The Option Investor Newsletter Sunday 10-17-2004 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: Hunt for Red October Futures Wrap: See Note Index Trader Wrap: The Bigger Picture Editor's Plays: Skids Oiled? Market Sentiment: Are You From Missouri? Ask the Analyst: An economic update 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 10-15 WE 10-08 WE 10-01 WE 9-24 DOW 9933.38 -121.82 10055.2 -137.45 10192.6 +145.41 -237.22 Nasdaq 1911.50 - 8.47 1919.97 - 22.23 1942.20 + 62.72 - 30.61 S&P-100 531.80 - 6.67 538.47 - 4.64 543.11 + 8.74 - 11.43 S&P-500 1108.20 - 13.94 1122.14 - 9.36 1131.50 + 21.39 - 18.47 W5000 10838.67 -125.85 10964.5 - 94.18 11058.7 +220.40 -155.02 SOX 381.37 - 8.15 389.52 - 12.39 401.91 + 19.36 - 5.95 RUT 569.42 - 6.23 575.65 - 9.38 585.03 + 19.06 - 7.20 TRAN 3352.68 + 16.68 3336.00 + 37.20 3298.80 + 96.69 - 55.28 VXO 15.89 14.95 12.55 14.14 VXN 21.80 20.69 18.91 21.10 ****************************************************************** Hunt for Red October by Jim Brown Last Sunday cracks were beginning to show in the October rally and today it would take more than Visine to get the red out. October has lived up to its reputation for red numbers for the indexes but good news may lie ahead. October is half over and hopefully it was the bad half. Dow Chart Nasdaq Chart SPX Chart Economically Friday was a not exciting for the bulls with conflicting numbers once again. The bad news began with the NY Empire State Manufacturing Survey. The headline number fell sharply to 17.4 from 27.3 and almost completely reversed the September gains. Since topping in July at 35.8 the index has been trending lower and suggests the economic boom for manufacturers in New York could be coming to an end. Shipments fell from 32.1 to 19.1, new orders fell from 26.2 to 21.2. Back orders turned negative at -2.7 from 11.7. Employment fell to 17.6 from 20.3 and prices paid soared to 59.2 from 52.0. A positive headline number still indicates growth but the internal components paint the real picture. The PPI showed rapidly rising inflation is still with us. The prices for finished goods rose +0.1% in September and +0.3% for the quarter. However, the headline number does not give the true picture. Core intermediate goods rose by +9.0% for the quarter and September was the 14th month of consecutive gains. Non-durable goods rose +19.4% for the 3Q. Core crude goods rose +50.3% for the quarter. Any questions now about why the Fed is not backing off its rate hike policy? Retail Sales soared much higher than expected in September with a +1.5% headline number but in reality it was not as good as it appeared. Automakers dumping inventory accounted for two-thirds of the number leaving all other retailers struggling at +0.6% and inline with the consensus estimates. Auto dealers saw sales jump +4.2% for the month in an effort to dump 2004 model inventory. Building supply stores saw a +1.4% gain mostly due to hurricane related buying. Ironically sales at gas stations only rose +0.1% as angry consumers cutback on driving to save money. Industrial Production rose only a very minor +0.1% and well under expectations and the August number was revised down to -0.1%. Production gains have been trending down since Nov-2003. Manufacturing fell -0.3% and August was revised down to only a gain of +0.2% from a previously reported +0.5% gain. Capacity Utilization fell across the board with Durable Goods slipping to only 73.2%. This means more than 25% of capacity is idle due to lack of demand. Low utilization means no pricing power as companies fight for market share just to keep plants running rather than increase profits. Business Inventories rose +0.7% but slowed from their pace from the prior month. Sales rose to match the inventory and the balance appears to be holding. The low rate of inventory build may be beneficial to manufacturers who are avoiding buildups where possible but it is detrimental to the GDP. In Q2 the inventory gains added +78 basis points to the GDP but for Q3 it could be a negative number as the rate of growth slows. You may recall I cautioned about the Consumer Sentiment on Thursday night. Friday's report showed sentiment falling sharply to 87.5 from last months 94.2. This is the lowest level since March-2003 and not a good sign for the future. This was the sharpest one-month decline since February. Consumer outlook for the future fell from 88.0 to 79.6 and the first time under 80 since April-2003. The reasons given for this sudden drop in sentiment were higher gas prices, negative economic comments from the Kerry campaign, falling markets, slow job growth and earnings guidance for 2005. This is amazing since the survey was done before the high profile company specific guidance began to appear. Consumers are beginning to believe analysts that growth for all of 2005 could be only +2-3%. The markets on Friday opened up slightly but hesitantly and walked the flat line until the text of the Greenspan speech on oil hit the wires. The speech went into great historical depth explaining why current oil prices did not worry him and there was an immediate spike in equities and drop in bonds. Clearly an asset allocation program triggered on the positive comments but the impact was not lasting and the bonds and equities returned to the prior levels before the day was out. Ten-year yield chart Dow Chart Crude Oil Chart The main point of the Greenspan speech was a lack of worry about oil prices based on historical trends. Oil dipped slightly as the speech was delivered live but promptly rebounded to trade at $55 and close at another new high at $54.93. Why do you think this happened? Mr. financial himself just said oil was not a problem and not to worry. After reading the entire text of the Greenspan speech I was struck by the complete divergence from present day reality that appears to be evident in his thinking. He suggests that new technology, cheaper fuels and better oil recovery methods will delay the depletion of all oil reserves until 2050. While that may be true the oil crisis will reach epic proportions well before the last drop of oil is extracted from the ground in 2050. Currently emerging economies like India and China only use a fraction of the oil consumed by the U.S. The U.S. has a population of 290 million and we consume about 22 million barrels of oil per day. China has a population of 1.3 billion, four times the size of the U.S. China only consumes 6 million barrels per day but that rate of consumption is expanding rapidly. It is a well known fact that emerging economies consume more oil per capita during their growth phase than fully developed countries. China is currently exploding from its agrarian society and rapidly improving the life style of its population. However China is still well behind the industrialization levels of Korea and Japan. Both Japan and Korea currently consume 16 bbl per person per year. If China only brought the coastal 1/3 of its population to the current economic and technological levels of Japan/Korea it would increase China's consumption to more than 20 MBpd. That is the equivalent of adding the production of two Saudi Arabia's operating at full capacity to the daily global production. It is just not going to happen. Add in the explosion in India and other emerging economies and global demand could increase by 30 Mbpd over the next 10 years. Greenspan made a big deal about the 100 billion barrel increase in reserves over the last decade while at the same time 250 billion barrels were consumed. What is wrong with this picture? It is a sure bet that the current decade will NOT add 100 billion barrels to known reserves. If that additional consumption of that 30 Mbpd projection above came to pass it would increase annual consumption by over 11 billion barrels and that does not include increases in consumption by already developed countries. In other words reserves increased at only 40% of the rate of consumption over the decade of 1990-2000 with the advent of deeper drilling, monster offshore wells, and a vast improvement in recovery technologies. Consumption increased over 50% during the same period. Current annual consumption is 31 billion barrels. Add in the 11 billion in expected new consumption from just the emerging economies and increases in existing economies and consumption in the current decade could spike to 500 billion barrels. If we only found 100 BB of new reserves from 1990-2000 with the worldwide race to locate those reserves then it should be clear to everyone that we are not going to find another 500 BB between 2000-2010. The outlook is clear to anyone that wants to take the time to think it through. The easy oil has been found and the major fields are already drying up. New technology and additional discoveries will add to known reserves but at a far smaller pace than current reserves are being consumed. If we did find another 100BB over this decade it would be less than a three year supply at current demand levels. I believe the Greenspan speech was crafted to DOWNPLAY the current crisis and attempt to TALK DOWN PRICES. The Fed is famous for this in multiple markets over the years. When the Fed finds itself being pushed aside by current events they will always try to talk the problem away. When David confronts problems of Goliath proportions the first weapon of choice for Greenspan is a word barrage. By the time the current scenario plays out Greenspan will be retired and new presidents in power. This attempt to talk down oil prices is a stop gap measure to stop the bleeding. The U.S. economy is currently experiencing a $20 billion per month undeclared tax on consumers from the increase in oil over the last six months. $20 billion of valuable purchasing power evaporating each month. You do the math. Greenspan is simply trying to apply a tourniquet to the wound to stop the economic bleeding. If he could talk down prices, a feat OPEC and Saudi Arabia have been unable to do, then the pressure would ease on the administration and on the economy. Unfortunately those who understand the problem and have no vested interest in Greenspan's economic game plan considered his statements for all of an hour and then pushed prices to another new high. Greenspan is firing blanks in this battle. Back in July he called high-energy prices as a "transitory uptick". Friday he warned that further increases in oil prices could continue and cause more long term damage to the economy and had already subtracted -0.75 off the 2004 GDP. Of course these negative points were glossed over by the media. Every day we are coming closer to the day when oil production peaks forever and begins the downhill slide to that last drop in 2050. That day is currently expected in 2007-2008 depending on how fast China grows. Once demand exceeds production and that could come over the next three years, the price of oil will explode higher. Once orders exceed capacity the bidding war for available production will skyrocket. The crisis will not be when oil is gone in 2050 but when the demand exceeds production on a daily basis. $55 oil will quickly become $100 oil or even higher. Demand and production are balanced very precariously today and the prices are at all time highs. What if demand only exceeded production by a million barrels per day? That is less than a 1% increase in demand at current levels. One million bbls per day, 7 mil per week, 21 mil per month. Get the picture? Oil sales will become a bidding war and price will become less of a concern than actually getting delivery. $5 gas by 2010? I would NOT bet against it. The chief economist for Conoco Phillips told a business audience on Thursday that oil prices would remain high due to a "permanent structural change" in the industry. The economist said the cost of finding new oil reserves is over $30 a barrel and rising sharply due to the difficulty of prospecting and drilling in remote locations. They cited unrest in oil-rich areas, constraints on global production capacity and rapidly increasing worldwide demand. I would assume the chief economist for Conoco probably knows what they are talking about. I do believe oil prices will moderate after the election but it should be considered a long term buying opportunity for those stocks that have large proven reserves. The longer that oil stays in the ground the more valuable it becomes. Five years from now I believe we will look back at $50 oil just like we look back at 99 cent gas today. If this scenario comes to pass then a global recession will eventually appear. When countries can't get or afford oil their economic expansion will slow. I reported last week that Goldman Sachs Commodity Index had risen +103% over the last 33 months. A recession has never failed to appear when the index rose over +55% in any 30-month period. Bulls will always claim this time is different until they are run over by reality. Need proof? Oil hit an all time high of $55 today and the Dow transports are nearing a four year high. Delta is losing $6.78 million per day and will eventually follow the other carriers into bankruptcy. All airlines are reportedly losing more than $1 billion per month on fuel costs. Fuel is the largest expense for the transportation sector. Compare these charts and tell me there is not something drastically wrong with this picture. Transport/Crude comparison charts The markets struggled all week and the insurance implosion on Thursday stifled any chance of a recovery. $40 billion in market cap was wiped out in a matter of minutes. Spitzer managed in one fell swoop to punish stockholders of those companies to the tune of a 30% to 40% loss in their retirement holdings. Millions of investors suffered irreparable harm for the sins of the few. Did he really have to go public in such a visible manner? Could he have worked with them in private to achieve a settlement that would have left their market cap relatively intact? Absolutely! I believe we have a prosecutor gone wild and living for that next jolt of adrenaline that the public limelight brings regardless of how many investors are hurt. Shame on you Spitzer. Lose the ego and get a conscience. On Friday the Dow rebounded off its two month lows and struggled in vain to hold its intraday Greenspan gains. By the close it retreated back to within 30 points of the 9900 level and appeared tired from the effort. The Dow will start off on Monday with two major earnings hurdles with MMM and IBM both reporting. MMM before the open and IBM after the close. Those are just two of the over 500 companies to report next week. There is a very heated discussion underway on the potential for a retest of the lows for the year at 9783 and the potential for that retest to hold. Should the Friday rebound from 9900 hold and we move higher from here it would be a higher low and a bullish event. There is a growing group of technical analysts that think it will not hold and a lower low is in the cards. Technicians feel future events such as the election are already priced into the market and the potential for a lasting post election rebound is slim. The sentiment traders feel the current October dip was a normal event as will be a coming pre/post election rally. Those keeping statistics point to the election trends for the last 100 years and suggest the growing Kerry lead predicts an incumbent defeat and the potential for the Dow to retest 9000 rather than 9800. The bottom line is the market is very confused. Historical trends are failing. Oil is at all time highs and showing no indications of falling. Bulls are in denial of the earnings deceleration ahead and mutual funds are piling up cash while waiting for a sign of normalcy to return. Buffett has 38% of his assets in cash and many funds are adding to cash instead of equities. Bonds are continuing to rise and long term rates are falling despite an aggressive rate hike program by the Fed. Times are very confusing and traders do not know where to jump. When all else fails we always have to drop back to the technicals for directional hints baring an external event. The Dow must hold 9800 or all bullish bets are off and a new game plan will have to be drawn up. Resistance on any continued Monday bounce is 10000 with 10100 a close backup. The Nasdaq returned to support at 1900 on Friday and managed to rebound to 1925 resistance on the midday asset allocation program. Overall the Nasdaq is clinging to the relatively higher ground although still in a long term downtrend. 1850 would be dip support and 1965 strong resistance. When the Dow/Nasdaq are giving conflicting signals we need to look at a broader market indicator. The Wilshire 5000 has gravitated around the 10750 level since January and that is right where it started the year. The Wilshire has held up remarkably well compared to the Dow and looks more like the Nasdaq in performance. When determining broad market support level the 50dma on the Wilshire has been both support and resistance on many occasions all year. The current horizontal support is 10750 and the 50dma is 10785. I believe this 10750-10785 is the crucial market level to watch next week. As long as we remain above it I will remain bullish but a break below would turn me bearish in a flash. If the Wilshire decided to return to the downtrend support since January it could easily project back to 10000 and a -800 point drop. I do not expect that but it would be the worst case. By watching the Wilshire ($DWC) it removes the weighting impact of individual stocks like AIG in the Dow. AIG was responsible for nearly two thirds of the Dow loss on Thursday. Wilshire 5000 Chart - Support/Resistance Wilshire 5000 Chart - overview Other considerations include the SOX where 380 support is beginning to look weak and a break there could easily drop quickly to 350. The Russell is holding above support at 560 and doing well considering this is small cap shuffle month. The 100dma is trending up at the 560 level and time is expiring on the October calendar. Russell Chart Taken together the best picture of the market can best be seen by watching the Wilshire at 10750, Russell at 560 and the SOX at 380. The weakest being the SOX at 380 with short-term risk to 350. Everybody always wants me to boil down the analysis to a sentence or two. If it was that simple I would not need to write the complete wrap. In my opinion there is a huge pile of cash on the sidelines. Indecision is rampant and over the last nine months we have been moving in the tightest trading range (SPX) in decades. Hedge funds are losing money, mutual funds are breaking even and nobody in the fund management business is making any money. Everyone has a vested interest in pushing the market higher once the election is over regardless of the winner. With the abundance of cash available the potential for an end of year jam job is tremendous. I believe that despite bad earnings and the fear of ever increasing oil the fund managers will try to produce an end of year rally in hopes of getting to January with a profit and then pop the parachutes. Obviously if oil continues to break new levels it will be difficult but some of the current speculation in oil is based on election risk and the potential for a terrorist event. Once the election is over the speculation will ease and oil should revert to a lower level. Those analysts not on crack expect something in the mid $40 range. This will give fund managers something to base their buying on and the end of year rally becomes a self fulfilling prophecy. We are already seeing profit taking in the energy stocks despite new all time highs in oil. Funds are trying to raise more cash while slipping quietly out of the energy door. I also believe there is enough disbelief in the market that should a rally actually appear the majority of traders will either wait on the sidelines or continue to try and short it. Both groups will end up chasing prices higher and contributing to its success. This is of course just my humble opinion and by printing this commentary it will make a suitable substitute for newspaper on the bottom of your birdcage or as a starter stuffing for your next fireplace fire. No one can predict exactly what will happen over the next twelve trading days until the election but hopefully the scenario I laid out above will bear some resemblance to the actual events. The alternate bearish scenario of a Wilshire retest of support at 9300 is more than we want to imagine tonight. The negative ramifications would be enormous and best left to my Halloween commentary two Sunday's from now. Nightmare on Wall Street? Let's hope I don't have to write it. Enter Very Passively, Exit Very Aggressively! Jim Brown Was this commentary helpful to you? Your comments are always appreciated. Click here to email Jim ************ 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 ******************** The Bigger Picture By Leigh Stevens lstevens@OptionInvestor.com THE BOTTOM LINE – Sometimes it's instructive to look at the very broadest trends – I myself forget where we are in that regard, being mostly involved in day-to-day options trading, especially in indexes. On the advance since the 2002 low – the strongest index/market is the S&P, always represented by the broader S&P 500 index (SPX) – To date, the peak on the rebound from the '02 low is half of the distance from the 2002 bottom back to the all-time high (2000). At this point it's not possible to consider we're in a bull market until SPX can at least climb above its halfway marker. A common rule of thumb is that stocks, and by inference, indices, often retrace about half of its prior trend and then reverse (back) to the direction of the biggest trend. If we look at the Composite (Nasdaq: COMP) index on the long-term weekly chart, it shows up that COMP has only retraced a bit more than a meager 25% of its big fall from 2000. Not an impressive showing to date. Retracements of only a quarter are the lowest level on the strength scale - What does all this mean to someone interested in the day-to-day, week-to-week time frame? Nothing and everything – it keeps it all in perspective at a minimum. We seem to be headed into a more volatile period and when that means more of the same – continued wide price swings - that's my kind of (options) market. FRIDAY CLOSING NUMBERS – The S&P 500 (SPX) was up 4.90 points (+0.5%) to 1,108, with SPX down 1.2% on the week. The Dow 30 (INDU) was up 38.9 points, at 9,933, but putting it down 1.2% for the week. American International Group (AIG) the big Dow decliner, fell 3.6% on the news of New York Attorney General's probe into its commission practices; Pfizer (PFE) was another large loser, falling 2% on concern over the safety of a profitable drug for the company, used in the treatment of arthritis. The market doesn't like uncertainties! The Nasdaq Composite (COMP) was up 8.48 (+0.4%), closing at 1,911.5. COMP however was also lower on the week, off 0.4%. FRIDAY'S TRADING ACTIVITY – In the afternoon the overall market rallied after Fed chairman Alan "the man" Greenspan said in a speech that the economy should weather the recent rise in energy prices better than it did in the 1970s when OPEC, the oil cartel, raised oil prices sharply higher. Greenspan speculated that the rise in oil prices so far this year has perhaps subtracted three-quarters of 1 percent of GDP, but (in addition) that much of the increase in energy prices over the short-term is also due to specific factors including political ones, hurricanes and rapid growth in developing countries (read 'China'). Rumors that France had captured a high level al-Qaida figure seemed to fan the bullish mood on Friday afternoon. I put a big highlight last week on what crude futures were doing, in a sky-shoot bubble type market. I had objectives to at least 54, so 55 was not surprising. I predict that oil prices moderate some from here, at least based on the technical pattern. Crude-oil for November delivery hit a new peak on Friday, reaching a top most print at 55.00. Some climb! This put oil up another 3% for the week, half the rate of increase of the week before, but hefty indeed. Oil traders were bidding up the contract as they weighed uncertainty about the overall effect of high energy prices on demand, against concerns over dwindling heating-oil supplies for the winter. November delivery crude oil closed at $54.93 a barrel on the New York Merc Exchange, up 17 cents for the day and $1.62 for the week. ECONOMIC DATA – The bulls were encouraged by a U.S. retail sales report that was up a substantial 1.5% last month (Sept) as auto sales jumped the most since October 2001. Excluding the 4.2% auto sales rise, retail sales were up 0.6%, double Street expectations. A bit of damper on the consumer spending side of the ledger, the University of Michigan reported its U.S. consumer sentiment dropped in October, overshadowing stronger than expected retail sales somewhat. The U of M consumer sentiment index fell to 87.5 from 94.2 in September. The Labor Department released its wholesale measure of inflation, the PPI (price index of U.S. wholesale goods and services) and it rose 0.1% in Sept, inline with expectations, while the core producer price index rose 0.3%, a bit higher than expectations. And the Commerce Department released a report on business inventories – they rose 0.7% in August, in line with expectations. Lastly, we saw some media and market attention fall on the New York Fed's report on manufacturing activity in the New York area, as it showed expansion in October, but at a slower pace than the previous month. SECTORS – Some big names in the Insurance group took a pounding – as mentioned already, AIG (American International Group) was off sharply. Insurance stocks are ill favored in the wake of NY Attorney General Spitzer's suit against Marsh & McLennan (MMC). Spitzer said several other brokers, including AIG, were involved in "contingent commissions" paid to sales people, but what the Attorney General also alleges to be a fraudulent scheme. Prudential Securities downgraded the property and casualty insurance sector to "unfavorable" (from "neutral") based on the logic that Spitzer's lawsuit will act as a significant overhang in this sector in general for the foreseeable future. OTHER MARKETS – Bonds ended a four-day rally on Friday. The 10-year Treasury note was down 8/32 to 101 20/32, but up substantially on the week (yields lower). In the currency markets, the drop in U.S. consumer confidence was read bearishly for the dollar, continuing its negative path. In Euro terms, the dollar hit at 7-month low. In Euro currency terms, this is a 7-month high, at 124.78. Having a delay in collecting a euro debt may be a great blessing! I digress in counting my money ahead of the fact, when I go there in another week. In fact, my next Index wrap is on the plane to Spain.. MY INDEX OUTLOOKS – S&P 100 Index (OEX) – Daily chart: Generally, when the S&P 100 (OEX) gets to about 3% under its 21- day closing moving average, it has been "oversold", and that level is noted at 523 by the green up arrow on the OEX daily chart below – The lower trading band is of interest, not because it will end up defining the low for this current (down) move, but because, at 3% under this average, the probabilities go up dramatically for a counter-trend move – in case up, or AT LEAST a slowing of the decline. Slowing decline, means lowering of time premiums generally. OEX at around 520 makes its optimal to exit any puts in this way of risk assessment. 538.6 is the current 21-day average – only a close over the 538- 540 level favors a retry of the OEX to make it to 550. The Index appears to be struggling to maintain itself at 530 support. There is more to go on the downside, but short-term, this index is oversold so there could be first a rally attempt of 8-10 points, back up the 538-540 area. The other way to measure "room on the downside", is to see whether the index in question is yet at an oversold extreme – defined above by the 14-day daily RSI (Relative Strength Index). OEX is not yet in area where the best rallies have been coming from. You can see this on the chart above. Read more about the overbought/oversold concept at - http://www.OptionInvestor.com/traderscorner/tc_101404_1.asp which happens to be my last week's Trader's Corner article. Imagine that, I wrote about it and now I'm using it to make real- time analysis! Dow 30 (INDU) – Hourly: The oil price spike is still keeping the market under pressure, but oil has reached an technical objective and should back off or even rather sharply fall from Friday's high at $55 in the lead November futures contract. This could allow the Dow to rebound, although OEX is the stronger index, as far as the outlook on calls. 1950 is support implied by the low end of the expanded parallel trend channel line. A parallel (to the upper trendline) or channel line can be "assumed" to go through the first low made after the decline from the 10300 area. This lower channel line wasn't a bad reference as it turned out later on to be in the area of the recent hourly lows in the 9900 region. This area – 9900 – is a likely near support, but major chart support starts around 9800. The 10,000 area or what was "key" technical support is now viewed as an important resistance by technical traders – support, once broken, often "becomes" resistance. I figure INDU works a bit lower from here, perhaps reaching 9850, before there is a stronger rally attempt back to the 10,000 area. Stay tuned! Nasdaq 100 (NDX) Index – Daily chart: Based on the chart and momentum patterns, the Nas 100 looks headed still lower, but I would also note a key juncture here as prices are in the area of the 21-day moving average. Look for a lower price swing ahead if NDX can't stay above this key average, that is useful in how the indexes tend to trade. I thought support would be likely to develop around 1420 in the Nasdaq 100 (NDX), at the low end the upside gap from late last month and this proved to the be the case in late-week trade. So, it still looks that 1420 is immediate NDX support; then, under 1420, at 1395. Support implied by the prior (down) swing low is 1380, with major support looking to me like 1460. 1465 is immediate overhead resistance, then if penetrated, 1475. The 1495-1500 area is major resistance - The market got all the way into my overbought zone on the rally up toward 1480. Eventually, the next strong rally ought to come AFTER the RSI gets closer to an oversold condition – this starts with a reading around 35. In a trading range market like this one, there is a market tendency for this indicator to go from one extreme to another – sound familiar? – at some point I think before the next strong or prolonged advance, there will be an RSI indicator reading in or close to the oversold zone. Nasdaq 100 tracking Stock (QQQ) Daily chart: I think we're looking at an upcoming trading range of 34 to 37. Support is expected at 35.25, then more significant technical support around 34.25-34.00 Key technical resistance is 36.60–36.75. A close over 36.75 would suggest some upside potential to the 38 area or even 38.70. I don't this is less likely than a rally failure at or shy of 36.75. The "break-down point" was 36.25 – I suggested last week shorting the stock on rallies back to 36.25 area and the Q's reached 36.14, so I suppose officially I'm not short on this recommendation. Good Trading Success! ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** Editor's Plays ************** Skids Oiled? The price of oil hit $55 on Friday but energy stocks failed to rebound from their week long drop. Funds who have been long energy for the last 12 months may be the only funds with a profit for the year. The sharp spike in September for oil prices has not faded but with the election ahead there could be a change in the wind. While I personally believe oil will continue higher long term I also believe it may pull back in November once the election risk has passed. I believe the pullback will be brief and funds will move back into energy in January when tech stocks fall out of favor again. This presents a potential for a short term play with the Energy SPDR, the XLE. The XLE rose to $36.50 last week but has lost momentum despite oil continuing to rise. The XLE is a basket of oil stocks in the S&P and represents 7.48% of the S&P as of Friday. List of components here: http://www.spdrindex.com/spdr/index.cfm?story=composition&symbol=XLE This is a simple play but with oil still surging it could be risky. I am basing it on the likelihood of funds taking profits and oil easing as we near the election. I have a problem with entering on Monday after OpEx with option premiums inflated. I would rather wait until later in the week but we could see a significant move before then. I am going to put a trigger on the entry to keep us out of the trade unless the XLE begins to fall. The XLE closed at $35.15 on Friday and the low for the week was $34.35. I am going to make the initial entry trigger $34.25. I want to trail the entry higher after Monday if the XLE moves higher. For Monday the entry is an XLE trade at 34.25. After Monday if the XLE moves higher trail the entry at -75 cents from the XLE price. For instance if the XLE moves to $35.75 then the entry point rises to $35. If it moves to $36.50 then the entry point rises to $35.75. I want to follow it higher but only enter on a breakdown. Because this is a short-term trade I am using December options with the Dec-$35 PUT XLE-XI currently $1.20. Buy DEC $35 Put XLE-XI with an XLE trade at $34.25. After Monday trail the entry price -75 cents below the XLE price on any move higher. If we are triggered then the stop is $1.50 over our trigger price. Profit target is $32.00 XLE Chart ************ Open plays: ************ MRK Put $30.51 ** Stop $36.00 ** Jan-2006 $25 LEAP Put WMR-ME currently $1.70 http://members.OptionInvestor.com/editorplays/edply_101004_1.asp *********************** XMSR Call $29.00 ** Stop $26.50 ** JAN-$30 Call QSY-AF JAN-$32 Call QSY-AZ http://members.OptionInvestor.com/editorplays/edply_100304_1.asp ********************* MSO Put $16.54 ** Stop $17.50 ** March $15 Put MSO-OC @ $2.00 http://members.OptionInvestor.com/editorplays/edply_092604_1.asp ********************** Marathon Call The Marathon call was stopped out on Monday at $2.50 and a +1.05 gain. Profit taking in energy stocks has taken hold and we got out just in time. http://members.OptionInvestor.com/editorplays/edply_091904_1.asp **************** MARKET SENTIMENT **************** Are You From Missouri? - J. Brown The state of Missouri is called the "show me" state. Looking at the markets this weekend I anticipate a lot of investors will adopt this Missourian mindset. October is known for a volatile month and a number of pundits and investors have been expecting a rebound in the latter half of the month. With the S&P 500 index resting just north of support near 1100 and Industrials slipping toward support and its August lows near 9800 it only seems natural that traders are going to want the markets to "show" them the rebound before they'll believe. Fortunately, these levels offer just such an opportunity for a bounce but on the other side of the coin we're that much closer to a bearish breakdown. The perpetual issue on everyone's mind these days is oil. With record oil prices at $55 a barrel acting as a huge undeclared tax on consumers it should be no surprise to see the economy slowing. Surprisingly the September retail sales data came in strong on Friday but the rest of the economic data was mixed. Over the last few months most of the major economic reports have been showing a slow down in the country's growth so it shouldn't be any big surprise. The second major issue that is clouding over Wall Street is the upcoming election and the terror-risk it represents. There is less than three weeks to go before the Nov. 2nd presidential elections. First of all the markets hate uncertainty and it seems we, as a nation, have never been more uncertain about who to elect. Actually, a better way to say that would be that we've never been more divided and the outcome is anyone's guess right now. To make matters worse there is a lingering concern that terrorists will try and disrupt the election process with some sort of attack like the one that occurred in Spain. If we can get past the election without an event then stocks have a good chance of moving higher with a huge relief rally and the removal of presidential uncertainty. Investors also have to digest the next week of Q3 earnings and it's a big week! Wall Street will wade through almost 180 announcements of the S&P 500 components on top of all the smaller corporations announcing. Concerns over the rate of earnings growth in the fourth quarter and 2005 will be front and center this week. Look for MMM, IBM and LXK to announce on Monday. Tuesday brings EMC, F, MCD and MO. Wednesday we'll hear AMR, COF, CL, CHIR, GLW, EBAY, DAL, GD, HON, JPM, and PFE. Thursday's major announcements are AIG, AMZN, CAT, GOOG, MRK and MSFT. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9497 Current : 9933 Moving Averages: (Simple) 10-dma: 10080 50-dma: 10112 200-dma: 10287 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 1018 Current : 1108 Moving Averages: (Simple) 10-dma: 1123 50-dma: 1108 200-dma: 1120 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1430 Moving Averages: (Simple) 10-dma: 1444 50-dma: 1394 200-dma: 1441 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.04 -1.39 CBOE Mkt Volatility old VIX (VXO) = 15.89 -1.24 Nasdaq Volatility Index (VXN) = 21.80 -0.50 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.88 1,192,356 1,045,784 Equity Only 0.76 905,837 691,086 OEX 1.32 53,186 70,387 QQQ 4.09 24,094 98,667 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 64.3 - 0 Bear Correction NASDAQ-100 44.0 - 1 Bull Alert Dow Indust. 53.3 - 0 Bear Confirmed S&P 500 62.2 - 0 Bear Correction S&P 100 60.0 - 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: 1.18 10-dma: 1.15 21-dma: 1.09 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 1945 1760 Decliners 858 1187 New Highs 86 51 New Lows 32 44 Up Volume 1187M 789M Down Vol. 775M 702M Total Vol. 2001M 1623M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/12/04 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 continue to hedge their bets on the large S&P contracts as longs and shorts move closer to parity. Small traders didn't move much money either but remain net bullish. Commercials Long Short Net % Of OI 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%) 10/12/04 423,472 436,780 (13,308) (1.5%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 09/21/04 134,943 108,036 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% 10/12/04 139,175 113,903 25,272 9.9% 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 Uh-oh! This could spell trouble for stocks. Commecials, who are normally on the "right" side of the trade are upping their short positions. Meanwhile, small traders decreased their short positions leaving them strongly net bullish. This alone is a contrarian indicator for a market top. Just remember that these readings were taken before the Wednesday-Thursday sell-off this past week. Commercials Long Short Net % Of OI 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%) 10/12/04 258,457 517,805 (259,348) (33.4%) 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 09/21/04 256,315 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% 10/12/04 309,720 62,502 247,218 66.4% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders aren't changing their bets. They remain net bullish on the NDX. Small trades have significantly reduced positions in both longs and shorts but remain strongly net bearish, which of course is bullish for the NDX if you're a contrarian. Commercials Long Short Net % of OI 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% 10/12/04 52,572 32,775 19,797 23.2% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 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%) 10/12/04 8,756 24,400 (15,644) (47.2%) 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 Commercial traders reduced both long and short positions but remained net bullish. In contrast small traders significantly increased both their longs and their shorts on the Dow Industrials but in essence remain rather neutral. Commercials Long Short Net % of OI 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% 10/12/04 24,150 22,849 1,301 2.7% 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 09/21/04 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%) 10/12/04 8,814 9,167 ( 353) ( 1.9%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** *************** ASK THE ANALYST *************** An economic update Back in May you wrote an article that was an update of various economic reports. Could you post an update to that table as there have been so many revisions and new reports. I think it is useful to get a look at the different economic reports. If you could share some thoughts, or give your insight on things, that would be great. Response: I need an update too. With all that takes place on any given day, I tend to loose track of all the economic data that has been released, and it doesn't hurt a bit to sit back, look at some of the major economic reports, and see if where we stand. I'm going to use the May 23, 2004 Ask the Analyst column "Economics 101" as the backdrop for today's column, and we'll walk through the various economic reports in similar order. This gives you and I a chance to try and develop an UNBIASED view of things. One item I did add to the table of economic data is oil prices, where the prices shown were taken from the end of the month's price, of the then near-term NYMEX Oil futures contract that was being traded. All prices from gold down to the S&P 500 Index (SPX.X) were last day of the month values. October values are closing prices for October 15, 2004. Table of Economic Reports - Mar. 2004 to Oct. 2004 I wish I had more "current forecasts" for upcoming September and October figures, so we could either critique what most economists are looking for on average. Usually we don't get the fine tuned figures until a week or two prior to the reports. Let's start with Gross Domestic Product. While my data source doesn't show a current consensus, most of what I've read has the economy growing at a low end of 3% and high end of 4% annual rate in the recently completed third quarter. I've placed a 3.4% estimate of Q3 growth. I'm NOT an economist, but I'm deriving part of my estimate (I don't have a polling from economists at the time of this writing) from today's (10/15/04) comment from Fed Chairman Alan Greenspan saying, "So far this year, the rise in the value of imported oil, essentially a tax on U.S. residents, has amounted to about three-quarters of one percent of GDP." I'm taking Mr. Greenspan's comments and deducting that from past economic data, where builds in INVENTORY during the second quarter had final GDP being revised up to 3.3%, and with July and August inventory builds being found at both the business and wholesale level, I'm estimating Q3 GDP just a smidge below 3.5%. With INVENTORY builds present at both the BUSINESS and WHOLESALE level, the demand side (SALES) have also been strong, so I would have to think that manufacturing activity still show gains. The reason I think this is that when we review June-July FACTORY ORDERS and DURABLE ORDERS data, which rebounded from an April-May lull, the healthy rebound came from very low INVENTORY/SALES ratios at both the business/wholesale level. I still think it is neat to see how company's adjust their PRODUCTION levels, in reaction to INVENTORY and SALES figures. And in turn, how the CAPACITY UTILIZATION figures change. For instance, industrial production rose 0.7% in July, which makes so much sense as demand indicators (Sales and Orders) rose. In July, CAPACITY UTILIZATION moves up 77.4%, where there is still plenty of idle capacity yet to be utilized. It's this idle CAPACITY and PRODUCTIVITY that still creates what I think is the continued hurdle to some of the nonfarm payroll figures we've seen the past 4-months. When writing this column, I took a closer look at the September AVG. WORKWEEK data. The AVG. WORKWEEK was 33.8 hours, but a look inside the numbers showed the factory workweek was 40.8 hours. In May, the factory workweek was 41.1 hours, and has been hovering at 40.8 since. This would continue to suggest that while the demand for immediate labor is present, manufacturers remain rather hesitant to create more jobs. If I were to move lower in our table of economic data, I might well be able to make a case that that the then rise in oil from March's $36.61 to May's $39.88, an 8.9% increase, had factories even less willing to hire workers despite demand for goods, thus extending the factory workweek to 41.1 hours. And as many economists are pointing out, the CONSUMER CONFIDENCE readings, which are still above those levels found earlier this spring, are largely being impacted by weak job growth and energy prices. Now look at oil. $55 per barrel. We now long for the day of $40 per barrel oil don't we? Inflation at both the consumer (CPI) and producer (PPI) levels have really flattened out the past three months. And as we discussed in May, that's what higher rates of productivity can do to help try and offset some of the impacts of commodity inflation. But GOLD back above $400, while not $428 as found in March, would have the MARKET once again suggesting the Fed might be a little too easy with rate, where Fed Funds at 1.75%. Would it be harmful to the economy if the Fed were to continue to tighten? One of our tests could be M2 Money supply. One might thing the Fed were cutting rates the way M2 has grown. There's plenty of liquidity isn't there? On Friday afternoon, the Treasury said it showed a budget surplus of $24.4 billion in September. One can imagine that quarterly tax receipts from small business helped offset government outlays, where more than likely, the same would have been true in June. What do a lot of us do on April 15th if we're not getting a refund? Hey... maybe there is something to the "household survey" that the nonfarm payroll figures don't reflect. That more and more Americans are working for themselves and starting small businesses. The year-to-date budget deficit currently stands at $413 billion, while the deficit has grown an equal $413 billion over the last 12 months. Look at that. The U.S. Dollar Index (dx00y), or the dollar against a weighted basket of 6 major foreign currencies is trading relatively close to where it was at the end of March. I added up the Treasury Budget surplus and deficit figures from the end of March and come up with $111.7 billion deficit. I've never thought that there was a DIRECT relationship between the dollar and U.S. government budget/deficit, nor a direct relationship between the dollar and oil, nor a direct relationship with the dollar and gold, nor a direct relationship with the dollar and Fed policy on interest rates. Throw budget/deficit, oil and Fed policy together and that will most likely be the market influence for the dollar. The BEST tie that I see is with dollar and gold divergence. Still, I'll read some analysis that it is oil's trade that is influencing the dollar. The above table would have the MARKET showing that's simply not the case. And then there's the S&P 500 (SPX.X) 1,108, which should be an accurate depiction of the economy. Since the end of March, the SPX has traded a high of 1,150.57 (04/05/04) and a low of 1,060.72 (08/13/04). Just last week the SPX traded as high as 1,140, and would be a fairly good benchmark to the end of June when the SPX closed at 1,140. It's interesting now that I look at it. And I can check my (Jeff Bailey's) September GDP estimate of 3.4% growth. Hey... that's pretty close to June's 3.3% growth. If I were to total up the April, May and June nonfarm payroll data, I can see why the July, August and September nonfarm payroll data is a bit concerning, if not weighing a bit on consumer confidence. Look at the April-June BUSINESS INVENTORY and SALES and total them to comprise a quarterly (end of June) figure, then do the same with the July and August figures we have. I come up with April-June BUSINESS INVENTORY of +2.5% and SALES +0.9% and could derive an INVENTORY/SALES ratio of 2.7. So far for Q3 I come up with BUSINESS INVENTORY +1.7% and SALES +1.6%, with a quarterly Q2 INVENTORY/SALES of just 1.06. While this type of INVENTORY/SALES calculation is NOT how the actual monthly INVENTORY to SALES data is derived, I (Jeff Bailey) have a feeling, based on observation, that September BUSINESS INVENTORIES might come in at +0.7%, but sales a little lower at +0.5%. We could go on down the scale, making some comparisons back to a June, 2004 benchmark. I don't know about you, but when I look at all the data above, there would probably be one thing that stands out as a bit of a constant. Maybe I shouldn't say a constant, but a prevailing trend. Its oil isn't it? Gold goes up, gold goes down. 10-year yield goes up, 10-year yield goes down. CRB Index goes up, CRB Index goes down (oil is a component of the CRB Index). The dollar goes up, the dollar goes down. The SPX goes up, the SPX goes down. Now look at all the economic data. It's relatively steady isn't it? Despite the rise in oil, the economic data has been relatively steady. Sure there has been some volatile-looking spikes up, then down, but for the most part, steady. It just seems like oil's rise, which you, Mr. Greenspan, President Bush, Senator Kerry, OPEC, or I can't seem to control, may be the "wet blanket" on the SPX.X and perhaps more robust economic growth at this point. Well, it is getting quite late this Friday evening, but that's a rather quick update on some of the major economic reports that have been released in recent months. 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 MMM 3M Company Mon, Oct 18 Before the bell 0.98 ABAX ABAXIS Inc Mon, Oct 18 Before the bell 0.07 ASD American Standard Mon, Oct 18 ------ n/a ------ 0.67 BNK Bank North Mon, Oct 18 Before the bell 0.59 B Barnes Group Mon, Oct 18 Before the bell 0.42 BLK BlackRock, Inc. Mon, Oct 18 Before the bell 0.56 BRO Brown & Brown Mon, Oct 18 Before the bell 0.43 CATY Cathay General Mon, Oct 18 After the market 0.45 CEN Ceridian Mon, Oct 18 Before the bell 0.23 CHKP Check Point Softwre Mon, Oct 18 Before the bell 0.25 CKFR CheckFree Mon, Oct 18 After the market 0.26 CGNX Cognex Mon, Oct 18 After the market 0.24 DPH Delphi Mon, Oct 18 Before the market -0.12 DSL Downey Financial Mon, Oct 18 Before the bell 0.94 ET E*Trade Financial Mon, Oct 18 After the market 0.18 EGP EastGroup Properties Mon, Oct 18 ------ n/a ------ 0.63 RE Everest Re Group Mon, Oct 18 After the market -0.07 FRX Forest Labs Mon, Oct 18 Before the bell 0.76 HAS Hasbro, Inc. Mon, Oct 18 Before the bell 0.51 ICBC Independence Bank Mon, Oct 18 After the market 0.76 IBM Intl Business Mach. Mon, Oct 18 After the market 1.14 JCOM J2 Global Comm. Mon, Oct 18 ------ n/a ------ 0.31 JDAS JDA Software Mon, Oct 18 After the market 0.03 KFT Kraft Foods Mon, Oct 18 After the market 0.45 LXK Lexmark Intl Mon, Oct 18 Before the bell 0.98 LNCR Lincare Holdings Mon, Oct 18 After the market 0.69 MAT Mattel Mon, Oct 18 Before the bell 0.60 MVK Maverick Tube Corp Mon, Oct 18 After the market 1.36 OMM OMI Corp Mon, Oct 18 Before the bell 0.51 PRK Park National Mon, Oct 18 ------ n/a ------ 1.78 PCH Potlach Mon, Oct 18 After the market 1.11 PP Prentiss Properties Mon, Oct 18 After the market 0.77 SXT Sensient Tech. Mon, Oct 18 ------ n/a ------ 0.43 STLD Steel Dynamics Mon, Oct 18 After the market 1.96 TXN Texas Instruments Mon, Oct 18 After the market 0.27 SWK The Stanley Works Mon, Oct 18 After the market 0.71 TXCC TranSwitch Mon, Oct 18 After the market -0.16 TUP Tupperware Mon, Oct 18 Before the bell 0.08 GWW W.W.Grainger Mon, Oct 18 Before the bell 0.71 ------------------------- TUESDAY ------------------------------ AKZOY Akzo Nobel N.V. Tue, Oct 19 ------ n/a ------ n/a MO Altria Group, Inc. Tue, Oct 19 Before the bell 1.25 AMTD Ameritrade Tue, Oct 19 ------ n/a ------ 0.11 ASO AmSouth Bancorp Tue, Oct 19 Before the bell 0.47 AMCC Applied Micro Circ. Tue, Oct 19 After the market -0.01 ARB Arbitron Inc Tue, Oct 19 Before the bell 0.61 ARMHY ARM Holdings Tue, Oct 19 During the market n/a ASPT Aspect Comm. Tue, Oct 19 After the market 0.16 AVY Avery Dennison Corp Tue, Oct 19 Before the bell 0.76 BCC Boise Cascade Tue, Oct 19 Before the bell 0.59 BSX Boston Scientific Tue, Oct 19 Before the bell 0.46 CHRW C.H.Robinson Worldw Tue, Oct 19 After the market 0.37 BCR C.R.Bard Inc Tue, Oct 19 After the market 0.58 CACH Cache, Inc. Tue, Oct 19 ------ n/a ------ -0.04 ELY Callaway Golf Tue, Oct 19 After the market -0.45 CAPX Capital Crossing Bnk Tue, Oct 19 After the market 0.44 CACS Carrier Access Tue, Oct 19 After the market -0.03 CASB Cascade Financial Tue, Oct 19 After the market 0.33 CDWC Computer Centers Inc Tue, Oct 19 Before the bell 0.74 CPS ChoicePoint Inc Tue, Oct 19 Before the bell 0.43 CMA Comerica Inc Tue, Oct 19 Before the bell 1.05 CMC Commercial Metals Co Tue, Oct 19 Before the bell 1.73 CAL Continental Airlines Tue, Oct 19 ------ n/a ------ -0.17 CPO Corn Products Intl Tue, Oct 19 Before the bell 0.58 CYMI Cymer Inc Tue, Oct 19 ------ n/a ------ 0.39 DO Diamond Offshore Tue, Oct 19 ------ n/a ------ 0.05 DPZ Domino's Inc Tue, Oct 19 ------ n/a ------ 0.22 ELON Echelon Corp Tue, Oct 19 After the market -0.03 ERTS Electronic Arts Tue, Oct 19 After the market 0.35 EMC E M C Corp Tue, Oct 19 Before the bell 0.09 ETH Ethan Allan Tue, Oct 19 Before the bell 0.50 FBC Flagstar Bancorp Tue, Oct 19 After the market 0.64 F Ford Motor Co Tue, Oct 19 Before the bell 0.14 FCX Freeport-McMoran Tue, Oct 19 ------ n/a ------ 0.13 GNTX Gentex Tue, Oct 19 Before the bell 0.32 GAP Great Atlantic Tea Tue, Oct 19 Before the bell -1.22 ITW Illinois Tool Works Tue, Oct 19 Before the bell 1.10 RX IMS Health Tue, Oct 19 After the market 0.30 N Inco Tue, Oct 19 ------ n/a ------ 0.89 INFA Informatica Tue, Oct 19 After the market 0.02 INTL Inter-Tel Tue, Oct 19 ------ n/a ------ 0.29 JAKK JAKKS Pacific Inc Tue, Oct 19 ------ n/a ------ 0.67 JEF Jefferies Group Tue, Oct 19 Before the bell 0.44 KEA Keane Tue, Oct 19 Before the bell 0.16 MAN Manpower Tue, Oct 19 Before the bell 0.66 MCD McDonalds Corp Tue, Oct 19 Before the bell 0.56 MDCO Medicines Co Tue, Oct 19 After the market 0.06 MRX Medicis Tue, Oct 19 After the market 0.29 MEL Mellon Financial Tue, Oct 19 During the market 0.43 MNST Monster Worldwide Tue, Oct 19 After the market 0.16 MOT Motorola Inc Tue, Oct 19 After the market 0.19 ZEUS Olympic Steel Tue, Oct 19 ------ n/a ------ 1.75 PH Parker Hannifin Tue, Oct 19 Before the bell 0.83 PLT Plantronics Inc Tue, Oct 19 After the market 0.43 PLXT PLX Technology Tue, Oct 19 After the market 0.01 PPP Pogo Producing Tue, Oct 19 Before the bell 1.37 RSH RadioShack Corp Tue, Oct 19 ------ n/a ------ 0.39 SAFC Safeco Corp Tue, Oct 19 ------ n/a ------ 0.51 SWY Safeway Inc Tue, Oct 19 ------ n/a ------ 0.37 SAY Satyam Computer Svcs Tue, Oct 19 After the market 0.25 STX Seagate Technology Tue, Oct 19 After the market 0.04 SOV Sovereign Bancorp Tue, Oct 19 After the market 0.42 FON Sprint Corp Tue, Oct 19 Before the bell 0.21 STN Station Casinos Tue, Oct 19 Before the bell 0.44 STK Storage Technology Tue, Oct 19 After the market 0.32 TASR Taser Intl, Inc. Tue, Oct 19 Before the bell 0.15 TMX Telefonos De Mexico Tue, Oct 19 After the market 0.81 TER Teradyne Inc Tue, Oct 19 After the market 0.23 CAKE The Cheesecake Fact. Tue, Oct 19 After the market 0.30 USB U.S. Bancorp Tue, Oct 19 Before the bell 0.56 WFC Wells Fargo & Co Tue, Oct 19 Before the bell 1.06 ------------------------ WEDNESDAY ----------------------------- NDN 99 Cents Only Wed, Oct 20 Before the bell 0.08 AFFX Affymetrix Wed, Oct 20 ------ n/a ------ 0.19 ACL Alcon Inc. Wed, Oct 20 After the market 0.58 ALTR Altera Corp Wed, Oct 20 After the market 0.18 ABK Ambac Financial Wed, Oct 20 Before the bell 1.56 AMGN Amgen Wed, Oct 20 ------ n/a ------ 0.62 AMR AMR Corp Wed, Oct 20 ------ n/a ------ -1.51 BOL Bausch & Lomb Wed, Oct 20 Before the bell 0.73 BVSN Broadvision Wed, Oct 20 After the market -0.09 BR Burlington Resources Wed, Oct 20 After the market 0.93 CAI CACI Intl Wed, Oct 20 After the market 0.62 COF Capital One Fincl. Wed, Oct 20 After the market 1.30 CD Cendant Corp Wed, Oct 20 After the market 0.55 CHIR Chiron Wed, Oct 20 After the market 0.06 CRUS Cirrus Logic Wed, Oct 20 After the market -0.04 CL Colgate-Palmolive Wed, Oct 20 ------ n/a ------ 0.58 CA Computer Associates Wed, Oct 20 After the market 0.16 GLW Corning Wed, Oct 20 After the market 0.11 CFC Countrywide Fincl. Wed, Oct 20 Before the bell 1.01 CMI Cummins Inc Wed, Oct 20 Before the bell 1.50 DAL Delta Airlines Wed, Oct 20 ------ n/a ------ -3.79 DBD Diebold Wed, Oct 20 Before the bell 0.67 DRIV Digital River Wed, Oct 20 After the market 0.27 EK Eastman Kodak Wed, Oct 20 Before the bell 0.72 EBAY eBay Wed, Oct 20 After the market 0.27 ELUX Electrolux Wed, Oct 20 ------ n/a ------ 0.97 FLIR FLIR Systems Wed, Oct 20 Before the bell 0.45 GD General Dynamics Wed, Oct 20 Before the bell 1.50 GENZ Genzyme Corp Wed, Oct 20 ------ n/a ------ 0.45 GG Goldcorp Wed, Oct 20 After the market 0.08 GLK Great Lakes Chem. Wed, Oct 20 After the market 0.22 HET Harrah's Enter. Wed, Oct 20 Before the bell 1.04 HON Honeywell Wed, Oct 20 Before the bell 0.43 JPM J.P.Morgan Wed, Oct 20 Before the bell 0.75 NITE Knight Trading Wed, Oct 20 Before the bell -0.03 LRW Labor Ready Wed, Oct 20 After the market 0.29 LIN Linens 'n Things Wed, Oct 20 Before the bell 0.46 MXO Maxtor Corp Wed, Oct 20 After the market -0.20 MHK Mohawk Industries Wed, Oct 20 After the market 1.50 NSC Norfolk Southern Wed, Oct 20 Before the bell 0.54 NWAC Northwest Airlines Wed, Oct 20 Before the bell -0.81 ODP Office Depot Wed, Oct 20 Before the bell 0.27 OSI Outback Steakhouse Wed, Oct 20 Before the bell 0.52 PFCB P.F.Chang's Wed, Oct 20 Before the bell 0.28 PFE Pfizer Wed, Oct 20 Before the bell 0.54 PMCS PMC-Sierra Inc Wed, Oct 20 After the market 0.04 PVN Providian Financial Wed, Oct 20 ------ n/a ------ 0.28 RBAK Redback Networks Wed, Oct 20 ------ n/a ------ -0.18 RNWK RealNetworks Wed, Oct 20 After the market -0.4 RYL Ryland Group Wed, Oct 20 After the market 3.30 SEBL Siebel Systems Wed, Oct 20 After the market 0.05 STJ St. Jude Medical Wed, Oct 20 Before the bell 0.56 SYMC Symantec Wed, Oct 20 After the market 0.39 ALL The Allstate Corp Wed, Oct 20 After the market 0.66 BK The Bank of New York Wed, Oct 20 Before the bell 0.47 VRSN VeriSign, Inc. Wed, Oct 20 After the market 0.16 WM Washington Mutual Wed, Oct 20 After the market 0.71 WHR Whirlpool Wed, Oct 20 Before the bell 1.52 WYE Wyeth Wed, Oct 20 Before the bell 0.70 ------------------------- THUSDAY ----------------------------- FLWS 1-800-Flowers.com Thr, Oct 21 Before the bell -0.04 AGI Alliance Gaming Thr, Oct 21 Before the bell -0.11 ALSC Alliance Semicond. Thr, Oct 21 After the market -0.10 AT ALLTEL Corp Thr, Oct 21 Before the bell 0.86 AMZN Amazon.com Thr, Oct 21 After the market 0.18 AEP American Elec Power Thr, Oct 21 ------ n/a ------ 0.74 AIG American Intl Group Thr, Oct 21 Before the bell 1.08 AZN AstraZeneca Thr, Oct 21 Before the bell 0.53 T AT&T Thr, Oct 21 Before the bell 0.43 BAX Baxter Intl Inc Thr, Oct 21 Before the bell 0.42 BEBE Bebe Stores Thr, Oct 21 Before the bell 0.27 BHE Benchmark Electronic Thr, Oct 21 Before the bell 0.41 BGG Briggs & Stratton Thr, Oct 21 Before the bell 0.25 BRCM Broadcom Thr, Oct 21 After the market 0.34 CZR Caesars Entertainmt. Thr, Oct 21 ------ n/a ------ 0.20 CAT Caterpillar Thr, Oct 21 Before the bell 1.36 CLS Celestica Thr, Oct 21 After the market 0.08 CELG Celgene Thr, Oct 21 Before the bell 0.19 CPWR Compuware Corp Thr, Oct 21 After the market 0.02 CBE Cooper Industries Thr, Oct 21 Before the bell 0.92 COCO Corinthian Colleges Thr, Oct 21 Before the bell 0.18 CR Crane Thr, Oct 21 After the market 0.52 DHR Danaher Thr, Oct 21 Before the bell 0.59 DCOM Dime Community Banc Thr, Oct 21 After the market 0.31 D Dominion Resources Thr, Oct 21 Before the bell 1.32 LLY Eli Lilly & Co Thr, Oct 21 Before the bell 0.68 ELX Emulex Thr, Oct 21 ------ n/a ------ 0.10 FDRY Foundry Networks Thr, Oct 21 After the market 0.11 GILD Gilead Sciences Thr, Oct 21 After the market 0.21 GDW Golden West Fincl Thr, Oct 21 ------ n/a ------ 2.06 GOOG Google Thr, Oct 21 After the market 0.54 GDT Guidant Thr, Oct 21 Before the bell 0.60 HSY Hershey Foods Thr, Oct 21 Before the bell 0.64 IHP IHOP Thr, Oct 21 Before the bell 0.50 IR Ingersoll-Rand Thr, Oct 21 Before the bell 1.16 ITT ITT Industries Thr, Oct 21 Before the bell 1.15 LH Laboratory Corp Thr, Oct 21 Before the bell 0.66 LEA Lear Corp Thr, Oct 21 Before the bell 1.13 LM Legg Mason Thr, Oct 21 Before the bell 0.76 MEDI MedImmune Thr, Oct 21 Before the bell -0.21 MENT Mentor Graphics Thr, Oct 21 After the market 0.07 MRK Merck & Co Thr, Oct 21 Before the bell 0.73 MCHP Microchip Tech. Thr, Oct 21 After the market 0.29 MSFT Microsoft Thr, Oct 21 After the market 0.30 NUE Nucor Thr, Oct 21 Before the bell 4.60 OO Oakley Thr, Oct 21 After the market 0.22 OXY Occidental Petrol. Thr, Oct 21 Before the bell 1.77 ODFL Old Dominion Thr, Oct 21 Before the bell 0.49 OSTK Overstock.com Thr, Oct 21 After the market -0.19 PCAR PACCAR Thr, Oct 21 ------ n/a ------ 1.35 PSFT PeopleSoft Thr, Oct 21 After the market 0.14 POT Potash Corp. Thr, Oct 21 ------ n/a ------ 0.72 RBK Reebok Thr, Oct 21 Before the bell 1.17 RS Reliance Steel Thr, Oct 21 Before the bell 1.31 SBC SBC Communications Thr, Oct 21 Before the bell 0.38 SGP Schering-Plough Thr, Oct 21 Before the bell -0.01 SFA Scientific Atlanta Thr, Oct 21 After the market 0.36 S Sears Roebuck Thr, Oct 21 ------ n/a ------ 0.02 SUN Sunoco Thr, Oct 21 ------ n/a ------ 1.40 TXT Textron Thr, Oct 21 ------ n/a ------ 0.76 KO Coca-Cola Thr, Oct 21 After the market 0.47 MHP McGraw-Hill Cos. Thr, Oct 21 Before the bell 1.56 TBL Timberland Co Thr, Oct 21 Before the bell 1.77 TQNT Triquint Semi Thr, Oct 21 After the market -0.04 UNP Union Pacific Thr, Oct 21 Before the bell 0.75 UPS United Parcel Servc Thr, Oct 21 Before the bell 0.72 WEN Wendy's Intl Thr, Oct 21 ------ n/a ------ 0.60 YELL Yellow Roadway Corp Thr, Oct 21 After the market 1.34 ------------------------- FRIDAY ------------------------------- FO Fortune Brands Fri, Oct 22 Before the bell 1.18 GLGC Gene Logic Inc Fri, Oct 22 Before the bell -0.18 IDXX Idexx Labs Fri, Oct 22 Before the bell 0.49 LSCC Lattice Semicond. Fri, Oct 22 Before the bell 0.00 NXTL Nextel Comm. Fri, Oct 22 ----- n/a ------ 0.38 SLB Schlumberger Fri, Oct 22 Before the bell 0.53 WY Weyerhauser Co Fri, Oct 22 Before the bell 1.39 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable 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 PFSB PennFed Financial 2:1 Oct 29th Nov 01st ROCK Gibraltar 3:2 Oct 29th Nov 01st PNY Piedmont Natural Gas 2:1 Oct 29th Nov 01st ASGR America Service Group 3:2 Oct 29th Nov 01st VIDE Video Display Corp 2:1 Oct 31st Nov 01st ----------------------------------- Economic Reports & Events This Week ----------------------------------- This will be one of the biggest weeks for Q3 earnings announcements. The numbers will be flying fast and furious and traders can count on plenty of stock-specific movement. We'll also hear a number of Fed-heads speaking across the country this week. ============================================================== -For- ---------------- Monday, 10/18/04 ---------------- Semi Book-to-Bill report NAHB housing market index ----------------- Tuesday, 10/19/04 ----------------- Consumer Price Index (CPI) for Sep. Estimate: +0.2% Last: +0.1% Core CPI for September Estimate: +0.2% Last: +0.1% Housing Starts for September Estimate: 1,950K Last: 2,000K Building Permits for September Estimate: 1,948K Last: 1,969K FOMC's Governor Poole speaks FOMC's Chairman Greenspan speaks on mortgage and debt FOMC's Governor Olson speaks ------------------- Wednesday, 10/20/04 ------------------- ------------------ Thursday, 10/21/04 ------------------ Weekly Initial Jobless Claims - Last: 352K Philly Fed Index for Oct. -Estimate: 19.2 Last: 13.4 Leading Indicators for Sep. -Estimate: -0.1% Last: -0.3% FOMC's Governor Bernanke speaks on OIL and the ECONOMY FOMC's Governor Yellen speaks on economic outlook ---------------- Friday, 10/22/04 ---------------- Definitions: DM= During the Market BB= Before the bell the Bell AB= After the market the Bell NA= Not Available ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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The Option Investor Newsletter Sunday 10-17-04 Sunday 2 of 5 In Section Two: Watch List: PDCO, EMR, CI, FO Dropped Calls: ATH Dropped Puts: BIIB, FFH, LXK ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** Watch List ********** Plenty of Bullish Candidates to Watch ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Patterson Companies - PDCO - close: 77.30 change: +0.74 WHAT TO WATCH: We've been watching PDCO for a while now. The stock has finally broken out over its six-month trend of lower highs. The move has also produced a new ascending triple-top bullish buy signal on its P&F chart. The P&F chart points to a $91 target. We would consider longs here with an $85 target. Chart= --- Emerson Electric - EMR - close: 63.90 change: +2.01 WHAT TO WATCH: EMR surged 3.24 percent on Friday with above average volume fueling the move but it still couldn't breakout over resistance at $64.00-64.25. EMR has been stuck under this level since March. If shares can breakout then traders can use it as an entry point to target a move toward $68-69. The P&F chart looks pretty bullish with a strong base in place and a new quadruple-top breakout buy signal pointing to $73. Chart= --- Cigna Corp - CI - close: 70.60 change: +0.97 WHAT TO WATCH: We came very close to adding CI to the play list as a call candidate this weekend. The stock has finally broken out over six-month resistance at $70.00-70.50 and its technical indicators are bullish again. We choose to pass because of the 200-week moving average looming overhead near $73.90. CI may completely ignore this moving average so we're willing to watch it. The P&F chart is bullish and points to a $93 target. Chart= --- Fortune Brands - FO - close: 74.80 change: +0.71 WHAT TO WATCH: You may remember FO from the play list a few weeks ago. Unfortunately FO couldn't breakout over resistance at $75.00. The stock is still under this level but this time it looks poised to push through the $75 mark. Should this occur then readers may want to consider bullish plays with an $80 target. The P&F chart shows a new bear trap and triple-top breakout buy signal with an $85 target. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- PBI $45.30 +1.20 - PBI climbed more than 2.7 percent on Friday to breakout over massive resistance and close at new four-year highs. NUE $93.02 +1.65 - What are the odds of NUE hitting $100 before its 2:1 split on October 18th? EXM $40.11 -1.97 - Truly crazy trades may want to consider bearish strategies on EXM now that momentum has changed direction. (This would be very high risk!) TTC $70.00 +1.70 - We're watching TTC for a breakout over $71.00 and new all-time highs. WWY $63.39 +0.08 - We're watching WWY for a breakout over resistance at $64.00 and new all-time highs. ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Anthem Inc - ATH - close: 86.73 chg: -0.52 stop: 84.89 We're choosing to exit ATH early. The stock appears stuck in its current trading range between $85.00 (and its 200-dma) and the $88.00 level overhead. Technical oscillators are starting to grow more bearish and ATH's failure to join the market rally on Friday is discouraging. If you want to stay long keep an eye on the simple 200-dma as support. If you're looking for new bullish positions consider waiting for ATH to breakout over $88.50. Picked on September 26 at $86.81 Change since picked: - 0.08 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 2.1 million Chart = PUTS ^^^^ Biogen Idec - BIIB - close: 62.87 change: +1.70 stop: 62.51 We've been issuing cautious comments on BIIB the last few days as the bounce back above $60.00 looked like bad news for bears. Sure enough with the NASDAQ up 2.39 percent on Friday BIIB wasn't going to be left behind. The stock surged in the last couple of hours of trading and broke through our stop loss at $62.51 to close just under the $63.00 level. If BIIB can breakout over $64.00 traders may actually want to consider bullish positions. Picked on September 22 at $59.57 Change since picked: + 3.30 Earnings Date 07/28/04 (confirmed) Average Daily Volume = 3.0 million Chart = --- FairFax Financial - FFH - cls: 132.75 chg: +7.90 stop: 130.01 How frustrating! Resistance near $127.00-127.50 was holding through most of the session on Friday. Until the last two hours when a number of stocks just surged higher. FFH broke through round-number resistance at $130.00 and stopped us out. Super aggressive traders may actually want to consider bullish positions now that the two-month downtrend has been broken, although we'd probably look for a bounce from $130. We haven't heard any more news or comments on FFH's liquidity issues and potential bankruptcy in the last three weeks so the rumor has obviously lost steam. Picked on September 12 at $126.50 Change since picked: + 6.25 Earnings Date 00/00/00 (confirmed) Average Daily Volume = 59 thousand Chart = --- Lexmark Intl - LXK - close: 86.48 chg: +2.47 stop: 86.01 This time LXK helped lead the tech stocks higher as LXK took to an early lead on Friday. The breakout over resistance at $85.00 and its simple 40 and 50-dma's and its exponential 200-dma looks significant. Friday's 2.9 percent rally is also a breakout from its three-week trading range. We've been stopped out at $86.01. Picked on September 5th at $86.10 Change since picked: + 0.38 Earnings Date 07/19/04 (confirmed) Average Daily Volume = 1.2 million Chart = *********** DEFINITIONS *********** OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** 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 10-17-2004 Sunday 3 of 5 In Section Three: Current Calls: CMI, GDW, OSIP, PGR New Calls: SBUX Current Puts: APOL, FLIR, HSIC, SEPR, WHR New Puts: None ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ****************** CURRENT CALL PLAYS ****************** Cummins Inc - CMI - close: 72.29 change: +0.67 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: It's decision time. If you didn't exit when CMI hit our initial target back in early October it's time to decide. Do you look for a bounce from the $71-70 levels of support or do you exit now with the new two-week downtrend or is that just a two-week consolidation in the uptrend? Most of the technical indicators we follow look bearish while the short-term oscillators have a small hook higher with Friday's bounce. It's very possible for CMI to rebound from here since it looks like the bottom of a rising channel. However, if the Dow Industrials keep sinking then CMI could succumb to the pressure. A stop loss under $70 allows for another opportunity to rebound. The question is are you willing to take that chance? We are not suggesting new plays at this time but aggressive traders can watch for a bounce. Conservative players may want to put their stop under $71.00. Remember that CMI's earnings are expected on October 20th so we're going to exit on Tuesday afternoon no matter what. 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: + 1.30 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 724 thousand Chart = --- Golden West Financial - GDW - cls: 112.81 chg: +0.96 stop: 111.65 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: For the last two days we've been regretting not taking profits in GDW when shares broke out over the $115 level. Fortunately, the banking indices and GDW bounced on Friday. It's too bad that GDW didn't hold the majority of its gains and began to fade by Friday's close. The stock is still working on a seven-week trend of higher lows, which is bullish, but last week's rally is now a lower high, which could be bearish. Earnings are only four days away on Thursday and we're not going to hold over the event. We are preparing to exit on Wednesday afternoon assuming we don't get stopped out. No new positions are recommended. Suggested Options: We are not suggesting new bullish positions at this time. Annotated chart: Picked on September 30 at $110.95 Change since picked: + 1.86 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 512 thousand Chart = --- OSI Pharma - OSIP - close: 64.16 change: +0.50 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: We have good news for bulls in OSIP. The stock is continuing to ignore the two-week decline in the BTK biotech index. OSIP continues to work on its trend of higher lows and we are expecting an upside break out soon. The levels to watch is $64.60 and its simple 100-dma near $64. A move over $64.60 would be a new three-week high and a breakout over resistance. We're encouraged that technicals are turning more positve. The MACD looks ready to produce a new buy signal and its RSI and stochastics are bullish. We are still targeting a run to $70. More conservative traders may want to consider a stop loss under $61.50. Suggested Options: We're going to suggest the November calls. Our favorites are the 60s and 65s. BUY CALL NOV 60 GHU-KL OI= 85 current ask $6.40 BUY CALL NOV 65 GHU-KM OI=2781 current ask $3.60 BUY CALL NOV 70 GHU-KN OI=3595 current ask $1.75 Annotated Chart: Picked on October 03 at $63.45 Change since picked: + 0.71 Earnings Date 08/10/04 (confirmed) Average Daily Volume = 1.6 million Chart = --- Progressive - PGR - close: 86.44 chg: +1.19 stop: 82.59 Company Description: The Progressive group of insurance companies ranks third in the nation for auto insurance based on premiums written, offering its products by phone at 1-800-PROGRESSIVE, online at progressive.com and through more than 30,000 independent agencies and insurance brokers. (source: company press release) Why We Like It: Surprise! PGR was added to the OI play list on Monday, October 11th. We suggested a TRIGGER to go long at $85.65 to catch a breakout over resistance at $85.60. We were encouraged by PGR's relative strength and its strong trend of higher lows. The stock looked poised to breakout. Well, PGR initially produced the breakout but not as we expected. Shares traded to $85.99 on Wednesday and triggered us at $85.65. We made note of it in Wednesday's newsletter. However, everyone will be surprised to know that PGR reported Q3 earnings on Wednesday evening after the closing bell. As noted in the original play update we had checked two different sources and got two different earnings dates. It looks like they were both wrong. Fortunately, this surprise earnings announcement didn't bite us. The company reported a 22 percent rise in profits. Wall Street was looking for $1.69 a share and PGR turned $1.77. Net premiums rose 9 percent to $3.39 billion. Since then PGR has been drifting higher and the stock got a boost on Friday with big volume pushing it through the $86 level. Its MACD looks bullish and PGR is poised to run toward the $90 level. Suggested Options: We're going to suggest the November calls. Our favorites are the 80s and 85s. BUY CALL NOV 80 PGR-KP OI= 977 current ask $7.40 BUY CALL NOV 85 PGR-KQ OI=1148 current ask $3.30 Annotated Chart: Picked on October 13 at $85.65 Change since picked: + 0.79 Earnings Date 10/13/04 (confirmed) Average Daily Volume = 700 thousand Chart = ************** NEW CALL PLAYS ************** Starbucks - SBUX - close: 49.47 chg: +1.68 stop: 45.99 Company Description: Starbucks Corporation is the leading retailer, roaster and brand of specialty coffee in the world, with more than 8,500 retail locations in North America, Latin America, Europe, the Middle East and the Pacific Rim. The Company is committed to offering the highest quality coffee and the Starbucks Experience while conducting its business in ways that produce social, environmental and economic benefits for communities in which it does business. In addition to its retail operations, the Company produces and sells bottled Frappuccino® coffee drinks, Starbucks DoubleShot® coffee drink, and a line of superpremium ice creams through its joint venture partnerships. The Company's brand portfolio provides a wide variety of consumer products. Tazo Tea's line of innovative superpremium teas and Hear Music's exceptional compact discs enhance the Starbucks Experience through best-of-class products. The Seattle's Best Coffee® and Torrefazione Italia® Coffee brands enable Starbucks to appeal to a broader consumer base by offering an alternative variety of coffee flavor profiles. (source: company press release) Why We Like It: Wow! SBUX continues to knock the ball out of the park - at least with its share price. It was only a week ago that SBUX traded lower after announcing same-store sales growth of just 7 percent. That wasn't enough to meet Wall Street's expectations or so they say. But it didn't take but the next day before the stock was trading at another new relative high. Here we are one news- filled week later and SBUX is breaking out to new all-time highs. Yes, I said news filled. SBUX announced that its CEO would retire next March. They reaffirmed their full year estimates. They raised their long-term store goal from 25,000 stores to 30,000 stores. Plus, they announced a new premium chocolate drink called Chantico that is said to be so good it's addictive. Oh, and let's not forget that SBUX announced it was putting the Hear Music media bar where customers can burn music CDs in their locations soon. All told SBUX must be doing something right. The stock just broke through resistance in the $48 region with volume coming in about 36 percent above the norm. Yes, the $50 mark could be/should be round-number resistance but we do not expect it to hold. Readers can choose to wait for a bounce from $48.00-48.50 as a potential entry point or go long over $50.00. We're going to suggest positions now. We'll start the play with a stop loss at $45.99. Our initial target will be $54-55 and one we hope to reach before SBUX's November 10th earnings report. Suggested Options: We are going to suggest the November calls. Our favorites are the 45s, 47.50s and 50s. BUY CALL NOV 45.00 SQX-KI OI= 744 current ask $4.90 BUY CALL NOV 47.50 SQX-KT OI=3221 current ask $2.85 BUY CALL NOV 50.00 SQX-KJ OI=2495 current ask $1.30 Annotated Chart: Picked on October 17 at $49.47 Change since picked: + 0.00 Earnings Date 11/10/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************** CURRENT PUT PLAYS ***************** Apollo Group - APOL - close: 68.21 chg: +0.20 stop: 73.01 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: We should see some movement in APOL this week. Last Monday saw APOL hit new lows for the year and confirm the breakdown under the $70.00 mark. The P&F chart produced a nice spread triple- bottom breakdown sell signal with a $58 target. Yet since then APOL has consolidated in a neutral pattern of lower highs and higher lows. These sort of pennants, where the price coils tighter and tighter, normally don't predict direction just that a breakout is coming. We anticipate that the current downward trend will prevail. A drop under $67.50 could be used as a new bearish entry point. Should APOL pop higher then watch for resistance at $70 or $71. A failed rally near these levels could be used as a new entry point as well. We are still targeting the $60 region. 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=3420 current ask $7.60 BUY PUT NOV 70 OAQ-WN OI=5664 current ask $4.10 BUY PUT NOV 65 OAQ-WM OI=4312 current ask $1.90 BUY PUT JAN 75 OAQ-MO OI=2116 current ask $9.20 BUY PUT JAN 70 OAQ-MN OI=3264 current ask $6.10 BUY PUT JAN 65 OAQ-MM OI= 787 current ask $3.80 BUY PUT JAN 60 OAQ-ML OI= 962 current ask $2.15 Annotated Chart: Picked on October 10 at $69.81 Change since picked: - 1.60 Earnings Date 10/05/04 (confirmed) Average Daily Volume = 3.3 million Chart = --- FLIR Systems - FLIR - close: 54.50 chg: -0.76 stop: 56.35*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: It's time that traders prepare to exit if you haven't already. FLIR is due to report earnings on Wednesday morning before the opening bell. Analysts are expecting the company to report 47 cents a share. We don't want to hold over the report especially with the stock already down several points in our favor. Our plan is to exit on Tuesday afternoon before the closing bell assuming FLIR doesn't hit our exit point at $51.50 or our stop loss first. Speaking of stops we're lowering ours to $56.35. 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: - 4.85 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 577 thousand Chart = --- Henry Schein - HSIC - close: 58.34 change: -0.03 stop: 62.01 Company Description: The Company's four business groups--Dental, Medical, International and Technology--serve more than 450,000 customers worldwide, including dental practices and laboratories, physician practices and veterinary clinics, as well as government and other institutions. The Company's sales reached a record $3.4 billion in 2003. The Company operates through a centralized and automated distribution network, which provides customers in more than 125 countries with a comprehensive selection of over 90,000 national and Henry Schein private-brand products. (source: company press release) Why We Like It: We added HSIC to the play list as a put candidate on Wednesday. The brief summary on HSIC is that the stock was already looking weak and challenging support at the $50 level before CHIR's flu vaccine disaster news hit the market. HSIC is the major distributor for CHIR's fluvirin. Without any shipments coming from CHIR this year HSIC had to lower earnings estimates. The stock broke support and has since slowly consolidated lower. The stock is nearing new one-year lows now that it has broken major support and its P&F chart has produced a new sell signal. Currently the bulls are still playing tug-of-war with the stock but bears appear to be winning. Traders can use a failed rally under $60 as a new entry point if you're not interested in opening positions here. Suggested Options: We are going to suggest the November puts even though we do not plan to hold over the early November earnings report for HSIC. BUY PUT NOV 65 HQE-WM OI= 4 current ask $7.30 BUY PUT NOV 60 HQE-WL OI=214 current ask $3.40 BUY PUT NOV 55 HQE-WK OI=329 current ask $1.25 Annotated Chart: Picked on October 14 at $58.35 Change since picked: - 0.01 Earnings Date 11/02/04 (unconfirmed) Average Daily Volume = 655 thousand Chart = --- Sepracor Inc - SEPR - close: 44.42 chg: -0.36 stop: 48.01 Company Description: Sepracor Inc. is a research-based pharmaceutical company dedicated to treating and preventing human disease through the discovery, development and commercialization of innovative pharmaceutical products that are directed toward serving unmet medical needs. Sepracor's drug development program has yielded an extensive portfolio of pharmaceutical compound candidates with a focus on respiratory and central nervous system disorders. Sepracor's corporate headquarters are located in Marlborough, Massachusetts. (source: company press release) Why We Like It: This is it. SEPR has hit the simple 200-dma. We've been targeting this level of technical support from the beginning. Yet as of Thursday we decided not to readjust our price target and left it at $43.50. Many traders may want to consider exiting for a profit now. It is conceivable that bulls may try and defend SEPR at the $44 level now that this level is underpinned by the 200-dma. We are not suggesting new plays and will close SEPR if the stock hits $43.50 on an intraday basis. Suggested Options: SEPR has essentially hit our target but we're holding out for a dip to $43.50. We are not suggesting new positions. Annotated chart: Picked on September 22 at $48.94 Change since picked: - 4.52 Earnings Date 07/13/04 (confirmed) Average Daily Volume = 1.8 million Chart = --- Whirlpool - WHR - close: 57.88 change: +0.02 stop: 60.55 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: WHR better get busy. Our time is almost up. The stock continues to consolidate lower in a steady descending channel. Our challenge now is time. We're running out. WHR is due to report earnings on Wednesday morning before the opening bell. We don't want to hold over the event. That means we need to exit on Tuesday afternoon. We are not suggesting new positions. Suggested Options: WHR is due to report earnings on Oct. 20th. We are not suggesting new positions. Annotated Chart: Picked on October 07 at $59.03 Change since picked: - 1.15 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 854 thousand Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. 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The Option Investor Newsletter Sunday 10-17-2004 Sunday 4 of 5 In Section Four: Leaps: Pivot Point Spreads and Straddles: Options Expire Worthless -- Premiums Stay Where They Belong ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***** LEAPS ***** Pivot Point The normal October volatility arrived with a rush and was helped along by earnings warnings, misses, lowered guidance and help from Elliott Spitzer. The markets have returned to critical support levels and we are right at what could be a pivot point for the rest of October. Two Dow components report earnings on Monday, IBM and MMM, and the results could be drastic. MMM is a current LEAP play and we are hoping the results are positive not just for our MMM play but for all the plays in our portfolio. I am not adding any new plays because we already have a full boat and a further drop from here could be painful. A move higher into a normal end of year, post election rally would be very nice but I have to tell you I am nervous. I am always nervous when critical levels are reached even though we have expected it for weeks. Whenever the markets appear destined for doom the end is near. On Thursday they looked very weak but Friday's Greenspan bounce rescued them from testing that critical support. I view that critical support as Dow 9800, Nasdaq 1850, SOX 380, SPX 1095, Wilshire 10750. If these levels fail I would not hesitate to exit any plays you are uncomfortable with. **** 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 17 days between us an the election. The next two weeks will be the most dangerous. ******************* New Plays ******************* NONE TODAY ******************* Dropped Plays ******************* QLGC - Stopped out BA - Dropped on news ****************************** New Watch List Plays Triggered ****************************** DIA $100.65 Dow Diamonds Trust **Target 99.00** The Diamonds play was triggered on Thursday when the DIA dropped to touch $99.00. **************************** Current Portfolio: **************************** Position Summary Table **************************** Play Updates **************************** XLE - S&P Energy SPDR $35.15 ** Stop 33.90 ** There is a strong possibility of a drop in the energy stocks over the next four weeks. We have funds taking profits from their energy gains to offset losers in other area as their year end draws to a close in October. The XLE has failed to rise materially for seven days but is holding above $35.00. We currently have about $1 in profit on the leaps and we could exit now for a gain. With oil closing at the high of the day on Friday I am hesitant to take the exit. Should something happen over the weekend or prior to the election this could turn into a rocket again. For that reason alone I am going to hold this with a breakeven stop until Sunday Oct-31st then make an exit decision before the election. 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 - $27.78 ** STOPPED OUT at $27.50 ** QLGC was stopped on Thursday at $27.50 after being downgraded by Merrill Lynch. Qlogic posted great results and beat the street by +4 cents with margins in the 69% range. Merrill said price erosion had slowed but they feared an acquisition in the near future and cut the stock to a neutral from buy. 2006 $30 LEAP YIO-AF 4.70 cost 6.10, -1.40 loss 2006 $35 LEAP YIO-AG 3.00 cost 4.10, -1.10 loss Entry $30.36 9/20 http://members.OptionInvestor.com/leaps/Lp_091904_1.asp QLGC Chart ************************ MMM - 3M Company - $77.95, ** Stop $74.00 ** MMM was knocked for a loss to $79 on earnings fears and the Dow bleed from last Friday. The AIG implosion on Thursday cut it to $77 when ETF traders dumped the Dow funds on the AIG news. Earnings are Monday and they did not warn. Hopefully they will say something positive and the Dow will benefit. We are right at the pivot point for October and it is time for a real rebound if it is going to really appear. 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 $43.94 **Stop $42.00** Citigroup had record earnings on Thursday but got caught in the insurance implosion. As a Dow stock it was sold in the massive ETF dumping and as part of the same financial indexes with AIG. Tough week for financials. Friday saw a rebound but if rolled over at the close with the rest of the market. This stock is a high beta stock and we are at the mercy of the Dow for the next two weeks. 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 $20.61 **Stop $18.00** Intel posted better earnings than most expected and saw a decent bounce to $21.50 but warnings from seven other chip stocks over the last three days dragged it right back down to $20.50 support. News that is was pushing its 4.0ghz chip to 4Q-2005 was not received well despite the performance improvements expected by the change of direction. Current position: 2006 $22 LEAP Call WNL-AX 2006 $25 LEAP Call WNL-AE Entry $20.00 Sept 3rd http://members.OptionInvestor.com/leaps/Lp_071804_1.asp Intel Chart ********************** TYC - Tyco Intl. $30.52 **Stop $28.00** Tyco refuses to die with the market and continues to hold over $30. On Friday one class action suit was tossed out of court but another was allowed to continue with modifications. Tyco rose slightly on the news. Earnings are Nov-1st and Tyco is expected to perform well. Whenever the Dow bounces Tyco is a market leader but it has a high beta so Dow moves tend to drag on the stock. We are just passing time until the next rally appears in the market and Tyco moves away from support at $30. 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 $23.75 **Stop $19.00** Juniper rose into earnings and was pressing resistance at $25 on Thursday. They beat the street and raised guidance for the 8th consecutive quarter but dropped -$2 on comments about an acquisition. Friday saw a rebound and we are still well above our entry point. Very few companies have as strong an earnings record as Juniper and they should find buyers once the market decides on a direction. 2006 $25 LEAP Call WBW-AE cost $3.50 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 $83.99 **Stop 79.00** This is a really tough call. COP had rallied to $90 on the strong oil prices, their move back into Lybia, their acquisition in Russia and the huge increase in their reserves. Every single oil/energy report I read has COP and OXY as two of their top three picks for the long term. Both have monster reserves and believe it or not are still valued at oil in the low $30 range. Every day that goes by their reserves gain in value. Unfortunately every day another mutual fund is taking profits to offset the gains in oil prices. COP has risen from $55 to $90 in the last 12 months and could easily go to $150 over the next 12 months if oil remains high. The chief economist for COP told a business audience on Thursday that oil prices would remain high due to a permanent structural change in the industry. The economist said the cost of finding new oil reserves is over $30 a barrel and rising sharply due to the difficulty of drilling in remote locations. They cited unrest in oil-rich areas, constraints on global production capacity and rapidly increasing worldwide demand. The problem is the profit taking by funds and the expected drop in oil after the election. Will it come or will something happen to push it higher? Nobody knows. I hate to exit on the potential for oil to drop only to see COP head for $100 next week. I am going to lower the stop to $79 and just under that $80-$82 congestion. Hopefully that will contain any selling and allow us to remain in the play. We are highly profitable in COP with a 100% gain and I would strongly urge readers who are uncomfortable to take profits and then reenter should oil drop after the election. Earnings are Oct-27th. The stop was lowered to $79. Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 currently $13.20 Entry $73.30 August 30th http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart ********************** NWS - News Corp $32.80 **Stop 29.00** Only four weeks until the expected approval to move to the NYSE and the stock is beginning to tick up once again. It refused to remain down on the market weakness and closed up on Friday. 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 Initial play description: http://members.OptionInvestor.com/editorplays/edply_041104_1.asp http://members.OptionInvestor.com/editorplays/edply_041804_1.asp NWS Chart **************************** UPL - Ultra Petroleum $49.20 **Stop $44.00** UPL suffered profit taking with the rest of the energy sector but the fundamentals remain the same. 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. Earnings are Oct-27th. 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 $93.76 ** Stop $86.00 ** EBAY is still holding the high ground and very close to its all time high at $96.78 set last week. The YHOO earnings gave EBAY a lift as investors look forward to their earnings report on the 20th. We are nearing stock split territory. Ebay last announced a 2:1 split in July 2003 at $100.00 and in April 2000 near $100. There is decent support between the current level and our stop at $86. Short of a serious market melt down we should be safe. Earnings are Oct-20th Stop raised to $86.00 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 $51.70 ** Stop $49.00 ** Merrill produced decent earnings last week despite the market weakness over the quarter. The implosion in financial stocks barely dented the stock price on Thursday and the trend is still slightly to the upside despite the recent market weakness. Stop was raised to $49.00 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 $53.69 ** Stop $51.00 ** PG CEO Lafley told shareholders this week that there was plenty of room for growth still ahead and the company had grown more than 30% over the last three years. They have produced free cash flow of $20 billion and have increased dividends +33% since 2001. Shareholder return over the last three years has been +81%. When you consider this was during a bear market it is pretty good results. Full comments here: http://biz.yahoo.com/prnews/041013/clw021_1.html PG jumped +1.50 intraday on Friday but I could not find any news. 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 $81.80 ** Stop $74.00 ** RIMM is rocking! RIMM set a new all time high on both Thursday and Friday and closed at the high of the day on Friday. Piper Jaffray maintained an "outperform" rating on Research in Motion on Monday saying the wireless communications company has strong near-term trends and accelerating earnings growth that make it a "compelling investment for growth-oriented investors." Stop was raised to $74.00 RIMM announced earnings on Sept-30th. 2006 $80 LEAP Call WLJ-AP @ $16.50 now $17.40 2006 $90 LEAP Call WLJ-AR @ $13.20 now $14.60 Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 now $44.60 Entry $77.00 (9/28) http://members.OptionInvestor.com/leaps/Lp_092604_1.asp RIMM Chart **************************** BA $50.20 Boeing Aerospace ** Dropped ** The loss of the tanker deal and another $1.24 billion subsidy for Airbus has taken the incentive off for Boeing to move higher. The government is also widening the probe on the tanker contract scandal. I am cutting the losses and bailing on this position. 2006 $55 LEAP Call WBO-AK @ $4.70, $3.90, -0.80 loss 2006 $60 LEAP Call WBO-AL @ $3.00, $2.20, -0.80 loss Entry $52 (9/28) http://members.OptionInvestor.com/leaps/Lp_092604_1.asp Boeing Chart **************************** OXY - Occidental Petroleum $56.30 ** Stop $54.00 ** We came very close to being stopped at $54 on Wednesday when oil prices fell to $51.50 a barrel. The return to $55 at Friday's close has breathed new life back into OXY and hopefully the profit taking is over. OXY declared a dividend of $.275 on Thursday. See the comments on COP for additional oil sentiment. 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 - $53.75 ** Stop $50.00 ** After soaring to a new all time high the prior Wednesday at $57.82 the warning by SonicWall has been a weight on SYMC. I am sure normal October profit taking is also weighing on the price. Earnings are this Wednesday and they are expected to be strong. I am leaving the stop low at $50 to stay under the strong support at $51-$52. Earnings are Oct-20th 2006 $50 LEAP Call YAG-AJ @ $10.70 2006 $55 LEAP Call YAG-AK @ $8.00 2006 $60 LEAP Call YAG-AL @ $5.70 Entry $53.00 on 9/27 http://members.OptionInvestor.com/leaps/Lp_080804_1.asp SYMC Chart **************************** XMSR - XM Satellite Radio $29.00 ** Stop $23.00 ** XMSR weathered the Howard Stern storm on SIRI and rebounded off its lows on Wednesday as the new Internet music business began to be advertised. As long as the current support at $28 holds until the market recovers I believe this play will do well. Microsoft announced that Media Player 10 now offers XMSR on your PC and that is a strong marketing partner. Earnings are not until November 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 $28.52 ** Stop $27.00 ** Pfizer had a bad week but there was nothing new in the news. The general depression was due more to the constant news about VIOXX and the apparent lead Kerry was beginning to capture. On Friday Pfizer repeated a drug warning from a year ago that studies of Bextra in heart bypass surgery to reduce inflammation had sometimes resulted in cardiac events. This was in very high doses and only with injections not capsules. They also repeated the warning that it could cause a very rare skin disease called Stevens-Johnson Syndrome. Pfizer said they reexamined the various trials of Bextra after the Vioxx news and found no additional risk for normal use. They repeated the prior warnings just to remind doctors they exist as patient transfer from VIOXX to other COX-2 inhibitors. The drug cloud remaining from VIOXX may have been too thick to jump into Pfizer for the Celebrex play. Investors are far too nervous and afraid of all drug companies this week and unless the trend changes soon we may exit this play quickly. 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 **************************** DIA $100.65 Dow Diamonds Trust **Stop 97.00** Finally an index entry! The Dow returned to the May lows at 9900 and just enough to trigger our LEAP entry. The key for this week is to hold over 9700 which is where I placed the stop. If we set a lower low below the August 9783 low then we want to be flat again. Options may 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 five times the current $2.90 price. 2006 $100 LEAP Call YGF-AV @ $6.30 2006 $104 LEAP Call YGF-AZ @ $4.20 2006 $108 LEAP Call YGF-AD @ $2.90 2006 $112 LEAP Call YGF-AH @ $2.00 Entry 10/14 @ $99.00 DIA Chart **************************** LEAPS Watch List **************************** One Down, Two to Go The insurance bomb on Thursday knocked the Dow back to 9900 and triggered our DIA leap entry. The QQQ came within 70 cents of the $46.50 entry on the Tuesday drop and the SMH moved to within 62 cents of our $29.00 entry on Friday. The one I wanted the most, the IWM, came within 1.29 of our initial 111 entry. Not quite close enough. However the options have risen in price with the October surge and the index has not really shown any indications of failure. I am dropping this watch list entry today as too expensive. I am going to adjust the entry points one more time in hopes of getting triggered if we do retest Dow 9800 next week. Most of our other portfolio plays are holding up well during this October madness so there is a good chance we could get these remaining index entries and not lose any of our other plays. *********************** Dropped Entries *********************** IWM $113.68 Russell has not pulled back as far as the other indexes and the options are too expensive. We have a DIA entry and we will have an SMH entry this week. *********************** New Watch List Entries *********************** No new entries ************************ SMH $29.76 Semiconductor Holders Target $29.00 on breakdown Target $30.50 on breakout We are so close I do not want to miss this entry. I kept the $29 target but put a breakout entry trigger at $30.50 as well. This way a continued drop will hit our initial target but a Monday rebound will also put us in play. Chip earnings are mostly over and all the bad news should be priced in. All we need to worry about now is general market weakness. Buy 2006 $30 LEAP Call YRH-AF Buy 2006 $35 LEAP Call YRH-AG Sell 2006 $55 LEAP Put YRH-MA SMH Chart ************************ QQQ $35.63 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. I do not want to try a breakout entry on the QQQ as the volatility is too strong. 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. QQQ Chart ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************* SPREADS & STRADDLES ******************* Options Expire Worthless -- Premiums Stay Where They Belong By Mike Parnos Get out your shovel, it's time to break ground for the new wing on your mansion. You can break out the champagne while you're at it. You can pay for both with this month's CPTI trading profits. Get those calculators ready. We're going to have some fun -- and maybe blow our own horn a little. As the second year of our CPTI portfolio comes to a close, we have reason to celebrate. The reason? A 135% return on our risk for the entire year -- with very conservative high-probability trades. Bernie Schaefer, Price Headley, Optionetics, Spread Traders, Teach Me To Trade, Options Made Easy -- eat your hearts out!! People pay a small fortune for their seminars and products. Then they try to sell them more and more -- AND their customers still end up losing money. CPTI students know they have to look no further than this column to learn what they need to know and to acquire the skills that can feed them for a lifetime. ____________________________________________________________ October CPTI Portfolio Results The October option cycle was the final cycle in the second year of tracking our Couch Potato Trading Institute portfolio. With our $8,030 of profits, we've now accumulated a total of $60,950 in only eleven months - on a trading account size of about $45,000. October Trade Summary SPX - Iron Condor - Profit: $3,050 RUT - Iron Condor - Profit: $1,200 OEX - Iron Condor - Profit: $$1,200 BBH - Iron Condor - Profit: $$1,150 TOTAL OCTOBER PROFITS: $6,550 (See position summary below) Happy Returns Of The Day (Month) Report – Once again, I calculated our hypothetical return on risk for this month's closed portfolio trades. The total amount of maintenance in the above trades was $58,000. If we subtract the $6,550 of premium we originally took in, our real risk was only $51,450. When we divide $51,450 into our $6,550 profit, we show a return on our risk of 11.3% ___________________________________________________________ NOVEMBER CPTI POSITIONS November Position #1 - SPX Iron Condor - 1108.20 We sold 12 SPX November 1185 calls and bought 12 SPX November 1200 calls with a credit of about $1.25 ($1,500). Then we sold 9 SPX November 1070 puts and bought 9 SPX November 1050 puts for a credit of about $1.65 ($1,485). Total credit and potential profit of about $2,985. The maximum profit range is from 1070 to 1185. Can this 115-point range withstand the market's emotional highs and lows? Let's hope so. The maintenance is $18,000. The potential return on risk is about 20%. New November Position #2 - SPX Iron Condor - 1108.20 Considering the downward market movement, I felt it is appropriate to initiate a SPX position with different parameters. We sold 10 SPX Nov. 1160 calls and bought 10 SPX Nov. 1180 calls for a credit of about $1.40 ($1,400). Then we sold 13 SPX Nov. 1025 puts and bought 13 SPX Nov. 1005 puts for a credit of about $1.20 ($1,560). Maximum profit potential of about $2,960. Max profit range of 1025 - 1160. Maintenance: $20,000. November Position #3 - OEX Iron Condor - 529.58 We sold 10 OEX Nov. 500 puts and bought 10 OEX Nov. 490 puts for a credit of about $.70 ($700). Then we sold 10 OEX Nov. 555 calls and bought 10 OEX Nov. 565 calls for a credit of about $.60 ($600). Total net credit and maximum profit of $1.30 ($1,300). Max profit trading range of 500 to 555. Maintenance $10,000. November Position #4 - RUT - Iron Condor - 564.99 We sold 10 RUT Nov. 520 puts and bought 10 RUT Nov. 510 puts for a credit of about $.70 ($700). Then we sold 10 RUT Nov. 610 calls and bought 10 RUT Nov. 620 calls for a credit of about $.60 ($600). Total net credit and maximum profit of $1.30 ($1,300). Max profit range of 520 to 610. Maintenance $10,000. ____________________________________________________________ RECAP OF OCTOBER CPTI POSITIONS October Position #1 - SPX Iron Condor - 1103.29 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 was 1075 to 1160. Maintenance was $15,000. Profit: $3,050 Position #2 -- RUT Iron Condor - 564.88 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 was 530 to 610. Maintenance was $10,000. Profit: $1,200. Position #3 - OEX Iron Condor - 529.58 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 $1,200. Maximum profit range was 520 to 565. Maintenance was $10,000. Profit: $1,200. Position #4 - BBH Iron Condor - $134.10 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 was $135 to $150. Maintenance was $10,000. Be careful, it's getting close to the bottom of the range. Closed out short $135 put earlier this week at $.35 = final profit of $1.15 ($1,150). NOTE: As it turned out, BBH finished comfortably above $135. Had we held on, we would have gained another $350. Do I regret closing out the position early for $.35? Not for a minute. It could have just as easily finished at $130. ____________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $35.45 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 – 529.58 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. 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 total of $9,365. In October we added $650 for a new total of $10,015. New Zero-Plus Position For November November bull put spread 500/490 for credit of $.70 x 5 = $350. November bear call spread 555/565 for credit of $.60 x 5 = $300. If all goes well, we'll be able to add another $650 to our cash position. __________________________________________________________ SPX "Sure Thing" Strategy - 1103.29 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. We've been getting whipsawed. Our most recent position was 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. Here we go again. We had to close the 1120/1095 bull put spread and we initiated a new 1115/1140 bear call spread. We picked up another $350 in premium to $2,785, but our maintenance is now $70,000. ____________________________________________________________ America, As We Know It, Is In Trouble Interstate Bakeries Corp. is in trouble. To be more specific, that tasty product millions of us used to find tucked away in the corner of our Superman lunch boxes in grade school is now in danger of extinction. That's right, Twinkies are on the Endangered Carbohydrate List (yes, there is such a thing). In the good old days, we gobbled down our PB&J sandwiches, knowing that we'd soon be freeing two Twinkies from their cellophane prison and sending them to their new home -- our bellies. We can't allow Dr. Atkins & fad diets to alter our lifestyle and threaten part of Americana. We have to act. Join me and my assistants -- Angie O'Plasty and Connie Lyngus -- as we organize a "Save The Twinkie" telethon. We need volunteers. If we lose Twinkies, what's next? 3 Musketeers? King Dongs? Combos? Ladies and gentlemen, America is in trouble. I wonder why Bush or Kerry didn't debate this issue. ____________________________________________________________ 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 10-17-2004 Sunday 5 of 5 In Section Five: Covered Calls: CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS Spreads and Straddles: Equities Rebound On Retail Data, Greenspan Comments... Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** COVERED CALLS ************** ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Many investors find that writing "in-the-money" covered-calls fits their criteria for a conservative, easy-to-manage options strategy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL CANDIDATES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of potential candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. _________________________________________________________________ Sequenced by Target Yield (monthly basis/no margin) Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield GRA 11.58 NOV 10.00 GRA-KB 2.30 2989 9.28 34 6.9% CYBS 6.04 NOV 5.00 CXQ-KA 1.35 39 4.69 34 5.9% TACT 28.55 NOV 25.00 TUF-KE 4.90 90 23.65 34 5.1% GTW 5.46 NOV 5.00 GTW-KA 0.70 2015 4.76 34 4.5% USG 21.22 NOV 20.00 USG-KD 2.15 18453 19.07 34 4.4% PMTI 23.08 NOV 20.00 HKQ-KD 4.00 30 19.08 34 4.3% DHB 14.38 NOV 12.50 DHB-KV 2.45 1023 11.93 34 4.3% SEAC 16.15 NOV 15.00 UEG-KC 1.80 151 14.35 34 4.1% WEBX 25.17 NOV 22.50 UWB-KX 3.50 709 21.67 34 3.4% OMM 16.51 NOV 15.00 OMM-KC 2.05 16 14.46 34 3.3% AGIX 28.00 NOV 20.00 AUB-KD 8.60 545 19.40 34 2.8% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). _________________________________________________________________ GRA - W. R. Grace $11.58 W. R. Grace & Co. (NYSE:GRA), through its subsidiaries, provides specialty chemicals and materials. Grace operates in two major business segments: Davison Chemicals and Performance Chemicals. Davison Chemicals produces catalysts and silica-based products. Performance Chemicals produces specialty construction chemicals, including performance-enhancing concrete admixtures, additives and additives for masonry products; specialty building materials, including fireproofing and waterproofing materials and systems, and sealants and coatings for packaging that protect food and beverages from bacteria and other contaminants, extend shelf life and preserve flavor. GRA - W. R. Grace $11.58 NOV 10.00 GRA-KB LB=2.30 OI=2989 CB=9.28 DE=34 TY=6.9% _________________________________________________________________ CYBS - CyberSource $6.04 CyberSource (NASDAQ;CYBS) provides secure electronic payment and risk management solutions to organizations that process orders for goods and services over the Internet. The firm's payment solutions allow eCommerce merchants to accept a range of online payment options, from credit cards and electronic checks, to global payment options and emerging payment types. Its risk and compliance management tools address issues such as credit card fraud, tax requirements and export controls. Its reporting and management tools help automate the flow of complex eCommerce processes, such as recurring billing and payment reconciliation. CYBS - CyberSource $6.04 NOV 5.00 CXQ-KA LB=1.35 OI=39 CB=4.69 DE=34 TY=5.9% _________________________________________________________________ TACT - TransAct Technologies $28.55 TransAct Technologies (NASDAQ:TACT) designs, develops, makes and markets transaction-based printers under the Ithaca and Magnetec brand names. In addition, the firm markets related consumables, spare parts and service. Its printers are used worldwide to provide transaction records, such as receipts, tickets, coupons, register journals and other documents. The company focuses on two markets: point-of-sale and banking and gaming and lottery. TransAct offers an array of products utilizing inkjet, thermal and impact printing technology for applications requiring up to 60 character columns. TACT - TransAct Technologies $28.55 NOV 25.00 TUF-KE LB=4.90 OI=90 CB=23.65 DE=34 TY=5.1% _________________________________________________________________ GTW - Gateway $5.46 Gateway (NYSE:GTW) is a direct marketer of personal computers, servers, PC-related products and services and other consumer electronics products. Consumer electronics and non-PC-related products and services consist of all offerings other than the PC, such as peripherals, software, accessories, warranties, training, Internet services, digital televisions, digital cameras and enterprise system and networking products and services. The company sells its products nationally through a number of channels, including its Website at www.gateway.com, its telephone call centers (1-800-GATEWAY), its retail stores and through a limited number of third-party channels. GTW - Gateway $5.46 NOV 5.00 GTW-KA LB=0.70 OI=2015 CB=4.76 DE=34 TY=4.5% _________________________________________________________________ USG - USG Corporation $21.22 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 $21.22 NOV 20.00 USG-KD LB=2.15 OI=18453 CB=19.07 DE=34 TY=4.4% _________________________________________________________________ PMTI - Palomar Medical $23.09 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 $23.09 NOV 20.00 HKQ-KD LB=4.00 OI=30 CB=19.08 DE=34 TY=4.3% _________________________________________________________________ DHB - DHB Industries $14.38 DHB Industries (NYSE:DHB) is a holding company consisting of two major divisions: DHB Armor Group and DHB Sports Group. The Armor Group includes both Point Blank Body Armor and Protective Apparel Corporation of America. The Armor Group principally manufactures three basic types of body armor: concealable armor, which is worn beneath the user's clothing and designed to protect against less serious weapons; tactical armor, which is worn externally and is designed to protect against more serious threats, and modular concealable/tactical armor, which allows the wearer to customize the armor for either concealed or tactical use. DHB - DHB Industries $14.38 NOV 12.50 DHB-KV LB=2.45 OI=1023 CB=11.93 DE=34 TY=4.3% _________________________________________________________________ SEAC - SeaChange International $16.15 SeaChange International (NASDAQ:SEAC) is a developer, builder, and marketer of video storage systems that automate the management and distribution of long-form video streams, such as movies or other feature presentations, and short-form video streams, such as advertisements. The company's digital video systems provide storage and retrieval capabilities, multichannel content delivery and highly-automated information and order processing. SEAC - SeaChange International $16.15 NOV 15.00 UEG-KC LB=1.80 OI=151 CB=14.35 DE=34 TY=4.1% _________________________________________________________________ WEBX - WebEx Communications $25.17 WebEx Communications (NASDAQ:WEBX) develops and sells services that allow end users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a web browser. Integrated telephony and web-based audio and video services are also available using standard devices such as telephones, computer Web cameras and microphones. The company's communications services provide a range of features that build on the real-time functionality and capabilities of their unique WebEx MediaTone Network. WEBX - WebEx Communications $25.17 NOV 22.50 UWB-KX LB=3.50 OI=709 CB=21.67 DE=34 TY=3.4% _________________________________________________________________ OMM - OMI Corporation $16.51 OMI Corporation (NYSE:OMM) is a sea-borne transporter of crude oil and refined petroleum products operating in the international shipping markets. The company concentrates its vessels into two core categories: Suezmax tankers and petroleum product carriers. OMI's fleet consists of product carriers which transport refined petroleum products from refinery locations to consuming locations, and crude oil tankers which transport oil from production and storage locations to refinery locations. The company's product carriers are small and mid-sized tankers such as handysizes, handymaxes and Panamaxes. OMM - OMI Corporation $16.51 NOV 15.00 OMM-KC LB=2.05 OI=16 CB=14.46 DE=34 TY=3.3% _________________________________________________________________ AGIX - AtheroGenics $28.00 AtheroGenics (NASDAQ:AGIX) is a research-based pharmaceutical company, focused on the discovery, development and eventual commercialization of novel drugs for the treatment of chronic inflammatory diseases, including heart disease, rheumatoid arthritis, organ transplant rejection and asthma. The company has developed a vascular protectant (v-protectant) technology platform to discover drugs to treat these types of diseases. Based on this v-protectant platform, it has four primary drug development programs in the clinic and is pursuing a number of other preclinical programs. AGIX - AtheroGenics $28.00 NOV 20.00 AUB-KD LB=8.60 OI=545 CB=19.40 DE=34 TY=2.8% ******************* SPREADS & STRADDLES ******************* Equities Rebound On Retail Data, Greenspan Comments... By Ray Cummins The major stock averages closed higher Friday amid favorable retail sales data and some optimistic comments from Federal Reserve Chairman Alan Greenspan. The Commerce Department reported that retail sales jumped 1.5% in September, more than economists expected. Fed Chief Alan Greenspan added to the confident outlook, saying that surging energy costs will have less of an impact on the U.S. economy than the energy crisis of the 1970s. The Dow Jones industrial average climbed 38 points to 9,933, bouncing back from sizeable losses over the past two sessions. The technology-laden NASDAQ Composite index added 8 points to close at 1,911. The Standard & Poor's 500 index closed up 4 points at 1,108. Advancers were ahead of decliners by a 5 to 2 margin on the NYSE, where volume came to 1.65 billion shares. NASDAQ breadth favored the bulls with winners outpacing losers 3 to 2 on volume of 1.63 billion shares. In the treasury market, the benchmark 10-year note slid 8/32 to yield 4.05%. Despite Friday's gains, equities ended the week lower. The Dow lost 1.2%, the S&P 500 fell 1.2%, and the NASDAQ was down 0.44%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/15/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 81.86 OCT 65.0 70.0 0.70 69.30 0.70 Closed RYL 88.15 86.90 OCT 75.0 80.0 0.75 79.25 0.75 Closed GIVN 38.72 38.90 OCT 30.0 35.0 0.70 34.30 0.70 Closed MBT 140.75 140.10 OCT 20.0 25.0 0.50 24.50 0.50 Closed COGN 34.58 37.10 OCT 30.0 32.5 0.30 32.20 0.30 Closed SCSC 66.22 71.82 OCT 55.0 60.0 0.50 59.50 0.50 Closed ONXX 41.99 41.59 OCT 30.0 35.0 0.50 34.50 0.50 Closed AHC 83.99 87.41 OCT 75.0 80.0 0.55 79.45 0.55 Closed CELG 59.39 62.13 OCT 50.0 55.0 0.55 54.45 0.55 Closed GDT 64.02 64.95 OCT 55.0 60.0 0.65 59.35 0.65 Closed PD 90.48 85.00 OCT 80.0 85.0 0.50 84.50 0.50 Closed RTP 104.28 106.92 OCT 95.0 100.0 0.55 99.45 0.55 Closed PETD 43.63 38.41 OCT 35.0 40.0 0.45 39.55 (1.14) Closed RIMM 76.98 81.75 OCT 60.0 65.0 0.40 64.60 0.40 Closed GIVN 44.07 38.90 NOV 35.0 40.0 0.70 39.30 (0.40) Closed BSC 94.16 91.81 NOV 80.0 85.0 0.65 84.35 0.65 Open PHS 37.23 36.31 NOV 30.0 32.5 0.35 32.15 0.35 Open BTU 60.07 60.78 NOV 50.0 55.0 0.60 54.40 0.60 Open MRVL 28.84 28.69 NOV 22.5 25.0 0.35 24.65 0.35 Open COST 44.69 45.60 NOV 40.0 42.5 0.30 42.20 0.30 Open NEM 46.25 44.78 NOV 40.0 42.5 0.30 42.20 0.30 Open INSP 47.25 46.70 NOV 35.0 40.0 0.85 39.15 0.85 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Positions in Cabot Micro (NASDAQ:CCMP) and Pulte Homes (NYSE:PHM) have previously been closed to limit potential losses. Given Imaging (NASDAQ:GIVN) became an early exit candidate on Friday after posting a 50% rise in third-quarter sales, which fell short of consensus analyst estimates. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AZO 74.06 78.27 OCT 85.0 80.0 0.55 80.55 0.55 Closed MXIM 40.94 42.25 OCT 50.0 45.0 0.50 45.50 0.50 Closed PLMO 32.30 26.95 OCT 45.0 40.0 0.55 40.55 0.55 Closed LEN 46.75 42.72 OCT 55.0 50.0 0.60 50.60 0.60 Closed NBIX 50.65 46.98 OCT 60.0 55.0 0.55 55.55 0.55 Closed SSP 49.66 47.09 OCT 52.5 50.0 0.50 50.50 0.50 Closed APOL 78.35 68.21 OCT 90.0 85.0 0.25 85.25 0.25 Closed STJ 70.73 76.90 OCT 80.0 75.0 0.55 75.55 (1.35) Closed APOL 72.00 68.21 OCT 85.0 80.0 0.45 80.45 0.45 Closed PRX 37.80 34.98 OCT 45.0 40.0 0.60 40.60 0.60 Closed CERN 42.99 46.06 OCT 50.0 45.0 0.50 45.50 (0.56) Closed IMCL 50.35 51.03 OCT 60.0 55.0 0.40 55.40 0.40 Closed LLTC 35.71 36.09 OCT 40.0 37.5 0.30 37.80 0.30 Closed LXK 81.50 82.40 OCT 90.0 85.0 0.65 85.65 0.65 Closed AMZN 40.47 38.55 NOV 50.0 45.0 0.65 45.65 0.65 Open PDX 55.00 54.45 NOV 65.0 60.0 0.60 60.60 0.60 Open BZH 103.14 100.39 NOV 115.0 110.0 1.10 111.10 1.10 Open CHIR 37.98 32.47 NOV 45.0 42.5 0.30 42.80 0.30 Open FLIR 54.52 54.50 NOV 65.0 60.0 0.70 60.70 0.70 Open MERQ 37.97 37.22 NOV 45.0 42.5 0.35 42.85 0.35 Open BIIB 59.82 58.02 NOV 70.0 65.0 0.65 65.65 0.65 Open MCHP 27.56 27.65 NOV 35.0 30.0 0.60 30.60 0.60 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Positions in Cerner (NASDAQ:CERN), as well as Lexmark (NYSE:LXK) and Netease.com (NASDAQ:NTES), both of which ended the expiration period profitable, have previously been closed to limit potential losses. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status QLGC 29.12 27.78 OCT 30.0 30.0 2.40 2.60 Closed MDC 74.96 71.76 OCT 75.0 75.0 3.50 8.00 Closed ETN 64.82 62.70 OCT 65.0 65.0 2.05 5.50 Closed RMBS 15.23 15.80 OCT 15.0 15.0 1.10 1.45 Closed Debit straddles in MDC Holdings (NYSE:MDC) and Eaton (NYSE:ETN) were the best performers during the October expiration period. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BG - Bunge Limited $41.96 *** New "All-Time" High! *** Bunge Limited (NYSE:BG) is an integrated, global agribusiness and food company operating in the farm-to-consumer food chain, with operations ranging from sales of raw materials such as grains and fertilizers to retail food products. The company conducts its operations in three divisions: agribusiness, fertilizer and food products. The agribusiness division is an integrated unit involved in the purchase, sale and processing of grains and oilseeds. The fertilizer division is involved in every stage of the fertilizer business, from mining of raw materials to the sale of fertilizer products. The food products division consists of two business lines, edible oil products and milling products. BG - Bunge Limited $41.96 PLAY (conservative - bullish/credit spread): BUY PUT NOV-35.00 BG-WG OI=456 ASK=$0.15 SELL PUT NOV-40.00 BG-WH OI=580 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$39.50 __________________________________________________________________ CELG - Celgene $62.13 *** 2-for-1 Split Coming! *** Celgene (NASDAQ:CELG) is an integrated biopharmaceutical firm engaged in the discovery, development and commercialization of therapies designed to treat cancer and immunological diseases through regulation of cellular, genomic and proteomic targets. Celgene has built a discovery, development and commercialization platform for drug- and cell-based therapies that allows it to both create and retain significant value within its therapeutic franchise areas of cancer and immune/inflammatory diseases. This target-to-therapeutic platform integrates small molecule and cell-based therapies and spans the key functions required to generate a pipeline of new drugs and cell therapy candidates. CELG - Celgene $62.13 PLAY (less conservative - bullish/credit spread): BUY PUT NOV-50.00 LQH-WJ OI=794 ASK=$0.45 SELL PUT NOV-55.00 LQH-WK OI=936 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$54.35 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CB - Chubb $66.76 *** Hurricane Losses Hurt Outlook! *** Chubb Corporation (NYSE:CB) is a holding company for a family of property and casualty insurance companies known informally as the Chubb Group of Insurance Companies. The company is divided into three strategic business units. Chubb Commercial Insurance offers a wide range of commercial customer insurance products, including coverage for multiple peril, casualty, workers' compensation and property and marine. Chubb Specialty Insurance offers specialized executive protection and liability products for privately and publicly owned companies, financial institutions, professional firms and healthcare organizations. Chubb Specialty Insurance also includes the Company's surety and accident businesses, as well as its reinsurance assumed business. Chubb Personal Insurance offers products for people who require more coverage choices and higher limits than basic insurance policies. CB - Chubb $66.76 PLAY (conservative - bearish/credit spread): BUY CALL NOV-75.00 CB-KO OI=611 ASK=$0.20 SELL CALL NOV-70.00 CB-KN OI=378 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$70.60 __________________________________________________________________ HIG - Hartford Financial $56.30 *** Spitzer Probe = Scandal? *** Hartford Financial Services Group (NYSE:HIG) is a diversified insurance and financial services company. Through its many subsidiaries, the company provides investment products and life and property and casualty insurance to individual and business customers in the United States and internationally. Hartford is organized into two major operations: Life and Property and Casualty. Life provides investment and retirement products such as variable and fixed annuities, mutual funds, retirement plans and other institutional products; individual and corporate life insurance, and group benefit products such as group life and group disability insurance. Property and Casualty provides a number of coverages including workers' compensation, property, automobile, liability, umbrella, specialty casualty, marine, agriculture, bond, professional liability and directors and officer's liability coverage. HIG - Hartford Financial $56.30 PLAY (aggressive - bearish/credit spread): BUY CALL NOV-65.00 HIG-KM OI=1672 ASK=$0.20 SELL CALL NOV-60.00 HIG-KL OI=863 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.85-$0.90 POTENTIAL PROFIT(max)=20% B/E=$60.85 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. _________________________________________________________________ JCOM - j2 Global Communications $29.93 *** Earnings Play! *** j2 Global Communications (NASDAQ:JCOM) provides outsourced, value-added messaging and communications services to more than five million customers around the world. j2 Global's network spans more than 1,100 cities in 20 countries on five continents. The company offers its services and software under the j2, eFax, jConnect, jFax, Consensus, Hotsend, M4 Internet, PaperMaster, Protofax, Electric Mail and Documagix brands. Earnings are due after the closing bell on 10/18/04. JCOM - j2 Global Communications $29.93 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-30.00 JQF-KF OI=780 ASK=$1.95 BUY PUT NOV-30.00 JQF-WF OI=754 ASK=$1.90 INITIAL NET-DEBIT TARGET=$3.65-$3.75 INITIAL TARGET PROFIT=$1.10-$1.75 ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************************************** 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 10/15/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 14.82 0.22 3.95% 2.74% FHRX OCT 17.50 17.05 22.20 0.45 6.31% 2.64% SNDK OCT 22.50 22.00 20.43 (1.57) 0.00% 0.00% SSYS OCT 25.00 24.45 30.00 0.55 5.91% 2.25% JNPR OCT 22.50 22.00 23.76 0.50 5.73% 2.27% CREE OCT 22.50 22.15 28.78 0.35 5.28% 1.58% FFIV OCT 22.50 22.20 31.35 0.30 4.45% 1.35% AMZN OCT 37.50 37.00 38.55 0.50 3.96% 1.35% ASKJ OCT 25.00 24.45 33.96 0.55 7.42% 2.25% USNA OCT 30.00 29.30 33.18 0.70 6.10% 2.39% YHOO OCT 30.00 29.40 34.52 0.60 5.51% 2.04% CELL OCT 15.00 14.50 15.50 0.50 8.28% 3.45% CREE OCT 25.00 24.35 28.78 0.65 7.26% 2.67% CLHB OCT 10.00 9.75 11.50 0.25 7.98% 2.56% PDII OCT 25.00 24.45 28.04 0.55 6.98% 2.25% GILD OCT 35.00 34.35 37.49 0.65 5.61% 1.89% BOBJ OCT 20.00 19.65 24.09 0.35 5.73% 1.78% ASTE OCT 17.50 16.95 19.27 0.55 9.55% 3.24% LCAV OCT 25.00 24.35 26.46 0.65 7.97% 2.67% ALO OCT 17.50 17.10 16.53 (0.57) 0.00% 0.00% FHRX OCT 17.50 17.20 22.20 0.30 6.33% 1.74% GNSS OCT 12.50 12.20 13.60 0.30 8.02% 2.46% COGN OCT 32.50 31.90 37.10 0.60 6.15% 1.88% PSFT OCT 17.50 17.20 20.85 0.30 6.15% 1.74% LF OCT 20.00 19.75 18.99 (0.76) 0.00% 0.00% ATYT OCT 15.00 14.75 15.89 0.25 5.90% 1.69% YHOO OCT 30.00 29.50 34.52 0.50 6.01% 1.69% AGIX OCT 12.50 11.75 28.00 0.75 21.96% 6.38% DHB OCT 12.00 11.60 14.38 0.40 14.91% 3.45% INTV OCT 10.00 9.70 11.81 0.30 12.10% 3.09% NVTL OCT 22.50 21.95 22.02 0.07 1.32% 2.51% SFL OCT 20.00 19.55 21.38 0.45 9.47% 2.30% FHRX OCT 17.50 17.15 22.20 0.35 8.94% 2.04% PAAS OCT 15.00 14.75 16.43 0.25 7.04% 1.69% BLUD OCT 20.00 19.75 27.83 0.25 6.52% 1.27% AAPL OCT 35.00 34.35 45.50 0.65 9.07% 1.89% RIGL OCT 22.50 21.85 26.68 0.65 13.86% 2.97% CMTL OCT 25.00 24.65 27.29 0.35 6.90% 1.42% NABI OCT 12.50 12.25 13.11 0.25 9.59% 2.04% CREE OCT 25.00 24.70 28.78 0.30 6.67% 1.21% STLD OCT 35.00 34.65 34.60 (0.05) 0.00% 0.00% OMM OCT 15.00 14.75 16.51 0.25 7.89% 1.69% SNDK OCT 27.50 27.10 20.43 (6.67) 0.00% 0.00% WRLS NOV 7.50 7.20 10.05 0.30 7.65% 4.17% OSTK OCT 35.00 34.60 40.57 0.40 7.74% 1.16% SIMG NOV 12.50 12.10 12.99 0.40 5.95% 3.31% NVTL OCT 22.50 22.25 22.02 (0.23) 0.00% 0.00% RIGL OCT 22.50 22.20 26.68 0.30 9.26% 1.35% SYNA OCT 20.00 19.80 24.95 0.20 6.50% 1.01% YHOO OCT 32.50 32.10 34.52 0.40 7.88% 1.25% NCRX NOV 25.00 24.30 25.67 0.70 5.52% 2.88% ANF NOV 32.50 32.10 36.50 0.40 2.78% 1.25% STTX NOV 25.00 24.60 25.61 0.40 3.89% 1.63% SNDA NOV 22.50 21.85 27.95 0.65 7.78% 2.97% PMTI NOV 20.00 19.15 23.09 0.85 9.23% 4.44% IDBE NOV 12.50 12.15 15.16 0.35 6.44% 2.88% BVF NOV 17.50 17.05 18.56 0.45 5.40% 2.64% USG NOV 17.50 16.90 21.22 0.60 6.84% 3.55% SNDA NOV 25.00 24.50 27.95 0.50 5.67% 2.04% WEBX NOV 20.00 19.60 25.17 0.40 5.75% 2.04% ENER NOV 15.00 14.40 19.75 0.60 8.11% 4.17% DRIV NOV 25.00 24.35 29.70 0.65 6.81% 2.67% PLMD NOV 30.00 29.55 32.32 0.45 3.33% 1.52% CNCT NOV 22.50 22.10 26.07 0.40 4.68% 1.81% CCBI NOV 22.50 21.90 23.20 0.60 5.51% 2.74% Sandisk (NASDAQ:SNDK) was the only major "loser" this month as the stock fell over 20% on Thursday, a day after the company said oversupply forced it to cut prices, hurting its quarterly profit and revenue. Alopharma (NYSE:ALO), Leapfrog Enterprises (NYSE:LF) and Novatel (NASDAQ:NVTL) were already on the "watch" list, so those positions were candidates for early exit during the past week. American Pharmaceutical Partners (NASDAQ:APPX) and Navarre (NASDAQ:NAVR), which ended the expiration period profitable, have previously been closed to limit losses. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield ESIO OCT 22.50 23.00 16.87 0.50 6.99% 2.17% LNCR OCT 32.50 33.30 35.63 (2.33) 0.00% 0.00% ADTN OCT 30.00 30.30 21.82 0.30 3.79% 0.99% DIGE OCT 30.00 30.35 25.25 0.35 6.05% 1.15% CTB OCT 22.50 22.85 18.68 0.35 4.25% 1.53% MDCO OCT 30.00 30.80 23.65 0.80 8.33% 2.60% CECO OCT 40.00 40.50 28.13 0.50 6.34% 1.23% CPRT OCT 20.00 20.35 18.57 0.35 6.97% 1.72% FLML OCT 17.50 17.80 15.15 0.30 10.47% 1.69% USPI OCT 35.00 35.65 33.08 0.65 6.36% 1.82% BDY OCT 22.50 22.90 18.48 0.40 7.63% 1.75% PLMO OCT 35.00 35.90 26.95 0.90 11.25% 2.51% XLNX OCT 30.00 30.25 26.68 0.25 4.46% 0.83% APPX OCT 30.00 30.50 25.00 0.50 8.60% 1.64% CYMI OCT 30.00 30.40 27.52 0.40 6.78% 1.32% TASR OCT 45.00 45.35 37.47 0.35 8.19% 0.77% ALD OCT 25.00 25.25 25.03 0.22 5.69% 0.99% CYBX OCT 20.00 20.40 18.27 0.40 14.93% 1.96% BRCM NOV 35.00 35.35 28.20 0.35 4.44% 0.99% LLTC NOV 40.00 40.60 36.09 0.60 3.74% 1.48% SINA NOV 35.00 35.35 28.00 0.35 4.56% 0.99% LRCX NOV 25.00 25.40 21.75 0.40 5.37% 1.57% IVX NOV 20.00 20.75 18.25 0.75 9.51% 3.61% PLMO NOV 40.00 40.45 26.95 0.45 5.62% 1.11% SLXP NOV 20.00 20.65 18.00 0.65 8.83% 3.15% The position in Lincare Holdings (NASDAQ:LNCR) should have been closed earlier in the week when the stock rallied on news that Medicare will likely pay higher monthly fees to dispensers of home respiratory care. Mercury Interactive (NASDAQ:MERQ) and Storage Technology (NYSE:STK), along with Altera (NASDAQ:ALTR) and SS&C Technologies (NASDAQ:SSNC), both of which ended the expiration period profitable, have previously been closed to limit potential losses. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield RIGL 26.68 NOV 22.50 QRG-WX 0.65 33 21.85 34 2.7% 8.1% ENER 19.75 NOV 17.50 EQI-WW 0.45 87 17.05 34 2.4% 6.6% USG 21.22 NOV 17.50 USG-WW 0.35 12K+ 17.15 34 1.8% 6.1% FARO 23.48 NOV 20.00 QEJ-WD 0.40 205 19.60 34 1.8% 5.7% EYET 43.40 NOV 35.00 QUJ-WG 0.55 2877 34.45 34 1.4% 5.2% NOVN 21.77 NOV 20.00 NPQ-WD 0.40 20 19.60 34 1.8% 4.9% VRSN 22.05 NOV 20.00 QVR-WD 0.35 1145 19.65 34 1.6% 4.4% MCD 28.99 NOV 27.50 MCD-WY 0.35 3639 27.15 34 1.2% 3.0% Abbreviations: LB-Last Bid price, OI-Open Interest, CB-Cost Basis (or break-even point), DE-Days to Expiry, SY-Simple Yield (monthly basis without margin), MY-Maximum Yield (monthly basis with margin), TS-Target Shoot. _________________________________________________________________ RIGL - Rigel Pharmaceuticals $26.68 *** Drug Speculation *** Rigel Pharmaceuticals (NASDAQ:RIGL) is engaged in the discovery and development of a range of small molecule product candidates for unmet medical needs. The company is developing a portfolio of product candidates and plans to take these candidates through Phase II clinical trials, after which, it will seek partners for completion of clinical trials, regulatory approval and marketing. The company currently has three initial development programs: allergy/asthma, hepatitis C and rheumatoid arthritis. RIGL - Rigel Pharmaceuticals $26.68 NOV 22.50 QRG-WX LB=0.65 OI=33 CB=21.85 DE=34 TY=2.7% MY=8.1% _________________________________________________________________ ENER - Energy Conversion Devices $19.75 *** Rally Mode! *** Energy Conversion Devices (NASDAQ:ENER) is a technology, product development and manufacturing company engaged in the invention, engineering, development and commercialization of new materials, products and production technology in the fields of alternative energy technology and information technology. The company has developed materials that permit them to design and commercialize products, such as thin-film solar cell (photovoltaic) products, nickel metal hydride (NiMH) batteries, and phase-change memory devices. ENER - Energy Conversion Devices $19.75 NOV 17.50 EQI-WW LB=0.45 OI=87 CB=17.05 DE=34 TY=2.4% MY=6.6% _________________________________________________________________ USG - USG Corporation $21.22 *** Next Leg Up? *** 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 $21.22 NOV 17.50 USG-WW LB=0.35 OI=12186 CB=17.15 DE=34 TY=1.8% MY=6.1% _________________________________________________________________ FARO - FARO Technologies $23.48 *** Bullish Sales Forecast *** FARO Technologies (NASDAQ:FARO) designs, develops, markets and supports portable, software-driven, 3-D measurement systems used in a broad range of manufacturing and industrial applications. The firm's principal products are the Faro-Arm Control Station and Control Station Pro (articulated measuring devices), the Faro Laser Tracker and Laser Control Station and their companion Soft Check Tool and CAM2 software, respectively, which provide for computer-aided design (CAD)-based inspection and factory-level statistical process control. Faro's products bring precision measurement, quality inspection and specification conformance capabilities, integrated with CAD software, to the factory floor. FARO - FARO Technologies $23.48 NOV 20.00 QEJ-WD LB=0.40 OI=205 CB=19.60 DE=34 TY=1.8% MY=5.7% _________________________________________________________________ EYET - Eyetech Pharmaceuticals $43.40 *** Premium-Selling! *** Eyetech Pharmaceuticals (NASDAQ:EYET) is a biopharmaceutical firm that specializes in the development and commercialization of novel therapeutics to treat diseases of the eye. Its initial focus is on diseases affecting the back of the eye, particularly the retina. The company's most advanced product candidate is Macugen, which it is developing for wet age-related macular degeneration (AMD) and diabetic macular degeneration (DME). EYET - Eyetech Pharmaceuticals $43.40 NOV 35.00 QUJ-WG LB=0.55 OI=2877 CB=34.45 DE=34 TY=1.4% MY=5.2% _________________________________________________________________ NOVN - Noven Pharmaceuticals $21.77 *** Entry Point? *** Noven Pharmaceuticals (NASDAQ:NOVN) is engaged primarily in the development and manufacture of unique transdermal drug delivery technologies and prescription transdermal products. The firm's principal commercialized products are prescription transdermal drug delivery systems for use in menopausal hormone therapy. Its first product was an estrogen patch for the treatment of menopausal symptoms. Noven's second-generation estrogen patch; Vivelle-Dot, is marketed in the United States and abroad. The company also has an estrogen/progestin transdermal patch for the treatment of menopausal symptoms, which is sold under the brand name CombiPatch in the United States and under the brand name Estalis in Europe and certain other markets. NOVN - Noven Pharmaceuticals $21.77 NOV 20.00 NPQ-WD LB=0.40 OI=20 CB=19.60 DE=34 TY=1.8% MY=4.9% _________________________________________________________________ VRSN - VeriSign $22.05 *** Smith Barney Issues "BUY" Rating *** VeriSign (NASDAQ:VRSN) is a provider of critical infrastructure services. The company is organized into two service-based lines of business: the Internet Services Group and the Communications Services Group. The Internet Services Group consists of the Security Services business and the Naming and Directory Services business. The Communications Services Group provides Signaling System 7 network services, intelligent database and directory services, application services, and billing and payment services to wireline and wireless telecommunications carriers. VRSN - VeriSign $22.05 NOV 20.00 QVR-WD LB=0.35 OI=1145 CB=19.65 DE=34 TY=1.6% MY=4.4% _________________________________________________________________ MCD - McDonald's $28.99 *** Blue-Chip Portfolio Stock *** McDonald's (NYSE:MCD), with its various subsidiaries, operates and franchises restaurants. These restaurants serve a varied, yet limited, value-priced menu in over 100 countries around the world. Its menu includes hamburgers and cheeseburgers, Big Mac, Quarter Pounder with Cheese, Big N' Tasty, Filet-O-Fish, several chicken sandwiches, Chicken McNuggets, French fries, Premium Salads, milk shakes, McFlurry desserts, sundaes and soft serve cones, pies, cookies and soft drinks and other beverages. In addition, the restaurants market a variety of other products during limited-time promotions. The firm also operates Boston Market and Chipotle Mexican Grill in the United States, and has a minority ownership interest in Pret A Manger. MCD - McDonald's $28.99 NOV 27.50 MCD-WY LB=0.35 OI=3639 CB=27.15 DE=34 TY=1.2% MY=3.0% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ACF - AmeriCredit $19.17 *** Downgrade = Sell-Off *** AmeriCredit (NYSE:ACF) is a consumer finance firm specializing in purchasing retail automobile installment sales contracts originated by franchised and select independent dealers in connection with the sale of used and new automobiles. The company generates revenue and cash flows primarily through the purchase, retention, subsequent securitization and servicing of finance receivables. To fund the purchase of receivables prior to securitization, AmeriCredit uses borrowings under its warehouse credit facilities. The company earns finance charge income on the finance receivables and pays interest expense on borrowings under its warehouse credit facilities. Earnings are due 10/21/04. ACF - AmeriCredit $19.17 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 20 ACF-KD 3009 0.70 20.70 8.3% 3.4% _________________________________________________________________ AOC - Aon Corporation $21.74 *** Industry Scandal? *** Aon Corporation (NYSE:AOC) through its various subsidiaries worldwide, serves its clients through three operating segments: Risk and Insurance Brokerage Services, which acts as an advisor and insurance broker, helping clients manage their risks and negotiates and places insurance risk with insurance carriers through its global distribution network; Consulting, which provides advice and services to clients for employee benefits, compensation, management consulting, communications and human resources outsourcing, and Insurance Underwriting, which offers specialty insurance products, including supplemental accident, health and life insurance; credit life, accident and health insurance; extended warranty products, and select property and casualty insurance products and services. AOC - Aon Corporation $21.74 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 AOC-KE 118 0.25 25.25 3.9% 1.0% _________________________________________________________________ CVH - Coventry Health Care $43.89 *** New Downtrend? *** Coventry Health Care (NYSE:CVH) is a managed health care firm perating a diversified portfolio of local market health plans serving 14 markets, primarily in the mid-Atlantic, midwest and southeast United States. Coventry's health plans are operated under the names Altius Health Plans, Carelink Health Plans, Coventry Health Care, Coventry Health and Life, Group Health Plan, HealthAmerica, HealthAssurance, HealthCare USA, Wellpath, PersonalCare, SouthCare, and Southern Health. The company has three reportable segments: Commercial, Medicare and Medicaid products. Coventry also offers management services and access to its provider networks. CVH - Coventry Health Care $43.89 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 50 CVH-KJ 677 0.60 50.60 4.5% 1.2% _________________________________________________________________ DSPG - DSP Group $19.41 *** Pre-Earnings Sell-Off? *** DSP Group (NASDAQ:DSPG) is a fabless semiconductor maker with complex integrated circuit solutions. It is engaged in the short-range wireless communication market, enabling home networking convergence for voice, video and data. DSP Group combines its in-house technologies, including digital signal processors, its portfolio of wireless communication protocols, advanced radio frequency complimentary metal-oxide chips and silicon germanium, as well as voice-over Internet protocol ICs, offering a one-stop shop for a wide range of applications. Earnings are due 10/19/04. DSPG - DSP Group $19.41 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 22.5 DPQ-KX 0 0.35 22.85 6.2% 1.5% ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. 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