The Option Investor Newsletter Tuesday 09-28-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Sun Still Shining Futures Markets: See Note Index Trader Wrap: Metallica! Market Sentiment: Bounce of Speed bump? Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 09-28-2004 High Low Volume Adv/Dcl DJIA 10077.40 + 88.90 10099.52 9977.92 1.72 bln 2061/1058 NASDAQ 1869.87 + 10.00 1873.86 1852.59 1.56 bln 1906/1172 S&P 100 534.19 + 3.17 535.07 529.86 Totals 3967/2230 S&P 500 1110.06 + 6.54 1111.77 1101.29 SOX 373.69 - 3.30 377.88 370.17 RUS 2000 565.66 + 7.30 565.73 558.36 DJ TRANS 3208.58 + 31.20 3214.81 3167.30 VIX 13.83 - 0.79 14.84 13.69 VXO (VIX-O)13.23 - 1.07 14.68 13.05 VXN 21.36 - 0.56 22.23 21.20 Total Volume 3,577M Total UpVol 2,199M Total DnVol 1,324M Total Adv 4461 Total Dcl 2532 52wk Highs 261 52wk Lows 161 TRIN 1.01 NAZTRIN 1.44 PUT/CALL 0.92 ************************************************************ Sun Still Shining by Jim Brown Oil crossed $50 and the world did not end. In fact the Dow ended with a +88 point gain and even more amazing the Transports closed with a +31 point gain. Feel like you are seeing the Twilight Zone come to life? You are not alone as millions of investors wonder how oil can double in price and the transports can soar. Dow Chart Nasdaq Chart SPX Chart The morning started off with a reaction dip after some disappointing economic news on top of $50 oil but it recovered on end of quarter window dressing. The morning reports started off with Chain Store Sales that fell -0.3% on top of the -1.1% for the prior week. Nothing new here with weak back to school buying and high gas prices. Year over year growth was actually up +3.5% and the best YOY growth since July. The worst report for the day was Consumer Confidence and it dropped from 98.7 to 96.8 for September. This was the lowest level since May and most of the drop was due to the present conditions component that fell more than -5 points to 95.5 from 100.7. Consumers felt the jobs market had weakened significantly. Those who felt jobs were plentiful fell to their lowest level since May. Those consumers planning to buy homes and cars fell slightly as well. You can bet that the constant reporting on $50 oil is not going to improve confidence any time soon. Let's dive right into the oil conversation since it is controlling the majority of air time. Oil broke $50 and the world did not come to an end and there was not an immediate sell off. Oil traded over $50 and closed at $49.90 an all time high. I use that term loosely because in inflation weighted dollars the 1970s oil crisis saw oil at levels that would equate to $80 today. The actual contract price today at $50 is the highest actual price on record and it may not get any better. The high prices today were brought to you by Nigeria if you believe the talking heads on TV. Nigeria has a serious internal problem with militants. They kidnap and ransom hostages to achieve their demands and target oil production to emphasize those demands. They are currently warning they will declare all out war on oil on October 1st if their demands are not met. Various oil producers are evacuating workers from the country until the problem is resolved. Nigeria currently exports about 2.5 million barrels per day of which 1.6 million come to the U.S. That makes them our fifth largest importer. With the world currently in an oil crisis we don't need to lose 2.5 mil bbls of light sweet crude. That brings us to the next topic. Saudi Arabia said today they were going to up production from 9.5M to 11M barrels per day. Almost immediately an entire army of oil experts hit the airwaves to dispute this increase. The general consensus is that Saudi could increase total output to 11 million but it would take weeks if not months for the production increase to occur. Secondly the additional oil would be "heavy" oil, not the light sweet crude that refiners want. According to several sources there is no refinery capacity available to refine any additional heavy oil. That is like pulling into a filling station for unleaded and the dealer saying he only has diesel. That may help somebody else but it will not help you. Think $50 is high, stick around most analysts expect even higher levels soon. T. Boone Pickens said today that $60 oil was just around the corner and he was not alone. Cambridge Energy Research Associates said this years rate of demand growth has more than doubled the average for the last six years. They claim over the last decade there was always a 3-5 million bbl cushion between peak demand and average capacity. This cushion kept prices in check and smoothed out the peaks and valleys of seasonal demand. Currently this cushion has dropped to only 1.4 million bbls and less than the levels at the beginning of the 1973 crisis. Every time you hear about Iraq sabotage taking them offline for several days that eliminates the cushion. If Nigerian militants takes their production offline for a week that eliminates the cushion and puts us in a deficit. If Yukos stops production in some sector because they no longer have the cash to pay for transportation that puts us into a deficit. The bottom line is the world economy is careening down the highway with a gas tank running on empty. We are filling up at every filling station we pass but the first time we hit one that is dry the economic bus will stop. I have preached several times about Hubbert's Peak and the coming global peak in production currently estimated for 2008. Once that peak has arrived we will be pumping less oil every day that passes than the day before. Critics claim that new technology will continue to improve drilling and pumping and let us recover more oil from new and existing fields than in the past. This is true but, picture the earth as a big sponge. When oil drilling first began you could literally find it oozing to the top on its own in many places. Wells were drilled in hundreds of feet. Current technology lets us drill wells that are miles deep in up to 10,000 feet of water in the roughest parts of the ocean. We are light years from our beginning but we are sucking oil out of the sponge at record rates. If you pickup a wet sponge out of the kitchen sink the first couple squeezes produce plenty of water. After the first couple squeezes it takes more and more effort to get any more water to flow. New technology may be able to milk a few more drops if you have the patience to wait. If you are using the sponge to put out a fire on the stove you don't have time to wait. Currently the global oil demand is 82.5 million bbls per day according to recognized estimates. Some say this is absurdly low and the real demand is already near 88 million bbls because producing countries are keeping more and more for their own uses and it is not counted in the "official" quotes. Using the "quoted" demand levels our demand curve looks like this: Millions of barrels per day 2004 2005 2006 2007 2008 2009 82.5 85.0 87.5 90.0 92.5 95.0 82.5 MBPD = 30.1 BILLION barrels per year 95.0 MBPD = 34.7 BILLION barrels per year Remember, demand growth this year is DOUBLE the average growth rate of the prior six years. That means the chart above was probably outdated the day after it was produced. As we can see from the daily barrage of news stories current demand is pushing production levels to record twenty five year highs and to the breaking point. Every minor crisis puts us that much closer to more demand than production and when that happens $50 oil will look cheap. It will happen. The only question is when. How much longer can we continue finding, drilling and pumping an additional 30+ billion barrels per year? The situation is becoming serious and there was a news story after the close that the Chinese military was said to be eying oil rich lands in Malaysia and Indonesia. While I doubt the veracity of this story it will not be long before there will be wars over the few remaining drops of oil in our global sponge. Peter Schiff of Euro Pacific Capital sees $100 oil by the end of the decade. The problem for investors is not your next tank of gas but the eventual impact to corporate earnings. Currently only one of every ten companies claim the higher oil prices are impacting profits. I would also hasten to remind everyone that oil was trading at $25 this time last year. You and I understand that oil prices cannot double without a material impact to earnings for almost every company. Investors and corporations are still in denial. Everyone believes that this is just a spike and it will pass. A Saudi representative was interviewed again today and he quoted a future price target of $25. This jawboning is keeping the general public in the dark about the disaster ahead. We know that there is a pre election event risk in oil because the analysts have told us there is. Right or wrong this is what everyone believes. Everyone also believes that once the election is over oil will return to more reasonable levels. While I agree there may be some event risk priced into the crude futures and we may decline after the election we will still face the rising demand and slowing production problem. Sell oil stocks the week before the election and buy the post election energy dip and hold for the long term. Oil was not the only thing on the markets mind today but you would have to look hard to find anything else. One point of note was a positive guidance update from CAT. Caterpillar said sales were so strong that revenue will rise +25% to +30% for the full year. Before you rush out and buy CAT you should know their prior forecast was for a +25% increase. Always check your facts before pulling the trigger. CAT said earnings would rise +80% to +85% which was right inline with its previous forecast. Traders hearing the news rushed to buy the stock and Dow component CAT spiked nearly +$3 intraday. Not bad for a basically inline guidance update. To be fair there was some concern they would miss the prior estimates and Caterpillar comments like "unprecedented surge in orders" and "demand for heavy duty truck engines has skyrocketed" are always good for some knee jerk buying. It was a good day for Google. The 40-day quiet period expired which prevents brokerage companies from issuing research about stocks they IPO. CSFB, Thomas Weisel Partners, JP Morgan, Morgan Stanley and WR Hambrecht all instituted coverage at an "outperform" but the comments were less than exciting. The price target of $145 was considered light in relation with its current gains. The companies made sure they expressed the risks as well as potential rewards and the risks were many. The main focus was increasing competition and a maturing market. Mary Meeker, Internet analyst for Morgan Stanely gave the following comment. "We believe IF Google continues to execute, the company SHOULD be well positioned to benefit from ongoing secular Internet user and usage growth." The keywords there were obviously IF and SHOULD. TWP analyst Christa Charles pointed out that Google has not been "overtly advertiser friendly" and it would have to correct that to be successful. She also said "We believe the likelihood that Google invests in negative projects is high." Still traders flocked to the stock and shorts were squeezed once again with a +$8.60 gain to $126.70. On the downside Cypress Semiconductor warned for the second time in a month citing additional weakness across multiple markets. Share of CY fell to a 16-month low at $8.50. Earnings are now expected to be less than a nickel compared to their prior forecast of up to 15 cents per share. This sent the SOX into negative territory and shook it free from 380 support. Oddly the Nasdaq and Russell finished in positive territory with the Russell on fire with a +7.30 gain. After the bell MSPD warned and that should apply additional pressure to the SOX on Wednesday. The problem was a drop in orders from Asia and a "widespread buildup of inventory at key customers." Same song, 87th verse. The Caterpillar bounce sent the Dow above 10040 resistance and short covering began. When a Dow stock like CAT jumps +$3 it impacts not only the Dow but the S&P. When the announcement was made the markets had been hovering near the highs and the spike just upset the balance of power. A buy program at 2:PM also kept the movement going. Dow 10100 appears to be current resistance and a level I would watch on Wednesday. The Nasdaq was weak due to the SOX weakness but the end of day buy program pushed it back to yesterday's resistance highs. There was very little decline into the close and 1875 remains initial resistance. The rebound off the day's lows gave all the appearances of weak end of quarter window dressing. The stocks bought were the recent winners and would make funds look a lot smarter to investors with those stocks in their statement. It was no surprise the energy sector found itself the recipient of late day cash flows. For Wednesday we will start out with the GDP report with expectations for a +3.0% gain. This could be a challenge or a surprise but the risk is to the downside. At 10:30 we will get the weekly crude oil inventories and we have seen a drop in supplies for eight straight weeks. Last week inventories dropped -9.1 million bbls with -7 mil drop the week before. Traders are saying they expect another drop of -1.5 mil but a much larger drop could really explode prices higher. Economic reports increase on Thursday and Friday as we begin to get the September production data. With two days left in the quarter the potential for another window dressing day is strong although the impact should be minimal. The coming economic reports should put a little fear into the market just as we enter October. Speaking of fear, the VXO is right back down and with the low today of 13.05 very close to retesting the eight year low set last Tuesday. Remember last Tuesday? That was when the Dow was at 10270 and the Nasdaq 1925, a two month high. Be very careful with the VXO this low. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ***************** INDEX TRADER WRAP ***************** Metallica! I was never a "heavy metal" fan in my youth, but bulls were nodding their heads to a bullish beat for anything with a metallic taste, be it ferrous, non-ferrous, or precious. Nucor (NYSE:NUE) $90.50 +4.72% erected itself to close at a new all-time high and helped lead the Dow Jones U.S. Steel Index (DJUSST) 132.19 +4.92% to challenge its recent all-time closing high of 132.79 from September 9. Intermediate steel processor, Steel Technologies (NASDAQ:STTX) $25.72 +13.75, which serves industrial customers who require steel of precise type and thickness looks like a cat on a hot tin roof. Money managers scrambled to show a little copper exposure in their portfolios by quarter's end with Phelps Dodge (NYSE:PD) $93.60 +4.76% surging more than $4.00 per share to close at an all-time high. Dow component Alcoa (NYSE:AL) $32.70 +4.27% held of a late charge from heavy equipment maker Caterpillar (NYSE:CAT) $76.90 +3.33%, which upped full-year revenue guidance on strong global demand for its earthmoving equipment. Alcoa's chief rival Alcan (NYSE:AL) $47.24 +4.9% surged more than $2 per share as bulls popped the top on a cold one. All this, with the dollar little changed against its weighted basket of 6 major foreign currencies as the U.S. Dollar Index (dx00y) 88.14 -0.16% edges down 0.15 points and traded pretty much smack in the middle of its daily range. U.S. Market Watch - 09/28/04 Close The AMEX Gold Bugs Index ($HUI.X) 223.89 +3.64% edged out the Airline Index (XAL.X) 42.55 +3.32% for today's sector winner, afer Newmont Mining (NYSE:NEM) $44.29 +3.96% assured investors that gold reserves at two of its mines in Ghana were expected to rise 33% from last year's estimates as step-out drilling continues. A second-consecutive earnings warning this month from network chipmaker Cypress Semiconductor (NYSE:CY) $8.60 -3.26% has the NWX.X and SOX.X looking like a matched pair the past 5 sessions, with both indices down just over 7.2%. Cypress closed at a new 52-week low. After the close, chip equipment giant Applied Materials (NASDAQ:AMAT) $16.21 -1.21% refused to make any comment toward an unsolicited mini-tender offer being made by TRC Capital Corp., a Toronto-based company to purchase up to 6 million shares of AMAT's stock (roughly 0.35% of shares outstanding) as of August 1, for a price of $16.15 per share in cash. According to reports, TRC made the offer on 09/22/04 when AMAT's shares had closed at $17.11. Market Snapshot / Internals - 09/28/04 Close The major indices found their lows not long after today's release of September Consumer Confidence, and with little "good news" released just prior to 03:00 PM EDT when Caterpillar (NYSE:CAT) raised full year revenue guidance, one might envision some institutional window dressing taking place ahead of Thursday's close as the third-quarter draws to an end. Pivot Matrix - The SPX/SPY as well as the OEX all kissed their WEEKLY S1s just after the Conference Board released its September Consumer Confidence (96.8 vs. Aug. 98.7 and forecasted 99.5), but bulls, perhaps aided by some end of quarter window dressing pressed the SPX higher to the close. S&P 500 Index Chart - Daily Intervals It was speculated that when the SPX didn't break below its 50-day SMA that buyers showed renewed optimism ahead of tomorrow morning's final second-quarter GDP figures, where economists' expect a modest upward revision to 3.0% from 2.8%. As of today's close, the SPX is down 2.7% from its second-quarter close of 1,141. Not unlike equities that found a dip lower after the consumer confidence figures, Treasury yields reversed off their lows of the session. Economists look for the second-quarter chain deflator to be unrevised at up 3.2% from the previously reported 3.2%. Russell 2000 Index (RUT.X) - Daily Intervals The small caps of the Russell 2000 ($RUT.X) were today's percentage gainer and many of these components are more thinly traded. IF we're seeing some end of quarter window dressing by institutions, then it might make sense that some of these smaller to mid-cap names get the bigger buy side boost. Pacholder High Yield (PFH) - Daily Intervals Traders and investors should still be keeping a close eye on a "junk bond" type asset class. There are some similarities present TODAY in the RUT.X as found in the PHF back in July as the PHF reclaimed its 200-day SMA, slipped back below, then powered further higher. A steady Fed interest rate policy has been kind to "junkers." While I don't expect any surprises in tomorrow's GDP revisions, it doesn't hurt to be prepared. Jeff Bailey **************** MARKET SENTIMENT **************** Bounce of Speed bump? - J. Brown Yesterday the markets were looking pretty sour. The Dow Industrials closed under the 10,000 mark for the first time since August 17th while crude oil prices hit $50.00 barrel in New York for the first time ever. Today stocks look a little bit stronger with a bounce in the indices despite another gain for crude. What's going on here? Are investors totally disconnected from reality? Oil is 10 cents away from $50 a barrel and crude barely budged when the Saudis said they would raise production from 9.5 million to 11.0 million barrels a day. The oil pits were focused on new violence in Nigeria, the world's seventh largest exporter of oil and known for its light sweet crude which is more easily refined. Rebels in Nigeria have specifically targeted oil rigs and oil companies as they fight government forces. If $50 oil wasn't enough the consumer confidence numbers this morning declined for the second month in a row. While the drop wasn't huge it's not a positive trend. Yet despite it all stocks bounced higher with only homebuilders, semiconductors and networking stocks trading lower. What's going on here? I think it is just window dressing before the end of the quarter. Fund managers saw the Dow under 10,000 and decided to "buy the dip" before the quarter ends on Thursday. A positive revenue warning from Dow-component Caterpillar (CAT) certainly didn't hurt stocks either. Throughout the day there was also talk of short covering after the Industrials 300-point decline in the last several days. Given the bounce back above 10,000 for the Dow, the bounce from the simple 50-dma and the 1850 level on the NASDAQ and the 1100 level on the S&P 500 I could certainly see stock churn sideways for the remainder of the month. That is unless the earnings warnings don't pick up. We had at least four more earnings warnings today from DJO, SNA, STE and CY. Cypress Semiconductor (CY) actually warned for the second time this quarter. What is really interesting was the big drops in the volatility indices today. Both the VIX and VXO fell back under the 14 level towards their recent lows. This remains a big bearish flag and I'd be mindful to double check those stops on any bullish plays. So the question to ask is this bounce a turnaround or a speed bump on the way down? I'm still bullish for the fourth quarter but the next two or three weeks can be painful. Although I will admit that this September has been pretty mild for the "worst" month of the year. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 10077 Moving Averages: (Simple) 10-dma: 10147 50-dma: 10108 200-dma: 10296 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 990 Current : 1110 Moving Averages: (Simple) 10-dma: 1116 50-dma: 1101 200-dma: 1117 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1389 Moving Averages: (Simple) 10-dma: 1410 50-dma: 1380 200-dma: 1440 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 13.83 -0.79 CBOE Mkt Volatility old VIX (VXO) = 13.23 -1.07 Nasdaq Volatility Index (VXN) = 21.36 -0.56 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.91 689,020 630,321 Equity Only 0.85 520,063 442,490 OEX 0.88 23,050 20,327 QQQ 1.51 40,339 60,887 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 63.2 + 0.2 Bear Correction NASDAQ-100 43.0 - 1 Bull Alert Dow Indust. 56.6 + 0 Bear Correction S&P 500 60.8 - 0.4 Bear Correction S&P 100 59.0 + 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: 1.25 21-dma: 1.16 55-dma: 1.20 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 1915 1869 Decliners 899 1142 New Highs 181 54 New Lows 40 61 Up Volume 1164M 797M Down Vol. 542M 700M Total Vol. 1725M 1520M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 09/21/04 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 COT data shows a big drop in positions for both commercials and small traders but commercials remain slightly net bearish and small traders remain net bullish. Commercials Long Short Net % Of OI 08/31/04 406,637 416,778 (10,141) (1.2%) 09/07/04 415,952 426,342 (10,390) (1.2%) 09/14/04 442,049 469,982 (27,933) (3.0%) 09/21/04 404,746 425,560 (20,814) (2.5%) 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 08/31/04 144,120 114,343 29,777 11.5% 09/07/04 157,732 130,817 26,915 9.3% 09/14/04 167,310 126,513 40,797 13.9% 09/21/04 134,943 108,036 26,907 11.1% 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 The passing of the quadruple-witching Friday cut a large chunk of open positions among long and shorts, big and small. Yet the remain positions still open have sent commercials to their most bearish bias in weeks and the small trader to their most bullish. Commercials Long Short Net % Of OI 08/31/04 372,071 543,100 (171,029) (18.7%) 09/07/04 371,111 600,593 (229,482) (23.6%) 09/14/04 377,643 586,139 (208,496) (21.6%) 09/21/04 213,014 397,844 (184,830) (30.2%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 08/31/04 258,624 77,036 181,588 54.0% 09/07/04 286,194 80,075 206,119 56.2% 09/14/04 289,155 81,314 207,841 56.1% 09/21/04 256,315 60,275 196,040 61.9% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Wow! It looks like last week's option expiration has produced some major shifts. There is a huge drop in open positions that have produced dramatic changes in bias. Commercials are now strongly bullish and small traders are incredibly bearish. To be honest I'm not sure how much I trust these numbers. Commercials Long Short Net % of OI 08/31/04 48,167 43,411 4,756 5.2% 09/07/04 51,814 44,179 7,635 7.9% 09/14/04 64,282 59,808 4,474 3.6% 09/21/04 54,530 30,827 23,703 27.7% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 08/31/04 14,635 10,572 4,063 16.1% 09/07/04 16,817 12,561 4,256 14.5% 09/14/04 36,372 28,584 7,788 12.0% 09/21/04 7,417 25,821 (18,404) (55.3%) 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 The Dow Jones futures show the same dramatic drop in open positions with the recent option/futures expiration. However, the DJ futures do not show a big switch in bias. Commercials Long Short Net % of OI 08/31/04 29,143 24,147 4,996 9.3% 09/07/04 29,128 24,011 5,117 9.6% 09/14/04 41,951 34,486 7,465 9.7% 09/21/04 30,816 27,200 3,616 6.2% 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 08/31/04 4,929 7,122 (2,193) (18.2%) 09/07/04 5,041 8,656 (3,615) (26.4%) 09/14/04 8,121 14,425 (6,304) (27.9%) 09/21/04 4,467 6,748 (2,281) (20.3%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. 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The Option Investor Newsletter Tuesday 09-28-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: ATH, CMI New Calls Plays: LMT Put Play Updates: BIIB, LLY, FFH, KSS, LXK, MMM, PRX, SEPR New Put Plays: None **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** None ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Anthem Inc - ATH - close: 87.42 chg: +1.52 stop: 84.89 A rally in the markets on Tuesday helped propel ATH to a new two- month high over resistance at the $88.00 level. Unfortunately, ATH couldn't hold it and closed with a 1.76 percent gain on under-average volume. Readers may want to consider a bounce from $87.00 as a potential entry point or wait for a new high over today's $88.44 high mark. No change in our stop. FYI: it is possible that the overhead resistance in WLP at $106 and its simple 100 and 200-dma's could be hampering ATH's rebound even through ATH is acquiring WLP. Picked on September 26 at $86.81 Change since picked: + 0.61 Earnings Date 10/26/04 (unconfirmed) Average Daily Volume = 2.1 million Chart = --- Cummins Inc - CMI - close: 72.17 change: +1.50 stop: 69.99*new* CMI continued to dip on Monday but traders bought the dip to $70.00 and now with today's market rally shares of CMI have rebounded 2.12 percent. Unfortunately, volume was pretty low, which doesn't indicate a lot of conviction on the part of buyers. We're still bullish and we'd use the bounce as an entry point but make sure you're comfortable with your stop loss. We're raising ours to $69.99. Picked on September 19 at $70.99 Change since picked: + 1.18 Earnings Date 07/23/04 (confirmed) Average Daily Volume = 724 thousand Chart = ************** NEW CALL PLAYS ************** Lockheed Martin - LMT - close: 55.50 change: +0.86 stop: 53.50 Company Description: Headquartered in Bethesda, Md., Lockheed Martin employs about 130,000 people worldwide and is principally engaged in the research, design, development, manufacture and integration of advanced technology systems, products and services. The corporation reported 2003 sales of $31.8 billion. (source: company press release) Why We Like It: The DFI defense index is trading near all-time highs. The sector has been a pillar of strength in the markets and the group is likely to remain strong as terrorism fears run higher ahead of the Presidential election on November 2nd. We like LMT because the stock has been climbing higher on rising volume, which is always a bullish sign. Today the stock closed at new two-year highs. More aggressive players may want to consider positions now. We're willing to wait and use a trigger over $56.00. Our entry point will be $56.01. If triggered we'll use an initial stop loss under last week's low at $53.50. The P&F chart is bullish with a $78 price target. We are going to target primary move to $60 and then re-evaluate. We are going to try and be careful here. A few days ago there was talk that defense stocks could see some window dressing this week. That means they could see some undressing next week. Suggested Options: We are going to suggest the November calls although there are October calls available. Our favorites are the 55s and 60s. BUY CALL NOV 55 LMT-KK OI=1241 current ask $2.25 BUY CALL NOV 60 LMT-KL OI= 319 current ask $0.40 Annotated Chart: Picked on September xx at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 1.7 million Chart = ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Biogen Idec - BIIB - close: 60.01 change: +0.73 stop: 62.51 The BTK biotech index didn't really participate that much in Tuesday's market rally. That's good news for shorts in the sector or at least BIIB. Unfortunately, BIIB did manage to bounce back above the $60.00 mark. This is a little bit concerning since $60 should be round-number, psychological resistance. Readers considering new positions may want to wait for a drop back under $59.00 before initiating any new plays. Picked on September 22 at $59.57 Change since picked: + 0.44 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 3.0 million Chart = --- Eli Lilly & Co - LLY - close: 62.05 chg: -0.85 stop: 65.11*new* We have good news for LLY put holders. Despite Merrill Lynch reiterating their "buy" rating on LLY this morning shares of the drug maker continued to fall. LLY slipped another 1.35 percent on above average volume (about 33 percent above average) while the DRG drug index climbed almost one percent. That's the kind of relative weakness we like to see in our put candidates. We are going to lower our stop loss to $65.11. Picked on September 22 at $63.92 Change since picked: - 1.87 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 3.1 million Chart = --- FairFax Financial - FFH - cls: 124.00 chg: +2.00 stop: 130.01 The volatility continues in FFH. On Friday the stock performed a nice failed rally right under round-number resistance at $130 and its simple 21-dma. Monday experienced some follow through on the reversal and FFH dropped to $122. Now with today's market rally FFH managed a $2 bounce. At this point readers looking for new entries may want to wait for FFH to break support at $120.00 before considering new positions. Picked on September 12 at $126.50 Change since picked: - 2.50 Earnings Date 00/00/00 (confirmed) Average Daily Volume = 59 thousand Chart = --- Kohl's - KSS - close: 48.70 change: +0.31 stop: 52.01 It's been a give and take game in shares of KSS lately. While we're encouraged by the recent failed rallies under the $50.00 mark traders are still trying to buy the dip in KSS. Today shares dipped to $47.75 before bulls stepped in. This may be a tougher battle than we thought to get to the $46 level. Of course it's no coincidence that the RLX retail index turned in a very similar performance today with a dip under the 400 level before bouncing. Picked on September 16 at $49.48 Change since picked: - 0.78 Earnings Date 08/12/04 (confirmed) Average Daily Volume = 3.1 million Chart = --- Lexmark Intl - LXK - close: 81.50 chg: -1.00 stop: 86.01 Heads up! We're seeing some new action in LXK that could be meaningful. The stock has broken out of its recent trading range between $82 and $86. LXK sank to new six-week lows and closed at new relative lows under the $82 level on above average volume. This is significant because it looks like the stock has broken its long-term trendline of support. Should this be confirmed LXK could be poised for a sizable decline. We do believe that traders should confirm the drop and wait for LXK to break support at the $80.00 mark. We suggest waiting for confirmation because there were some rumors today that LXK could be getting new competition from Eastman Kodak in the inkjet printer business and today could be an over-reaction. Short-term traders may still want to consider taking profits here or as LXK nears round- number support at $80.00. Picked on September 5th at $86.10 Change since picked: - 4.60 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 1.2 million Chart = --- 3M Co - MMM - close: 79.07 change: +1.38 stop: 81.51 Uh-oh! Yesterday MMM appeared to break its somewhat untested trendline of support across its rising lows yet now the stock is bouncing. We were so close to seeing MMM hit our immediate target at $77.50 but we concede the fact that the stock is short-term oversold and due for a bounce. We will look to the $80.00 level to act as short-term, round-number resistance. Picked on September 15 at $82.00 Change since picked: - 2.93 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 2.5 million Chart = --- Par Pharma. Co - PRX - close: 36.55 chg: +0.49 stop: 40.01 Sometimes no movement is good news. PRX is still consolidating near the $36 level despite a bounce in the markets and the DRG drug index today. The lack of participation in the rally is encouraging. Readers may want to consider momentum entries on a new low or an entry on a failed rally under $38.50 near its simple 100-dma, which should act as overhead resistance. Picked on September 21 at $37.80 Change since picked: - 1.25 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 743 thousand Chart = --- Sepracor Inc - SEPR - close: 48.40 chg: +0.09 stop: 52.01 SEPR has been pretty quiet the last couple of sessions. The stock has traded sideways in a $1.15 range above its simple 50 and 100-dma's. Readers can watch for a failed under $50.00 or a new low under $47.70 as potential entry points. The lack of participation in today's rally is good news for the bears. Picked on September 22 at $48.94 Change since picked: - 0.54 Earnings Date 07/13/04 (confirmed) Average Daily Volume = 1.8 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 09-28-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Chemicals to Metal stocks and more Spreads & Straddles: Blue-Chip Shares Lead Recovery Rally! Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** Chemicals to Metal stocks 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. ___________________________________________________________________ F M C Corp - FMC - close: 49.13 change: +2.68 WHAT TO WATCH: FMC soared more than 5.7 percent on Tuesday with volume way above the average. We can't find any stock-specific news but almost the whole group of chemical stocks have been very strong lately and many have very bullish P&F charts. FMC's P&F chart points to an $88 price target. After three weeks of consolidating sideways in a tight range FMC may be able to finally get a trend going. We would consider buying a bounce from $48.00. Chart= --- Capital One Financial - COF - close: 74.98 change: +1.51 WHAT TO WATCH: COF has been on and off the watch list for a while. The recent two-week consolidation between $72 and $74 has ended with today's upside breakout. Volume was pretty good. Traders may want to consider bullish positions over $75.00 or a bounce from $74.00. The P&F chart looks pretty bullish with an $82 price target. Chart= --- Nucor - NUE - close: 90.50 change: +4.08 WHAT TO WATCH: Steel and metal stocks were pretty strong today. NUE was close to leading the pack with a 4.7 percent rally. The breakout and close over the $90 mark is pretty bullish. Although we're a little suspicious. This could just be window dressing before the quarter end on Thursday. Don't forget that NUE splits 2-for-1 on October 18th. If NUE trades above $91 then momentum traders may want to consider a $100 target. Chart= --- Peabody Energy - BTU - close: 60.06 change: +2.27 WHAT TO WATCH: Energy stocks have been super strong lately and coal stocks like BTU may pull in more investor interest as businesses look for alternatives to oil. The breakout over $60.00 after its recent consolidation looks pretty bullish. Plus, its P&F chart points to a $70 target. This looks like an entry point. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- GDW $110.68 +1.05 - GDW has pulled all the way back to previous resistance now support near $109-110. This might be a buyable dip but the pull back was so sharp we'd look for some confirmation. PD $93.60 +4.26 - PD was a recent call play on OptionInvestor. We closed it when it hit our target at $90.00. Now the stock is continuing to rally and traders are probably eyeing the $100 mark. X $37.75 +2.17 - US Steel is bouncing from the $35 level and headed toward resistance at $40.00. Look for a breakout. ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* September 28, 2004 Stocks rebounded Tuesday amid renewed buying pressure in "old economy" issues. Dow component Alcoa (NYSE:AA) led the industrial segment higher amid anticipation of stronger worldwide demand after an upbeat report on Chinese growth. Caterpillar (NYSE:CAT) was also in the "winners" category after announcing it expected continued strength in global sales. The blue-chip average closed up 88 points at 10,077. The NASDAQ Composite added 8 points to end at 1,869, despite selling pressure in networking, semiconductor, and software shares. The S&P 500 climbed 6 points to 1,110 on strength in airline, gold, banking, drug and oil-related issues. Advancers paced decliners 2 to 1 on the New York Stock Exchange, on volume on 1.40 billion shares. Winners edged past losers by a margin of 3 to 2 on the NASDAQ, where over 1.5 billion shares changed hands. In the U.S. bond market, treasury prices moved lower as equities rose. The benchmark 10-year note fell 3/32, while its yield climbed to 4.00%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PREMIUM-SELLING PLAYS: NAKED PUTS & NAKED CALLS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF PREVIOUS CANDIDATES - As of 09/26/04 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 actual traders, 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 play commentary (when provided) is 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 replace your duty to diligently monitor and manage the positions in your portfolio. __________________________________________________________________ NAKED PUTS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield OS OCT 15.00 14.60 16.02 0.40 7.19% 2.74% FHRX OCT 17.50 17.05 19.30 0.45 6.31% 2.64% SNDK OCT 22.50 22.00 27.38 0.50 5.86% 2.27% SSYS OCT 25.00 24.45 28.56 0.55 5.91% 2.25% JNPR OCT 22.50 22.00 24.65 0.50 5.73% 2.27% CREE OCT 22.50 22.15 28.70 0.35 5.28% 1.58% FFIV OCT 22.50 22.20 29.84 0.30 4.45% 1.35% AMZN OCT 37.50 37.00 40.94 0.50 3.96% 1.35% ASKJ OCT 25.00 24.45 33.00 0.55 7.42% 2.25% USNA OCT 30.00 29.30 34.62 0.70 6.10% 2.39% YHOO OCT 30.00 29.40 32.58 0.60 5.51% 2.04% CELL OCT 15.00 14.50 16.13 0.50 8.28% 3.45% CREE OCT 25.00 24.35 28.70 0.65 7.26% 2.67% CLHB OCT 10.00 9.75 11.63 0.25 7.98% 2.56% PDII OCT 25.00 24.45 26.53 0.55 6.98% 2.25% APPX OCT 27.50 27.10 27.72 0.40 5.57% 1.48% * GILD OCT 35.00 34.35 36.50 0.65 5.61% 1.89% BOBJ OCT 20.00 19.65 22.58 0.35 5.73% 1.78% ASTE OCT 17.50 16.95 18.78 0.55 9.55% 3.24% LCAV OCT 25.00 24.35 25.23 0.65 7.97% 2.67% ALO OCT 17.50 17.10 18.13 0.40 7.17% 2.34% FHRX OCT 17.50 17.20 19.30 0.30 6.33% 1.74% GNSS OCT 12.50 12.20 12.82 0.30 8.02% 2.46% NAVR OCT 15.00 14.75 14.87 0.12 2.80% 1.69% COGN OCT 32.50 31.90 34.55 0.60 6.15% 1.88% PSFT OCT 17.50 17.20 19.99 0.30 6.15% 1.74% LF OCT 20.00 19.75 20.76 0.25 4.46% 1.27% ATYT OCT 15.00 14.75 15.76 0.25 5.90% 1.69% YHOO OCT 30.00 29.50 32.58 0.50 6.01% 1.69% American Pharmaceutical Partners (NASDAQ:APPX) became an early exit candidate Thursday after the Wall Street Journal reported that the company is facing a probe by regulators over whether it misled investors about the progress of a key cancer drug it is developing. In addition, a number of other issues are on the "watch" list after the recent retreat in technology shares. Remember, the key to success in "premium-selling" strategies is limiting draw-downs in losing positions. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield ESIO OCT 22.50 23.00 17.58 0.50 6.99% 2.17% LNCR OCT 32.50 33.30 30.30 0.80 7.12% 2.40% ADTN OCT 30.00 30.30 23.71 0.30 3.79% 0.99% DIGE OCT 30.00 30.35 26.21 0.35 6.05% 1.15% CTB OCT 22.50 22.85 20.02 0.35 4.25% 1.53% MDCO OCT 30.00 30.80 25.52 0.80 8.33% 2.60% CECO OCT 40.00 40.50 28.65 0.50 6.34% 1.23% CPRT OCT 20.00 20.35 18.89 0.35 6.97% 1.72% FLML OCT 17.50 17.80 15.12 0.30 10.47% 1.69% SSNC OCT 20.00 20.35 20.10 0.25 5.48% 1.72% USPI OCT 35.00 35.65 33.55 0.65 6.36% 1.82% BDY OCT 22.50 22.90 21.10 0.40 7.63% 1.75% PLMO OCT 35.00 35.90 29.29 0.90 11.25% 2.51% __________________________________________________________________ NEW CANDIDATES All of these issues have robust option premiums and relatively favorable technical indications. However, current news and market sentiment will have an effect on these stocks, so review each play thoroughly and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW (BULLISH) PLAYS - NAKED PUTS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ *** WARNING: THE RISK OF SELLING NAKED PUTS IS SUBSTANTIAL *** For more information on Risk, Margin Requirements and Yield click here: http://www.optionwriters.com/margin/OW_RealRisksofSellingNakedOptions.asp __________________________________________________________________ NEW NAKED-PUT CANDIDATES Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield RIGL 24.60 OCT 22.50 QRG-VX 0.65 25 21.85 17 5.3% 13.9% NABI 13.48 OCT 12.50 NIQ-VV 0.25 50 12.25 17 3.7% 9.6% AAPL 38.04 OCT 35.00 AAQ-VG 0.65 23K+ 34.35 17 3.4% 9.1% OMM 15.97 OCT 15.00 OMM-VC 0.25 1080 14.75 17 3.0% 7.9% CMTL 27.12 OCT 25.00 CQH-VE 0.35 81 24.65 17 2.5% 6.9% CREE 28.75 OCT 25.00 CQR-VE 0.30 2141 24.70 17 2.2% 6.7% STLD 38.00 OCT 35.00 RQL-VG 0.35 1989 34.65 17 1.8% 5.0% 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. _________________________________________________________________ RIGL - Rigel Pharmaceuticals $24.60 *** Drug Speculation *** Rigel Pharmaceuticals (NASDAQ:RIGL) is engaged in the discovery and development of a range of small molecule product candidates for unmet medical needs. The company is developing a portfolio of product candidates and plans to take these candidates through Phase II clinical trials, after which, it will seek partners for completion of clinical trials, regulatory approval and marketing. The company currently has three initial development programs: allergy/asthma, hepatitis C and rheumatoid arthritis. RIGL - Rigel Pharmaceuticals $24.60 OCT 22.50 QRG-VX LB=0.65 OI=25 CB=21.85 DE=17 TY=5.3% MY=13.9% _________________________________________________________________ NABI - Nabi Biopharm $13.48 *** Positive Phase II Results! *** Nabi Biopharmaceuticals (NASDAQ:NABI) commercializes and develops medical products focusing on the areas of infectious, autoimmune and addictive diseases. The company sells five biopharmaceutical products: PhosLo, Nabi-HB, WinRho SDF, Aloprim and Autoplex T. Nabi's clinical product pipeline is composed of novel vaccines and antibody-based biopharmaceutical products that are designed to prevent and treat infectious and addictive diseases, such as Staphylococcus aureus infections, hepatitis B and hepatitis C and nicotine addiction. NABI - Nabi Biopharm $13.48 OCT 12.50 NIQ-VV LB=0.25 OI=50 CB=12.25 DE=17 TY=3.7% MY=9.6% _________________________________________________________________ AAPL - Apple Computer $38.04 *** An Apple A Day... *** Apple Computer (NASDAQ:AAPL) designs, manufactures and markets personal computers (PCs) and related software, peripherals and personal computing and communicating solutions. Its products include the Macintosh line of desktop and notebook computers, the Mac OS X operating system, the iPod digital music player and a portfolio of software and peripheral products for education, creative, consumer and business customers. The company sells its products through its online stores, direct sales force, third-party wholesalers and resellers and its retail stores. AAPL - Apple Computer $38.04 OCT 35.00 AAQ-VG LB=0.65 OI=23136 CB=34.35 DE=17 TY=3.4% MY=9.1% _________________________________________________________________ OMM - OMI Corporation $15.97 *** Strong Sector! *** OMI Corporation (NYSE:OMM) is a sea-borne transporter of crude oil and refined petroleum products operating in the international shipping markets. The company concentrates its vessels into two core categories: Suezmax tankers and petroleum product carriers. OMI's fleet consists of product carriers which transport refined petroleum products from refinery locations to consuming locations, and crude oil tankers which transport oil from production and storage locations to refinery locations. The company's product carriers are small and mid-sized tankers such as handysizes, handymaxes and Panamaxes. OMM - OMI Corporation $15.97 OCT 15.00 OMM-VC LB=0.25 OI=1080 CB=14.75 DE=17 TY=3.0% MY=7.9% _________________________________________________________________ CMTL - Comtech $27.12 *** Solid Earnings! *** Comtech Telecommunications (NASDAQ:CMTL) designs, develops, and markets products, systems and services for unique communications solutions. It conducts its business through three main segments: telecommunications transmission, mobile data communications and radio frequency microwave amplifiers. The telecommunications transmission segment, which is the company's largest business segment, provides sophisticated, advanced products for satellite, over-the-horizon microwave and wireless line-of-sight telecom systems. CMTL - Comtech $27.12 OCT 25.00 CQH-VE LB=0.35 OI=81 CB=24.65 DE=17 TY=2.5% MY=6.9% _________________________________________________________________ CREE - Cree Incorporated $28.75 *** Choice Chip Stock! *** Cree (NASDAQ:CREE) is engaged in the development and manufacture of compound semiconductor materials and electronic devices made from silicon carbide (SiC), and a developer and manufacturer of optoelectronic and electronic devices made from gallium nitride and related materials. The company also produces radio frequency power transistor components and modules for wireless infrastructure applications using silicon-based bipolar and laterally diffused metal oxide semiconductor process technologies. Cree operates its business in two segments, the Cree segment, which consists of its SiC-based products and research contracts, and the Cree Microwave segment that consists of RF transistors and RF transistor modules based on a silicon platform. CREE - Cree Incorporated $28.75 OCT 25.00 CQR-VE LB=0.30 OI=2141 CB=24.70 DE=17 TY=2.2% MY=6.7% _________________________________________________________________ STLD - Steel Dynamics $38.00 *** Next Leg Up? *** Steel Dynamics (NASDAQ:STLD) is a steel manufacturing company. The company owns and operates electric arc furnace mini-mills. Its primary steel operations include the Flat Roll Division, the Structural and Rail Division and the Bar Products Division. The company produces hot- and cold-rolled steel products, galvanized sheet products, light gauge steel products, structural steel and rails and joists and deck materials. STLD - Steel Dynamics $38.00 OCT 35.00 RQL-VG LB=0.35 OI=1989 CB=34.65 DE=17 TY=1.8% MY=5.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ MERQ - Mercury Interactive $32.36 *** Stalled Recovery? *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2004 companies enhance the user experience by improving performance, availability, reliability and scalability in their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $32.36 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 35 RQB-JG 4965 0.50 35.50 8.3% 1.4% _________________________________________________________________ STK - Storage Technology $23.82 *** Mediocre Outlook? *** Storage Technology (NYSE:STK) designs, manufactures and sells a range of data storage solutions for the management, retrieval and protection of business critical information. The company's products can be integrated with existing infrastructures. In addition, its products allow universal access to data across servers, media types and storage networks in both the mainframe and open-systems environments. It offers solutions in tape, disk and network products. The company also provides support and maintenance services for its products. STK - Storage Technology $23.82 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 STK-JE 1183 0.45 25.45 9.2% 1.8% _________________________________________________________________ TASR - TASER International $36.50 *** Premium-Selling Only! *** TASER International (NASDAQ:TASR) develops and manufactures a range of less-lethal self-defense devices. The firm's primary product lines include the ADVANCED TASER and the TASER X26, a recently introduced weapon system offering a new "shaped pulse" technology and a smaller form factor. TASR - TASER International $36.50 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 45 QUR-JI 10237 0.35 45.35 8.2% 0.8% ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** SUMMARY OF PREVIOUS CANDIDATES - As of 09/26/04 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 MUR 75.51 85.06 OCT 65.0 70.0 0.70 69.30 0.70 Open RYL 88.15 91.65 OCT 75.0 80.0 0.75 79.25 0.75 Open GIVN 38.72 38.49 OCT 30.0 35.0 0.70 34.30 0.70 Open MBT 140.75 136.97 OCT 120.0 125.0 0.50 124.50 0.50 Open COGN 34.58 34.55 OCT 30.0 32.5 0.30 32.20 0.30 Open SCSC 66.22 64.00 OCT 55.0 60.0 0.50 59.50 0.50 Open CCMP 38.29 35.26 OCT 30.0 35.0 0.75 34.25 0.75 Open? ONXX 41.99 43.16 OCT 30.0 35.0 0.50 34.50 0.50 Open AHC 83.99 86.48 OCT 75.0 80.0 0.55 79.45 0.55 Open CELG 59.39 58.17 OCT 50.0 55.0 0.55 54.45 0.55 Open GDT 64.02 63.66 OCT 55.0 60.0 0.65 59.35 0.65 Open PHM 63.70 62.00 OCT 55.0 60.0 0.60 59.40 0.60 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Cabot Micro (NASDAQ:CCMP) is an "early-exit" candidate in the wake of the renewed decline in semiconductor-related shares. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AZO 74.06 75.73 OCT 85.0 80.0 0.55 80.55 0.55 Open MXIM 40.94 41.59 OCT 50.0 45.0 0.50 45.50 0.50 Open PLMO 32.30 29.29 OCT 45.0 40.0 0.55 40.55 0.55 Open LEN 46.75 47.61 OCT 55.0 50.0 0.60 50.60 0.60 Open NTES 35.51 38.17 OCT 45.0 40.0 0.60 40.60 0.60 Open NBIX 50.65 48.09 OCT 60.0 55.0 0.55 55.55 0.55 Open SSP 49.66 49.45 OCT 52.5 50.0 0.50 50.50 0.50 Open APOL 78.35 72.82 OCT 90.0 85.0 0.25 85.25 0.25 Open STJ 70.73 73.43 OCT 80.0 75.0 0.55 75.55 0.55 Open APOL 72.00 72.82 OCT 85.0 80.0 0.45 80.45 0.45 Open PRX 37.80 36.07 OCT 45.0 40.0 0.60 40.60 0.60 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss St. Jude Medical (NYSE:STJ) is on the "watch" list after Friday's rally and Netease.com (NASDAQ:NTES) warrants further attention as it hovers slightly below the sold (call) strike at $40. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may be higher than other plays in the same strategy, due to small disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ PETD - Petroleum Development $43.63 *** New 2004 High! *** Petroleum Development (NASDAQ:PETD) is an independent energy company engaged primarily in the development, production and marketing of natural gas and oil. The company has grown primarily through drilling and development activities, the acquisition of natural gas and oil producing wells and the expansion of its natural gas marketing activities. PETD - Petroleum Development $43.63 PLAY (conservative - bullish/credit spread): BUY PUT OCT-35.00 PHQ-VG OI=277 ASK=$0.25 SELL PUT OCT-40.00 PHQ-VH OI=190 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.40-$0.50 POTENTIAL PROFIT(max)=8% B/E=$39.60 __________________________________________________________________ RIMM - Research In Motion $76.98 *** Premium-Selling Only! *** Research In Motion (NASDAQ:RIMM) is a designer, manufacturer and seller of wide area wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, the firm provides platforms and solutions for seamless access to time-sensitive information including e-mail, phone, short message service messaging, as well as Internet and intranet-based corporate data applications. Quarterly earnings are due on 9/30/04. RIMM - Research In Motion $76.98 PLAY (conservative - bullish/credit spread): BUY PUT OCT-60.00 RUP-VL OI=8379 ASK=$0.35 SELL PUT OCT-65.00 RUP-VM OI=13159 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.40-$0.45 POTENTIAL PROFIT(max)=8% B/E=$64.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ LLTC - Linear Technology $35.71 *** Back In A Trading Range? *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $35.71 PLAY (less conservative - bearish/credit spread): BUY CALL OCT-40.00 LLQ-JH OI=4996 ASK=$0.15 SELL CALL OCT-37.50 LLQ-JU OI=5869 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$37.80 __________________________________________________________________ LXK - Lexmark Intl. $81.50 *** Next Leg Down? *** Lexmark International (NYSE:LXK) is a developer, manufacturer and supplier of printing solutions, including laser and inkjet printers, multifunction products and associated supplies and services for offices and homes. The company also markets dot matrix printers for printing single and multi-part forms for business users and develops, manufactures and markets a broad line of other office imaging products. LXK - Lexmark Intl. $81.50 PLAY (less conservative - bearish/credit spread): BUY CALL OCT-90.00 LXK-JR OI=3388 ASK=$0.20 SELL CALL OCT-85.00 LXK-JQ OI=1795 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$85.65 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES & STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF PREVIOUS CANDIDATES - As of 09/26/04 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. __________________________________________________________________ DEBIT STRADDLES No Open Positions ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW STRADDLES & STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. __________________________________________________________________ No new straddles or strangles... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. 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