The Option Investor Newsletter Tuesday 10-05-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Bowflex Bulls Futures Markets: See Note Index Trader Wrap: Make that about 50 million doses of flue vaccine Market Sentiment: Weak Economics and Rising Oil Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 10-05-2004 High Low Volume Adv/Dcl DJIA 10177.68 + 38.90 10221.11 10158.07 1.76 bln 1579/1637 NASDAQ 1955.50 + 3.10 1960.90 1946.86 1.71 bln 1413/1729 S&P 100 544.48 - 0.26 546.17 543.13 Totals 2992/3366 S&P 500 1134.48 - 0.69 1137.87 1132.03 SOX 404.57 - 0.43 408.53 399.48 RUS 2000 587.34 - 1.75 590.09 586.64 DJ TRANS 3335.60 + 17.00 3342.76 3310.28 VIX 13.95 + 0.54 14.19 13.51 VXO (VIX-O)13.27 + 1.22 13.92 13.20 VXN 20.02 + 0.41 20.26 19.59 Total Volume 3,741M Total UpVol 1,877M Total DnVol 1,797M Total Adv 3342 Total Dcl 3713 52wk Highs 401 52wk Lows 63 TRIN 1.44 NAZTRIN 0.54 PUT/CALL 0.84 ************************************************************ Bowflex Bulls by Jim Brown Fresh off their Bowflex workout the bulls continue to hold the indexes at their highs. Pumping iron would be an easy task compared to holding up the Nasdaq at these levels but the bulls are making it look easy. For two days the buyers have refused to let the Nasdaq vary more than a ten point range and support at 1950 is building. Dow Chart Nasdaq Chart Earnings warnings, high oil and negative economics failed to weaken the six day old rally and more traders are now wondering if the next move will be to bypass profit taking and blaze higher. The bulls do not appear to be afraid of the calendar or the news. The negative economics began with the Challenger Layoff report which showed job cut announcements surged to a new eight month high impacting 107,863 workers in Sept. Also down were new hires with only 16,166 new job openings compared to 132,105 in August. The layoffs were 41% more than the level in September 2003. For the entire third quarter there were 251,585 announced layoffs, +20% more than the second quarter. Computers, transportation, telecom and consumer products surged to twice as high as prior months. Despite all the doom and gloom we need to remember that job cuts increase towards the end of a quarter so this may not be a pattern that will continue. The general consensus for the jobs report on Friday is for overall gains for September in the range of 160,000 jobs. The headline number on the ISM Services fell to 56.7 for September from 58.2 in August. This was well below the expected rise to 59.3. This was the second straight month under the 60% level considered as decent growth. The headline number at 56.7 was the lowest level since May-2003. New orders were flat and inventory fell slightly but employment rose more than +2 points to 54.6. The strong employment component further suggests we could have a decent jobs number on Friday. With the mixed internals it is very hard to build a case for a strong economy. It may still be expanding but the pace is continuing to slow. High energy prices continue to produce a drag on consumer spending and the service sector was not immune. The mixed messages from the Challenger Report and the ISM put further emphasis on the Friday Jobs report. Coming just before the next presidential debate the report will be key for the economic picture and both candidates could find ammunition to use against the other depending on the outcome. Also due out on Friday is the revised estimates for the jobs for the last quarter. These revisions could amount to a gain of +288,000 additional jobs according to one analyst. If the revision comes to pass as well as the +160,000 consensus estimate the Bush position would be much stronger. Should we see a strong upward revision I would not put it past Kerry to question administration numbers and motives for announcing the data in advance of the second debate. While we all know the revisions are a matter of course each quarter the voting public could easily be led astray by the apparent timing. Oil continued to rise and finally broke the mental $50 barrier that has held us for a week and jumped to close at $51.09. Despite the jump there was no material impact to the equity markets. Impacting prices today was a report that 25% of the Gulf of Mexico production was still shut in due to hurricane damage. Wednesday afternoon we will get the weekly oil and gas inventories and a decline is again anticipated. Home heating oil and natural gas prices are continuing to explode and consumers are not going to be happy when holiday shopping rolls around and wallets are empty. AMD warned today that revenue would be lower due to reduced sales in its flash memory business. Prior guidance for a modest gain in Q3 was erased but they did say earnings would be inline due to strength in the processor business. Earnings are due out on Thursday and the stock was down only -2 cents in regular trading. Intel gained +19 cents on the news and closed at a new five week high. Current resistance is the 50dma at 21.55 and August resistance at $22. Pulte Homes got whipped for another -3.88 drop to $52 after warning that sales would be weaker due to a sales slowdown in Las Vegas. The company said they raised prices too fast in Vegas with increases of up to +100% in the last year. With the housing market so tight there homes were being bought months in advance of being built. The feeding frenzy has cooled and PHM was forced to cut prices about -$70,000 per home (-18%) to move inventory. Toll Brothers fired back today that growth was still expected to be +30% with 20% or more growth in 2006. They were also seeing -5% cancellation rates in Vegas but felt it was consistent with market averages. After the bell today Amerisource Bergen (ABC) warned on revenue and earnings saying price increases were less than expected. Delphi (DPH) warned that it would post a larger than expected loss. Ford and GM said they were cutting production for Q4 early last month. Those production cuts and rising commodity prices put the squeeze on Delphi. Zoran (ZRAN) warned after the close that its chip sales for consumer electronic devices would be less than expected. Open Text (OTEX) fell -17% after warning as well. OPNET (OPNT) also warned. Not everything was negative with RCKY and SALM guiding slightly higher. The earnings calendar begins to hspeed up as the week progresses and turns into a flood next week. For Wed we have DNA, MON and WWW. Thursday sees the first Dow component report with Alcoa, who has already warned, and AMD, AMHC, COST, MAR and ATYT. With Friday's Jobs report we will also get earnings from GE. Next week more than 250 companies report and although we have seen some warnings this week it has been much less than most analysts expected. This lack of news could be giving the markets additional lift as investors begin to build on hopes that Q3 is not going to be as bad as originally thought. After two very strong days of gap open surges we saw Tuesday turn into a consolidation day for the Dow. The Dow support is currently 10167 and the 100dma and we held there all afternoon. This 10167 level is right in the middle of the range we have seen over the last two months. This is neither a bullish or bearish level and should be considered a neutral zone as we face the typical October challenges. The upper side of this neutral zone is strong resistance at 10300-10350. The 200dma awaits at 10298 along with downtrend resistance from January. The Nasdaq is much stronger with the bounce to 1960 holding despite numerous tech warnings still appearing. The AMD warning failed to produce any negativity and the mixed economics caused barely a blip. As long as the SOX remains over 400 the tech bulls do not need to worry about protecting their flanks. Tech investors see that SOX strength and become encouraged. The SOX has put in higher highs and lows since the bottom at 350 in September and with the historical end of October rebound ahead nobody is taking profits. The Nasdaq is chipping away at the 200dma resistance at 1965 and any good news could easily break through that level. The VP debate hits the airwaves tonight and Cheney will try to repair some of the problems created by Bush last week. Cheney is a strong public speaker but as a trial lawyer so is Edwards. Odds are good we will see a verbal brawl and the outcome is far from assumed. Tomorrow we have no material economic reports but will have to deal with oil inventories at 10:30. The markets need to hold their gains for the rest of the week to put bearish fears to rest. It may not be an easy task with economics intensifying on Thursday and Jobs on Friday but it is possible. The bulls climbed a significant wall of worry to get here and they are enjoying a well deserved rest but loftier heights await. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ***************** INDEX TRADER WRAP ***************** Make that about 50 million doses of flue vaccine On September 24, the Centers for Disease Control and Prevention (CDC) said it thought about 100 million doses of influenza vaccine would be available this year in the United States. The CDC noted that Chiron (NASDAQ:CHIR) $37.98 -16.38% had reported a delay in their vaccine delivery schedule, but the CDC, as well as Chiron, expected to distribute about 47 million total Fluvirin doses this year (2004) plus 2 million doses to the CDC stockpile. However, today's news from British health officials that Chiron's Fluvirin manufacturing license had been suspended, cuts in half this year's expected 100 million doses of influenza vaccine as flu season is about to begin. According to Chiron officials, practically all of the 48 million doses slated for the United States had already been manufactured at its Liverpool manufacturing facility when the Medicines and Healthcare Products Regulatory Agency (MHRA), which is Britain's equivalent of the U.S. Food and Drug Administration (FDA) yanked Chiron's license to manufacture and ship the Fluvirin vaccine. Sanofi-Aventis (NYSE:SNY) $37.14 +0.97% has already shipped some vaccine and reports no delays in vaccine deliver, and is expected to deliver about 20 million doses of its flu vaccine by September, and an additional 32 million doses in October. In January of this year, shares of SNY surged to as high as $40 when children began dying from the flu virus. Sanofi-Aventis' Aventise (NYSE:AVE) $86.00 +1.39% subsidiary, of which 5% of its shares are publicly trades, was up $1.18. MedImmune (NASDAQ:MEDI) $25.78 +5.78% jumped $1.41 in today's session on the Chiron news. According to the CDC's latest "Influenza Vaccine Bulletin #3," MedImmune expects to deliver all of its 1.5 million doses of preservative-free intranasal vaccine (FluMist) in October. One item of note that I would make as a trader/investor and PARENTS today is a note from the CDC's website (http://www.cdc.gov) and its "Influenza Vaccine Bulletin #3." Bulletin #3: CDC has legislative authority through the Vaccines for Children (VFC) program to purchase influenza vaccine for a national stockpile program for children through 18 years of age. Influenza vaccine is being stockpiled by the CDC to ensure sufficient supply in case of a shortage like the one experienced this past winter. 4.5 million doses will be purchased for the stockpile this year. Stockpiled vaccine may be made available directly to state immunization programs through the VFC program without additional cost to the programs, or manufacturers may “borrow against” the stockpile for non-VFC populations. Influenza vaccine for non-VFC populations will not be free of cost to vaccine providers. It would appear to me (Jeff Bailey) that the CDC is/was preparing for what many believe could be a rather nasty flu season, and today's news out of Britain most likely halves many of the figures that had been posted on the CDC's web page on September 24, 2004. I (Jeff Bailey) would by no means predict a major outbreak of flue, but should the number of flue outbreaks begin to mount in the months to come, it should not be a surprise that negative market psychology brought on by "fear" could present itself in the months to come. U.S. Market Watch - 10/05/04 Close Today's session was mixed, where weakness in the Biotechnology Index (BTK.X) 529.43 -1.25% was greatly attributed to Chiron's 16.49% decline. Genentech (NASDAQ:DNA) $51.13 -5.29% fell back below its trending higher 200-day SMA ($52.05) after the company issued a press release Monday evening that it had received a subpoena from the U.S. Attorney General's Office. The investigation relates to the marketing of Rituxan, a treatment for non-Hodgkins lymphoma, a blood cancer. Rituxan is sold through a joint venture between Genentech and Biogen-Idec (NASDAQ:BIIB) $61.81 -1.0%, and had sales of about $1.5 billion in 2003. The S&P Insurance Index ($IUX.X) 315.03 -1.37% was weighed lower, as was the Dow Industrials (INDU) 10,177 -0.38%, as American Intl. Group (NYSE:AIG) $66.50 -2.9% traded back toward three- month lows when the SEC and the Justice Department said they are still unhappy with how the company worded its press releases over some ongoing probes. The SEC said it may bring civil action against the company for its alleged role in helping PNC Financial Services Group (NYSE:PNC) $54.95 -1.41% hide bad loans. Hospitals may have gotten a boost with the Morgan Stanley Health Provider Index (RXH.X) 347.68 +0.94% closing at a 2-month high. Triad Hospitals (NYSE:TRI) $34.91 +2.91%, Community Health (NYSE:CYH) $27.86 +2.35% and HCA Inc. (NYSE:HCA) $38.41 +1.99% were atop the percentage gainers list. While not mentioning any names, Piper Jaffray posed a potentially bullish scenario for the group. (See today's 03:15 PM EDT Update). According to Dorsey/Wright and Associates, they group many of the RXH.X components (TRI, CYH, HCA, DVA, HMA, LPNT, SRZ, UHS, AHG, LNCR, RCI, THC, OCR and HCR) as belonging to their Healthcare Bullish % (BPHEAL), which is currently in "bear correction" status at 44.25% bullish having reversed up from "bear confirmed" status at 32% in August. It would currently take a reading of 76% to achieve "bull confirmed" status, where in January, this sector bullish % topped out at 74%. Stocks that I think look compelling for bullish consideration that have a "hospital flavor" would be TRI, CYH and HMA. The CBOE Oil Index (OIX.X) 401.49 +1.26% and Natural Gas Index (XNG.X) 275.01 +1.42% were bullish standouts in today's session, where we'll get updated weekly energy inventory data tomorrow. November Crude Oil futures (cl04x) settled above the $51.00 level and another record contract high, where bulls bought to the close after the Minerals Management Service released its daily report showing roughly 1.7 million barrels of oil production per day from the Gulf of Mexico is still shut in after recent hurricane activity. The AMEX Gold Bugs Index ($HUI.X) 232.68 +3.05% snapped back from Monday's declines after China said it would take its time in letting its currency float against the dollar. Pulte Homes (NYSE:PHM) $52.45 -6.88% found buyers at its rising 200-day SMA ($51.94) to close off its lows of $51.25, but lead declines for the Dow Jones Home Construction Index (DJUSHB) 618.45 -2.06%. Market Snapshot / Internals - 10/05/04 Close Volumes were brisk again today, with the NASDAQ churning a rather impressive 1.7 billion shares. I say "impressive" as average daily volume for the NASDAQ during the month of September was just over 1.28 billion, and with three days of trading completed in October, NASDAQ's running a more robust 1.80 billion share per day average. Sirius Satellite Radio (NASDAQ:SIRI) $3.35 +3.39% challenges Friday's 5-month high of $3.35 at today's close, and was the most heavily traded stock on building volume of 72.17 million shares. The Semiconductor Index (SOX.X) 404.58 -0.11% tries to find a footing at 400.00, where Intel (NASDAQ:INTC) $21.31 approaches its trending lower 50-day SMA ($21.56) on consistent volume of 72.08 million shares. Treasuries were little changed, and commentary from Alan Greenspan at the American Bankers Association Annual Convention in New York had Treasury bond traders little moved. Pivot Matrix - Of the major indices covered in the Pivot Matrix, only the Dow Industrials (INDU) and S&P 100 Index (OEX.X) reside below their respective 200-day SMA's of 10,300 (see MONTHLY R1) and 548 (see WEEKLY R1). Correlative support for the INDU looks important at DAILY S2 and WEEKLY Pivot, where today's rise in the Market Volatility Index (VIX.X) 13.95 +4.02% above its WEEKLY Pivot has me looking at today's most actively traded SPX options, where the Dec. 1,100, Oct. 1,025, Dec. 1,125 and Dec. 1,050 puts were the top 5 most actively traded. Both the Oct. 1,025 and Dec. 1,050 are way out the money, especially the Oct. 1,025 with expiration so near, and either that's a bunch of closing out of options (8,358 vs. 75,519 OI), or some bearish speculators looking for some type of "premium pop" on a speculative $0.25 per contract. Dow Industrials (INDU) Chart - Daily Intervals The INDU is notably underperforming the other major averages of late, thanks in large part to Merck (NYSE:MRK). Smaller priced components of this price-weighted index have been seeing some gains, but without Caterpillar (NYSE:CAT) the INDU most likely sits on or below its 50-day SMA. American Intl. Group (NYSE:AIG) $66.50 -2.90% is one of the top 5 price components and becomes a stock that Dow index traders need to be monitoring. Jeff Bailey **************** MARKET SENTIMENT **************** Weak Economics and Rising Oil - J. Brown What's on investors' minds these days? Record high oil prices is a hot topic. Light sweet crude close at $51.09 - an all-time record. A few weeks ago people were worried about $50 a barrel. Now the talk is $60 a barrel. This isn't good news for our economic recovery and it's not good news for consumers, businesses and future earnings numbers. Less than inspiring economic data this morning didn't help matters. The ISM services index slipped to 56.7 percent in September, down from economists' expectations and the August reading at 59.0. Of course it's all about interpretation. Any reading over 50 is technically bullish because it represents economic growth and expansion. The planned corporate job cuts report from Challenger, Gray and Christmas did not do much to inspire investors either. The latest data out this morning shows that American businesses plan to cut over 107,000 jobs over the next few months compared to just 74,000 in August. Some see the Challenger report as a leading indicator for this Friday's non-farm payrolls (jobs) report. Another round of earnings warnings may be taking the wind out of the bulls' sails as well. On Monday it was homebuilder Pulte (PHM) who issued a warning and sent the entire sector lower. Today it was yet another semiconductor stock, this time AMD, who warned for the third quarter. The Q3 earnings season begins on Thursday with Alcoa and Friday with General Electric. If you follow the ARMS index or short-term trading index you may notice that the 5-day moving average is sporting a very bearish reading at 0.68. Normally readings under 0.85 are consider bearish. Look for oil to hog the spotlight again tomorrow. Wall Street will be waiting for the latest crude oil inventories numbers. Plus, there's always a chance that Fed Governors Poole or Hoenig may say something interesting as both speak at separate events tomorrow. Last but not least if there is any lack of news tomorrow the media is likely to fill it with recaps and analysis of the vice-presidential debate tonight. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 10177 Moving Averages: (Simple) 10-dma: 10106 50-dma: 10121 200-dma: 10298 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 990 Current : 1134 Moving Averages: (Simple) 10-dma: 1117 50-dma: 1104 200-dma: 1119 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1461 Moving Averages: (Simple) 10-dma: 1418 50-dma: 1385 200-dma: 1441 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 13.95 +0.54 CBOE Mkt Volatility old VIX (VXO) = 13.27 +0.16 Nasdaq Volatility Index (VXN) = 20.02 +0.41 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.83 849,417 709,061 Equity Only 0.67 740,807 497,794 OEX 1.48 19,754 29,358 QQQ 4.27 9,069 38,720 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 66.2 + 1 Bear Correction NASDAQ-100 47.0 + 3 Bull Alert Dow Indust. 60.0 + 3.6 Bear Correction S&P 500 64.4 + 1.8 Bear Correction S&P 100 63.0 + 1 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: 0.68 10-dma: 1.07 21-dma: 1.97 55-dma: 1.12 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 1344 1359 Decliners 1467 1663 New Highs 185 70 New Lows 12 26 Up Volume 682M 967M Down Vol. 1051M 685M Total Vol. 1751M 1693M 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************************* 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 Tuesday 10-05-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: PRX Call Play Updates: CMI, GDW, GIVN, KMRT, LMT, MHK, OSIP New Calls Plays: See Note Put Play Updates: LLY, FLIR, MMM, SEPR, New Put Plays: See note **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** Par Pharma. Co - PRX - close: 36.61 chg: +0.06 stop: 37.25 Believe it or not PRX is starting to trend higher. Shares are still stuck within the current range but there is a mild up trend of higher lows and higher highs in the last few sessions. It was today's higher high at $37.25 that hit our stop loss to exit. If you remain bearish on the stock look for a failed rally under $40 or a new low under $35.50. Picked on September 21 at $37.80 Change since picked: - 1.19 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 743 thousand Chart = ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Cummins Inc - CMI - close: 74.99 change: -0.10 stop: 69.99 The action in CMI is very similar to what's happening in the Industrials. Shares spiked up on Monday with the market and churned sideways today as the Industrials slowly drifted lower. Remember that CMI has already achieved our early target of $75.00 and we're holding on to see if the diesel maker can reach $77.50. If CMI trades at $77.50 we will close the play. Picked on September 19 at $70.99 Change since picked: + 4.00 Earnings Date 07/23/04 (confirmed) Average Daily Volume = 724 thousand Chart = --- Golden West Financial - GDW - cls: 111.96 chg: -0.76 stop: 108.99 We are seeing similar action in GDW. The stock popped higher on Monday morning with strength in the major indices. Unfortunately for GDW the stock has slowly consolidated lower since Monday's highs. There was a little bit of a bounce Tuesday afternoon but not much. We were suggesting readers look for a bounce from $111 as a new entry point but the lowest GDW hit was $111.66. Patient traders can still wait for a dip to $111. No change in our stop. Picked on September 30 at $110.95 Change since picked: + 1.01 Earnings Date 07/20/04 (confirmed) Average Daily Volume = 512 thousand Chart = --- Given Imaging - GIVN - close: 42.15 change: +0.89 stop: 37.00 We added GIVN to the call list on Monday after its high-volume breakout over major resistance at $40.00. Shares saw some follow through this morning before experiencing some midday profit taking. Fortunately, traders bought the dip and GIVN ended the session on a positive note. Shares still look poised to run higher but there is a chance that GIVN will test the $40 level again and patient traders can wait for the dip. Picked on October 04 at $41.26 Change since picked: + 0.89 Earnings Date 10/27/04 (unconfirmed) Average Daily Volume = 247 thousand Chart = --- Kmart Holdings - KMRT - close: 89.20 chg: -1.33 stop: 84.99 We added KMRT to the play list on Monday night after its above- average volume breakout over round-number resistance at $90.00. Unfortunately, the stock is not off to a strong start. Instead KMRT slipped 1.4 percent compared to a 0.4 percent decline in the RLX today. If the dip continues look for a bounce from $87.50 as a potential entry point although we'd prefer to only consider longs with KMRT above the $90.00 mark. Picked on October 04 at $90.53 Change since picked: - 1.33 Earnings Date 08/16/04 (confirmed) Average Daily Volume = 2.7 million Chart = --- Lockheed Martin - LMT - close: 56.52 change: -0.08 stop: 53.50 It's been a big week for LMT so far. Yesterday the company announced that it had won a $625 million contract to develop radars for the Medium Extended Air Defense System (MEADS), an international air defense program (source: LMT). Incidentally the DFI defense index hit new all-time highs on Monday while LMT hit new multi-year highs. Dips to $56 continue to look like entry points for bullish plays. Picked on October 01 at $56.01 Change since picked: + 0.51 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 1.7 million Chart = --- Mohawk Industries - MHK - cls: 79.69 chg: -0.58 stop: 77.99 We're not happy with the action in MHK and its decline under round-number support/resistance at $80.00 but in reality things could be worse. PHM's earnings warning on Monday undermined the entire homebuilding sector and some of the ancillary industries (like flooring). MHK dipped this morning but rebounded back toward $81.00 before slipping again. There is a tug of war going on between bulls and bears here but we're not giving up on the bulls although we probably would not consider new long until MHK traded above today's high at $80.85. Picked on October 03 at $80.35 Change since picked: - 0.66 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 355 thousand Chart = --- OSI Pharma - OSIP - close: 63.14 change: -0.31 stop: 59.99 Wow! The volatility in OSIP is just amazing. Okay we're kidding. OSIP has been trading sideways this week and might retest support at the $60 level. Keep an eye on the stock and consider buying another dip (or bounce) from the $60.25-60.50 range. We remain bullish despite today's weakness in the BTK biotech index. Picked on October 03 at $63.45 Change since picked: - 0.31 Earnings Date 08/10/04 (confirmed) Average Daily Volume = 1.6 million Chart = ************** NEW CALL PLAYS ************** - Please see tonight's watch list for possible play candidates ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Eli Lilly & Co - LLY - close: 62.01 chg: +0.45 stop: 62.51 Heads up! It may be time to exit LLY. The action on Monday with its early high to $62.38 and its roll over back under $62 looked like a failed rally to end the oversold bounce. Today's gain and close over $62 may have changed that. LLY is still finding minor resistance near $62.35 near its simple 10-dma but it may not hold for long. Our stop is at $62.51 so we're not too worried but more conservative traders may want to exit early if you didn't exit near $60 back on Thursday. Picked on September 22 at $63.92 Change since picked: - 1.91 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 3.1 million Chart = --- FLIR Systems - FLIR - close: 59.98 chg: +0.48 stop: 62.51 FLIR is not cooperating very well. The stock is trying to rebound back over the $60 level. So far it has been unsuccessful and that's the good news. Plus, we're encouraged to see that today's bounce was on low volume compared to the recent declines. This may be nothing more than a new entry point to open bearish positions but look for some downward momentum like a drop under the $59.00 level. Picked on September 29 at $59.35 Change since picked: + 0.63 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 577 thousand Chart = --- 3M Co - MMM - close: 78.76 change: -0.18 stop: 80.75*new* MMM is at a pivotal level. The stock continued Friday's failed rally and turned lower on Monday despite the market's bullish tone. Today shares dipped toward $78 before investors stepped in to buy the dip. It's no coincidence that the low was near its rising trendline of support. This may be as close as we get to our initial target at $77.50 or it may be a pause on the way down. That's why we're willing to keep the play open. However, we are going to lower our stop loss to $80.75, which was Friday's high mark. We are not suggesting new positions at this time. Picked on September 15 at $82.00 Change since picked: - 3.24 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 2.5 million Chart = --- Sepracor Inc - SEPR - close: 47.67 chg: -1.06 stop: 52.01 Excellent. The recent bounce looks like nothing more than a failed rally under resistance at $50.00. Readers can use today's weakness as a new entry point to bearish plays. We are targeting the simple and exponential 200-dma's near $43.00. No change in our stop loss but more conservative types may want to consider something tighter near the $50 mark. Picked on September 22 at $48.94 Change since picked: - 1.27 Earnings Date 07/13/04 (confirmed) Average Daily Volume = 1.8 million Chart = ************* NEW PUT PLAYS ************* - Please see tonight's watch list for possible play candidates ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 10-05-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Breakdowns to pending breakouts Spreads & Straddles: A Day Of Consolidation... Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** Breakdowns to pending breakouts ___________________________________________________________________ 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. ___________________________________________________________________ Respironics - RESP - close: 49.17 change: -1.96 WHAT TO WATCH: We had RESP on the watch list a week ago for a possible breakdown under major support at $50.00. We got that breakdown today with a 3.8 percent drop on above average volume. The move was sparked by a broker downgrade. This looks like an entry point to initiate new bearish positions with a short-term target of $45.00. However, we suggest caution as option volume on the November puts is pretty low. Chart= --- Henry Schein - HSIC - close: 59.64 change: -4.25 WHAT TO WATCH: We also had HSIC on the watch list a week ago for a breakdown under major support at the $60.00 mark. That breakdown occurred today with a 6.6 percent drop on huge volume. The move is related to CHIR's news that it will not be supplying any flu vaccines to the U.S. this year. HSIC is the major distributor for CHIR's vaccines into the U.S. so naturally this will impact earnings. We want to buy puts but we don't like the bounce from today's lows. Look for some confirmation before initiating new plays. The P&F chart currently points to a $54 target. Chart= --- Knight-Ridder - KRI - close: 66.75 change: +0.60 WHAT TO WATCH: KRI is looking bullish with its August-September trend of higher lows. Plus the stock is bouncing from a test of round-number support at $65. Technical indicators are bullish and its P&F chart has reversed into a new buy signal with a $76 target. Bullish traders can go long but watch for resistance at the 100-dma and the exponential 200-dma. The 200-ema is just under the $70 mark. Chart= --- Timberland Co - TBL - close: 59.30 change: +0.64 WHAT TO WATCH: The recent consolidation in shares of TBL is turning bullish. The stock just broke out over its simple 200- dma while its short-term technicals (RSI and stochastics) have turned positive. Watch for a breakout over its 100-dma and the $60.00 mark as a potential entry point to go long. We would target the $64-65 region. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- AVE $86.00 +1.18 - French drugmaker AVE isn't seeing any weakness. The stock just hit another new high over round-number resistance at $85. LEH $80.52 +0.54 - The stock looks a bit extended on the weekly chart but on the intraday LEH looks ready to rebound from the $80 level. LLTC $37.55 -0.24 - Will semiconductor maker LLTC roll over under its simple 200-dma for the sixth time in six months? ERTS $45.33 +0.50 - We're still watching for a drop under $44.50. CI $71.43 +0.58 - More aggressive traders may want to buy a bounce from $70. ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* A Day Of Consolidation... By Ray Cummins Concerns over the record cost of oil and unfavorable employment data conspired to keep buyers on the sidelines during Tuesday's session. The Dow Jones Industrial Average ended down 38 points at 10,177, with Hewlett-Packard (NYSE:HPQ) among the bearish components on news of a JP Morgan Securities downgrade. The NASDAQ Composite Index was up 3 points at 1,955 on mild buying pressure in select hi-tech groups. The S&P 500 index closed virtually unchanged as losses in homebuilding, retail apparel, insurance, airlines and aluminum shares offset gains in gold and oil-related issues. In the broader markets, advancers and decliners ended roughly even, while losers barely outpaced winners on the technology exchange. Trading volume was 1.41 billion on the Big Board and 1.7 billion on the NASDAQ. Treasury prices ended mixed, with most investors reluctant to take firm positions before Friday's key employment report. The benchmark 10-year note slipped 2/32 to yield 4.17%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/03/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. PUT-CREDIT SPREADS Stock Pick Last Mon L/P S/P Credit CB G/L Status 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 Special Tuesday Note: The "watch-list" position in Pulte Homes (NYSE:PHM) was closed Monday after the company's stock price slumped on news of declining profits. Pulte said it expects third-quarter earnings from continuing operations of $1.95 to $2.05 a share, down from previous guidance. Our other spread in the group, Ryland (NYSE:RYL), has more room for a downside move but we will be monitoring the issue closely in the coming week. 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 30.55 OCT 30.0 30.0 2.40 2.35 Open MDC 74.96 70.00 OCT 75.0 75.0 3.50 7.00 Open? Special Tuesday Note: Our new straddle in MDC Holdings (NYSE:MDC) was a "big winner" after only one session. Share values in the home construction segment plummeted after Pulte Homes (NYSE:PHM) posted the group's first bad news in months. Pulte reported it expects lower third-quarter sales due to consumer resistance to price increases. That doesn't bode well for other stocks in the group and although MDC Holdings announced favorable earnings, the company's stock slid on speculation that it could not "maintain" home prices in the coming months. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BTU - Peabody Energy $60.07 *** Energy Sector Hedge *** Peabody Energy (NYSE:BTU) is a private-sector coal company that owns, through its subsidiaries, majority interests in 29 coal operations located throughout the coal-producing regions in the United States and in Australia. Most of its production in the western United States is low-sulfur coal from the Powder River Basin. The company also owns and operates mines in Arizona, Colorado, New Mexico, Wyoming, Illinois, Indiana, Kentucky and West Virginia. In addition, it owns one mine in Australia. BTU - Peabody Energy $60.07 PLAY (conservative - bullish/credit spread): BUY PUT NOV-50.00 BTU-WJ OI=8 ASK=$0.25 SELL PUT NOV-55.00 BTU-WK OI=147 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$54.40 __________________________________________________________________ MRVL - Marvell Technology $28.84 *** New Trading Range? *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. MRVL - Marvell Technology $28.84 PLAY (conservative - bullish/credit spread): BUY PUT NOV-22.50 UVM-WX OI=4249 ASK=$0.40 SELL PUT NOV-25.00 UVM-WE OI=4231 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$24.65 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BZH - Beazer Homes $103.14 *** Sector Slump! *** Beazer Homes USA (NYSE:BZH) designs, builds and sells single family homes in the following locations within the United States: Florida, Georgia, North Carolina, South Carolina, Tennessee, Arizona, Nevada, California, Colorado, Texas, Maryland, New Jersey/Pennsylvania and Virginia. Beezer designs its homes to appeal mainly to entry-level and first time "move-up" homebuyers. The company's objective is to provide its customers with homes that incorporate quality and value while seeking to maximize its return on invested capital. BZH - Beazer Homes $103.14 PLAY (aggressive - bearish/credit spread): BUY CALL NOV-115.00 BZH-KC OI=1143 ASK=$0.80 SELL CALL NOV-110.00 BZH-KB OI=1433 BID=$1.90 INITIAL NET-CREDIT TARGET=$1.10-$1.20 POTENTIAL PROFIT(max)=28% B/E=$111.10 __________________________________________________________________ CHIR - Chiron $37.98 *** Production Problems In The UK! *** Chiron (NASDAQ:CHIR) is a global pharmaceutical company focused on developing products for cancer and infectious diseases. The firm commercializes its products through three business units: blood testing, vaccines and biopharmaceuticals. Chiron Blood Testing develops and commercializes a range of blood safety products utilized by the blood banking and transfusion medicine industry. Chiron Vaccines offers more than 30 vaccines such as flu, meningococcal, travel and also pediatric vaccines. Chiron Biopharmaceuticals discovers, develops, manufactures and sells a range of therapeutic products. CHIR - Chiron $37.98 PLAY (conservative - bearish/credit spread): BUY CALL NOV-45.00 CIQ-KI OI=1033 ASK=$0.45 SELL CALL NOV-42.50 CIQ-KV OI=46 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$42.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. _________________________________________________________________ No straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events, as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/03/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following summary is a reasonable account of the positions previously offered in this section. However, no representation is being made as to the actual performance of a position and in fact, there are frequently large differences between the summary results and those of our subscribers, due to the variety of ways in which each play can be opened, closed, and/or adjusted. In addition, the summary might not be completely representative of the manner in which the average trader would react to changing conditions in a position and to the options market in general. The editor of this section does not take actual positions in any published plays and the summary comments are simply a service to help new traders understand when positions might be opened and closed. In most cases, actions taken based on the commentary would be far too late to be effective, thus it is not intended as a substitute for personal trade management nor does it in any way replace your duty to diligently monitor and manage the positions in your portfolio. MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE The Maximum Yield (listed in the summary and with "naked" option selling plays) is the greatest possible profit available in the position. This amount, expressed as a percentage, is based on the initial margin requirement as determined by the Board of Governors of the Federal Reserve, the U.S. options markets and other self-regulatory organizations. Although increased margin requirements may be imposed either generally or in individual cases by various brokerage firms, our calculations use the widely accepted margin formulas from the Chicago Board Options Exchange. The "Simple Yield" is based on the cost of the underlying issue (in the event of assignment), including the premium from the sold option, thus it reflects the maximum potential loss in the trade. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NAKED PUTS Stock Strike Strike Cost Current Gain Max Simple Symbol Month Price Basis Price (Loss) Yield Yield 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 MEDI 25.78 OCT 25.00 MEQ-VE 0.30 2263 24.70 10 3.7% 9.3% LNG 21.85 NOV 20.00 LNG-WD 0.80 100 19.20 46 2.8% 6.9% IDBE 14.59 NOV 12.50 OO-WV 0.35 295 12.15 46 1.9% 5.7% DITC 24.94 NOV 20.00 QZD-WD 0.45 83 19.55 46 1.5% 5.4% KYPH 25.54 NOV 22.50 QYQ-WX 0.60 0 21.90 46 1.8% 5.1% WEBX 23.95 NOV 20.00 UWB-WD 0.35 2593 19.65 46 1.2% 3.9% HTCH 34.09 NOV 30.00 UTQ-WF 0.45 166 29.55 46 1.0% 3.0% 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. _________________________________________________________________ MEDI - MedImmune $25.78 *** CHIR's Loss = MEDI's Gain! *** MedImmune (NASDAQ:MEDI) is a biotechnology company that uses advances in biological sciences to discover, develop, make, and commercialize products that treat or prevent infectious diseases, immune system disorders and cancer. MedImmune's core competencies are in the areas of monoclonal antibodies and vaccines. The company promotes three primary products: Synagis (palivizumab) and FluMist (Influenza Virus Vaccine Live, Intranasal), used to prevent two common respiratory infectious diseases, and Ethyol (amifostine), used to reduce undesired side-effects of certain cancer treatments. The company also markets three additional products: CytoGam, NeuTrexin and RespiGam. MEDI - MedImmune $25.78 OCT 25.00 MEQ-VE LB=0.30 OI=2263 CB=24.70 DE=10 TY=3.7% MY=9.3% _________________________________________________________________ LNG - Cheniere Energy $21.85 *** Energy Sector Hedge *** Cheniere Energy (NYSE:LNG) is engaged in the development of liquefied natural gas receiving and related opportunities, centered on the United States Gulf Coast. The LNG-receiving terminal business consists of receiving deliveries of LNG from LNG ships, processing such LNG to return it to a gaseous state and delivering it to pipelines for transportation to purchasers. The company is also engaged in exploration for oil and gas, as well as development and exploitation of major reserves, in the Gulf of Mexico. LNG - Cheniere Energy $21.85 NOV 20.00 LNG-WD LB=0.80 OI=100 CB=19.20 DE=46 TY=2.8% MY=6.9% _________________________________________________________________ IDBE - ID Biomedical $14.59 *** SARS Vaccine Grant! *** ID Biomedical (NASDAQ:IDBE) is a biotechnology firm focused on the development of subunit vaccines, including those based on its Proteosome protein intranasal adjuvant/delivery technology. The technology potentially serves as both a vaccine adjuvant (stimulant of immune responses) and mucosal delivery system that may enhance a vaccine's effectiveness and/or ease of use. The company is developing subunit vaccines for the prevention of a number of different diseases. IDBE - ID Biomedical $14.59 NOV 12.50 OO-WV LB=0.35 OI=295 CB=12.15 DE=46 TY=1.9% MY=5.7% _________________________________________________________________ DITC - Ditech Communications $24.94 *** Entry Point? *** Ditech Communications (NASDAQ:DITC) is a global telecom equipment supplier for voice networks. The firm's voice-processing products focus on echo cancellers, used to eliminate echo, a common problem in existing and emerging voice networks. The company's newest voice-processing products not only provide customers with the traditional echo cancellation features, but also can be used to provide voice quality assurance features that address issues, such as background noise and other voice quality issues in wireline and wireless communications. DITC - Ditech Communications $24.94 NOV 20.00 QZD-WD LB=0.45 OI=83 CB=19.55 DE=46 TY=1.5% MY=5.4% _________________________________________________________________ KYPH - Kyphon $25.54 *** A Big Day! *** Kyphon (NASDAQ:KYPH) develops medical devices to restore spinal anatomy using minimally invasive technology. The firm's initial marketing focus is on surgeons who repair spine fractures caused by osteoporosis. Kyphon's first commercial products, comprising its KyphX instruments, utilize its proprietary balloon technology. Surgeons use those tools to help repair fractures during minimally invasive spine surgeries. Its instruments have also been used in open surgical procedures. The firm sells various instruments for use in spine fracture procedures including: Bone Access Systems, Inflatable Bone Tamps, Inflation Syringes, Bone Filler Devices and Bone Biopsy Devices. Quarterly earnings are due on 8/4. KYPH - Kyphon $25.54 NOV 22.50 QYQ-WX LB=0.60 OI=0 CB=21.90 DE=46 TY=1.8% MY=5.1% _________________________________________________________________ WEBX - WebEx Communications $23.95 *** Recovery Underway! *** WebEx Communications (NASDAQ:WEBX) develops and sells services that allow end users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a web browser. Integrated telephony and web-based audio and video services are also available using standard devices such as telephones, computer Web cameras and microphones. The company's communications services provide a range of features that build on the real-time functionality and capabilities of their unique WebEx MediaTone Network. WEBX - WebEx Communications $23.95 NOV 20.00 UWB-WD LB=0.35 OI=2593 CB=19.65 DE=46 TY=1.2% MY=3.9% TS _________________________________________________________________ HTCH - Hutchinson Technology $34.09 *** Rally Mode! *** Hutchinson Technology (NASDAQ:HTCH) supplies a variety of suspension assemblies and suspension assembly components based on several standard designs to manufacturers of disk drives and manufacturers of disk drive components. The company builds its suspension assemblies with proprietary technology and processes to precise specifications with very low part-to-part variation. These specifications are critical to maintaining the necessary microscopic clearance between the head and disk and the electrical connectivity between the head and the drive circuitry. HTCH - Hutchinson Technology $34.09 Editor's Note: This issue will likely consolidate from its recent upside activity in the coming sessions, thus traders should (initially) target a higher premium in the play. NOV 30.00 UTQ-WF LB=0.45 OI=166 CB=29.55 DE=46 TY=1.0% MY=3.0% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BSX - Boston Scientific $38.41 *** Premium-Selling Only! *** Boston Scientific (NYSE:BSX) is a global developer, maker and seller of medical devices whose products are used in a range of interventional medical specialties, including interventional cardiology, peripheral interventions, neurovascular intervention, electrophysiology, vascular surgery, endoscopy, oncology, urology and gynecology. BSX - Boston Scientific $38.41 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL OCT 40 BSX-JH 23295 0.25 40.25 5.4% 0.6% _________________________________________________________________ WGO - Winnebago Industries $33.24 *** Earnings Speculation! *** Winnebago Industries (NYSE:WGO) is a United States manufacturer of motor homes, which are self-contained recreation vehicles used primarily in leisure travel and recreation activities. Its motor homes are sold under the Winnebago, Itasca, Rialta and Ultimate brand names. The company markets its recreation vehicles on a wholesale basis to a diversified dealer group located throughout the United States, and, to a limited extent, in Canada. Winnebago also makes extruded aluminum, commercial vehicles and a wide variety of component products for other manufacturers. Earnings are due on or about 10/14/04. WGO - Winnebago Industries $33.24 "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 35 WGO-JG 917 0.45 35.45 11.4% 1.3% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Full Service Brokers Man Financial announces the formation of the OneStopOption Brokerage Group, addressing the demand for personalized, experienced service for both securities* and futures trading within the same firm. Licensed Option Principals Andrew Aronson and Alan Knuckman specialize in live assistance of stock*, option* and futures traders. The combination of the proven Man Financial global presence and the convenience of one group for all trading needs provide customers with the tools needed for success. Live Broker and Online Trading Available 888-281-9569 http://www.OneStopOption.com ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc