strategy based on an initial investment of $100,000. $74,000 was spent on zero coupon bonds maturing in seven years at a value of $100,000. The principal $100,000 investment is guaranteed. We're trading the remaining $26,000 to generate a "risk free" return on the original investment. Our current position: We own 3 OEX December 2006 540 calls @ $81 (x 300 = $24,300). Our cash position as of May expiration was $4,390 plus unused $1,700 = $6,090. From the June option cycle, we are able to officially add $1,175 to our cash position – that now stands at $6,265 As of July expiration we had a total of $7,440. We now add the $950 for the August expiration for a new total of $8,390. New Zero Plus Positions For September September bull put spread 505/495 for credit of $.75 x 5 contracts = $375. Short 555 call for credit of $1.20 x 5 = $600. If all goes well, we'll be able to add $975 to our cash position as we wait for the market to move up – hopefully in this lifetime. _________________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Mike Parnos, Options Therapist and CPTI Master Strategist Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ************************Advertisement************************* 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 ***************************************** Technology Shares Lead The Retreat! By Ray Cummins Stocks closed with a bearish bias Friday after a profit warning from Intel (NASDAQ:INTC) spurred a sell-off in technology issues, while mediocre jobs data weighed heavily on the broader market. The Dow Jones industrial average fell 30 points to 10,260, with computer-related components Hewlett-Packard (NYSE:HPQ), Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC) enduring the biggest losses. The tech-laden NASDAQ composite index dropped 28 points to 1,844 with semiconductor, networking and data storage stocks among the worst performers. Standard & Poor's 500-stock index closed down 4 points at 1,113, as gold, airline, and defense shares led the broader market lower. NYSE volume was 923 million with decliners pacing advancers nearly 3 to 2. Trading volume on the NASDAQ was 1.24 billion with similar breadth. In the bond market, the price of the 10-year treasury fell 17/32, driving its yield up to 4.28%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 09/03/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 68.74 SEP 55.0 60.0 0.40 59.60 0.40 Open FPL 67.73 69.04 SEP 60.0 65.0 0.45 64.55 0.45 Open MCO 67.33 69.63 SEP 60.0 65.0 0.65 64.35 0.65 Open BSTE 44.14 48.41 SEP 35.0 40.0 0.55 39.45 0.55 Open ISCA 53.40 52.76 SEP 45.0 50.0 0.55 49.45 0.55 Open LEND 33.89 39.10 SEP 25.0 30.0 0.60 29.40 0.60 Open PIXR 69.93 78.43 SEP 60.0 65.0 0.45 64.55 0.45 Open PD 80.77 82.05 SEP 65.0 70.0 0.40 69.60 0.40 Open RYL 86.01 89.02 SEP 75.0 80.0 0.65 79.35 0.65 Open FRO 40.05 39.46 SEP 30.0 35.0 0.60 34.40 0.60 Open NIHD 37.59 37.90 SEP 33.4 35.0 0.20 34.80 0.20 Open NCEN 53.10 55.65 SEP 45.0 50.0 0.60 49.40 0.60 Open SEPR 49.35 50.02 SEP 42.5 45.0 0.30 44.70 0.30 Open GILD 69.39 70.32 SEP 60.0 65.0 0.55 64.45 0.55 Open PCU 43.29 44.54 SEP 35.0 40.0 0.50 39.50 0.50 Open MUR 75.51 77.29 OCT 65.0 70.0 0.70 69.30 0.70 Open RYL 88.15 89.02 OCT 75.0 80.0 0.75 79.25 0.75 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 73.31 SEP 85.0 80.0 0.55 80.55 0.55 Open CDWC 59.25 58.29 SEP 65.0 60.0 0.45 60.45 0.45 Open DNA 44.23 49.90 SEP 52.5 50.0 0.35 50.35 0.35 Open? EASI 43.53 46.02 SEP 55.0 50.0 0.40 50.40 0.40 Open VLO 64.36 66.20 SEP 75.0 70.0 0.60 70.60 0.60 Open FD 44.60 45.28 SEP 50.0 47.5 0.30 47.80 0.30 Open PHS 32.42 32.40 SEP 37.5 35.0 0.30 35.30 0.30 Open OSTK 31.03 31.43 SEP 40.0 35.0 0.60 35.60 0.60 Open AMZN 39.90 38.74 SEP 45.0 42.5 0.30 42.80 0.30 Open CHIR 43.41 42.58 SEP 47.5 45.0 0.30 45.30 0.30 Open RIMM 60.22 62.36 SEP 70.0 67.5 0.20 67.70 0.20 Open AZO 74.06 75.69 OCT 85.0 80.0 0.55 80.55 0.55 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Genentech (NYSE:DNA) remains on the early-exit list. Briggs & Stratton (NYSE:BGG), Guidant (NYSE:GDT), Kmart (NASDAQ:KMRT) and Vimple Communications (NYSE:VIP) have previously been 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 DITC 17.97 21.84 SEP 17.5 17.5 3.00 5.50 Open? CAH 45.79 47.35 SEP 45.0 45.0 3.00 3.40 Open Our recent straddle in Ditech (NASDAQ:DITC) was the "big winner" in August as the issue jumped over $4 on a strong earnings report and the announcement of two additional customers in Asia. The earnings date for Cardinal Health (NYSE:CAH) was published in error by more than one financial information provider (my source was RightLine, which has since revised its expected date to 9/7), but the IR department at CAH reportedly said "no date has been set." Many traders believe the quarterly report will be released in the next two weeks -- only time will tell. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ GIVN - Given Imaging $38.72 *** Next Leg Up? *** Given Imaging (NASDAQ:GIVN) provides unique products for the gastrointestinal community. The company's principal product, which incorporates its core technology, is the Given System, a wireless imaging system for a visual examination of the gastrointestinal tract. The Given System uses a miniaturized video camera contained in a disposable capsule, which Given refers to as the M2A capsule. The Given System can be sold in the United States as a standalone or first-line tool for the detection of abnormalities of the small intestine. GIVN - Given Imaging $38.72 PLAY (less conservative - bullish/credit spread): BUY PUT OCT-30.00 QPG-VF OI=0 ASK=$0.30 SELL PUT OCT-35.00 QPG-VG OI=110 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.75-$0.80 POTENTIAL PROFIT(max)=16% B/E=$34.25 __________________________________________________________________ MBT - Mobile TeleSystems $140.75 *** Up, Up & Away! *** Mobile TeleSystems (NYSE:MBT) is a provider of mobile cellular communications services in the Russian Federation and Ukraine, employing technology based primarily on Global System for Mobile Communications. In addition to standard voice services, the company offers its subscribers value-added services, including voice mail, short message service, general packet radio service, various SMS- and GPRS-based information & entertainment services, and data and fax transmission. It also offers its subscribers the ability to roam automatically throughout Europe and in much of the rest of the world. MBT - Mobile TeleSystems $140.75 PLAY (conservative - bullish/credit spread): BUY PUT OCT-120.00 MBT-VD OI=36 ASK=$1.05 SELL PUT OCT-125.00 MBT-VE OI=4 BID=$1.45 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$124.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ MXIM - Maxim Integrated $40.94 *** Sector Slump! *** Maxim Integrated Products (NASDAQ:MXIM) designs, develops, and markets linear and mixed-signal integrated circuits, commonly referred to as analog circuits. Its many products include data converters, interface circuits, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, delay lines, real-time clocks, microcontrollers, switches, battery chargers, battery management circuits, radio frequency circuits, fiber-optic transceivers, sensors and voltage references. The company also provides a range of high-frequency design processes and capabilities that can be used in custom designs. MXIM - Maxim Integrated $40.94 PLAY (conservative - bearish/credit spread): BUY CALL OCT-50.00 XIQ-JJ OI=1749 ASK=$0.15 SELL CALL OCT-45.00 XIQ-JI OI=282 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$45.50 __________________________________________________________________ PLMO - palmOne $32.20 *** Trend Reversal? *** palmOne (NASDAQ:PLMO), formerly Palm, develops, designs and sells Palm-branded, hand-held devices, accessories and the operating system Palm OS. The company was historically organized into two operating segments: the Solutions Group and PalmSource. Now the Solutions Group develops and markets hand-held devices and other accessories to provide the user with a simple, elegant and useful productivity tool. PalmSource developed and licensed the Palm OS and related software, which is referred to as the Palm platform. The Palm platform is the foundation for Palm devices, as well as for devices manufactured by other third-party licensees. PLMO - palmOne $32.20 PLAY (conservative - bearish/credit spread): BUY CALL OCT-45.00 UPY-JI OI=425 ASK=$0.55 SELL CALL OCT-40.00 UPY-JH OI=2090 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$40.55 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. __________________________________________________________________ VTS - Veritas DGC $20.34 *** Delayed Earnings! *** Veritas DGC (NYSE:VTS) provides integrated geophysical services to the petroleum industry worldwide. Its many customers include national and independent oil and gas firms that use geophysical technologies to identify new areas where subsurface conditions are favorable for the production of hydrocarbons, determine the size and structure of previously identified oil and gas fields and optimize development and production of hydrocarbon reserves. VTS - Veritas DGC $20.34 PLAY (very speculative - neutral/debit straddle): BUY CALL SEP-20.00 VTS-ID OI=26 ASK=$1.15 BUY PUT SEP-20.00 VTS-UD OI=1056 ASK=$0.75 INITIAL NET-DEBIT TARGET=$1.75-$1.80 INITIAL TARGET PROFIT=$0.65-$1.00 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 09/03/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 16.00 15.64 19.85 0.36 5.52% 2.30% MCIP SEP 15.00 14.30 17.25 0.70 8.50% 4.90% PAAS SEP 12.50 12.05 14.64 0.45 6.87% 3.73% UTHR SEP 25.00 24.70 30.77 0.30 3.01% 1.21% AMED SEP 25.00 24.25 25.76 0.75 6.54% 3.09% PHM SEP 50.00 49.25 59.86 0.75 3.32% 1.52% KOSP SEP 30.00 29.25 37.31 0.75 5.48% 2.56% GLBCE SEP 12.50 11.90 16.04 0.60 11.90% 5.04% ECLP SEP 12.50 12.10 14.53 0.40 6.90% 3.31% OMM SEP 12.50 12.10 13.15 0.40 6.51% 3.31% CNCT SEP 25.00 24.10 25.43 0.90 7.11% 3.73% TOY SEP 15.00 14.45 16.53 0.55 7.51% 3.81% ACF SEP 20.00 19.25 20.50 0.75 7.16% 3.90% PLMO SEP 30.00 29.45 32.20 0.55 5.05% 1.87% ION SEP 25.00 24.50 27.23 0.50 4.17% 2.04% ESLT SEP 20.00 19.20 19.78 0.58 5.77% 4.17% WBSN SEP 35.00 33.75 38.03 1.25 8.46% 3.70% NTMD SEP 12.50 12.15 18.50 0.35 8.12% 2.88% UTHR SEP 25.00 24.30 30.77 0.70 7.30% 2.88% CNCT SEP 25.00 24.30 25.43 0.70 6.65% 2.88% DDS SEP 20.00 19.50 19.85 0.35 4.42% 2.56% MEE SEP 22.50 22.00 28.36 0.50 5.93% 2.27% FOSL SEP 25.00 24.35 28.64 0.65 5.95% 2.67% HUM SEP 17.50 17.10 19.27 0.40 5.34% 2.34% SCSC SEP 50.00 49.40 60.99 0.60 3.30% 1.21% JOSB SEP 24.00 23.52 28.17 0.48 5.27% 2.04% ECLP SEP 12.50 12.20 14.53 0.30 6.57% 2.46% WBSN SEP 35.00 34.05 38.03 0.95 7.44% 2.79% ARO SEP 30.00 29.05 30.82 0.95 7.67% 3.27% MW SEP 25.00 24.60 29.29 0.40 4.22% 1.63% TOL SEP 40.00 39.05 45.14 0.95 6.19% 2.43% SEAC SEP 15.00 14.40 15.52 0.60 12.11% 4.17% CLHB SEP 10.00 9.60 10.93 0.40 10.87% 4.17% NTMD SEP 15.00 14.65 18.50 0.35 8.62% 2.39% ESLT SEP 20.00 19.20 19.78 0.58 7.69% 4.17% MYGN SEP 15.00 14.55 16.23 0.45 8.06% 3.09% NAVR SEP 12.50 12.15 14.67 0.35 9.14% 2.88% IVX SEP 18.00 17.56 19.85 0.44 7.02% 2.51% UTHR SEP 25.00 24.40 30.77 0.60 8.89% 2.46% AAPL SEP 30.00 29.50 35.23 0.50 5.37% 1.69% ARO SEP 30.00 29.50 30.82 0.50 5.51% 1.69% SONO SEP 22.50 22.05 25.33 0.45 6.40% 2.04% ESLT SEP 20.00 19.30 19.78 0.48 7.49% 3.63% MEE SEP 25.00 24.45 28.36 0.55 7.13% 2.25% SRDX SEP 22.50 21.90 24.11 0.60 8.40% 2.74% IVX SEP 18.00 17.52 19.85 0.48 8.94% 2.74% BSTE SEP 45.00 44.45 48.41 0.55 4.16% 1.24% FCN SEP 17.50 17.05 18.34 0.45 7.56% 2.64% PSRC SEP 20.00 19.35 22.81 0.65 16.45% 3.36% MYGN SEP 15.00 14.70 16.23 0.30 8.01% 2.04% LCAV SEP 22.50 21.95 24.45 0.55 10.09% 2.51% ATI SEP 17.50 17.10 19.18 0.40 9.15% 2.34% LNG SEP 15.00 14.70 20.84 0.30 9.15% 2.04% DITC SEP 20.00 19.55 21.83 0.45 9.32% 2.30% ICOS SEP 25.00 24.60 25.47 0.40 6.46% 1.63% WNC SEP 25.00 24.60 28.10 0.40 6.62% 1.63% BEIQ SEP 25.00 24.70 27.12 0.30 5.32% 1.21% DITC SEP 20.00 19.55 21.83 0.45 10.09% 2.30% SHFL SEP 30.00 29.35 32.22 0.65 10.20% 2.21% ATI SEP 17.50 17.20 19.18 0.30 7.78% 1.74% SNDA SEP 20.00 19.70 21.70 0.30 7.46% 1.52% GMR SEP 25.00 24.65 28.28 0.35 6.58% 1.42% AAPL SEP 32.50 32.05 35.23 0.45 6.20% 1.40% SONO SEP 22.50 22.10 25.33 0.40 8.03% 1.81% PalmOne (NASDAQ:PLMO), which is currently profitable, Possis Medical (NASDAQ:POSS) and Kyphon (NASDAQ:KYPH), have previously been closed to limit losses. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield CRDN SEP 40.00 40.50 41.58 (1.08) 0.00% 0.00% SWIR SEP 35.00 35.60 16.49 0.60 7.40% 1.69% AVID SEP 50.00 50.50 43.44 0.50 3.56% 0.99% USPI SEP 37.50 38.05 36.29 0.55 3.90% 1.45% BDY SEP 25.00 25.75 24.82 0.75 7.42% 2.91% DRIV SEP 30.00 30.30 24.15 0.30 4.51% 0.99% SINA SEP 30.00 30.35 20.83 0.35 5.84% 1.15% ERES SEP 22.50 22.80 19.54 0.30 6.66% 1.32% MRVL SEP 25.00 25.40 22.87 0.40 8.22% 1.57% ICUI SEP 30.00 30.65 27.30 0.65 7.56% 2.12% SWIR SEP 30.00 30.30 16.49 0.30 5.90% 0.99% UPL SEP 45.00 45.40 43.30 0.40 4.90% 0.88% MCHP SEP 30.00 30.65 25.26 0.65 6.97% 2.12% EYET SEP 45.00 45.75 34.00 0.75 10.85% 1.64% CMX SEP 30.00 30.45 28.92 0.45 4.86% 1.48% IDXC SEP 30.00 30.30 29.71 0.30 3.95% 0.99% BRCM SEP 32.50 32.90 25.98 0.40 5.76% 1.22% ELAB SEP 30.00 30.55 25.21 0.55 8.34% 1.80% MRVL SEP 25.00 25.35 22.87 0.35 5.80% 1.38% RSTI SEP 30.00 30.65 28.01 0.65 10.87% 2.12% ASKJ SEP 30.00 30.35 24.11 0.35 7.04% 1.15% PSFT SEP 20.00 20.35 17.68 0.35 11.10% 1.72% PLMO SEP 40.00 40.25 32.20 0.25 6.23% 0.62% RECN SEP 35.00 35.50 34.09 0.50 7.42% 1.41% ASTE SEP 17.50 17.95 17.50 0.45 12.48% 2.51% The "watch" list position in Ceradyne (NASDAQ:CRDN) should have been closed by conservative traders. Bradley Pharma (NYSE:BDY), IDX Systems (NASDAQ:IDXC), United Surgical (NASDAQ:USPI), and Ultra Petroleum (NYSE:UPL) are possible "early-exit" candidates. 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 FLE 13.34 SEP 12.50 FLE-UV 0.25 100 12.25 12 5.2% 13.4% EPIX 21.52 SEP 20.00 FCU-UD 0.25 58 19.75 12 3.2% 8.6% MDCC 23.98 OCT 22.50 MCQ-VX 0.75 22 21.75 39 2.7% 6.6% CC 13.64 OCT 12.50 CC-VV 0.35 5584 12.15 39 2.2% 5.9% BLUD 21.85 OCT 20.00 QMQ-VD 0.50 3 19.50 39 2.0% 5.3% NIHD 37.90 SEP 35.00 QHQ-UG 0.25 411 34.75 12 1.8% 5.1% SSYS 27.00 OCT 22.50 QQG-VX 0.40 0 22.10 39 1.4% 4.7% MOGN 29.28 OCT 25.00 QOG-VE 0.40 310 24.60 39 1.3% 4.0% 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. _________________________________________________________________ FLE - Fleetwood Enterprises $13.34 *** Solid Earnings! *** Fleetwood Enterprises (NYSE:FLE) produces recreational vehicles, including motor homes, travel trailers and folding trailers, as well as manufactured housing. Fleetwood's vertically integrated housing operations are completed by its subsidiary, HomeOne Credit, which offers finance and insurance products to its retail customers. In addition, Fleetwood operates four supply companies that provide components for the recreational vehicle and housing operations, while also generating outside sales. FLE - Fleetwood Enterprises $13.34 SEP 12.50 FLE-UV LB=0.25 OI=100 CB=12.25 DE=12 TY=5.2% MY=13.4% _________________________________________________________________ EPIX - EPIX Medical $21.52 *** On The Rebound! *** EPIX Medical (NASDAQ:EPIX) is a developer of targeted contrast agents that are designed to improve the diagnostic quality of images produced by magnetic resonance imaging (MRI). MRI is an imaging technology for range of applications, including the identification and diagnosis of a variety of medical disorders. The company is developing two products, MS-325 and EP-2104R, for use in MRI to improve the diagnosis of multiple cardiovascular diseases affecting the body's arteries and veins (the vascular system). EPIX - EPIX Medical $21.52 SEP 20.00 FCU-UD LB=0.25 OI=58 CB=19.75 DE=12 TY=3.2% MY=8.6% _________________________________________________________________ MDCC - Molecular Devices $23.98 *** Rally Mode! *** Molecular Devices (NASDAQ:MDCC) is engaged mainly in the design, development, manufacture, sales and service of bioanalytical measurement systems, including specialized screening solutions and a variety of general-purpose research instruments, for life sciences and drug discovery applications. A majority of the firm's products use optical technologies to detect the results of biological tests that occur in microplates. The company's drug discovery systems are used to screen large numbers of chemical compounds to assess their effects on disease targets, and their life sciences products include bench-top detection and liquid handling devices. MDCC - Molecular Devices $23.98 OCT 22.50 MCQ-VX LB=0.75 OI=22 CB=21.75 DE=39 TY=2.7% MY=6.6% _________________________________________________________________ CC - Circuit City Stores $13.64 *** Entry Point? *** Circuit City Stores (NYSE:CC) is a national retailer of consumer electronics, personal computers and entertainment software. The company operates stores that design feature-flexible displays to accommodate new product offerings and offers name-brand products as well as its own private-label merchandise brands. The firm's products includes a range of video and audio equipment, security systems, personal computers, software and peripherals, and other consumer electronics. CC - Circuit City Stores $13.64 OCT 12.50 CC-VV LB=0.35 OI=5584 CB=12.15 DE=39 TY=2.2% MY=5.9% _________________________________________________________________ BLUD - Immucor $21.85 *** New 2004 High! *** Immucor (NASDAQ:BLUD) develops, manufactures and sells a line of reagents and automated systems used primarily by hospitals, clinical laboratories and blood banks. Most of the company's reagent products are used in tests performed prior to blood transfusions to determine the blood group and type of patients' and donors' blood in the detection and identification of blood group antibodies, in platelet antibody detection, in paternity testing and in prenatal care. The company's blood bank testing systems operates exclusively with its proprietary reagent lines and capture technology. BLUD - Immucor $21.85 OCT 20.00 QMQ-VD LB=0.50 OI=3 CB=19.50 DE=39 TY=2.0% MY=5.3% _________________________________________________________________ NIHD - NII Holdings $37.90 *** 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 $37.90 SEP 35.00 QHQ-UG LB=0.25 OI=411 CB=34.75 DE=12 TY=1.8% MY=5.1% _________________________________________________________________ SSYS - Stratasys $27.00 *** Consolidation Complete? *** Stratasys (NASDAQ:SSYS) develops, builds, sells and services a family of three-dimensional printers and other rapid prototyping systems that enable engineers and designers to create physical models, tooling and prototypes from plastic and other materials, directly from a computer-aided design workstation. The firm's computerized modeling systems use its technology to make models and prototypes from a designer's 3D CAD in a matter of hours. Stratasys' offerings include Dimension, Prodigy Plus, FDM Titan and Vantage. SSYS - Stratasys $27.00 OCT 22.50 QQG-VX LB=0.40 OI=0 CB=22.10 DE=39 TY=1.4% MY=4.7% _________________________________________________________________ MOGN - MGI PHARMA $29.28 *** Pure Premium-Selling! *** MGI PHARMA (NASDAQ:MOGN) is an oncology-focused biopharmaceutical company that acquires, develops and commercializes proprietary pharmaceutical products that meet cancer patient needs. The company's marketed products include Aloxi injection, for the prevention of chemotherapy-induced nausea and vomiting; Salagen Tablets, as a treatment for the symptoms of radiation-induced dry mouth in head and neck cancer patients and to rheumatologists as a treatment for dry mouth associated with the autoimmune disease Sjogren's syndrome; and Hexalen capsules, which are an orally administered chemotherapeutic agent. MOGN - MGI PHARMA $29.28 OCT 25.00 QOG-VE LB=0.40 OI=310 CB=24.60 DE=39 TY=1.3% MY=4.0% 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ESIO - Electro Scientific $19.70 *** The Downtrend Resumes! *** Electro Scientific Industries (NASDAQ:ESIO) designs and makes high-technology manufacturing equipment for the electronics market, including advanced laser systems that are used to microengineer electronic device features in high-volume production environments. The company operates within the high technology manufacturing equipment segment, comprised of three product groups: the semiconductor group, the passive components group and the electronic interconnect group. Principal products include laser manufacturing systems for semiconductor yield improvement; production, test and inspection equipment for the manufacture of passive components; laser micro-via drilling systems used to process high-density interconnect circuit boards and machine vision systems. ESIO - Electro Scientific $19.70 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 22.5 EQO-JX 7 0.50 23.00 7.0% 2.2% _________________________________________________________________ MRVL - Marvell Technology $22.87 *** In A Trading Range! *** 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 $22.87 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 25 UVM-JE 369 0.65 25.65 6.6% 2.5% _________________________________________________________________ OSTK - Overstock.com $31.43 *** 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 $31.43 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL SEP 35 QKT-IG 2757 0.30 35.30 8.2% 0.8% ************************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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