The Option Investor Newsletter Sunday 10-31-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. In Section One: Wrap: Kerry Wins! Futures Wrap: See Note Index Trader Wrap: TECH LEADS FOR A CHANGE Editor's Plays: Short, Now What? Market Sentiment: Forget it! Ask the Analyst: Best 6 months starts in November 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 10-29 WE 10-22 WE 10-15 WE 10-08 DOW 10027.47 +269.66 9757.81 -175.57 9933.38 -121.82 -137.45 Nasdaq 1974.99 + 59.85 1915.14 + 3.64 1911.50 - 8.47 - 22.23 S&P-100 540.65 + 15.49 525.16 - 6.64 531.80 - 6.67 - 4.64 S&P-500 1130.20 + 34.46 1095.74 - 12.46 1108.20 - 13.94 - 9.36 W5000 11068.95 +320.91 10748.0 - 90.63 10838.7 -125.85 - 94.18 SOX 412.25 + 17.09 395.16 + 13.79 381.37 - 8.15 - 12.39 RUT 583.79 + 16.02 567.77 - 0.65 569.42 - 6.23 - 9.38 TRAN 3497.42 +125.48 3371.94 + 19.26 3352.68 + 16.68 + 37.20 VXO 16.57 16.09 15.89 14.95 VXN 21.90 21.36 21.80 20.69 ****************************************************************** Kerry Wins! Jim Brown The markets are predicting a Kerry victory but it depends on which market you are looking at. A normally dependable indicator says if the Dow falls in the three months prior to the election the challenger will win 81% of the time or 9 of the last 11 elections. The Dow lost -1.1% over the last three months. However, that is not the final word. According to Forbes.com they have analyzed the trend using not only the Dow but based on the Nasdaq, 5 of 8 years, the S&P, 8 of 11 and an average of the three gave 8 of 11 correct predictions. The most accurate was based on the S&P gains minus the inflation rate as evidenced by the 90-day T bill. Using this indicator there has been a 91% success rate or correct predictions in 10 of 11 years. With the S&P up +2.5% for the last three months and the 90-day T bill at 0.40 the result is a +2.1% S&P indicator that says Bush will pull it out at the end. This indicator has a 91% track record of success. Now we know you can make any indicator predict anything if you apply enough qualifications. I would not bet the farm on this outcome. The electronic futures polls had the race exactly dead even at midday on Friday with each candidates futures contract worth $50.00. By days end they had separated to $52 Bush, $48 Kerry. The Real ClearPolitics.com average of all polls as of Friday night had Bush ahead by +2%. Bottom line it remains a dead even election and the lack of any market gains on Friday was probably more related to the lack of a clear leader than any other factor. To further confuse the issue Jeremy Siegel, professor at Wharton, highlighted some election statistics on Friday. There have only been negative market returns over the last 100 years under three presidents. They were Hover, Nixon and Bush. We all understand why the economy under Bush has performed poorly with the 9/11 attack knocking 2.5 million jobs out of the economy and the Y2K bubble turning into a serious bear market and a recession. Neither event was his doing and he had no control over either. Also, in the last 100 years only TWO republicans have been unseated by a democratic challenger. Carter beat Ford and Clinton beat Bush. Siegel suggested it really did not matter to the markets now on who won this election just that it was behind us. I doubt he will find any objections from traders. Nasdaq Chart Dow Chart SPX Chart Friday was full of economic events and the overall news was very good for the economy. The opening salvo was the GDP at +3.7%, which was weaker than the +4.4% expected but better than the +3.3% number for Q2. The internals were significantly better than the headline number with consumer spending up +4.6%, business spending up +11.6% and business equipment up a whopping +14.9%. This was a very good report and the headline number would have been much better except for the high oil prices skewing the import numbers and the excessive inventory build in Q2 holding down additional inventory additions in Q3. Core inflation as measured by the PCE component rose only +0.7% for the quarter and at the lowest rate since 1962. This is a phenomenal number and allows the Fed to pause in the current rate hike cycle and watch for new economic clues in 2005. Prior to today the expectations for the eventual rate level was something in the 3.0-3.5% range. After the GDP and some comments from Fed Vice Chairman Roger Ferguson that level is now drifting to the 2.5% range. This is a big drop in expectations and the market did not react to it on Friday probably due to the election cloud. Ferguson said "several aspects of the current outlook lead me to suspect that the return of the equilibrium real rate from its currently somewhat depressed level to its long-run value might plausibly be expected to be gradual and attenuated compared with historical experience." In English the rate hike pace could slow based on external conditions. He also said "I believe that the combined force of several factors restraining aggregate demand, would require a lower real rate than otherwise to avoid economic slack." These comments led analysts to believe the Fed was measuring its current policy of continued rate hikes against the low job growth, high oil and the potential impact on the struggling economy. Again, the market did not react to the slight policy shift and I believe it was the election cloud keeping traders from seeing the light. Another clearly visible sign of strength returning to the economy was the Chicago PMI which soared to 68.5 and well above the consensus estimates of only 59.7. Anything over 50 represents an expansion and the jump to 68.5 pushed it to the highest reading since the 1980s. New orders rose +10 points to 79.4 and production soared +21 points to 79.7. Another good sign was a substantial inventory drop to 51.8 from 64.7 which indicates the need to ramp up the replenishment cycle. That was the lowest reading since April. This is a very strong report and suggests the ISM on Monday could also be very strong. The PMI is unique to the Chicago region but the ISM is a national view of the same components. The NY NAPM continued to rise with a small move to 313.7 from 310.4 in September. The NY-NAPM was not as bullish as the Chicago PMI but still an improvement after 14 consecutive months of gains. The August 2003 number of 221.7 was the cycle low for this series and NY has been improving ever since. The only material change was a drop in the six month outlook from 60.0 to 50.0. This suggests the 2005 view is starting to fade. Consumer Sentiment took an about face from the early reading for October and jumped to 91.7 from the drop to 87.5 on Oct-15th. The end of month rebound to 91.7 was still a drop from the September level at 94.2 but a big sigh of relief for analysts. Present and future conditions both jumped over four points in the final analysis. For the coming week we have not only the election cloud but the closely watched ISM on Monday and the Jobs Report on Friday. The ISM will be the more critical report this time around simply for the election impact. Post election the Jobs report will have far less impact on the national scene and even a bad report could be beneficial for the markets. In theory a bad report helps push the Fed to the sidelines and keep rates lower for a longer period of time. Just before the bell it was announced a new Bin Laden tape was on the way and bonds soared and a closing rebound was nipped in the bud. After the close the Al Qaeda leader appeared on camera in traditional attire and without any camo and no gun. The tape was not a cave shoot and was much better produced. It contained negative comments on both Kerry and Bush and references to the election. The tape warned of more 9/11 style attacks and claimed neither Bush or Kerry could keep America safe. The tape was not made available until after the equity markets closed and that blunted the impact but the campaigns quickly picked up on the opportunity to go on the offense against terrorism. Conventional wisdom suggests the tape could give an edge to Bush as he has the track record for pressing the attack against Al Qaeda. Some said the tape also may have given Bush the edge because Osama attacked Bush in much more detail and only mentioned Kerry. That direct attack could have a reverse effect of suggesting Bush has severely pressured Al Qaeda and voters could cheer his effort. There are far too many questions and the spin machines will be working overtime all weekend to influence voter opinion. Oil prices took another dive off the high board and retreated all the way to $50 intraday before rebounding to close at $51.75. This -10% drop from the $55.65 high on Wednesday could have all the appearances of a break in the trend but we only have to look back to August when oil fell from $47 to $41 and analysts were all predicting $35 before the election. I have believed for several months we would see a pullback in prices after the terrorist risk to the election has passed. The profit taking this week allowed funds to take their gains off the table and shift back into stocks for their year end statements. I view any pullback in oil prices as buying opportunities for oil stocks but I would wait for the election to pass before jumping into new positions. Analysts were pointing to oil as the catalyst for the gains in equities this week. I view that as strange since equities soared on Tuesday with oil at $55 and a day before the actual high in oil and the big profit taking drop. I do believe we could see a monster rally next week if we have a successful election with a clear winner on Wednesday and oil under $50. This would prompt further profit taking in oil and further strong asset allocation back into equities. For the week the Dow gained a whopping +269 points, +317 if you count from the 9708 low on Monday. This is a very strong bounce and as I illustrated on Thursday night a historical trend for mutual funds to paint the tape for their year end on Oct-31st. Now that their year end is over we have two trading days left before the election is history. It will be a real test of market strength to see if we can hold our gains until the election results are known. The Osama tape should be somewhat forgotten by Monday and hopefully not a factor. The Dow has rebounded to 10000 and held there for two days while the gains were consolidated and the October clock expired. I fear that after the end of October race to a milestone level which provided strong marketing copy for end of year statements that Monday could be not just a pause for the election event but a profit taking episode. After three weeks of heavy selling it may be too much to ask for the selling to be magically over. The economics were strong on Friday and they produced no gains despite the month end. We have seen it many times before in far less confusing situations where window dressing turned into undressing following a calendar crossing. What could hold us up is the strong historical potential for a post election year end rally. November is the 2nd strongest month of the year behind December making the next 60 days very key to producing returns for funds. Even the very cautious funds cannot afford to be out of the market if a post election explosion occurs. Missing the first couple days of a rally typically takes 25% of the profit out of the eventual gains. Funds can't afford to guess wrong. If the Dow soared another +300 points before next Friday those out of the market would be in a very unsatisfactory position. They can't just place an order like you and I for a thousand shares each of ten stocks and call it a day. If a fund gets behind the curve and needs to buy millions of shares across dozens or even hundreds of stocks then prices go to the moon. It is the same as the cockroach theory. Where you see one there are probably dozens you don't see. When one fund is behind the curve there are likely dozens if not hundreds also behind the curve. For an example of funds behind the curve we only need to look at October 2002. The Dow rebounded off the 7200 bottom to hit 8540 in only eight days. Had you been flat at the bottom after two months of declines totaling nearly -2000 points the initial reaction to the first +400 point bounce in only two days would have been to expect a pullback from the oversold bounce. Unfortunately for those who waited there was no pullback and six days later the Dow was another +1000 points higher. This is a lesson that will not be soon forgotten by thousands of fund managers. Dow Chart - October-2002 After reviewing the chart above it may put the +300 point bounce from this week into a different perspective. Instead of expecting a tape painting bounce to fail we may just see a pause for the election and a bookend rally to follow. This has been a terrible year for the markets and most funds are at basically a breakeven for the year if they did not play the oil rally. The SPX is only about 20 points away from where it began 2004 and the Dow is down about -425 points. The Nasdaq is nearing breakeven at 2003 and just hitting that goal will only make a new four month high. Funds need performance and this late in the year they are going for broke. Maybe that is a bad choice of words but you know what I mean. They have to load the boat with every available share and hope for a rising tide after Tuesday. They cannot afford for other funds to capture the gains and win the ratings race. Conversely, should the market rocket fail to lift off the launching pad by the end of next week there is a serious danger of an implosion instead of an explosion. I would dare to bet that nearly 100% of traders expect a post election rally and should one not appear there could suddenly be some surprised bulls. Personally I think that Friday economics and a good ISM on Monday will set the stage for a pretty good run but there is always the possibility that all the bets have already been placed. Because the expectations of a post election rally are so strong anybody with money to invest should already be in the market. That only leaves those who were too afraid of an election event to chase the prices. Will it be enough to produce another Oct-2002 bounce? I really doubt it but until the market proves otherwise I suggest we remain long. The bears are not without their rally points with strong resistance overhead on the SOX, Russell and the Wilshire. However, one strong day like we had last week and those bears would be racing to cover any shorts as those levels were broken. All really strong market rallies are built on the backs of disbelieving bears. Wilshire Chart SOX Chart Russell Chart The end of October tape painting left us with two days to ponder our fate and adjust positions before the election is over or at least until we hope it is over. I would look to buy any Monday dip and keep my stops tight until the election passes. At this point the market is past worrying over who will win the election and it more focused on just getting it over. Anybody placing an election bet based on a specific winner has already put their money on the line and we are just waiting for the dice to be rolled. Once past Tuesday the negative talk will be gone and sentiment, both market and consumer should improve. Earnings are over and the holiday spirit will begin building along with retail sales. It should be a great time to be in the markets but then disaster normally strikes when it is the most unexpected. Never assume and end of year rally is the only outcome. Hope for it, plan for it and bet on it but always keep an exit plan in place. The Dow and the Nasdaq are still in a long term down trend and until that trend breaks the risk for bulls is still high. 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 ******************** TECH LEADS FOR A CHANGE By Leigh Stevens THE BOTTOM LINE – The blue chip weakness signaled by the recent new yearly low close in the Dow 30 (INDU), was masking the fact that the tech- heavy Nasdaq indices were holding up ok and were not far below their June highs. Tech indices led the way in the renewed rally this past week. My take is that continued economic growth has led to the perception that these are the only stocks much undervalued based on upside earnings potential. Eventually, semiconductors, hardware, software, select Internet, etc. should see earnings growth the longer the economic expands. The Nasdaq Composite (COMP) and Nasdaq 100(NDX) indexes look like they could work a bit higher still - to 2000, even to around 2050 in COMP and perhaps 1520 in NDX. The S&P 100 (OEX) has some room on the upside too, but also some tough resistance in the 546-550 zone. FRIDAY'S CLOSING NUMBERS – The S & P 500 Index (SPX) was up 2.7 points to 1130 and up a substantial 3.1 % on the week (+1.3% for October). The Dow 30 Average (INDU) closed 22.9 points higher to 10,027.47. INDU rebounded 2.75% on the week. However, unlike the broad SPX blue chip index, the Dow lost 0.6% in October. The Nasdaq Composite (COMP) was down slightly - off 0.7 points at 1,974.9 by the close. However, COMP rose 3.1 percent on the week, same as the S&P 500 - but gained a far better 4.1% for the full month (October). FRIDAY'S TRADING NEWS – In a mild disappointing note after such a strong week, the Commerce Department reported that GDP grew at a 3.7% annual rate in the third quarter, following a 3.3%. Hey, that's an increase, right! As always in the Street of Dreams, this figure was judged based on Economists expectations for a 4.3% growth rate. The core inflation rate increased an annualized 0.7%, touted as the lowest in 42 years. Yes, we have no inflation - tell it to the Fed. Well, there is that pesky pump price marching up and up but that's not in the "core" inflation rate. You could have fooled me to the core due to my rising cost for fill-ups! Bullish encouragement came next as the University of Michigan released its consumer sentiment index - it rose to 91.7 points in late-October from 87.5 earlier in the month. Expectations were for a decrease, to about 85.0. Also, a Chicago region survey of purchasing managers showed stronger-than-anticipated expansion of business activity in October. OTHER MARKETS – The dollar was down slightly again on Friday against both the euro and the Japanese yen. The Euro hit a substantial new high this past week, trading in the $1.27 area, with no end in sight. Not much concern to the stock market right now, but not so great for visitors like me with dollars to convert while on a business trip to Spain. There are other reasons to fear a dollar that falls too far, but it does moderate the oil price hikes with our major trading partners, given that oil is priced in dollars. December crude oil futures ended up 84 cents at $51.76 a barrel on the New York Mercantile Exchange. Funny that I would we think that oil prices still above $50 would be encouraging! Well, after hitting $55, it seems a bit of a relief. Crude oil gained 5% for the month, with the longer-range influence of China perhaps not being able to dampen its economy overly much, keeping its energy demands strong. That plus the usual suspects this year for supply disruptions somewhere in the oil-rich areas, given the high demand globally, especially from China and the U.S. - more SUV's anyone? In a quiet bond market, the 10-year (Treasury) Note ended up 6/32 to 101 25/32, for a yield of 4.03%. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: Just as when the S&P 500 (SPX) dropped under its 21-day moving average and couldn't rebound back above it, suggesting further weakness, the reverse was true on the rebound back above this key trading average and the follow through strength. I assumed SPX was headed back toward support in the 1090 area and might dip under even, before the next rally, but the trading range has been narrowing some. Indecision? Of course, if we listen the two parties, the fate of the world (for at least 4 more years) has to be settled just ahead. I'm not sure that who wins will be as significant as the fact that the uncertainty goes away. I also pointed out the significance of a move through 1110 resistance (play the market for higher) for turning the chart picture bullish again near-term. So what now? There is a significant overhead resistance in the 1140 area. SPX either fails and reverses in this area or achieves an upside penetration, in which case a next objective may be to around 1150. A close just slightly over 1140 lacking upside follow through the next day would suggest switching from a bullish to bearish trading stance. Of course, the recent rally in SPX could reverse at any point shy of 1140 resistance, consistent with its pattern this year of going only to rally highs lower than the one that preceded it. Stay tuned! Meanwhile, bullish sentiment is building to that "over-confident" stage that sets up the next decline so to speak. We're close, but haven't seen that one-day reading yet that would put my indicator in bearish warning territory. S&P 100 Index (OEX) – Daily chart: I had a downside target to the 52 area and the S&P 100 (OEX) got to 522 - close enough. Near support looks like 530-532. Near resistance is at 545-546, at its down trendline and 200-day moving average respectively. The June rally peak implies major resistance at 558. Only a close over this area breaks the bearish pattern of lower (up) swing highs. I suggested exiting puts in the 520 area. Hope you did and perhaps went the other way into OEX calls for a trade. OEX was oversold enough finally last week on Monday's close to make a continued put play risky. Dow 30 Average (INDU) - Daily chart: Instead of a move to the lower end of the well-defined downtrend channel, the Dow 30 (INDU) managed to stay in the area of its prior early-August lows and rebounded before touching 9700. (9600 was my "worst case" downside objective.) 10,220-10,240 is resistance implied by the top of INDU's downtrend channel and the prior rally highs. I think it's doubtful that the Dow will close above the top of its channel. Not for more than a day especially - two consecutive days changes this picture. If so, next resistance is in the 10,350 area, at the cluster of prior highs from early-September. The Dow did get into my oversold zone and if you look at the (14- day) RSI chart and reversals/rallies this year at least have been fairly consistent when this indicator has reached the oversold area as highlighted above. Nasdaq Composite (COMP) Index – Daily chart: After holding in the area of (or not far under) its 21-day average, rally potential was improved and came about last week. I figure next resistance as the 2000 area based on the psychological importance of this big round number. Technically, key resistance is assumed to be around 2050, the area of the late-June top. Support is seen at 1900-1905 or just under at the minor up trendline intersecting at 1880 currently. I had pegged 1900-1910 as key near support, so I hope those playing the put side took action when the strong rally developed after COMP reached this area - oil backing off from the $55 level was a help too! Nasdaq 100 (NDX) Index – Daily chart: Holding, then rebounding from the low end of its recent trading range, then piercing the top end of this same range kept the Nas 100 (NDX) chart bullish. 1520-1530 looks to be a possible objective. 1523 is resistance implied by the prior NDX top. Key technical support is at 1420, at the up trendline. The RSI Indicator was diverging from price action and gave a minor bearish outlook - it wasn't the most pronounced divergence but it was there, proving once again that patterns always have their exceptions. At this point, I don't want to overstay in calls if there is any sign of a double top shaping up - watch for signs of a rally that stops at or short of the prior top (at 1523). Nasdaq 100 tracking Stock (QQQ) Daily chart: QQQ has gotten above the down trendline the way I've drawn it as touching the greatest number of highs. If I constructed it through just the intraday highs, QQQ has gotten to this resistance trendline, but not above it. An even more key technical level is the prior 37.9 high. Failure in this area sets up a possible double top. Conversely, clearing this prior high sets up a possible re-test of the early-year peak in the 38 area. Stay tuned for what's next. Election and terror jitters abound and Tuesday (election day) is often a "change" point - if the Q's rally into Tuesday, I'm inclined to go the other way and exit calls and the stock and play the stock for another pullback and continuation of the back and forth trading range. 35.25-35.30 is first support, at the low end of the recent range. Next is support implied by the last downswing low at 34.23. I've figured QQQ to be in a 34-37 trading range, maybe that will be expanded to 38 on the upside. Volume tapered off after the strong Wed. rally, with On Balance Volume (OBV) also turning down - not the best sign for a renewed bull market trend. Still a mixed picture - one seeming to continue to offer opportunities on both sides of the market. Good Trading Success! ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** Editor's Plays ************** Short, Now What? The XLE rose to a high of $36.13 on Wednesday before the bottom fell out on the China news. As you probably already know from my wraps I don't expect oil to stay down very long. I was looking for a post election dip and we are three days away from that possibility. Assuming there is no terrorist event around the election most investor eyes will move to equities and away from "overpriced" oil. The XLE put play was triggered on Thursday morning with a trade at $35 and the price of the Dec-$35 Put XLE-XI was $1.25 at the time. Because the Wednesday drop was so sharp the premiums inflated on the sharp increase in volatility. They were as low as 80 cents the prior Friday. Sometimes things just don't work out as we expect. The profit target is $32 and I am going to lower the stop to $36.25. Move the stop to $35.50 with a trade at $34.50. Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_101704_1.asp XLE Chart ************ Open plays: ************ MRK Put $31.31 ** Stop $33.00 ** (lowered) ** Target $25.00 ** Jan-2006 $25 LEAP Put WMR-ME Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_101004_1.asp *********************** XMSR Call $32.47 ** Stop $30.00 ** (raised) ** Target $35.00 ** XMSR slowed its climb in advance of the SIRI earnings last week. Sirius missed earnings and posted a bigger than expected loss. XMSR held its ground. XMSR earnings are next Thursday and good news compared to the SIRI bad news could really fuel the next bounce. A post election rally would not hurt either. Earnings are Nov-4th JAN-$30 Call QSY-AF cost 2.75 currently $4.10 JAN-$32 Call QSY-AZ cost 1.75 currently $2.60 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_100304_1.asp ********************* PVN Call Update $15.56 We suffered a setback in July and another in August but PVN is finally back on track and only 45 cents from a new 52-week high. The target remains $20. PVN beat earnings estimates of 27 cents last week with a blowout 34 cents and raised full year estimates from $1.00 to $1.15. It appeared to be the target of a fund on Friday with a strong spike beginning at 1:PM that lasted into the close. Volume rose +25% for the day. Jan-$15 Call PVN-AC cost 1.05, currently $1.25 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_061304_1.asp **************** MARKET SENTIMENT **************** Forget it! - J. Brown It was a busy day on Friday. The +3.7% GDP number came in less than the expected +4.3% growth rate but above the previous reading's +3.3% rate. Consumer sentiment soared from 87.5 to 91.7 when economists were looking for a drop to 85. Plus, the PMI index vaulted to a very strong reading, which is a nice change from the pattern of positive but slow growth economic data. After the closing bell a new Osama Bin Laden tape surfaced just before the election, which could raise terror fears when combined with the earlier English speaking terror tape released this past week. Yet through it all investors are focused on one thing. Forget the GDP. Forget consumer sentiment. Forget oil near $50 a barrel. Forget the PMI and forget Osama. Right now the markets are focused on Tuesday's election and only Tuesday's election. This alone is likely to keep trading somewhat subdued for the next two sessions. You've heard it before and you'll probably hear it again. The markets hate uncertainty. Right now there couldn't be much more uncertainty about who will win Tuesday's race. With that in mind I think stocks did pretty well last week. However, imagine the uncertainty if there is no clear winner on Tuesday night? That's right, if the election is tied up in recounts and lawsuits for the next couple of months there could be no post-election rally. Let's assume, no, let's hope that there is a winner come Wednesday morning. If that is the case then we could be in for a strong year-end. Historically we're stepping into the best two months of the year through November and December. Keep your fingers crossed for a strong turn out on Tuesday and get out there and vote! ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9497 Current : 10027 Moving Averages: (Simple) 10-dma: 9903 50-dma: 10109 200-dma: 10257 S&P 500 ($SPX) 52-week High: 1163 52-week Low : 1018 Current : 1130 Moving Averages: (Simple) 10-dma: 1111 50-dma: 1115 200-dma: 1119 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1486 Moving Averages: (Simple) 10-dma: 1459 50-dma: 1419 200-dma: 1438 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 16.27 +0.88 CBOE Mkt Volatility old VIX (VXO) = 16.57 +1.11 Nasdaq Volatility Index (VXN) = 21.90 +0.65 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.73 768,397 561,320 Equity Only 0.60 629,879 378,292 OEX 0.88 18,563 16,120 QQQ 1.25 61,220 76,802 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 64.0 + 0.2 Bear Correction NASDAQ-100 52.0 + 1 Bull Alert Dow Indust. 50.0 - 0 Bear Confirmed S&P 500 62.0 + 0.6 Bear Correction S&P 100 60.0 + 0 Bear Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.85 10-dma: 0.94 21-dma: 1.01 55-dma: 1.02 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 1554 1504 Decliners 1234 1535 New Highs 166 119 New Lows 24 37 Up Volume 1052M 773M Down Vol. 722M 831M Total Vol. 1823M 1642M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 10/26/04 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 don't seem willing to place any big directional bets ahead of the Nov. 2nd election. The longs and shorts are pretty much dead even. Small traders are also narrowing their bullish bias a bit. Commercials Long Short Net % Of OI 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%) 10/26/04 441,263 445,992 ( 4,729) (0.0%) 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 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% 10/26/04 138,201 121,275 16,926 6.5% 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 Commercials have added to their longs and reduced some shorts but they remain strongly net bearish here. Small traders reduced both their longs and shorts with almost no change in their bias. Commercials Long Short Net % Of OI 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%) 10/26/04 276,128 509,552 (233,424) (29.7%) 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 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% 10/26/04 345,908 64,061 281,847 68.7% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 There is still very little change in commercials' NDX positions. Actually there is very little change in the small-traders' positions too. Commercials Long Short Net % of OI 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% 10/26/04 53,233 31,323 21,910 26.2% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 25,160 - 06/01/04 Small Traders Long Short Net % of OI 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%) 10/26/04 10,521 25,388 (14,867) (42.8%) 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 hedged their bets even more ahead of the Nov. 2nd election so there is no clear up or downside bias. Small traders remain net bullish after the big change two weeks ago. Commercials Long Short Net % of OI 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% 10/26/04 25,707 24,855 852 1.6% 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 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% 10/26/04 8,405 6,336 2,069 14.3% Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** *************** ASK THE ANALYST *************** Best 6 months starts in November The "best six months" for equities begins in November and runs through the end of April, where the Russell 2000 Index ($RUT.X) has shown a historical tendency to gain an impressive 12.9% from November through May. I had some questions that I wanted answered. I should say, I just wanted more information, and some type of "proof" that a historical statistic could stand the test of time. I'm not from the "show me state" of Missouri, but those of you that have followed my writings know that I'm the type of trader and investor that is always back testing things, to try and make more certain that we're not going off on a wild goose chase. Let me first say, I am a BIG BELIEVER in history. Those that don't learn from history, are often doomed to repeat it. There. I've disclosed my bias. Today I'm going to at least test the statistical theory that the Stock Trader's Almanac discusses on page 118 of this year's (2004) Almanac. In 1968, the Stock Trader's Almanac featured a study by Merrill Lynch. The study showed that buying aerospace, agriculture, air conditioning, eastern railroads, fire/casualty insurance, machine tools, and meatpacking sectors around September or October, and selling in the first few months of 1954-1964 years gained more that triple the profit than holding them for ten years. Years later, Jon D. Markman, senior investment strategist and portfolio manager at Pinnacle Investment Advisors, took some of Merrill Lynch's findings a step further, looking at various sectors and even some major market averages, in search of seasonal patterns. Today's article focus is the seasonal tendency for the Russell 2000 Index ($RUT.X) to gain 12.9% from November through May. Some investors/traders do not believe that BULLISH history can be used to profit in the FUTURE. Some reasons for not believing that past BULLISH history will be duplicated in the future are as follows. Times are different now. Things are worse today than they were in the past. The deficit is too large. Interest rates are too high. It's an election year. Terrorism is too much of a threat. We're at war. I agree. Things are different today, this week, this month, this year, this decade. Some things are better. Some things are worse. In the following weekly interval chart of the Russell 2000 Index (RUT.X), I'm going to look at the last four years of trade history for the Russell 2000 Index. Here are some things I thought of as major events the past four years. November 2000: George W. Bush was elected President of the United States of America. January 2001: George W. Bush takes the oath of office to become the 43rd President of the United States of America. March 2001: Many economists believe the world's largest economy sank into a recession, ending 10 years of growth that was the longest expansion on record in the United States. September 2001: Terrorists attacked various targets in the United States of America. March 2003: United States and coalition forces attack Iraq. There are other events that we could consider major. The Enron scandal, corporate distrust. For some investors, any one of the above dates, may have been a good reason NOT to try and profit from a BULLISH historical tendency. In the following chart, I will outline a BULLISH trade for the Russell 2000 Index ($RUT.X). Things are different today than they were in 1968 when the Stock Trader's Almanac featured Merrill Lynch's study. Today we have computerized bar charts, with moving averages, oscillators and retracement brackets. Trade outline for conservative bull: Should the Russell 2000 Index (RUT.X) 583.79 close above 600.00 on a Friday, place an order to buy at the open the following Monday. Target a 12.9% gain to 659 before June 1, 2005. Russell 2000 Index ($RUT.X) Chart - Weekly Intervals A weekly interval bar chart allows us to look at the past four years of trade. Horizontal PINK lines extend from the first trading day of November and extend to the last day of trading in May. BLUE retracement brackets are anchored at the approximate closing value for the last day of trade in October and have been extended higher to reflect a 12.9% gain from the October close. Starting from the left of the chart (first BLUE retracement), many economists believe the economy was slipping toward recession, where many economists now believe an official recession began in March 2001. The Russell-2000 Index (RUT.X) opened November's trade at 498, and close at 496 on May 31, 2001. The historical average gain of 12.9% was never challenged. A peak decline of 16% was found instead. Important technical observations Nov. 2000 to May 2001: Weekly MACD oscillator was bearish with MACD below its Signal (red line). As time passed, MACD fell below its zero level, suggesting further bearishness. I looked closely, and the RUT.X NEVER showed a FRIDAY close above its 19.1% retracement of 510.00. Had a trader/investor waited to enter a bullish trade on MONDAY, after a FRIDAY close above that 19.1% retracement level, a bullish trade would NEVER have been initiated. (see earlier trade setup for a November 2004-May 2005 seasonal play). Let's move to the Nov. 2001-May 2002 period, just after terrorists attacked targets in the U.S.. Important technical observations Nov. 2001-May 2002: November trade opens at the 428 level. MACD is below Signal at beginning of the month, and MACD is below the zero level. Bullish caution is advised under this oscillator setup. Three weeks later, MACD crosses above Signal, suggest some resumption of strength. The SECOND weekly bar closes decimals BELOW its 19.1% retracement of 439. The THIRD weekly bar closes ABOVE its 38.2% retracement of 449. The RUT.X trades, then exceeds a historical 12.9% average gain if taken from its October close of 428 on April 17, when the RUT.X traded an intra-day high of 523. The RUT.X closed at 487 on May 31, 2002, a 13.7% gain from its October 2001 close. Let's move to the Nov. 2002-May 2003 period. The U.S. is at war in Iraq. Russell 2000 Index ($RUT.X) Chart - Weekly Intervals Important technical observations Nov. 2002-May 2003: WEEKLY MACD oscillator was cautiously bullish, where MACD was above its Signal, but still below zero. On Friday, November 1, 2002, the RUT.X saw a close ABOVE its 19.1% retracement of 382. Prior to achieving a historical average gain of 12.9%, the RUT.X rose to 412, but then fell as low as 343, an 8% decline from its October close as U.S. and coalition forces liberated Iraq. MACD wavered at its Signal. A weekly "doji" was found at that pullback, resolution was to the upside, and the RUT.X went on to achieve its historical average gain of 12.9%. On Friday, May 30, 2003, the RUT.X closed at 441, a 17.9% gain from its October close of 374. Note the strength of the move as MACD rises above its zero level. Let's move to the Nov. 2003-May 2004 period. The U.S. is at war in Iraq. Important technical observations Nov. 2003-May 2004: The RUT.X has surged roughly 173 points, or 48% since a weekly "doji" was formed as U.S. and coalition forces attempts to liberate Iraq. MACD is above zero, but wavering at Signal. On Friday, November 7, the RUT.X closes ABOVE its 19.1% retracement at 543. On Monday morning a bullish order would have been placed at the open of 543. The RUT.X proceeded to fall to a relative low of 520 over the course of the next 7 sessions, but rebounds strong from its rising 50-day SMA (10-week SMA). The RUT.X barely exceeds its historical 12.9% average seasonal gain to 596. On Friday May 28, 2004, the RUT.X closes at 568, a 7.5% gain from its October 2003 close of 528. Let's move to Nov. 2004-May 2005 period. The U.S. is at war in Iraq. U.S. Election Day is Tuesday, November 2, 2004. Important technical observations Nov. 2004-May 2005: Seven (7) weeks ago, MACD moved above its Signal. Six (6) weeks ago, MACD moved above its zero level, and this oscillator suggests bullishness building. As of Friday's close (10/29/04) the RUT.X's 50-day SMA is rising at 568, but still just below its 200-day SMA of 570. A FRIDAY CLOSE above the 600 level could begin to suggest seasonal bullish tendencies unfolding, where a historical gain of 12.9% on average could have the RUT.X trading 659 on or before May 31, 2005. It is getting very late and deadline for this column is fast approaching. The historical bullish seasonal trade for the RUT.X is at our doorstep. I wanted to cover the possibility of a Russell-2000 Growth Index ($RUO.X) versus a Russell-2000 Value Index ($RUJ.X), whereby analyzing relative strength, we might look to "outperform," the more blended Russell 2000 Index, by selecting a "growth" or "value" strategy. I'm going to quickly show you that "value" has been the stronger play among the small cap Russell 2000 longer-term as depicted by the 200-day SMA, but there is some sign that "growth" is starting to outperform. The following chart is a weekly interval chart, where I compare the RELATIVE STRENGTH of the Russell 2000 Value Index ($RUJ.X) versus the Russell 2000 Index ($RUT.X), which is a composition of "growth" and "value." If you never believed that "value" could outperform "growth," you'd better find a sturdy chair and sit down. Relative Strength Chart of Russ. Value vs. Russell 2000 I marked the beginning of a seasonal bullish period with GREEN bars and the end of the seasonal period with PINK bars. The four (4) periods covered are the same periods discussed above. It was the Nov. 2000 to May 2001 period where the Russell 2000 Index (RUT.X) had some "trouble" and didn't come close to performing up to its historically seasonal bullish average gain of 12.9%. But look at the above relative strength chart, where the Russell 2000 Value Index ($RUJ.X) showed some impressive relative strength. I was sitting down, luckily. I went back and checked the bar chart of the $RUJ.X and this bugger rose an incredible 15% from its October 2000 close of 535 to its May 31, 2001 close of 620. I didn't know this until I was writing this column. I'm amazed! In the past four (4) seasons, value has outperformed growth 3 of the 4 times. Now I want to focus on Nov. 2002 to May 2003 period. That's when the U.S. was just beginning war in Iraq. During this season, value underperformed growth. Not by a lot, but it was probably more profitable over the entire season to have been positioned in growth. As I study that period closer, because it showed DIVERGENCE from the past, I see some SIMILARITY developing as the 2004-2005 season begins. The SIMILARITY is only due to the relative strength slipping below its intermediate-term 10-week SMA (50-day SMA). Now, the Stock Trader's Almanac does not discuss any type of seasonal average return for "value" or "growth" as it relates to the Russell 2000, but I would think a trader/investor could follow the same technical analysis use above, to derive a bullish entry point. A SIMPLER way would be to forget about trying to derive an action point, but leg into (dollar cost average) a bullish position. I (Jeff Bailey) would wait until after the U.S. elections, just to try and make sure we don't get stuck in a "voter recount" for a couple of weeks, which might create some uncertainty in the markets. I outlined a strategy whereby a trader that has $10,000 of capital (round number as an example, $1,000 is fine too) might take $2,500 (1/4 of $10,000) or $5,000 (1/2 of $10,000) and buy "growth" to begin with. An options trader may buy just 1 call option in the Russell 2000 Growth Index ($RUO.X) 301.45 to begin with. Then sit back and wait a week or two, see how things go, but use the above 4-year analysis as a helpful guide. Equity traders/investors!!!! Remember the June 15, 2003 Ask the Analyst column titled "Sector/Index trading with HOLDRs and iShares." Those looking to play a seasonal bullish trend in the Russell 2000 will look at the Russell 2000 Index Fund (AMEX:IWM) $116.19. Those looking to implement relative strength analysis will find the Russell 2000 Growth Index (AMEX:IWO) $60.00 or the Russell 2000 Value Index (AMEX:IWN) $174.20 useful securities. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- *This is not a complete list. We only try and highlight the more significant earnings reports. Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- ABMD ABIOMED Inc. Mon, Nov 01 Before the bell -0.03 ACDO Accredo Health Mon, Nov 01 Before the bell 0.36 ASF Administaff Mon, Nov 01 Before the bell 0.11 AGN Allergan Mon, Nov 01 ----- n/a ----- n/a ALO Alpharma Mon, Nov 01 After the market n/a AVNX Avanex Corp. Mon, Nov 01 After the market -0.15 CHK Chesapeake Energy Mon, Nov 01 After the market 0.30 NNN Comm. Net Lease Rlty Mon, Nov 01 Before the bell 0.36 CTV CommScope Mon, Nov 01 After the market 0.20 DADE Dade Behring Mon, Nov 01 Before the bell 0.36 DECA Decoma Intl Mon, Nov 01 After the market 0.15 DRCT Direct General Mon, Nov 01 After the market 0.62 ETM Entercom Comm. Mon, Nov 01 Before the bell 0.40 FFG FBL Financial Grp Mon, Nov 01 After the market 0.45 FWHT FindWhat.com Mon, Nov 01 After the market 0.14 FHCC First Health Mon, Nov 01 ----- n/a ----- 0.32 HUM Humana Inc. Mon, Nov 01 After the market 0.44 IVX Ivax Mon, Nov 01 Before the bell 0.21 KRON Kronos Inc Mon, Nov 01 After the market 0.50 LZ Lubrizol Mon, Nov 01 Before the bell 0.75 MVSN Macrovision Mon, Nov 01 After the market 0.19 MECA Magna Entertainment Mon, Nov 01 After the market n/a MLM Martin Marietta Mat. Mon, Nov 01 Before the bell 1.02 MXIM Maxim Integrated Pr. Mon, Nov 01 After the market 0.42 MNT Mentor Mon, Nov 01 After the market 0.28 MTLM Metal Mngmt Mon, Nov 01 Before the bell 0.72 NAVI Navisite Mon, Nov 01 ----- n/a ----- n/a NBIX Neurocrine Biosci. Mon, Nov 01 After the market -0.39 CHUX O'Charleys Inc Mon, Nov 01 Before the bell 0.20 ORBK Orbotech Mon, Nov 01 Before the bell 0.29 PAAS Pan American Silver Mon, Nov 01 Before the bell 0.03 PDLI Protein Design Labs Mon, Nov 01 After the market -0.21 RUBO Rubios Restaurants Mon, Nov 01 After the market 0.15 SCLN Scicline Pharma Mon, Nov 01 Before the bell -0.11 SGMS Scientific Games Mon, Nov 01 After the market 0.21 SPW SPX Corp Mon, Nov 01 Before the bell 0.89 SWC Stillwater Mining Mon, Nov 01 ----- n/a ----- 0.24 SYY Sysco Corp Mon, Nov 01 Before the bell 0.35 TLM Talisman Energy Mon, Nov 01 ----- n/a ----- 0.40 XL XL Capital Ltd Mon, Nov 01 After the market -0.53 ------------------------- TUESDAY ------------------------------ CTAC 1-800 Contacts, Inc. Tue, Nov 02 After the market n/a AETH Aether Systems Inc. Tue, Nov 02 After the market n/a ABC AmeriSource Bergen Tue, Nov 02 Before the bell 0.77 AMLN Amylin Pharma. Tue, Nov 02 Before the bell -0.39 BMC BMC Software Tue, Nov 02 Before the bell 0.14 CDIS Cal Dive Intl Tue, Nov 02 After the market 0.49 CERG Ceres Group Tue, Nov 02 After the market 0.14 CLX Clorox Tue, Nov 02 Before the bell 0.54 CCRT CompuCredit Tue, Nov 02 After the market 0.51 EMR Emerson Electric Tue, Nov 02 Before the bell 0.79 EXPD Expeditors Intl Tue, Nov 02 Before the bell 0.39 IGT Intl. Game Tech. Tue, Nov 02 Before the bell 0.33 ITRI Itron, Inc. Tue, Nov 02 After the market 0.28 LAF Lafarge N. America Tue, Nov 02 After the market 2.12 LNC Lincoln National Tue, Nov 02 After the market 0.94 MAS Masco Tue, Nov 02 Before the bell 0.63 MBI MBIA Inc. Tue, Nov 02 Before the bell 1.32 NBL Noble Energy Tue, Nov 02 Before the bell 1.13 OII Oceaneering Intl Tue, Nov 02 After the market 0.49 PZZA Papa John's Intl Tue, Nov 02 After the market 0.50 PER Perot Systems Tue, Nov 02 Before the bell 0.22 PLA Playboy Enterprises Tue, Nov 02 Before the bell 0.04 PCLN Priceline.com Tue, Nov 02 After the market 0.27 PRU Prudential Tue, Nov 02 After the market 0.77 HOOK Redhook Ale Brewery Tue, Nov 02 After the market n/a RKT Rock-Tenn Co Tue, Nov 02 Before the bell 0.27 RYAAY Ryanair Holdings Tue, Nov 02 During the market n/a THC Tenet Healthcare Tue, Nov 02 Before the bell -0.05 WEC Wisconsin Energy Tue, Nov 02 Before the bell 0.44 ------------------------ WEDNESDAY ----------------------------- AAP Advance Auto Parts Wed, Nov 03 After the market 0.68 DOX Amdocs Ltd Wed, Nov 03 After the market 0.30 ADRX Andrx Corp Wed, Nov 03 ----- n/a ----- 0.31 BLDP Ballard Power Wed, Nov 03 ----- n/a ----- -0.33 BNT Bentley Pharma. Wed, Nov 03 Before the bell 0.07 BJS BJ Services Co Wed, Nov 03 ----- n/a ----- 0.55 SAM Boston Beer Co Wed, Nov 03 During the market 0.24 BOBJ Business Objects Wed, Nov 03 After the market 0.18 CNQ Canadian Nat. Resrc. Wed, Nov 03 Before the bell 0.69 CPC Central Parking Wed, Nov 03 ----- n/a ----- -0.03 CEPH Cephalon Inc. Wed, Nov 03 After the market 0.67 CI Cigna Wed, Nov 03 Before the bell 1.36 DVA DaVita Wed, Nov 03 Before the bell 0.52 DF Dean Foods Wed, Nov 03 Before the bell 0.45 DUK Duke Energy Wed, Nov 03 Before the bell 0.38 EDMC Education Mgmt Corp Wed, Nov 03 After the market 0.08 EDS Electronic Data Sys Wed, Nov 03 After the market 0.08 ESRX Express Scripts Wed, Nov 03 After the market 0.98 FSH Fisher Scientific Wed, Nov 03 After the market 0.74 IACI InterActiveCorp Wed, Nov 03 Before the bell 0.21 JUPM Jupiter Media Wed, Nov 03 After the market 0.12 KOSP Kos Pharmaceuticals Wed, Nov 03 Before the bell 0.74 NTES Netease.com Wed, Nov 03 After the market 0.36 NICE NICE Systems Wed, Nov 03 Before the bell 0.26 PHS PacifiCare Health Wed, Nov 03 Before the bell 0.87 PDII PDI, Inc. Wed, Nov 03 After the market 0.33 RL Polo Ralph Lauren Wed, Nov 03 Before the bell 0.73 QCOM Qualcomm Inc. Wed, Nov 03 After the market 0.29 RAH Ralcorp Holdings Wed, Nov 03 ----- n/a ----- 0.39 COL Rockwell Collins Wed, Nov 03 Before the bell 0.45 SONS Sonus Networks Wed, Nov 03 After the market 0.02 TTEC TeleTech Holdings Wed, Nov 03 After the market 0.07 BCO The Brink's Co Wed, Nov 03 Before the bell 0.41 EL The Estee Lauder Co Wed, Nov 03 Before the bell 0.37 PMI The PMI Group Wed, Nov 03 Before the bell 1.00 TWX Time Warner Inc. Wed, Nov 03 Before the bell 0.14 TWTC Time Warner Telecom Wed, Nov 03 After the market -0.27 TOM Tommy Hilfiger Wed, Nov 03 ----- n/a ----- 0.66 UNM UnumProvident Corp. Wed, Nov 03 After the market 0.41 VARI Varian Inc. Wed, Nov 03 After the market 0.46 VSH Vishay Intertech. Wed, Nov 03 Before the bell 0.14 WTW Weight Watchers Intl Wed, Nov 03 After the market 0.40 WWCA Western Wireless Wed, Nov 03 ----- n/a ----- 0.53 UBET Youbet.com Wed, Nov 03 After the market 0.03 ------------------------- THUSDAY ----------------------------- TFSM 24/7 Real Media Thr, Nov 04 After the market 0.00 AL Alcan Inc. Thr, Nov 04 ----- n/a ----- 0.69 AMSC American Supercond. Thr, Nov 04 Before the bell -0.21 ANPI Angiotech Pharma. Thr, Nov 04 After the market 0.26 ATAR Atari Inc. Thr, Nov 04 After the market -0.19 BRL Barr Pharmaceuticals Thr, Nov 04 Before the bell 0.49 BE BearingPoint, Inc. Thr, Nov 04 Before the bell 0.06 BDX Becton Dickinson Co Thr, Nov 04 Before the bell 0.68 BVF Biovail Corp. Thr, Nov 04 ----- n/a ----- 0.37 BRKS Brooks Automation Thr, Nov 04 ----- n/a ----- 0.31 CPN Calpine Corp Thr, Nov 04 Before the bell 0.17 CHINA Chinadotcom Thr, Nov 04 Before the bell 0.05 CQB Chiquita Brands Intl Thr, Nov 04 After the market 0.34 CNXT Conexant Systems Thr, Nov 04 ----- n/a ----- -0.02 CSR Credit Suisse Group Thr, Nov 04 Before the bell n/a CMLS Cumulus Media Thr, Nov 04 Before the bell 0.13 CVX CVS Corp Thr, Nov 04 Before the bell 0.41 DTE DTE Energy Thr, Nov 04 After the market 0.59 EELN E-Loan Thr, Nov 04 ----- n/a ----- 0.00 RDEN Elizabeth Arden Thr, Nov 04 ----- n/a ----- 0.13 ENZN Enzon Pharma. Thr, Nov 04 After the market 0.02 ESPD eSpeed, Inc. Thr, Nov 04 After the market 0.10 FS Four Seasons Hotels Thr, Nov 04 Before the bell 0.29 HANS Hansen Natural Thr, Nov 04 ----- n/a ----- n/a HIG Hartford Financial Thr, Nov 04 After the market 0.69 THX Houston Exploration Thr, Nov 04 Before the bell 1.49 ICOS ICOS Corp Thr, Nov 04 ----- n/a ----- -0.56 IMGN Immunogen Inc. Thr, Nov 04 After the market -0.07 KCS KCS Energy Thr, Nov 04 ----- n/a ----- 0.37 MGA Magna Intl. Inc. Thr, Nov 04 ----- n/a ----- 1.31 MFC Manulife Financial Thr, Nov 04 After the market 0.72 MOVI Movie Gallery Inc. Thr, Nov 04 Before the bell 0.29 GAS Nicor Inc. Thr, Nov 04 After the market 0.06 NVDA NVIDIA Corp. Thr, Nov 04 ----- n/a ----- 0.09 PGN Progress Energy Thr, Nov 04 Before the bell 1.05 PSA Public Storage Thr, Nov 04 ----- n/a ----- 0.76 Q Qwest Communications Thr, Nov 04 Before the bell -0.15 ROK Rockwell Automation Thr, Nov 04 Before the bell 0.49 SBGI Sinclair Broadcast Thr, Nov 04 Before the bell 0.00 TSO Tesoro Petroleum Thr, Nov 04 ----- n/a ----- 1.22 TEVA Teva Pharmaceutical Thr, Nov 04 Before the bell 0.35 TRW TRW Auto Thr, Nov 04 Before the bell 0.12 UVN Univision Comm. Thr, Nov 04 After the market 0.20 VCLK ValueClick, Inc. Thr, Nov 04 After the market 0.06 HLTH WebMD Thr, Nov 04 After the market 0.10 OATS Wild Oats Markets Thr, Nov 04 ----- n/a ----- -0.11 XMSR XM Satellite Radio Thr, Nov 04 ----- n/a ----- -0.65 ------------------------- FRIDAY ------------------------------- BZH Beazer Homes USA Inc Fri, Nov 05 Before the bell 5.49 BRKa Berkshire Hathaway Fri, Nov 05 ----- n/a ----- 748.50 WGR Western Gas Resource Fri, Nov 05 Before the bell 0.38 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable 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 are still announcing at a steady pace but the real focus this week will be the Tuesday Presidential Election. The beginning of a new month also brings a parade of economic data. Watch for the ISM indices, vehicle sales, same-store sale, and on Friday will be the non-farm payrolls report. ============================================================== -For- ---------------- Monday, 11/01/04 ---------------- ISM manufacturing index for October Last: 58.5 Est: 58.0 Personal Income for September Pesonal Spending for September Construction spending for September ----------------- Tuesday, 11/02/04 ----------------- U.S. Presidential Election Challenger corporate Layoffs report for October ------------------- Wednesday, 11/03/04 ------------------- ISM Services index for October Last: 56.7 Est: 58.3 Factory Orders for September Auto Sales for October Truck Sales for October ------------------ Thursday, 11/04/04 ------------------ Weekly Initial Jobless Claims Q3 Productivity report (preliminary reading) Chain store comparable/same-store sales numbers ---------------- Friday, 11/05/04 ---------------- Non-farm Payrolls (Jobs) for Oct. Last: +96K Est: +175K Unemployment rate for October. Last: 5.4% Hourly Earnings for October Average work week for October Consumer Credit for September ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. 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The Option Investor Newsletter Sunday 10-31-2004 Sunday 2 of 5 In Section Two: Watch List: SLB, PD, LTR, VIP Dropped Calls: None Dropped Puts: None ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** Watch List ********** Miners to Oil services and more! ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** Phelps Dodge - PD - close: 87.54 change: +2.85 WHAT TO WATCH: Material stocks took a hit mid-week on concerns that China's economy would slow down too fast and its demand for commodities would ease. The concern didn't last long. Copper prices soared on Friday and shares of PD added 3.3 percent. The daily MACD indicator on PD's chart is nearing a new buy signal. We would watch for a break into the gap or a breakout over round- number resistance at the $90.00 mark. The P&F chart remains bullish with a $138 target. Chart= --- Schlumberger Ltd - SLB - close: 62.94 change: +0.89 WHAT TO WATCH: We mentioned SLB before. The oil service stock has seen some serious profit taking after peaking near $70 about three weeks ago. Now shares are testing the simple 200-dma and its long-term trendline of support dating back to April 2003. The pattern suggests we should go long now but that takes more faith than we have at the moment. We will be watching for a bounce and consider a move over $63.50-64.00 as a potential entry point. Chart= --- Loews Corp - LTR - close: 59.90 change: +0.41 WHAT TO WATCH: This diversified conglomerate has its hands in several industries but it's main business is insurance. The rebound from the exponential 200-dma looks pretty strong but shares are still stuck under round-number resistance at $60.00. There is more resistance near $63.00 but we'd consider going long on a breakout over $60. A move over $60 would reverse its P&F chart back into a buy signal. Chart= --- Vimpel Communications - VIP - close: 114.00 change: +2.50 WHAT TO WATCH: Once again we strongly considered adding VIP to the play list this weekend as a bullish candidate. The stock's recent breakout back over the $110 level and breaking its short- term trend of lower highs looks tempting. Short-term technicals are strongly bullish and its MACD is nearing a new buy signal. Consider using a trigger over $115. The P&F chart only points to $120 but we would probably target $125. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- ASH $57.62 +0.97 - ASH isn't the fastest moving stock but the up trend looks consistent. It's MACD is in a new buy signal and its P&F chart points to a $70 target. TARO $26.57 +1.76 - TARO still looks tempting with the bounce from $24.00. Volume has been pretty strong the last few days. WWY $65.40 +0.33 - WWY continues to rally after breaking out over resistance at the $64.00 mark. MTB $103.00 +0.50 - Wow! MTB is now up five days in a row. Looks like we had our stop too tight. We'll watch for a dip. ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ None PUTS ^^^^ None *********** DEFINITIONS *********** OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 10-31-2004 Sunday 3 of 5 In Section Three: Current Calls: DHR, FDX, GS, IBM, ITW, LEH, SBUX New Calls: ITT Current Puts: APOL New Puts: None ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ****************** CURRENT CALL PLAYS ****************** Danaher - DHR - close: 55.13 change: +0.39 stop: 51.99 Company Description: Danaher, a leading industrial company, designs, manufactures and markets innovative products, services and technologies with strong brand names and significant market positions. (source: company press release) Why We Like It: DHR finished out a relatively strong week. The stock posted gains four out of the last five days. The current up trend and pattern of higher lows is still very much intact. Volume on Friday was above average as the stock broke out over resistance at the $55 level to close at new all-time highs. The P&F chart remains bullish. Short-term technicals remain bullish. Everything appears to be flashing the green light for DHR. We are still targeting a move to $60.00. If shares do dip we'll look for a bounce in the $53-54 level. No change in our stop loss at $51.99. Suggested Options: Short-term traders can choose the Novembers, Decembers or January calls. We're going to suggest the Decembers and January strikes. BUY CALL DEC 50 DHR-LJ OI= 832 current ask $5.80 BUY CALL DEC 55 DHR-LK OI=1558 current ask $2.00 BUY CALL DEC 60 DHR-LL OI= 0 current ask $0.35 BUY CALL JAN 55 DHR-AK OI=2835 current ask $2.55 BUY CALL JAN 60 DHR-AL OI= 178 current ask $0.65 Annotated chart: Picked on October 27 at $54.99 Change since picked: + 0.14 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.3 million Chart = --- Fedex Corp - FDX - close: 91.12 change: +0.57 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: It was a strong week for transportation stocks. The ten percent pull back in crude oil helped propel the already strong Dow Transportation index to new five-year highs over resistance in the 3400-3430 range. FDX was helping lead the pack. Shares of FDX rose four days in a row, broke out over round-number, psychological resistance at the $90.00 mark to close at new all- time highs. The technicals remain very bullish and its MACD is strengthening its new buy signal. The P&F chart remains in its bullish catapult breakout with a $97 target. Our target is the $100 level. Plus, we suspect FDX could announced a 2-for-1 split at any time and the odds only rise for a split announcement as the stock nears triple digits. It last split 2:1 in May of 1999. FYI: You may have noticed that all of the suggested options below have risen sharply from last week with gains of +50 percent to more than 100 percent. We still think this is a bullish opportunity at current levels. 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=1646 current ask $6.50 BUY CALL NOV 90 FDX-KR OI=5073 current ask $2.45 BUY CALL NOV 95 FDX-KS OI=1418 current ask $0.45 BUY CALL DEC 85 FDX-LQ OI= 150 current ask $7.10 BUY CALL DEC 90 FDX-LR OI= 863 current ask $3.40 BUY CALL DEC 95 FDX-LS OI= 306 current ask $1.15 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 = --- Goldman Sachs - GS - close: 98.38 change: +0.95 stop: 93.00*new* Company Description: Goldman Sachs is a leading global investment banking, securities and investment management firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world. (source: company press release) Why We Like It: This past week was also a very strong one for the broker-dealers. The XBD index confidently broke out over resistance at the 130 level and its simple 200-dma above that. While the XBD paused a bit on Friday to digest some of its gains shares of GS did not. The stock (GS) is now up four days in a row after its strong bounce from the $91 level and its simple 100-dma. We're very encouraged by the follow through on its breakout over resistance at $96 and the simple 200-dma. Short-term technicals look very strong and its MACD is now two days into a new buy signal. The P&F chart looks strong with an ascending triple-top breakout buy signal and a $114 price target. We are currently targeting a move to the $105 level but short-term traders may want to consider taking some profits at the $100 mark, which is likely to be short-term, round-number, psychological resistance. Given the strong rebound GS does look a little bit overbought. If you're patient one could wait for a potential dip and bounce from the $96 level, which should now be support. We're going to raise our stop loss to $93.00. FYI: Many of the suggested options below have already seen significant gains since we added GS. We still believe this is a bullish opportunity. Suggested Options: Short-term traders can use the November, December or January calls. We're going to suggest the Decembers and Januarys. BUY CALL DEC 90 GS-LR OI=1546 current ask $9.30 BUY CALL DEC 95 GS-LS OI=3115 current ask $5.20 BUY CALL DEC 100 GS-LT OI=6826 current ask $2.15 BUY CALL JAN 95 GS-AS OI=14228 current ask $6.10 BUY CALL JAN 100 GS-AT OI=25517 current ask $3.00 BUY CALL JAN 105 GS-AA OI=14577 current ask $1.20 Annotated chart: Picked on October 27 at $96.10 Change since picked: + 2.28 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 3.2 million Chart = --- Intl Business Mach. - IBM - close: 89.75 chg: +0.25 stop: 86.00 Company Description: IBM is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. Drawing on resources from across IBM and IBM Business partners, IBM offers a wide range of services, solutions and technologies that enable customers, large and small, to take full advantage of the new era of e-business. (source: company press release) Why We Like It: Bulls certainly can't complain about IBM's past week. The stock is up four out of the last five days. If there is anything to complain about it's the tug-of-war going on at the stock's current 200-dma. Wednesday IBM broke out above this technical level. Thursday is dropped back below. Friday it rebounded above it again. We remain bullish. IBM is merely digesting some of its gains as it builds up steam to really breakout over the $90 level. Short-term technicals remain positive. It's P&F chart shows a bullish catapult breakout with a $97 target. Our six to eight week target is the $100 level. We might suggest that more conservative traders wait for IBM to make a more significant breakout over the $90 mark. Suggested Options: Traders can choose from the Novembers, Decembers and January strikes. We're going to suggest the December and January calls. BUY CALL DEC 85 IBM-LQ OI= 5078 current ask $5.50 BUY CALL DEC 90 IBM-LR OI= 7021 current ask $2.10 BUY CALL DEC 95 IBM-LS OI= 5150 current ask $0.55 BUY CALL DEC100 IBM-LT OI= 1192 current ask $0.15-not suggested BUY CALL JAN 85 IBM-AQ OI=13482 current ask $6.20 BUY CALL JAN 90 IBM-AR OI=40608 current ask $2.90 BUY CALL JAN 95 IBM-AS OI=25154 current ask $1.00 BUY CALL JAN100 IBM-AS OI=36253 current ask $0.40-not suggested Annotated chart: Picked on October 27 at $90.00 Change since picked: - 0.25 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 4.7 million Chart = --- Illinois Tool Works - ITW - close: 92.28 chg: +1.19 stop: 87.50 Company Description: ITW is a $10 billion in revenues diversified manufacturer of highly engineered components and industrial systems and consumables. The Company consists of approximately 625 decentralized operations in 44 countries and employs some 47,500 people. (source: company press release) Why We Like It: Good news for ITW bulls. The stock has not missed a beat. Shares dipped to the bottom of its trading range last week and began to rebound. Now ITW is up five days in a row with a near perfect rebound. Friday's 1.3 percent gain was important because it cleared minor resistance at $92 and a cloud of minor moving averages. Short-term technicals remain strong and its MACD indicator just produced a fresh buy signal. Of course now that ITW is up five days in a row it's probably time to look for a little profit taking. Nothing moves in a straight line. If shares dip we'll look for a bounce from $91 or $90. We continue to target the top of the trading range near $96. FYI: ITW's Boad of Directors just announced a quarterly cash dividend of 28 cents per share payable on Monday, January 24th, 2005 to shareholders on record December 31st, 2004. Suggested Options: We are going to suggest the December or January calls. BUY CALL DEC 85 ITW-LQ OI= 98 current ask $8.30 BUY CALL DEC 90 ITW-LR OI=977 current ask $4.30 BUY CALL DEC 95 ITW-LS OI=694 current ask $1.55 BUY CALL JAN 85 ITW-AQ OI=3316 current ask $8.70 BUY CALL JAN 90 ITW-AR OI= 403 current ask $4.90 BUY CALL JAN 95 ITW-AS OI= 556 current ask $2.25 Annotated chart: Picked on October 27 at $90.89 Change since picked: + 1.39 Earnings Date 10/19/04 (confirmed) Average Daily Volume = 1.2 million Chart = --- Lehman Brothers - LEH - close: 82.15 chg: -0.20 stop: 77.25 Company Description: Lehman Brothers, an innovator in global finance, serves the financial needs of corporations, governments and municipalities, institutional clients, and high-net-worth individuals worldwide. Founded in 1850, Lehman Brothers maintains leadership positions in equity and fixed income sales, trading and research, investment banking, private equity and wealth and asset management services. The Firm is headquartered in New York, with regional headquarters in London and Tokyo and operates in a network of offices around the world. (source: company press release) Why We Like It: The rebound has now reached new relative highs. We initially added LEH for its relative strength, the strength in the broker- dealer sector, and LEH's bounce from a 38.2 percent Fibonnaci retracement of the August to October rally. The breakout over round-number resistance at $80.00 has now lead to a breakout over minor resistance at $82 and new six-month highs. Short-term technicals look strong and its MACD just produced a new buy signal. We remain bullish but LEH is arguably short-term overbought. If shares dip look for a bounce from $80. Our short-term target remains $85 but we main keep the play open given its relative strength. In the news Lehman Brothers agreed to pay a $222.5 million settlement to the University of California. The move was a remedy for alleged fraudulent misrepresentations of Enron's stock and bonds that LEH sold to the University. As is normally the case LEH was not actually charged with fraud. Suggested Options: Short-term traders can choose from Novembers, Decembers and January strikes. We're going to suggest the Decembers. BUY CALL DEC 75 LES-LO OI=108 current ask $8.00 BUY CALL DEC 80 LES-LP OI=785 current ask $4.20 BUY CALL DEC 85 LES-LQ OI=982 current ask $1.60 Annotated chart: Picked on October 26 at $80.60 Change since picked: + 1.55 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 2.0 million Chart = --- Starbucks - SBUX - close: 52.88 chg: +0.03 stop: 47.95 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: We certainly have nothing to complain about here with SBUX. Our momentum play actually seems to be picking up speed. A few days ago shares tested the simple 10-dma and rebounded. This should remain SBUX's first line of defense. Below that will be round- number, psychological support at the $50.00 mark. As we suggested on Thursday our only real risk here is a broker downgrade on valuation. The stock is above the median price target of $50. We continue to target the $54-55 range. 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= 889 current ask $8.00 BUY CALL NOV 47.50 SQX-KT OI=3386 current ask $5.70 BUY CALL NOV 50.00 SQX-KJ OI=4753 current ask $3.40 Annotated Chart: Picked on October 17 at $49.47 Change since picked: + 3.41 Earnings Date 11/10/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************** NEW CALL PLAYS ************** ITT Industries - ITT - close: 81.14 chg: +0.73 stop: 77.50 Company Description: ITT Industries, Inc. is a $6 billion global multi-industry company based in White Plains, NY. ITT supplies advanced technology products and services in key markets including: fluid and water management including water treatment; defense communication, opto-electronics, information technology and services; electronic interconnects and switches; and other specialty products. (source: company press release) Why We Like It: If the markets are going to produce a post-election rally then this diversified conglomerate should follow. The stock has been consolidating sideways for the last few months but the trend of higher lows suggests it's coiling for another bullish breakout. We also like how the lows are bouncing from (or near) the simple and exponential 200-dma's. Currently ITT is testing resistance near the $81.40-81.50 region. We see the same pattern on the P&F chart, which is bullish with a $92 target. However, if ITT can trade over the $82.00 mark it would produce a new triple-top breakout buy signal. We are going jump in a bit early and use a TRIGGER at $81.51. Only if ITT trades at or above our entry point will we go long. If triggered we'll use an initial stop loss near the exponential 200-dma at $77.50. The next level of resistance beyond $81.50 will be the $86 region. Suggested Options: Traders can choose the November, December or January calls but we're going to suggest the January strikes. BUY CALL JAN 80 ITT-AP OI= 783 current ask $3.70 BUY CALL JAN 85 ITT-AQ OI=1351 current ask $1.35 Annotated chart: Picked on November xx at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 460 thousand Chart = ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************** CURRENT PUT PLAYS ***************** Apollo Group - APOL - close: 66.00 chg: -1.17 stop: 71.01 *new* 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: Our bearish play in APOL is right on track. The stock gapped down last Tuesday, consolidated sideways for a couple of days and closed at a new low for the year on Friday. The lack of participation in this past week's market rally is very encouraging. Short-term technicals continue to look bearish and its MACD has rolled over into another sell signal. As a relative strength loser we do not think it's too late to open new bearish positions. Our target remains the $60 region. We are going to lower our stop loss to $71.01. APOL should find overhead resistance at $68.50 and again at $70.00. FYI: Traders who entered this play early may want to consider taking some money off the table since some of the suggested November puts have doubled in value. 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=3538 current ask $9.40 BUY PUT NOV 70 OAQ-WN OI=6950 current ask $5.20 BUY PUT NOV 65 OAQ-WM OI=5454 current ask $2.35 BUY PUT JAN 75 OAQ-MO OI=2124 current ask $10.50 BUY PUT JAN 70 OAQ-MN OI=3553 current ask $ 7.00 BUY PUT JAN 65 OAQ-MM OI=1385 current ask $ 4.40 BUY PUT JAN 60 OAQ-ML OI=1481 current ask $ 2.60 Annotated Chart: Picked on October 10 at $69.81 Change since picked: - 4.23 Earnings Date 10/05/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 10-31-2004 Sunday 4 of 5 In Section Four: Leaps: Did You Get Some? Spreads and Straddles: It's That Time Of Year Again ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***** LEAPS ***** Did You Get Some? Last week I suggested picking up any new positions you did not already have as the indexes slipped to their lows before the election. Monday provided a very good buying opportunity just before the blast off began. The trick question for today is will that rally hold? Historically there is a strong precedent for a continued move higher in Nov/Dec but once a trend becomes well established it becomes a target for the trend breakers. They will have their work cut out for them this year with all the signs pointing toward a bullish fourth quarter. That is the only thing worrying me. There are too many signs pointing to a strong Nov/Dec and there is the lingering estimates for only +5-8% earnings growth in all of 2005. Will funds push the envelope into the year end and then test the wind for 2005 before bailing out? Let's hope that is the game plan. Oil finally broke with a -10% drop but the initial bounce appears firm. I have been expecting a drop post election as the terrorist fears fade but the demand fears are still growing. It should be very interesting. If we are stopped out on our oil plays we will look for opportunities to reenter. OXY was stopped at $55 and I added it back to the watch list at $50. Speaking of reentering, MMM has recovered sharply from the stop that took us out of the play last week. I am not ready to reenter it despite the new forecast for 20% growth but we do need to keep it on the radar screen. I am not adding any new plays again this week. I would like to see a confirmation of a post election rally first. We have plenty of profit opportunities already in the portfolio so no need to add more just for the sake of adding. All but two of our leaps are profitable and Pfizer should be back into the green soon if the current trend continues. ******************* New Plays ******************* NONE TODAY ******************* Dropped Plays ******************* OXY - Stopped out @ $55.00 ****************************** New Watch List Plays Triggered ****************************** QQQ $36.50 Nasdaq Tracking Stock **************************** Current Portfolio: **************************** Position Summary Table **************************** Play Updates **************************** XLE - S&P Energy SPDR $35.12 ** Stop 33.90 ** We narrowly escaped being stopped on the XLE play with a drop to $34.45 on Thursday. It is too soon to tell if this oil weakness will last past the election or rebound as did the last two profit taking corrections. Maintain the stop and we will look to get back in closer to the long term uptrend at $32 if stopped. 2006 $32 LEAP Call WHA-AF 2006 $35 LEAP Call WHA-AI Entry $33.92 on 9/20 http://members.OptionInvestor.com/leaps/Lp_091904_1.asp XLE Chart ************************ INTC - Intel Corp $22.24 **Stop $20.50** Intel gained over a buck for the week and tested a new two month high at $22.50. No complaints here and Intel should continue to move higher if a real tech rally emerges after the election. Several news bites about cancelled or delayed chips have not slowed the advance. 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. $31.10 **Stop $29.00** Tyco gained a $1.30 for the week in advance of their earnings due out Monday. Estimates are for +43 cents on revenue of $10.45 billion. Full year estimates are $1.63 on revenue of $40.68 billion. This is a +26% increase from last year. Should they beat estimates and not release any negative trial news we could see some short covering push it over resistance at $32. 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 $26.64 **Stop $23.25** Juniper broke out to a new SIX-MONTH high on Friday as funds dressed up their year end statements. This is one stock I had great faith in and it appears to be well founded. 70% margins in a growth sector can't be all bad. 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 $84.25 **Stop 81.00** COP fell from highs for the week near $87 but ended the week only off -75 cents from the prior week. COP announced earnings on Wednesday that beat the street by +30 cents at $2.87 and +1.05 over the same qtr in 2003. Quarterly revenue rose nearly $10 billion to $34.7B. They produced $4.4B in free cash for the qtr. Suddenly COP has found itself in the bidding for new oil properties in Venezuela and Iraq as a new partner with LUKOIL. LUKOIL won the rights to develop the giant West Quma oil field in Iraq in 1997 and has now teamed with COP to develop it once the elections in Iraq install a formal government. Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 now $13.50 Entry $73.30 August 30th http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart ********************** NWS - News Corp $32.24 **Stop 29.00** News Corp spiked to $33.21 after the shareholder vote to move to the NYSE was approved by 93.1% of shares. Preferred shares approved it with a 96.2% vote in favor. Earnings are Wednesday and various news items not related to NWS put a drag on the price going into the close on Friday. NWS which represents 6% of the Australian stock market should complete its move to the NYSE sometime in mid November and you can bet there will be a big splash at the NYSE when it happens. We are significantly under water with the NWS leap which was moved to the leap section from the Editors Plays several months ago. NWS declined after the initial recommendation when Australian funds began dumping the shares when it appeared the move to the US would be successful. Once the move is completed the company will be eligible for inclusion into the US indexes and at a market cap of nearly $50 billion index funds will have to buy a huge number of shares. We have plenty of time on these leaps and I still have confidence in the plan. 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 $48.70 **Stop $46.00** UPL gave up ground from the drop in oil prices and is holding just above $48. I am leaving he stop in place at $46 and we will look to get back in at a lower level if stopped. This stock was due for some profit taking but the blowout earnings should keep the buyers interested. Earnings were reported on Wednesday and UPL saw a huge +170% jump in earnings for the quarter. Production increased +87% and they raised estimates for the year. 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 $97.54 ** Stop $92.00 ** EBAY is holding near its all time highs set last week at $102 and should benefit from any future tech rally. Meg Witman was honored by the WSJ as a leader in her field this week and gave an interview to Maria B. at CNBC which will be aired on Saturday. In the interview she said the China business had taken flight and they were already the largest Internet business in China. The big news was her claim that China would eventually be the largest revenue source for the company, even larger then the US. She said business was booming and the holiday season should be very profitable. 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 $92.00 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 $53.91 ** Stop $50.50 ** Merrill continuing to move higher despite news on the Enron barge case trickling out from the court. MER broke out to a new four month high on Thursday and gained more than $2 for the week. 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 *********************** RIMM - Research in Motion $88.22 ** Stop $81.00 ** Despite two downgrades to hold on Thursday RIMM continued to buck the trend and held within 80 cents of its all time high at $90 set over the last two weeks. This stock has positive news on a daily basis and they are delivering all the Blackberry devices they can make. A continued tech rally could easily see $120 by year end. RIMM could be building another consolidation pattern like it did at $77 before breaking out for the big gain. RIMM announced earnings on Sept-30th. 2006 $80 LEAP Call WLJ-AP @ $16.50 now $25.00 2006 $90 LEAP Call WLJ-AR @ $13.20 now $19.60 Sell 2006 $120 LEAP Put WLJ-MD @ $46.70 now $37.50 Entry $77.00 (9/28) http://members.OptionInvestor.com/leaps/Lp_092604_1.asp RIMM Chart **************************** OXY - Occidental Petroleum $55.82 ** Stopped $55.00 ** OXY dropped back to touch $54.90 on Thursday and stopped us out on the play. Very frustrating since it came close to its all time high of $58.42 on Monday. We will look to reenter OXY at $50 on any post election pullback in oil prices. Earnings were Oct-21st 2006 $50 LEAP Calls WXY-AJ @ $8.60 exit $8.20 2006 $55 LEAP Calls WXY-AK @ $5.60 exit $6.10 2006 $60 LEAP Calls WXY-AL @ $3.50 exit $3.50 Entry $55.50 (9/28) http://members.OptionInvestor.com/leaps/Lp_082904_1.asp OXY Chart ************************ SYMC - Symantec - $56.91 ** Stop $51.00 ** SYMC was knocked for a loss this week when AOL announced it would be giving away the McAfee virus product to its subscribers. AOL had previously sold it for $2.95 per month. While this was seen as a potential earnings hit foe SYMC other analysts believe it was self defense by AOL. The company was not selling as many of the McAfee products as it wished and too many of their subscriber computers were getting hit by viruses. Those viruses can then make their way back into the AOL system and infect other users. Another analyst did not feel SYMC would be hurt by the practice because AOL was not their major market. A typical AOL subscriber is far less computer literate than a non AOL Internet user. They are less likely to purchase Symantec virus products on their own. The stop was lowered to $51.00 to give SYMC time to shake the news and a post election rally to develop. SYMC was at a new all time high of $62 on Wednesday so profit taking was natural with any negative news. 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 $32.47 ** Stop $28.00 ** XMSR is consolidating the gains from the prior week and trying to shake off an earnings miss from Sirius. XMSR has earnings next Thursday and is expected to do well. They are much stronger financially than SIRI and should not miss. Earnings are Nov-4th. Current position: 2006 JAN-$30 LEAP Call YLX-AF @ $6.60 2006 JAN-$32 LEAP Call YLX-AZ @ $5.60 2006 JAN-$35 LEAP Call YLX-AG @ $4.60 Entry $29.15 on 10/4 http://members.OptionInvestor.com/leaps/Lp_100304_1.asp XMSR Chart ****************************** PFE - Pfizer $28.92 ** Stop $26.00 ** Finally a bounce on Pfizer after two weeks of being slammed with the VIOXX bat from Merck. The stock is far from out of the woods but a Bush victory should give it new life. A Kerry victory could add additional pressure. PFE announced on Thursday they would buy back $5B in stock and that helped overcome negative news that another Merck COX-2 drug had been denied approval until more safety tests could be run. 2006 JAN $30 CALL LEAP WPE-AF 2006 JAN $32 CALL LEAP WPE-AB Entry $30.96 10/4 http://members.OptionInvestor.com/leaps/Lp_100304_1.asp PFE Chart **************************** DIA $100.37 Dow Diamonds Trust **Stop 97.00** A +300 point Dow bounce worked out great to take us away from the stop and the lows for the year. I raised the stop to 97.00 because a return to those levels now would suggest serious market damage and a failure of the post election rally to appear. A continued rebound will have to break $102-$103 to gain any real momentum so that is the next level to watch. Stop was raised to 97.00 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 $32.35 Semiconductor Holders ** Stop $29.00 ** So far, so good! The Semiconductor Holders appear to be moving nicely with a close at a three month high but they need to clear $33 to really gain momentum. Chip stocks were bought last week despite the multiple warnings and this week will be the key to the fourth quarter rally. 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 **************************** QQQ $35.63 Nasdaq 100 **Stop $35.00** The Nasdaq 100 tracking stock came within 16 cents of our breakdown entry at $35.25 before blasting off to breakout the topside and trigger the breakout entry at $36.50. This is not what we wanted but if we get a real rally in the 4Q it should work out all right. Twice over the last month we came within a quarter of the lower entry we wanted and both time we missed. I am going to keep a tight stop on the QQQ until we are sure the rebound is going to stick. We ended up in the options about 50-60 cents higher than if we had gotten the lower entries so at least it is not a major difference. Entry $36.50 (10/27) 2006 $35 LEAP Call YWZ-AI @ $5.10 2006 $37 LEAP Call YWZ-AD @ $3.90 QQQ Chart **************************** LEAPS Watch List **************************** Back to the Drawing Board All of our watch list entries have been triggered with the final addition of the QQQ Leap last week. We were stopped on OXY this week by 10 cents and I put it back on the watch list at $50.00 just in case we get further weakness in the oil stocks. If we have a positive market after the election I will start adding more stocks to the list. Until we see which direction the market is going I do not want to add anything to the portfolio. If the 4Q rally fails to appear I do not want a lot of entries getting filled only to stop out on a market implosion. *********************** Dropped Entries *********************** None *********************** New Watch List Entries *********************** OXY to reenter at $50.00 ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************* SPREADS & STRADDLES ******************* It's That Time Of Year Again By Mike Parnos How does it feel to always have Uncle Sam's hand in your pocket? And he didn't even take you out to dinner first. Seriously though, I understand that we have to fund our government. The least we can do is to provide the government cheese for directional traders. We, at the Couch Potato Trading Institute, have pocketed a nice chunk of dough this year. And we see no reason why we won't do it again this year. The question is: How do we keep the most of the profits we generated? I'm not suggesting we do anything illegal, but there are ways to navigate through and around tax laws. Below are answers to a few basic tax questions that you should explore when preparing your tax return -- and to get ready for next year's profits. _________________________________________________________________ QUESTION: What is the best structure for tax savings? ANSWER: You have three options. One is to keep filing your Form 1040 (U.S. Individual Tax Return) year after year. That is the most expensive solution and unfortunately, that is what most people do. Next, you could try to file as a "trader" and deduct your business expenses on Schedule C of your Form 1040. This is risky and does not offer you any income tax strategies, so we advise you to stay away from this option. The third strategy is to place your trading capital in a legal entity. There are various entities that may be appropriate, depending on your situation. Your main choices are the c-corporation, the flow-thru entities such as the limited liability company (LLC) and the limited partnership, and a combination of a c-corporation and a flow-thru entity. The following is an explanation of the corporation - LLC strategy for active traders. This strategy can allow you to legally write- off your computers, home office equipment, all educational expenses, and a large percentage of meals, entertainment and travel. You will learn how to run your investment activities as a qualified business, and how you can grant yourself all the legal perks, benefits, tax breaks, and tax deductions afforded to large companies. The Limitations of Filing a 1040 Tax Return as an Investor As you probably know, when you file your Form 1040 tax return, your ability to deduct expenses related to your investment activities is extremely limited. Certain expenses are deductible, but these itemized deductions are subject to the 2% of adjusted gross income limitation. Additionally, deductions for investment seminars and home offices are categorically disallowed. Another limitation affecting more and more investors is the Wash Sale rule. This rule prevents you from realizing losses on securities sales if you are in basically the same financial position in a 61-day window of time. The goal of the IRS is to prevent you from selling a position simply to record the loss, and then immediately buying back the stock at a lower basis price. Unfortunately, with active trading being more the norm, individuals often find themselves moving in and out of the same stock within the same 61-day window. One benefit of filing a Form 1040 tax return is the capital gain treatment of your long-term stock positions. If you hold your securities for 12 months or longer you can lower your capital gains tax bracket to as low as 10% or 20%. In conclusion, if you work at a full-time job and are realizing capital gains in the stock market, you do not have any powerful methods for offsetting your tax liabilities. In fact, all of the expenses incurred in learning how to grow and manage your capital are almost entirely non-deductible. But what if there was a way to make your investment activities into a business? What if you became a qualified money manager in your part-time? Do you think that you might receive a preferential tax treatment by the IRS? Let's see: Filing as "Trader" on Form 1040 Tax Return ... tax breaks but risky This tax strategy boils down to this: You convert your investment activities into a trading business. Once your investing is recognized as a business, you are able to deduct any ordinary and necessary business expenses. What does it take to form a trading business? The Internal Revenue Code is conspicuously quiet about how to qualify as a trading business. So, the burden has been placed on brave individuals who filed their 1040 tax returns and attempted to establish themselves as "traders" in order to write- off their business expenses. Most of these individuals were slaughtered in the tax courts. In case after case, the individuals were rebuked by the courts. The net effect of the rulings is that it is nearly impossible to qualify as a trader. To qualify, you would most likely have to be trading full-time, hold your positions for less than a day, and trade a large amount almost every business day throughout the year. In essence, the court has said, "If you are not on the floor of the exchange, or holed up in a trading room, you do not qualify." Some CPAs have been very active in promoting "trader status" filings. If you look at the actual text from the court cases, you will agree that attempting to establish your trading business as an individual trader on your personal Form 1040 tax return is a risky proposition and can lead to sleepless nights worrying about a possible audit. The bottom line is that while a very small portion of active traders can realize substantial tax savings by filing as a "trader", a majority of investors do not qualify and need an alternative strategy. The Complete Solution: Placing Trading Capital in an Entity Structure Instead of attempting the Herculean task of qualifying as a "trader" on your personal return, there is a method of qualifying that is automatic, trouble-free, and positively overflowing with powerful tax benefits. This strategy is what business greats like Warren Buffet, Michael Dell, and Michael Bloomberg, along with tens on thousands of others, have chosen for their investment capital. Advantages of Using a Corporation One of the most exciting things about using a corporation is the sheer amount of tax deductions and perks that are available to corporate owners and company employees. Congress has created tax laws and special exemptions for corporations. It is the lobbyists of the major corporations that have paved the way for you. Now, you can own your own corporation and be able to write-off all "ordinary and necessary" business expenses, fully deduct the costs of attending board meetings that are held in vacation areas, write-off all medical expenses with no limitations, contribute up to $40,000 to your own pension plan, and much much more. For individuals that are generating a large amount of excess revenue, the corporation structure allows you to start-up additional businesses with the expenses of the new business offsetting the income from the trading business. Another great benefit of the corporate entity is that it is a perpetual entity. Many individuals choose to retain the controlling interest in the corporation, and gift the non-controlling stock to their beneficiaries early in the growth of the business. That way, all future growth occurs in the estate of the beneficiaries, so that when you pass away, your beneficiaries do not need to sell off your business simply to pay the taxes. All they would be receiving is the small amount of controlling stock. Taking Action If you are a part-time trader, you have created a situation where you can take advantage of major tax strategies usually reserved for individuals with full-time businesses. It is simply a matter of getting started. We are the experts in this arena. We can look at your situation and show you how the entity structure would work in your situation. The Trader Tax Experts Once again, the answers have been provided by the tax experts at TradersAccounting.com. All questions and/or clarifications should be directed to their website. _____________________________________________________________________________ NOVEMBER CPTI POSITIONS November Position #1 - SPX Iron Condor - 1130.20 We sold 12 SPX November 1185 calls and bought 12 SPX November 1200 calls with a credit of about $1.25 ($1,500). Then we sold 9 SPX November 1070 puts and bought 9 SPX November 1050 puts for a credit of about $1.65 ($1,485). Total credit and potential profit of about $2,985. The maximum profit range is from 1070 to 1185. Can this 115-point range withstand the market's emotional highs and lows? Let's hope so. The maintenance is $18,000. The potential return on risk is about 20%. New November Position #2 - SPX Iron Condor - 1130.20 Considering the downward market movement, I felt it is appropriate to initiate a SPX position with different parameters. We sold 10 SPX Nov. 1160 calls and bought 10 SPX Nov. 1180 calls for a credit of about $1.40 ($1,400). Then we sold 13 SPX Nov. 1025 puts and bought 13 SPX Nov. 1005 puts for a credit of about $1.20 ($1,560). Maximum profit potential of about $2,960. Max profit range of 1025 - 1160. Maintenance: $20,000. November Position #3 - OEX Iron Condor - 540.65 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 - 583.79 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 -- $36.90 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 – 540.65 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. 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 - 1130.20 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 10-31-2004 Sunday 5 of 5 In Section Five: Covered Calls: CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS Spreads and Straddles: Rally Stalls As GDP Fails To Inspire Investors Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** COVERED CALLS ************** ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Many investors find that writing "in-the-money" covered-calls fits their criteria for a conservative, easy-to-manage options strategy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL CANDIDATES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of potential candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. _________________________________________________________________ Sequenced by Target Yield (monthly basis/no margin) Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield DNDN 10.34 NOV 10.00 UKO-KB 1.00 4338 9.34 20 10.7% GERN 7.86 NOV 7.50 GQD-KU 0.85 3158 7.01 20 10.6% NTMD 24.30 NOV 22.50 QNR-KX 3.00 1112 21.30 20 8.6% BVF 18.72 NOV 17.50 BVF-KW 1.90 2194 16.82 20 6.1% SYNA 31.64 NOV 30.00 QYG-KF 2.70 124 28.94 20 5.6% SIGM 7.91 NOV 7.50 MQN-KU 0.65 69 7.26 20 5.0% DHB 13.82 NOV 12.50 DHB-KV 1.70 1258 12.12 20 4.8% TSRA 27.93 NOV 25.00 TJQ-KE 3.70 2084 24.23 20 4.8% STSI 5.50 NOV 5.00 QSE-KA 0.65 242 4.85 20 4.7% LNG 24.84 NOV 22.50 LNG-KX 2.90 510 21.94 20 3.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). _________________________________________________________________ DNDN - Dendreon $10.34 Dendreon (NASDAQ:DNDN) is a biotechnology company focused on the discovery, development and commercialization of therapies for cancer. The company's portfolio includes product candidates to treat a range of cancers using therapeutic vaccines, monoclonal antibodies, small molecules and pro-drugs. Its most advanced product candidate is Provenge, a therapeutic vaccine for the treatment of prostate cancer. Dendreon's preclinical programs include monoclonal antibodies, therapies targeting the trp-p8 pathway and serine protease and pro-drug product candidates for the treatment of cancer. DNDN - Dendreon $10.34 NOV 10.00 UKO-KB LB=1.00 OI=4338 CB=9.34 DE=20 TY=10.7% _________________________________________________________________ GERN - Geron $7.86 Geron (NASDAQ:GERN) is a biopharmaceutical company focused on developing and commercializing therapeutic and diagnostic products for cancer. The company's products are based on its telomerase technology and cell-based therapeutics using its human embryonic stem cell technology. Geron is working to develop anti-cancer therapies based on telomerase inhibitors, telomerase therapeutic vaccines and, through its collaborators, telomerase-based oncolytic (cancer-killing) viruses. It also intends to continue the development and commercialization of its products using telomerase as a marker for cancer diagnosis, prognosis, patient monitoring and screening. GERN - Geron $7.86 NOV 7.50 GQD-KU LB=0.85 OI=3158 CB=7.01 DE=20 TY=10.6% _________________________________________________________________ NTMD - NitroMed $24.30 NitroMed (NASDAQ:NTMD) is an emerging pharmaceutical company with substantial expertise and intellectual property in nitric oxide-based drug development. The firm is applying its nitric oxide technology to develop new pharmaceuticals, as well as safer and more effective versions of existing pharmaceuticals to target diseases and commercial markets. Its lead nitric oxide-enhancing medicine, BiDil, which is being developed to reduce mortality and hospitalization and to improve quality of life for African Americans diagnosed with heart failure is the subject of a Phase III confirmatory clinical trial. NTMD - NitroMed $24.30 NOV 22.50 QNR-KX LB=3.00 OI=1112 CB=21.30 DE=20 TY=8.6% _________________________________________________________________ BVF - Biovail $18.72 Biovail (NYSE:BVF) is a pharmaceutical company engaged in the development, manufacture and marketing of medications utilizing advanced drug delivery technologies for the treatment of chronic medical conditions. The firm's primary focus is on three major therapeutic areas: cardiovascular (including Type II diabetes), central nervous system and pain management. Other major areas of interest include antiviral medicine and select niche therapeutic categories with identified potential. BVF - Biovail $18.72 NOV 17.50 BVF-KW LB=1.90 OI=2194 CB=16.82 DE=20 TY=6.1% _________________________________________________________________ SYNA - Synaptics $31.64 Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of custom-designed user interface solutions for notebook computers. The company's original equipment manufacturer customers include ten large personal computer OEMs. Synaptics generally supplies its OEM customers through its contract manufacturers, which take delivery of its products and pay the company directly for the OEMs. Synaptics family of product solutions include TouchPad, TouchPad Under Plastic, TouchStyk, dual pointing solutions, ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese character recognition, Fingerprint TouchPad, TouchRing and TouchScreen. SYNA - Synaptics $31.64 NOV 30.00 QYG-KF LB=2.70 OI=124 CB=28.94 DE=20 TY=5.6% _________________________________________________________________ SIGM - Sigma Designs $7.91 Sigma Designs (NASDAQ:SIGM) specializes in silicon-based digital media processing solutions for consumer products. Its solutions, based on its REALmagic Video Technology, provide decoding of MPEG-4, MPEG-2, MPEG-1 and Windows Media Video 9 content. The company has developed system solutions for convergence products, including DVD playback, digital television reception, video over Internet protocol, personal video recording and video-on-demand. Its business operates in one major segment, consumer electronic devices and products. SIGM - Sigma Designs $7.91 NOV 7.50 MQN-KU LB=0.65 OI=69 CB=7.26 DE=20 TY=5.0% _________________________________________________________________ DHB - DHB Industries $13.82 DHB Industries (NYSE:DHB) is a holding company consisting of two major divisions: DHB Armor Group and DHB Sports Group. The Armor Group includes both Point Blank Body Armor and Protective Apparel Corporation of America. The Armor Group principally manufactures three basic types of body armor: concealable armor, which is worn beneath the user's clothing and designed to protect against less serious weapons; tactical armor, which is worn externally and is designed to protect against more serious threats, and modular concealable/tactical armor, which allows the wearer to customize the armor for either concealed or tactical use. DHB - DHB Industries $13.82 NOV 12.50 DHB-KV LB=1.70 OI=1258 CB=12.12 DE=20 TY=4.8% _________________________________________________________________ TSRA - Tessera Technologies $27.93 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 $27.93 NOV 25.00 TJQ-KE LB=3.70 OI=2084 CB=24.23 DE=20 TY=4.8% _________________________________________________________________ STSI - Star Scientific $5.50 Star Scientific (NASDAQ:STAR) and its wholly owned subsidiary, Star Tobacco, is engaged in the development, implementation and licensing of scientific technology for the curing of tobacco, so as to prevent the formation of carcinogenic toxins present in tobacco and tobacco smoke, the tobacco-specific nitrosamines. It is also engaged in the manufacturing, sales, marketing and development of low-nitrosamine smokeless tobacco products that carry enhanced warnings beyond those required by the Surgeon General, including Stonewall moist and dry snuffs, ARIVA compressed powdered tobacco cigalett pieces and STONEWALL Hard Snuff. STSI - Star Scientific $5.50 NOV 5.00 QSE-KA LB=0.65 OI=242 CB=4.85 DE=20 TY=4.7% _________________________________________________________________ LNG - Cheniere Energy $24.84 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 $24.84 NOV 22.50 LNG-KX LB=2.90 OI=510 CB=21.94 DE=20 TY=3.9% ******************* SPREADS & STRADDLES ******************* Rally Stalls As GDP Fails To Inspire Investors By Ray Cummins Stocks traded in small range Friday after data from the gross domestic product report suggested that record energy costs are restraining economic growth. A Commerce Department report said that third-quarter GDP rose by 3.7%, less than the 4.3% rise expected among analysts, and investors are concerned that crude prices will restrain growth further in the coming months. The Dow Jones industrials added 22 points to finish at 10,027, with ChevronTexaco (NYSE:CVX) among the bullish components after posting a 60% increase in quarterly profits. The NASDAQ composite index ended unchanged at 1,974, despite selling pressure in internet retail shares. The S&P 500-stock index closed up 2 points at 1,130, as steel, gold, oil & gas equipment, railroad and hospital issues enjoyed buying interest. Advancing issues outnumbered decliners 5 to 4 on the New York Stock Exchange on volume of 1.5 billion shares. Breadth on the technology exchange was roughly neutral with 1.6 billion shares changing hands. Treasury prices drifted higher with the benchmark 10-year note up 6/32 at 4.02%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/29/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 94.75 NOV 80.0 85.0 0.65 84.35 0.65 Open BTU 60.07 63.78 NOV 50.0 55.0 0.60 54.40 0.60 Open MRVL 28.84 28.57 NOV 22.5 25.0 0.35 24.65 0.35 Open COST 44.69 47.94 NOV 40.0 42.5 0.30 42.20 0.30 Open NEM 46.25 47.52 NOV 40.0 42.5 0.30 42.20 0.30 Open INSP 47.25 52.50 NOV 35.0 40.0 0.85 39.15 0.85 Open BG 41.96 47.73 NOV 35.0 40.0 0.50 39.50 0.50 Open ADBE 53.57 56.03 NOV 45.0 50.0 0.50 49.50 0.50 Open VRNT 37.73 38.88 NOV 30.0 35.0 0.55 34.45 0.55 Open GTRC 47.81 44.63 NOV 40.0 45.0 0.45 44.55 0.08 Open? OSTK 52.63 54.14 NOV 40.0 45.0 0.60 44.40 0.60 Open MDC 76.00 76.75 NOV 65.0 70.0 0.50 69.50 0.50 Open SPF 53.90 56.15 NOV 45.0 50.0 0.60 49.40 0.60 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Although both are currently profitable, positions in Pacificare Health Systems (NYSE:PHS) and Celgene (NASDAQ:CELG) have previously been closed to limit potential losses. Guitar Center (NASDAQ:GTRC) is a candidate for "early-exit" on any further downside movement. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AMZN 40.47 34.13 NOV 50.0 45.0 0.65 45.65 0.65 Open PDX 55.00 56.25 NOV 65.0 60.0 0.60 60.60 0.60 Open BZH 103.14 109.78 NOV 115.0 110.0 1.10 111.10 1.10 Open? CHIR 37.98 32.42 NOV 45.0 42.5 0.30 42.80 0.30 Open FLIR 54.52 53.21 NOV 65.0 60.0 0.70 60.70 0.70 Open MERQ 37.97 43.43 NOV 45.0 42.5 0.35 42.85 (0.58) Closed BIIB 59.82 58.16 NOV 70.0 65.0 0.65 65.65 0.65 Open MCHP 27.56 30.25 NOV 35.0 30.0 0.60 30.60 0.35 Closed CB 66.75 72.13 NOV 75.0 70.0 0.60 70.60 (1.53) Closed HIG 56.30 58.48 NOV 65.0 60.0 0.80 60.80 0.80 Open? AET 87.26 95.00 NOV 100.0 95.0 0.40 95.40 0.40 Closed CI 60.65 63.46 NOV 70.0 65.0 0.75 65.75 0.75 Open? IFIN 36.50 38.49 NOV 42.5 40.0 0.30 40.30 0.30 Open TTWO 32.55 32.96 NOV 37.5 35.0 0.30 35.30 0.30 Open SPW 37.40 38.35 NOV 42.5 40.0 0.30 40.30 0.30 Open QCOM 39.50 41.60 NOV 45.0 42.5 0.30 42.80 0.30 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Positions in the Insurance sector became candidates for early exit after an unexpected announcement from the New York Attorney General sparked a rally in the group. The issues include Aetna (NYSE:AET) Hartford Insurance (NYSE:HIG), Cigna (NYSE:CI) and Chubb (NYSE:CB). Beazer Homes (NYSE:BZH) is also an exit candidate with the bullish activity in home construction shares. Qualcomm (NASDAQ:QCOM) and SPX Corp. (NYSE:SPW) are on the "watch" list. Mercury Interactive (NASDAQ:MERQ) and Microchip (NASDAQ:MCHP) have been closed to limit potential losses. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status JCOM 29.93 29.78 NOV 30.0 30.0 3.75 3.50 Closed NTES 40.00 46.51 NOV 40.0 40.0 5.00 7.90 Open? The speculative position in Netease.com (NASDAQ:NTES) reached our profit target in less than one week. The straddle on j2 Global Communications (NASDAQ:JCOM) has previously been closed in the interest of capital preservation, as the 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEM - Newmont Mining $47.52 *** For Gold "Bulls" Only! *** Newmont Mining (NYSE:NEM), along with its subsidiaries, is a worldwide company engaged in the production of gold, exploration for gold and acquisition of gold properties. The company also has an interest in a copper/gold mine that commenced production in late 1999. In addition, the company produces zinc, lead and copper concentrates at its property in Western Australia. The company approved in late 2002 a restructuring to facilitate the acquisitions of Normandy Mining Limited and Franco-Nevada Mining Corporation Limited and to create a flexible corporate structure. NEM - Newmont Mining $47.52 PLAY (less conservative - bullish/credit spread): BUY PUT NOV-42.50 NEM-WV OI=5757 ASK=$0.20 SELL PUT NOV-45.00 NEM-WI OI=11673 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$44.65 __________________________________________________________________ PD - Phelps Dodge $87.54 *** Consolidation Complete? *** Phelps Dodge (NYSE:PD) is engaged in the production of copper, carbon black, magnet wire, continuous-cast copper rod and also molybdenum products. The firm consists of two major divisions: Phelps Dodge Mining, which is an international business for its vertically integrated copper operations, and Phelps Dodge Industries, which is the manufacturing division, comprising two individual business segments that produce engineered products for the global energy, telecommunications, transportation and specialty chemicals sectors. PD - Phelps Dodge $87.54 PLAY (conservative - bullish/credit spread): BUY PUT NOV-75.00 PD-WO OI=2936 ASK=$0.35 SELL PUT NOV-80.00 PD-WP OI=4887 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$79.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ESRX - Express Scripts $64.01 *** In a Trading Range? *** Express Scripts (NASDAQ:ESRX) is an independent pharmacy benefit manager (PBM), provides integrated PBM services including network pharmacy claims processing, mail pharmacy services, benefit design consultation, drug utilization review and formulary management. The company offers PBM services to clients in the United States and Canada. Some of the Company's largest clients included United HealthCare Insurance Company, which manages the AARP Pharmacy Service, Blue Cross Blue Shield of Massachusetts, Blue Shield of California, Mutual of Omaha, the State of Georgia, Mid Atlantic Medical Services, Group Health Incorporated, and the Department of Defense TRICARE Management Activity. ESRX - Express Scripts $64.01 PLAY (conservative - bearish/credit spread): BUY CALL DEC-75.00 XTQ-LO OI=220 ASK=$0.35 SELL CALL DEC-70.00 XTQ-LN OI=67 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$70.60 __________________________________________________________________ JCP - J. C. Penney $34.59 *** Sell-Off In Progress! *** J. C. Penney (NYSE:JCP) is a department store, catalog and e-commerce retailer. JCP operates over 1,000 JCPenney stores throughout the United States and Puerto Rico, and 59 Renner department stores in Brazil. JCPenney Catalog, including e-commerce, is a catalog merchant of general merchandise, and JCPenney.com is an apparel and home furnishings site on the Internet. J. C. Penney Corporation, is a contributor to JCPenney Afterschool Fund, a charitable organization committed to providing children with after school programs to help them reach their full potential. JCP - J. C. Penney $34.59 PLAY (conservative - bearish/credit spread): BUY CALL DEC-40.00 JCP-LH OI=266 ASK=$0.25 SELL CALL DEC-37.50 JCP-LU OI=1920 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.35-$0.45 POTENTIAL PROFIT(max)=16% B/E=$37.85 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. _________________________________________________________________ NEW - New Century Financial $55.15 *** Earnings Play! *** New Century Financial Corporation (NYSE:NEW) is one of the nation's largest specialty mortgage companies, providing first and second mortgage products to borrowers nationwide through its operating subsidiaries. It offers mortgage products to borrowers who generally do not satisfy the credit, documentation or other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. New Century is committed to serving the communities in which it operates with fair and responsible lending practices. Earnings are due on or about 11/4/04. NEW - New Century Financial $55.15 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-55.00 NEW-KK OI=2462 ASK=$2.40 BUY PUT NOV-55.00 NEW-WK OI=7821 ASK=$2.35 INITIAL NET-DEBIT TARGET=$4.60-$4.70 INITIAL TARGET PROFIT=$1.75-$2.50 ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events, as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/29/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 6.87 (0.33) 0.00% 0.00% SIMG NOV 12.50 12.10 13.70 0.40 5.95% 3.31% NCRX NOV 25.00 24.30 25.63 0.70 5.52% 2.88% ANF NOV 32.50 32.10 39.18 0.40 2.78% 1.25% SNDA NOV 22.50 21.85 30.26 0.65 7.78% 2.97% PMTI NOV 20.00 19.15 20.49 0.85 9.23% 4.44% IDBE NOV 12.50 12.15 17.30 0.35 6.44% 2.88% BVF NOV 17.50 17.05 18.72 0.45 5.40% 2.64% USG NOV 17.50 16.90 22.39 0.60 6.84% 3.55% SNDA NOV 25.00 24.50 30.26 0.50 5.67% 2.04% ENER NOV 15.00 14.40 16.84 0.60 8.11% 4.17% DRIV NOV 25.00 24.35 33.30 0.65 6.81% 2.67% PLMD NOV 30.00 29.55 35.00 0.45 3.33% 1.52% CNCT NOV 22.50 22.10 26.88 0.40 4.68% 1.81% CCBI NOV 22.50 21.90 22.43 0.53 4.87% 2.74% EYET NOV 35.00 34.45 42.44 0.55 5.17% 1.60% USG NOV 17.50 17.15 22.39 0.35 6.12% 2.04% RIGL NOV 22.50 21.85 24.00 0.65 8.14% 2.97% MCD NOV 27.50 27.15 29.15 0.35 2.99% 1.29% FARO NOV 20.00 19.60 24.85 0.40 5.67% 2.04% NOVN NOV 20.00 19.60 22.55 0.40 4.88% 2.04% VRSN NOV 20.00 19.65 26.83 0.35 4.40% 1.78% ENER NOV 17.50 17.05 16.84 (0.21) 0.00% 0.00% SSNC NOV 20.00 19.55 23.64 0.45 5.71% 2.30% CKFR NOV 30.00 29.40 31.00 0.60 4.91% 2.04% OSTK NOV 35.00 34.60 54.14 0.40 4.10% 1.16% GBBK NOV 30.00 29.40 31.25 0.60 5.01% 2.04% KRON NOV 45.00 44.50 49.05 0.50 3.10% 1.12% DITC NOV 20.00 19.70 22.94 0.30 5.29% 1.52% MRVL NOV 23.75 23.35 28.57 0.40 5.59% 1.71% AGIX NOV 20.00 19.70 29.99 0.30 4.50% 1.52% AFCO NOV 20.00 19.55 23.19 0.45 6.68% 2.30% TSRA NOV 25.00 24.70 27.93 0.30 4.18% 1.21% SRDX NOV 25.00 24.50 26.85 0.50 5.79% 2.04% ELN NOV 22.50 22.05 25.80 0.45 6.53% 2.04% XMSR NOV 30.00 29.45 32.32 0.55 5.48% 1.87% ENDP NOV 20.00 19.55 21.80 0.45 6.72% 2.30% LNG NOV 20.00 19.45 24.84 0.55 8.61% 2.83% USG NOV 20.00 19.50 22.39 0.50 8.45% 2.56% EDS NOV 20.00 19.65 21.27 0.35 5.49% 1.78% MANT NOV 17.50 17.05 21.62 0.45 9.65% 2.64% NTMD NOV 17.50 17.25 24.30 0.25 6.12% 1.45% A NOV 22.50 22.10 25.06 0.40 5.86% 1.81% SCHN NOV 26.60 26.15 28.25 0.45 5.81% 1.72% CYTC NOV 25.00 24.60 26.09 0.40 5.27% 1.63% Energy Conversion Devices (NASDAQ:ENER) at the $17.50 strike, Palomar Medical (NASDAQ:PMTI), and Telular (NASDAQ:WRLS) are among the most obvious "early-exit" candidates. The position in Epiq Systems (NASDAQ:EPIQ) was not initiated due to a "gap down" in the price of the stock on the day after the play was published. A number of issues remain on the "watch" list. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield BRCM NOV 35.00 35.35 27.05 0.35 4.44% 0.99% LLTC NOV 40.00 40.60 37.88 0.60 3.74% 1.48% SINA NOV 35.00 35.35 33.50 0.35 4.56% 0.99% LRCX NOV 25.00 25.40 26.03 (0.63) 0.00% 1.57% * IVX NOV 20.00 20.75 18.10 0.75 9.51% 3.61% PLMO NOV 40.00 40.45 28.97 0.45 5.62% 1.11% SLXP NOV 20.00 20.65 16.03 0.65 8.83% 3.15% AOC NOV 25.00 25.25 20.41 0.25 3.93% 0.99% CVH NOV 50.00 50.60 40.90 0.60 4.46% 1.19% ACF NOV 20.00 20.70 19.40 0.70 8.31% 3.38% DSPG NOV 22.50 22.85 19.83 0.35 6.23% 1.53% HYSL NOV 40.00 40.85 40.13 0.72 5.29% 2.08% * RNR NOV 50.00 50.65 46.82 0.65 3.51% 1.28% X NOV 40.00 40.25 36.72 0.25 3.49% 0.62% IIVI NOV 35.00 35.65 34.24 0.65 6.51% 1.82% GIVN NOV 40.00 40.45 32.24 0.45 5.86% 1.11% UCI NOV 30.00 30.70 29.58 0.70 13.93% 2.28% USPI NOV 35.00 35.45 35.01 0.44 5.06% 1.27% * ARW NOV 25.00 25.40 23.96 0.40 5.82% 1.57% TACT NOV 30.00 30.50 25.02 0.50 10.16% 1.64% Positions in Lam Research (NASDAQ:LRCX), Hyperion Solutions (NASDAQ:HYSL), and United Surgical (NASDAQ:USPI) have been closed to limit potential losses. Positions in the Insurance sector including RenaissanceRe Holdings (NYSE:RNR) and UCI (NASDAQ:UICI), as well as Ii-Vi (NASDAQ:IIVI), 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 FARO 24.85 NOV 22.50 QEJ-WX 0.40 164 22.10 20 2.8% 7.6% USG 22.39 NOV 20.00 USG-WD 0.30 9147 19.70 20 2.3% 6.6% NTAP 24.47 NOV 22.50 NUL-WX 0.35 1527 22.15 20 2.4% 6.5% TSRA 27.93 NOV 22.50 TJQ-WX 0.20 291 22.30 20 1.4% 5.1% DOX 25.25 NOV 22.50 DOX-WX 0.25 996 22.25 20 1.7% 5.0% JNPR 26.61 NOV 25.00 JUX-WE 0.30 7762 24.70 20 1.8% 4.9% ROST 26.27 NOV 25.00 REQ-WE 0.30 176 24.70 20 1.8% 4.8% VAR 40.15 NOV 37.50 VAR-WU 0.35 659 37.15 20 1.4% 3.9% 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. _________________________________________________________________ FARO - FARO Technologies $24.85 *** Next Leg Up? *** FARO Technologies (NASDAQ:FARO) designs, develops, markets and supports portable, software-driven, 3-D measurement systems used in a broad range of manufacturing and industrial applications. The firm's principal products are the Faro-Arm Control Station and Control Station Pro (articulated measuring devices), the Faro Laser Tracker and Laser Control Station and their companion Soft Check Tool and CAM2 software, respectively, which provide for computer-aided design (CAD)-based inspection and factory-level statistical process control. Faro's products bring precision measurement, quality inspection and specification conformance capabilities, integrated with CAD software, to the factory floor. FARO - FARO Technologies $24.85 NOV 22.50 QEJ-WX LB=0.40 OI=164 CB=22.10 DE=20 TY=2.8% MY=7.6% _________________________________________________________________ USG - USG Corporation $22.39 *** Uptrend Intact! *** 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 $22.39 NOV 20.00 USG-WD LB=0.30 OI=9147 CB=19.70 DE=20 TY=2.3% MY=6.6% _________________________________________________________________ NTAP - Network Appliance $24.47 *** Entry Point? *** Network Appliance (NASDAQ:NTAP) is a provider of enterprise network storage and data management solutions. Its system products consist of fabric-attached storage appliances, also known as filers, NearStore systems, NetCache content delivery appliances, the Data ONTAP operating system, Write Anywhere File Layout file management system, data management and content delivery software and NetApp Global Services. The firm also markets appliance- and server-based software and develops software support for a number of industry-standard protocols. The NetCache product line includes support for proxy and caching of standard Web protocols, including domain name service, file transfer protocol and hypertext transfer protocol. NTAP - Network Appliance $24.47 NOV 22.50 NUL-WX LB=0.35 OI=1527 CB=22.15 DE=20 TY=2.4% MY=6.5% _________________________________________________________________ TSRA - Tessera Technologies $27.93 *** Pure Premium-Selling! *** 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 $27.93 NOV 22.50 TJQ-WX LB=0.20 OI=291 CB=22.30 DE=20 TY=1.4% MY=5.1% _________________________________________________________________ DOX - Amdocs $25.25 *** More Business From Cingular? *** Amdocs Limited (NYSE:DOX) is a provider of software products and services to major communications companies across North America, Europe and the rest of the world. Its products and services provide an integrated approach to customer management, which the Company refers to as Integrated Customer Management. Its Integrated Customer Management product offerings consist primarily of billing and customer relationship management systems, which Amdocs refers to, collectively, as Customer Care and Billing Systems. Its portfolio also includes a range of directory sales and publishing systems for publishers of both traditional printed directories and electronic Internet directories. DOX - Amdocs $25.25 NOV 22.50 DOX-WX LB=0.25 OI=996 CB=22.25 DE=20 TY=1.7% MY=5.0% _________________________________________________________________ JNPR - Juniper Networks $26.61 *** Optimistic Outlook! *** Juniper Networks (NASDAQ:JNPR) transforms the entire business of networking by converting a commodity: bandwidth, into a dependable, secure, and highly valuable corporate asset. Founded in 1996 to meet the stringent demands of service providers, Juniper Networks is now relied upon by the world's leading network operators, such as government agencies, research and education institutions, and information-intensive enterprises as the foundation for stable, uncompromising networks. JNPR - Juniper Networks $26.61 NOV 25.00 JUX-WE LB=0.30 OI=7762 CB=24.70 DE=20 TY=1.8% MY=4.9% _________________________________________________________________ ROST - Ross Stores $26.27 *** On The Rebound? *** Ross Stores (NASDAQ:ROST) operates a chain of off-price retail apparel and home accessories stores that target value-conscious men and women between the ages of 25 and 54, primarily in middle income households. The company offers brand-name and designer merchandise at low everyday prices. Ross has over 500 stores, located predominantly in community and neighborhood shopping centers in populated urban and suburban areas. In the last year, Ross opened 66 new Ross Dress For Less stores and closed five locations. The company's stores are located in 25 states. ROST - Ross Stores $26.27 NOV 25.00 REQ-WE LB=0.30 OI=176 CB=24.70 DE=20 TY=1.8% MY=4.8% _________________________________________________________________ VAR - Varian Medical $40.15 *** Target-Shoot An Entry! *** Varian Medical (NYSE:VAR) designs and produces integrated systems of equipment and software for treating cancer with radiation, as well as cost-effective x-ray tubes for radiation equipment makers and replacement x-ray tubes and imaging subsystems. The company's operations are grouped into two segments: Oncology Systems and X-Ray Products. Oncology Systems designs, manufactures, sells and services hardware and software products for radiation treatment of cancer, while X-Ray Products is involved in the design and building of subsystems for diagnostic radiology. GTC, which is Varian's research facility, also manufactures and sells its brachytherapy products and services. VAR - Varian Medical $40.15 NOV 37.50 VAR-WU LB=0.35 OI=659 CB=37.15 DE=20 TY=1.4% MY=3.9% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ASKJ - Ask Jeeves $25.78 *** New Downtrend Underway? *** Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search, providing consumers with authoritative and fast ways to find relevant information to their everyday searches. Ask Jeeves deploys its search technologies on Ask Jeeves (Ask.com and Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com). In addition, to its internet sites, Ask Jeeves syndicates its monetized search technology and advertising units to a network of affiliate partners. The company is based in Emeryville, California, with offices in New York, Boston, New Jersey, Los Angeles, London and Dublin. ASKJ - Ask Jeeves $25.78 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 AUK-KF 5372 0.35 30.35 8.3% 1.2% _________________________________________________________________ CBT - Cabot $34.08 *** Post-Earnings Slump! *** Cabot Corporation (NYSE:CBT) manufactures and sells carbon black, fumed metal oxides, inkjet colorants, tantalum and other related products and cesium formate drilling fluids. The company is organized into three business segments: the Chemical, Supermetals and Specialty Fluids. The Chemical segment is mainly comprised of the carbon black, fumed metal oxides, inkjet colorants and aerogels product lines. Supermetals produces tantalum, niobium and their alloys for the electronic materials and refractory metals industries. Specialty Fluids produces cesium formate as a drilling and completion fluid for use in high-pressure and high-temperature oil and gas well operations. CBT - Cabot $34.08 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 CBT-KG 5 0.50 35.50 5.8% 1.4% _________________________________________________________________ NVTL - Novatel Wireless $20.75 *** A Big "Down" Day! *** Novatel Wireless (NASDAQ:NVTL) is a provider of wireless broadband access solutions for the mobile communications market. The company's range of products includes wireless data modems and software for laptop personal computers, embedded wireless modules for OEMs, and ruggedized wireless data modems for public safety and telemetry applications. Through the integration of hardware and software, Novatel's products are designed to operate on most global wireless networks, and provide mobile subscribers with secure access to data, including corporate, public and personal information through the Internet and enterprise networks. NVTL - Novatel Wireless $20.75 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 25 NVU-KE 4102 0.20 25.20 7.0% 0.8% ************************Advertisement************************* We got trailing stops! * Trade online with trailing stops at optionsXpress, at no extra cost * Trailing stops based on the option price or the stock price * Also place Contingent, Stop Loss, and "One Cancels Other" orders * Options as low as $1.25/contract, or $12.95 Minimum--NO Hidden Fees! Go to http://www.optionsxpress.com/marketing.asp?source=oinvest33 Note: Options involve risk. 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