The Option Investor Newsletter Sunday 10-24-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: New Low Futures Wrap: See Note Index Trader Wrap: Solitary walk of the Dow? Editor's Plays: Still Loaded and Waiting Market Sentiment: One Week To Go Ask the Analyst: Who's in the index? 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 10-22 WE 10-15 WE 10-08 WE 10-01 DOW 9757.81 -175.57 9933.38 -121.82 10055.2 -137.45 +145.41 Nasdaq 1915.14 + 3.64 1911.50 - 8.47 1919.97 - 22.23 + 62.72 S&P-100 525.16 - 6.64 531.80 - 6.67 538.47 - 4.64 + 8.74 S&P-500 1095.74 - 12.46 1108.20 - 13.94 1122.14 - 9.36 + 21.39 W5000 10748.04 - 90.63 10838.7 -125.85 10964.5 - 94.18 +220.40 SOX 395.16 + 13.79 381.37 - 8.15 389.52 - 12.39 + 19.36 RUT 567.77 - 0.65 569.42 - 6.23 575.65 - 9.38 + 19.06 TRAN 3371.94 + 19.26 3352.68 + 16.68 3336.00 + 37.20 + 96.69 VXO 16.09 15.89 14.95 12.55 VXN 21.36 21.80 20.69 18.91 ****************************************************************** New Low by Jim Brown It is official! The Dow closed at the low for the year on Friday at 9757. The gains for the year have been erased and we are only 157 points away from erasing all the gains from the Nov/Dec rally last year. That rally saw a low of 9600 in November and ended in February at 10656. A +1056 point gain on the verge of being completely erased. Please pinch me, I want to wake up from this nightmare. Wilshire 5000 Chart Dow Chart Nasdaq Chart There were no economic reports to sway trader's feelings on Friday and there were little in the way of stock events. Earnings slowed and there were no high profile earnings misses. Some blamed oil as it traded over $55 for most of the day but I believe it was more of the scapegoat rather than the reason. The main story of the day was the Google explosion and a +$25 gain in the stock price. Nearly 37 million shares traded and there are only 31 million or so available to trade. Short interest was obscenely high and it appears they all tried to cover on the same day with many shares trading hands several times before the day was out. The press could not decide to praise Google or crucify them given the ramp to $180 intraday. Brokers were tripping over themselves raising price targets to between $180 and $200 now that their original targets in the $125-145 range were badly missed. Valuation was discussed over and over with comparisons to other Internet stocks the norm. This is the way they stack up. Amazon @ $34.50 2005 PE is 29 Yahoo @ $35.00 2005 PE is 72 Ebay @ $96.00 2005 PE is 62 Google @ $175 2005 PE is 45 Should Google rise to $250 it would be a 2005 PE of 66. The gains on Friday were not related to valuation as much as they were related to the monster short squeeze. Many traders had expected them to produce disappointing earnings and plummet from the lofty levels of last week. Long call options generated even more short covering activity. Option volume was huge. The Nov-170 call had open interest of only 4682 but volume Friday was 8930. The 180 call had open interest of 1556 but volume of 7964. Multiply this for all the months/strikes and you can see how the panic developed. Traders trying to use normal logic in trading the stock were creamed. For instance, traders long the stock but expecting the bounce to fail could have sold covered calls at the $165 open expecting to collect the premiums and laugh when the stock rolled over. As the stock shot up to $175-180 and people started talking about $200-250 they raced to buy the calls back thereby adding to the volatility they were trying to avoid. It was a crazy day that brought back memories of the Nasdaq bubble. GOOG increased its market cap by $7 billion by the close. Unfortunately investors may have found Google's legs but they could not find any coattails. The Google windfall did not help the market or even the other stocks in its sector. AMZN dropped -4.87 to $34.50 after warning that earnings were slowing. YHOO fell -$2 off its high and closed down -75 cents as traders ran to the new kid on the block. EBAY fell -$6.16 off its Google induced opening high of $102.12 to close -3.68 for the day at $95 despite great earnings earlier in the week. Traders took profits on the old timers and I a sure a few dollars were thrown at Google in hopes of another $400 Amazon replay. Spitzer took aim at another sector on Friday in an effort to be an equal opportunity prosecutor. Music companies came under fire for investigation into schemes that could be seen as pay for play which is illegal. EMI said Spitzer was investigating how music companies influence what songs are played on the radio. They indicated they along with other music companies were cooperating fully in the investigation. The investigation centers on how they hire and compensate middlemen to promote their music in an effort to sidestep U.S. laws against pay for play or bribing of broadcasters and DJs. One industry source said the investigation would be a good thing if it eliminated the practice because companies pay hundreds of millions of dollars per year to these middlemen. In a news release that will be bad for consumers INTC cancelled its plans to produce its liquid crystal chip for big screen TVs. This new process was going to cut production costs of wide screen TVs much like their processor chips did for personal computers over the last two decades. Intel had delayed it twice and finally cancelled it saying the investment and time would be better used in other areas. Intel just recently dropped plans to produce a 4ghz chip scheduled to ship early in 2005. They said they could produce better throughput gains using other processes rather than concentrate on the faster chip. Experts have pointed out recently that the current generation of 3+ghz chips are not being used to full capacity due to limitations in other hardware and software on current PCs. I mentioned on Thursday night that the SOX had resisted the broad market sell off and was holding near resistance at 410 in what could be a potential breakout ahead. After Friday's chip wreck that seems less of an option than before. The SOX failed at that 410 resistance and fell back to 395 after the flood of warnings on Thursday night. The sector had been bullet proof since the Monday low but the combination of the BRCM, XLNX, KLAC, LSCC, MCHP, IDTI and TQNT warnings all on the same day was too much for chip buyers to bear. The SOX fell -14 points BUT that was less than it gained on Thursday before the warnings. Chips may have been weak on Friday but weak is relative and the index closed up +14 for the week and well off its 375 lows from Monday. So what did cause the market decline? I have several suggestions that may have contributed to the decline. First there was the SOX decline on the chip warnings. No big deal and it appeared to be simply normal profit taking from the weeks pre earnings gains. Another contributing reason was the high oil prices and heating oil hitting record highs at $1.586. Government data this week showed home heating oil inventory levels to be -12% below normal and analysts fear a cold snap as we near Halloween could push those levels even lower. Lately equities have been ignoring oil prices but the new warnings may have been a minor contributing factor. Earnings are not coming in as strong as expected. With 52% of the S&P already reported the most optimistic calculation shows average earnings at +15.2% growth but there are firms publishing numbers at +10.8% as well. The average earnings beat is only +2.2% compared to +3.0% on a normal basis. We currently have a 2:1 ratio of guidance warnings compared to a normal 3:1 ratio of companies raising estimates. While this was not expected to be an exciting quarter most expected it to be better than what we are getting. With most companies guiding lower the earnings deceleration is coming a quarter earlier than most expected. Most analysts expected Q4 to be decent and the decline to +3% growth to begin in Q1. Bonds hit a seven month high on Thursday and ten year yields have been under 4.0% for three days now. The bond rally is creating uneasiness in equities when you realize we are 12 days away from another Fed rate hike. What do bonds know that we don't is the worry among equity traders? Are bonds predicting an economic decline? If so then the gains are from traders shifting out of equities and into the safety of bonds until the future brightens. The cloudy future could have a lot to do with the current election predictions. RealClearPolitics.com averages the various surveys on a weekly basis and they are showing a very scant 2% lead for Bush. http://realclearpolitics.com/bush_vs_kerry.html Since the Dow has fallen the two months before the election 9 of the last 10 elections where the incumbent lost we could be seeing a higher level of caution enter the markets as we near the election. The market could be predicting a change in administration ahead. With only a week to go and no clear leader the various market factors specific to each candidate cannot be brought into play. Nobody knows which way to play. Are taxes going up or down? Will spending increase or decrease? Will drug companies be forced to sell drugs cheaper? What will happen to social security, health care, etc? Nobody knows and hedge funds don't know where to invest their $1.2 trillion in cash currently under management. Mutual funds who have thinned their portfolios heading into their October year end don't know if they should invest in health care, energy, financials or homebuilders. With the economic outlook cloudy there is no clear sector other than commodities that suggest a reasonable return. With China still growing at a +9.1% clip based on this week's data the commodity sector is not likely to slow. That leaves equities starving for dollars. Historically the end of October sees a ramp into the election when there is an obvious leader. No leader equals no ramp. We are getting to the point where the undecided voters will have to get off the fence and make a commitment. The surveys will intensify next week and hopefully that commitment will be reflected because left on our own next week could get ugly. The Dow closed at the lows for the year and the fourth major new low for the current down trend pattern. The general consensus expected the Dow to hold at the 9800 level and Friday's close was a wake up call for traders. The Dow now has potential to trade down to 9700 or even 9600 to complete the current pattern. With all the indecision about oil, economy, earnings and election it could easily hit 9600 by Tuesday. I am not saying it will because there are other circumstances at work here. Once a rebound begins, if it begins, there is strong resistance at every 50 point increment from 9900 to the top of the pattern at 10350. Despite the -107 drop on Friday there were only two Dow components that lost more than $1. AIG -1.75 and MMM -1.72. 28 of the Dow components ended negative but the majority were only down 50 cents or so. It was not a washout or a landslide regardless of the final numbers. The Nasdaq is still in much better shape and holding over strong support at 1900. The -38 point Friday drop still left it +13 for the week. It appeared to be chip led profit taking more than tech dumping. The SOX and the Russell continue to provide support and until that changes we will continue to see bullish divergence. The Nasdaq has multiple supports all converging between 1885-1915. The 100dma at 1907, 50dma at 1885, uptrend support at 1915 and horizontal support at 1900. This congestion range should withstand any casual selling and only be broken with a serious market downdraft. SOX Chart Russell Chart I mentioned the external circumstances I believe were at work on Friday. Many mutual funds have October year ends and they shuffle their portfolios in October and sell some winners to offset the losers also sold. A fund holding EBAY for instance has a 100% gain from the $50 price this time last year. How much higher can EBAY be expected to rise? Probably not another +100%. For funds that found themselves with a bunch of MRK, MMC, AIG or tech stocks that imploded rather than exploded then EBAY, RIMM, SYMC, etc, become cash machines to fill those potholes. They certainly do not want to sell all their winners because they want to show how smart they were by having winners on their year end statements. But nothing prevents them from paring those positions to smooth out the rough spots. Thus the big losses in EBAY, SYMC and RIMM to name a few. Even energy stocks lost ground despite a new high for oil over $55. This could be just normal October portfolio adjusting. If they are going to make adjustments before their year end they only have five days left. Last week probably represented this pruning process and the Thursday earnings flood of nearly 400 companies gave them plenty of guidance on which stocks to dump. Hopefully that dumping process has been completed and funds will be shopping again next week. We need to also keep in mind that there has not been any terrorist event designed to impact the election as they had in Spain. If they are going to try to sway the election this is the week. Personally I think any event would only help Bush and that may be what is holding them back. This could also have been a factor in our market weakness this week. Fear of the unknown is always market negative. Speculating on daily market direction in October is a fools errand. Historically bottoms are made in Oct and Nov/Dec are usually up. Without a crystal ball picking that October bottom is best done in November when hindsight is the best. I would love to say Friday was a final flush job but there are far too many factors to make that call. I still believe the market will rally after the election but with no clear leader the rest of October will be a tossup. However, if you are a fund manager with cash to invest the Dow represents the most depressed big caps in the market. Hunting for bargains in the Dow is like trying to find the last edible piece of popcorn among the scorched kernels in the bottom of the bag. With the exception of HD, VZ, JNJ and XOM the rest of the roster offers risk/reward profiles only Mother Teresa could love. That poses a problem for the rest of the year. Any Dow rally could be weak and divergence from the other indexes is almost guaranteed. While prior analyst estimates suggested 10750-11000 would be the year end range I would be happy to just see four positive days out of every five so as not to be a major drag on the rest of the indexes. Triple digit days are not required and probably will not be seen. Just let the Dow stay positive and disaster free leave the long distance driving to the Russell. Just keep repeating this to yourself. Just one more week, just one more week. Just let this torture pass and get the election behind us so investors can concentrate on the future. If next week ends positive then consider it a gift from the market and a sign of better times ahead. Should we close lower than Friday's 9750 you can consider that a sign as well. A sign the party may be over. Enter Very Passively, Exit Very Aggressively! Jim Brown ************ FUTURES WRAP ************ Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ******************** INDEX TRADER SUMMARY ******************** Solitary walk of the Dow? By Leigh Stevens THE BOTTOM LINE – The Dow, which has been the weakest of the widely followed indices, was HEADLINED on Friday as having a new low close for the year. It used to said, when the Dow 30 (INDU) would go its own way, such as to ever new highs, to reflect a "solitary walk of the Dow". INDU is not reflective of the rest of the market, at least not yet - The Dow has been working lower in a well-defined downtrend channel - - option traders, take note of these regular price swings, back and forth within this channel! It looks like INDU may be headed to the low end of this channel as I've highlighted above, around the green up arrow, around 9630 currently. The other indices will be covered in detail in my "Index Outlooks" section further along. FRIDAY'S CLOSING NUMBERS – The S&P 500 Index (SPX) lost 10.7 points (-1%) to close at 1,095.7, off 1.1% for the week. The Dow 30 (INDU) fell 108 points (-1.1%), to finish at 9,757.8 and was down 1.8% for the week. The Nasdaq Composite (COMP) gave back 38.5 points (-2%) to wind up at 1,915.1, but did manage to close up a hairs-breath for the week (+0.2%). FRIDAY'S TRADING ACTIVITY – The Dow Industrial average, representing the bluest of the Blue Chips ended at a new low for the year Friday, and the tech-heavy Nasdaq (Composite) got nicked a couple percentage points. This after a week that saw crude hit a new high, closing above $55 for the first time ever. Also, mixed earnings reports in tech stocks, undermined investor confidence in the outlook for the economy. Google rallied strongly on a strong Q3 performance, while Microsoft and Amazon fell back as their results disappointed investors. Google rallied strongly as investors took cheer from their first quarterly results as a public company. The company indicated that its Q3 earnings and revenue both doubled, boosted by a strong income stream derived from the expanding business of sponsored search advertising on the Web. The stock shot up more than 15% to end at $172.4. Google went public (mid-August) at $85 a share. Hey, who didn't buy the stock cause they thought it was too pricy then - that would be ME - WRONG! It was a different story for Amazon. Shares of the giant Web retailer fell sharply after its Q3 earnings and its '05 sales outlook missed expectations. Strength in international sales was offset by lower operating profit at its North American business as free shipping ate into its bottom line. Love that free shipping! Not so the market, as the stock fell some 12%, to $34.60. Microsoft (MSFT) fell 3% on some reported concern about its Q2 outlook. Late Thursday, the company said their fiscal Q1 net income rose 11% from a year earlier as client software sales, server revenue and X-box sales all rose. However, the Credit Suisse/First Boston analyst following the company said that MSFT "appears to be struggling to hold global PC market share due to piracy and competition from Linux, notably in Asia". The company's Q2 revenue forecast was also slightly below current Street estimates, although the upper end of its fiscal '05 revenue estimate was above expectations. OIL JITTERS - Obviously the big concern in the market is that if oil prices stay so high, say above $50, this is going to be a substantial drag on economic growth, the way it has been historically. And, investors would like to know the Fed will back off from raising interest rates any further because of such a likely slowdown. OTHER MARKETS – In the Forex Market, the dollar was at a 4-month low against the yen and fell further in the past week versus the euro, based on concern that the enormous U.S. trade gap could also dampen U.S. economic growth. Having just arrived in Spain, I can attest to Euro shock as my dollars are buying many fewer euros this trip. A major risk is also that this downward spiral in the greenback will make it less attractive to foreigners to continue to finance our huge government deficit by buying U.S. government bonds) - we remain quite dependent on the world given the low U.S. domestic savings rate. T-bonds rallied as the surge in oil prices offered some hope the Federal Reserve may suspend any further rate hikes as at least pending what the impact will be of such high energy prices on economic growth. The 10-year T-note ended up 5/32 at 102 5/32, to yield 3.98%. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: The S&P 500 (SPX) has been doing its "technical thing" pretty reliably also as, at the last top it got to its resistance (down) trendline also and promptly reversed lower. When it pierced the 21-day moving average and couldn't rebound back above it, further more weakness was suggested. This broader measure of the market however, is far from going to a new closing low however, unlike the Dow Industrials. It rather appears to be just continuing to meander back and forth in a trading range. SPX looks like it might be headed back toward near support at 1090 again, and perhaps to its lower trend channel boundary again, currently set at 2.5% under its 21-day average, suggesting a target of around 1080. For sure a close over 1110 is needed to turn the chart picture bullish again near-term. Play the S&P for lower unless this happens. No bullish "sentiment" reading yet - that is, when a lot of options traders get active in puts, relative to calls and result in a reading of around 1; i.e., equities put volume equals call volume on any one day. S&P 100 Index (OEX) – Daily chart: I continue to see a target to around 520 in the S&p 100 (OEX) in a re-test of the prior lows and at the lower trend channel line – when the OEX gets to about 3% under its 21-day closing moving average, it's been "oversold" – 520 looks to be an place to puts. This index is getting oversold on the RSI too and this is another way of looking at the risk of being in puts after that. I usually look at the OEX up, down and sideways in terms of different chart pattern patterns and different indicators, so it might be interesting to look at the S&P 100 in some different ways also. It too has been trading in a fairly well-defined downtrend price channel as we'll see in the next chart - S&P 100 Index (OEX) – Daily chart: The last rally stopped and reversed right at resistance implied by its 200-day moving average (at the red down arrow), which also happened to be at its resistance down-trendline. OEX then failed to hold its prior 530 low, showing more technical weakness - not before it formed a little upward sloping "flag" pattern highlighted by the two lines in light blue. In a downtrend and after prices rebound a bit with higher highs and daily lows for a few days, a resumption of the prior (down) trend tends to occur. For those interested in reading something about this kind of chart pattern, which happens in both advances and decline - "flag" patterns, see - http://www.OptionInvestor.com/traderscorner/tc_100704_1.asp Going on - don't forget to look at the hourly index charts also, as it will show you the picture in a different way - S&P 100 Index (OEX) – Hourly chart: Sometimes, a rally will achieve a slight, but fleeting, upside penetration of a down trendline, as was the case below when OEX rebounded to around 537-538 but where TWO consecutive hourly closes fail to get above this line; and the prior trend resumes - Nasdaq Composite (COMP) Index – Daily chart: Making the case for market sectors that are holding up better than just the narrow Dow average, tech was holding up better last week as reflected in the Nas Composite (COMP), which was closer to the top end of its recent trading range than not (and also approaching resistance implied by ITS resistance down-trendline as can be seen below - 1900-1910 continues to look like key near support, with next technical support assumed to be around 1870, a the minor up trendline at the green (up) arrow. It doesn't seem likely that tech will buck the trend of the NYSE indices if they continue to fall. Stay tuned, my crystal ball is a big hazy on this, but if I had to pick my direction, I would say COMP is going lower. Nasdaq 100 (NDX) Index – Daily chart: I thought the Nas 100 would not re-test the old high before it headed still lower, but it did and formed a minor double top before reversing to the downside. I continue to emphasize keeping an eye on the 21-day moving average, as a good trading direction indicator - staying above it suggests rally potential; staying below it, the reverse situation. I would peg near support at 1440, then around 1415, with more major support expected at 1370. A significant technical negative is the bearish price/RSI divergence, as the last high was accompanied by an RSI reading well under ITS prior high, as I've highlighted on the RSI chart above. That and the double top, suggests that NDX is headed still lower. Nasdaq 100 tracking Stock (QQQ) Daily chart: The recent rally in QQQ seems to have failed or reversed at its upper trend channel line, but the Q's has not pierced its minor up trendline that has been traced out on the advance over this month's advance. If QQQ can't hold above 35.75, I anticipate lower prices will be seen for the Nas 100 tracking stock. 35 is minor support, but key support really looks like 34-34.25 My view of QQQ being in a 34 to 37 trading range near-term is maintained. A close over 37 would suggest a bullish technical breakout. A close under the prior low around 34.25, would suggest that prices were headed still lower. Nothing much shows up with the volume, as its just been holding steady, but the same bearish price/RSI divergence as with NDX shows up of course. I'm also watching whether the cluster of recent lows around 35.50 hold or not as a clue to the next move. Good Trading Success! ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ************** Editor's Plays ************** Still Loaded and Waiting Glad I put a trigger on that XLE put from last week. The initial trigger was $34.25 and we traded down to $34.41 on Tuesday before rebounding to close at $35.49 on Friday. This is definitely not a problem. We did not want to enter the play on Monday if not forced because of high option premiums from the expiration roll over. We also did not want to enter if the price was going higher in front of the election. The trailing buy stop is currently at 35.16 based on the -75 cent trail from the Friday high of $35.91. Let's make it simple for next week. Let's start with the entry trigger at $35.00 and move it higher in 50 cent jumps with an XLE move over $36. The October high is $36.83. XLE $36.00 entry $35.00 XLE $36.50 entry $35.50 XLE $37.00 entry $36.00 etc. This keeps us about $1 below the price of the XLE but makes it easier to set the buy stops. The odds are good we will continue to see oil rise until next weekend so don't get nervous if it continues higher. Our patience will be rewarded once the election is over and the terrorist speculation ends. Because this is a short-term trade I am using December options with the Dec-$35 PUT XLE-XI currently $1.00. Buy DEC $35 Put XLE-XI with an XLE trade at $35.00. Trail the entry price as specified above on any XLE move higher. If we are triggered then the stop is $1.50 over our trigger price. Profit target is $32.00 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_101704_1.asp XLE Chart ************ Open plays: ************ MRK Put $30.57 ** Stop $35.00 ** ** Target $25.00 ** Jan-2006 $25 LEAP Put WMR-ME http://members.OptionInvestor.com/editorplays/edply_101004_1.asp *********************** XMSR Call $32.07 ** Stop $28.00 ** ** Target $35.00 ** XMSR is expected to announce a wearable device similar to a Walkman or Ipod in the coming week. This will broaden the appeal of the service and set XMSR apart from Sirius. The Spitzer investigation is seen as positive for the satellite radio companies and XMSR surged +1.13 on Friday when it was announced. If the payoffs to regular radio are cancelled then advertisements will increase making satellite radio more desirable. Earnings are Nov-4th JAN-$30 Call QSY-AF cost 2.75 currently $4.10 JAN-$32 Call QSY-AZ cost 1.75 currently $2.55 http://members.OptionInvestor.com/editorplays/edply_100304_1.asp ********************* MSO Put $19.03 ** Stopped $17.50 ** March $15 Put MSO-OC @ $2.00 stopped at $1.50 MSO has rocketed higher as the appeal hits the airwaves. Several analysts suggest the chances are growing that Martha could get off. Wouldn't that be a change of fate. We were stopped for a loss on Monday with the first announcement. http://members.OptionInvestor.com/editorplays/edply_092604_1.asp **************** MARKET SENTIMENT **************** One Week To Go - J. Brown Friday should have been no surprise. The disappointing earnings reports from AMZN, MSFT, BRCM and others was more than enough to spark a pre-weekend, post-earnings sell-off. Adding to the list of why investors both big and small are hesitating to buy stocks was another record high for crude oil. The December contract broke through the $55 level for the first time ever. The markets were also caught off guard by a 20 percent, five-day rally in natural gas prices. The market internals are on Friday were very negative. Losing stocks outnumbered advancers by 2-to-1 on both the NYSE and the NASDAQ. Down volume overshadowed up volume by more than 2-to-1 on the NYSE and by almost 4-to-1 on the NASDAQ. The Dow Industrials sank to a new 11-month low while the S&P 500 closed back under the 1100 level. This week has shown that for the most part the descending channel trading pattern is still very much in place for the major indices. Jim brings up a good point regarding the bond market. The ten- year bonds are trading near five-month highs. Bonds are normally seen as a "safety" play. If money has been moving into bonds for the last few months that doesn't say much for the market's expectation on how stocks will perform. Looking ahead to next week investors will have to deal with four things. First will be economic data. We have a number of economic reports out this week. Wall Street will be curious to see what the Fed's Beige book will say and where the GDP number will fall. The recent trend has been for the numbers to be positive but they will continue to show a slow down the rate of growth. Second will be energy prices. The rising price of crude doesn't have a direct affect on the market, except the airlines, and for the most part the Dow Transportation index has ignored the rise in oil. However, rising oil means rising costs for both businesses and consumers. The third issue the markets will be digesting this week are more third quarter earnings. Over 130 of the S&P 500 will be reporting and six Dow-components will release their numbers. Plus, there will be dozens and dozens of smaller companies releasing their Q3 results. This week will also bring a number of earnings reports from the energy sector with AHC, APC, COP, CVX, HAL, MRO and XOM all reporting. The fourth and probably biggest factor is of course the Nov. 2nd election. The mud slinging will get dirtier. The media buzz will reach a deafening tone and the polling data will hit a fevered pitch. This alone and the fact that there is no clear winner could keep stocks flat to down this week. The markets hate uncertainty but the biggest thing this election has generated has been just that - uncertainty. Unfortunately, the threat of a terrorist event near or during the election still lingers in the air like a faint odor you can't get rid of. I'd like to say we only have one more week (7 trading days) to suffer through this election miasma. Unfortunately, we have to consider the possibility that with the race this close and with both sides drumming up their army of lawyers to contest every twist and turn in the voting process we may not escape on November 3rd because we may not have a winner. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9497 Current : 9757 Moving Averages: (Simple) 10-dma: 9935 50-dma: 10113 200-dma: 10271 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 1018 Current : 1095 Moving Averages: (Simple) 10-dma: 1118 50-dma: 1109 200-dma: 1119 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1438 Moving Averages: (Simple) 10-dma: 1442 50-dma: 1407 200-dma: 1440 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 15.39 +0.74 CBOE Mkt Volatility old VIX (VXO) = 16.09 +1.10 Nasdaq Volatility Index (VXN) = 21.36 +1.00 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.74 721,848 536,881 Equity Only 0.67 549,506 365,979 OEX 0.37 47,568 17,872 QQQ 1.89 14,678 27,811 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 62.7 - 0 Bear Correction NASDAQ-100 47.0 - 2 Bull Alert Dow Indust. 50.0 - 0 Bear Confirmed S&P 500 59.6 - 0.4 Bear Correction S&P 100 58.0 - 1 Bear Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.00 10-dma: 1.09 21-dma: 1.09 55-dma: 1.10 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 952 959 Decliners 1821 2001 New Highs 67 53 New Lows 33 42 Up Volume 522M 363M Down Vol. 1202M 1345M Total Vol. 1815M 1720M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/19/04 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 in the big S&P contacts and are nearing a dead heat between longs and shorts. Small traders remain mostly net bullish but have pared back their enthusiasm a bit. Commercials Long Short Net % Of OI 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%) 10/19/04 432,945 441,041 ( 8,096) (0.1%) 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 09/28/04 135,317 107,173 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% 10/19/04 147,148 124,827 22,321 8.2% 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 We see a similar picture in the e-minis. Commercial traders aren't making any changes. They remain net bearish and we have the same reading as last week. Meanwhile small traders have slowly grown more net bullish, which of course is a bearish contrarian indicator. Commercials Long Short Net % Of OI 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%) 10/19/04 264,860 531,541 (266,681) (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 09/28/04 262,501 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% 10/19/04 353,903 66,027 287,876 68.5% 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 trades have not moved much. They remain net bullish on the NASDAQ 100. Small traders upped both their longs and shorts and reduced their bearish posture a tad but remain strongly net bearish. Commercials Long Short Net % of OI 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% 10/19/04 52,630 31,940 20,690 24.4% 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 09/28/04 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%) 10/19/04 10,462 25,243 (14,781) (41.3%) Most bearish reading of the year: (20,270) - 06/01/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders seem content to sit on the sidelines with out any big directional bets on the Industrials. Longs and shorts have remain pretty close to one another for a few weeks now. That's not so with the small traders. The latest data shows a big drop in short positions and the bias has turned bullish for the first time in weeks. Commercials Long Short Net % of OI 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% 10/19/04 25,385 24,213 1,172 2.3% 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 09/28/04 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%) 10/19/04 8,327 6,015 2,312 16.1% Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** *************** ASK THE ANALYST *************** Who's in the index? Where does a person look to determine the makeup of various indexes? There are several resources a trader/investor can turn to in order to find what stocks make up various indices. There have been quite a few indices created the past couple of years, and with the indices listed on various exchanges like the Chicago Board Options Exchange (CBOE), NASDAQ, AMEX and Philadelphia (PHLX), it can be helpful to know your way around, and have an idea where to look. The CBOE has been working on their website and some things have changed, for the better I think. This is usually the first place I'll go when I'm interested in trying to find the various components of indices. The MAIN REASON a trader/investor would be interested in knowing what's inside an index, is somewhat similar to buying a car or truck. You want to know "what's under the hood." In essence, what stocks are driving that engine higher or lower? Here's a link to the CBOE "products," which is a good starting point! http://www.cboe.com/Products/Cash-SettledIndexOptions.aspx CBOE Products page The CBOE Products page is a good starting point. You don't have to be an index trader to utilize this information. But if an index is on the move, it can be helpful to know what stocks are under the hood. I'm going to click on the Russell Index Options link, where there are 12 different indices. Is "growth" or "value" stocks in favor? Are mid-caps out/under performing the larger-caps of the S&P 500? Russell Index Options The CBOE site will have COMPONENT information for various indices. Traders and investors will utilize their relative strength tool to try and determine if one "type" of stock is in favor or out of favor with the market. CBOE Sector Index - Component resource Here's a nice resource to various sector components. I keep track of several indices listed above in my U.S. Market Watch during the intra-day updates. Even though I don't track the CBOE Gold Index (GOX), the CBOE site and its components will also be found the in the AMEX Gold Bugs Index ($HUI.X), which I do track in the U.S. Market Watch. From time to time, there will be changes to various CBOE indices. Traders can keep up to date on any changes at this http://www.cboe.com/Products/IndexComponentChanges.aspx So, there's a couple of examples of where to find components of various CBOE-listed indices. Here's a link to the NASDAQ Equity Index Options, where here too a list of components can be found. http://quotes.nasdaq.com/asp/option_info.asp NASDAQ Equity & Index Options Page - Component resource Pink arrows point to various indices I track in the U.S. Market Watch. When you left-click your mouse on Biotechnology Index, a window pops up with just about everything a trader/investor would want to know about this index. It's an equal weighted index. The American Stock Exchange (AMEX) also has a list of various indices. Since the AMEX and NASDAQ merged, there is some duplication, but a list of components for the various indices can be found. AMEX Index Page - Component resource You have to know where to look to find the various indices at the AMEX page. First you go to http://www.amex.com , once you're there, click on Options, then Product Information, then Index Options. There's the AMEX Gold Bugs Index ($HUI.X) and if you left-click your mouse on it, you'll see a line chart of the HUI. To get the list of components, select the "Show Index Components" button. You'll follow these procedures for all of the AMEX- listed indices. There's more! The Philadelphia Stock Exchange (PHLX) also has a sector index page. That's where you'll find the components of the KBW Bank Index (BKX.X), Defense Index (DFX.X), Oil Service Index (OSX.X), Semiconductor Index (SOX.X) and Utility Index (UTY.X) that I list in the U.S. Market Watch. Here's a link to the Philadelphia Stock Exchange (PHLX) sector index page. http://www.phlx.com/products/sectors/sectors.html PHLX Sector Page - Component resource Whew! There are a lot of sectors out there aren't there? Hopefully this gives us a good resource for discovering what stocks make up a specific index/sector. Knowing what stocks comprise various sectors is a good way to generate trading/investment ideas, and if we know where to look for index/sector components, it makes the work a little easier. Jeff Bailey ************* COMING EVENTS ************* Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ACEC Ace Comm Mon, Oct 25 After the market n/a AFCI Advanced Fibre Com. Mon, Oct 25 After the market 0.02 AFC Allmerica Financial Mon, Oct 25 After the market -0.23 AMX America Movil S.A. Mon, Oct 25 After the market 0.65 AXP American Express Mon, Oct 25 After the market 0.69 ASH Ashland Mon, Oct 25 Before the bell 1.62 ADP Automatic Data Proc. Mon, Oct 25 Before the bell 0.33 BOH Bank of Hawaii Mon, Oct 25 ----- n/a ----- 0.74 BLS BellSouth Corp Mon, Oct 25 Before the bell 0.51 BWA BorgWarner Inc Mon, Oct 25 Before the bell 0.75 CEGE Cell Genesys Mon, Oct 25 Before the bell -0.53 CRS Carpenter Tech. Mon, Oct 25 Before the bell 0.53 CNC Centene Corp Mon, Oct 25 After the market 0.51 CNF CNF Inc. Mon, Oct 25 Before the bell 0.77 CCBI Commercial Cap. Ban Mon, Oct 25 ----- n/a ----- 0.31 CBU Community Bank Mon, Oct 25 Before the bell 0.43 EXBD Corp. Executive Brd Mon, Oct 25 After the market 0.37 CSGS CSG Systems Inc. Mon, Oct 25 After the market 0.21 EDS Electronic Data Sys Mon, Oct 25 After the market 0.08 EC Engelhard Corp Mon, Oct 25 Before the bell 0.46 FLEX Flextronics Mon, Oct 25 After the market 0.17 GNSS Genesis Microchip Mon, Oct 25 After the market 0.04 HMY Harmony Gold Mining Mon, Oct 25 During the market -0.14 HTLF Heartland Financial Mon, Oct 25 Before the bell 0.26 HLT Hilton Hotels Mon, Oct 25 Before the bell 0.13 INSP InfoSpace Mon, Oct 25 After the market 0.25 ISSX Internet Security Mon, Oct 25 After the market 0.16 K Kellogg Co. Mon, Oct 25 Before the bell 0.55 KMB Kimberly Clark Mon, Oct 25 Before the bell 0.90 LAB LaBranche & Co Inc. Mon, Oct 25 Before the bell 0.02 MDCI Medical Action Ind. Mon, Oct 25 Before the bell 0.24 MTH Meritage Mon, Oct 25 After the market 2.20 MOBE Mobility Electronics Mon, Oct 25 ----- n/a ----- 0.01 NWRE Neoware System Mon, Oct 25 After the market 0.09 OVNT Overnight Corp Mon, Oct 25 After the market 0.77 PBI Pitney Bowes Inc. Mon, Oct 25 After the market 0.63 PCL Plum Creek Timber Mon, Oct 25 After the market 0.33 PPD PrePaid Legal Mon, Oct 25 After the market n/a PHM Pulte Homes Inc. Mon, Oct 25 After the market 2.00 DGX Quest Diagnostics Mon, Oct 25 Before the bell 1.27 RAI Reynolds American Mon, Oct 25 ----- n/a ----- 1.53 R Ryder System, Inc. Mon, Oct 25 Before the bell 0.79 SLAB Silicon Labs Mon, Oct 25 After the market 0.36 SII Smith Intl Inc. Mon, Oct 25 Before the bell 0.51 TIN Temple-Inland Inc. Mon, Oct 25 After the market 1.15 UNTD United Online Inc. Mon, Oct 25 Before the bell 0.25 VISG Viisage Technology Mon, Oct 25 After the market 0.00 WLP Wellpoint Hlth Ntwk Mon, Oct 25 After the market 1.91 WDC Western Digital Mon, Oct 25 After the market 0.11 ZMH Zimmer Holdings Inc. Mon, Oct 25 After the market 0.53 ------------------------- TUESDAY ------------------------------ ABGX Abgenix Tue, Oct 26 After the market -0.52 ACE ACE Limited Tue, Oct 26 After the market 0.00 ATVI Activision Tue, Oct 26 After the market 0.09 AFL AFLAC Inc Tue, Oct 26 After the market 0.57 AW Allied Waste Ind. Tue, Oct 26 ----- n/a ----- 0.14 AMH AmerUs Group Co. Tue, Oct 26 After the market 1.03 AMSG AmSurg Tue, Oct 26 After the market 0.29 ABI Applied Biosystems Tue, Oct 26 Before the bell 0.17 ATML Atmel Corp Tue, Oct 26 After the market -0.02 AV Avaya Tue, Oct 26 After the market 0.18 AVID Avid Technology Inc. Tue, Oct 26 After the market 0.52 BN Banta Corp Tue, Oct 26 After the market 0.75 ABX Barrick Gold Tue, Oct 26 ----- n/a ----- 0.04 BSTE Biosite Inc. Tue, Oct 26 After the market 0.54 BBOX Black Box Network Tue, Oct 26 After the market 0.60 BLUE Blue Martini Softw. Tue, Oct 26 After the market n/a NILE Blue Nile Inc. Tue, Oct 26 After the market 0.07 BYD Boyd Gaming Tue, Oct 26 After the market 0.37 BTI British Amer. Tobac. Tue, Oct 26 During the market n/a BMHC Building Materials Tue, Oct 26 Before the bell 0.95 BNI Burlington Northern Tue, Oct 26 Before the bell 0.75 CP Canadian Pacific Tue, Oct 26 Before the bell 0.50 CECO Career Education Tue, Oct 26 After the market 0.39 CRA Celera Genomics Tue, Oct 26 Before the bell -0.30 CTX Centex Corp Tue, Oct 26 After the market 1.59 CKP Checkpoint Systems Tue, Oct 26 Before the bell 0.28 CME Chicago Merc Exchge Tue, Oct 26 Before the bell 1.67 CB Chubb Corp. Tue, Oct 26 After the market 1.63 COH Coach Inc. Tue, Oct 26 Before the bell 0.33 CTSH Cognizant Tech. Tue, Oct 26 ----- n/a ----- 0.18 CFB Commercial Federal Tue, Oct 26 Before the bell 0.50 CVTX CV Therapeutics Tue, Oct 26 After the market -1.18 XRAY DENTSPLY Intl Inc. Tue, Oct 26 After the market 0.55 RDY Dr. Reddy's Lab Tue, Oct 26 ----- n/a ----- n/a DSCM Drugstore.com Tue, Oct 26 After the market -0.06 DD DuPont Tue, Oct 26 Before the bell 0.24 EPIQ EPIQ Systems Tue, Oct 26 After the market 0.28 FFIV F5 Networks Tue, Oct 26 After the market 0.21 FMC FMC Corp. Tue, Oct 26 After the market 0.81 FDP Fresh Del Monte Tue, Oct 26 Before the bell 0.08 FBR Friedman Billings Tue, Oct 26 Before the bell 0.56 GISX Global Imaging Sys. Tue, Oct 26 Before the bell 0.58 GTRC Guitar Center Tue, Oct 26 ----- n/a ----- 0.42 HAL Halliburton Co Tue, Oct 26 Before the bell 0.36 HSIC Henry Schein Tue, Oct 26 Before the bell 0.70 ICST Integrated Circuit Tue, Oct 26 Before the bell 0.23 IP Intl Paper Co. Tue, Oct 26 Before the bell 0.45 JCI Johnson Controls Tue, Oct 26 Before the bell 1.32 KIM Kimco Realty Corp Tue, Oct 26 Before the bell 0.88 LLL L-3 Comm. Holdings Tue, Oct 26 Before the bell 0.88 LPNT LifePoint Hospitals Tue, Oct 26 After the market 0.46 LMT Lockheed Martin Tue, Oct 26 Before the bell 0.65 FLSH M-Systems Flash Tue, Oct 26 Before the bell 0.15 MSTR MicroStrategy Inc. Tue, Oct 26 After the market 0.51 MUR Murphy Oil Corp. Tue, Oct 26 After the market 1.05 ORLY O'Reilly Automotive Tue, Oct 26 After the market 0.60 OMC Omnicom Group Tue, Oct 26 Before the bell 0.75 OVRL Overland Storage Tue, Oct 26 Before the bell 0.06 PENN Penn National Gaming Tue, Oct 26 Before the bell 0.57 PNR Pentair Inc. Tue, Oct 26 Before the bell 0.32 RGC Regal Entertainment Tue, Oct 26 Before the bell 0.24 RCII Rent-A-Center Tue, Oct 26 ----- n/a ----- 0.47 RFMD RF Micro Devices Inc Tue, Oct 26 After the market -0.02 SLE Sara Lee Tue, Oct 26 Before the bell 0.43 SEPR Sepracor Tue, Oct 26 Before the bell -1.04 SINA Sina Corp Tue, Oct 26 After the market 0.28 SSCC Smurfit-Stone Tue, Oct 26 Before the bell 0.13 SAH Sonic Automotive Tue, Oct 26 Before the bell 0.53 SBL Symbol Technologies Tue, Oct 26 After the market 0.11 TLAB Tellabs Tue, Oct 26 Before the bell 0.12 RIG Transocean Inc. Tue, Oct 26 Before the bell 0.05 TRI Triad Hospitals Tue, Oct 26 After the market 0.54 TRMB Trimble Navigation Tue, Oct 26 ----- n/a ----- 0.24 X United States Steel Tue, Oct 26 Before the bell 2.05 UTSI UTStarcom Tue, Oct 26 After the market 0.03 VLO Valero Energy Tue, Oct 26 ----- n/a ----- 1.54 VSEA Varian Semiconductor Tue, Oct 26 After the market 0.62 VRTS VERITAS Software Tue, Oct 26 After the market 0.21 BER W.R.Berkley Tue, Oct 26 After the market 1.01 WAT Waters Corp. Tue, Oct 26 Before the bell 0.42 WBSN Websense Tue, Oct 26 After the market 0.26 WWY WM Wrigley Jr. Co. Tue, Oct 26 ----- n/a ----- 0.55 ------------------------ WEDNESDAY ----------------------------- APD Air Products Chem. Wed, Oct 27 Before the bell 0.73 AAI AirTran Holdings Wed, Oct 27 ----- n/a ----- -0.07 AKAM Akamai Technologies Wed, Oct 27 After the market 0.09 AHC Amerada Hess Corp. Wed, Oct 27 Before the bell 2.13 AWA America West Hldg Wed, Oct 27 Before the bell -0.63 BUD Anheuser-Busch Cos. Wed, Oct 27 ----- n/a ----- 0.85 ATH Anthem Inc. Wed, Oct 27 Before the bell 1.65 APPB Applebee's Intl Wed, Oct 27 After the market 0.34 AGY Argosy Gaming Wed, Oct 27 Before the bell 0.64 ARBA Ariba Wed, Oct 27 After the market -0.06 ASKJ Ask Jeeves Wed, Oct 27 After the market 0.25 RATE Bankrate, Inc. Wed, Oct 27 Before the bell 0.14 BGFV Big 5 Sporting Goods Wed, Oct 27 After the market 0.36 BIIB Biogen IDEC Inc. Wed, Oct 27 After the market 0.35 BDK Black & Decker Wed, Oct 27 Before the bell 1.32 BBI Blockbuster Inc. Wed, Oct 27 Before the bell 0.12 BOW Bowater Inc. Wed, Oct 27 Before the bell -0.05 CBT Cabot Wed, Oct 27 After the market 0.51 CNI Canadian Ntl Railway Wed, Oct 27 Before the bell 0.84 CMCSA Comcast Corp Wed, Oct 27 ----- n/a ----- 0.11 COP ConocoPhillips Wed, Oct 27 Before the bell 2.58 COX Cox Communications Wed, Oct 27 Before the bell 0.13 CCI Crown Castle Intl Wed, Oct 27 ----- n/a ----- -0.18 ECA EnCana Corp Wed, Oct 27 Before the bell 1.01 EOG EOG Resources Wed, Oct 27 ----- n/a ----- 1.02 FLR Fluor Corp Wed, Oct 27 After the market 0.57 FBN Furniture Brands Wed, Oct 27 After the market 0.36 ROCK Gibraltar Wed, Oct 27 After the market 0.79 HAR Harman Intl Indu. Wed, Oct 27 ----- n/a ----- 0.41 IMDC Inamed Wed, Oct 27 After the market 0.45 IRF Intl Rectifier Wed, Oct 27 After the market 0.52 ISIS Isis Pharmaceuticals Wed, Oct 27 ----- n/a ----- -0.43 JDSU JDS Uniphase Wed, Oct 27 After the market -0.01 JNY Jones Apparel Group Wed, Oct 27 Before the bell 0.77 KMG Kerr-McGee Wed, Oct 27 Before the bell 0.94 LNY Landry's Resturants Wed, Oct 27 Before the bell 0.74 LF LeapFrog Enterprises Wed, Oct 27 ----- n/a ----- 0.32 LVLT Level 3 Comm. Wed, Oct 27 ----- n/a ----- -0.28 LSI LSI Logic Wed, Oct 27 After the market -0.05 MMC Marsh & McLennan Wed, Oct 27 Before the bell 0.70 MET MetLife Inc. Wed, Oct 27 After the market 0.79 NEM Newmont Mining Corp. Wed, Oct 27 Before the bell 0.26 NXTP Nextel Partners Wed, Oct 27 Before the bell 0.11 NOC Northrop Grumman Wed, Oct 27 ----- n/a ----- 0.77 POG Patina Oil & Gas Wed, Oct 27 ----- n/a ----- 0.51 PEET Peet's Coffee & Tea Wed, Oct 27 After the market 0.12 PHTN Photon Dynamics Wed, Oct 27 After the market 0.18 PDG Placer Dome Wed, Oct 27 After the market 0.11 PYX Playtex Products Wed, Oct 27 After the market 0.03 PG Procter & Gamble Wed, Oct 27 Before the bell 0.72 REM Remington Oil & Gas Wed, Oct 27 Before the bell 0.53 RNR RenaissanceRe Hldg Wed, Oct 27 After the market -3.69 ROH Rohm and Haas Co Wed, Oct 27 Before the bell 0.53 SEE Sealed Air Wed, Oct 27 ----- n/a ----- 0.67 SIRI Sirius Satellite Wed, Oct 27 ----- n/a ----- -0.12 SPF Standard Pacific Wed, Oct 27 After the market 2.02 SRCL Stericycle Wed, Oct 27 After the market 0.46 SRDX SuModics Inc Wed, Oct 27 After the market 0.21 BA The Boeing Co Wed, Oct 27 Before the bell 0.40 THQI THQ Inc Wed, Oct 27 After the market -0.20 UL Unilever PLC Wed, Oct 27 During the market 0.77 VAR Varian Medical Sys Wed, Oct 27 After the market 0.35 VMC Vulcan Materials Wed, Oct 27 After the market 0.98 WDFC WD-40 Company Wed, Oct 27 After the market 0.55 ZBRA Zebra Technologies Wed, Oct 27 ----- n/a ----- 0.42 ------------------------- THUSDAY ----------------------------- SE 7-Eleven Thr, Oct 28 Before the bell 0.34 RKY Adolph Coors Co. Thr, Oct 28 Before the bell 1.76 AET Aetna Inc. Thr, Oct 28 Before the bell 1.73 ACV Alberto-Culver Thr, Oct 28 Before the bell 0.58 ALA Alcatel Thr, Oct 28 Before the bell 0.12 ATK Alliant TechSystems Thr, Oct 28 Before the bell 0.71 AXL Amer. Axle & Mfg Thr, Oct 28 Before the bell 0.68 APCC American Power Conv. Thr, Oct 28 After the market 0.17 AOC Aon Corp. Thr, Oct 28 After the market 0.49 AZPN Aspen Technology Thr, Oct 28 After the market -0.03 AN AutoNation Thr, Oct 28 Before the bell 0.34 BLL Ball Corp. Thr, Oct 28 Before the bell 0.80 BDY Bradley Pharma. Thr, Oct 28 Before the bell 0.21 BC Brunswick Corp Thr, Oct 28 Before the bell 0.64 BG Bunge Ltd Thr, Oct 28 Before the bell 0.82 CCMP Cabot Microelectr. Thr, Oct 28 Before the bell 0.48 CATT Catapult Comm. Thr, Oct 28 After the market 0.22 CHRT Chartered Semicondtr Thr, Oct 28 After the market 0.03 CSK Chesapeake Thr, Oct 28 Before the bell 0.34 CCE Coca-Cola Enterprise Thr, Oct 28 Before the bell 0.38 CSTR Coinstar Inc Thr, Oct 28 After the market 0.29 COLM Columbia Sportswear Thr, Oct 28 After the market 1.64 CAM Cooper Cameron Thr, Oct 28 After the market 0.53 CSX CSX Thr, Oct 28 Before the bell 0.52 DCX DaimlerChrysler Thr, Oct 28 Before the bell 0.68 DLX Deluxe Corp Thr, Oct 28 Before the bell n/a DCLK DoubleClick Thr, Oct 28 After the market 0.03 EMN Eastman Chemical Co Thr, Oct 28 After the market 0.70 XOM ExxonMobil Thr, Oct 28 ----- n/a ----- 0.88 GTW Gateway Inc. Thr, Oct 28 ----- n/a ----- -0.07 GP Georgia-Pacific Thr, Oct 28 Before the bell 0.84 GSK GlaxoSmithKline Thr, Oct 28 Before the bell 0.72 GES Guess Thr, Oct 28 After the market 0.24 IKN Ikon Office Solution Thr, Oct 28 Before the bell 0.16 IMCL ImClone Systems Thr, Oct 28 ----- n/a ----- 0.33 IM Ingram Micro Thr, Oct 28 After the market 0.18 IFF Intl Flavor Frgrance Thr, Oct 28 ----- n/a ----- 0.62 IVGN Invitrogen Corp Thr, Oct 28 After the market 0.75 JBLU JetBlue Airways Thr, Oct 28 Before the bell 0.10 KSU Kansas City Southern Thr, Oct 28 Before the bell 0.14 KG King Pharmaceuticals Thr, Oct 28 Before the bell 0.22 KYO Kyocera Corp Thr, Oct 28 ----- n/a ----- n/a LTR Loews Corp. Thr, Oct 28 Before the bell 0.83 MSO Martha Stewart Liv. Thr, Oct 28 Before the bell -0.47 MVL Marvel Enterprises Thr, Oct 28 ----- n/a ----- 0.22 MLNM Millennium Pharma. Thr, Oct 28 Before the bell -0.23 MYL Mylan Labs Thr, Oct 28 Before the bell 0.26 NWL Newell Rubbermaid Thr, Oct 28 Before the bell 0.33 PNRA Panera Bread Thr, Oct 28 Before the bell 0.28 PRX Par Pharmaceutical Thr, Oct 28 Before the bell 0.46 PD Phelps Dodge Thr, Oct 28 Before the bell 2.71 PDS Precision Drilling Thr, Oct 28 Before the bell 0.53 ROP Roper Industries Thr, Oct 28 After the market 0.72 SANM Sanmina-SCI Corp. Thr, Oct 28 ----- n/a ----- 0.09 SOHU Sohu.com Thr, Oct 28 After the market 0.04 SNE Sony Corp Thr, Oct 28 ----- n/a ----- n/a DOW The Dow Chemical Co Thr, Oct 28 Before the bell 0.62 G The Gillette Co Thr, Oct 28 Before the bell 0.43 SMG The Scotts Co Thr, Oct 28 Before the bell 0.02 TRB Tribune Thr, Oct 28 Before the bell 0.50 VZ Verizon Thr, Oct 28 ----- n/a ----- 0.64 WMI Waste Management Thr, Oct 28 Before the bell 0.41 ------------------------- FRIDAY ------------------------------- APC Anadarko Petroleum Fri, Oct 29 Before the bell 1.67 AU Anglogold Ashanti Fri, Oct 29 ----- n/a ----- 0.14 AVP Avon Products Fri, Oct 29 Before the bell 0.34 CVX ChevronTexaco Fri, Oct 29 Before the bell 1.37 CEG Constellation Energy Fri, Oct 29 Before the bell 1.15 FRNT Frontier Airlines Fri, Oct 29 ----- n/a ----- -0.14 HC Hanover Compressor Fri, Oct 29 Before the bell -0.08 NOI National Oilwell Fri, Oct 29 Before the bell 0.32 NSANY Nissan Motors Fri, Oct 29 Before the bell n/a DCM NTT DoCoMo Fri, Oct 29 ----- n/a ----- n/a WON Westwood One Fri, Oct 29 ----- n/a ----- 0.29 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable CELG Celgene Corp 2:1 Oct 22nd Oct 25th PDCO Patterson Companies 2:1 Oct 22nd Oct 25th 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 BGG Briggs & Stratton 2:1 Nov 9th Nov 10th DVN Devon Energy 2:1 Nov 15th Nov 16th NFB North Fork Banc 3:2 Nov 15th Nov 16th FBNC First Bancorp 3:2 Nov 15th Nov 16th ----------------------------------- Economic Reports & Events This Week ----------------------------------- Q3 earnings will continue to take center stage with another huge week of announcements. Yet it will be the upcoming Nov. 2nd election that will dominate the news. There is economic data out every day this week but the big reports will be the Fed's Biege book, the GDP, ECI and PMI. ============================================================== -For- ---------------- Monday, 10/25/04 ---------------- Existing Home Sales for September Last: 6.54M Est: 6.54M ----------------- Tuesday, 10/26/04 ----------------- Consumer Confidence for October Last: 96.8 Est: 93.8 ------------------- Wednesday, 10/27/04 ------------------- The Fed's Biege Book report Durable Goods for September Last: -0.3% Est: +0.5% New Home Sales for September Last: 1,184K Est: 1,150K ------------------ Thursday, 10/28/04 ------------------ Initial Jobless Claims Last: 329K Est: 335K Help Wanted Index for September ---------------- Friday, 10/29/04 ---------------- GDP for the third quarter Last: +3.3% Est: +4.3% Employment Cost Index (ECI) for Q3 Last: +0.9% Est: +1.0% Chain deflator for third quarter Last: +3.2% Est: +1.6% Michigan Sentiment for October Last: 87.5 Est: 88.0 Chicago PMI for October Last: 61.3 Est: 59.0 Definitions: DM= During the Market BB= Before the bell the Bell AB= After the market the Bell NA= Not Available ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** 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 10-24-2004 Sunday 2 of 5 In Section Two: Watch List: Beer to Transports and more! Dropped Calls: None Dropped Puts: HSIC, TDS ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ********** Watch List ********** Beer to Transports and more! ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Adolph Coors - RKY - close: 67.19 change: +0.69 WHAT TO WATCH: Shares of RKY have been sliding slowly lower for the past two months but this past week has seen a significant rebound off round-number support at the $65 mark. Friday's gain actually broke the multi-week pattern of lower highs and produced a new MACD buy signal. This could be an entry point for a run toward the $70 level but watch out for earnings expected on Oct. 28th. Chart= --- Cephalon - CEPH - close: 45.80 change: -0.84 WHAT TO WATCH: We're still watching. Biotech stock CEPH is slowly melting under a trend of lower highs. So far support near the $45 level has been holding up but a breakdown could be the sort of entry point new bears are looking for. With the BTK biotech index weak the past few days and poised for more weakness this coming week keep an eye on CEPH. Traders also need to be aware that earnings are expected on or about Nov. 3rd. Chart= --- Yellow Roadway - YELL - close: 45.20 change: -2.67 WHAT TO WATCH: Ouch! The Dow Transportation index reversed Thursday's gains and fell 1.74 percent on Friday. YELL under performed with a 5.5 percent decline on very big volume. The drop sent YELL straight to support at the $45 mark and its simple 50-dma. One would have expected a more positive reaction to news that YELL beat estimates by 4 cents when they reported earnings on Thursday night. Shares are trading near pivotal support at $45 near the bottom of its rising channel. Whether it bounces or breaks down could be your entry point depending on your bias. Chart= --- Zimmer Holding - ZMH - close: 69.02 change: -1.14 WHAT TO WATCH: No stranger to the watch list, shares of ZMH continue to sink. Now the stock has broken down under round- number support at the $70 level with above average volume on the recent declines. Technically the support level it needs to break is the August low near $68.75 but ZMH is certainly getting closer to doing just that. The P&F chart is currently bullish but a drop under $69.00 would produce a new triple-bottom breakdown sell signal. Plus, it would crack the P&F support. Watch for a reaction after earnings on Oct. 25th. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- AMGN $52.70 -1.58 - Biotech stock AMGN is leading the BTK index lower. If shares break the $52 level of support it could be bad news. The P&F chart looks somewhat ominous. QCOM $42.00 -2.08 - Yuck! QCOM produced a small bearish engulfing candlestick, which is typically a one-day reversal signal. IMCL $49.33 -1.21 - Look out below! IMCL has been sliding lower for three weeks. Now shares are nearing major support in the $48.00-48.75 range. A breakdown under $48 could be bad news. Watch for earnings on Thursday. SYMC $58.70 -1.49 - We're watching SYMC for a possible bounce from the $55 level. EBAY $95.91 -3.68 - EBAY painted a bearish engulfing candlestick on Friday. That's typically a one-day reversal pattern. ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ Henry Schein - HSIC - close: 58.14 change: -0.48 stop: 60.01 Time is up! HSIC is due to report earnings before the opening bell on Tuesday morning. That means we need to exit to avoid any earnings surprises that could negatively impact our position. Wall Street is looking for HSIC to turn in 70 cents per share. Picked on October 14 at $58.35 Change since picked: - 0.21 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 655 thousand Chart = --- Telephone Data Sys - TDS - close: 73.75 chg: -2.10 stop: 79.01 Don't you wish every play was as cooperative as TDS? The stock experienced very strong follow through on Wednesday's breakdown under support at the $80 mark. Volume has been very strong on the sell-off and shares have broken through the simple 100-dma and the $75 level. Now TDS is nearing potential technical support at the simple and exponential 200-dma's. The stock has more than fulfilled our profit target so we're closing the play before it bounces. Picked on October 20 at $79.75 Change since picked: - 6.00 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 155 thousand 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************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ********** 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 10-24-2004 Sunday 3 of 5 In Section Three: Current Calls: APC, FDX, OSIP, PGR, SBUX New Calls: None Current Puts: APOL, New Puts: GCI ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ****************** CURRENT CALL PLAYS ****************** Anadarko Petroleum - APC - close: 70.11 chg: +0.44 stop: 66.99 Company Description: Anadarko Petroleum Corporation's mission is to deliver a competitive and sustainable rate of return to shareholders by developing, acquiring and exploring for oil and gas resources vital to the world's health and welfare. As of year-end 2003, Anadarko had 2.5 billion barrels of oil equivalent of reserves, making it one of the world's largest independent exploration and production companies. Anadarko's operational focus extends from the deepwater Gulf of Mexico, up through Texas, Louisiana, the Mid-Continent, western U.S. and Canadian Rockies and onto the North Slope of Alaska. Anadarko also has significant production in Algeria, Venezuela and Qatar. (source: company press release) Why We Like It: This should be an interesting week for energy and oil stocks. The December contract for crude oil just broke out and closed over the $55 a barrel mark for the first time ever. Plus, natural gas jumped more than 20 percent in the last five sessions. While oil is hitting new highs many of the major oil stocks are flirting with new highs. A crowd of major oil companies are also due to report Q3 earnings this week. How investors respond to these reports and management's guidance going forward will affect APC's performance. Don't forget that APC is due to report its own earnings on Friday and we plan to close this play on Thursday afternoon at the closing bell. Speaking of Friday, this past Friday saw APC trade to a new high at $70.81, which was enough to trigger us at $70.40. Remember, this is an aggressive momentum play. Suggested Options: We're going to use November options. Remember this is a one-week play. We like the 65s and 70s. BUY CALL NOV 65 APC-KM OI=2730 current ask $5.70 BUY CALL NOV 70 APC-KN OI=2839 current ask $2.10 Annotated chart: Picked on October 22 at $70.40 Change since picked: - 0.29 Earnings Date 10/29/04 (confirmed) Average Daily Volume = 1.6 million Chart = --- Fedex Corp - FDX - close: 87.78 change: -1.67 stop: 84.99 Company Description: FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $26 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 240,000 employees and contractors to remain "absolutely, positively" focused on safety, the highest ethical and professional standards and the needs of their customers and communities. (source: company press release) Why We Like It: (Original play from Thursday) Investors are obviously not worried about the impact of record oil prices and the costs of higher fuel on the transportation sector. If they were the Dow Jones Transportation average would not be breaking out over the 3400 level and hitting new five-year highs. Neither would Fedex Corp be breaking out to new all-time highs. Right now it's a stock pickers market. Momentum and relative strength traders are reinforcing the maxim that the trend is your friend. We like the momentum in FDX and the bullish breakout over resistance at $88 and $89 on Thursday was fueled by very strong volume. The move actually produced a new triple-top breakout buy signal on its P&F chart. Short-term technicals are strong and its MACD just produced a new buy signal. We're willing to speculate on a run toward the $100 level. The stock last split 2-for-1 in May of 1999 near the $120 level and shares are approaching levels where the company can announce a new stock split at any time. WEEKEND UPDATE: Ouch! The Dow Transports took a 1.74 percent drop and shares of FDX outpaced the decline with a 1.8 percent reversal. This is not a strong start. Readers may want to consider a bounce from $87 as a potential entry point but more conservative traders can wait for a new high over round-number resistance at $90. Suggested Options: Traders can choose from the Novembers, Decembers and January calls. Currently the Novembers have a lot of open interest and volume but we'd suggest the Decembers too. Both months will work. BUY CALL NOV 85 FDX-KQ OI=1736 current ask $3.80 BUY CALL NOV 90 FDX-KR OI=3062 current ask $1.00 BUY CALL NOV 95 FDX-KS OI= 345 current ask $0.20 BUY CALL DEC 85 FDX-LQ OI= 41 current ask $4.50 BUY CALL DEC 90 FDX-LR OI= 693 current ask $1.75 BUY CALL DEC 95 FDX-LS OI= 140 current ask $0.55 Annotated Chart: Picked on October 21 at $89.45 Change since picked: - 1.67 Earnings Date 09/22/04 (confirmed) Average Daily Volume = 1.5 million Chart = --- OSI Pharma - OSIP - close: 62.91 change: -0.56 stop: 61.99 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: Uh-oh! The BTK biotech index is now down three out of the last four sessions and is testing support at the 490 level. Sharp losses in biotech giants like AMGN have not helped the sector. Meanwhile the DRG drug index is slipping to new one-year lows. Together they are undermining any buying interest in OSIP. The stock is consolidating mostly sideways but the trend this past week has been bearish. Shares of OSIP seem dangerously close to our stop loss at $61.99. Given the bearish enviornment with the BTK and DRG we would probably suggest that conservative traders exit now just to keep losses at a minimum. We would not suggest new positions at this time. Look for a move back over the $64.75 region before considering new bullish plays. Suggested Options: We are not suggesting new bullish plays at this time. Annotated Chart: Picked on October 03 at $63.45 Change since picked: - 0.54 Earnings Date 08/10/04 (confirmed) Average Daily Volume = 1.6 million Chart = --- Progressive - PGR - close: 88.72 chg: +0.18 stop: 85.75 *new* 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: PGR continues to bounce after effectively "filling the gap" on Wednesday's dip. You may recall that PGR gapped higher on Monday after news hit that it had successfully plan to bid for 16.9 million shares of its own stock at $88 a share in a Dutch auction. We encouraged that the current insurance scandal has not influenced PGR. Thus far there seems to be no indication that the current insurance investigation by Elliott Spitzer will spread to the car insurance industry. PGR is pretty close to our initial profit target at the $90.00 level. We are planning to close the play if PGR trades within a few cents of $90.00. We're going to raise our stop loss to $85.75. Suggested Options: We are not going to suggest new bullish positions this close to our profit target at $90 Annotated Chart: Picked on October 13 at $85.65 Change since picked: + 3.07 Earnings Date 10/13/04 (confirmed) Average Daily Volume = 700 thousand Chart = --- Starbucks - SBUX - close: 50.14 chg: -0.62 stop: 46.95 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: So far so good. SBUX has managed to churn sideways above the $50 level in spite of a bearish performance in the broader indices this week. Overall we can't complain and suspect that SBUX is only catching its breath. If shares dip we could consider a bounce from $49.25-49.00 as a new entry point. Remember, this is an old-fashioned momentum play so buying the dips should still work. Just keep an eye on the broader market indices. If the S&P continues to sink or the Industrials go into full retreat mode then everything, including SBUX, will be a target for profit taking. 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= 902 current ask $5.60 BUY CALL NOV 47.50 SQX-KT OI=3163 current ask $3.40 BUY CALL NOV 50.00 SQX-KJ OI=4644 current ask $1.60 Annotated Chart: Picked on October 17 at $49.47 Change since picked: + 0.67 Earnings Date 11/10/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************** NEW CALL PLAYS ************** None ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ***************** CURRENT PUT PLAYS ***************** Apollo Group - APOL - close: 70.16 chg: +0.17 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: Hmmm... we've turned cautious on APOL ever since the stock broke out to the upside and closed above the $70.00 mark last Monday. Since then APOL has churned mostly sideways above and below the $70 level. Thus far shares continue to trade in a pattern of lower highs and APOL has not pierced resistance near $71.75- 72.00. The P&F chart remains in a very bearish pattern pointing to the $58 region. We're going to keep the play open but only suggest new bearish positions if APOL trades under $68.50. 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=3430 current ask $5.70 BUY PUT NOV 70 OAQ-WN OI=6722 current ask $2.45 BUY PUT NOV 65 OAQ-WM OI=4889 current ask $0.90 BUY PUT JAN 75 OAQ-MO OI=2161 current ask $7.50 BUY PUT JAN 70 OAQ-MN OI=3685 current ask $4.70 BUY PUT JAN 65 OAQ-MM OI= 881 current ask $2.75 BUY PUT JAN 60 OAQ-ML OI=1501 current ask $1.50 Annotated Chart: Picked on October 10 at $69.81 Change since picked: + 0.35 Earnings Date 10/05/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************* NEW PUT PLAYS ************* Gannett Co - GCI - close: 80.20 change: -0.25 stop: 82.01 Company Description: Gannett Co., Inc. is a leading international news and information company that publishes 101 daily newspapers in the USA, including USA TODAY, the nation's largest-selling daily newspaper. The company also owns more than 600 non-daily publications in the USA and USA WEEKEND, a weekly newspaper magazine. Gannett subsidiary Newsquest is the United Kingdom's second largest regional newspaper company. Newsquest publishes more than 300 titles, including 17 daily newspapers, and a network of prize-winning Web sites. Gannett also operates 21 television stations in the United States and is an Internet leader with sites sponsored by its TV stations and newspapers including USATODAY.com, one of the most popular news sites on the Web. (source: company press release) Why We Like It: It has been a very tough couple of weeks for GCI. the stock rebounded in early October only to fail at the $86 mark and its simple 200-dma. It's been a straight shot down ever since. The newspaper industry was already in trouble as the SEC investigates several major papers who inflated their circulation counts. Concerns have arisen that the fraud was industry-wide. Not only have advertisers canceled contracts but some are suing. A few analysts are acknowledging that the scandal will make future revenue growth tougher to achieve. Looking at the daily chart for GCI it would appear that we may have missed this move. However, GCI is currently consolidating above round-number support at the $80.00 mark. The short-term trend is one of lower highs suggesting that the selling pressure is building and GCI will eventually break lower. The P&F chart is already bearish with a $72 target but if GCI trades under the $79 level it will be a new spread triple-bottom breakdown sell signal. We want to use a TRIGGER to open this play. We'll sit on the sidelines until GCI trades at $79.40. The low in July was $79.43. One triggered we'll use a stop loss at $82.01 and target a drop to $75. Suggested Options: We will suggest the Novembers, Decembers of January puts. The January's have the most open interest so these would be our choice. BUY PUT JAN 85 GCI-MQ OI= 683 current ask $5.90 BUY PUT JAN 80 GCI-MP OI=1498 current ask $2.85 BUY PUT JAN 75 GCI-MO OI= 390 current ask $1.20 Annotated chart: _1 Picked on October xx at $xx.xx <-- see TRIGGER Change since picked: - 0.00 Earnings Date 10/12/04 (confirmed) Average Daily Volume = 876 thousand Chart = ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ********** 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 10-24-2004 Sunday 4 of 5 In Section Four: Leaps: Buying Opportunity, Part Two Spreads and Straddles: I'll Show You Mine If You Show Me Yours ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ***** LEAPS ***** Buying Opportunity, Part Two Traders are grabbing for the Maalox and hoping to out last and out smart the market for at least one more week. Between the election volatility, rising oil and slowing earnings the October bears have been feasting before their winter nap. October is a very good month for buying leaps and if you have not taken advantage of some of these plays now is the time to act. The earnings have peaked and those companies who failed to impress have been weeded out. Those remaining have solid futures and should benefit from any post election bounce. Oil continues to rise although not at the fevered pitch of September. We seem to be in the spike and rest, spike and rest phase while we wait for the next supply disruption. Tech stocks like EBAY, RIMM and SYMC have soared on positive earnings and so far have resisted any efforts for real profit taking. That potential still exists and should be used as a buying opportunity if it does appear. I am not adding any new plays this week because of the full portfolio and the unstable market. We should rebound after the election but next week could be rocky. So far we have not seen any terrorist events although Homeland Security has been issuing private warnings and cautions prior to the election. This week should be the last opportunity if they want to try a Madrid like election event. The markets are at critical support with the Dow failing at 9800 on Friday. The Nasdaq is still holding the high ground but the Dow is road kill. As long as the SOX holds 380 and the Russell 560 there is hope we can sneak out of October alive. **** 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 10 days between us an the election. The next week will be the most dangerous. ******************* New Plays ******************* NONE TODAY ******************* Dropped Plays ******************* MMM - Stopped out Citigroup - Dropped PG - Dropped ****************************** New Watch List Plays Triggered ****************************** SMH $31.07 Semiconductor Holders **************************** Current Portfolio: **************************** Position Summary Table **************************** Play Updates **************************** XLE - S&P Energy SPDR $35.49 ** Stop 33.90 ** Oil is creeping back up again and we have one week left until the election. There is a possibility we could see oil fall soon but I want to keep this play active one more week. We will make a decision next Sunday based on this weeks results. 2006 $32 LEAP Call WHA-AF 2006 $35 LEAP Call WHA-AI Entry $33.92 on 9/20 Initial play description: http://members.OptionInvestor.com/leaps/Lp_091904_1.asp XLE Chart ************************ MMM - 3M Company - $75.65, ** Stopped $74.00 ** MMM missed earnings estimates and was crushed back to $73.31 and stopped us out at $74. This play looked so promising when we first entered on the September dip and late September rebound. Manufacturing is tanking due to higher oil and MMM is on the verge of breaking to a new 52-week low. The stop is $74.00 to get under the March and August lows. 2006 $80 LEAP Call WMU-AP cost 8.55 exit 4.50 2006 $85 LEAP Call WMU-AQ cost 5.75 exit 3.00 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 $42.56 **Dropped** Citigroup is still suffering from the scandal over the Japan division. New problems seem to surface daily and the stock has been highly reactive to the Dow weakness. Uptrend support has failed and I am dropping the play. 2006 $50 LEAP Call WRV-AJ cost 2.00, exit 1.25 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 $21.30 **Stop $19.50** Intel posted a two month high on Thursday at $21.91 and appears to be out of danger of breaking support at $20. It weathered the storm of chip warnings last week and held the high ground. 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. $29.95 **Stop $28.00** Tyco traded sideways after a Tuesday dip with the market. 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 $24.02 **Stop $19.00** Juniper recovered much of the $2 drop on earnings and is passing time waiting for the market to firm. No new news 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 $84.80 **Stop 81.00** COP rebounded from the early week oil weakness and returned to the $85 range at Friday's close. The news continues to be good and oil continues to rise. We are still well below the reaction high of $90 from two weeks ago but are back on the right track. Earnings are Wednesday and we should hear how the stake in Russia's 20 billion barrel reserves is progressing. COP is scheduled to raise its ownership to 10% by year end and 20% over the next two years. I hate to exit on the potential for oil to drop only to see COP head for $100 next week. 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 raised to $81. Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 now $13.80 Entry $73.30 August 30th http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart ********************** NWS - News Corp $31.13 **Stop 29.00** News Corp fell sharply after news hit that the Oct-26th vote to move to the U.S. was likely to pass. Fund managers in Australia began dumping shares in advance to avoid the rush. This will eventually be offset by U.S. fund managers buying NWS once the move to the U.S. is completed. Once next weeks vote is approved NWS will apply to Australian authorities for permission and the move is expected to be completed in mid November. 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 $50.13 **Stop $46.00** UPL rebounded from the dip under $46 on the rebound in oil prices and closed near the high for the week. Resistance is well above at $55. 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 $95.95 ** Stop $89.00 ** EBAY announced a 70% increase in earnings on Wednesday and soared to $102 on Friday in conjunction with the Google earnings. Profit taking appeared on Friday along with the market weakness but support at $95 held. 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. Earnings were Oct-20th Stop raised to $89.00 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 $52.21 ** Stop $50.50 ** Merrill passed the earnings test and actually moved higher last week despite the market weakness. MER is one of the few financials to make any progress. Stop was raised to $50.50 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 $53.02 ** Dropped ** Despite positive press PG continues to move sideways and appears in danger of breaking down along with the drug stocks. Last weeks excitement faded and I am going to drop this before it turns into a serious loss. Earnings are not due until Oct-27th. Jan-2006 $55 LEAP Call WPG-AK @ $4.20 exit 3.50 Jan-2006 $57 LEAP Call WPG-AY @ $3.00 exit 2.50 Entry $54.08 (9/26) http://members.OptionInvestor.com/leaps/Lp_092604_1.asp PG Chart: *********************** RIMM - Research in Motion $85.91 ** Stop $81.00 ** This is really a tough call. The options are up about +30% and they are expensive options at $18-$22. RIMM roared to a new high at $90 on Thursday and then dropped -3.66 on Friday. Bear Stearns downgraded RIMM to Peer-Perform from Outperform based on price. I hate to just sit on RIMM if we are going to see more profit taking but I also hate to exit. For stocks that can move $4 a day setting the stop is a science. I raised it to $81 and if we are stopped out and RIMM rebounds I would go long again at $85. I plan on keeping this one on the list and we may be in and out several times. Stop was raised to $81.00 RIMM announced earnings on Sept-30th. 2006 $80 LEAP Call WLJ-AP @ $16.50 now $22.50 2006 $90 LEAP Call WLJ-AR @ $13.20 now $18.20 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 **************************** OXY - Occidental Petroleum $57.80 ** Stop $55.00 ** OXY reported earnings on Thursday of $1.88 that blew past analysts estimates of $1.73. This was a +70% jump in earnings helped by higher oil prices. Production was -2% below the prior quarter and OXY said production in the 4Q would be flat due mostly to damage from Ivan. OXY is near its all time high of $59.42 set in early October. It all depends on oil prices now. Earnings were 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 - $58.70 ** Stop $53.00 ** SYMC roared to a new high at $62.40 on Friday after posting record earnings on Thursday and announcing a 2:1 split. Profit taking appeared with the market weakness on Friday but we are still over the prior October highs. Stop was raised to $53.00 Earnings were Oct-20th 2:1 Split announced 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 $32.05 ** Stop $28.00 ** XMSR can suddenly do no wrong. They surged forward on the Spitzer news surrounding music pay for play and again on news that they would announce a personal Walkman/Ipod type receiver/player next week. The stock roared off to near $33 on the news and held its gains. Earnings are Nov-4th. Stop was raised to $28.00 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 $27.74 ** Stop $26.00 ** Pfizer had another bad week but ended up back where it started. The continuing cloud over the Cox-2 products is dragging on PFE as well as the potential drug rules that may be implemented if Kerry wins. I hate to bail on Pfizer because I believe in the company and the products. I feel it is being painted with the same brush as Merck. I lowered the stop to $26 in hopes the current support at $27.50-$28 will hold. 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 $97.74 Dow Diamonds Trust **Stop 95.50** That was exciting! One week after we were filled on an intraday dip to 99 the Dow implodes to break 98. In the greater scheme of things this should not be a major problem but I did lower the stop to 95.50 A continued Dow drop should stop somewhere in the 9600-9700 range and the bottom of the current down trend. I believe we are trapped by the election and no clears leader as well as October profit taking. Once the election is over we should do fine. Stop was lowered to 95.50 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 **************************** SMH $30.98 Semiconductor Holders ** Stop $29.00 ** That entry did not work out as planned. We had a $29 breakdown target and a $30.50 breakout trigger. On Monday the SMH fell to 29.25 and missed our entry point by a quarter. I really hope some readers were able to jump in when we got that close. The official entry will be $30.50 on the 19th when the SMH gapped higher on good chip news. It must have been the only good news for the week. One analyst said 20 chip stocks announced earnings and 19 lowered guidance this week. I did not check his facts but that was the way it seemed to me as well. Despite the six warnings on Thursday night the SMH is still holding at $31 and the SOX over 380. Any positive movement next week should help significantly. 2006 $30 LEAP Call YRH-AF @ 5.20 2006 $35 LEAP Call YRH-AG @ 3.12 Sell 2006 $55 LEAP Put YRH-MK @ 24.30 Entry $30.50 (10/19) SMH Chart **************************** LEAPS Watch List **************************** Only One Left 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 *********************** None *********************** New Watch List Entries *********************** No new entries ************************ QQQ $35.63 Nasdaq 100 Tracking Stock Breakdown Target $35.25 Breakout Target $36.50 The Nasdaq 100 tracking stock bounced off the 100dma at 35.25 and never came close to our $34.50 entry target. I a changing the target to that 100dma for next week. If the market weakness continues we may get lucky but I also put a breakout trigger on the play at $36.50. Over the next year the slight difference in premiums will not be noticed but I would still like to get the lower entry. 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 QQQ Chart ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ******************* SPREADS & STRADDLES ******************* I'll Show You Mine If You Show Me Yours By Mike Parnos In the trading wars, early on we learned that it was going to be us against the market makers. In every trade we make, we have to deal with a bid/ask spread -- and it's the market maker that calls the shots, sort of. The posted bid/ask spread is like the invoice on the window of a car in the showroom. For some car dealers, the invoice is a starting point for negotiations. Other dealers adopt a "take it, or leave it" attitude. The same holds true in options trading. Some market makers display a degree of flexibility while others are just plain anal. The Bid/Ask Spread This calls for a quick review of the components of the bid/ask spread. When you look at an option chain you're likely to see the following: Bid: $3.20 Ask: $3.80 This simply means the market makers are "bidding" $3.20 for the option. That's how much they're willing to pay you for it. They are "asking" $3.80 for the same options. That's how much they want you to pay if you are purchasing the same option. (Reminder: options trading above $3.00 are traded in $.10 increments. Options below $3.00 can be traded in $.05 increments.) When you see the quote on the option chain, the "bid" price represents the highest bidder (to buy) and the "ask" price represents the lowest offer (to sell). The market maker pays his mortgage with the difference between the bid price ($3.20) and the ask price ($3.80). The question arises, do we want to pay his mortgage AND put his kids through college? Hell, no. We may have been born at night, but not LAST night. The "Show or Fill" Rule Not wanting to pay retail (the $3.80 posted "ask" price) for the option, we submit a limit order to buy the option at $3.60. Enter the "show or fill" rule. That simply means that the market maker must either fill your order at $3.60 or change his bid/ask spread to reflect your order. Should he not fill your order, his new bid/ask spread would be: Bid: $3.60 Ask: $3.80. You are now posted as the highest bidder. With your $3.60 being represented (instead of the market maker's $3.20), it provides other owners of this option an opportunity to sell their options at this higher price ($3.60). Prior to the "show or fill" rule, the market maker was not required to show your price. He could leave the quote unchanged, and your order unfilled. And that's not good. Why Should You Be Filled? Depending on the exchange, when a market maker posts a bid or ask price, the exchanges (at least the major ones) require that the newly posted price (in our case - $3.60) be good for at least 20 contracts. Say you placed an order for five contracts. Does the market maker want to sell you that option for $3.60? Another "hell no." But, if he posts that $3.60, he is risking having to sell 20 contracts to an option seller at $3.60, rather than at the $3.20 in the original bid/ask quote. He doesn't want to do that. So, what are his alternatives? It is often in the market maker's best interest to fill your order for five contracts at $3.60 just to get you out of his hair. Sometimes it pays to be a nuisance, but you have to be a nuisance with some class. Also, remember, that in life you're not going to get anything unless you ask for it. The skill comes in just "how" you ask for it. Don't Get Greedy As in most areas of life, especially trading, pigs tend to get slaughtered. So, if you're a piggy that goes to the options market, you might end up as a ham sandwich. In our example, when you place your order, don't put your limit order in at $3.40. That would be an insult and people who are insulted will go out of their way to make sure you don't get what you want. We don't want to piss off the market makers (too much). We just don't want to pay retail. Imagine you're selling your house and you're asking $150,000. Then someone comes along and offers you $100,000. In addition to thinking "GFY," you vow that this would be the last person in the world you would sell your house to. Market makers are human, too (I think). They may be our adversaries, but they have to live too. They're entitled to make a profit (within reason, of course). Strange, But True On occasion, and this has happened to me, you'll notice an "ask" price that looks like a hell-of-a-deal. You put in your order at the seemingly low ask price and you get a report back that you were filled on one out of 10 contracts. Meanwhile, the bid/ask spread has returned to reality -- with the ask price now nowhere near where you bought the one contract. Unless the market moves dramatically in your direction, you're going to be sitting there with one filled contract and an open order to sell nine other contracts. You've used up a full commission to sell the one contract and, if you change your limit order, you're going to incur another commission charge. How do you avoid this? Check with your broker. He should be able to tell you the size (the number of contracts) at that price that is waiting to be filled. If it matches your order, great! If not, you can make a decision whether or not you want to proceed. But, at least you'll have the information and can make an informed decision. The better online brokers will have that real time information for you. ____________________________________________________________ More T-Shirts I Wish I Had "If you give up drinking, smoking, and sex, you don't live longer ... it just seems like it." "My imaginary friend thinks you have serious mental problems." ____________________________________________________________ NOVEMBER CPTI POSITIONS November Position #1 - SPX Iron Condor - 1095.74 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 - 1095.74 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 - 525.16 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 - 567.77 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. ____________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle – Ongoing Long Term -- $35.80 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 November. $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 – 525.16 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 - 1095.74 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 an 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. ____________________________________________________________ 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 10-24-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: Earnings And Oil Prices Slam Stocks! Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ******************* SPREADS & STRADDLES ******************* Earnings And Oil Prices Slam Stocks! By Ray Cummins U.S. equity values plunged Friday amid record crude oil prices and a pair of mediocre profit reports from blue-chip bellwethers Microsoft (NASDAQ:MSFT) and Coca-Cola (NYSE:KO). The Dow Jones industrial average retreated 107 points to 9,757, hitting a new low for the year on weakness in its drug, retail, insurance and technology components. The NASDAQ composite index slid 38 points to 1,915, as selling pressure emerged in computer hardware, software, semiconductor and telecom shares. Standard & Poor's 500-stock index finished down 10 points at 1,095, with only the utility segment enjoying upside activity. On the Big Board, volume was 1.47 billion shares with negative breadth of nearly 2 to 1. The technology exchange saw 1.73 billion shares crossed with losers outpacing winners more than 2 to 1. Bond prices were slightly higher. The benchmark 10-year note added 4/32 to end at 3.98%. For the week, the Dow lost 1.77%, the S&P dropped 1.12%, but the NASDAQ gained 0.19%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/22/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 BSC 94.16 91.34 NOV 80.0 85.0 0.65 84.35 0.65 Open PHS 37.23 33.99 NOV 30.0 32.5 0.35 32.15 0.35 Closed BTU 60.07 65.77 NOV 50.0 55.0 0.60 54.40 0.60 Open MRVL 28.84 28.09 NOV 22.5 25.0 0.35 24.65 0.35 Open COST 44.69 45.73 NOV 40.0 42.5 0.30 42.20 0.30 Open NEM 46.25 46.12 NOV 40.0 42.5 0.30 42.20 0.30 Open INSP 47.25 51.89 NOV 35.0 40.0 0.85 39.15 0.85 Open BG 41.96 43.72 NOV 35.0 40.0 0.50 39.50 0.50 Open CELG 62.13 56.12 NOV 50.0 55.0 0.60 54.40 0.60 Closed ADBE 53.57 53.74 NOV 45.0 50.0 0.50 49.50 0.50 Open VRNT 37.73 38.37 NOV 30.0 35.0 0.55 34.45 0.55 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss As noted Tuesday, Pacificare Health Systems (NYSE:PHS) became an "early-exit" candidate after a sharp decline on reports of the New York Attorney General's new probe into the health insurance industry. Celgene (NASDAQ:CELG) is also a candidate for early exit after the recent slump in its share value. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AMZN 40.47 34.60 NOV 50.0 45.0 0.65 45.65 0.65 Open PDX 55.00 54.38 NOV 65.0 60.0 0.60 60.60 0.60 Open BZH 103.14 101.28 NOV 115.0 110.0 1.10 111.10 1.10 Open CHIR 37.98 31.31 NOV 45.0 42.5 0.30 42.80 0.30 Open FLIR 54.52 54.61 NOV 65.0 60.0 0.70 60.70 0.70 Open MERQ 37.97 40.18 NOV 45.0 42.5 0.35 42.85 0.35 Open? BIIB 59.82 56.78 NOV 70.0 65.0 0.65 65.65 0.65 Open MCHP 27.56 28.80 NOV 35.0 30.0 0.60 30.60 0.60 Open? CB 66.75 65.46 NOV 75.0 70.0 0.60 70.60 0.60 Open HIG 56.30 55.03 NOV 65.0 60.0 0.80 60.80 0.80 Open AET 87.26 83.26 NOV 100.0 95.0 0.40 95.40 0.40 Open CI 60.65 58.85 NOV 75.0 70.0 0.75 70.75 0.75 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Mercury Interactive (NASDAQ:MERQ) and Microchip (NASDAQ:MCHP) are on the "watch" list. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status JCOM 29.93 29.78 NOV 30.0 30.0 3.75 3.50 Closed The straddle on j2 Global Communications (NASDAQ:JCOM) has been closed in the interest of capital preservation, as the quarterly earnings report did not produce the expected volatility in the issue. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ GTRC - Guitar Center $47.81 *** New "All-Time" High! *** Guitar Center (NASDAQ:GTRC) is a retailer of guitars, amplifiers, percussion instruments, keyboards and pro-audio and recording equipment. Guitar Center stores are located in 45 major United States markets, including Los Angeles, San Francisco, Chicago, Miami, Houston, Dallas, Detroit, Boston, Minneapolis, Seattle, Phoenix, Atlanta, New York, Denver and Cleveland. In addition, Guitar Center's American Music division operates 19 family music stores specializing in band and orchestral instruments for sale and rental, serving teachers, band directors, college professors and students. The company also has a wholly owned subsidiary, Musician's Friend, which sells through a catalog and a website; www.musiciansfriend.com. Quarterly earnings are due on 10/26/04. GTRC - Guitar Center $47.81 PLAY (conservative - bullish/credit spread): BUY PUT NOV-40.00 UGR-WH OI=244 ASK=$0.25 SELL PUT NOV-45.00 UGR-WI OI=108 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$44.55 __________________________________________________________________ OSTK - Overstock.com $52.63 *** Another "All-Time" High! *** Overstock.com (NASDAQ:OSTK) is an online retailer offering discount, brand-name merchandise for sale primarily over the Internet. Its merchandise offerings include bed-and-bath goods, kitchenware, watches, jewelry, electronics, sporting goods and designer accessories. The company also sells books, magazines, CDs, DVDs, videocassettes and video games. Overstock offers its customers an opportunity to shop for bargains conveniently, while providing suppliers an alternative inventory liquidation distribution channel. The company also offers travel services, including airline tickets, hotel reservations and car rentals. OSTK - Overstock.com $52.63 PLAY (less conservative - bullish/credit spread): BUY PUT NOV-40.00 QKT-WH OI=5473 ASK=$0.45 SELL PUT NOV-45.00 QKT-WI OI=849 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.65-$0.70 POTENTIAL PROFIT(max)=15% B/E=$44.35 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ IFIN - Investors Financial Svcs. $36.50 *** Delayed Report! *** Investors Financial Services (NASDAQ:IFIN) provides asset administration services for the financial services industry through its wholly owned subsidiary, Investors Bank & Trust Company. It provides core services and value-added services to a variety of financial asset managers, including mutual fund complexes, investment advisors, family offices, banks and insurance companies. It's core services include global custody, multicurrency accounting and fund administration. Value-added services include securities lending, foreign exchange, cash management, performance measurement, lines of credit, institutional transfer agency, investment advisory services, middle-office outsourcing and brokerage and other transition management services. IFIN - Investors Financial Svcs. PLAY (conservative - bearish/credit spread): BUY CALL NOV-42.50 FLQ-KV OI=721 ASK=$0.30 SELL CALL NOV-40.00 FLQ-KH OI=333 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$40.30 __________________________________________________________________ TTWO - Take-Two Int. Software $32.55 *** In A Trading Range? *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Int. Software $32.55 PLAY (less conservative - bearish/credit spread): BUY CALL NOV-37.50 TUO-KU OI=944 ASK=$0.25 SELL CALL NOV-35.00 TUO-KG OI=895 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$35.30 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. _________________________________________________________________ NTES - Netease.com $40.00 *** Earnings Speculation! *** NetEase.com (NASDAQ:NTES) is an Internet technology firm that supports the interactive online and wireless community in China. The company's content channels offer users a range of local, regional and international Chinese language content, Web-based communication services and sophisticated search capabilities and provide a destination for Chinese Internet users to identify and access resources, services, content and additional information on the Internet. In addition, the NetEase wireless value-added services offer timely information, community interaction and games via wireless short messaging service. Quarterly earnings are expected to be reported on or about 10/26/04. NTES - Netease.com $40.00 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-40.00 NQG-KH OI=4187 ASK=$2.60 BUY PUT NOV-40.00 NQG-WH OI=4850 ASK=$2.50 INITIAL NET-DEBIT TARGET=$4.90-$5.00 INITIAL TARGET PROFIT=$2.10-$2.90 ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ***************************************** 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 10/22/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 WRLS NOV 7.50 7.20 9.48 0.30 7.65% 4.17% SIMG NOV 12.50 12.10 12.68 0.40 5.95% 3.31% NCRX NOV 25.00 24.30 25.01 0.70 5.52% 2.88% ANF NOV 32.50 32.10 36.86 0.40 2.78% 1.25% STTX NOV 25.00 24.60 23.59 (1.01) 0.00% 0.00% * SNDA NOV 22.50 21.85 29.80 0.65 7.78% 2.97% PMTI NOV 20.00 19.15 22.57 0.85 9.23% 4.44% IDBE NOV 12.50 12.15 16.16 0.35 6.44% 2.88% BVF NOV 17.50 17.05 19.09 0.45 5.40% 2.64% USG NOV 17.50 16.90 23.06 0.60 6.84% 3.55% SNDA NOV 25.00 24.50 29.80 0.50 5.67% 2.04% WEBX NOV 20.00 19.60 21.28 0.40 5.75% 2.04% * ENER NOV 15.00 14.40 18.90 0.60 8.11% 4.17% DRIV NOV 25.00 24.35 34.62 0.65 6.81% 2.67% PLMD NOV 30.00 29.55 33.17 0.45 3.33% 1.52% CNCT NOV 22.50 22.10 27.60 0.40 4.68% 1.81% CCBI NOV 22.50 21.90 23.25 0.60 5.51% 2.74% EYET NOV 35.00 34.45 41.30 0.55 5.17% 1.60% USG NOV 17.50 17.15 23.06 0.35 6.12% 2.04% RIGL NOV 22.50 21.85 25.35 0.65 8.14% 2.97% MCD NOV 27.50 27.15 28.52 0.35 2.99% 1.29% FARO NOV 20.00 19.60 23.75 0.40 5.67% 2.04% NOVN NOV 20.00 19.60 22.30 0.40 4.88% 2.04% VRSN NOV 20.00 19.65 25.01 0.35 4.40% 1.78% ENER NOV 17.50 17.05 18.90 0.45 6.60% 2.64% SSNC NOV 20.00 19.55 22.37 0.45 5.71% 2.30% CKFR NOV 30.00 29.40 30.30 0.60 4.91% 2.04% OSTK NOV 35.00 34.60 52.63 0.40 4.10% 1.16% GBBK NOV 30.00 29.40 29.71 0.31 2.59% 2.04% KRON NOV 45.00 44.50 50.25 0.50 3.10% 1.12% DITC NOV 20.00 19.70 24.44 0.30 5.29% 1.52% MRVL NOV 23.75 23.35 28.09 0.40 5.59% 1.71% AGIX NOV 20.00 19.70 29.37 0.30 4.50% 1.52% As noted Tuesday, Steel Technologies (NASDAQ:STTX) became an "early-exit" candidate after a steep decline in the stock on news of a CIBC downgrade of the Steel sector. The position in Webex (NASDAQ:WEBX) has been closed due to the (bearish) post-earnings activity in the issue. A number of issues are on the "watch" list after the recent broad decline in stocks. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield BRCM NOV 35.00 35.35 26.41 0.35 4.44% 0.99% LLTC NOV 40.00 40.60 36.48 0.60 3.74% 1.48% SINA NOV 35.00 35.35 26.65 0.35 4.56% 0.99% LRCX NOV 25.00 25.40 23.89 0.40 5.37% 1.57% * IVX NOV 20.00 20.75 18.90 0.75 9.51% 3.61% PLMO NOV 40.00 40.45 28.20 0.45 5.62% 1.11% SLXP NOV 20.00 20.65 15.00 0.65 8.83% 3.15% AOC NOV 25.00 25.25 19.80 0.25 3.93% 0.99% CVH NOV 50.00 50.60 39.39 0.60 4.46% 1.19% ACF NOV 20.00 20.70 18.15 0.70 8.31% 3.38% DSPG NOV 22.50 22.85 20.07 0.35 6.23% 1.53% HYSL NOV 40.00 40.85 39.20 0.85 6.24% 2.08% * RNR NOV 50.00 50.65 48.04 0.65 3.51% 1.28% X NOV 40.00 40.25 33.61 0.25 3.49% 0.62% Positions in Hyperion Solutions (NASDAQ:HYSL) and Lam Research (NASDAQ:LRCX) are on the "watch" list. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield LNG 22.25 NOV 20.00 LNG-WD 0.55 212 19.45 27 3.2% 8.6% USG 23.06 NOV 20.00 USG-WD 0.50 7002 19.50 27 2.9% 8.5% AFCO 21.44 NOV 20.00 UOF-WD 0.45 15 19.55 27 2.6% 6.7% ENDP 21.51 NOV 20.00 IUK-WD 0.45 74 19.55 27 2.6% 6.7% ELN 25.32 NOV 22.50 ELN-WX 0.45 5608 22.05 27 2.3% 6.5% SRDX 26.29 NOV 25.00 UZF-WE 0.50 4248 24.50 27 2.3% 5.8% XMSR 32.07 NOV 30.00 QSY-WF 0.55 6763 29.45 27 2.1% 5.5% TSRA 28.69 NOV 25.00 TJQ-WE 0.30 10 24.70 27 1.4% 4.2% 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. _________________________________________________________________ LNG - Cheniere Energy $22.25 *** Natural Gas Demand! *** Cheniere Energy (NYSE:LNG) is engaged in the development of liquefied natural gas receiving and related opportunities, centered on the United States Gulf Coast. The LNG-receiving terminal business consists of receiving deliveries of LNG from LNG ships, processing such LNG to return it to a gaseous state and delivering it to pipelines for transportation to purchasers. The company is also engaged in exploration for oil and gas, as well as development and exploitation of major reserves, in the Gulf of Mexico. LNG - Cheniere Energy $22.25 NOV 20.00 LNG-WD LB=0.55 OI=212 CB=19.45 DE=27 TY=3.2% MY=8.6% _________________________________________________________________ USG - USG Corporation $23.06 *** New 2004 High! *** 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 $23.06 NOV 20.00 USG-WD LB=0.50 OI=7002 CB=19.50 DE=27 TY=2.9% MY=8.5% _________________________________________________________________ AFCO - Applied Films $21.44 *** Bottom-Fishing Only! *** Applied Films (NASDAQ:AFCO) makes thin-film deposition equipment for the flat panel display industry, the architectural, auto and solar glass industry and the web packaging industry. The firm's high-volume, large-area deposition systems are used to deposit thin-films that enhance the material properties of the substrate. These thin-films provide conductive, electronic, reflective, filter, barrier and other properties that are critical elements of the composition of its customers' products. Additionally, Applied Films sells coated glass substrates to the FPD industry. These products are used by its customers as a component in the manufacturing of liquid crystal displays. AFCO - Applied Films $21.44 NOV 20.00 UOF-WD LB=0.45 OI=15 CB=19.55 DE=27 TY=2.6% MY=6.7% _________________________________________________________________ ENDP - Endo Pharmaceuticals $21.51 *** On The Rebound? *** Endo Pharmaceuticals (NASDAQ:ENDP) is engaged in the research, development, sale and marketing of both branded and generic prescription pharmaceuticals used primarily to treat and manage pain. Their primary area of focus within the pain management market is in the opioid analgesics segment. Endo currently has a portfolio of branded products that includes established brand names such as Lidoderm, Percocet, Percodan and Zydone. Branded products accounted approximately 70% of net sales in 2003, while the company's generic portfolio accounted for 30% of net sales. ENDP - Endo Pharmaceuticals $21.51 NOV 20.00 IUK-WD LB=0.45 OI=74 CB=19.55 DE=27 TY=2.6% MY=6.7% _________________________________________________________________ ELN - Elan Corporation $25.32 *** New Drug Speculation *** Elan Corporation (NYSE:ELN) is a biotechnology company focusing on discovering, developing, manufacturing and marketing advanced therapies in neurology, autoimmune diseases and severe pain. Elan markets two major products in the United States: AZACTAM and MAXIPIME for Injection. AZACTAM is a monobactam indicated for the treatment of the infections caused by susceptible gram negative microorganisms and is principally used by surgeons, infectious disease specialists and internal medicine physicians to treat pneumonia, post-surgical infections and septicemia. MAXIPIME for Injection is a semi-synthetic, broad-spectrum, cephalosporin antibiotic used by pulmonologists, infectious disease specialists, internal medicine physicians, hematologists and oncologists to treat patients with serious and/or potentially life-threatening infections. ELN - Elan Corporation $25.32 NOV 22.50 ELN-WX LB=0.45 OI=5608 CB=22.05 DE=27 TY=2.3% MY=6.5% _________________________________________________________________ SRDX - SurModics $26.29 *** Next Leg Up? *** SurModics (NASDAQ:SRDX) is a provider of surface-modification solutions for medical device and biomedical applications. Its PhotoLink chemistry is the core technology platform on which many of its surface-modification capabilities are based. This technology helps modify and enhance the surface characteristics of medical devices and biomedical applications, thus improving performance, and, in some cases, enabling the development of new products. The firm commercializes its surface-modification technologies through licensing and royalty arrangements with medical device manufacturers that apply coatings to their own products. Earnings are due Wednesday, July 21. SRDX - SurModics $26.29 NOV 25.00 UZF-WE LB=0.50 OI=4248 CB=24.50 DE=27 TY=2.3% MY=5.8% _________________________________________________________________ XMSR - XM Satellite Radio $32.07 *** New Contract = Rally! *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service with over 1 million subscribers. Broadcasting live daily from Washington, DC, New York City and Nashville, Tennessee at the Country Music Hall of Fame, XM provides its loyal listeners with over 100 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. XMSR - XM Satellite Radio $32.07 NOV 30.00 QSY-WF LB=0.55 OI=6763 CB=29.45 DE=27 TY=2.1% MY=5.5% _________________________________________________________________ TSRA - Tessera Technologies $28.69 *** Entry Point? *** Tessera Technologies develops semiconductor-packaging technology that meets the ongoing demand for miniaturization and increased performance of electronic products. It licenses its technology to customers, enabling them to produce semiconductors that are smaller and faster and incorporate more features. These chips are utilized in electronics products, including digital cameras, MP3 players, personal computers, personal digital assistants, video game consoles and wireless phones. The firm's technology enables multiple semiconductors to be stacked vertically in a single three-dimensional, multi-chip package that occupies almost the same circuit board area as a chip-scale package. TSRA - Tessera Technologies $28.69 NOV 25.00 TJQ-WE LB=0.30 OI=10 CB=24.70 DE=27 TY=1.4% MY=4.2% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ IIVI - II-VI $32.57 *** Post-Earnings Slump? *** II-VI (NASDAQ:IIVI) develops, manufactures and markets optical and optoelectronic components used in the laser, military and nuclear radiation detection industries. Its laser-related products include laser gain materials for solid-state lasers and many of the high-precision optical elements used to focus and direct laser beams to target or work surfaces. Its military infrared products include targeting and navigation systems that utilize advanced optical materials. Its nuclear radiation detector products are designed for increased performance, reduced size, ruggedness and lower-voltage requirements. The II-VI has also expanded to the manufacture of single crystal silicon carbide for use in solid-state lighting, wireless infrastructure, radio frequency electronics and power switching industries. IIVI - II-VI $32.57 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 35 JIU-KG 90 0.65 35.65 6.5% 1.8% _________________________________________________________________ GIVN - Given Imaging $34.43 *** Revenge Play! *** Given Imaging (NASDAQ:GIVN) is an Israeli company established to develop, produce and market a platform technology for diagnostics and therapy of the gastrointestinal (GI) tract. The company was founded to commercialize a minimally invasive, disposable imaging capsule for diagnosing small intestine disorders and diseases. Given has submitted more than 20 patents worldwide for the tech- nologies employed in the Given Diagnostic Imaging System, and for new capsules to be developed using the basic technological plat- form. Future generations of the Given Diagnostic Imaging System will be developed to capture images of the rest of the upper GI tract and the large intestine. GIVN - Given Imaging $34.43 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 40 QPG-JH 2946 0.45 40.45 5.9% 1.1% _________________________________________________________________ UCI - UICI $24.81 *** Industry-wide Litigation Underway! *** UICI (NYSE:UCI) provides insurance, primarily health and life insurance to niche consumer and institutional markets. Through its subsidiaries, the company issues primarily health insurance policies, covering individuals and families, for self-employed, association groups, voluntary employer groups and student. UICI conducts its insurance businesses through the following wholly owned insurance company subsidiaries: The MEGA Life and Health Insurance Company, Mid-West National Life Insurance Company of Tennessee, and The Chesapeake Life Insurance Company. UCI - UICI $24.81 "SPECULATIVE" PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 30 UCI-KF 407 0.70 30.70 13.9% 2.3% ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ********** 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
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