The Option Investor Newsletter Sunday 10-03-2004 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: Bulls Stampede Futures Wrap: See Note Index Trader Wrap: OIL SHOCKS AGAIN Editor's Plays: Do You Hear Music? Market Sentiment: Investor Moods Ask the Analyst: Rebalancing paid off in third quarter 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 10-01 WE 9-24 WE 9-17 WE 9-10 DOW 10192.65 +145.41 10047.2 -237.22 10284 - 28.61 + 52.87 Nasdaq 1942.20 + 62.72 1879.48 - 30.61 1910.09 + 15.78 + 49.83 S&P-100 543.11 + 8.74 534.37 - 11.43 545.80 + 2.45 + 5.19 S&P-500 1131.50 + 21.39 1110.11 - 18.47 1128.58 + 4.66 + 10.29 W5000 11058.70 +220.40 10838.3 -155.02 10993 + 57.00 +115.44 SOX 401.91 + 19.36 382.55 - 5.95 388.50 + 4.89 + 25.77 RUT 585.03 + 19.06 565.97 - 7.20 573.17 + 3.26 + 13.67 TRAN 3298.80 + 96.69 3202.11 - 55.28 3257.39 + 24.00 + 82.53 VXO 12.55 14.14 13.55 13.49 VXN 18.91 21.10 20.13 19.56 ****************************************************************** That will probably be the Saturday morning headline on the stock pages across the country. The truth may be entirely different but the results are the same. Funds poured cash into the market despite fund flows turning negative for the last week of the quarter. Too soon for end of quarter retirement deposits so where did the money come from? Dow Chart Nasdaq Chart SPX Chart Drowsy bears anticipating a long nap beginning a couple weeks from now were shaken violently awake by stampeding bulls on Friday. The Dow gapped open +108 points and the shock waves were felt across all indexes. The post debate meltdown in the futures was met with a strong buy program at the open of the cash market. Volume was again over 4B shares across all markets but the internals were seriously positive at 7:1 advancing volume to declining volume. The Nasdaq ratio was slightly lower at 5:1 but nobody was complaining. There was nothing in the economics to provide a reason for the blowout but nothing to hold it back either. The University of Michigan Consumer Sentiment came in flat at 94.2 on the final reading and no surprise there. This was a drop from the 95.9 reading in August but inline with the initial reading for September. Construction Spending increased +0.8% in August and the July number was revised up to +1.0% from +0.4%. Low rates are helping with construction funding but slow job growth is keeping employers from the need to expand space. The total value of current construction rose to $1.015 trillion dollars. Considering the various constraints in various sectors this is surprisingly strong. The ISM Index fell for the second consecutive month to 58.5 from 62.0 in July. While this is still positive it represents a continuation of the decline which began with the January high at 63.6. While it has not been straight down the trend has been steady. New Orders fell from 61.2 to 58.1 but employment rose to 58.1 from 55.7. Overall the index produced a picture of a continued expansion and one that should continue at least through year end. While the report was not bullish it did not give the bulls any additional cause for concern. Global semiconductor sales rose slightly at +1.1% for August and the collective sigh of relief was heard around the world. Analysts had feared sales had fallen and the gain, although slight, was well received. Processor sales increased +3.5% due to the back to school build. Intel jumped +4% on the news to $20.85. Chip sales grew in all regions where it had been focused to the Asia Pacific region in prior quarters. We have heard from many chip companies that orders to Asia had fallen off sharply in recent months but it appears rising global demand offset that drop. The SOX rocketed +18 to 402 for a +4.6% gain and came very close to the 405 highs from September. The strong semi rebound helped push the Nasdaq and the Russell to new relative highs. SOX Chart The jump in techs ignored the CIO magazine survey released Friday that said tech spending was slowing and would probably not exceed +7.4% over the next 12 months. The Tech Future Growth Index, which projects growth over the next 12 months, slipped to a six-month low of 3.0 after reaching its high for the year of 4.0 in August. Those officers planning on increasing spending dropped to only 44% from 47% in August. Automakers rose and helped provide lift for the markets in general after GM sales rose by +25% over last years levels. Daimler Chrysler sales rose +13% and Ford was the laggard losing ground at -4.2%. GM rolled out the 0% interest rate for 60 months or your choice of a $6000 cash discount to unload its remaining 2004 inventory. Evidently the program was a strong success. Considering the low expectations for the automakers this was a very strong report. Consumer sentiment may be falling but if you sell things cheap enough there will always be buyers waiting. Toyota announced they were increasing production of their Prius hybrid and would double deliveries to the U.S. market. This amounts to about 100,000 new hybrids and puts Toyota well ahead of the competition. Kerry won the debate and the market exploded. Surprise, surprise. Were they related? Probably not. Remember on Thursday night I told you that $16 billion in bonds were sold at Thursday's open in 150,000 contracts. The profit taking streak in the bond market has now stretched to three days and the volume is heavy. It appears the four month bond rally is over and funds are moving to equities in anticipation of a post election rally. Just looking at fund flows would not support the kind of jump we saw today. According to TrimTabs.com stock funds saw outflows for the week ending on Thursday compared to multi billion inflows for the last several seeks. Funds in general lost money for investors in Q3 with the average diversified fund losing -2.8% for the quarter according to Investors Business Daily. So what happened on Friday? It appears that bond money flipped to equities in an asset allocation play to capitalize on a post election rally. I also believe we saw funds who sat on cash until the quarter ended to not risk the normal September market decline also take the opportunity of the new quarter to make that same equity investment. It was clearly a fund day with the majority of broad market buying over by 10:30. Those issues most beaten down shared the spotlight with those winners of late. There was broad divergence of those losers and winners moving higher while the "average" performers failed to find a significant bid. You can see the drastic differences with SYMC +2.22 and new high, CME +4.43 and new high compared to INTC +4%, SLAB +8% and UTEK +12% all chip stocks rebounding off their lows. While the SOX roared for a +4.6% +18 point gain it still remains under downtrend resistance. The big winner for the day was the Russell which found buyers for the fourth consecutive day and tacked on +12 points to finish at a three month high and a clean break above downtrend resistance. The race to the 585 close kept the Nasdaq and Dow from crumbling under their own weight as the day wound down. It also moved the Russell to within 15 points of a breakout over very strong resistance at 600 and only -20 points away from the all time high close of 606. On the surface it would appear bullishness is breaking out all over. Russell Chart That bullishness has pushed the VIX/VXO to new eight year lows. I hate to keep preaching to the choir but as a warning signal the klaxon has gone from muted beep to a solid siren. The challenge with the VIX/VXO is that there is no specific number that triggers a sell off. Highs and lows are more critical than a single number. Whenever these indicators are setting new highs/lows we should pay rapt attention. Needless to say eight year lows are screaming to be heard. Checkout Keene's VIX article in the Traders Corner this weekend. For next week we could see an acceleration of warnings from the software sector. The ratio of warnings to positive guidance in the sector is currently 2:1 and that number could rise sharply. Software makers typically cram as many last minute sales into the quarter as possible and offer growing incentives as the quarter ends. They really do not know if they made their numbers until the smoke clears. This could pressure the sector and techs in general. This same practice is used in other industries and we could see a general spike in warnings next week. However, the pace of warnings for the current week did not pickup as analysts expected. They continued but at a level pace with no increase in frenzy. This could be a positive sign for the quarter after many have predicted a potential drop to single digits for overall earnings growth. We have also seen a lack of warnings by major companies. Since Alcoa warned the big caps have been mostly silent. IBM, MMM and the other Dow components have been quiet and have now passed the normal time for confessing. It is just possible the asset allocation we saw on Friday was due in part to the lack of big cap warnings. The little guys have been beaten badly but maybe the multinationals have not been hurt as much as the analysts previously thought. Even if that is true the trend may be changing. Oil closed over $50 at $50.12 for the first time ever on Friday. More and more pundits are talking $55-$60 and this will eventually squeeze profits for almost everyone. GDP for most nations will fall as prices curtail expansion. Japan has been the hardest hit as it must import all of its oil. The Japan markets have been in a nose dive on energy fears. It is entirely possible we will see an entire wave of cautious guidance over the next several weeks of earnings as companies lose traction in the widening oil slick. There is also a recent trend by invertors to ignore warnings. Companies warning have been slapped on the wrist instead of taken to the woodshed for a beating. With disasters like MRK, CL and TZOO lurking around every corner a small drop in earnings from tech favorites is easily overlooked. Before we get overly bullish about the prospects we need to remember what month we are in. October has seen four of five major bubbles burst. The top three single day Dow drops, -22%, -12% and -11% were all in October. There is some good news to tame the negative outlook. Eight of the last nine election years October broke out of the prior trading range to the upside. This is the carrot that lures timid investors to take risks in advance of a normally highly volatile period. A major challenge confronting us is the known trend. It is almost universally accepted that the market will rally into and after the election with that rally ending in January. The abnormally low VIX shows that despite a terrible quarter behind us there is little or no fear heading into October. Everybody is counting on the trend and the universal acceptance that it will happen. Now we all know what happens when the entire market accepts the existence of a trend and starts counting on it. The market exists to confuse the maximum amount of traders at any one time. This could truly be one of those situations where all investors could end up on the same side of the boat at the same time with disastrous results. I am not predicting this only suggesting we don't run head first into the trap with our eyes closed to other possibilities. For next week there are no major economic reports until Thursday with the Jobs report closing the week on Friday. This gives stocks free reign to run on Monday if Friday was not a one day fund wonder. Keep your eye on oil over $50 and watch for the number of warnings to increase and more importantly watch how the market reacts to those warnings. We should see some more short covering at Monday's open if nothing eventful occurs over the weekend. Once any opening bounce fades we will see if the rally has wings. Yes, wings not legs. A move higher from this level would break the SPX down trend and trigger even more short covering. If the Russell clears 590 we could see investors racing to chase prices and a move over 600 could see an explosion of activity. There is a lot of should and could in this paragraph but there are also a lot of surprised traders staring at charts this weekend. I suggest we do the same. 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 ******************** By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE - The market looks headed still higher but watch for the ability of the S&P 100 (OEX) and Nasdaq 100 (NDX) to close above resistances at 546-548 and 1478 respectively, as well as at 10,300 in the Dow 30 (INDU). Price action continues to be best predicted by strictly technical patterns and indicators. It was hard to understand by the market fundamentals the strong late-week rally. The week before last, reversals came right at down trendlines (both S&P indices and the Dow) and at key retracement and moving average points (NDX). This was followed by strong upside reversals at technical supports at 1100 in SPX (S&P 500), 10,000 in the INDU and 1850 in the Nasdaq Composite (COMP). Technically bullish before and at, this past week's reversal points, were 2 of my 3 key indicators: sentiment and up volume (more on this in the charts). Low volatility (VIX) and related key fundamental factors like crude oil prices at $50! - didn't suggest a continued decline like they have at other times this year. Go figure. The bottom line is that it was not easy to figure why the market rallied so strongly except it was ready to, wanted to. That and still oversold tech and semi-conductor sectors. Some pundits said the market rallied cause participants think President Bush will be re-elected, but they thought Kerry won the debates. Again, go figure. WILD CARD - Oil looks to me like its going to 52 next and I don't know how long the market will shrug this off. Technically, both the market and oil look headed higher so I go with how both charts present currently. THE NUMBERS - The S&P 500 index (SPX) rallied 16.9 points to 1,131.50. SPX was up 2% on the week. The Dow 30 Average (INDU) closed 112 points higher, with a 1.5% gain for the week. The Nasdaq Composite (COMP) advanced 45 points (+2.4%), to 1,942.20, which was it best single day gain since late-March. COMP rallied rose 3.4% for the week. Tech is back!? - the jury is out still - this sector has been depressed for some time and any news that tech has turned the corner will cause a big short-covering type rally. FRIDAY'S TRADING ACTIVITY - Friday was day 1 of the new quarter and money managers got in a buying mood early and that buying feeling never went away even as Crude oil closed over $50. It goes to show that when the market wants to rally and the bulls stampede down Wall Street, other influences are not seen by the herd as showstoppers. And early bullish influence in U.S. stocks was after gains in overseas markets, based on a closely watched Japanese business sentiment survey. The two main influences that fueled the advance was a strong rebound in the chip stocks - +4.6% in the Philly semiconductor index (SOX) - after JP Morgan's analyst came out with an estimate that the chip equipment sector bottomed out in the third quarter. Intel (INTC), Microsoft (MSFT) and Hewlett-Packard (HPQ) were 3 big gainers in the Tech area, that are also Dow stocks. Another strong bullish influence on Friday came on the release of the monthly report from the Institute of Supply Management or ISM. Although their report showed a dip in factory activity for September, falling to 58.5% in September from 59%, their employment index rose to 58.1 from 55.7 in August, a significant rebound. This led to speculation that we may see strong grown in non-farm payrolls in this coming week's report from the Labor Dept. (Friday). The University of Michigan reported a bigger-than-expected fall in consumer sentiment in late-September. Their consumer sentiment index fell to 94.2 in September from 95.8 earlier in the month, but some softening was expected The Commerce Department reported a surge of homebuilding pushed total outlays for construction projects up by a better-than- expected 0.8% in August. July's output figures were also revised higher. It now looks like housing construction will make a strong positive contribution to third quarter GDP As I mentioned, political talk on the floor and buzzing around was that while George Bush might not have put on the best or a great debate showing the night before, he didn't have any big gaffs, the betting was that our Business friendly President would win next months election. The market doesn't like uncertainty or any more than we got in this day and age - better the leader you got rather than a new sheriff in town. OTHER MARKETS - Nearby or lead contract November crude futures gained 48 cents to close at $50.12 a barrel in New York trading and ending above the key $50 mark for the first time, a gain of nearly 3% for the week U.S. Treasury bonds fell for the 4th straight session, as the 10- year note lost 18/32 to close at 100 15/32 and yield 4.19%, a 3- week high. The dollar strengthened in New York Friday trading against the euro and the pound after weaker than expected manufacturing surveys were reported in Britain and in Europe, raising concerns over the impact of higher oil prices on economic growth. However, the Euro is still trading close to 1.2885, around the highs hit in July. MY INDEX OUTLOOKS - S&P 500 Index (SPX) - Daily chart: The S&P 500 (SPX) found support at 1100 as anticipated but I didn't think last week however that there would be a sky shoot back up past the prior highs and trendline resistance. Surprise, but as one old saying goes, at least sometimes, "trendlines are made to be broken" - The chart pattern has turned bullish with the very strong rally on Friday. I have to figure there were a lot of shorts that ran for cover to help explain this much of a rebound. Prior rally highs in the 1145-1146 area can be figured as the next key resistance. First support should now be 1126-1125, at the previously broken down trendline - what was resistance "becomes" support. Next support should be 1115, then again at 1100. I thought the least likely scenario was a "quick rebound to resistance at 1130" - WRONG! Any puts bought in the 1125 per my suggestion, if not sold on the close over 1130, ought to be exited if SPX does not close back below 1126 in early trade in the week ahead. I didn't put a lot of stock last time in the bullish reading on my sentiment indicator - see the green arrow on the "sentiment" indicator chart just above. However, when within 1-5 days, "confirmation" is seen with a 10-day NYSE Up volume reading at the baseline (green arrow on the middle chart) this is typically a good buy signal. It didn't pay in my own case to put much focus on the S&P not coming down to an oversold RSI/Stochastic reading (see next chart) or, by the low Volatility (VIX) reading or spike in oil prices - these are not my primary indicators, especially things like inter-market analysis; e.g., what oil is doing. Well, if it were so easy to figure out the market would not humble us all at some time or other! S&P 100 Index (OEX) - Daily chart: The S&P 100 (OEX) held key support in the 530 area and will achieve a bullish breakout if there is a penetration above its trendline at 546, then above its prior (up) swing high at 548.5. If the prior high is exceeded, OEX could be headed toward the upper trading envelope line. The 14-day RSI is still well below registering a near-term overbought reading. Stay tuned! If however, OEX tops out in the area of the prior high, this is another indicator for a top and defines the high end of a possible trading range - in which case, put positions are again suggested. The rebound back above the 21-day moving average was a bullish reversal indication suggesting exiting any puts taken at the last cluster of highs at the resistance (down) trendline. While not shown on the chart above, last week's low was an exact Fibonacci 62% retracement of the prior rally - ditto with the Dow (INDU) average. I've been writing on retracements as points to look for potential trend reversals in recent Traders Corner article such as at - http://www.OptionInvestor.com/traderscorner/tc_091604_1.asp Dow 30 (INDU) - Daily chart: The Dow 30 Average reversed strongly after retracing 62% of the last rebound as shown in my last week's Trader's corner - see http://www.OptionInvestor.com/traderscorner/tc_092304_1.asp INDU of course is still not broken out above key resistance implied by its down trendline and its 200-day moving average which intersects in the 10,300 area. A move to this area, followed by a rally failure suggesting exiting calls and going into puts as a next trade. 10,140-10,150 is near support, then the 10,000 area more major technical support. Momentum is up as suggested by the 21-day stochastic and there is plenty of room for this indicator to expand before reaching a bearish reading again. Readings on this indicator on a daily chart basis and with "length" set to 21 has been a good one to watch for indication of the market being vulnerable to a fall. Nasdaq Composite (COMP) Index - Daily: The Nasdaw Composite (COMP) has resumed a bullish chart pattern with the decisive upside penetration of its prior rally highs. COMP now looks like it could be finally headed to its upper trend channel line around 1985. Support is at 1900, at the bottom end of the upside gap achieved Friday when the low was above Thursday high. The upside gaps were a tip off for the strong rally that developed at week's end. COMP is in the beginnings of an overbought area on the (14-day) RSI - markets can get and stay overbought. Overbought readings mostly suggest that the market is vulnerable to news "shocks" - ones that are seen having possible bearish impacts of course. What was bullish at the lows last week was upside reversal after the pullback to the recent or short-term up trendline. Along with bullish action in the chart pattern, came the contraction of Nasdaq Up volume, on a 10-day basis, to one of the two "baselines" from which rallies have been developing in the past few months - see the green up arrow on the Nasdaq Up Volume chart. Nasdaq 100 (NDX) Index - Daily chart: The Nasdaq 100 (NDX) chart turned bullish after Friday's upside gap and acceleration. Support in fact is suggested at the low end of this gap in NDX, in the 1420 area, then at 1410. I figure significant resistance as in the 1478 area, at the upper end of the "internal" down trendline; i.e., a line connecting the most number of highs at major tops since late-January, explaining why this line bisects two intraday highs at the June top. A reversal in the 1478-1480 area keeps with a still-bearish pattern of lower rally highs that we've been seeing over past months. I would like to enter NDX puts on signs of a rally failure around in this area. The RSI is nearing an overbought reading again. Something else to consider - if NDX reversed without exceeding Friday's peak level, RSI would not confirm the new high, which is a bearish divergence price/oscillator. Absent that, if RSI gets up in the 65-70 zone, this index will become increasingly overbought - this is where the market becomes vulnerable to reversals, so those in calls ought to be alert to downside reversals. Nasdaq 100 tracking Stock (QQQ) Hourly chart: QQQ reversed above, and without digging into, support in the $34 area, then in a very strong move for the Q's, closed above key resistance at 36. Next key resistance is around 37, at the down trendline. This is the area to watch - inability to get above this area would maintain the stock in a downtrend. Reversal in this area would suggest going from long to short the stock also. Watch whether QQQ can now hold above 35.75-36 on a closing basis - failure to do so could suggest a bull trap reversal by a move to new high and if this was followed by an immediate downside reversal. An advance to the area of the prior peak at 37.9 would set up a double top - pushing above this area would create a reversal to the 2004 downtrend pattern. Note - My suggested stop for a bearish play on a rally toward the 36 area, was at 35.7. I would look again at the short side in the 36.75-37 area, with a suggested stop at 37.50. 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 ************** Do You Hear Music? While the play updates below span the range of good news to bad news the play for today contains no news at all. Of course I am talking about XMSR Satellite Radio and their streaming no news, no interruptions music. On Friday XMSR said they now have over 2.5 million subscribers and added +415,000 for the quarter. When you consider that growth rate of 20% per quarter it is staggering. They are predicting over 3.1 million by year end. Rumor has it that they will be streaming 70 channels over the Internet within two weeks. Of course that is extra cost for current subscribers at $3.99 per month and $7.99 for non subscribers. Instantly another income stream emerges and getting quality music at work will be considerably easier. No more dealing with license fees, mp3 players or hauling CDs back and forth to work. Our opportunity comes from some bad news XMSR gave after the close. Seems their growth would have been stronger last quarter but a component problem in their units halted production temporarily. Despite the strong subscriber news and forecast XMSR dropped -$1.73 in after hours in a knee jerk reaction to $29.15. Since the Internet music service is not yet widely known and will be advertised extensively XMSR could get a huge sentiment pop over the next couple weeks. I feel the after hours drop is a buying opportunity. The Jan-$30 call (QSY-AF) could drop to $2.50 as it goes out of the money at the open. The Jan-$32.50 call (QSY-AZ) could drop to $1.50-$1.75. Support is $28.75 and resistance $31.50. I would recommend the $30 call as the safest option. Depending on market conditions at Monday's open I would either buy the open if the market is bullish or if the market opens down wait to see if we are going to take profits from Friday's rally. Pick your entry point and go listen to some music. BUY JAN-$30 Call QSY-AF BUY JAN-$32 Call QSY-AZ XMSR Chart ********************* MSO Put Update $15.85 MSO dropped from last Sunday's $17.07 to $15.08 where it found temporary support on Thursday. The Friday rally may have stimulated some short covering with MSO moving up +45 cents in the last two hours. Next week should renew the question in investor's minds of why hold a non performer with negative earnings for the next six months when other small caps are exploding. Hopefully that $15 support will fail and the downtrend begin. We are slightly positive in our put option but volatility is still bleeding off from last weeks spike. Time is on our side but let's lower the stop to $17.50 just in case. March $15 Put MSO-OC @ $2.00 currently $2.15 Stop MSO @ $17.50 MSO Chart ********************** Terrorist Insurance Update Marathon $41.96 So far, so good and oil closed over $50 on Friday. Our option is up about +110% at $3.10 and MRO closed at another new high. With oil due to profit take soon I am raising the stop to MRO at $40.25. I suggest you manage your own trade to lock in a profit but remember the concept on this trade. We are expecting a potential terrorist event in oil that will push prices much higher before the election. Since we are already up strongly I want to protect against a loss but be ready if an event does occur. Long term uptrend resistance is about $43.60 so I would look for weakness in that area as an exit indicator. That should be close to 200% profit so no harm in taking it off the table. Call Jan-$40 MRO-AH @ $1.45 currently $3.10 Marathon Chart http://members.OptionInvestor.com/editorplays/edply_091904_1.asp ********************** GOOG Put Update $132.71 Google took flight on Tuesday when the 40 day quiet period expired for the IPO underwriters. All five brokerage firms issued an "outperform" rating for the stock with a $145 price target. Shorts were instantly treated to another rocket ride. The analysts were far less than glowing about GOOG but as underwriters they could hardly place a "SELL" rating on it after pitching it as a good investment to thousands of their customers. We were stopped at $125 and the plan was to reenter at $120. With GOOG at $132.71 today I am raising that reentry point to $125 and our prior exit. If the buzz cools on GOOG I would like to get back in as high as possible. $118 was support for over a week and I would rather be in ahead of that retest on the downside. There are still 240 million shares coming to market over the next five months, nearly ten times the amount currently available to trade, and two earnings reports. GOOG Chart **************** MARKET SENTIMENT **************** Investor Moods - J. Brown What is investor sentiment? We hear about sentiment indicators. These are supposed to measure investors bullishness or bearishness. Analysts then tend to use these as contrarian indicators. If everyone's bullish then it's probably time to sell. If everyone's bearish then it may be time to buy. Wall Street has a number of colorful maxims explaining these concepts. Analysts like to evaluate investor sentiment because when it hits extremes it usually signals a reversal is just around the corner. As Jim put it this weekend - when everyone runs to one side of the boat odds are good the boat can tip over. The problem with sentiment indicators is that interpreting them is more art than science. They offer clues not black and white buy and sell signals. A clear example these days is the volatility indices the VIX/VXO. For years if the VIX traded near or under the 20 level it was a clear signal that the market was near a top because investors were too confidence or too bullish. There was no fear in the markets, which is why the VIX is referred to as the "fear" index. Now the VIX and VXO are both under 13 and hitting multi-year lows. In the past few months when the VIX/VXO traded near 13-14 it was a sign that the market was near a short-term top. Yet what did we learn over the past couple of years? We learned that these sentiment indicators can always get more oversold (or overbought). They still work but interpreting them becomes more challenging. Right now the VIX/VXO is screaming at us that the stock market is near a top. Yet that top may not come for days or weeks and the VIX/VXO may end up hitting 12, 11 or 10, etc... before stocks reverse. What's my point to this discussion? This past week we've seen some end of quarter window dressing and Friday's start to the fourth quarter was extremely bullish. There was a huge surge in new one-year highs and stocks were breaking out left and right. I still believe the trend is your friend and as traders we should trade what we see but we don't have to do so on blind faith. Short-term stocks may have more upside but this is dangerous territory. If you're a regular reader of this column you know I'm already bullish for stocks through the second half of October through the end of the year. As Jim mentions in the wrap this weekend it's the historical post-election bounce. Jim suspects that it is confidence in the coming bounce that is driving Friday's rally and funds are jumping in early ahead of the post-election bounce. It's a simple trade for money managers with President Bush still ahead in the polls despite his lackluster performance in Thursday night's debate. However, I agree with Jim that usually when everyone's counting on the same pattern to show up it tends to be a no-show or it doesn't perform as well as in the past. Right now everyone's counting on the post-election bounce so there's one big caution flag. Second, the lack of any significant pull back from the August-September rally still leaves a number of stocks overbought and extended. This is a tough spot to consider new long plays. I for one feel like a lot of investors are chasing stocks here because they don't want to be left behind. There's caution flag number two. Crude oil continues to be a major issue and now that it's closing at record highs over $50 a barrel it's a lot easier for people to see oil at $55 or even $60. You already know that oil at these levels is a huge drain on the global economy and impacts businesses and consumers alike. We've already seen the economic growth in the U.S. slow down month after month. If oil doesn't recede our growth is going to be in jeopardy and corporate earnings are going to suffer. Wall Street isn't going to care so much about Q3's earnings as much as they care about guidance for the fourth quarter. Keep waving caution flag number four. I don't want you to think I'm a big bear. I would much prefer to buy stocks or call options. I merely find it more challenging when it feels like the market is near a top. Yet I'm more than willing to consider that we're experiencing a potential trend change and the major indices could breakout from their multi- month trading range and hit new relative highs. Looking ahead we have a very busy week. Q3 earnings season begins with Alcoa (AA) reporting earnings on Thursday and General Electric (GE) reporting on Friday. This week also has several appearances from multiple Federal Reserve governors including Greenspan himself. In addition to the ISM services index, September's retail comparable sales numbers and other economic data the big event will be Friday's non-farm payrolls report. The latest jobs numbers are guaranteed to be more fodder for the Presidential campaigns. For more details on this week's events see the Market Watch page. For more on the volatility indices see Keene's article on the VIX this weekend. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 10192 Moving Averages: (Simple) 10-dma: 10141 50-dma: 10113 200-dma: 10298 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 990 Current : 1131 Moving Averages: (Simple) 10-dma: 1115 50-dma: 1102 200-dma: 1118 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1452 Moving Averages: (Simple) 10-dma: 1412 50-dma: 1381 200-dma: 1440 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 12.75 -0.59 CBOE Mkt Volatility old VIX (VXO) = 12.55 -0.89 Nasdaq Volatility Index (VXN) = 18.91 -1.57 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.97 912,411 886,252 Equity Only 0.77 705,362 546,099 OEX 1.14 41,631 47,437 QQQ 2.97 59,482 176,876 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 65.2 + 1.5 Bear Correction NASDAQ-100 44.0 + 1 Bull Alert Dow Indust. 56.6 + 3.3 Bear Correction S&P 500 62.6 + 1.4 Bear Correction S&P 100 62.0 + 2 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: 0.94 10-dma: 1.07 21-dma: 1.01 55-dma: 1.15 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 2174 2139 Decliners 617 875 New Highs 274 123 New Lows 14 21 Up Volume 1642M 1516M Down Vol. 268M 282M Total Vol. 1921M 1807M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 09/28/04 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 most recent data doesn't show a lot of movement. Commercial traders upped their short positions a bit so they remain net bearish. Small traders didn't do much maneuvering and remain net bullish. Commercials Long Short Net % Of OI 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%) 09/28/04 404,773 434,441 (29,668) (3.5%) 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 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% 09/28/04 135,317 107,173 28,144 11.6% 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 e-minis always see a lot of action and this time we see the commercial traders upping both their longs and shorts in almost equal percentage moves so "smart" money remains bearish. Small traders also upped their longs and shorts and remain strongly net bullish. Commercials Long Short Net % Of OI 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%) 09/28/04 226,020 420,714 (194,694) (30.1%) Most bearish reading of the year: (354,835) - 06/17/03 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 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% 09/28/04 262,501 68,255 194,246 58.7% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 The NDX futures aren't seeing much action from the commercials. They did up their short positions a bit after the previous periods significant drop. Yet professional traders remain net bullish on the NDX. In contrast the small trader remains heavily net bearish but not to the extreme they were a week ago. Commercials Long Short Net % of OI 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% 09/28/04 55,045 32,319 22,726 26.0% 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 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%) 09/28/04 10,078 22,917 (12,839) (38.9%) Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Interesting... commercial traders didn't make many adjustments but small traders did. We're seeing small traders hedge their bets as their longs and shorts grow closer together. This has significantly reduced their bearish outlook on the Dow. Commercials Long Short Net % of OI 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% 09/28/04 29,714 26,877 2,837 5.0% 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 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%) 09/28/04 5,143 5,988 ( 845) ( 7.6%) 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 ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** *************** ASK THE ANALYST *************** Rebalancing paid off in third quarter In our continuing addition of quarterly rebalancing, and an investor's question from late last year, its time to rebalance those retirement accounts and systematically take some profits where they're found, and buy some of those "depreciated" asset classes. And ooooooohhhhh boy does last quarter's rebalancing of the "Beetle's Balanced Benchmark Fund" pay some reward in the third quarter where profits were taken in the Dow Diamonds (DIA), the S&P Depository Receipts (SPY) and NASDAQ-100 Tracker (QQQ), and those profits redistributed among other asset classes in the hypothetical fund's asset classes. We had also redistributed some moneys from cash, perhaps best depicted by the U.S. Dollar Index (dx00y), which after the second quarter was up fractionally, and while our shorter-dated Treasury asset class, depicted by the iShares Lehman 1-3 year (SHY) showed a 1.66% loss in the second quarter, it had "outperformed" other bond asset classes, where we were forced to reallocate some of those funds to areas that had under performed. Here's what we were looking at in the June 27, 2004 Ask the Analyst column titled "Another quarterly rebalancing (update)." Beetle's Balanced - 06/25/04 Close (rebalanced 03/26/04) Near the end of the second quarter, the Beetle's Balanced had fallen 3.79% (Total for P/L %) where gains for the DIA, SPY and QQQ were not enough to offset losses in our fixed income asset classes. A sharp 15.75% decline in the AMEX Gold Bugs Index ($HUI.X) had to be a bargain! At the 06/25/04 rebalance, the Beetle's Balanced Benchmark was valued at 11,655.04. All we did was take that 11,655.04 and redistribute it equally among the 10 asset classes shown, where #Shares was simply derived by taking $1,165.50 (10% of $11,655.04) and dividing that by the closing value (Last) to derive a new share amount. Here's what happened in the recent quarter, where on Thursday night (09/30/04) I captured the portfolio's closing values. For the quarter (since 06/25 rebalance), the Beetle's Balanced Benchmark had risen 2.97%! Of course, this does not include the any additional benefit of dividends paid during the quarter. Beetle's Balanced Benchmark - 09/30/04 Close (will rebalance) Redemption! The forced taking of profits in the DIA, SPY and QQQ and redistribution to various fixed income (bond) assets looks like it paid off. The "junk bond" Pacholder High Yield (PHF) was the biggest gainer in that fixed income section with a nice 8.62% gain. The PHF has been kicking off a $0.075 dividend each month too (not included in results). And look at that Gold Bugs Index ($HUI.X), up a whopping 19.09%! That more than makes up for the drubbing in the second-quarter. Certainly we lost some money as the DIA, SPY and QQQ asset classes declined, but the "good news is" we were forced to take some of the profits from those asset classes in the second quarter. So.... we're left with $12,000.62 at the end of the third quarter and it is time to rebalance again. No high math needed here. We'll take the $12,000.62, divide that value by the 10 asset classes ($1,200.06) and with closing values (Last) at the ready, can easily calculate how many shares we either need to sell, or buy, to have each specific asset class rebalanced to $1,200.06 (Cost). Do institutions rebalance their holdings as a quarter draws to a close? You bet, and while they will weight there asset classes based on various risk/reward profiles, just like a 25-year old investor might have a more "growth" oriented profile than an 80- year old investor who is probably more "income" oriented, the Beetle's Balanced Benchmark was non-strategically weighted, with equal amounts of capital distributed among 10 different asset classes. I won't go through all the asset classes and buy/sell share amounts, but as we rebalance we end up buying more DX00Y, SHY, DIA, SPY and QQQ shares, and sell some of our IEF, TLT, LQD, PHF and HUI.X. "Buy low and sell high," but with no type of timing of the market. With one day of trading under our belt (10/01/04) here how the "Beetle's Balanced Benchmark" looks. Basis is derived from the 09/30/04 Close, and Cost is as close to 1,200.06 as I can get, even with fractional shares. You can't buy 34.151 QQQ shares, but I'm trying to keep our Cost and Total Cost consistent, as the whole point of our quarterly rebalancing is to try and prove to ourselves that rebalancing pays off over time. Beetle's Balanced - 10/01/04 Close (rebalanced 09/30/04) Our new "Total Cost" is equal to what the "Total Value" was on 09/30/04 (pretty darned close), so I'm confident may mathematics for rebalancing are correct. Under the "#Shares" column, I dashed green those asset classes were we bought additional shares, and with dashed red have marked those asset classes where we sold some of those asset classes. Is rebalancing paying off? Here's the "Beetle's Balanced Benchmark" as of Friday's close (10/01/04) and how it would look from its established date of (12/26/03) if we had just bought and held the 10 asset classes and not rebalanced at the end of each quarter. Remember that dividends are NOT included in any of the totals. Beetle's Balanced - 10/01/04 Close (no rebalance since 12/25/03) As of 10/01/04, rebalancing does appear to by paying off, by a positive amount of ($12,000.69 - $11,953.90 = $54.23) $54.23 on a portfolio that began the year with a cost of $11,928.37. While $54.23 doesn't seem like a lot, we have to remember that we're not reflecting some of the compounding from dividends. For our fixed-income area (SHY to PHF) when be "buy low" we're usually getting a larger dividend YIELD on those investments, or greater amount of income production for the quarter, until the next rebalance. Those dividends (I use the term dividend instead of interest for our fixed income, since those fixed income assets aren't really bonds. They're iShares or closed-end fund in the case of PHF) will actually provide additional cash that could be used to buy additional assets. The exercise here, over a longer-period of time is the compounding of gains, which may seem fractional, begin to add up over a longer-period of time. For a more detailed history of what we've been doing this year with quarterly rebalancing of the "Beetle's Balanced Benchmark Fund," you can read other Ask the Analyst columns from 12/28/2003, 01/25/2004, 04/05/2004 and 06/27/2005. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- RI Ruby Tuesday Mon, Oct 04 After the market 0.44 ------------------------- TUESDAY ------------------------------ AYI Acuity Brands Inc Tue, Oct 05 ---- n/a ---- 0.55 APOL Apollo Group Tue, Oct 05 After the market 0.48 BCF Burlington Coat Fc. Tue, Oct 05 ---- n/a ---- n/a YUM Yum! Brands Inc Tue, Oct 05 After the market 0.60 ------------------------ WEDNESDAY ----------------------------- DNA Genentech Inc Wed, Oct 06 After the market 0.21 MON Monsanto Co Wed, Oct 06 Before the bell 0.03 SCHN Schnitzer Steel Wed, Oct 06 Before the bell 0.90 WWW Wolverine World Wide Wed, Oct 06 Before the bell 0.47 ------------------------- THUSDAY ----------------------------- AA Alcoa Inc Thr, Oct 07 After the market 0.33 AMHC American Healthways Thr, Oct 07 After the market 0.27 COST Costco Wholesale Thr, Oct 07 Before the bell 0.58 ISCA Intl Speedway Thr, Oct 07 Before the bell 0.59 MAR Marriott Intl Thr, Oct 07 Before the bell 0.55 RGS Regis Corp Thr, Oct 07 Before the bell 0.57 ------------------------- FRIDAY ------------------------------- ARA Aracruz Celulose Fri, Oct 08 ---- n/a ---- 0.59 GE General Electric Fri, Oct 08 Before the bell 0.38 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable ANSS ANSYS Inc 2:1 Oct 4th Oct 5th VLO Valero Energy 2:1 Oct 7th Oct 8th MIK Michaels Stores 2:1 Oct 12th Oct 13th NUE Nucor Corp 2:1 Oct 15th Oct 18th PCBK Pacific Continental Bank 5:4 Oct 15th Oct 18th RAVN Raven Industries 2:1 Oct 15th Oct 18th -------------------------- Economic Reports This Week -------------------------- We have a very busy week ahead of us. The Q3 earnings season begins with Alcoa and General Electric reporting late in the week. There is a number of economic reports and a parade of Fed Governors speaking this week. The biggest event will be Friday's jobs reort but the presidential and vice-presidential debates will certainly get some air time. ============================================================== -For- ---------------- Monday, 10/04/04 ---------------- Factory orders for August Estimate: +0.1% Last: +1.3% Fed Governor Bies speaks in Philladelphia Fed Governor Poole speaks in Missouri Fed Governor Santomero speaks on Monetary Policy ----------------- Tuesday, 10/05/04 ----------------- ISM Services index for September Estimate: 59.0 Last: 58.2 Challenger's layoffs for September Vice President Debate in Cleveland, OH. ------------------- Wednesday, 10/06/04 ------------------- Fed Governor Poole speaks in Missouri Fed Governor Hoenig speaks on Monetary Policy Crude oil, gasoline inventories reported ------------------ Thursday, 10/07/04 ------------------ Weekly Initial Jobless Claims Estimate: 350K Last: 369K Fed Chairman Greenspan speaks in St. Louis Fed Governor Guynn speaks Fed Governor McTeer speaks Chain Store Comparable Sales for September Consumer Credit Natural gas inventories ---------------- Friday, 10/08/04 ---------------- Non-farm Payrolls (Jobs) for September Est: 140K Last: 144K Unemployment rate for September Estimate: 5.4% Last: 5.4% Fed Governor Bernanke speaks in St. Louis Fed Governor Ferguson speaks in St. Louis Hourly Earnings Average Workweek Wholesale Inventories Presidential Debate at 9:00 PM ET 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 10-03-2004 Sunday 2 of 5 In Section Two: Watch List: PDCO, EMR, CI, FO Dropped Calls: ATH Dropped Puts: BIIB, FFH, LXK ************************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 ********** Plenty of Bullish Candidates to Watch ___________________________________________________________________ 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. ___________________________________________________________________ Patterson Companies - PDCO - close: 77.30 change: +0.74 WHAT TO WATCH: We've been watching PDCO for a while now. The stock has finally broken out over its six-month trend of lower highs. The move has also produced a new ascending triple-top bullish buy signal on its P&F chart. The P&F chart points to a $91 target. We would consider longs here with an $85 target. Chart= --- Emerson Electric - EMR - close: 63.90 change: +2.01 WHAT TO WATCH: EMR surged 3.24 percent on Friday with above average volume fueling the move but it still couldn't breakout over resistance at $64.00-64.25. EMR has been stuck under this level since March. If shares can breakout then traders can use it as an entry point to target a move toward $68-69. The P&F chart looks pretty bullish with a strong base in place and a new quadruple-top breakout buy signal pointing to $73. Chart= --- Cigna Corp - CI - close: 70.60 change: +0.97 WHAT TO WATCH: We came very close to adding CI to the play list as a call candidate this weekend. The stock has finally broken out over six-month resistance at $70.00-70.50 and its technical indicators are bullish again. We choose to pass because of the 200-week moving average looming overhead near $73.90. CI may completely ignore this moving average so we're willing to watch it. The P&F chart is bullish and points to a $93 target. Chart= --- Fortune Brands - FO - close: 74.80 change: +0.71 WHAT TO WATCH: You may remember FO from the play list a few weeks ago. Unfortunately FO couldn't breakout over resistance at $75.00. The stock is still under this level but this time it looks poised to push through the $75 mark. Should this occur then readers may want to consider bullish plays with an $80 target. The P&F chart shows a new bear trap and triple-top breakout buy signal with an $85 target. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- PBI $45.30 +1.20 - PBI climbed more than 2.7 percent on Friday to breakout over massive resistance and close at new four-year highs. NUE $93.02 +1.65 - What are the odds of NUE hitting $100 before its 2:1 split on October 18th? EXM $40.11 -1.97 - Truly crazy trades may want to consider bearish strategies on EXM now that momentum has changed direction. (This would be very high risk!) TTC $70.00 +1.70 - We're watching TTC for a breakout over $71.00 and new all-time highs. WWY $63.39 +0.08 - We're watching WWY for a breakout over resistance at $64.00 and new all-time highs. ************************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 ^^^^^ Anthem Inc - ATH - close: 86.73 chg: -0.52 stop: 84.89 We're choosing to exit ATH early. The stock appears stuck in its current trading range between $85.00 (and its 200-dma) and the $88.00 level overhead. Technical oscillators are starting to grow more bearish and ATH's failure to join the market rally on Friday is discouraging. If you want to stay long keep an eye on the simple 200-dma as support. If you're looking for new bullish positions consider waiting for ATH to breakout over $88.50. Picked on September 26 at $86.81 Change since picked: - 0.08 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 2.1 million Chart = PUTS ^^^^ Biogen Idec - BIIB - close: 62.87 change: +1.70 stop: 62.51 We've been issuing cautious comments on BIIB the last few days as the bounce back above $60.00 looked like bad news for bears. Sure enough with the NASDAQ up 2.39 percent on Friday BIIB wasn't going to be left behind. The stock surged in the last couple of hours of trading and broke through our stop loss at $62.51 to close just under the $63.00 level. If BIIB can breakout over $64.00 traders may actually want to consider bullish positions. Picked on September 22 at $59.57 Change since picked: + 3.30 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 3.0 million Chart = --- FairFax Financial - FFH - cls: 132.75 chg: +7.90 stop: 130.01 How frustrating! Resistance near $127.00-127.50 was holding through most of the session on Friday. Until the last two hours when a number of stocks just surged higher. FFH broke through round-number resistance at $130.00 and stopped us out. Super aggressive traders may actually want to consider bullish positions now that the two-month downtrend has been broken, although we'd probably look for a bounce from $130. We haven't heard any more news or comments on FFH's liquidity issues and potential bankruptcy in the last three weeks so the rumor has obviously lost steam. Picked on September 12 at $126.50 Change since picked: + 6.25 Earnings Date 00/00/00 (confirmed) Average Daily Volume = 59 thousand Chart = --- Lexmark Intl - LXK - close: 86.48 chg: +2.47 stop: 86.01 This time LXK helped lead the tech stocks higher as LXK took to an early lead on Friday. The breakout over resistance at $85.00 and its simple 40 and 50-dma's and its exponential 200-dma looks significant. Friday's 2.9 percent rally is also a breakout from its three-week trading range. We've been stopped out at $86.01. Picked on September 5th at $86.10 Change since picked: + 0.38 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 1.2 million Chart = *********** 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 10-03-2004 Sunday 3 of 5 In Section Three: Current Calls: CMI, GDW, LMT New Calls: MHK, OSIP Current Puts: LLY, FLIR, KSS, MMM, PRX, SEPR New Puts: None ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ****************** CURRENT CALL PLAYS ****************** Cummins Inc - CMI - close: 75.30 change: +1.41 stop: 69.99 Company Description: Cummins Inc., a global power leader, is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, (USA) Cummins serves its customers through more than 680 company-owned and independent distributor locations in 137 countries and territories. Cummins also provides service through a dealer network of more than 5,000 facilities in 197 countries and territories. With more than 24,000 employees worldwide, Cummins reported sales of $6.3 billion in 2003. (source: company press release) Why We Like It: Exit alert! CMI stretched its winning streak to four days in a row. The end-of-the-quarter window dressing was followed by another huge surge of buying and CMI added 1.9 percent to close above round-number, psychological resistance at $75.00. Our initial profit target was the $75.00 mark. We had a secondary target of $77.50. We are suggesting that short-term traders consider exiting now. We are going to keep the play open and aim for $77.50 but we are not suggesting new positions at this time. A dip and bounce from $72.50 might work if you are looking for new entry points. If CMI trades at $77.50 we will close the play. Suggested Options: CMI has already achieved our initial profit target. We are not suggesting new entries at this time. Annotated chart: Picked on September 19 at $70.99 Change since picked: + 4.31 Earnings Date 07/23/04 (confirmed) Average Daily Volume = 724 thousand Chart = --- Golden West Financial - GDW - cls: 112.58 chg: +1.63 stop: 108.99 Company Description: Headquartered in Oakland, California, Golden West is one of the nation's largest financial institutions with assets over $95 billion as of August 31, 2004. The Company has one of the most extensive thrift branch systems in the country, with 276 savings branches in 10 states and lending operations in 38 states. (source: company press release) Why We Like It: (Original Play Description from Thursday) GDW has been a frequent candidate on our nightly watch list over the last several weeks. We had been watching for a breakout over resistance at the $110 level in an effort to ride a rally toward $116. When the breakout finally did come it was too fast for us to catch and it failed just where we expected it to. Now GDW has consolidated back toward the $110 region except this time it should act as support. We mentioned the bounce from $108.85 back on Monday and now we're willing to act on it with today's higher low. Our goal is to ride GDW back toward $115-116. The P&F chart is much more bullish with a $129 price target. WEEKEND UPDATE: GDW is off to a strong start. The stock added another 1.46 percent as a follow through to Thursday's bounce. Volume was again above average. If shares dip look for a bounce from $111. Suggested Options: Short-term traders can choose the Octobers and November options. We're going to suggest the Novembers. Our favorites are the 110s and 115s. BUY CALL NOV 110 GDW-KB OI=537 current ask $4.80 BUY CALL NOV 115 GDW-KC OI=308 current ask $2.05 Annotated chart: Picked on September 30 at $110.95 Change since picked: + 1.63 Earnings Date 07/20/04 (confirmed) Average Daily Volume = 512 thousand Chart = --- Lockheed Martin - LMT - close: 56.32 change: +0.54 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: We are triggered in LMT. We added LMT a few days ago with a trigger to go long/buy calls at $56.01. The stock broke out over the $56.00 level on Friday after Goldman Sachs upgraded the stock to an "out perform". Volume was well above average on the breakout and LMT is trading at new 18-month highs. We encouraged by strength in the defense sector as a whole. The DFI index broke out to new all-time highs and while it looks a bit overbought we could still see the group extend its gains. Fortunately, LMT is not overbought yet and should have plenty of room to run. Our initial target is $60.00. 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=1520 current ask $2.65 BUY CALL NOV 60 LMT-KL OI= 441 current ask $0.50 Annotated Chart: Picked on October 01 at $56.01 Change since picked: + 0.31 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 1.7 million Chart = ************** NEW CALL PLAYS ************** Mohawk Industries - MHK - cls: 80.35 chg: +0.96 stop: 77.99 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: We like MHK because the three and a half week consolidation appears to be over. We initially rode the MHK bullish breakout over $75.00 back in August. After peaking under $82.00 in early September the stock spent the next few weeks consolidating above new support at $78.00. That consolidation appears to be over and MHK looks ready to continue its upward trend. Why are investors buying MHK? The company benefits from both new home sales and existing home sales since replacement carpeting is big business. The pace of home sales have been pretty robust and that should translate into earnings for MHK. Speaking of earnings look for the company to report in about three weeks. We'll confirm the date when MHK releases it. The P&F chart is bullish with a $102 price target. We're a little less enthusiastic and plan to target a move toward $85.00. Suggested Options: We are not planning to hold over MHK's October earnings but we're still suggesting the November calls. BUY CALL NOV 75 MHK-KO OI= 876 current ask $6.60 BUY CALL NOV 80 MHK-KP OI=1331 current ask $2.95 BUY CALL NOV 85 MHK-KQ OI= 375 current ask $1.00 Annotated Chart: Picked on October 03 at $80.35 Change since picked: + 0.00 Earnings Date 10/21/04 (unconfirmed) Average Daily Volume = 355 thousand Chart = --- OSI Pharma - OSIP - close: 63.45 change: +1.99 stop: 59.99 Company Description: OSI Pharmaceuticals is a leading biotechnology company focused on the discovery, development, and commercialization of high- quality, next-generation oncology products that both extend life and improve the quality of life for cancer patients worldwide. OSI has a balanced pipeline of oncology drug candidates that includes both novel mechanism-based, gene-targeted therapies focused in the areas of signal transduction and apoptosis and a next-generation cytotoxic chemotherapy agent. (source: company press release) Why We Like It: If you tend to follow the drug sector and/or biotech sector then you've probably already heard about OSIP's and DNA's Tarceva drug. The two companies are co-developing the treatment for a variety of illnesses but the main target is advanced non-small cell lung cancer. On September 20th shares of OSIP gapped higher and hit resistance at $70.00 after positive news came out on Tarceva's Phase III trials for pancreatic cancer. Since the 20th shares of OSIP have slowly consolidated back toward support at the $60.00 mark bolstered by its simple 40 and 50-dma's. Then on Thursday there was more positive news on Tarceva. The FDA has accepted the OSIP's filing for its New Drug Application and given Tarceva a priority review. The positive news combined with the bounce from support at $60.00 looks like a tempting entry point to buy calls. Our initial target is the $70.00 region. We'll start the play with a stop loss at $59.99. Suggested Options: We're going to suggest the November calls. Our favorites are the 60s and 65s. BUY CALL NOV 60 GHU-KL OI= 19 current ask $6.50 BUY CALL NOV 65 GHU-KM OI=564 current ask $3.70 BUY CALL NOV 70 GHU-KN OI=890 current ask $1.95 Annotated Chart: Picked on October 03 at $63.45 Change since picked: + 0.00 Earnings Date 08/10/04 (confirmed) Average Daily Volume = 1.6 million Chart = ************************Advertisement********************************* Option Traders: Pay Attention Use the online options trading system built by option traders for options traders. Featuring direct access to each option exchange, stop and stop loss option orders, contingent option orders, online spreads, fast executions, and rates as low as $1.50 per contract ($14.95 min.). PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC ******************************************************************** ***************** CURRENT PUT PLAYS ***************** Eli Lilly & Co - LLY - close: 61.40 chg: +1.35 stop: 62.51 Company Description: Lilly, a leading innovation-driven corporation, is developing a growing portfolio of first-in-class and best-in-class pharmaceutical products by applying the latest research from its own worldwide laboratories and from collaborations with eminent scientific organizations. Headquartered in Indianapolis, Ind., Lilly provides answers -- through medicines and information -- for some of the world's most urgent medical needs (source: company press release) Why We Like It: Thus far LLY has been right on target. The stock quickly dropped to our initial profit target at $60.00 and yesterday we suggested that short-term traders consider taking profits. Obviously the Merck news gave LLY a little push lower but the drug sector and LLY were already weak. We suspected that LLY would bounce on Friday and said look for resistance at $62.00. That's exactly where LLY bounced to with a high of 61.83 on Friday. The question now is does LLY continue its oversold bounce or does it continue lower. The P&F chart looks pretty bearish here with a $44 price target but we're not sure if a one-day bounce is enough to satisfy LLY before it continues lower. We're going to leave our stop loss at $62.51 for now. More aggressive traders may want to put their stop above the simple 10-dma and give LLY more room to move. We probably wouldn't suggest new bearish plays until LLY broke support at $59.70. Suggested Options: We are not suggesting new plays at this time. LLY hit our initial profit target of $60.00 on Thursday. Annotated chart: Picked on September 22 at $63.92 Change since picked: - 2.52 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 3.1 million Chart = --- FLIR Systems - FLIR - close: 58.04 chg: -0.46 stop: 62.51 Company Description: FLIR Systems, Inc. is a world leader in the design, manufacture and marketing of thermal imaging and stabilized camera systems for a wide variety of thermography and imaging applications including condition monitoring, research and development, manufacturing process control, airborne observation and broadcast, search and rescue, drug interdiction, surveillance and reconnaissance, navigation safety, border and maritime patrol, environmental monitoring and ground-based security. (source: company press release) Why We Like It: We added FLIR on Wednesday this past week after the stock broke down through round-number, psychological support at the $60.00 mark on heavy volume in the face of a big market rally. Once again FLIR is trading lower while the rest of the market is in rally mode. This lack of participation should be good news for FLIR bears and the stocks looks ready to trade lower next week now that we have a new "failed rally" under $60.00 given Friday's performance. Our initial target is $55.00 but we suspect that FLIR could trade lower. Suggested Options: Short-term traders can choose Octobers, November and January puts. Right now our preference would be the Novembers but the January's look pretty good here too. BUY PUT NOV 65 FFQ-WM OI= 10 current ask $7.90 BUY PUT NOV 60 FFQ-WL OI=216 current ask $4.40 BUY PUT NOV 55 FFQ-WK OI= 71 current ask $2.10 Annotated chart: Picked on September 29 at $59.35 Change since picked: - 1.31 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 577 thousand Chart = --- Kohl's - KSS - close: 48.75 change: +0.56 stop: 50.26 Company Description: The Menomonee Falls, Wisconsin-based department store was a strong growth play a few years ago. Stores provide shoes, apparel, and home products all targeted at middle-income families. KSS currently runs over 560 stores. Why We Like It: We originally added KSS about three weeks ago after it and the RLX retail index topped out and began to see profit taking. KSS had broken its narrow, rising channel and its MACD had just crossed into a sell signal. Unfortunately, the following decline has been a slow one. Bulls and bears are battling over every dollar. We think we know why too. Like many investors who follow KSS the next six months should be positive for the stock. KSS has some very easy to beat same-store sales numbers for the next few quarters and if KSS delivers it should renew the current up trend. We were only aiming for a short-term drop to support near $46.00. KSS may not dip that low as traders try and take bullish positions before the upcoming Q4 holiday shopping season. Currently KSS has tested resistance at $50.00 and now $49.00. Yet the stock also has support at its exponential 200-dma, which was this week's low. This is an important test for KSS now. If shares break back above the $49 level we may want to abandon this play. Not only has KSS not declined fast enough to our liking but now we're faced with a same-store sales report that could come out this week. Be very careful here. Suggested Options: We are not suggesting new puts at this time. Annotated chart: Picked on September 16 at $49.48 Change since picked: - 0.73 Earnings Date 08/12/04 (confirmed) Average Daily Volume = 3.1 million Chart = --- 3M Co - MMM - close: 79.69 change: -0.28 stop: 81.51 Company Description: Every day, 3M people find new ways to make amazing things happen. Wherever they are, whatever they do, the company's customers know they can rely on 3M to help make their lives better. 3M's brands include Scotch, Post-it, Scotchgard, Thinsulate, Scotch-Brite, Filtrete, Command and Vikuiti. Serving customers in more than 200 countries around the world, the company's 67,000 people use their expertise, technologies and global strength to lead in major markets including consumer and office; display and graphics; electronics and telecommunications; safety, security and protection services; health care; industrial and transportation. (source: company press release) Why We Like It: It's been two and a half weeks and for the most part MMM has performed as expected. The stock continued its short-term bearish downtrend and came within 19 cents of our initial profit target at $77.50. Unfortunately, the Industrials soon rallied and MMM was lifted back above the $80.00 level. The good news here is the bounce is already failing. On a short-term basis the rebound to $80.75 looks like a 38.2 percent Fibonacci retracement of its September decline. Plus, MMM's failure to retain any sort of gain on Friday in the face of a triple-digit Dow gain is pretty bearish. We're not suggesting new plays here but more aggressive traders may want to give it another look. This could be the sort of "failed rally" entry point we look for. Suggested Options: We are not suggesting new positions at this time as MMM is very close to our initial profit target. Annotated chart: Picked on September 15 at $82.00 Change since picked: - 2.31 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 2.5 million Chart = --- Par Pharma. Co - PRX - close: 36.12 chg: +0.19 stop: 37.25*new* Company Description: Par Pharmaceutical Companies, Inc. develops, manufactures and markets generic pharmaceuticals through its principal subsidiary, Par Pharmaceutical, Inc., and its recently acquired subsidiary, Kali Laboratories, Inc. The company is also developing an additional line of branded pharmaceutical products for specialty markets and expects to introduce the first of these in 2005. Through its FineTech subsidiary, Par also develops and utilizes synthetic chemical processes to design and develop intermediate ingredients used in the production of finished products for the pharmaceutical industry. Par currently manufactures, markets or licenses more than 80 prescription drugs. (source: company press release) Why We Like It: Hmmm... what do we do now? We initially added PRX on its high- volume bearish breakdown through $40.00 and several major moving averages. There was one day of follow through and since then the stock has traded sideways between $35.75 and $37.00. The good news is that PRX has not participated in any of the market rallies in the last two weeks. The bad news is that PRX isn't moving lower either. We're going to turn conservative here and significantly tighten our stop loss to $37.25. If PRX breaks out we can close the play and step away. This keeps the play open and gives PRX a chance to breakdown instead. We would not consider new bearish positions until PRX trades under $35.75 again. Suggested Options: We're going to suggest the November puts. BUY PUT NOV 40 PRX-WH OI= 684 current ask $5.00 BUY PUT NOV 35 PRX-WG OI=2172 current ask $2.00 Annotated chart: Picked on September 21 at $37.80 Change since picked: - 1.68 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 743 thousand Chart = --- Sepracor Inc - SEPR - close: 48.84 chg: +0.06 stop: 52.01 Company Description: Sepracor Inc. is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical products that are directed toward serving unmet medical needs. Sepracor's drug development program has yielded an extensive portfolio of pharmaceutical compound candidates with a focus on respiratory and central nervous system disorders. Sepracor's corporate headquarters are located in Marlborough, Massachusetts. (source: company press release) Why We Like It: We initially added SEPR several days ago as a simple trading range play. The stock has been stuck between $42.50 and $53.00 for months. SEPR failed near $53 again in mid-September and had just broken minor support at $49.00. Unfortunately, since adding the play the decline has been extremely slow. At the same time the BTK index has been somewhat volatile. In contrast SEPR has been vacillating around several moving averages all clumped together. We are feeling a bit cautious here on SEPR but we're encouraged that the stock failed to participate in Friday's big market rally. More conservative traders may want to adjust their stops closer to the $50 level. We're going to leave ours at $52.00 for now. Suggested Options: We're suggesting the November puts. BUY PUT NOV 50.00 ERU-WJ OI= 172 current ask $3.20 BUY PUT NOV 47.50 ERU-WW OI= 46 current ask $1.90 BUY PUT NOV 45.00 ERU-WI OI=1565 current ask $1.05 Annotated chart: Picked on September 22 at $48.94 Change since picked: - 0.10 Earnings Date 07/13/04 (confirmed) Average Daily Volume = 1.8 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. Call 888-889-9178 or Click http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN Member NYSE, Other Principal Exchanges, NFA, MSRB and SIPC *********************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 10-03-2004 Sunday 4 of 5 In Section Four: Leaps: Backing Up the Truck ************************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 ***** Backing Up the Truck After getting a little aggressive on a couple entries over the last couple of weeks the market helped us out of a tight spot and back into the winning column. We are supposed to buy stocks when nobody else wants them and after picking up several like that last week I was beginning to get nervous. Fortunately funds swapped bonds for equities and October is off to a roaring start. It would be stupid of us to think that it will continue unabated but I would not complain. There are a couple of stocks I would still like to buy but without putting our current portfolio at risk there does not seem to be much chance. I really hate we did not fill on any of our index LEAPs but we needed one more day of weakness and it was not in the cards. The QQQ came within 23 cents of our entry at $34 before blasting off to close at $36.12 on Friday. Because of the growing LEAP portfolio I have to restrict the commentary to a minimum or make a separate newsletter out of it. We have definitely backed up the truck and after the two additions today I will refrain from any new entries until we get another dip. I am going to leave the index LEAPs on the watch list but it would take a significant market event to reach them. I am going to carry the large portfolio because I know everyone does not enter every play. Most readers will pick out 4-5 that they like and keep the brain damage to a minimum. Unfortunately everybody likes different things so I have a smorgasbord of offerings. **** STRONG CAUTION *** I would strongly caution everyone that a terrorist event in the U.S. prior to the election could drastically change the market outlook. Should an event occur I would think twice before making an entry. I believe the market would recover quickly but it obviously depends on the severity of any attack. Our time is ticking away with 34 days between us an the election. The next two weeks will be the most dangerous. ******************* New Plays ******************* XMSR $29.15 (after hours close) XMSR Satellite Radio is the leading satellite music provider with their streaming no news, no interruptions music. On Friday XMSR said they now have over 2.5 million subscribers and added +415,000 for the quarter. When you consider that growth rate of 20% per quarter it is staggering. They are predicting over 3.1 million by year end. Rumor has it that they will be streaming 70 channels over the Internet within two weeks. Of course that is extra cost for current subscribers at $3.99 per month and $7.99 for non subscribers. Instantly another income stream emerges and getting quality music at work will be considerably easier. No more dealing with license fees, mp3 players or hauling CDs back and forth to work. Our opportunity comes from some bad news XMSR gave after the close. Seems their growth would have been stronger last quarter but a component problem in their units halted production temporarily. Despite the strong subscriber news and forecast XMSR dropped -$1.73 in after hours in a knee jerk reaction to $29.15. Since the Internet music service is not yet widely known and will be advertised extensively XMSR could get a huge sentiment pop over the next couple weeks. I feel the after hours drop is a buying opportunity. I am playing this on a short term basis in the Editors Plays but I think it is a great long term play as well. The ultimate market for XMSR is in the tens of millions and they are just barely scratching the surface. Depending on market conditions at Monday's open I would either buy the open if the market is bullish or if the market opens down wait to see if we are going to take profits from Friday's rally. Pick your entry point and go listen to some music. BUY 2006 JAN-$30 LEAP Call YLX-AF est $6.00 BUY 2006 JAN-$32 LEAP Call YLX-AZ est $5.00 BUY 2006 JAN-$35 LEAP Call YLX-AG est $4.00 (prices are estimated opening prices for Monday) XMSR Chart ****************************** PFE - Pfizer $30.96 This should be a no-brainer. Merck removed its blockbuster VIOXX drug from the market this week and will suffer a -$2.5 billion drop in annual revenue. This was a huge drug for Merck. However, Pfizer has the number one drug in this category already with estimated 2004 sales of $3.0 billion while in competition with VIOXX. The drug of choice and the first patented is Celebrex. With the competition knocked out of contention Celebrex could easily rocket to near $5 billion in sales. This boost in revenue will come at almost no cost to Pfizer because the drug already exists in the supply chain and once you are addicted to the COX-2 inhibitors there is no going backwards. Pfizer was quick to take center stage and began approaching wholesalers, pharmacy chains, benefit managers and other managed care organizations to assure them they will be able to meet their needs on the large quantities needed to fill the VIOXX gap. They also made public three long-term studies showing that doses at 2-4 times the suggested dose had shown no adverse effects for heart attack or cardiovascular events. The problem appears only related to the VIOXX formula. They also released a government study of 1.4 million patients that found no increased risk of cardiac events with Celebrex. Ironically it was the same study that first raised warnings about VIOXX. Pfizer also said it is in long term studies with over 6000 patients using the drug as a preventative treatment for Alzheimers and colorectal cancer. Should these studies prove effective the sales of Celebrex would go through the roof. Fortunately for us PFE had been on a long decline from its 2004 high near $39 to support at $30 which it just tested this week before the Merck news hit. This is probably the best entry point we are ever going to get for news of this magnitude. This Pfizer play is not without risk. A Kerry White House is expected to put pressure on drug companies to lower prices and margins could be squeezed. Under no scenario would Pfizer become unprofitable and any new rules would impact all drug companies alike. With Pfizer having the lock on the Celebrex market I doubt they will go down without a fight. With Bush pulling ahead last week we have seen companies exiting their drug shorts and starting to go long and Pfizer is the company most discussed according to Don Ross, Chief Investment Officer at National City Investment Mgmt. LEAPS are cheap for PFE because of the heavy volume. BUY 2006 JAN $30 CALL LEAP WPE-AF currently $3.70 BUY 2006 JAN $32 CALL LEAP WPE-AB currently $2.50 PFE Chart ****************************** New Watch List Plays Triggered ****************************** RIMM $73.72 Research in Motion Entry $77.00 (9/28) We got the breakout over $76.50 resistance but it sold off on Friday after strong earnings on Thursday. Buy 2006 $80 LEAP Call WLJ-AP @ $16.50 Buy 2006 $90 LEAP Call WLJ-AR @ $13.20 Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 **************************** BA $52.47 Boeing Aerospace Entry $52 (9/28) I believe we got an excellent entry on Boeing on Tuesday on a small bit of bad news. The stock dropped to $50.50 and triggered us at $52 on the way down. Buy 2006 $55 LEAP Call WBO-AK @ $4.70 Buy 2006 $60 LEAP Call WBO-AL @ $3.00 **************************** OXY - Occidental Petroleum $56.45 Entry $55.50 (9/28) We finally filled out the energy portfolio with a fill on OXY on a breakout at $55.50. The dip came within a buck of our lower entry at $53.50 but the energy rebound came too soon. OXY closed at a new high on Friday. 2006 $50 LEAP Calls WXY-AJ @ $8.60 2006 $55 LEAP Calls WXY-AK @ $5.60 2006 $60 LEAP Calls WXY-AL @ $3.50 **************************** SYMC - Symantec - $57.20 Entry $53.00 (9/27) Outstanding! I hate breakout entries but in the case of Symantec it worked like a charm with SYMC closing at a new all time high on Friday at $57.20 2006 $50 LEAP Call YAG-AJ @ $10.70 2006 $55 LEAP Call YAG-AK @ $8.00 2006 $60 LEAP Call YAG-AL @ $5.70 **************************** Current Portfolio: **************************** Position Summary Table **************************** Play Updates **************************** XLE - S&P Energy SPDR $35.43 ** Stop 33.90 ** New high for the XLE on Friday and oil is still rising. 2006 $32 LEAP Call WHA-AF currently at $5.10 2006 $35 LEAP Call WHA-AI currently at $3.20 Entry $33.92 on 9/20 http://members.OptionInvestor.com/leaps/Lp_091904_1.asp XLE Chart **************************** QLGC - Qlogic Corp - $31.54 ** Stop $27.50 ** QLGC closed at a new five month high on Friday and slightly over resistance at $31. The move was related to the hot chip sector and an upgrade from Goldman Sachs. Goldman downgraded ELX at the same time. Good news for us. 2006 $30 LEAP YIO-AF currently $6.89 2006 $35 LEAP YIO-AG currently $4.60 Entry $30.36 9/20 http://members.OptionInvestor.com/leaps/Lp_091904_1.asp QLGC Chart ************************ MMM - 3M Company - $79.70, ** Stop $74.00 ** 1/2 Entry at $82 on 9/15 1/2 Entry at $78 on 9/27 We saw MMM dip on Monday to trigger our second entry point at $78 before rebounding to nearly $81 on Friday. $78 is strong support and MMM has passed the normal warning period. If the market can survive next week we should be out of trouble. The stop is $74.00 to get under the March and August lows. 2006 $80 LEAP Call WMU-AP currently $7.60 2006 $85 LEAP Call WMU-AQ currently $5.50 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp MMM Chart ********************** C - Citigroup $44.87 LEAP Call **Stop $42.00** Entry 1/2 46.00 9/20 Entry 1/2 45.00 9/22 Citigroup appears to have found support at $44 after the Japan news has turned stale. Citibank also settled a suit over WorldCom on Friday. UBS upgraded earnings estimates to 98 cents from 95 cents saying better credit quality and broader margins at its Smith Barney unit would help results. The 4Q is normally a strong quarter for banks and as long as the market does not implode Citibank should move up from here. Stop was changed to $42. 1/2 position at $46.00 9/20 1/2 position at $45.00 9/22 2006 $50 LEAP Call WRV-AJ currently $1.75 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp Citigroup Chart ********************** INTC - Intel Corp $20.85 **Stop $18.00** Entry $20.00 Sept 3rd Intel rebounded +4% on Friday on news that processor sales increased +3.5% in August on decent back to school computer sales. With chip stocks back in favor I am raising the stop to $18.00. Current position: 2006 $22 LEAP Call WNL-AX at $2.20 currently $2.30 2006 $25 LEAP Call WNL-AE at $1.45 currently $1.60 Initial play description: http://members.OptionInvestor.com/leaps/Lp_071804_1.asp Intel Chart ********************** TYC - Tyco Intl. $31.44 **Stop $28.00** Entry 5/18 $28.32 Tyco roared back from the short bout of profit taking and gained +2 over the last four days. It is back at the high for the month and saw heavy volume on Friday. Prosecutors in the Kozlowski are dropping the charge that accused the company of being run as a criminal enterprise. This frees Tyco of yet another cloud from the Kozlowski era. Things are looking up for Tyco and a cooperative market would do worlds of good. Current position: 2005 $30 LEAP Call TYC-AF cost $2.15 current $2.60 2006 $30 LEAP Call WPA-AF cost $4.00 current $4.80 July $25 insurance put - expired - cost $.55 http://members.OptionInvestor.com/leaps/Lp_051604_1.asp Tyco Chart ********************** JNPR - Juniper Networks $23.96 **Stop $19.00** Entry $20.19 (8/16) Juniper is trying to put in a higher low at $23 but downgrades and warnings from other related techs continue to make JNPR struggle. Once over $25 we should be in rally territory but we need to get into the earnings cycle and away from the warnings. FBR cut its rating to "market perform" from "outperform" on 9/28. That was the first downgrade to Juniper since 9/10/2003 when Smith Barney cut it to inline. On 4/22/04 Smith Barney reversed that call to a "buy". There have been 20 upgrades for Juniper since last September and only the one downgrade to "inline" last week. 2006 $25 LEAP Call WBW-AE cost $3.50 current $4.70 Insurance = Sept-$17.50 Put (expired) cost 50 cents. http://members.OptionInvestor.com/leaps/Lp_081504_1.asp JNPR Chart ********************** COP - Conoco Phillips $84.07 **Stop 79.00** Entry $73.30 August 30th COP won the stake in the Russian oil giant Lukoil and after a day of sell the news profit taking it rose once again to close at a new high. The deal gives COP several billion barrels of proven oil reserves and options on an even larger stake. The deal gives them control of one of the largest undeveloped oil fields remaining on the planet and pushed them to number two in proven reserves. $84 appears to be resistance but with oil closing over $50 on Friday this company is truly sitting on black gold. The stop was raised to $79. Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 currently $12.50 Initial play description: http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart ********************** NWS - News Corp $32.87 **Stop 29.00** No additional news on the News Corp move to the U.S. The shareholder vote is now scheduled for Oct-26th and is expected to pass. NWS would reincorporate in the U.S. and move its primary listing to the NYSE. It could continue to retain secondary listings on the Australian and London exchanges. This move would allow inclusion in the various U.S. indexes and could produce a strong move higher in the stock as fund managers begin entering positions. If the move is approved by shareholders NWS will seek formal approval from the regulators and the move is expected to be completed in November. NWS owns FOX as well as many other networks around the globe. Current position: 2006 $40 LEAP Call WLN-AH at $3.83 currently $1.55 Initial play description: http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp NWS Chart **************************** UPL - Ultra Petroleum $49.90 **Stop $44.00** Entry $45.50 9/21 Last week I mentioned if oil hit $50 UPL would probably hit $50 and it surprised me all the way to $51. Profit taking hit after Kramer said it was overdone but it quickly recovered and is wedging back up at $50 once again. They delivered the initial production from their China field of 300,000 barrels. They are currently producing 30,000 barrels per day from the China lease. They also commenced production on three gas wells in Wyoming and all three wells broke previous production records. JAN-2006 $45 LEAP Call WSS-AI currently $13.30 JAN-2006 $50 LEAP Call WSS-AJ currently $11.80 http://members.OptionInvestor.com/leaps/Lp_090504_1.asp UPL Chart **************************** EBAY - EBAY $92.16 ** Stop $84.00 ** Entry $90.00 on 9/22 EBAY is rebounding with the market but does not appear as strong as in August. Extreme heights tends to do that to stocks. Support appears to be $91 and the next week will be critical. EBAY was in the Top-25 Fastest Growing Companies list in Forbes Magazine this week. That could help as the top 25 tend to outperform again in the current year. 2006 $90 LEAP Call YRL-AR currently $16.10 2006 $100 LEAP Call YRL-AT currently $11.70 http://members.OptionInvestor.com/leaps/Lp_072504_1.asp EBAY Chart **************************** MER - Merrill Lynch $50.61 ** Stop $46.00 ** Entry $51.00 Merrill is still hanging in there and actually showing signs of life despite a UBS downgrade last week. This is the season for financial stocks and Merrill is set to record blowout earnings in a couple weeks. Let's hope they follow through on that expectation. 2006 $50 LEAP Call WZM-AJ currently $6.60 2006 $55 LEAP Call WZM-AK currently $3.80 http://members.OptionInvestor.com/leaps/Lp_071804_1.asp MER Chart ******************* Proctor & Gamble $54.64 ** Stop $52.00 ** Entry $54.08 (9/26) So far so good on PG with the stock beginning its rebound off the CL/UN earnings warnings. PG has not warned and earnings are ahead. If it pulls the rabbit out of the hat and show to be gaining market share over CL/UN then we could be headed for new highs. Investors are still cautious in fear PG will join the warning party. Jan-2006 $55 LEAP Call WPG-AK @ $4.20 currently $4.30 Jan-2006 $57 LEAP Call WPG-AY @ $3.00 currently $3.10 PG Chart: *********************** RIMM $73.72 Research in Motion ** Stop $69.00 ** Entry $77.00 (9/28) That did not work out as I expected. We entered RIMM on a breakout trigger at $77 last Tuesday and they announced earnings on Thursday. Normally RIMM soars after earnings due to their high growth rate. They beat estimates and raised estimates and still got knocked for a loss on profit taking. Very few tech companies still have the growth to match RIMM and I am hoping we will see support at $72.50 hold and new money come into the stock. Because options are so expensive on RIMM I am putting the stop a little closer at $69. 2006 $80 LEAP Call WLJ-AP @ $16.50 now $14.20 2006 $90 LEAP Call WLJ-AR @ $13.20 now $10.60 Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 now $48.10 RIMM Chart **************************** BA $52.48 Boeing Aerospace ** Stop $48.00 ** Entry $52 (9/28) Boeing dropped back to $51 on comments about Airbus being overly optimistic about its 2005 outlook. The dip was quickly bought and BA began to rise again despite the press about the weapons buyer at the Pentagon who went to jail over a preferential order. The scandal forced Boeing's CEO and CFO to resign and clouded the companies future a year ago. Obviously BA has recovered and with the case behind them things are looking up. They delivered 67 planes in Q3 and 218 planes so far in 2004. Resistance is now $53.50 then $55. 2006 $55 LEAP Call WBO-AK @ $4.70 now $4.70 2006 $60 LEAP Call WBO-AL @ $3.00 now $2.85 Boeing Chart **************************** OXY - Occidental Petroleum $56.47 ** Stop $53.00 ** Entry $55.50 (9/28) You had to look fast to see that OXY dip. It lasted only two days before it rocketed off to set a new high close. I would have much rather gotten the dip entry to $53.50 but we missed it by a buck and oils are off and running again. With the $50.12 closing price on crude we could have a strong day on Monday. We need to clear $57 on OXY for the next sprint to begin. 2006 $50 LEAP Calls WXY-AJ @ $8.60 currently $9.00 2006 $55 LEAP Calls WXY-AK @ $5.60 currently $6.30 2006 $60 LEAP Calls WXY-AL @ $3.50 currently $4.00 http://members.OptionInvestor.com/leaps/Lp_082904_1.asp OXY Chart ************************ SYMC - Symantec - $57.15 ** Stop $50.00 ** Entry $53.00 on breakout Amazing move for Symantec. It rebounded from $51 last Sunday to close at $57 on Friday. Had we not had the breakout entry in place we would have missed it again. Symantec announced on Thursday that the time between a security flaw being announced and a virus being written to exploit the flaw had dropped to 5.8 days. This makes it even more important to have a constantly updated virus program and Symantec if number one. On Friday the head of the Homeland Security for Cyber Security abruptly resigned. A former VP for Symantec resigned in disgust due to the roadblocks in getting anything done on a national scale. With SYMC now in new high territory again the sky is the limit if we get a tech rally with legs. $65 would be the next level resembling resistance. 2006 $50 LEAP Call YAG-AJ @ $10.70 now $13.50 2006 $55 LEAP Call YAG-AK @ $8.00 now $10.70 2006 $60 LEAP Call YAG-AL @ $5.70 now $8.00 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp SYMC Chart **************************** LEAPS Watch List **************************** Close but Not Close Enough We came very close to getting an entry on the QQQ leaps at $34 with a dip to $34.23 on Tuesday. Unfortunately it was not close enough. That was the best attempt of the four index plays and with Friday's rally the odds are slim we will get another chance. At this point with a full portfolio I would really hate to see a retracement to our previous entry points. I am going to leave them the same this week as this will be the pivotal week for the markets. If we can get out of it unscathed we have a good chance for a three month rally. *********************** Dropped Entries *********************** None *********************** New Watch List Entries *********************** I am running out of space to add big descriptions to the watch list entries. With the large portfolio of active LEAPs plays I am going to keep it brief. No new entries ************************ SMH $31.69 Semiconductor Holders **Target $28.50** This target may not be out of reach. The semi stocks have been very oversold but also briefly overbought. The chip sector is still weak and the rebound on Friday to $31.63 is still below last months resistance at $32. I am keeping the $28.50 target just in case this week goes to the dogs. Buy 2006 $30 LEAP Call YRH-AF currently $6.10 Buy 2006 $35 LEAP Call YRH-AG currently $3.80 Sell 2006 $55 LEAP Put YRH-MA currently $23.30 SMH Chart ************************ DIA $102.16 Dow Diamonds Trust **Target 99.00** No magic here. This is simply a long play designed to capitalize on any Dow rebound from a sub 10000 test over the next two weeks. The odds are not as good as they were last week for a retest of 9900 but they still exist. Options are a tossup as there are several strange strikes. They go in four point increments rather than five or one as in the QQQ. They also seem expensive but the difference between a 104 and 108 strike is only 400 Dow points. With many estimates of Dow 12500 by end of 2005 there is plenty of room for profit. The DIA options move $1 for every 100 Dow points if they are in the money. For instance a move to Dow 12500 (DIA 125) would put the $108 leap call 17 points in the money or $17. That would be four times the current $4 price. These prices should drop significantly if we get an entry at $99. Buy 2006 $100 LEAP Call YGF-AV currently $8.40 Buy 2006 $104 LEAP Call YGF-AZ currently $6.20 Buy 2006 $108 LEAP Call YGF-AD currently $4.30 Buy 2006 $112 LEAP Call YGF-AH currently $2.85 DIA Chart ************************ QQQ $36.10 Nasdaq 100 Tracking Stock Target $34.00 The Nasdaq 100 tracking stock has strong support at $34 but it still managed to break to just below $33 on the August dip. I would like to get a long entry at $34 but after Friday I think our chances are slim. If we do get a move down we will be ready and if not then we can reevaluate next week. The QQQ has traded as high as $120 back in 2000 but I doubt we will see that again this decade. The QQQ has strong resistance at 38, 42 and 49. I think everybody reading this would be very happy to see $49 or even $42 again over the next year. Buy 2006 $35 LEAP Call YWZ-AI currently $4.90 Buy 2006 $37 LEAP Call YWZ-AD currently $3.80 These prices should drop about 1.00 with a dip to $34 and 1.25 with a dip to $33. QQQ Chart ************************ IWM $116.72 Russell-2000 Index Ishares Target 1/2 108.00 Target 1/2 106.00 Our wishful thinking entry from last week has become an impossible mission this week. It would take a major correction to bring the Russell back -40 points to support. The IWM rocketed from its pullback to 111 on Monday to close near 117 on Friday. This is a very strong move and probably took us out of range. This is a strong play for me because I believe the small caps will lead any post election rally. If that rally started last week then we will have missed this opportunity. There are one point increments on the IWM LEAPS so pick the lowest strike you can afford when the entry point is hit. Since the IWM has to move eight points to hit our entry point the current price on the options will change drastically. I would estimate the 115 to be around $9 and the 120 to be around $7. An at the money option is around $13 so if we assume the minimum level reached in 2005 is 120 the 120 strike at a 108 entry would probably double in value. ($7 to $14) 2006 $110 LEAP Call WOI-AF est 12.00 at $108 2006 $115 LEAP Call WOI-AK est 9.50 at $108 2006 $120 LEAP Call WOI-AP est 7.00 at $108 IWM Russell 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 10-03-2004 Sunday 5 of 5 In Section Five: Covered Calls: CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS Spreads and Straddles: Stocks Rally As Fourth Quarter Begins! 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 EXEL 8.60 NOV 7.50 XQT-KU 1.60 121 7.00 48 4.5% RIGL 25.36 NOV 22.50 QRG-KX 4.10 95 21.26 48 3.7% SNDK 30.42 NOV 27.50 SWQ-KY 4.20 4334 26.22 48 3.1% SSYS 32.53 NOV 30.00 QQG-KF 3.80 29 28.73 48 2.8% DHB 14.52 NOV 12.50 DHB-KV 2.55 482 11.97 48 2.8% ECLP 16.24 NOV 15.00 IQV-KC 1.85 137 14.39 48 2.7% AKAM 14.50 NOV 12.50 UMU-KV 2.50 376 12.00 48 2.6% SIMG 14.40 NOV 12.50 QSI-WV 2.40 458 12.00 48 2.6% SYNA 21.66 NOV 20.00 QYG-KD 2.45 15 19.21 48 2.6% VRSN 20.98 NOV 20.00 QVR-KD 1.75 940 19.23 48 2.5% TELK 23.53 NOV 20.00 ZUL-KD 4.30 3 19.23 48 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). _________________________________________________________________ EXEL - Exelixis $8.60 Exelixis (NASDAQ:EXEL) is a biotechnology company whose primary goal is to develop proprietary human therapeutics by leveraging its integrated discovery platform to improve speed, efficiency and quality of pharmaceutical product discovery and development. The company uses comparative genomics and model system genetics to find new drug targets. Its research is designed to identify novel genes and proteins expressed by those genes, that, when changed, either decrease or increase the activity in a specific disease pathway in a therapeutically relevant manner. EXEL - Exelixis $8.60 NOV 7.50 XQT-KU LB=1.60 OI=121 CB=7.00 DE=48 TY=4.5% _________________________________________________________________ RIGL - Rigel Pharmaceuticals $25.36 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 $25.36 NOV 22.50 QRG-KX LB=4.10 OI=95 CB=21.26 DE=48 TY=3.7% _________________________________________________________________ SNDK - SanDisk $30.42 SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash memory storage products that are used in a wide variety of electronic systems. The company has designed its flash memory storage solutions for applications in the consumer electronics and industrial/communications markets. The company's products are used in a number of rapidly growing consumer electronics applications, such as digital cameras, PDAs, portable digital music players, digital video recorders and smart phones, as well as in industrial and communications applications. SNDK - Sandisk $30.42 NOV 27.50 SWQ-KY LB=4.20 OI=4334 CB=26.22 DE=48 TY=3.1% _________________________________________________________________ SSYS - Stratasys $32.53 Stratasys (NASDAQ:SSYS) manufactures and sells a line of rapid prototyping and three-dimensional printing devices that create physical models from computerized designs. The company's rapid prototyping systems are based on its patented fused deposition modeling technology or on its patented Genisys technology. The company is also involved in the office prototyping market (rapid prototyping) and develops, manufactures and markets a family of rapid prototyping devices and 3-D printers that enable engineers and designers to create physical models, tooling and prototypes out of plastic and other materials directly from a computer-aided design workstation. Earnings are due 4/28/04. SSYS - Stratasys $32.53 NOV 30.00 QQG-KF LB=3.80 OI=29 CB=28.73 DE=48 TY=2.8% _________________________________________________________________ DHB - DHB Industries $14.52 DHB Industries (NYSE:DHB) is a holding company with two major divisions: DHB Armor Group and DHB Sports Group. The Armor Group includes Point Blank Body Armor and Protective Apparel Corporation of America and they manufacture various types of body armor. The Sports Group, which consists of NDL Products, manufactures and distributes protective athletic apparel and equipment, including elbow, breast, hip, groin, knee, shin and ankle supports and braces, as well as a line of therapy products. DHB - DHB Industries $14.52 NOV 12.50 DHB-KV LB=2.55 OI=482 CB=11.97 DE=48 TY=2.8% _________________________________________________________________ ECLP - Eclipsys $16.24 Eclipsys Corporation (NASDAQ:ECLP) is a healthcare information technology firm that develops and licenses proprietary software to hospitals. The company's software allows them to automate the key clinical, administrative and financial functions that they require. Eclipsys' software is designed to improve patient care and patient satisfaction for its customers and allow them to reduce their operating costs. Among other things, its unique software enables physicians and nurses to check on a patient's condition, order patient tests, review test results, monitor a patient's medications and provide alerts to various changes in a patient's condition. ECLP - Eclipsys $16.24 NOV 15.00 IQV-KC LB=1.85 OI=137 CB=14.39 DE=48 TY=2.7% _________________________________________________________________ AKAM - Akamai Technologies $14.50 Akamai Technologies (NASDAQ:AKAM) principally offers e-business infrastructure services and solutions. The company distributes computing solutions and services that are designed primarily to make the Internet predictable, scalable and secure for customers seeking to conduct business over the Internet. Their solutions extend web operations anywhere, anytime, and improve insight and management of applications and content through unique technology. AKAM - Akamai Technologies $14.50 NOV 12.50 UMU-KV LB=2.50 OI=376 CB=12.00 DE=48 TY=2.6% _________________________________________________________________ SIMG - Silicon Image $14.40 Silicon Image (NASDAQ:SIMG) offers multi-gigabit semiconductor solutions for the transmission, storage and display of digital media. The company broadens market adoption of the digital visual interface, high-definition multimedia interface and serial advanced technology attachment interfaces by licensing its Internet protocol cores to companies providing advanced system-on-a-chip solutions incorporating these interfaces. SIMG - Silicon Image $14.40 NOV 12.50 QSI-WV LB=2.40 OI=458 CB=12.00 DE=48 TY=2.6% _________________________________________________________________ SYNA - Synaptics $21.66 Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of custom-designed user interface solutions for notebook computers. The company's original equipment manufacturer customers include ten large personal computer OEMs. Synaptics generally supplies its OEM customers through its contract manufacturers, which take delivery of its products and pay the company directly for the OEMs. Synaptics family of product solutions include TouchPad, TouchPad Under Plastic, TouchStyk, dual pointing solutions, ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese character recognition, Fingerprint TouchPad, TouchRing and TouchScreen. SYNA - Synaptics $21.66 NOV 20.00 QYG-KD LB=2.45 OI=15 CB=19.21 DE=48 TY=2.6% _________________________________________________________________ VRSN - VeriSign $20.98 VeriSign (NASDAQ:VRSN) is a provider of critical infrastructure services. The company is organized into two service-based lines of business: the Internet Services Group and the Communications Services Group. The Internet Services Group consists of the Security Services business and the Naming and Directory Services business. The Communications Services Group provides Signaling System 7 network services, intelligent database and directory services, application services, and billing and payment services to wireline and wireless telecommunications carriers. VRSN - VeriSign $20.98 NOV 20.00 QVR-KD LB=1.75 OI=940 CB=19.23 DE=48 TY=2.5% _________________________________________________________________ TELK - Telik $23.53 Telik (NASDAQ:TELK) is a biopharmaceutical company working to discover, develop and commercialize small-molecule drugs to treat serious diseases, including cancer and diabetes. Among Telik's most advanced product development programs is TLK286. TLK286 is a small-molecule tumor-activated cancer drug that the company is evaluating initially to treat cancers which are resistant to standard chemotherapy drugs. Another advanced product, TLK199, is a small-molecule bone marrow stimulant being developed for the treatment of blood disorders associated with low white blood cell levels. TLK19781 is a proprietary, orally active small-molecule insulin receptor activator for the potential treatment of Type II diabetes and other conditions related to insulin resistance. TELK - Telik $23.53 NOV 20.00 ZUL-KD LB=4.30 OI=3 CB=19.23 DE=48 TY=2.5% ******************* SPREADS & STRADDLES ******************* U.S. equities surged higher Friday amid favorable economic news and renewed buying pressure in the semiconductor sector. Analysts also noted the effects of "window dressing" on the major averages, with new money being put to work by fund managers and a pronounced asset allocation shift out of treasuries. The Dow Jones industrial average jumped 112 points to 10,192, with most blue-chip components trading in the green. The NASDAQ Composite index soared 45 points to 1,942 with computer hardware, software, disk drive, and networking shares among the best performers. The broader S&P 500 index added 16 points to end at 1,131 with almost every market sector enjoying gains. Volume was moderately higher with 1.6 billion shares traded on the NYSE and 1.9 billion shares changing hands on the NASDAQ. Breadth was better than 2 to 1 on both exchanges. The bond market moved in opposition to equities. The benchmark 10-year treasury closed down 16/32 to yield 4.18%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/01/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 85.76 OCT 65.0 70.0 0.70 69.30 0.70 Open RYL 88.15 92.89 OCT 75.0 80.0 0.75 79.25 0.75 Open GIVN 38.72 38.98 OCT 30.0 35.0 0.70 34.30 0.70 Open MBT 140.75 148.13 OCT 120.0 125.0 0.50 24.50 0.50 Open COGN 34.58 36.67 OCT 30.0 32.5 0.30 32.20 0.30 Open SCSC 66.22 66.56 OCT 55.0 60.0 0.50 59.50 0.50 Open CCMP 38.29 37.47 OCT 30.0 35.0 0.75 34.25 0.75 Open ONXX 41.99 42.57 OCT 30.0 35.0 0.50 34.50 0.50 Open AHC 83.99 90.04 OCT 75.0 80.0 0.55 79.45 0.55 Open CELG 59.39 58.88 OCT 50.0 55.0 0.55 54.45 0.55 Open GDT 64.02 66.76 OCT 55.0 60.0 0.65 59.35 0.65 Open PHM 63.70 61.63 OCT 55.0 60.0 0.60 59.40 0.60 Open PD 90.48 93.63 OCT 80.0 85.0 0.50 84.50 0.50 Open RTP 104.28 110.18 OCT 95.0 100.0 0.55 99.45 0.55 Open PETD 43.63 43.72 OCT 35.0 40.0 0.45 39.55 0.45 Open RIMM 76.98 73.80 OCT 60.0 65.0 0.40 64.60 0.40 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Pulte Homes (NYSE:PHM) is on the "watch" list. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AZO 74.06 77.05 OCT 85.0 80.0 0.55 80.55 0.55 Open MXIM 40.94 43.74 OCT 50.0 45.0 0.50 45.50 0.50 Open? PLMO 32.30 32.24 OCT 45.0 40.0 0.55 40.55 0.55 Open LEN 46.75 47.60 OCT 55.0 50.0 0.60 50.60 0.60 Open NTES 35.51 38.26 OCT 45.0 40.0 0.60 40.60 0.60 Open NBIX 50.65 47.15 OCT 60.0 55.0 0.55 55.55 0.55 Open SSP 49.66 48.25 OCT 52.5 50.0 0.50 50.50 0.50 Open APOL 78.35 76.33 OCT 90.0 85.0 0.25 85.25 0.25 Open STJ 70.73 74.98 OCT 80.0 75.0 0.55 75.55 0.55 Open? APOL 72.00 76.33 OCT 85.0 80.0 0.45 80.45 0.45 Open PRX 37.80 36.12 OCT 45.0 40.0 0.60 40.60 0.60 Open CERN 42.99 44.61 OCT 50.0 45.0 0.50 45.50 0.50 Open? IMCL 50.35 54.75 OCT 60.0 55.0 0.40 55.40 0.40 Open? LLTC 35.71 37.54 OCT 40.0 37.5 0.30 37.80 0.26 Open? LXK 81.50 86.48 OCT 90.0 85.0 0.65 85.65 (0.83) Closed L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss The recent upside activity in stocks suggests "early-exit" trades in a number of positions including: Cerner (NASDAQ:CERN), ImClone (NASDAQ:IMCL), Lexmark (NYSE:LXK), Linear Technology (NASDAQ:LLTC), Maxim Integrated Products (NASDAQ:MXIM), and St. Jude (NYSE:STJ). Netease.com (NASDAQ:NTES) remains on the "watch" list. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status QLGC 29.12 31.54 OCT 30.0 30.0 2.40 2.35 Open ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BSC - Bear Stearns $94.16 *** New 2004 High! *** The Bear Stearns Companies (NYSE:BSC) is an investment banking, securities and derivatives trading, clearance and brokerage firm. It conducts its businesses through its broker-dealer and bank subsidiaries: Bear, Stearns & Co., Bear, Stearns Securities, Bear, Stearns International Limited, and Bear Stearns Bank plc. BSSC provides professional and correspondent clearing services, in addition to clearing and settling customer transactions of the company. Bear Stearns Companies also conducts activities through other wholly owned subsidiaries. BSC - Bear Stearns $94.16 PLAY (conservative - bullish/credit spread): BUY PUT NOV-80.00 BSC-WP OI=230 ASK=$0.50 SELL PUT NOV-85.00 BSC-WQ OI=1149 BID=$1.10 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$84.35 __________________________________________________________________ PHS - Pacificare Health $37.23 *** Recovery Underway! *** Pacificare Health Systems (NYSE:PHS) offers managed care and other health insurance products to employer groups and Medicare beneficiaries, mainly in eight western states and Guam. These programs include health maintenance organizations, preferred provider organizations and Medicare Supplement products. The firm also offers specialty managed care products and services that employees can purchase as a supplement to basic commercial and senior medical plans or as stand-alone products. These include pharmacy benefit management services, behavioral health services, group life and health insurance and dental and vision benefit plans. PHS - Pacificare Health $37.23 PLAY (conservative - bullish/credit spread): BUY PUT NOV-30.00 PHS-WF OI=687 ASK=$0.40 SELL PUT NOV-32.50 PHS-WZ OI=492 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$32.15 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AMZN - Amazon.com $40.47 *** Stuck In A Trading Range? *** Amazon.com (NASDAQ:AMZN) is a website where customers can find and discover anything they may want to buy online. The company lists millions of items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, PC software, computer and video games, tools and hardware, outdoor living items, kitchen and house-wares products, toys, baby and baby registry, travel services and magazine subscriptions. At its Amazon Marketplace, Auctions and zShops services, businesses and individuals can sell virtually any product to millions of customers, and with Amazon.com Payments, sellers are able to accept credit card transactions in addition to other methods of payment. The company operates a U.S.-based Website: amazon.com, and four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. AMZN - Amazon.com $40.47 PLAY (conservative - bearish/credit spread): BUY CALL NOV-50.00 ZQN-KJ OI=638 ASK=$0.30 SELL CALL NOV-45.00 ZQN-KI OI=1228 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$45.65 __________________________________________________________________ PDX - Pediatrix Medical Group $55.00 *** Declining Revenues! *** Pediatrix Medical Group (NYSE:PDX) is a healthcare services firm focused on physician services for newborn, maternal-fetal and other pediatric subspecialty care. Its network of affiliated physicians provide clinical care in 30 states and Puerto Rico, primarily within hospital-based neonatal intensive care units to babies born prematurely or with medical complications. The company's affiliated neonatal physician specialists staff and manage clinical activities at more than 200 hospitals and its 81 affiliated maternal-fetal medicine sub-specialists provide care to expectant mothers experiencing complicated pregnancies in many areas where its affiliated neonatal physicians practice. PDX - Pediatrix Medical Group $55.00 PLAY (conservative - bearish/credit spread): BUY CALL NOV-65.00 PDX-KM OI=158 ASK=$0.35 SELL CALL NOV-60.00 PDX-KL OI=239 BID=$0.85 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$60.60 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. _________________________________________________________________ MDC - M.D.C. Holdings $74.96 *** Earnings Speculation! *** M.D.C. Holdings (NYSE:MDC) is primarily engaged in owning and managing subsidiary companies that build and sell homes in the United States under the name Richmond American Homes. The company conducts its homebuilding operations in Colorado, Northern Virginia, suburban Maryland, Arizona, Nevada, and California. MDC also has a growing presence in Dallas/Fort Worth and has entered the Houston, San Antonio, Philadelphia, West Florida, Jacksonville and Chicago markets. The company also owns and manages HomeAmerican Mortgage Corporation, which originates mortgage loans primarily for MDC's homebuyers. In addition, MDC provides title agency services through American Home Title and Escrow Company to MDC homebuyers in Virginia, Maryland and Colorado, and also offers third-party insurance products through American Home Insurance Agency. Earnings are due on or about 10/12/04. MDC - M.D.C. Holdings $74.96 PLAY (very speculative - neutral/debit straddle): BUY CALL OCT-75.00 MDC-JO OI=8378 ASK=$1.85 BUY PUT OCT-75.00 MDC-VO OI=141 ASK=$1.85 INITIAL NET-DEBIT TARGET=$3.40-$3.50 INITIAL TARGET PROFIT=$1.25-$1.90 ************************Advertisement************************* OneStopOption.com Trade: Securities, Stock Options, Futures Contracts Service: Experienced Brokers Personal Assistance Convenience of One Brokerage Online and Live Broker Trading Experience... The Difference OneStopOption.com 888-281-9569 *************************************************************** ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events, as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/01/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 OS OCT 15.00 14.60 16.47 0.40 7.19% 2.74% FHRX OCT 17.50 17.05 20.78 0.45 6.31% 2.64% SNDK OCT 22.50 22.00 30.42 0.50 5.86% 2.27% SSYS OCT 25.00 24.45 32.53 0.55 5.91% 2.25% JNPR OCT 22.50 22.00 23.92 0.50 5.73% 2.27% CREE OCT 22.50 22.15 31.24 0.35 5.28% 1.58% FFIV OCT 22.50 22.20 31.63 0.30 4.45% 1.35% AMZN OCT 37.50 37.00 40.47 0.50 3.96% 1.35% ASKJ OCT 25.00 24.45 33.47 0.55 7.42% 2.25% USNA OCT 30.00 29.30 35.59 0.70 6.10% 2.39% YHOO OCT 30.00 29.40 35.03 0.60 5.51% 2.04% CELL OCT 15.00 14.50 16.98 0.50 8.28% 3.45% CREE OCT 25.00 24.35 31.24 0.65 7.26% 2.67% CLHB OCT 10.00 9.75 11.70 0.25 7.98% 2.56% PDII OCT 25.00 24.45 28.02 0.55 6.98% 2.25% GILD OCT 35.00 34.35 37.69 0.65 5.61% 1.89% BOBJ OCT 20.00 19.65 24.18 0.35 5.73% 1.78% ASTE OCT 17.50 16.95 19.07 0.55 9.55% 3.24% LCAV OCT 25.00 24.35 26.55 0.65 7.97% 2.67% ALO OCT 17.50 17.10 19.85 0.40 7.17% 2.34% FHRX OCT 17.50 17.20 20.78 0.30 6.33% 1.74% GNSS OCT 12.50 12.20 13.99 0.30 8.02% 2.46% NAVR OCT 15.00 14.75 14.37 (0.38) 0.00% 1.69% COGN OCT 32.50 31.90 36.67 0.60 6.15% 1.88% PSFT OCT 17.50 17.20 22.83 0.30 6.15% 1.74% LF OCT 20.00 19.75 21.00 0.25 4.46% 1.27% ATYT OCT 15.00 14.75 16.06 0.25 5.90% 1.69% YHOO OCT 30.00 29.50 35.03 0.50 6.01% 1.69% AGIX OCT 12.50 11.75 32.93 0.75 21.96% 6.38% DHB OCT 12.00 11.60 14.52 0.40 14.91% 3.45% INTV OCT 10.00 9.70 11.49 0.30 12.10% 3.09% NVTL OCT 22.50 21.95 24.31 0.55 10.37% 2.51% SFL OCT 20.00 19.55 20.99 0.45 9.47% 2.30% FHRX OCT 17.50 17.15 20.78 0.35 8.94% 2.04% PAAS OCT 15.00 14.75 16.88 0.25 7.04% 1.69% BLUD OCT 20.00 19.75 25.78 0.25 6.52% 1.27% AAPL OCT 35.00 34.35 38.67 0.65 9.07% 1.89% RIGL OCT 22.50 21.85 25.36 0.65 13.86% 2.97% CMTL OCT 25.00 24.65 28.85 0.35 6.90% 1.42% NABI OCT 12.50 12.25 14.09 0.25 9.59% 2.04% CREE OCT 25.00 24.70 31.24 0.30 6.67% 1.21% STLD OCT 35.00 34.65 39.02 0.35 4.99% 1.01% OMM OCT 15.00 14.75 16.43 0.25 7.89% 1.69% American Pharmaceutical Partners (NASDAQ:APPX), although now a profitable position, has previously been closed to limit potential losses. Conservative traders should have exited the Navarre (NASDAQ:NAVR) position after the recent slump. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield ESIO OCT 22.50 23.00 17.75 0.50 6.99% 2.17% LNCR OCT 32.50 33.30 29.99 0.80 7.12% 2.40% ADTN OCT 30.00 30.30 23.18 0.30 3.79% 0.99% DIGE OCT 30.00 30.35 26.69 0.35 6.05% 1.15% CTB OCT 22.50 22.85 20.61 0.35 4.25% 1.53% MDCO OCT 30.00 30.80 24.60 0.80 8.33% 2.60% CECO OCT 40.00 40.50 29.58 0.50 6.34% 1.23% CPRT OCT 20.00 20.35 19.12 0.35 6.97% 1.72% FLML OCT 17.50 17.80 14.86 0.30 10.47% 1.69% SSNC OCT 20.00 20.35 20.70 (0.35) 0.00% 1.72% USPI OCT 35.00 35.65 33.37 0.65 6.36% 1.82% BDY OCT 22.50 22.90 20.31 0.40 7.63% 1.75% PLMO OCT 35.00 35.90 32.24 0.90 11.25% 2.51% XLNX OCT 30.00 30.25 28.56 0.25 4.46% 0.83% APPX OCT 30.00 30.50 27.23 0.50 8.60% 1.64% ALTR OCT 20.00 20.50 20.26 0.24 5.11% 2.44% CYMI OCT 30.00 30.40 30.87 (0.47) 0.00% 1.32% TASR OCT 45.00 45.35 38.22 0.35 8.19% 0.77% STK OCT 25.00 25.45 26.04 (0.59) 0.00% 1.77% MERQ OCT 35.00 35.50 36.88 (1.38) 0.00% 1.41% A number of issues are candidates for early exit in the wake of Friday's sharp rally. Semiconductor stocks are among the most obvious targets and they include: Altera (NASDAQ:ALTR), Mercury Interactive (NASDAQ:MERQ), Storage Technology (NYSE:STK), Cymer (NASDAQ:CYMI) and Xilinx (NASDAQ:XLNX). The position in SS&C Technologies (NASDAQ:SSNC) is also an early-exit candidate. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 SNDK 30.42 OCT 27.50 SWQ-VY 0.40 9327 27.10 13 3.5% 9.7% RIGL 25.36 OCT 22.50 QRG-VX 0.30 35 22.20 13 3.2% 9.3% YHOO 35.03 OCT 32.50 YHQ-VZ 0.40 33k+ 32.10 13 2.9% 7.9% WRLS 10.92 NOV 7.50 QGW-WU 0.30 64 7.20 48 2.6% 7.7% OSTK 38.86 OCT 35.00 QKT-VG 0.40 1201 34.60 13 2.7% 7.7% NVTL 24.21 OCT 22.50 NVU-VX 0.25 255 22.25 13 2.6% 7.1% SYNA 21.66 OCT 20.00 QYG-VD 0.20 12 19.80 13 2.4% 6.5% SIMG 14.40 NOV 12.50 QSI-WV 0.40 1 12.10 48 2.1% 6.0% 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. _________________________________________________________________ SNDK - SanDisk $30.42 *** Strong Uptrend! *** SanDisk (NASDAQ:SNDK) designs, manufactures, and markets flash memory storage products that are used in a wide variety of electronic systems. The company has designed its flash memory storage solutions for applications in the consumer electronics and industrial/communications markets. The company's products are used in a number of rapidly growing consumer electronics applications, such as digital cameras, PDAs, portable digital music players, digital video recorders and smart phones, as well as in industrial and communications applications. The company's products include removable CompactFlash cards, MultiMediaCards, FlashDisk cards, Secure Digital Cards, embedded FlashDrives and Flash ChipSets. SNDK - Sandisk $30.42 OCT 27.50 SWQ-VY LB=0.40 OI=9327 CB=27.10 DE=13 TY=3.5% MY=9.7% _________________________________________________________________ RIGL - Rigel Pharmaceuticals $25.36 *** 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 $25.36 OCT 22.50 QRG-VX LB=0.30 OI=35 CB=22.20 DE=13 TY=3.2% MY=9.3% _________________________________________________________________ YHOO - Yahoo! $35.03 *** The Internet Giant! *** Yahoo! (NASDAQ:YHOO) is a worldwide Internet business and consumer services company that offers a comprehensive branded network of properties and services to more than 200 million individuals worldwide. The company offers an online navigational guide to the Internet via its www.yahoo.com Website, which is a guide in terms of traffic, advertising and household and business user reach. Through Yahoo! Enterprise Solutions, the firm also provides many business services designed to enhance the productivity and Web presence of its clients. Yahoo! has offices in the United States, Europe, Asia, Latin America, Australia and Canada. YHOO - Yahoo! $35.03 OCT 32.50 YHQ-VZ LB=0.40 OI=33949 CB=32.10 DE=13 TY=2.9% MY=7.9% _________________________________________________________________ WRLS - Telular $10.92 *** Entry Point? *** Telular (NASDAQ:WRLS) designs, develops, manufactures and sells products based on its interface technologies. These products provide the capability to connect standard telecommunications equipment, including standard telephones, fax machines, data modems and alarm panels, with wireless communication networks in the cellular and personal communications service frequency bands. The company refers to this concept as Cellular Fixed Wireless. Addressing the needs of basic voice, fax, data and security, Telular's business segments are divided across two primary product lines: a line of fixed wireless phones and a line of wireless security products. WRLS - Telular $10.92 NOV 7.50 QGW-WU LB=0.30 OI=64 CB=7.20 DE=48 TY=2.6% MY=7.7% _________________________________________________________________ OSTK - Overstock.com $38.86 *** Pure Premium-Selling! *** Overstock.com (NASDAQ:OSTK) is an online retailer offering discount, brand-name merchandise for sale primarily over the Internet. Its merchandise offerings include bed-and-bath goods, kitchenware, watches, jewelry, electronics, sporting goods and designer accessories. The company also sells books, magazines, CDs, DVDs, videocassettes and video games. Overstock offers its customers an opportunity to shop for bargains conveniently, while providing suppliers an alternative inventory liquidation distribution channel. The company also offers travel services, including airline tickets, hotel reservations and car rentals. OSTK - Overstock.com $38.86 OCT 35.00 QKT-VG LB=0.40 OI=1201 CB=34.60 DE=13 TY=2.7% MY=7.7% _________________________________________________________________ NVTL - Novatel Wireless $24.21 *** Bracing For A Rally? *** Novatel Wireless (NASDAQ:NVTL) is a provider of wireless broadband access solutions for the mobile communications market. The company's range of products includes wireless data modems and software for laptop personal computers, embedded wireless modules for OEMs, and ruggedized wireless data modems for public safety and telemetry applications. Through the integration of hardware and software, Novatel's products are designed to operate on most global wireless networks, and provide mobile subscribers with secure access to data, including corporate, public and personal information through the Internet and enterprise networks. NVTL - Novatel Wireless $24.21 OCT 22.50 NVU-VX LB=0.25 OI=255 CB=22.25 DE=13 TY=2.6% MY=7.1% _________________________________________________________________ SYNA - Synaptics $21.66 *** Conservative Entry Point? *** Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of custom-designed user interface solutions for notebook computers. The company's original equipment manufacturer customers include ten large personal computer OEMs. Synaptics generally supplies its OEM customers through its contract manufacturers, which take delivery of its products and pay the company directly for the OEMs. Synaptics family of product solutions include TouchPad, TouchPad Under Plastic, TouchStyk, dual pointing solutions, ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese character recognition, Fingerprint TouchPad, TouchRing and TouchScreen. SYNA - Synaptics $21.66 OCT 20.00 QYG-VD LB=0.20 OI=12 CB=19.80 DE=13 TY=2.4% MY=6.5% TS _________________________________________________________________ SIMG - Silicon Image $14.40 *** Technical Break-Out! *** Silicon Image (NASDAQ:SIMG) offers multi-gigabit semiconductor solutions for the transmission, storage and display of digital media. The company broadens market adoption of the digital visual interface, high-definition multimedia interface and serial advanced technology attachment interfaces by licensing its Internet protocol cores to companies providing advanced system-on-a-chip solutions incorporating these interfaces. SIMG - Silicon Image $14.40 NOV 12.50 QSI-WV LB=0.40 OI=1 CB=12.10 DE=48 TY=2.1% MY=6.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ALD - Allied Capital $24.68 *** In A Trading Range? *** Allied Capital (NYSE:ALD) is a business development company that provides long-term debt and equity investment capital to companies in a variety of industries. Its lending and investment activity is generally focused on private finance and commercial real estate finance, primarily the investment in non-investment grade commercial mortgage-backed securities and collateralized debt obligation bonds and preferred shares. The company's private finance activity principally involves providing financing through privately negotiated long-term debt and equity investment capital. ALD - Allied Capital $24.68 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 ALD-JE 1080 0.20 25.20 5.2% 0.8% TS _________________________________________________________________ CYBX - Cyberonics $18.85 *** ANSI Withdraws Buyout Offer! *** Cyberonics (NASDAQ:ANSI) designs, develops, manufactures and markets the Cyberonics VNS (Vagus Nerve Stimulation) Therapy System, an implantable medical device for the treatment of epilepsy and other debilitating chronic disorders. The VNS Therapy System consists of the VNS Therapy Pulse Generator, the Bipolar Lead, the programming wand and software and the tunneling tool. The company has been approved by the FDA to market the VNS Therapy System in the United States, as an adjunctive therapy for reducing the frequency of seizures in patients over 12 years of age with partial onset seizures that are refractory or resistant to drugs. CYBX - Cyberonics $18.85 "SPECULATIVE" PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 20 QAJ-JD 2731 0.40 20.40 14.9% 2.0% ************************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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