The Option Investor Newsletter Sunday 10-10-2004 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: Tension Building Futures Wrap: See Note Index Trader Wrap: Market Yawn – Show Me the Money Editor's Plays: Is This How Custer Felt? Market Sentiment: On Your Mark, Get Set, Go! Ask the Analyst: Check Clearing for the 21st Century Act 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 10-08 WE 10-01 WE 9-24 WE 9-17 DOW 10055.20 -137.45 10192.6 +145.41 10047.2 -237.22 - 28.61 Nasdaq 1919.97 - 22.23 1942.20 + 62.72 1879.48 - 30.61 + 15.78 S&P-100 538.47 - 4.64 543.11 + 8.74 534.37 - 11.43 + 2.45 S&P-500 1122.14 - 9.36 1131.50 + 21.39 1110.11 - 18.47 + 4.66 W5000 10964.52 - 94.18 11058.7 +220.40 10838.3 -155.02 + 57.00 SOX 389.52 - 12.39 401.91 + 19.36 382.55 - 5.95 + 4.89 RUT 575.65 - 9.38 585.03 + 19.06 565.97 - 7.20 + 3.26 TRAN 3336.00 + 37.20 3298.80 + 96.69 3202.11 - 55.28 + 24.00 VXO 14.95 12.55 14.14 13.55 VXN 20.69 18.91 21.10 20.13 ****************************************************************** Tension Building by Jim Brown Last Sunday the bulls were charging out of the gate with massive back to back buy programs that lifted the Dow +200 points from the Thursday lows. Traders were talking about breaking overhead resistance and worries about an October dip were discounted as fading dreams promoted by hopeful bears. Amazing how a couple of negative days can quickly bring that October tension back for the bulls. Dow Chart Nasdaq Chart SPX Chart It all began with Thursday's drug overdose and the Dow drop at the open. Bulls were suddenly looking at red everywhere and the Nasdaq seven day winning streak was in jeopardy of being stopped cold. Oil hit $53 and the Nigerian strike was back on again. Cautious comments about the coming Jobs report and worries about GE earnings begin to push the market losses deeper into the red. No worry, jobs will rescue us and the bears will be sent off to an early hibernation. Bulls woke Friday morning to a worse than expected Jobs report and oil over $53 and suddenly that glimmer of light at the end of the October tunnel became an onrushing train. Worried yet? The only material economic report on Friday was the Jobs report and it was not pretty. Only 96,000 jobs were created in September and far below the consensus estimate of 160,000. Worse yet the October revisions which were expected to be +288,000, according to administration leaks, fell to only +236,000. Last months +144K number was revised to only $128,000. In short there was no good news, at least not the kind of good news the president was expecting as he heads into the second debate on Friday night. The labor market grew progressively tighter with total jobs created in Q3 at 309,000 much less than the 628,000 from Q2. The BLS acknowledged that the hurricanes impacted the numbers but only to a minor amount as Ivan hit after the survey week for September. They admit there could be a lingering impact from Frances and Charley but again it was seen to be only minor. This report created more questions than answers and the economic indications are for weaker job growth ahead. The conflicting reports from the ISM, various regional reports, Manpower and Monster Indexes all suggested hiring was increasing but they do not indicate the number of positions. They only measure ads and number of companies hiring. After Friday's report analysts were left with the feeling of inherent job weakness coming back to haunt the recovery. The country needs to create 150,000 jobs per month just to cover the number of new workers entering the workplace. The spring months of Mar-May saw a bounce to +295,000 per month on average and analysts were projecting a strong continued economic rebound. Over the last four months that average has dropped to barely over +100,000 per month on average and less than breakeven rates. This suggests the economy may be transitioning into a weaker pace of growth and may give us a clue why Bernanke broke from the Fed mantra this week. He said in his Thursday speech that "if the economic data paused then the Fed rate hikes would pause." Because this was different from the current Fed policy analysts quickly thought it might be an indication the Jobs numbers may not be as strong as expected. Whether the Bernanke comment was scripted or just coincidental we will never know but the data definitely paused. This will increase speculation about the Fed position for the Nov-10th meeting. The unemployment rate remained at 5.4% not because more workers found jobs but because more workers dropped out of the workforce in frustration. In September 221,000 workers dropped out following -152,000 in August. In a related survey -201,000 dropped out of the household workforce in September. Those three numbers alone show twice as many workers dropped out of the picture than actually found jobs over the last two months. With the second debate on Friday night Bush was saddled with a new handicap before the cameras even began rolling. With the race a dead heat and Kerry poised to hammer him on the economy just like he hammered him on Iraq last week the outlook does not look good. They say the market does not care who is president only that the election is over. That may not be exactly true. Over the last 26 incumbent elections sixteen were won by the incumbent. Of those sixteen times the market rose the year after the election fifteen times. For the ten times the win went to the challenger the market fell nine times. I am sure there are valid reasons for the extremely lopsided results but it clearly shows that the market normally goes higher when the incumbent wins and dives when the challenger wins. This trend will not be lost on fund managers. This makes the debate on Friday even more critical with the contestants running neck and neck. The statistics show this to be the slowest recovery cycle in over 50 years and the economic tension is building. There are positive signs on several fronts. On Friday the CEO of IBM tried to paint a positive picture for techs. He predicted capital spending would increase in 2005 from the +6% to +7% growth they were seeing for 2004. Reporters were unable to ask him for his specifics as to why his numbers were higher than consensus estimates of +4% to +5% for 2004. GE CEO Jeffery Immelt said the economy continues to be very strong and he is projecting growth for GE of +10% to +15% for 2005. Eight of GE's eleven divisions posted double digit growth in Q3. Several of those divisions grew at more than +20% for the quarter. GE raised estimates for the full year to the high end of their range. All is not as bleak as the Jobs numbers would suggest. The last week of earnings warning season was not as bad as expected and the earnings flood will begin next week. The earnings debate is heating up with the S&P Q3 estimates at +12.3% as of Friday and the Reuters estimates of +15.5% to +16.5%. The key earnings to look for next week will begin with INTC on Tuesday. Intel lowered estimates for the quarter and they are not expected to miss the lowered estimates. The key will be their guidance for Q4 business and their progress on the inventory issue. AMD expected stronger Q4 sales so Intel will be expected to say the same or suffer the consequences. JNJ will report on Tuesday and after the CL and UN warnings the consumer products companies have been under pressure. Add in the pressure on drug companies and JNJ will be watched from all directions. On Friday JNJ changed the warning label on its arthritis drug Remicade to show increased rates of lymphoma. This again pressured Pfizer as the current king of the hill but they adamantly insist Celebrex has no problems. Yahoo also reports on Tuesday and results will impact Google as their key rival. With GOOG still on a vertical ramp any negative comments in Yahoo's report is sure to bring back the shorts. Of course you have to decide if positive comments from Yahoo are negative for Google or negative comments positive for Google. Is there room enough for both to prosper? Merrill reports on Tuesday and analysts are split on their chances of a miss or a beat. The summer volume slow down should have impacted trading volume but gains from internal trading and cost cutting could help. GS and Lehman surprised to the upside and Morgan Stanley surprised to the downside so Merrill's results are up for grabs. Another factor that will continue to haunt us is oil prices. Oil closed at $53.31 on Friday on news that Nigerian workers will go on strike again on Monday. Depending on how much oil slows from Nigeria the price will continue to rise. Current resistance is projected to be $54 but the $60 whisper target continues to gain respectability and it may turn into a self fulfilling prophecy. For the week the Dow spent three days lingering in the 10200 range with one brief spike to 10270. However, by Friday's close the Dow had erased all of its gains since the last Friday buy program and it is right back at 10050 and the support from late September. There is no harm in the pullback because the sprint higher was artificial to begin with. Three massive asset allocation programs over two days ran stops to the upside and forced shorts to cover. For two days we wandered sideways while the market looked for direction and then a sequence of events brought us back to earth and to September support. The Nasdaq held its gains much better than the Dow because of the different weighting for individual stocks impacts the Dow more dramatically. The Nasdaq has been supported by the SOX since the September lows and despite the Friday swoon the SOX is still moving higher. This will continue to support the Nasdaq until Intel reports earnings on Tuesday. After that report all bets are off and we will have a new market. I said above that this weeks pulling back to support was nothing to worry about. That is true as long as the Dow remains above 10,000 and the SPX above 1110. Actually 1120 is current support equating to 10050 on the Dow but 10000/1110 is the key. The Nasdaq is well above the equivalent Dow/SPX support and could stand to give up another -30 points to 1890 before making a critical break. Volume slowed on Thursday and Friday compared to the 4B+ days during the rally. Unfortunately most of that volume was to the downside with a 4:1 ratio on Friday. I view the pullback, regardless of reason, as a bout of profit taking and positioning ahead of next weeks earnings. Funds were handed a gift as we moved into October and that bounce worked to the bulls advantage and allowed those sellers that wanted out a higher level for their exit. There was no damage to the markets and we are entering the first real week of earnings with no real bias. We could just as easily go up or down and Friday's close although negative for the week was perfectly neutral. Monday has no economic reports and it is also a bank holiday. The bond market is closed and will not be impacting our trading. The Nikkei is also closed and will not be an influence on our markets. This sets up Monday as a low volume day while traders pass time waiting for the real earnings flood to begin on Tuesday. Only seven companies report on Monday with several hundred reporting over the next three days. Bottom line Monday is a setup day and a tossup for everyone. Once the earnings parade begins we could see some serious volatility but without a serious earnings miss by somebody that volatility could just be churning. Expectations are low and there is a good chance we could see some upside surprises. One last piece of election trivia. Bush supporters should be buying all the stocks they can afford to push the markets higher. Kerry supporters should be taking every opportunity to short the market. The incumbent party has never lost the presidency when the Dow gains +3.3% or more in October according to the Stock Traders Almanac. However, if the Dow loses more than -0.5% in October the incumbent has never won. Since 1901 there were 17 elections where the Dow posted gains but did not reach the +3.3% level. Of those 17 elections the incumbent lost only four times. Conversely in the eight elections where the Dow ended lower but with less than a -0.5% drop the incumbents won only twice. Clearly there is a tie between the elections and the markets and a positive market favors the incumbent. Or to put it a different way, the market is reacting in advance to the perceived results of the election. The market does not depend on the election but is an uncanny predictor of the outcome based on the perceived ramifications to investors from the victorious candidate. The Dow closed September at 10078 and closed Friday at 10055, a statistical dead heat. Before the Friday night debate the various presidential surveys had the race at 45% Bush 46% Kerry with those numbers exactly reversed in another major survey. A statistical dead heat. The market is tracking exactly 10 days into October. Need I say more? 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 ******************** Market Yawn – Show Me the Money By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – More anemic job growth seen in the jobs report, coupled with other weak economic data of the week just ended gave the market a big yawn. Weaker growth, no excitement and less promise with equities – "give me the money!" is the cry. A lackluster profit picture for growth is causing investors to pull back and continue to not chase stocks on rallies. I stand corrected – said last week: ".. 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)." Dow at 10,300 - furgetibotit!! The S&P 100 (OEX) got close to, but not above, 546-548 OEX resistance. The Nas 100 (NDX) stopped at 1474 two days running and then reversed downward in a 2-day swan dive. The S&P 100 (OEX) and Nasdaq 100 (NDX) continue to be the best predictors of the NYSE and Nasdaq markets. Both are giving the most technical information about the overall trend right now – both stopped right at the top end of their current downtrend channels. The bulls are stymied and stalled again – You can best see the channel below by use of a line chart, showing closes only. To the failure to surmount its pattern of lower highs on each rally, highlighted by use of trend channel lines in the chart below, is the minor double top and a second reversal at its 200-day moving average. Th2 200-day average must be seen in the light of its significance to the money manager universe. Fund managers can tend to hold back buying if the key averages are stalled at this average. The herd mentality does the rest. On channel and trendlines – The gray upper trendline on the chart below is the most technical and classic way to draw these lines. The blue dashed line below it, is what works in trendlines: "internal" trendlines, that touch the MOST number of points – Anyway, its clear that the more substantial reaction and sharp down day ending the past week, was probably the start of the more substantial correction that many thought was coming. Right now the downside for the Nas 100 doesn't look to be more than back to its 1380-1400 support. Plenty of wild cards out there also, as well we know. THE CLOSING NUMBERS – The S&P 500 index (SPX) was down 8.5 points to 1,122 (-0.9% weekly). The Dow (INDU) was off by 70 points to 10,055, for two triple digit down days, back to back. INDU was off 1.4% on the week. The Nasdaq Composite Index (COMP) dropped 28.5 points, to 1,919.9 on the back of the steep loss in the Semiconductor Index (SOX), off by 13.8 to 389.5 on Friday. COMP fell 1.1% on a weekly basis. The Russell 2000 (RUT) of small cap stocks fell in line with the Nasdaq, by 1.2%. BACK TO THE FUTURE - I also said last time on oil prices – ".. 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 currently." Oil hit 53 at week's end and nearly has reached 54, a price target based on analysis of a bull flag pattern there per my trader's corner article of last week – http://www.OptionInvestor.com/traderscorner/tc_100704_1.asp Here's the crude chart updated - The rise in crude is in one of those irrational straight up kind of markets, and more typical (exception: 90's bubble) of a commodities market move – the decline after excess valuations on the upside, is often sharp. I expect the oil price rise to moderate soon and prices to fall back substantially in the not distant future. This will help stocks some and moderate their decline. FRIDAY'S TRADING ACTIVITY – A big negative to the market came early when the Labor Department said a total of only 96,000 new jobs were created in September. The expectations for the September period I saw were expectations somewhere from 135 to 150,000. 150,000 is what is needed, on average, to provide jobs to new job seekers. The unemployment rate steady at 5.4 provided the only 'good' news. The non-farm payrolls number was highly important and it had a lot of focus on it – the jobs growth was very disappointing, the silver lining being maybe that the Fed would not or would not need to do any further tightening. No upward revision to fall back on either, as July and August's job non-farm payroll numbers got a slight downward revision. Moderate GDP growth yes, but only a mediocre labor market. A widely held notion is that the purchasing needs of consumers newly hired, is what ramps up our consumer-driven economy. No new workers, equals a drag on growth. Acting as another drag on likely and projected future economic growth and not requiring an economics degree to see - oil going up like there is no tomorrow is an accelerating worry. In the crude-oil futures pits, nearby oil futures ended above $53 a barrel – latest bad news: oil-worker strikes in Nigeria and Norway and news of halts to tanker unloading in a Gulf of Mexico port. The November crude oil contract was up 64 cents to $53.3 a barrel in New York trading. In the past week, the price of oil has risen over $3 a barrel (+6.4%)! You could see this picture of a static - or worst, slowing – economy, reflected in the Friday sell off. The Commerce Department reported that wholesale inventories rose 0.9% in August, the largest increase since early this year and higher than the 0.8% rise forecast. Hey, if the stuff (our widgets) piles up in warehouses, we aren't ringing those cash registers! A kick off of the Q3 earnings season came with big Dow 30 (INDU) component stocks General Electric (GE) and Alcoa (AA). GE came in at 38 cents a share, matching the average forecast, and the company projected a double-digit earnings growth for Q4 and for 2005. A bullish outlook – a lowering of the tide took even flagship GE with it as the stock slid 0.6%. Alcoa (AA) had reported Thursday night and announced operating income of 34 cents a share on revenue of $5.98 billion, matching expectations – however, the company had warned in September that results would fall short of prior expectations because of restructuring costs and manufacturing shutdowns. AA end down 2%. BONDS and FOREX MARKETS – U.S. bond prices rallied strongly on the jobs data, figuring that the Fed may keep rates at the 1.75% for Fed Funds. The benchmark 10-year note gained 28/32 to 100 29/32, to 4.14%. The bond market closed early Friday ahead of the Columbus Day weekend and will not re-open until Tuesday. The dollar fell in the wake of the payrolls report, with traders fearing that weakness in the labor market will force the Fed to delay further interest-rate hikes – same thinking as in the Bond market, different result! UPCOMING – Plenty of nervousness abounds – not only the usual cast of worries: terrorism; rise and fall of opinion whether someone new moves into the white house; or, will our Saudi friends bail us out of 60 dollar oil (yikes!). But ALSO, we are hot and heavy into EARNINGS season ahead. A time when money managers stay plugged into the home office to get earnings for the stocks they've bet heavily on. I knew one that had consensus estimates for the stocks important to him, programmed into his watch. So, there will be a lot of cross currents ahead, but the trend looks down for a while. It used to be if memory serves me right, Columbus Day – hard to believe yes – was also a day that the NYSE took as a holiday, not just the more genteel bond market. This day was akin to a "personal day", as there were so many Italians that toiled in the Street of Dreams. Times change and Nasdaq competes and one seemingly peculiar holiday choice goes bye bye. Keep in mind however, the bond market, that sometimes stabilizing influence (or not!), is closed on Monday. Also keep in mind that a lot of stock traders will take a 3-day weekend also. This explains some of the volatility on Friday and may make Monday a low volume day and exacerbate trends – meaning potential to be more volatile. MY INDEX OUTLOOKS – S&P 100 Index (OEX) – Hourly chart: Another way to look at the OEX is of course to use intraday intervals –I use most what is in widest use as an analytical tool, hourly charts. Close of the hour, day, week and month are the important intervals. Use of the hourly chart has been very useful for traders over the past month. This time frame gave a good definition the Head & Shoulder's Top that formed at the last significant high before this last one. Moreover the rebound to, but not beyond, the old high of course sets up a double top. That alone is a good "signal" to exit calls and go into puts – give it 1-2 days to see if there is another try, like there was last week. When the first and second highs also come back to resistance implied by the previously broken up (bullish) trendline – what was support, once broken, "becomes" a new resistance – was also telling. I call this in fun, a rally back to the "kiss of death" trendline (a name heard from a technical trader type)- was good- bye indeed! So, you've looked in your REAR view mirror took a look at how you could have spotted this pattern in time – we hope! - to exit calls and buy puts, but what next? Back to support. Key near technical support looks like 530. More major support comes the closer OEX gets to the 510 area - 507 is only a 38% retracement of the big 2003-2004 advance. Dow 30 (INDU) – Hourly: I commented before on the Dow 30 (INDU) not being able to break out above its pattern of rally highs that fall short and under the peak of each prior advance, at least since the early-Sept high. The hourly chart of the past 6-week period shows this quite starkly. This last rally that touched, and reversed at, the extension of the dominant down trendline was a sure tip off to get yourself out of calls and into puts. However, not so sure that you will be the trendline right – cause, hey, isn't that a high that that thar trendline intersects and isn't that against the rules, or something? Na, trendlines work when you apply 'best-fit' and draw the one that touches the MOST number of highs in the case of a bearish downward sloping one like below in the hourly INDU - The 10,000 area still looks like key technical support. Nasdaq 100 (NDX) Index – Hourly chart: As sometimes happens, the sharp run up was only a prelude to fast retracement of the ground gained a week ago Friday. The volatility ahead of a weekend is again creating some fireworks. The Nasdaq 100 (NDX) is nearly back down to my estimate of the low end of the channel that NDX may be in. Stay tuned! No bets on whether this suggested support will prove out. 1380 is of course the important area, around the prior low. I would take profits on puts if 1385 was seen. The Index is nearing a very short-term oversold and this should be kept in mind. Support may well develop around 1420 as the low end the upside gap from late last month. Prices often return to at least the start of where prices took and overnight jump, which is what a gap is. Nasdaq 100 tracking Stock (QQQ) Daily chart: The QQQ – Nasdaq 100 tracking stock – chart is bearish still and is until the last big prior high at close to 38, is penetrated and exceeded. A close at or above 37 would have been at least above the resistance trendline, but tech is still not on solid ground. I had been talking about 36 as key resistance – as soon as the Q's broke back below that level, it was high alert! for the bulls, not that there are that many to be found out there. First and more minor support is around 35 according to the baby trendline, but main area to be held by the bulls is 34-34.25. The way the stock broke on Friday led, at first blush, into the idea that the market was in danger of cracking some here. But, the prior Friday was a big move up and that (rally) fell apart. It's needed usually to see the next 1-2 days of trading after a big move going into a weekend with nerves on the fray. The "break-down point" was 36.25 – short the stock on rallies back to this area. I don't think this market is going anywhere soon but give it until Tuesday. And maybe until November. October, especially in an election year, and this election year in particular, has a LOT of cross-currents. The On Balance Volume indicator turned down on 10/6 and gave some forewarning for the substantial fall from Thursday high to Friday close. 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 ************** Is This How Custer Felt? Last week Merck lost -$25 billion in market cap in one day. The VIOXX news was catastrophic news for shareholders and that was just the start. A class action suits are popping up all over America and it was announced on Friday that Canada has a national class action suit in progress. This is a problem that will not go away and will only get worse. Initial figures showed something around 26,000 cardiac events were caused by VIOXX and this is just the ones during current studies. This does not represent the cardiac events from normal patients like you and me. With tens of millions of patients taking the drug over the last five years the numbers will grow and could be enormous. The Fen-Phen drug problem several years ago cost $17 billion and the number of total patients significantly less. The damage to Merck could take years to conclude and could run as much as $100 billion according to some estimates. The initial drop knocked MRK to $33 and investors in denial bought the dip. One popular analyst was suggesting investors buy the stock because it now had a 4% dividend yield. I personally believe that is criminal. What good is your 4% going to do if the stock drops to $10 over the next several years? I believe the shock value has passed and those hoping for a dead cat bounce will start smelling a dead cat instead. There are 2.269 billion shares outstanding and only 387 million have changed hands since the initial announcement. This leaves nearly two billion shares still hoping for a rebound and very likely to change owners once that rebound fails to appear. This is going to be a long term play because it may take a long time for the real damage to appear. Until the numbers begin to firm and the numbers of cases and suits begin to surface the real drop may not occur. I am suggesting the Jan-2006 LEAP Puts to give us slightly more than a year for the bad news to filter out. The $25 put is only $1.70 and the at the money $30 put is $3.80. I believe we could see Merck in the teens so the $25 put is the one I am recommending. Buy Jan-2006 $25 LEAP Put WMR-ME currently $1.70 Stop loss MRK at $36.00 MRK Chart *********************** XMSR Call Update $28.20 The Howard Stern news knocked XMSR for a loss but I believe that loss is temporary and a better buying opportunity. Sirius is burning through its cash and the Stern ploy was a dramatic attempt to gain credibility in this sector. If I was Howard I would want payment in advance before I showed up for work. BUY JAN-$30 Call QSY-AF BUY JAN-$32 Call QSY-AZ XMSR Chart ********************* MSO Put Update $16.02 With Martha now in prison the daily sound bites should fade and along with it the stock price. March $15 Put MSO-OC @ $2.00 Stop MSO @ $17.50 MSO Chart ********************** Terrorist Insurance Update Marathon $41.24 Marathon hit a new high at $42.60 on Thursday before a minor bout of profit taking. With oil closing over $53 the odds are good we are going higher. We are closing in on the election and any terrorist event is running out of time. So is this play. Let's protect profits and exit on the next bounce. I would set a profit stop at $3.00 and a stop loss at $2.50. Jan-$40 Call MRO-AH @ $1.45 currently $2.65 Marathon Chart http://members.OptionInvestor.com/editorplays/edply_091904_1.asp **************** MARKET SENTIMENT **************** On Your Mark, Get Set, Go! - J. Brown Investor sentiment has taken a turn for the worst over the past couple of days. Major indices turned lower Thursday and Friday and market internals were pretty negative. Down volume was two to three times up volume the past couple of sessions. Some believe this is just profit taking ahead of the Q3 earnings season with the Industrials under resistance. It may be true. Fueling this bearish attitude in stocks was yet another new all- time high in crude oil and a very disappointing jobs number. Crude oil closed over $53 a barrel with its fourth record gain in a row. Meanwhile the September jobs number was a huge disappointment coming in well below estimates. Everyone knew that the September job report was a wild card because of the hurricane impact so many economists were focusing on the August and July revisions. Unfortunately, those were mixed with July's jobs numbers revised higher but the August numbers revised lower. On a technical note, check out the COT data below. The small traders are really ramping up their short positions on the tech- heavy NDX. In contrast the commercials aren't moving from their bullish bias. Traditionally the commercial traders tend to be on the right side of the trade so this is a contrarian indicator suggesting future strength for the NASDAQ 100. All right, Q3 earnings season is here! Are you ready? AA and GE started the season this past week. GE reported on Friday with profits coming inline with estimates. Yet management guided their Q4 numbers to the higher end of their previous guidance. That's pretty bullish coming from one of the world's largest and most diversified companies. Next week will be all about earnings, at least until the second half of the week. The third and final presidential debate will take place on Wednesday night, which will leave voters less than three weeks to make up their minds before the election. Thursday and Friday offer a number of economic reports but the big ones to watch are the Producer Price Index (PPI) and the Retail sales numbers on Friday. Keep an eye on these big caps and how their earnings influence market direction and investor sentiment. Intel, Johnson & Johnson and Yahoo all report on Tuesday. Bank of American, Citigroup and General Motors all report on Thursday. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9230 Current : 10055 Moving Averages: (Simple) 10-dma: 10128 50-dma: 10123 200-dma: 10296 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 990 Current : 1122 Moving Averages: (Simple) 10-dma: 1123 50-dma: 1106 200-dma: 1119 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1430 Moving Averages: (Simple) 10-dma: 1433 50-dma: 1389 200-dma: 1441 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.05 +0.55 CBOE Mkt Volatility old VIX (VXO) = 14.95 +0.39 Nasdaq Volatility Index (VXN) = 20.69 +0.10 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 1.01 728,114 734,805 Equity Only 0.82 554,096 456,695 OEX 1.29 37,060 47,960 QQQ 1.39 81,896 114,436 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 66.0 + 0 Bear Correction NASDAQ-100 45.0 - 2 Bull Alert Dow Indust. 56.6 + 0 Bear Correction S&P 500 64.2 - 1 Bear Correction S&P 100 62.0 + 0 Bear Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.11 10-dma: 1.03 21-dma: 1.04 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 1245 906 Decliners 1547 2053 New Highs 128 61 New Lows 31 52 Up Volume 419M 266M Down Vol. 1135M 1379M Total Vol. 1586M 1658M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/05/04 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 Commercial traders aren't making any big bets ahead of the Q3 earnings season. Longs and shorts have moved closer to parity and the bearish sentiment is at it lowest level in four weeks. Small traders are upping both their longs and their shorts but their bullish bias is waning a bit. Commercials Long Short Net % Of OI 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%) 10/05/04 421,217 435,736 (14,519) (1.7%) 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 09/14/04 167,310 126,513 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% 10/05/04 137,210 114,489 22,721 9.0% 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 Commercial traders have upped their positions in both longs and shorts but clearly remain net bearish. In contrast the small traders have raised their positions in longs and shorts and remain staunchly net bullish. Commercials Long Short Net % Of OI 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%) 10/05/04 248,190 476,608 (228,418) (31.5%) 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 09/14/04 289,155 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% 10/05/04 308,021 80,373 227,648 58.6% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 We are not seeing a lot of movement in commercials' positions so they remain net bullish on the NDX. Meanwhile small traders are raising positions in both longs and shorts but shorts saw a big jump creating a large bearish bias by small traders. This is of course a bullish contrarian indicator. Commercials Long Short Net % of OI 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% 10/05/04 55,640 32,872 22,768 25.7% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 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%) 10/05/04 12,254 30,693 (18,439) (42.9%) 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 Investors both big and small seem rather undecided about how to bet on the Industrials. The gap between longs and shorts continue to narrow, especially between small traders where it's a dead-even. This is the least bullish commercials have been in weeks while it's the least bearish small traders have been in weeks. Commercials Long Short Net % of OI 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% 10/05/04 27,498 25,772 1,726 3.2% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 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%) 10/05/04 5,531 5,539 ( 8) ( 0.0%) 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 *************** Check Clearing for the 21st Century Act The other night I was watching TV and caught a news bite regarding some new law that is taking place later this month that sounds like a huge profit windfall coming for banks with regards to checks. Do you know anything about it? Banks have been performing very well of late, and I was wondering if you thought this new law has anything to do with there gains. After all, the mortgage lending business isn't booming like it was, but banks still seem to be holding steady. Response: I'm somewhat familiar with this law, and yes, it should be profitable for banks as it relates to reduction of expenses a bank incurs during the check clearing process. The new law was actually singed into on October 28, 2003, is called the Check Clearing for the 21st Century Act (Check 21), and goes into effect on October 28, 2004. Your bank has probably already informed you about Check 21, but if you're like me, you throw out most of the mail stuffers and never read about this new law. From what I've read, Check 21 was signed into law to help banks increase profits by reducing costs, and to expedite the flow of moneys. In 2003, Reserve Banks' check volume declined at about a 5%. For 2004, check volumes have declined at an accelerated pace compared to the same period last year, largely due to wider acceptance of credit cards. A 2001 Federal Reserve study revealed that about 42 billion checks were written that year in the United States, considerably lower than industry estimates, and those volumes are expected to continue to decline in coming years. We've all heard Fed Chairman Alan Greenspan talk about how liquid and efficient the financial markets have become in recent years, and Check 21 is a law that I see furthering the efficiency of financial markets. If you're like me and are used to writing a check to a retailer or restaurant and have become accustomed to not seeing that check clear for 4 or 5 days, be ready for a much faster clearing period so you don't accidentally overdraw your account and get hit with one of those hefty insufficient funds charges. I won't go into great detail about Check 21, but in its most basic form, banks will be allowed (not required) to process more check, more quickly, via electronic process. Today, banks physically move original paper check from the bank where the checks are deposited to the bank that pays them. This transportation can be costly and inefficient. When I write a check to Cabela's for the new goose call I purchased, Cabela's takes my check to their bank. Their bank then processes the check, then mails/ships my check back to my bank. My bank makes sure I have the fund available, and if I do, my bank then clears the check and Cabela's account is credited with the cash. You can see how this transaction may take several days before it is finally completed. Check 21 allows a bank to simply capture a picture of the front and back of a check along with the associated payment information and transmit this information back to the clearing bank electronically. Hmmmm..... no wonder all of these banks have been advertising "free checking," so heavily of late. They want us to deposit funds into the account that is going to be much more profitable for them, due to the efficiencies of Check 21. Some industry analysts do see Check 21 as being further profitable for banks. And the profits don't just come from reduced handling charges banks will incur as they process million of checks per day, but the profits should be greater in the reduction of overnight lending rates they pay to borrow money from central banks. Most of the checks you and I write, the bank will automatically process those funds immediately, but in simplistic form, will still be cash that your bank is on the hook for until the check clears. I say "your bank is on the hook," but it is really you that is responsible for the funds you wrote the check for. Still, many banks will expedite funds faster than the law (Expedited Funds Availability) requires, and oftentimes, a bank will access overnight funds, pay a short-term rate of interest to borrow money from the central bank, in order to meet their short- term cash requirements. You and I probably don't think about it, but when it takes 4 or 5 days to actually process a check (or 10,000 checks), where a bank has credited its customer's account after they customer cashes a check, the bank may have to access overnight funds (Federal Funds Rate of 1.75%) until checks eventually clear. Check 21 allows for faster clearing, thus a potential "financial windfall" for banks as the clearing process is shortened, thus reducing costs a bank may be incurring when it has to access overnight funds as part of its check processing business. Of the various articles I've read on profit potential for banks, the Fed has said it sees banks saving upwards of $2 billion a year. Earlier I said that we might write a check to a restaurant, or retailer. Have you noticed a trend among restaurants to not accept checks any longer? One reason restaurants have become less inclined to accept personal checks isn't necessarily due to trying to avoid the "bounced check," but the cost and time of processing a customer's check. Check 21 and its electronic efficiencies may have restaurants ripping down the "Sorry we no long accept checks" sign, as funds will be processed at greater speed. If you would like more information on the Check Clearing for the 21st Century Act (Check 21), you can visit The Federal Reserve Boar's web page at this http://www.federalreserve.gov/paymentsystems/truncation/default.htm I have placed a phone call with a regional bank mutual fund manager, but he was out of the office this week. When he returns my call, I'll hopefully get his permission to share some of his insights as to what banks might be the greatest benefactors of Check 21. I've had the pleasure of interviewing three different bank- related mutual fund mangers in years past, ranging from super- regional fund managers, to regional bank fund managers. The smaller regional fund managers are most impressive. They find these little banks that are publicly traded, go visit them, and if there's a potential catalyst for local economic expansion, they'll begin accumulating that banks shares on the thought that loan demand will build due to a more localized economic expansion. The more successful selections they make are the ones that get gobbled up by a larger regional bank that wants immediate access to that particular geographic region. The following is a little off topic (Check 21), but comes to mind as we talk about banks. One interesting observation (that kind of made sense) a regional bank fund manger alerted me to was this; he told me a technology investor should keep an eye on Silicon Valley Bancshares (NASDAQ:SIVB) $38.50 -1.23% and measure its relative strength against the S&P Banks Index (BIX.X). The fund manager's thought was that the bulk of SIVB's business is with technology firms and when SIVB shows relative strength vs. the BIX.X, then more than likely, a tech-related expansion is in the making or underway. When SIVB's relative strength weakens versus the BIX.X, then it can be a signal for technology contraction. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- MDC M.D.C.Holdings Mon, Oct 11 After the market 2.73 STLY Stanley Furniture Mon, Oct 11 After the market 0.74 TSCO Tractor Supply Mon, Oct 11 After the market 0.22 ------------------------- TUESDAY ------------------------------ ADTN ADTRAN Inc Tue, Oct 12 Before the bell 0.25 AMB AMB Property Tue, Oct 12 After the market 0.60 OZRK Bank of the Ozarks Tue, Oct 12 After the market 0.39 CAMP CalAmp Corp Tue, Oct 12 After the market 0.08 CACB Cascade Corp Tue, Oct 12 Before the bell 0.24 CBH Commerce Bancorp Tue, Oct 12 Before the bell 0.83 XLTC Excel Technology Tue, Oct 12 Before the bell 0.33 FAST Fastenal Tue, Oct 12 Before the bell 0.47 GCI Gannett Tue, Oct 12 Before the bell 1.19 HELE Helen of Troy Tue, Oct 12 Before the bell 0.53 INFY Infosys Technologies Tue, Oct 12 After the market 0.33 INTC Intel Corp Tue, Oct 12 After the market 0.27 JNJ Johnson & Johnson Tue, Oct 12 Before the bell 0.76 LLTC Linear Technology Tue, Oct 12 After the market 0.32 MTB M&T Bank Tue, Oct 12 Before the bell 1.51 PCP Precision Castparts Tue, Oct 12 After the market 0.82 PHG Royal Phillips Elc Tue, Oct 12 during the market n/a SONC Sonic Corp Tue, Oct 12 After the market 0.33 STT State Street Corp Tue, Oct 12 Before the bell 0.65 STI SunTrust Tue, Oct 12 Before the bell 1.31 TZOO TravelZoo Tue, Oct 12 Before the bell 0.08 YHOO Yahoo! Inc Tue, Oct 12 After the market 0.09 ------------------------ WEDNESDAY ----------------------------- ACN Accenture Wed, Oct 13 Before the bell 0.28 AAPL Apple Compter Wed, Oct 13 ---- n/a ----- 0.18 ASML ASML Holdings Wed, Oct 13 During the market 0.21 CEC CEC Entertainment Wed, Oct 13 After the market 0.59 CCK Crown Holdings Inc Wed, Oct 13 After the market 0.34 HDI Harley Davidson Wed, Oct 13 Before the bell 0.75 HMT Host Marriott Wed, Oct 13 Before the bell 0.11 LRCX Lam Research Wed, Oct 13 After the market 0.59 MOGN MGI Pharma Wed, Oct 13 After the market 0.11 NTOP Net2Phone Wed, Oct 13 After the market -0.10 NVLS Novellus Systems Wed, Oct 13 After the market 0.38 PPDI Pharma Prdt Devlopmt Wed, Oct 13 After the market 0.29 QLGC QLogic Wed, Oct 13 After the market 0.36 SNDK SanDisk Corp Wed, Oct 13 After the market 0.34 NYT The New York Times Wed, Oct 13 Before the bell 0.32 ------------------------- THUSDAY ----------------------------- AOS O.A.Smith Corp Thr, Oct 14 Before the bell 0.01 ABT Abbott Labs Thr, Oct 14 Before the bell 0.53 BAC Bank of America Thr, Oct 14 Before the bell 0.90 C Citigroup Thr, Oct 14 Before the bell 0.99 CNET CNet Networks Thr, Oct 14 After the market 0.00 CREE Cree Inc. Thr, Oct 14 ----- n/a ----- 0.28 CY Cypress Semi Thr, Oct 14 Before the bell 0.04 DJ Dow Jones & Co Thr, Oct 14 Before the bell 0.15 ETN Eaton Thr, Oct 14 Before the bell 1.12 ENDP Endo Pharmaceuticals Thr, Oct 14 Before the bell 0.20 FCS Fairchild Semi Thr, Oct 14 After the market 0.25 FITB Fifth Third Bancorp Thr, Oct 14 Before the bell 0.80 FDC First Data Corp Thr, Oct 14 Before the bell 0.56 GM General Motors Thr, Oct 14 Before the bell 0.96 JNPR Juniper Networks Thr, Oct 14 After the market 0.11 KEY KeyCorp Thr, Oct 14 Before the bell 0.59 KRI Knight-Ridder Thr, Oct 14 Before the bell 0.87 LEXR Lexar Thr, Oct 14 After the market -0.04 MRCY Mercury Computer Sys Thr, Oct 14 Before the bell 0.22 MTG MGIG Investment Thr, Oct 14 Before the bell 1.33 NFLX Netflix.com Thr, Oct 14 After the market 0.32 NOK Nokia Thr, Oct 14 ----- n/a ----- 0.15 BTU Peabody Energy Thr, Oct 14 Before the bell 0.62 PII Polaris Industries Thr, Oct 14 Before the bell 0.97 RMBS Rambus Inc. Thr, Oct 14 After the market 0.06 LUV Southwest Airlines Thr, Oct 14 ----- n/a ----- 0.12 SYK Stryker Thr, Oct 14 After the market 0.33 SUNW Sun Microsystems Thr, Oct 14 After the market -0.03 SVU SuperValue Inc. Thr, Oct 14 ----- n/a ----- 0.53 TCB TCF Financial Thr, Oct 14 Before the bell 0.47 UIS Unisys Thr, Oct 14 Before the bell 0.06 UNH UnitedHealth Thr, Oct 14 Before the bell 1.00 WGO Winnebago Thr, Oct 14 Before the bell 0.50 ------------------------- FRIDAY ------------------------------- CBSS Compass Bancshares Fri, Oct 15 ----- n/a ----- 0.74 GPC Genuine Parts Fri, Oct 15 Before the bell 0.56 LSS Lone Star Tech. Fri, Oct 15 After the market 1.35 MEG Media General Fri, Oct 15 Before the bell 0.66 WB Wachovia Corp Fri, Oct 15 Before the bell 0.99 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable 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 CELG Celgene Corp 2:1 Oct 22nd Oct 25th PDCO Patterson Companies 2:1 Oct 22nd Oct 25th BGG Briggs & Stratton 2:1 pending Oct 20th meeting ----------------------------------- Economic Reports & Events This Week ----------------------------------- Q3 Earnings are here! Wall Street will be wading through a flood of Q3 earnings with the likes of INTC, JNJ and YHOO on Tuesday and BAC, C and GM on Thursday just to name some of the big caps reporting. Monday is Columbus day so the bond market will be closed. Wednesday is the third and final Presidential debate. Friday brings the PPI index numbers. ============================================================== -For- ---------------- Monday, 10/11/04 ---------------- Columbus Day - Bond Markets, Banks and Government offices closed. Stock Market is open. ----------------- Tuesday, 10/12/04 ----------------- Q3 Earnings reports really begin to pick up speed. ------------------- Wednesday, 10/13/04 ------------------- Crude oil and gasoline inventories The Third and Final Presidential Debate in AZ (9:00PM ET) ------------------ Thursday, 10/14/04 ------------------ Weekly Initial Jobless Claims Last: 335K Trade Balance numbers for August Import/Export prices for September Fed Governor Bernanke speaks in Washington Fed Governor Geithner speaks in Atlanta ---------------- Friday, 10/15/04 ---------------- Producer Price Index (PPI) for September Last: -0.1% Est: +0.1% NY Empire State Index for October Retail Sales for September Industrial Production and Capacity Utilization for September Michigan Sentiment for October (preliminary reading) Fed Governor Kohn speaks in Germany Definitions: DM= During the Market BB= Before the bell the Bell AB= After the market 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. 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The Option Investor Newsletter Sunday 10-10-2004 Sunday 2 of 5 In Section Two: Watch List: Biotechs to Defense and more! Dropped Calls: None Dropped Puts: None ************************Advertisement************************* Live Securities Brokerage Service with Licensed Option Principals OCO Stop & Profit Orders OneStopOption All types of Spreads and Buy Writes 888-281-9569 Auto-Trade Market Monitor Signals Personal Service and Education **Services available for Foreign Traders including Canada** http://www.OneStopOption.com ************************************************************** ********** Watch List ********** Biotechs to Defense and more! ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Amazon.com - AMZN - close: 40.00 change: -1.15 WHAT TO WATCH: The two-day pattern in AMZN looks like a failed rally that bears may want to follow closely. The P&F chart is already bearish with a $15.00 price target. Now the daily chart almost has an H&S pattern. A drop under $39.50 or $39.00 could be a decline under the "neckline". However, there is risk here. Fellow Internet icon YHOO reports earnings on Tuesday. If YHOO has good things to say then AMZN is likely to rally with it. Conversely if YHOO disappoints then AMZN falls in sympathy. Chart= --- Genentech - DNA - close: 47.25 change: -0.30 WHAT TO WATCH: Biotech giant DNA recently reported earnings and investors sold the news. Now the stock has broken multiple levels of support including its exponential 200-dma and the $50.00 level. Volume has been very big on the declines and that's very bearish. The only reason we don't short it now is that the P&F chart shows potential support at $45.00. Watch for a drop under $45.00. Chart= --- Neuocrine Biosciences - NBIX - close: 44.78 change: -2.07 WHAT TO WATCH: Here's another biotech stocks on the escalator going down. The recent bounce from $46.00 never got very far and NBIX found new resistance at its simple 50-dma. Now the stock is cracking support at $46 and $45 on above average volume. The P&F chart may have a bullish buy signal but it has reversed into a "high pole" warning. We would target a drop to $40.00. Chart= --- Boeing Co - BA - close: 50.10 change: -1.22 WHAT TO WATCH: Dow-component BA is trading lower and testing support at $50.00 and its simple 100-dma. This is a pivotal level. Will bulls step in to buy the dip or will it break and trade down toward its 200-dma's. near $46? The P&F chart is bullish but the stock looks very overbought (and probably accounts for a lot of the weakness in the DFI defense index). If BA trades under Friday's low at $49.89 aggressive traders could target the $46.50 region. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- MMM $79.26 -0.40 - MMM is throwing out a lot of conflicting signals but the last two sessions have painted a big bearish reversal. Watch for a breakdown under $77.50 or a breakout over its simple 200-dma overhead. HSIC $60.16 -1.08 - HSIC is a flu vaccine distributor for CHIR. HSIC had to issue an earnings warning after CHIR's news this week. The oversold bounce in HSIC appears to be fading. Look for a new relative low. ADSK $48.04 -2.86 - We're keeping an eye on this one to see where the profit taking stalls. ZMH $74.21 -1.49 - ZMH has broken support at $75.00 and its exponential 200-dma but the low on Friday just happens to be a bounce off its new trend of highs lows dating back to August. ************************Advertisement************************* No time to follow the Market Monitor? Tired of missing good Trades because you stepped away from your computer? OneStopOption Group can follow the Market Monitor for you. You choose the number of contracts, we take care of the rest!! Trade Stock Options, Stocks and ALL Futures with the same Group. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ None *********** DEFINITIONS *********** OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Stock Option and Futures Brokerage OneStopOption teams the best trading technology with varying levels of professional assistance at very competitive prices. Commission costs are comparable to discount brokerage and tailored to individual customer needs. The power of one brokerage group with experience and expertise in the Securities* and Futures Markets offers unprecedented convenience for traders. 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The Option Investor Newsletter Sunday 10-10-2004 Sunday 3 of 5 In Section Three: Current Calls: CMI, GDW, GIVN, IR, KMRT, LMT, OSIP, PH New Calls: None Current Puts: LLY, FLIR, IVGN, SEPR, WHR New Puts: APOL ************************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: 73.30 change: -0.57 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: Traders following CMI have a few choices to make. We're not suggesting any new positions given that CMI has already achieved our initial profit target but the stock could easily bounce again and surge to a new high. We would watch potential support at the $72.50 region or a drop back toward $70.50-70.00. The latter area is near the bottom of its rising channel. A bounce from either level could be used as a new entry point for bullish positions. New plays could target a move to $77.50. We're going to leave our stop loss at $69.99. Be aware that CMI has less than two weeks left before its earnings report. Suggested Options: CMI has already achieved our initial profit target. We are not suggesting new entries at this time but see the above details for alternative entries. Annotated chart: Picked on September 19 at $70.99 Change since picked: + 2.31 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 724 thousand Chart = --- Golden West Financial - GDW - cls: 114.34 chg: +0.85 stop: 109.95 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: So far so good. Our bullish play in GDW has bucked the recent turn lower in the markets and is challenging round-number resistance at the $115 level. Our initial profit target is the $115.50-116.00 range. With GDW this close to our target we are not suggesting new bullish positions at this time. However, should GDW bounce from the $112 level it could be used as a new entry point. Otherwise bulls may be better off waiting for a new breakout over resistance at $116. The P&F chart is bullish and points to a $129 target so it's certainly possible. Yet the next move in GDW will probably be led by the banking indices. The BIX banking index is just under resistance at the 367 level. Meanwhile the BKX banking index is just under resistance at the 100 level. Bulls need to see a breakout here for GDW to move much higher. Keep in mind that GDW is due to report earnings on October 21st. Suggested Options: We are not suggesting new bullish positions at this time. Annotated chart: Picked on September 30 at $110.95 Change since picked: + 3.39 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 512 thousand Chart = --- Given Imaging - GIVN - close: 41.78 change: -0.26 stop: 37.00 Company Description: Given Imaging is redefining gastrointestinal diagnosis by developing, producing and marketing innovative, patient-friendly products for detecting gastrointestinal disorders. The company is developing a complete line of PillCam video capsules for detecting disorders throughout the gastrointestinal tract. The company's technology platform is the GivenŽ Diagnostic System, featuring the PillCam(TM) video capsule, a disposable, miniature video camera contained in a capsule which is ingested by the patient. The PillCam(TM)SB video capsule is the only naturally- ingested method for direct visualization of the entire small intestine. It is currently marketed in the United States and in more than 60 other countries and has benefited more than 122,000 patients worldwide. (source: company press release) Why We Like It: We're still in wait mode for GIVN. The stock has been digesting its recent gains with a minor sideways consolidation. Actually, this is a good thing. GIVN has not succumbed to the market's Thursday-Friday downturn and is holding its position above major resistance at the $40.00 mark. Broken resistance should become new support. Patient traders can wait for GIVN to dip back toward $40.00 and consider buying the bounce. We remain bullish on GIVN but plan to exit before its earnings report at the end of October. Suggested Options: We are going to suggest the November options. Our favorites are the 40s and 45s. BUY CALL NOV 40 QPG-KH OI=2622 current ask $3.80 BUY CALL NOV 45 QPG-KI OI=1611 current ask $1.25 Annotated chart: Picked on October 04 at $41.26 Change since picked: + 0.52 Earnings Date 10/27/04 (unconfirmed) Average Daily Volume = 247 thousand Chart = --- Ingersoll-Rand - IR - close: 68.95 change: -0.80 stop: 67.49 Company Description: Ingersoll-Rand is a leading innovation and solutions provider for the major global markets of Climate Control, Industrial Solutions, Infrastructure, and Security and Safety. The company's diverse product portfolio encompasses such leading industrial and commercial brands as Schlage locks and security solutions; Thermo King transport temperature control equipment; Hussmann commercial and retail refrigeration equipment; Bobcat compact equipment; Club Car golf cars and utility vehicles; and Ingersoll-Rand industrial and construction equipment. In addition, IR offers products and services under many more premium brands for customers in industrial and commercial markets. (source: company press release) Why We Like It: Traders need to be careful here. We are still in caution mode. We added IR on the bullish breakout over $70.00 and its new P&F buy signal on Wednesday. Yet since then the major indices have turned lower and IR has rolled over and back under the $70 mark. We still expect a bounce from $68.00 but that may depend on how strong or weak the Dow Industrials trade next week. We would not suggest new bullish positions until IR traded back above $70.00 or $70.50. Suggested Options: We are not suggesting new bullish positions until IR trades back above $70. Annotated Chart: Picked on October 06 at $70.19 Change since picked: - 1.24 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.2 million Chart = --- Kmart Holdings - KMRT - close: 86.99 chg: -0.76 stop: 84.99 Company Description: Kmart Holding Corporation and its subsidiaries (together, "Kmart") is a mass merchandising company that offers customers quality products through a portfolio of exclusive brands that include Thalia Sodi, Jaclyn Smith, Joe Boxer, Kathy Ireland, Martha Stewart Everyday, Route 66 and Sesame Street. (source: company press release) Why We Like It: Our aggressive call play in KMRT is not off to the strongest start. We initially added the play on its bullish breakout over round-number, psychological resistance at $90.00. There's normally a decent trading rule that suggests stocks breaking out past $90.00 tend to hit $100 relatively quickly. Unfortunately for us the retail index has not performed that well the last few days with disappointing September same-store sales numbers and negative comments from retail giant Wal-mart. Despite it all support at the $85 level in KMRT is holding and the stock is still working on a short-term trend of higher lows. We are only suggesting bullish positions if KMRT trades back above the $90.00 mark. Suggested Options: We are not suggesting new bullish positions until KMRT trades back above the $90 level. Annotated Chart: Picked on October 04 at $90.53 Change since picked: - 3.54 Earnings Date 08/16/04 (confirmed) Average Daily Volume = 2.7 million Chart = --- Lockheed Martin - LMT - close: 55.42 change: -0.84 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: Warning! Warning! Shares of LMT are losing altitude. Okay, we may be overreacting a bit but we don't like seeing LMT under $56.00 or its simple 10-dma. We suspect it's just profit taking ahead of the weekend. The DFI defense index has been hitting new all-time highs until the market began to see some profit taking during the last couple of sessions. However, we are not happy to see the DFI index break back below the 800 level or its simple 21-dma. The sector is so overbought the group could see several days of profit taking and the DFI's MACD indicator has produced a new sell signal - so we do have some cause for worry. That's not to say LMT can't out perform its peers and the DFI but the $55 level will be the test. If LMT can bounce from $55.00 then we'd consider it a new entry point. If LMT breaks under $55.00 then we'll consider an early exit. 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=1431 current ask $2.05 BUY CALL NOV 60 LMT-KL OI=1803 current ask $0.30 Annotated Chart: Picked on October 01 at $56.01 Change since picked: - 0.59 Earnings Date 07/27/04 (confirmed) Average Daily Volume = 1.7 million Chart = --- OSI Pharma - OSIP - close: 61.76 change: -0.24 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: When you consider the beating that investors have been dishing out to the DRG drug index and the BTK biotech index recently you can see why we might be encouraged with OSIP's relative strength. The stock's sideways consolidation is holding above support at the $60.00 with minor declines on low volume. Our last update suggested that we could see OSIP retest support at the $60.00 mark. We still believe that's a strong possibility. Actually we would watch the $60.50-60.25 region for a bounce and then use such a rebound as a new entry point for bullish positions. Suggested Options: We're going to suggest the November calls. Our favorites are the 60s and 65s. BUY CALL NOV 60 GHU-KL OI= 77 current ask $5.10 BUY CALL NOV 65 GHU-KM OI= 865 current ask $2.45 BUY CALL NOV 70 GHU-KN OI=1051 current ask $1.25 Annotated Chart: Picked on October 03 at $63.45 Change since picked: - 1.69 Earnings Date 08/10/04 (confirmed) Average Daily Volume = 1.6 million Chart = --- Parker Hannifin - PH - close: 61.90 chg: -0.10 stop: 59.49 Company Description: With annual sales exceeding $7 billion, Parker Hannifin is the world's leading diversified manufacturer of motion and control technologies and systems, providing precision-engineered solutions for a wide variety of commercial, mobile, industrial and aerospace markets. The company employs more than 48,000 people in 46 countries around the world. (source: company press release) Why We Like It: We first alerted readers to PH when it broke out over resistance at $60.00 by putting the stock on the watch list. Two days later when PH rebounded strongly from its first test of support at $60 we added it to the play list as a long. Thursday's action looked like a short-term top and we expected shares to dip back to $60. That can still happen but we're a little bit surprised by PH's relative strength on Friday. We suggest patience. Odds are still good that PH can dip toward $60 and then bulls can buy the rebound. If you missed the original update check out PH's P&F chart. It's very bullish with a quadruple top breakout buy signal and an $82 target. Suggested Options: We are suggesting the November calls. Our favorites are the 60s and 65s. BUY CALL NOV 60 PH-KL OI=1033 current ask $3.30 BUY CALL NOV 65 PH-KM OI=2208 current ask $0.90 Annotated Chart: Picked on October 06 at $62.78 Change since picked: - 0.88 Earnings Date 10/19/04 (confirmed) Average Daily Volume = 719 thousand Chart = ************** NEW CALL PLAYS ************** NONE ************************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: 59.08 chg: -0.48 stop: 61.85*new* 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: The weakness continues for big cap drug names like LLY. It has been a tough couple of weeks for drug makers and the outlook doesn't seem to be improving. First it was the Merck news. Then the Chiron news. Then the Pfizer news. The DRG drug index is at new one-year lows and its about to break support from August 2003 near 299. If this occurs then LLY is very likely to follow the DRG lower, especially now that LLY has broken its own support at the $60.00 mark. For the last few days we have been suggesting that short-term traders consider exiting/closing this play for a profit now that LLY has hit our initial target at $60.00 on two separate occasions. Yet we are willing to keep the play open because the breakdown under support at $60.00 could lead to even more selling. Our new target is the $58.00-56.50 region although the P&F chart points to a $44 target. We will lower our stop loss to $61.85. FYI: the next big risk for bears in the large cap drug stocks is probably bullish broker calls based on valuations. Keep that in mind! Suggested Options: We are not suggesting new plays at this time. LLY hit our initial profit target of $60.00 on two occasions. Annotated chart: Picked on September 22 at $63.92 Change since picked: - 4.84 Earnings Date 07/22/04 (confirmed) Average Daily Volume = 3.1 million Chart = --- FLIR Systems - FLIR - close: 54.52 chg: -3.64 stop: 59.71*new* 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: Target Achieved! FLIR is performing better than we thought. The stock lost another 6.25 percent on Friday with volume coming in very strong at more than twice the average. Shares of FLIR broke through technical support at the 100-dma and historical, price support at $57.50 and $55.00. This is very good news. That means the next serious support level is the $50 region with its exponential 200-dma. Our short-term target was $55 so we're suggesting short-term traders book this play and exit for a profit. If you're looking for new positions look for FLIR to bounce a bit from here but find new resistance at $56. We're going to lower our stop loss to $59.71 but more conservative traders may want to use Friday's high near $58.05. Suggested Options: All of the November puts we suggested are up significantly. FLIR has surpassed our initial profit target at $55 and we're suggesting that short-term traders exit now. More aggressive players can target a drop towards $51-50. Annotated chart: Picked on September 29 at $59.35 Change since picked: - 4.83 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 577 thousand Chart = --- Invitrogen - IVGN - close: 53.56 chg: -0.27 stop: 56.25 Company Description: Invitrogen Corporation provides products and services that support academic and government research institutions and pharmaceutical and biotech companies worldwide in their efforts to improve the human condition. The company provides essential life science technologies for disease research, drug discovery, and commercial bio-production. Invitrogen's own research and development efforts are focused on breakthrough innovation in all major areas of biological discovery including functional genomics, proteomics, bioinformatics and cell biology -- placing Invitrogen's products in nearly every major laboratory in the world. Founded in 1987, Invitrogen is headquartered in Carlsbad, California and conducts business in more than 70 countries around the world. The company globally employs approximately 4,000 scientists and other professionals. (source: company press release) Why We Like It: (original update from Thursday) Investor expectations are already diminished for IVGN because the company issued an earnings warning back in July when it reported its Q2 numbers. The stock managed to rally back to the bottom of its gap down in September but couldn't break into the gap. Now shares are sinking in a trend of lower highs and lower lows as the BTK biotech index begins to turn lower from overbought levels and the DRG drug index sinks under bad news from heavy weights like MRK and PFE. IVGN's breakdown under the $55 and $54 levels on Thursday looks like a new bearish entry point. Short-term technicals like the RSI and stochastics are negative and its MACD is in a new sell signal. We're going to set an initial target of $50.00 but we suspect that IVGN could trade lower. WEEKEND UPDATE: There is nothing new to report on for IVGN other than the company has confirmed its Q3 earnings date as October 28th. Suggested Options: We are going to suggest the November puts even though we do not plan on holding over the October earnings report. BUY PUT NOV 55 IUV-WK OI=251 current ask $3.50 BUY PUT NOV 50 IUV-WJ OI=662 current ask $1.35 Annotated Chart: Picked on October 07 at $53.83 Change since picked: - 0.27 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 1.5 million Chart = --- Sepracor Inc - SEPR - close: 47.30 chg: -0.05 stop: 50.01*new* 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: SEPR has been a test of patience for bearish traders but so far the short-term trend of lower highs is holding up. Then again if you're bullish you could say that support at $47 is also holding up. We originally added SEPR to the list as a trading range play. The stock had just peaked near the top of its range and was turning lower. We added it when shares broke minor support at $49.00. Now after two weeks of oscillating back and forth between $47 and $50 SEPR looks poised for more weakness. We have been targeting a drop to the 200-dma's but they're slowing rising. We need to adjust our planned exit/profit target to $43.25-43.50. Meanwhile we're also adjusting our stop loss to $50.01. Suggested Options: We're suggesting the November puts. BUY PUT NOV 50.00 ERU-WJ OI= 195 current ask $4.10 BUY PUT NOV 47.50 ERU-WW OI=1221 current ask $2.55 BUY PUT NOV 45.00 ERU-WI OI=1669 current ask $1.45 Annotated chart: Picked on September 22 at $48.94 Change since picked: - 1.64 Earnings Date 07/13/04 (confirmed) Average Daily Volume = 1.8 million Chart = --- Whirlpool - WHR - close: 59.03 change: -1.27 stop: 60.55*new* Company Description: Whirlpool Corporation is the world's leading manufacturer and marketer of major home appliances, with annual sales of over $12 billion, 68,000 employees, and nearly 50 manufacturing and technology research centers around the globe. The company markets Whirlpool, KitchenAid, Brastemp, Bauknecht, Consul and other major brand names to consumers in more than 170 countries. (source: company press release) Why We Like It: (Original play from Thursday) We like WHR as a put candidate for its relative weakness. The stock has been slowly sinking for months and after several weeks of consolidating sideways it looks ready for another leg down. That's especially true with the three-week trend of lower highs and the breakdown under support at $60.00. Investors are worried that the rising cost of steel and raw materials are going to impact earnings from appliance makers like WHR. While WHR has recently settled legal action with its steel supplier Ispat shares of WHR are still sinking. The P&F chart on WHR is bearish with a $53 target. We're only going to target a drop toward $55, where WHR appears to have potential long-term support. WEEKEND UPDATE: So far so good! Our WHR put play is off to a strong start with a 1.89 percent decline on volume about 50 percent above the norm. This is a new one-year low for WHR. Remember that we're only targeting a drop toward $55. Suggested Options: We are going to suggest the November puts even though we do not plan to hold over the October 20th earnings report. BUY PUT NOV 60 WHR-WL OI=1731 current ask $3.80 BUY PUT NOV 55 WHR-WK OI= 289 current ask $1.30 Annotated Chart: Picked on October 07 at $59.03 Change since picked: - 1.12 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 854 thousand Chart = ************* NEW PUT PLAYS ************* Apollo Group - APOL - close: 69.81 chg: -2.09 stop: 75.01 Company Description: Apollo Group Inc. has been providing higher education programs to working adults for more than 25 years. Apollo Group Inc. operates through its subsidiaries The University of Phoenix Inc., Institute for Professional Development, The College for Financial Planning Institutes Corp., and Western International University Inc. The consolidated enrollment in its educational programs makes it the largest private institution of higher education in the United States. It offers educational programs and services at 82 campuses and 137 learning centers in 39 states, Puerto Rico and Vancouver, British Columbia. (source: company press release) Why We Like It: Something doesn't smell right with APOL. The sector has been in plenty of high publicity trouble. Rivals CECO and COCO have been decimated by scandals and APOL has had its share of bad press and bruises. We have our eye on the stock, especially now after the company's recent earnings report. APOL reported on October 5th and beat estimates by 4 cents. Wall Street's analysts were almost unanimous in their positive comments that APOL turned in a pretty good quarter considering all the troubles the company has weathered recently. A couple of analysts either reiterated their positive outlooks or upgraded the stock. Yet since the earnings report APOL has been steadily falling on above average volume. That can't all be retail investors so funds have to be selling as well. We recently put APOL on the watch list and suggested that a drop under $71 would produce a new P&F sell signal and a drop under $70 would break round-number, psychological support. APOL broke down through both levels on Friday. It's also noteworthy that both the daily chart's technicals and the weekly chart's technicals are bearish. Plus, the weekly chart shows APOL breaking down through a long-term trendline of support. Meanwhile the P&F chart shows a new spread triple- bottom breakdown sell signal with a $60 target. We are going to target the $60 level over the next four to six weeks. However, we're going to give APOL room to move with a wide stop at $75.01. A failed rally under $71.50 could also be used as an entry point. We do expect potential support near $65.00 so short-term traders may want to make that their target. Suggested Options: We are going to suggest the November and January options with a preference for Januarys even though Novembers have most of the open interest. !Warning - there are ULG- options available but the prices don't seem to match up. They could be the result of APOL's most recent stock split. Double-check your symbols with your broker. BUY PUT NOV 75 OAQ-WO OI=3417 current ask $6.60 BUY PUT NOV 70 OAQ-WN OI=5657 current ask $3.60 BUY PUT NOV 65 OAQ-WM OI=1336 current ask $1.70 BUY PUT JAN 75 OAQ-MO OI=2137 current ask $8.20 BUY PUT JAN 70 OAQ-MN OI=2423 current ask $5.50 BUY PUT JAN 65 OAQ-MM OI= 303 current ask $3.40 BUY PUT JAN 60 OAQ-ML OI= 830 current ask $2.05 Annotated Chart: Picked on October 10 at $69.81 Change since picked: - 0.00 Earnings Date 10/05/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************************Advertisement********************************** Option traders, check what PreferredTrade offers: - true direct access to each option exchange - stop and stop loss online option orders - contingent option orders based on the price of the option or stock - online spread order entry for net debit or credit - fast option executions - rates as low as $1.50 per contract ($14.95 min) PreferredTrade, Inc. 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The Option Investor Newsletter Sunday 10-10-2004 Sunday 4 of 5 In Section Four: Leaps: Pause To Reflect Spreads and Straddles: It's That Quickie Time Of The Month ************************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 ***** Pause To Reflect After a +275 point Dow bounce, +118 point Nasdaq bounce and +35 point Russell gain the potential for profit taking was very good. After weathering a last minute flurry of earnings warnings, high oil prices and weak economic reports the market finally succumbed to its own weight. Fear of October, fear of the election and growing risk of a last minute terrorist attack took the fight out of the bulls. Add in a weak employment report and oil at $53 and there was no incentive to load up with longs ahead of the weekend. While the last two days my look negative the minor dip is encouraging considering the current calendar. Mutual funds have not really impacted the market with portfolio reshuffling and the farther we get into October the more likely they will buy instead of sell. We currently have a wide array of positions and I am not planning on adding any new ones unless we can get an entry point on the index plays. The next three weeks will be high risk until any portfolio reshuffling is over and the election is history. I am going to be generous on the stop losses to keep us from being stopped on normal October volatility. If they stops are too wide for your comfort then as always the real decision is up to you. **** 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 ******************* NONE TODAY ****************************** New Watch List Plays Triggered ****************************** NONE THIS WEEK **************************** Current Portfolio: **************************** Position Summary Table **************************** Play Updates **************************** XLE - S&P Energy SPDR $36.17 ** Stop 33.90 ** With the price of oil crossing $53 the energy stocks continue to gain. Eventually there will be some profit taking in oil but analysts are talking more about $60 oil than $50 oil and that is a profit windfall for most oil companies. 2006 $32 LEAP Call WHA-AF 2006 $35 LEAP Call WHA-AI Entry $33.92 on 9/20 http://members.OptionInvestor.com/leaps/Lp_091904_1.asp XLE Chart **************************** QLGC - Qlogic Corp - $29.27 ** Stop $27.50 ** What a week for Qlogic! After spiking to a new five month high on Monday at just over $32 we then saw a two day drop back to $29 on a Piper Jaffray downgrade. Pipper lowered QLGC to a market perform from outperform saying the +23% gain since they initiated coverage on August 23rd had fully valued the stock at $32. QLGC has earnings on Wednesday Oct-13th and they are expected to meet or beat estimates. 2006 $30 LEAP YIO-AF 2006 $35 LEAP YIO-AG Entry $30.36 9/20 http://members.OptionInvestor.com/leaps/Lp_091904_1.asp QLGC Chart ************************ MMM - 3M Company - $79.27, ** Stop $74.00 ** Deutsche Bank said they believe MMM is on track to meet or beat estimates for the quarter and the future is bright for the company. They will be debt free by year end and should generate free cash flow after capital spending and dividends of $7 billion from 2004-2006. They reaffirmed their $105 price target. MMM shot up to $82 on the report but then gave most of it back on GE earnings fear. Had GE said negative things about the manufacturing sector traders did not want to be caught long MMM. I believe $78 should remain support without any material market event to drag everyone down together. MMM reports earnings on Oct-18th. The stop is $74.00 to get under the March and August lows. 2006 $80 LEAP Call WMU-AP 2006 $85 LEAP Call WMU-AQ 1/2 Entry at $82 on 9/15 1/2 Entry at $78 on 9/27 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp MMM Chart ********************** C - Citigroup $44.52 **Stop $42.00** Citigroup shook off all the bad news from Japan and is holding in the $44.50 range as we near earnings next Thursday. Citigroup is suing Italian regulators over the Parmalat bankruptcy and their $600 million in claims. Just a drop in the bucket for Citigroup but every drop helps. 2006 $50 LEAP Call WRV-AJ Entry 1/2 46.00 9/20 Entry 1/2 45.00 9/22 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp Citigroup Chart ********************** INTC - Intel Corp $20.59 **Stop $18.00** Intel saw several positive events this week and rebounded to near $21.60 on Thursday after holding above $21 all week. Friday saw a break back to $20.60 after Prudential expressed concern for the fourth quarter based on the AMD earnings comments. Intel also won a court victory against AMD and will not have to turn over papers critical to an AMD antitrust challenge in Europe. Intel earnings are on Tuesday Oct-12th. Current position: 2006 $22 LEAP Call WNL-AX at $2.20 2006 $25 LEAP Call WNL-AE at $1.45 Entry $20.00 Sept 3rd http://members.OptionInvestor.com/leaps/Lp_071804_1.asp Intel Chart ********************** TYC - Tyco Intl. $30.66 **Stop $28.00** Tyco hit a new five week high on Monday at $31.84 but faded with the general market back to $30.50 and the prior weeks support levels. There has not been any news items impacting the stock and the bleed was based on general market uncertainty. TYC is still above support from the 200dma at $29.50 and earnings are not until Nov-1st. 2005 $30 LEAP Call TYC-AF cost $2.15 2006 $30 LEAP Call WPA-AF cost $4.00 July $25 insurance put - expired - cost $.55 Entry 5/18 $28.32 http://members.OptionInvestor.com/leaps/Lp_051604_1.asp Tyco Chart ********************** JNPR - Juniper Networks $24.34 **Stop $19.00** Juniper saw a spike to $26 on Wednesday on news that Verizon was raising their capital expenditure spending. Juniper would be a big recipient of those funds. The spike did not last with weakness in the Nasdaq on Thr/Fri dragging down all the networkers and chip stocks. Wachovia downgraded JNPR on Thursday to market perform but it had little impact. Surprisingly a warning from SonicWall (SWAL) on Friday took some of the bloom off the networking sector despite comments from Piper that the news seemed to indicate that JNPR and CSCO were gaining market share. We are at risk to the market rather than risks to Juniper itself. Juniper earnings are Thursday Oct-14th 2006 $25 LEAP Call WBW-AE cost $3.50 current $4.70 Insurance = Sept-$17.50 Put (expired) cost 50 cents. Entry $20.19 (8/16) http://members.OptionInvestor.com/leaps/Lp_081504_1.asp JNPR Chart ********************** COP - Conoco Phillips $88.11 **Stop 80.00** COP rose to another new high at $89.75 on Thursday but slacked off on news its tender offer for an additional 10% of Lukoil failed. As part of the deal with Russian officials the prior week where COP bought the Russian government's 7.6% stake in Lukoil COP was allowed to buy more on the open market. The tender at just under $31 was not successful as prices jumped to just over $31 when the offer was made. COP dropped -$2 on worries they would escalate their bid and spend more than they previously allocated. Rising oil prices prompted traders to buy the dip. The stop was raised to $80. Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 Entry $73.30 August 30th http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart ********************** NWS - News Corp $32.50 **Stop 29.00** Investors dumped NWS on the Australian exchange after the company agreed to major concessions to get approval to move to the U.S. and the NYSE as its primary exchange in November. Once the move is completed many Australian funds will no longer be able to invest in the U.S. stock. With the last major block removed those funds started unloading stock despite assurances from S&P that they would make the move in gradual increments. NWS is a major component in the S&P-ASX200 index similar to our Dow. The move to the U.S. now seems assured and once the final approval is gained in November the U.S. price should begin to climb. NWS will not be put into the S&P-500 immediately but funds will begin to take positions to avoid having to shuffle portfolios drastically when that inclusion takes place. 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 $50.64 **Stop $44.00** UPL continued to move higher with a new all time high at $53.60 on Wednesday but profit taking hit the next day knocking it back to $50. Rising oil did not help and UPL closed the week jut under $51. Considering the ramp this stock has seen a kiss of the uptrend resistance was a good excuse to take profits. Nothing has changed with UPL and all dips will continue to be bought until oil prices quit rising. Once that happens the sell cycle could be sharp. JAN-2006 $45 LEAP Call WSS-AI JAN-2006 $50 LEAP Call WSS-AJ Entry $45.50 9/21 http://members.OptionInvestor.com/leaps/Lp_090504_1.asp UPL Chart **************************** EBAY - EBAY $92.66 ** Stop $84.00 ** EBAY set a new all time high on Wednesday at $96.78 but it was followed by profit taking as the market gave up its grip on the high ground. No change in EBAY fundamentals and one broker reiterated their price target of $135. There is strong support between the current level and our stop at $84. Short of a serious market melt down we should be safe. Earnings are Oct-20th 2006 $ 90 LEAP Call YRL-AR 2006 $100 LEAP Call YRL-AT Entry $90.00 on 9/22 http://members.OptionInvestor.com/leaps/Lp_072504_1.asp EBAY Chart **************************** MER - Merrill Lynch $50.97 ** Stop $46.00 ** Merrill performed rather well considering the weakness in several financial stocks. Merrill reports on Oct-12th and one analyst said there was a chance they could miss estimates but the price refused to budge on the news. Bernstein and Co. said the quarter was rough on brokers with low volume and few deals. Goldman and Lehman both surprised to the upside in September and there are still those that think Merrill will as well. 2006 $50 LEAP Call WZM-AJ 2006 $55 LEAP Call WZM-AK Entry $51.00 on 9/20 http://members.OptionInvestor.com/leaps/Lp_071804_1.asp MER Chart ******************* Proctor & Gamble $53.44 ** Stop $51.00 ** Nice rebound with the market on Monday to a two week high but the market weakness late in the week pulled PG back to support at the 200dma at $53. Drug fears hit every stock even remotely related to drugs and PG was guilty by association. Procter & Gamble on Friday said its experimental testosterone skin patch significantly improved sexual desire in naturally post-menopausal women in a late-stage clinical trial. They said there are 40 million women eligible for the treatment. Investors are still cautious in fear PG will join the warning party. Earnings are not due until Oct-27th. Jan-2006 $55 LEAP Call WPG-AK @ $4.20 Jan-2006 $57 LEAP Call WPG-AY @ $3.00 Entry $54.08 (9/26) http://members.OptionInvestor.com/leaps/Lp_092604_1.asp PG Chart: *********************** RIMM - Research in Motion $75.70 ** Stop $69.00 ** RIMM is holding the high ground at $76 and has avoided the tech sell off of the last couple days. RIMMs growth is spectacular and not expected to slow and it appears investors are not letting go of a winner. RIMM is at risk if the profit taking continues as many funds may have significant profits at risk. This time last year RIMM was under $20. On Thursday RIMM announced a BlackBerry solution for Federal Government clients. RIMM announced earnings on Sept-30th. 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 Entry $77.00 (9/28) http://members.OptionInvestor.com/leaps/Lp_092604_1.asp RIMM Chart **************************** BA $50.10 Boeing Aerospace ** Stop $48.00 ** Boeing suffered a significant setback on Friday when the government announced they were not going ahead with the $23.5 billion tanker deal. The tanker scandal was thought to be history but the reopening of the bidding on the tankers now lets Airbus back into the game. This may be the death knell for this play as the news caused a break of support at $51. We bought the dip last week when BA hit our entry at $51 and the rebound was looking good until Friday. 2006 $55 LEAP Call WBO-AK @ $4.70 2006 $60 LEAP Call WBO-AL @ $3.00 Entry $52 (9/28) http://members.OptionInvestor.com/leaps/Lp_092604_1.asp Boeing Chart **************************** OXY - Occidental Petroleum $58.15 ** Stop $54.00 ** OXY sprinted to a new high at 59.42 on Thursday but eased Friday on profit taking to $58. With oil continuing to rise I remain confident of the OXY play into the election. The oil stocks are extremely overbought but as long as oil rises oil stocks will continue to gain ground. With targets now at $60 a barrel we could see $65 on OXY before the election. Prudential said on Friday Occidental Petroleum "delivers the lowest finding, development and acquisition costs in the sector," which may "translate into further profit margin advantages in the future." Earnings are Oct-21st 2006 $50 LEAP Calls WXY-AJ @ $8.60 2006 $55 LEAP Calls WXY-AK @ $5.60 2006 $60 LEAP Calls WXY-AL @ $3.50 Entry $55.50 (9/28) http://members.OptionInvestor.com/leaps/Lp_082904_1.asp OXY Chart ************************ SYMC - Symantec - $54.95 ** Stop $50.00 ** The SYMC breakout to a new high at $57.82 on Wednesday was knocked for a loss on Friday after SonicWall warned. SYMC was hit for a -$2 loss back to $55 and initial support. SYMC has plenty of profit on the table and funds could be tempted to put some of it in the bank. I am leaving the stop low at $50 to stay under the very strong support at $51-$52. Earnings are Oct-20th 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 Entry $53.00 on 9/27 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp SYMC Chart **************************** XMSR - XM Satellite Radio $28.20 ** Stop $22.50 ** Everything was going according to plan until Sirius announced Howard Stern was moving to Sirius in 2006 for a whopping $100 million dollars. SIRI soared and XMSR fell but XMSR may be the eventual winner. SIRI is on track to burn nearly $300 million in cash in 2004 alone and signing Howard for 2006 may be a last gasp move to head off the XMSR gains. According to analysts SIRI will have to attract one million new listeners just to pay Howard. When they are having trouble just conserving enough cash to pay their own bills this may be one leap too far. SIRI is on track to run out of cash somewhere in November 2006 based on current subscriber/cash burn rates. SIRI jumped to $4.25 on the Stern news but fell back on Friday after it was announced they were selling $200 million in unsecured convertible notes. I would not touch those with your money. I view the dip in XMSR as a continued buying opportunity given the much stronger balance sheet and subscriber base. Who knows, Howard may end up on XMSR as the survivor before it is all over. Current position: 2006 JAN-$30 LEAP Call YLX-AF @ $6.60 2006 JAN-$32 LEAP Call YLX-AZ @ $5.60 2006 JAN-$35 LEAP Call YLX-AG @ $4.60 Entry $29.15 on 10/4 http://members.OptionInvestor.com/leaps/Lp_100304_1.asp XMSR Chart ****************************** PFE - Pfizer $29.75 ** Stop $27.00 ** What a week for Pfizer. I am not going to restate all the pros and cons here tonight but Pfizer was hit for a loss on Thursday after negative comments about COX-2 inhibitors were made in print. The New England Journal of Medicine slammed all COX-2 products as "potentially dangerous" despite reams of evidence to the contrary. I have written about Pfizer and Celebrex several times this week and I believe they will emerge the victor and a highly profitable one at that. The Thursday drop to $28.60 was immediately bought and bounced nearly +$2 before a closing sell program on Friday pushed it back under $30. I still believe this is a buying opportunity and we will be well rewarded. 2006 JAN $30 CALL LEAP WPE-AF 2006 JAN $32 CALL LEAP WPE-AB Entry $30.96 10/4 http://members.OptionInvestor.com/leaps/Lp_100304_1.asp PFE Chart **************************** LEAPS Watch List **************************** Coming back to us? Two weeks ago I listed the index entries below in hopes a pullback would trigger an entry at the October lows. Unfortunately October roared out of the gate and we were left standing at the train station. The market drop on Friday brought the Dow back into range but the SMH, QQQ and IWM targets are still several days away should the selling continue. Because we already have a large leaps portfolio I am not going to raise the entries to force a trade. I may adjust them slightly but at this point I would be just as happy not to see those lows again. *********************** Dropped Entries *********************** None *********************** New Watch List Entries *********************** No new entries ************************ SMH $30.66 Semiconductor Holders **Target $29.00** This target may still be out of reach but just in case Intel develop foot and mouth disease on Tuesday I am raising it to $29. $28-$28.50 is strong support and I would really like to get this entry on a dip. Buy 2006 $30 LEAP Call YRH-AF Buy 2006 $35 LEAP Call YRH-AG Sell 2006 $55 LEAP Put YRH-MA SMH Chart ************************ DIA $100.65 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 $3.60 price. These prices should drop significantly if we get an entry at $99. Buy 2006 $100 LEAP Call YGF-AV currently $7.40 Buy 2006 $104 LEAP Call YGF-AZ currently $5.30 Buy 2006 $108 LEAP Call YGF-AD currently $3.60 Buy 2006 $112 LEAP Call YGF-AH currently $2.40 DIA Chart ************************ QQQ $35.59 Nasdaq 100 Tracking Stock Target $34.50 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 last week I have raised it to $34.50. The real difference in premiums over the next year will be very slight. If we do get a move down we will be ready and if not then we can reevaluate again 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 $4.60 Buy 2006 $37 LEAP Call YWZ-AD currently $3.50 These prices should drop about 1.00 with a dip to $34 and 1.25 with a dip to $33. QQQ Chart ************************ IWM $114.70 Russell-2000 Index Ishares Target 1/2 111.00 Target 1/2 108.00 I am actually beginning to think we may have a possibility of getting this entry. I raised it slightly with the first half at $111 and only -3 points from our current level. This is a strong play for me because I believe the small caps will lead any post election rally. If we rebound from our current 114 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 four points to hit our first entry point the current price on the options will change drastically. I would estimate the 115 to be around $11 and the 120 to be around $8. An at the money option is around $12 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. Call us 888 281-9569 to see if you qualify to have us rebate your subscription cost. http://www.OneStopOption.com ************************************************************** ******************* SPREADS & STRADDLES ******************* It's That Quickie Time Of The Month By Mike Parnos Giving news to the market is like giving nuclear weapons to a country that believes in reincarnation. It can be very explosive, to say the least. It's like giving a directional trader hope that a losing will come back a winner in his next life. It just encourages stupidity and irresponsible action. Fortunately, the recent market chaos has moved in both directions. This week, we saw the market move to the higher end of our trading ranges and then reverse. The news? Oil prices, the jobs number and Bush being a lousy debater. The bottom line is that, going into the last week, our positions are in very good shape. But, there are still four trading days remaining and anything can happen. It's that time of the month that causes a stirring in our loins. The vision of "quickie" dollar signs are getting us all excited. Last month, our "hypothetical" quickies worked out pretty well. This month, the market seems a bit more volatile. Let's hope it takes a rest and consolidates for a week before it over-reacts to some other bit of news in one direction or another. Also, it's earnings season, so be prepared for surprises, both good and bad. Remember, the premiums on the Quickies listed below are based on Friday's closing prices and that you should be able to negotiate a little from the bid/ask spreads. Be careful, don't bet the rent money, and have your exit planned -- just in case. _________________________________________________________________ October Quickie #1 - RUT Iron Condor - 575.65 Sell 10 RUT Oct. 560 puts Buy 10 RUT Oct. 540 puts Credit of about: $.90 ($900) Sell 10 RUT Oct. 590 calls Buy 10 RUT Oct. 610 calls Credit of about: $.70 ($700) Total net credit and potential profit of about: $1.60 ($1,600). Maximum profit range of 560 to 590. Maintenance required: $20,000. October Quickie #2 - OEX Siamese Condor - 538.47 Sell 10 Oct. OEX 540 calls Sell 10 Oct. OEX 540 puts Credit of about: $6.85 ($6,850) Buy 10 Oct. OEX 510 puts Buy 10 Oct. OEX 560 calls Debit of about: $.40 ($400) Total net credit of $6.45 ($6,450). The closer OEX closes to 540, the more we make. Our profit range is 533.55 to 546.45. Maintenance required: $20,000. Quickie Position #3 - SPX Iron Condor - 1122.14 Sell 10 SPX Oct. 1105 puts Buy 10 SPX Oct. 1090 puts Credit of about: $$1.10 ($1,100) Sell 10 Oct. SPX 1140 calls Buy 10 Oct. SPX 1155 calls Credit of about: $.95 ($950) Total net credit and profit potential of $2.05 ($2,050). Maximum profit range of 1105 to 1140. Maintenance requirement: $15,000. _________________________________________________________________ OCTOBER CPTI "HYPOTHETICAL" POSITIONS October Position #1 - SPX Iron Condor - 1122.14 We sold 10 SPX October 1160 calls and bought 10 SPX October 1175 calls for a net credit of about $1.75 ($1,750). Then we sold 10 SPX October 1075 puts and bought 10 SPX October 1060 puts for a credit of about $1.30 ($1,300). Total net credit of appx. $3.05 ($3,050). Maximum profit range is 1075 to 1160. Maintenance is $15,000. Position #2 -- RUT Iron Condor - 575.65 We sold 10 RUT Oct. 610 calls and bought 10 RUT Oct. 620 calls for a credit of about $.65 ($650). Then we sold 10 RUT Oct 530 puts and bought 10 RUT Oct 520 puts for a credit of about $.55 ($550). Total net credit of about $1.20 ($1,200). Maximum profit range is 530 to 610. Maintenance is $10,000. Position #3 - OEX Iron Condor - 538.47 We sold 10 OEX October 520 puts and bought 10 OEX October 510 puts for a credit of about $.70 ($700). Then we sold 10 OEX October 565 calls and bought 10 OEX October 575 calls for a credit of about $.50 ($500). Total net credit of about $1.20 ($1,200). Maximum profit range is 520 to 565. Maintenance is $10,000. Position #4 - BBH Iron Condor - $136.80 We sold 10 BBH October $150 calls and bought 10 BBH October $160 calls for a credit of about $.95 ($950). Then we sold 10 BBH October $135 puts and bought 10 BBH October $125 puts for a credit of about $.55 ($550). Total net credit of about $1.50 ($1,500). Maximum profit range is $135 to $150. Maintenance is $10,000. Be careful, it's getting close to the bottom of the range. Position #5 -- SPX "Sure Thing" Strategy - 1122.14 Formerly called the "Credit Spread Boogie." The market seems to be in an uptrend since mid-August. Let's go with the flow until the market tells us otherwise. We sold 3 SPX 1120 October puts and bought 3 SPX 1095 October puts for a net credit of about $6.50 ($1,950). The initial maintenance was $7,500. When the SPX traded in the low 1100s, it was time for an adjustment. We closed out the original bull put spread for $13.20 ($3,960). We then opened a seven-contract position of a 1115/1140 bear call spread, taking in $6.35 ($4,445). That means we've taken in some extra premium. Our new profit potential is $2,435 -- if SPX closes below 1115. This one's going to be exciting. ANOTHER POSITION ADJUSTMENT: Well, I said it was going to be exciting. This is one of those times where we are "tested" -- at least our brokerage account is going to be tested as we are in the midst of getting whipsawed. The market did an about face and took off. What did it take off? It disrobed -- shedding its bearish persona and looking up. So we unwound our 1115/1140 7-contract bear call position at $13.80 ($9,660). We then put on a November 14-contract 1120/1095 bull put spread (coincidentally, right back where we started) at $7.00 ($9,800). The maintenance is getting pricey at $35,000. That's why this strategy is not for everyone. Our potential profit is still $2,435. ____________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $35.58 We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of the 2005 QQQ $29 calls for a total debit of $14,300. We make money by selling near term puts and calls every month. Here’s what we’ve done so far: Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts and calls – credit of $1,150. Dec. $34 puts and calls – credit of $1,500. Jan. $34 puts and calls – credit of $850. Feb. $34 calls and $36 puts – credit of $750. Mar. $34 calls and $37 puts – credit of $1,150. Apr. $34 calls and $37 puts – credit of $750. May $34 calls and $37 puts – credit of $800. June $34 calls and $37 puts -- total net credit of $750. We rolled out to the July $34 calls ($.20 credit) and $37 puts ($.60 credit) and took in a credit of $.80 ($800). We rolled to the August $34 calls and $37 puts, taking in a credit of $900. We rolled to the Sept. $34 calls and $37 puts, yielding $.45 or $450 for the cycle. For October we were again limited to a $.45 ($450) rollout. We rolled to the Sept. $34 calls and $37 puts for a total of $.70 ($700). Our new total credit is now $12,900. Note: We haven't included the proceeds from this long term QQQ ITM Strangle in our profit calculations. It's a bonus! And it's a great conservative cash flow generating strategy. ZERO-PLUS Strategy. OEX – 538.47 In my Feb. 8th column, I outlined a strategy based on an initial investment of $100,000. $74,000 was spent on zero coupon bonds maturing in seven years at a value of $100,000. The principal $100,000 investment is guaranteed. We’re trading the remaining $26,000 to generate a "risk free" return on the original investment. Our current position: We own 3 OEX December 2006 540 calls @ $81 (x 300 = $24,300). Our cash position as of August expiration was $8,390. In September we added another $975 for a new total of $9,365. New Zero Plus Positions For October Not a lot of credit available this month. October bull put spread 520/510 for credit of $.65 x 5 contracts = $325. October bear call spread 565/575 for another credit of $.65 x 5 contracts = $325. If all goes well, we'll be able to add $650 to our cash position. _________________________________________________________________ Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Mike Parnos, Options Therapist and CPTI Master Strategist Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ********** 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 10-10-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: Crude Continues Climb -- Labor Data Disappoints! 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 ************************************************************** ******************* SPREADS & STRADDLES ******************* Crude Continues Climb -- Labor Data Disappoints! By Ray Cummins The major equity averages drifted lower Friday amid pessimistic jobs data and record oil prices. The U.S. Department of Labor reported that 96,000 new jobs were created in September, far less than the consensus estimate of 150,000 expected by analysts. At the same time, the price for a barrel of oil reached $53, adding to worries of renewed slump in equity values during the fourth quarter. The Dow industrial average slid 70 points to 10,055 with General Electric (NYSE:GE) and Alcoa (NYSE:AA) both moving lower after reporting "in-line" third-quarter earnings. The NASDAQ composite index retreated 28 points to 1,919 with networking, computer hardware and software, and semiconductor stocks among the worst performers. The broad Standard & Poor's 500 index closed down 8 points at 1,122 with homebuilder, biotechnology, and brokerage shares enduring the most selling pressure. For the week, the Dow dropped 1.35%, the S&P 500 fell 0.83% and the NASDAQ slid 1.14%. Declining issues outpaced advancers 5 to 4 on the New York Stock Exchange, where volume came to 1.3 billion shares. Losers trounced winners by more than 2 to 1 on the technology exchange, on volume of 1.67 billion shares. Treasury prices rebounded with the 10-year note closing up 29/32, while its yield fell to 4.13%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/08/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 84.61 OCT 65.0 70.0 0.70 69.30 0.70 Open RYL 88.15 87.33 OCT 75.0 80.0 0.75 79.25 0.75 Open GIVN 38.72 41.78 OCT 30.0 35.0 0.70 34.30 0.70 Open MBT 140.75 145.98 OCT 120.0 125.0 0.50 124.50 0.50 Open COGN 34.58 36.02 OCT 30.0 32.5 0.30 32.20 0.30 Open SCSC 66.22 71.32 OCT 55.0 60.0 0.50 59.50 0.50 Open CCMP 38.29 34.69 OCT 30.0 35.0 0.75 34.25 0.44 Open? ONXX 41.99 42.73 OCT 30.0 35.0 0.50 34.50 0.50 Open AHC 83.99 91.57 OCT 75.0 80.0 0.55 79.45 0.55 Open CELG 59.39 61.04 OCT 50.0 55.0 0.55 54.45 0.55 Open GDT 64.02 62.93 OCT 55.0 60.0 0.65 59.35 0.65 Open PD 90.48 96.01 OCT 80.0 85.0 0.50 84.50 0.50 Open RTP 104.28 110.62 OCT 95.0 100.0 0.55 99.45 0.55 Open PETD 43.63 42.38 OCT 35.0 40.0 0.45 39.55 0.45 Open RIMM 76.98 75.71 OCT 60.0 65.0 0.40 64.60 0.40 Open BSC 94.16 92.49 NOV 80.0 85.0 0.65 84.35 0.65 Open PHS 37.23 38.30 NOV 30.0 32.5 0.35 32.15 0.35 Open BTU 60.07 60.65 NOV 50.0 55.0 0.60 54.40 0.60 Open MRVL 28.84 28.38 NOV 22.5 25.0 0.35 24.65 0.35 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss As noted Tuesday, the bullish position in Pulte Homes (NYSE:PHM) was closed to limit losses. The other spread in the homebuilders sector, Ryland (NYSE:RYL), has more room for a downside move but we will be watching the issue closely in the coming week. Cabot Micro (NASDAQ:CCMP) is an "early-exit" candidate on any further bearish activity. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AZO 74.06 77.10 OCT 85.0 80.0 0.55 80.55 0.55 Open MXIM 40.94 42.89 OCT 50.0 45.0 0.50 45.50 0.50 Open? PLMO 32.30 30.60 OCT 45.0 40.0 0.55 40.55 0.55 Open LEN 46.75 43.70 OCT 55.0 50.0 0.60 50.60 0.60 Open NTES 35.51 39.08 OCT 45.0 40.0 0.60 40.60 0.60 Open? NBIX 50.65 44.78 OCT 60.0 55.0 0.55 55.55 0.55 Open SSP 49.66 49.70 OCT 52.5 50.0 0.50 50.50 0.50 Open APOL 78.35 69.81 OCT 90.0 85.0 0.25 85.25 0.25 Open STJ 70.73 72.63 OCT 80.0 75.0 0.55 75.55 0.55 Open APOL 72.00 69.81 OCT 85.0 80.0 0.45 80.45 0.45 Open PRX 37.80 35.03 OCT 45.0 40.0 0.60 40.60 0.60 Open CERN 42.99 45.02 OCT 50.0 45.0 0.50 45.50 0.48 Open? IMCL 50.35 51.30 OCT 60.0 55.0 0.40 55.40 0.40 Open? LLTC 35.71 36.86 OCT 40.0 37.5 0.30 37.80 0.30 Open? AMZN 40.47 40.00 NOV 50.0 45.0 0.65 45.65 0.65 Open PDX 55.00 55.55 NOV 65.0 60.0 0.60 60.60 0.60 Open BZH 103.14 101.67 NOV 115.0 110.0 1.10 111.10 1.10 Open CHIR 37.98 35.63 NOV 45.0 42.5 0.30 42.80 0.30 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Although currently profitable, the recent position in Lexmark (NYSE:LXK) has previously been closed to limit potential losses. Cerner (NASDAQ:CERN) is the most obvious "early-exit" candidate, however it remains in a near-term trading range along with other "watch-list" positions such as: ImClone (NASDAQ:IMCL), Linear Technology (NASDAQ:LLTC), Maxim Integrated (NASDAQ:MXIM), and Netease.com (NASDAQ:NTES). DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status QLGC 29.12 29.27 OCT 30.0 30.0 2.40 2.35 Open MDC 74.96 67.40 OCT 75.0 75.0 3.50 8.00 Open? Our new straddle in MDC Holdings (NYSE:MDC) was a "big winner" this week when share values in the home construction segment plummeted after Pulte Homes (NYSE:PHM) posted disappointing earnings. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ COST - Costco $44.69 *** Favorable Earnings! *** Costco Wholesale (NASDAQ:COST) operates membership warehouses that offer members very low prices on a limited selection of nationally branded and selected private label products in a wide range of merchandise categories. Costco operates nearly 400 warehouse clubs, most of which are in the United States, while others are in Canada, the United Kingdom, Korea, Taiwan and Japan. The company also operates, through a 50%-owned joint venture, similar retail warehouses in Mexico. COST - Costco $44.69 PLAY (conservative - bullish/credit spread): BUY PUT NOV-40.00 PRQ-WH OI=1264 ASK=$0.20 SELL PUT NOV-42.50 PRQ-WV OI=484 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$42.20 __________________________________________________________________ NEM - Newmont Mining $46.25 *** All That Glitters... *** Newmont Mining (NYSE:NEM) and its affiliates and subsidiaries predominantly operate in a single industry, engaged in worldwide gold production, exploration for gold and acquisition of gold properties. Newmont also has base metal operations engaged in copper and zinc production. The company has operations in the United States, Australia, Peru, Indonesia, Canada, Uzbekistan, Turkey, Bolivia, New Zealand and Mexico. Newmont also has a merchant banking unit that is engaged in portfolio management (providing in-house investment banking and advisory services), and management of Newmont's equity portfolio, royalty portfolio and downstream gold refining and distribution business. NEM - Newmont Mining $46.25 PLAY (conservative - bullish/credit spread): BUY PUT NOV-40.00 NEM-WH OI=1264 ASK=$0.25 SELL PUT NOV-42.50 NEM-WV OI=1957 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$42.20 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ FLIR - FLIR Systems $54.52 *** Earnings Speculation! *** FLIR Systems (NASDAQ:FLIR) designs, manufactures and markets thermal imaging systems and infrared camera systems that offer a variety of applications in the commercial, industrial and government markets. The company's business is organized into two divisions, thermography and imaging. The thermography division produces systems that provide precise temperature measurement capabilities and are used for commercial and industrial applications. The imaging division produces a variety of systems that are used in such applications as long-range surveillance, reconnaissance, search and rescue, security, force protection, targeting and law enforcement. Quarterly earnings are due on or about October 20, 2004. FLIR - FLIR Systems $54.52 PLAY (less conservative - bearish/credit spread): BUY CALL NOV-65.00 FFQ-KM OI=96 ASK=$0.40 SELL CALL NOV-60.00 FFQ-KL OI=62 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.70-$0.75 POTENTIAL PROFIT(max)=16% B/E=$60.70 __________________________________________________________________ MERQ - Mercury Interactive $37.97 *** Revenge Play! *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2004 companies enhance the user experience by improving performance, availability, reliability and scalability in their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $37.97 PLAY (conservative - bearish/credit spread): BUY CALL NOV-45.00 RQB-KI OI=132 ASK=$0.40 SELL CALL NOV-42.50 RQB-KS OI=206 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$42.85 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. _________________________________________________________________ ETN - Eaton $64.82 *** Earnings Speculation! *** Eaton (NYSE:ETN) is a diversified industrial manufacturer engaged in the design and manufacture of fluid power systems; electrical power quality, distribution and control; automotive engine air management and powertrain controls for fuel economy; and also intelligent drivetrain systems for fuel economy and safety in trucks. The principal markets for the company's Fluid Power, Automotive and Truck segments are OEMs and aftermarket customers of aerospace products and systems, off-highway agricultural and construction vehicles, industrial equipment, passenger cars and heavy-, medium-, and light-duty trucks. The principal markets for the Electrical segment are their industrial, construction, commercial, automotive and government customers. Earnings are due on or about 10/14/04. ETN - Eaton $64.82 PLAY (very speculative - neutral/debit straddle): BUY CALL OCT-65.00 ETN-JM OI=809 ASK=$1.00 BUY PUT OCT-65.00 ETN-VM OI=46 ASK=$1.15 INITIAL NET-DEBIT TARGET=$2.00-$2.05 INITIAL TARGET PROFIT=$0.65-$0.90 ************************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 10/08/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 17.23 0.40 7.19% 2.74% FHRX OCT 17.50 17.05 21.21 0.45 6.31% 2.64% SNDK OCT 22.50 22.00 30.20 0.50 5.86% 2.27% SSYS OCT 25.00 24.45 30.99 0.55 5.91% 2.25% JNPR OCT 22.50 22.00 24.35 0.50 5.73% 2.27% CREE OCT 22.50 22.15 29.34 0.35 5.28% 1.58% FFIV OCT 22.50 22.20 31.02 0.30 4.45% 1.35% AMZN OCT 37.50 37.00 40.00 0.50 3.96% 1.35% ASKJ OCT 25.00 24.45 32.58 0.55 7.42% 2.25% USNA OCT 30.00 29.30 33.15 0.70 6.10% 2.39% YHOO OCT 30.00 29.40 34.17 0.60 5.51% 2.04% CELL OCT 15.00 14.50 16.27 0.50 8.28% 3.45% CREE OCT 25.00 24.35 29.34 0.65 7.26% 2.67% CLHB OCT 10.00 9.75 11.68 0.25 7.98% 2.56% PDII OCT 25.00 24.45 27.60 0.55 6.98% 2.25% GILD OCT 35.00 34.35 37.80 0.65 5.61% 1.89% BOBJ OCT 20.00 19.65 23.65 0.35 5.73% 1.78% ASTE OCT 17.50 16.95 18.80 0.55 9.55% 3.24% LCAV OCT 25.00 24.35 26.85 0.65 7.97% 2.67% ALO OCT 17.50 17.10 17.12 0.02 0.36% 2.34% FHRX OCT 17.50 17.20 21.21 0.30 6.33% 1.74% GNSS OCT 12.50 12.20 14.25 0.30 8.02% 2.46% COGN OCT 32.50 31.90 36.02 0.60 6.15% 1.88% PSFT OCT 17.50 17.20 21.95 0.30 6.15% 1.74% LF OCT 20.00 19.75 19.90 0.15 2.67% 1.27% ATYT OCT 15.00 14.75 17.04 0.25 5.90% 1.69% YHOO OCT 30.00 29.50 34.17 0.50 6.01% 1.69% AGIX OCT 12.50 11.75 29.65 0.75 21.96% 6.38% DHB OCT 12.00 11.60 14.24 0.40 14.91% 3.45% INTV OCT 10.00 9.70 11.21 0.30 12.10% 3.09% NVTL OCT 22.50 21.95 23.04 0.55 10.37% 2.51% SFL OCT 20.00 19.55 24.25 0.45 9.47% 2.30% FHRX OCT 17.50 17.15 21.21 0.35 8.94% 2.04% PAAS OCT 15.00 14.75 17.57 0.25 7.04% 1.69% BLUD OCT 20.00 19.75 26.97 0.25 6.52% 1.27% AAPL OCT 35.00 34.35 39.06 0.65 9.07% 1.89% RIGL OCT 22.50 21.85 25.14 0.65 13.86% 2.97% CMTL OCT 25.00 24.65 26.92 0.35 6.90% 1.42% NABI OCT 12.50 12.25 13.14 0.25 9.59% 2.04% CREE OCT 25.00 24.70 29.34 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 17.15 0.25 7.89% 1.69% SNDK OCT 27.50 27.10 30.20 0.40 9.70% 1.48% WRLS NOV 7.50 7.20 10.45 0.30 7.65% 4.17% OSTK OCT 35.00 34.60 39.55 0.40 7.74% 1.16% SIMG NOV 12.50 12.10 13.29 0.40 5.95% 3.31% NVTL OCT 22.50 22.25 23.04 0.25 7.11% 1.12% RIGL OCT 22.50 22.20 25.14 0.30 9.26% 1.35% SYNA OCT 20.00 19.80 22.82 0.20 6.50% 1.01% YHOO OCT 32.50 32.10 34.17 0.40 7.88% 1.25% Alopharma (NYSE:ALO), Leapfrog (NYSE:LF), Novatel (NASDAQ:NVTL) and Nabi Biopharmaceuticals (NASDAQ:NABI) are the most obvious issues on the "watch" list. Plays on American Pharmaceutical Partners (NASDAQ:APPX) and Navarre (NASDAQ:NAVR), which is now at the "break-even" point, have previously been closed to limit potential losses. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield ESIO OCT 22.50 23.00 16.97 0.50 6.99% 2.17% LNCR OCT 32.50 33.30 30.35 0.80 7.12% 2.40% ADTN OCT 30.00 30.30 20.41 0.30 3.79% 0.99% DIGE OCT 30.00 30.35 25.54 0.35 6.05% 1.15% CTB OCT 22.50 22.85 19.93 0.35 4.25% 1.53% MDCO OCT 30.00 30.80 23.51 0.80 8.33% 2.60% CECO OCT 40.00 40.50 26.75 0.50 6.34% 1.23% CPRT OCT 20.00 20.35 18.85 0.35 6.97% 1.72% FLML OCT 17.50 17.80 15.76 0.30 10.47% 1.69% SSNC OCT 20.00 20.35 20.22 0.13 2.85% 1.72% USPI OCT 35.00 35.65 33.10 0.65 6.36% 1.82% BDY OCT 22.50 22.90 19.00 0.40 7.63% 1.75% PLMO OCT 35.00 35.90 30.60 0.90 11.25% 2.51% XLNX OCT 30.00 30.25 27.63 0.25 4.46% 0.83% APPX OCT 30.00 30.50 26.51 0.50 8.60% 1.64% CYMI OCT 30.00 30.40 28.85 0.40 6.78% 1.32% TASR OCT 45.00 45.35 37.43 0.35 8.19% 0.77% ALD OCT 25.00 25.25 24.78 0.25 6.46% 0.99% CYBX OCT 20.00 20.40 18.66 0.40 14.93% 1.96% Positions in Mercury Interactive (NASDAQ:MERQ) and Storage Technology (NYSE:STK), along with Altera (NASDAQ:ALTR) and SS&C Technologies (NASDAQ:SSNC), both of which are currently profitable, have previously been closed to limit potential losses. Cymer (NASDAQ:CYMI) remains on the "watch" list. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 PMTI 23.08 NOV 20.00 HKQ-WD 0.85 355 19.15 40 3.4% 9.2% SNDA 28.52 NOV 22.50 QKU-WX 0.65 28 21.85 40 2.3% 7.8% USG 19.05 NOV 17.50 USG-WW 0.60 4511 16.90 40 2.7% 6.8% IDBE 14.53 NOV 12.50 QQ-WV 0.35 2400 12.15 40 2.2% 6.4% NCRX 26.75 NOV 25.00 QNY-WE 0.70 162 24.30 40 2.2% 5.5% BVF 19.36 NOV 17.50 BVF-WW 0.45 1452 17.05 40 2.0% 5.4% STTX 29.30 NOV 25.00 SFU-WE 0.40 5 24.60 40 1.2% 3.9% ANF 36.57 NOV 32.50 ANF-WZ 0.40 3873 32.10 40 0.9% 2.8% 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. _________________________________________________________________ PMTI - Palomar Medical $23.08 *** New Sales Plan! *** Palomar Medical Technologies (NASDAQ:PMTI) is a researcher and developer of light-based systems for hair removal and other cosmetic procedures. The company researches, develops, makes, markets, sells and services light-based products that perform procedures addressing medical and cosmetic concerns. Palomar offers a range of products based on its technologies including hair removal; non-invasive treatment of facial and leg veins and other benign vascular lesions, such as rosacea, spider veins, port wine stains and hemangiomas; removal of benign pigmented lesions, such as age and sun spots; tattoo removal; treatment for acne; pseudofolliculitis barbae, and other skin treatments. PMTI - Palomar Medical $23.08 NOV 20.00 HKQ-WD LB=0.85 OI=355 CB=19.15 DE=40 TY=3.4% MY=9.2% _________________________________________________________________ SNDA - Shanda Interactive Ent. $28.52 *** Premium-Selling! *** Shanda Interactive Entertainment (NASDAQ:SNDA) is an operator of online games in China. The games, licensed from third parties, as well as developed in-house by the company, include The Legend of Mir II and The World of Legend. The company's commercially launched games have approximately 1.4 million peak concurrent users and 931,570 average concurrent users. Shanda also provides multiplayer online games, including role-playing games and casual online games, which allow thousands of users to interact in a virtual world by assuming ongoing roles or characters with many different features. SNDA - Shanda Interactive Ent. $28.52 NOV 22.50 QKU-WX LB=0.65 OI=28 CB=21.85 DE=40 TY=2.3% MY=7.8% _________________________________________________________________ USG - USG Corporation $19.05 *** Asbestos Legislation? *** USG Corporation (NYSE:USG) is engaged in the manufacture and distribution of building materials. Its business operations are organized into three operating segments: North American Gypsum, Worldwide Ceilings and Building Products Distribution. North American Gypsum manufactures and markets gypsum sheetrock and related products in the United States, Canada and Mexico. Worldwide Ceilings manufactures and markets ceiling tile in the United States and ceiling grid in the United States, Canada, Europe and Asia. Building Products Distribution distributes gypsum wallboard, drywall metal, joint compound and other building products throughout the United States. USG - USG Corporation $19.05 NOV 17.50 USG-WW LB=0.60 OI=4511 CB=16.90 DE=40 TY=2.7% MY=6.8% _________________________________________________________________ IDBE - ID Biomedical $14.53 *** 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 $14.53 NOV 12.50 QQ-WV LB=0.35 OI=2400 CB=12.15 DE=40 TY=2.2% MY=6.4% _________________________________________________________________ NCRX - NeighborCare $26.75 *** Omnicare Merger Target! *** NeighborCare (NASDAQ:NCRX) is a provider of institutional pharmacy services in the United States. These pharmacy operations consist of a number of institutional pharmacies, community-based professional retail pharmacies and on-site pharmacies, which are located in customers' facilities and serve only customers of that facility. In addition, the company operates home infusion, respiratory and medical equipment distribution centers. NCRX - NeighborCare $26.75 NOV 25.00 QNY-WE LB=0.70 OI=162 CB=24.30 DE=40 TY=2.2% MY=5.5% _________________________________________________________________ BVF - Biovail $19.36 *** Bottom-Fishing! *** Biovail Corporation (NYSE:BVF) is a pharmaceutical company engaged in the development, manufacture, marketing, licensing and distribution of pharmaceutical products for the treatment of chronic medical conditions primarily in North America. The company's primary focus is on therapeutic areas, such as cardiovascular disease, central nervous system disorders and pain management. Other areas of interest include Type II diabetes, antiviral medicine and select niche therapeutic categories with identified potential. Its current portfolio of cardiovascular therapeutic products in the United States includes Cardizem LA, Cardizem CD, Tiazac, Vasotec, Vaseretic, Teveten, Teveten HCT, Isordil and other generic pharmaceutical products. BVF - Biovail $19.36 NOV 17.50 BVF-WW LB=0.45 OI=1452 CB=17.05 DE=40 TY=2.0% MY=5.4% _________________________________________________________________ STTX - Steel Technologies $29.30 *** Strong Sector! *** Steel Technologies (NASDAQ:STTX) is an intermediate steel processor engaged in the business of processing flat rolled steel to specified close tolerances in response to orders from industrial customers who require steel of precise type, thickness, width, temper, finish and shape for specific purposes. Its principal products are cold-rolled strip and sheet, cold-rolled one-pass strip, high-carbon and alloy strip and sheet, hot-rolled strip and sheet, high-strength low-alloy strip and sheet, hot-rolled pickle and oil and coated strip and sheet, hot-rolled pickled and oiled sheet, tin plate, blanking and cut-to-length processing of coil steel and fabrication and welding of steel sheets and plates. STTX - Steel Technologies $29.30 NOV 25.00 SFU-WE LB=0.40 OI=5 CB=24.60 DE=40 TY=1.2% MY=3.9% _________________________________________________________________ ANF - Abercrombie & Fitch $36.57 *** Target-Shoot An Entry! *** Abercrombie & Fitch (NYSE:ANF), through its subsidiaries, is a specialty retailer that operates stores selling casual apparel, personal care and other accessories for men, women and kids under the Abercrombie & Fitch, abercrombie and Hollister brands. The company's stores and point-of-sale marketing are designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are all carefully planned and coordinated to create a shopping experience that is consistent with the Abercrombie & Fitch, abercrombie or Hollister lifestyle. The company maintains a uniform appearance throughout its store base in terms of merchandise display and location on the selling floor. NOV 32.50 ANF-WZ LB=0.40 OI=3873 CB=32.10 DE=40 TY=0.9% MY=2.8% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BRCM - Broadcom $28.25 *** Sector Slump! *** Broadcom (NASDAQ:BRCM) is a leading provider of highly integrated silicon solutions that enable broadband communications and the networking of voice, video and data services. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies complete system-on-a-chip solutions and related hardware and software applications for all broadband communications markets. Their diverse product portfolio includes solutions for digital cable and satellite set-top boxes; cable and DSL modems and residential gateways; high-speed transmission and switching for local, metropolitan, wide area and storage networking; home and wireless networking; cellular and terrestrial wireless communications; Voice over Internet Protocol (VoIP) gateway and telephony systems; broadband network processors; and SystemI/O(TM) server solutions. BRCM - Broadcom $28.25 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 35 RCQ-KG 9504 0.35 35.35 4.4% 1.0% _________________________________________________________________ LLTC - Linear Technology $36.86 *** In A Trading Range? *** Linear Technology (NASDAQ:LLTC) designs, manufactures and sells a broad line of standard high-performance linear integrated circuits (ICs). Applications for the company's products include telecommunications, cellular telephones, networking products, optical switches, notebook and desktop computers, computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products, digital cameras and MP3 players, complex medical devices, automotive electronics, factory automation, process control and military and space systems. LLTC - Linear Technology $36.86 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 40 LLQ-KH 3410 0.60 40.60 3.7% 1.5% _________________________________________________________________ LRCX - Lam Research $21.62 *** Prudential Downgrade! *** Lam Research (NASDAQ:LRCX) designs, manufactures, markets and services semiconductor processing equipment for the fabrication of integrated circuits for the worldwide semiconductor industry. Semiconductor wafers are subjected to a series of process steps that result in the simultaneous creation of many individual ICs. The cmpany's etch and chemical mechanical planarization products selectively remove portions of various films from the wafer to create semiconductors. Lam Research leverages its expertise in these areas to also develop intellectual property for integrated processing solutions. LRCX - Lam Research $21.62 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 25 LMQ-KE 623 0.40 25.40 5.4% 1.6% _________________________________________________________________ SINA - SINA Corporation $27.46 *** Premium-Selling Only! *** SINA Corporation (NASDAQ:SINA), formerly known as SINA.com, is an online media company and value-added information service provider for China and the global Chinese communities. With a branded network of localized Websites targeting China and overseas Chinese, the company provides an array of services to its users including region-focused online portals, search, directory, interest-based and community-building channels, free and premium e-mail, wireless short messaging, online games, virtual Internet service provider, classified listings, e-commerce, e-learning, and enterprise e-solutions. SINA generates revenue through advertising, various fee-based services, e-commerce and enterprise services. SINA - SINA Corporation $27.46 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 35 NOQ-KG 970 0.35 35.35 4.6% 1.0% ************************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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