The Option Investor Newsletter Tuesday 11-02-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: All Over But the Counting Futures Markets: See Note Index Trader Wrap: More of the same, a change, a big change Market Sentiment: And The Winner Is... Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 11-02-2004 High Low Volume Adv/Dcl DJIA 10035.73 - 18.70 10132.99 10011.18 2.03 bln 1664/1456 NASDAQ 1984.79 + 4.90 2002.93 1978.64 1.85 bln 1543/1543 S&P 100 540.67 + 0.17 545.51 539.25 Totals 3207/2999 S&P 500 1130.58 + 0.07 1140.48 1128.12 SOX 414.23 + 0.50 417.92 407.88 RUS 2000 585.44 - 1.56 591.54 583.53 DJ TRANS 3449.62 - 54.50 3505.67 3436.41 VIX 16.18 - 0.09 16.32 15.21 VXO (VIX-O)16.85 + 0.54 17.02 15.56 VXN 22.97 + 0.36 23.06 21.66 Total Volume 4,228M Total UpVol 2,425M Total DnVol 1,731M Total Adv 3586 Total Dcl 3409 52wk Highs 411 52wk Lows 61 TRIN 0.98 NAZTRIN 0.53 PUT/CALL 0.76 ************************************************************ All Over But the Counting by Jim Brown By the time you read this tonight the early returns should be starting to trickle in and based on the exit polls on the Internet the edge is going to Kerry. The market had priced in a relief rally with breakouts to new highs across the board but once those polls began to break so did the market. Dow Chart Nasdaq Chart SPX Chart Wilshire 5000 Chart The Dow gave back -100 points to drop from its highs at 10132 and come very close to 10,000 at the close based on the early election news. The Nasdaq had been trading over 2000 for the first time since early July but dropped to retest 1980 resistance turned support again at the close. With all the pundits telling us the markets would have a relief rally tomorrow regardless of who wins you now wonder how valid that assumption was. If a couple of leaked exit polls showing Kerry with a potential lead in 5-6 states can turn a soaring rally into a loss then what will happen tomorrow? I am not going to hazard a guess because there are as many opinions as there are traders. Historically the markets don't care in the long run who wins and both parties can point to significant gains when their side is in power. However, because Bush was ahead in the polls for almost the entire race there is likely to be a Bush bias in the market. Institutions don't want to reallocate money unless forced and as long as there was a Bush edge in the polls many may have buried their head in the sand in hopes the problem would go away. The early exit polls today shocked somebody back into reality and the selling was very sharp. It could have been funds that were planning on exiting at the close anyway to capture profits and a smaller sell program just snowballed in the light volume. I think it would be hard to make any case on the direction of tomorrows market until we actually get to tomorrow. There is a running debate among traders on the validity of the post election rally period. Since funds normally invest long before any event the odds are good that most funds are already fully invested in advance of the election. They are hoping the directional traders who wanted to see a winner first will give their positions a boost. There is also those traders that feared a pre-election event of either a terrorist attack or a fatal case of foot and mouth disease by a candidate. I am not going into a lot of discussion about historical trends or various comparisons of the candidates and their impact on the market. At this point it is a waste of breath or digital ink in this case. The real scenario will now appear and we will see the results for our self tomorrow. So far the armies of lawyers remain unemployed and there have been no real problems reported in the news. Heavy voter turnout and the race is still a dead heat. Back in the economic world the Chain Store Sales fell once again at -0.3% for the third consecutive week of drops. Halloween traffic was reportedly strong but it could not push the numbers back into positive territory. The Challenger Layoff report showed a loss of more than 100,000 jobs for the second consecutive month. Cuts had averaged -71,000 for the preceding seven months. When you realize that we are in the fourth quarter where jobs normally increase this is not a good sign. Long term the Oct-2004 numbers at 101,840 was -40% below the layoffs in Oct-2003 so the trend is still down in the longer view but up in the short term. Is this a leading edge of a problem or just a blip? In the first ten months of 2004 826,160 layoffs had been announced. This compares to 1,043,954 for the first ten months of 2003. The October Jobs report is due out Friday and it will be less critical now than before the election. The estimate is currently +160,000 jobs. The Risk of Recession report continued its climb with a 27.4% reading. The low for this cycle was only a 3.2% risk as of Nov-2003 and we have seen a strong rise in recent months to the high of 28.3% in August. A fall in consumer confidence could be to blame as is the rise in oil prices. The drop in the market in October also contributed to some of the increased risk. Two brokers came out today with lowered expectations for the PC sector in the 4Q. Bear Stearns lowered their Q4 estimates slightly to only +13% growth from the prior +14% growth. The analyst said rising energy prices was depressing the consumer market. Merrill said the inventory levels were increasing in expectation for holiday sales but as of yet those sales were mediocre. The analyst said the battle for retail shelf space continued to be brutal but Gateway with its eMachines product had taken about 10% share away from H-P and Compaq since April. According to Merrill HPQ currently held 48% of retail desktop shelf space. eMachines is expected to flood the market over the holidays in an effort to capture share at lower price points. Tough business for HPQ trying to hold their high end tactics while the consumer is pressured for buying power. For those not avid watchers of the chip space you might be surprised to look at an AMD chart. The company has come back from a rumored demise in August at $11 to very close to a new 52-week high at $18. Suddenly you can find AMD chips in places you would not expect and Intel is cutting back on new projects on almost a task a week rate. Unfortunately the chip outlook is still weak. Chip makers at the Reuters Semiconductor Summit in San Fran this week were still hopeful but the cloud is still descending. Without a robust holiday cycle the outlook consensus was grim for inventory reductions in time for a 2005 rebuild. The Semiconductor Assn will update their forecasts on Wednesday and expectations are for a drop in their outlook. The EVP for Cypress Semi said the industry was about to pay the price in coming months for overbuilding production capacity. He said there was currently 20% overcapacity compared to 50% in 2000. Currently the association does not expect growth to return until 2007. NSM warned on Monday that sales were going to fall between 18-19% for Q4 compared to prior estimates of a drop of -10%. The SOX ignored all the bad news and neared 420 today and a three month high before the end of day selling appeared. A sector on a permanent high was oil but even that bull run failed to gain traction today. With oil data due out at 10:30 on Wednesday and pipeline explosions in Iraq you would have expected oil to rise again. It went the opposite direction with a close at $49.20 and well below the $55.65 high from last week. There were various reasons given but I expect it was due more to rising stock prices and the end of the election cycle that sent the prices lower. There was no terrorist event as was predicted to send prices higher into the election and penalize Bush. Also, with the election over and a post election rally expected many funds were probably dumping oil bets to raise cash to chase the post election equity market. The morning bounce in stocks only increased the expectations for the post election bounce. The afternoon drop probably shocked some of these funds enough to keep them on the sidelines until a victor has been named. One interesting side note the Euro spiked higher when Kerry was said to be ahead. That should tell you that a Kerry administration would be more friendly to Europe and let bygones be bygones. The dollar also fell compared to the Yen on the news. The Dow had traded to a three week high at 10132 early in the day and then faded into the early afternoon. The Dow bounce failed at the 100dma at 10134. That 10134 level was decent resistance with 10250 much stronger and not that far overhead. The drop back to 10000 at the close put us right back at support for the last week and a logical place to wait. Should we actually get a post election rally that 10250 level will be a key level to watch to determine if the rally has legs. A failure there could restart the entire down trend discussion. That 10250 level is the down trend resistance from early in the year. Should the market not like the election returns then 9900 is the key level on the downside. A break there again could cancel any November rally and return us to the worry about the market predicting another recession. The Nasdaq hit strong resistance at 2000 and has already broken above its February down trend at 1965. The Nasdaq was on track to challenge the next resistance level at 2050 should a post election rally breakout but the news drop took nearly -20 points off the optimism. The 1965- 1985 level is strong support that was built over the last week. As long as those levels hold on any negative election news then the overall market should remain sound. The SOX holding above 400 and the Russell over 580 should continue to provide support for the Nasdaq base. Russell Chart SOX Chart Tomorrows economic reports including the ISM Services, Factory Orders, Mortgage Applications and Oil Inventory should not matter to the market. It is all about the election now and the bets that funds have already placed and are ready to place tomorrow. The stage is set and the investment community is waiting for the play to begin. All the posturing, mudslinging, predicting and threatening will all be behind us and real life will begin again. According to the latest reports there are no events that should keep us from having a winner declared tonight but then until the votes are counted nothing is guaranteed. I am not going to take any more of your time today because what I say or any market analyst says tonight has no bearing on our direction tomorrow. Trade the trend tomorrow and keep your stops loose as the volatility could be very high. Buy any dips to the levels I mentioned above and hope the post election rally fable comes true. Enter Passively, Exit Aggressively. Jim Brown Editor *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ***************** INDEX TRADER WRAP ***************** More of the same, a change, a big change Traders and investors got a slight taste of what the financial markets might be thinking should the United States of America elect a new president. While stocks held gains through the bulk of today's session, a late round of selling left the major indices mixed as early exit polls had Senator John F. Kerry holding slight edge over incumbent George W. Bush in key battleground states of Ohio and Florida. S&P 500 Index (SPX.X) Chart - 30-minute intervals A market watcher would have been predicting a Bush win earlier this morning (certainty, MARKET knows policies). I'll admit that I was a bit surprised the markets showed the strength that they did on this Election Day, as market participants usually avoid making too many buy/sell decisions as the world's largest economy votes for who will hold the office of president. You watch. Tonight's election is probably going to be a close as the S&P 500's fractional 1/2-point gain. One political watcher said the election was so close that we could actually see a tie in the electorate, whereby George W. Bush would most likely retain his office, but the Democrat's Vice President candidate, John Edwards, could replace Dick Cheney as Vice President. Can you imagine the gridlock of that ticket? Did you know: In the event no one obtains an absolute majority of electoral votes for president, the U.S. House of Representatives (as the chamber closest to the people) selects the president from among the top three contenders with each State casting only one vote and an absolute majority of the States being required to elect. Similarly, if no one obtains an absolute majority for vice president, then the U.S. Senate makes the selection from among the top two contenders for that office. Presently, the Electoral College has 538 electors. There are 535 for the total number of senators and representatives plus three for Washington, D.C. Today, a candidate must receive 270 electoral votes to win. While some economists believe the president doesn't have that much influence on an economy, at least near-term, it all comes down to some type of "certainty." Market Snapshot / Internals - 11/02/04 Close Maybe it was a thought I had in the 01:00 PM Intra-day update that when all the votes are counted by tomorrow, and the outcome of this year's election is known, that just 51% of voters are actually going to be happy tomorrow that had the major indices retreating to the close. Market Volatility Index (VIX.X) - 30-minute Intervals I placed my bar chart cursor on the 30-minute interval beginning at 02:45 PM EDT and we can see the "pop" in the VIX.X. At tonight's close I look at the top 5 most active options (Volume : Open Interest) and average price of today's O/H/L/C. My analysis is that there was a buyer earlier in the day of the Nov 1,175 calls, but it looks like a volume spike from the morning (4,910) was matched from 01:00-01:30 (5,017) for a gain of almost 100%. At this time, the SPX was trading 1,140. Now, the Nov 1,150 C, is a little more interesting and may have been a directional play lower, IF viewed from a WINNING trade perspective at tonight's close. From 01:00-01:30 2,445 contracts creates an uneven volume spike and traded at roughly $9.00. I don't really see a short-term following spike of volume and my analysis would be a "naked call seller" saying the SPX wasn't going to trade 1,150 + $9.00 = 1,159 before November expiration. Now, note the prior two options traded some activity between 01:00-01:30 and no real time tie to today's VIX.X action. The Nov. 1,100 Puts becomes a little more interesting. Three "spikes" of volume intra-day, all three just over 1,200 contracts. That's some cash when average price of these three trades does look to be 1,100. The last volume spike come from 02:00-02:30. This gets "closer" to the 02:45 VIX.X move. My analysis is that this was a seller. If I'm wrong and this was a directional play then I'd place some focus at Support #2. The reason I think this was a put seller is that the first volume spike came early in the session, at/near the contract's high price. The last volume spike came late in the day 02:00-02:30 at/near contract low price. My analysis of this being a put seller could be incorrect, if this were an institution buying these puts as a hedge, to hedge against bullish positions accumulated during the day, perhaps on thought of a "Bush victory." The Nov 1,120 puts don't really have much of a time match with 02:45 PM EDT. At 03:15 PM EDT there was a pretty decent spike of just more than 1,000 contracts at $9.50. If I take $10 either side of 1,120 I can come up with a range of 1,110-1,130. The 1,130 is today's close, while 1,110 has the SPX down at that little "sliver of support" found from the WEEKLY/MONTHLY pivot retracement. When I update the Pivot Matrix, we might look for 1,110 there too. The Nov 1,025 puts look to be a large speculator closing out prior to 12:00 PM EDT. If this analysis is correct, the Open Interest should fall on this contract tomorrow. The most "peculiar" trade that I see in today's option chain wasn't the most active, but the Nov. 1,130 puts (SPT-WF) did trade 6,925, which looks heavy considering open interest is just 7,414. I look for things that seem peculiar. The biggest volume spike comes at 10:55 (1,614 contracts) at $18.68. This isn't a "piker" type of trade. That's some cash. Then some smaller volume spikes of 600 and 770 contracts just after 03:00 at about $13.00. Today's average price range was $13.62 and if I take $14.00 either side of the 1,130 strike I come up with a range of 1,116 to 1,154. OK... 1,116 is pretty darned close to the WEEKLY Pivot. That's got to be a key level tomorrow. Pivot Analysis Matrix - In PINK I've marked the SPX Daily Pivot. I see that as "overlapping" early resistance with the MONTHLY 38.2% retracement at 1,132.84. The reason I'd watch that is if Kerry were to win tonight's election, bulls might want to see if that level gets cleared first, if futures are pointing to a higher open. I'll note the benchmark 10-year yield ($TNX.X) gravitated right back to its MONTHLY Pivot of 40.77 by the close. Treasuries really traded in a tight range and didn't seem to get as "carried away" with things as stocks did today. I still see the WEEKLY Pivot to MONTHLY Pivots as being the important near-term support. I would have to think a break below those levels is going to be a restful pause of recent gains. I've marked tomorrow's DAILY S2 with "Kerry" on thought that we could see trade to at least that level on a Kerry victory. DAILY R2 is marked with "Bush" where stock market participants would breath a sigh of relief. Jeff Bailey **************** MARKET SENTIMENT **************** And The Winner Is... - J. Brown And the winner is...? Hopefully the answer to that question is stocks but only if we get a clear winner. About the only certainty we have in this dead-heat of an election is that everyone wants it to be over. After listening all day to the news media I'm encouraged that there really wasn't any major voter scandal brewing. No one wants a repeat of the 2000 election. What can I say about investor sentiment tonight? The markets were not expected to do much before the election and that's exactly what we've got at least with the major indices. Everyone seems poised for a post-election rally. Of course that could be a problem in and of itself. Normally if everyone expects something to occur it doesn't. You've probably heard it before. If everyone leans over the same side of the boat it just might tip over. The market internals mirrored the pre-election indecision. One could say that advancing stocks and declining stocks were in a "statistical dead heat" today. Up volume out paced down volume but only on the NASDAQ. It may be noteworthy that the ARMS index or TRIN's short-term moving averages are in or nearing bearish territory. Cross your fingers and hope that there is a clear winner. If not stocks are not expected to do well while both sides try and win the election in court. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9497 Current : 10035 Moving Averages: (Simple) 10-dma: 9927 50-dma: 10107 200-dma: 10252 S&P 500 ($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 : 1494 Moving Averages: (Simple) 10-dma: 1467 50-dma: 1424 200-dma: 1438 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 16.18 -0.09 CBOE Mkt Volatility old VIX (VXO) = 16.85 +0.54 Nasdaq Volatility Index (VXN) = 22.97 +0.36 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.77 880,089 673,404 Equity Only 0.55 723,572 398,622 OEX 1.42 31,369 44,520 QQQ 0.53 47,083 24,789 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 65.0 + 1 Bear Correction NASDAQ-100 53.0 + 1 Bull Alert Dow Indust. 50.0 - 0 Bear Confirmed S&P 500 63.6 + 1.6 Bear Correction S&P 100 61.0 + 1 Bear Correction Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.80 10-dma: 0.90 21-dma: 1.03 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 1459 1517 Decliners 1368 1530 New Highs 150 97 New Lows 16 36 Up Volume 1017M 1191M Down Vol. 988M 629M Total Vol. 2052M 1836M 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************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. 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The Option Investor Newsletter Tuesday 11-02-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: DHR, FDX, GS, IBM, ITT, ITW, LEH, SBUX New Calls Plays: See note Put Play Updates: APOL New Put Plays: None **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** None ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Danaher - DHR - close: 55.32 change: -0.01 stop: 51.99 As expected the first two days of this week didn't see much progress either way. DHR tried to rally on Tuesday morning but faded into the afternoon just as the Dow faded into the close. DHR presented at the Goldman Sachs global capital goods conference today but whatever was said there wasn't enough to produce any sort of move in the stock. We remain bullish but direction tomorrow depends on the election. Traders can still watch for a bounce from the $53-54 level assuming there is any sort of dip. No change in our stop loss at $51.99. Picked on October 27 at $54.99 Change since picked: + 0.33 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.3 million Chart = --- Fedex Corp - FDX - close: 90.97 change: +0.27 stop: 84.99 The Dow Jones Transportation index fell 1.5 percent on Tuesday despite a 2 percent drop in crude oil. Shares of FDX witnessed a little bit of selling early in the session but managed a decent rebound off the lows. The company also announced it was upping its transatlantic capacity by 20 percent, which should be seen by the markets as positive guidance for future growth. No change in strategy but direction now depends on the election. Picked on October 21 at $89.45 Change since picked: + 1.52 Earnings Date 09/22/04 (confirmed) Average Daily Volume = 1.5 million Chart = --- Goldman Sachs - GS - close: 98.55 change: +0.23 stop: 93.00 The XBD broker-dealer index turned in another strong day despite news that Merrill Lynch cut its earnings forecasts on fellow brokers Morgan Stanley (MWD) and Bear Stearns (BSC). Shares of GS managed an early morning rally but struggled to break through round-number, psychological resistance at $100. GS faded into the afternoon just as the Dow turned lower. We remain bullish but if GS produces a dip traders can watch for a bounce in the $97-96 region. Picked on October 27 at $96.10 Change since picked: + 2.45 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 3.2 million Chart = --- Intl Business Mach. - IBM - close: 90.47 chg: +0.36 stop: 86.00 The GHA hardware index posted its sixth gain in a row to hit new 2 1/2 year highs. IBM joined the group with a gain but like many blue chips IBM faded into the afternoon as investors turned to wait out the election results. We're certainly encouraged by the move higher and another close over the $90 level but everything depends on the election results. Cross your fingers for a clear winner. Picked on October 27 at $90.00 Change since picked: + 0.47 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 4.7 million Chart = --- ITT Industries - ITT - close: 80.10 chg: -0.69 stop: 77.50 There's a good reason we used a trigger on ITT. The stock has been flirting with a breakout over the $81 level but it hasn't been able to drum up enough momentum to breakout over the $81.50 mark. Our entry point to go long is at $81.51 but shares hit $81.46 on Monday and $81.45 today. Aggressive traders may want to consider a bounce from $80 or $79 but we're going to wait for the breakout. Strong volume on today's failed rally is not a good sign, which gives us another reason to wait until our trigger is hit. 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 = --- Illinois Tool Works - ITW - close: 91.00 chg: -0.69 stop: 87.50 This week has brought a little bit of profit taking to shares of ITW. The drop under $92.00-91.50 may be disappointing but nothing goes up in a straight line. Traders can use a bounce from the $90.00 level as a new entry point for bullish positions. If ITW trades under $89.00 we're going to get concerned. Picked on October 27 at $90.89 Change since picked: + 0.11 Earnings Date 10/19/04 (confirmed) Average Daily Volume = 1.2 million Chart = --- Lehman Brothers - LEH - close: 82.87 chg: +1.43 stop: 77.95*new* Lehman Brothers continues to help lead the XBD broker-dealer index higher. As noted above in the GS update the XBD index posted another decent gain. LEH out performed most of its peers with a 1.75 percent rally today. The next hurdle is minor resistance at $83.25. Our short-term target is still $85.00 but we suspect LEH can trade higher. We are going to raise the stop loss to $77.95 near the simple 200-dma and under the simple 50- dma. Picked on October 26 at $80.60 Change since picked: + 2.27 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 2.0 million Chart = --- Starbucks - SBUX - close: 52.98 chg: -0.32 stop: 47.95 So close! SBUX has been flirting with a move toward our profit range in the $54-55 region but has not been able to cover that last 50 cents. On Tuesday shares of SBUX traded in a relatively narrow 60-cent range as investors sat on the sidelines awaiting the election results. Like everything else in this market direction for SBUX will be determined by Wall Street's reaction to any Presidential winner or lack thereof. Conservative traders may want to raise their stops if you're feeling cautious. Picked on October 17 at $49.47 Change since picked: + 3.51 Earnings Date 11/10/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************** NEW CALL PLAYS ************** Note from the Plays Editor! Tonight is a significant turning point in our country and it could be a significant one in the markets. Given the uncertain outcome of who will win the Presidential election and how stocks will react we elected to pass on adding any new plays until we had a clearer picture of a winner or lack thereof. ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Apollo Group - APOL - close: 64.27 chg: -0.11 stop: 70.01*new* APOL doesn't disappoint. The stock traded lower on Monday breaking under meager support at $66 and round-number support at $65.00. The stock tried to bounce on Tuesday but failed at the $66 level. We are encouraged and continue to target the $60 region but bears do have an immediate risk. That risk is that if the market rallies tomorrow on any post-election excitement shares of APOL may be lifted with the tide. Of course if there is no clear winner then stocks should fall and APOL could help lead the way down. We are going to lower our stop loss to $70.01 because we are willing to patiently let APOL work its way lower over the next several weeks. More conservative traders may want to tighten their stops. Picked on October 10 at $69.81 Change since picked: - 5.54 Earnings Date 10/05/04 (confirmed) Average Daily Volume = 3.3 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 11-02-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Auctions to Auto Parts and more! Spreads & Straddles: "Super Tuesday" Rally Fades At The Close... Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** Auctions to Auto Parts and more! ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ eBay Inc. - EBAY - close: 100.66 change: +1.38 WHAT TO WATCH: Love it or hate it you can't deny the strength in shares of EBAY. The stock broke through the $100 level again today and looks poised to break through minor resistance at $102 to hit new all-time highs. Depending on how stocks react to the election news traders may want to consider bullish positions over $102. The bullish P&F chart points to a $125 target. Chart= --- AutoZone Inc - AZO - close: 81.80 change: -0.06 WHAT TO WATCH: The rebound in AZO has hit a wall. The stock has spent the last five sessions struggling to breakout over its simple 200-dma. It is probably not a coincidence that this level also happens to be resistance on AZO's P&F chart. Readers can watch for a dip back to $78-79 and consider buying a bounce or watch for a momentum entry on a move past $82.50. The bullish P&F chart does point to a $99 target. Chart= --- Zebra Technologies - ZBRA - close: 53.84 change: +0.89 WHAT TO WATCH: Last week shares of ZBRA broke through major support as investors reacted to its earnings report. The major support broken was its simple 100-dma. This was technical support that had held up for over a year. Now ZBRA has also fallen through round-number support at $55. Fortunately for shareholders ZBRA is trying to hold support near $52.50 and its simple and exponential 200-dma. Whether Tuesday's bounce is an oversold bounce or the beginning of a rebound is the question. We suspect that given ZBRA's huge run over the last two years the stock could be in for more profit taking. Aggressive traders may want to consider shorts on a failed rally under $57.00. Otherwise we can watch for a momentum entry on a breakdown under $52.00 or $50.00. Chart= --- Novastar Financial Inc - NFI - close: 45.05 change: +0.80 WHAT TO WATCH: We still believe that NFI looks like a bullish candidate. Share continue to rebound from their recent double- bottom near $40.00 and now shares have cleared technical resistance at the simple 200-dma. NFI has also cleared minor resistance in the $44-45 level. The stock looks poised to climb back toward the $50 range. If a dip occurs look for a bounce from $44.00. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- APA $49.46 -1.52 - Oil stocks continued to slip today and APA has seen selling with heavy volume. The breakdown under $50 today looks ominous. Watch for support near $47.50 or a full pull back toward the 200-dma. LTR $61.53 +1.57 - LTR looks very strong with today's 2.6 percent breakout over resistance at $60.00. HAR $125.70 +5.55 - HAR continues to soar. Nothing goes up in a straight line unless its HAR from mid-August to early October but this time the stock is extremely overbought. AVP $37.64 -0.46 - AVP continues to sink after last week's breakdown. CME $179.80 +4.00 - CME flirted with the $180 level today. We expected a stock split sooner or later. ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ******************* SPREADS & STRADDLES ******************* "Super Tuesday" Rally Fades At The Close... By Ray Cummins The major equity averages ended mixed after an early buying spree that saw index values rise to 4-month highs. The market pulled back amid early exit-poll data, which suggested that Senator John Kerry was "competitive in key states" with the senator holding a small lead in Florida and Ohio. The Dow Jones Industrial Average finished down 18 points at 10,035, reversing sharp gains earlier in the session. The NASDAQ Composite Index held on to a 4 point advance, closing at 1,984 after reaching the 2,000 mark for the first time since July. The S&P 500 Index ended nearly unchanged at 1,130 with oil & gas equipment, aluminum, gold, and utilities among the worst performing sectors. Volume on the NYSE was 1.67 billion and NASDAQ volume was 1.84 billion. Winners edged past losers 6 to 5 on the Big Board while breadth was roughly neutral on the technology exchange. Treasury prices were slightly higher. The benchmark 10-year note closed up 2/32 with its yield at 4.06%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/31/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ EBAY - eBay $100.66 *** Another All-Time High! *** eBay (NASDAQ:EBAY) is a web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and other miscellaneous items. The eBay trading platform is an automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. Through its wholly owned and partially owned subsidiaries and affiliates, the Company operated online trading platforms directed towards the United States, Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland and also the United Kingdom. EBAY - eBay $100.66 PLAY (less conservative - bullish/credit spread): BUY PUT NOV-90.00 XBA-WR OI=1130 ASK=$0.45 SELL PUT NOV-95.00 XBA-WS OI=717 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$94.40 __________________________________________________________________ CTX - Centex $53.55 *** Rally Mode! *** Centex Corporation (NYSE:CTX) is a multi-industry company with operates in six principal business segments. Conventional Homes operations involve the construction and sale of single-family homes, town homes and low-rise condominiums, and the purchase and development of land. Investment Real Estate operations involve the acquisition, development and sale of land, and the development of industrial, office, retail and mixed-use projects. Financial Services operations involve the financing of homes, home equity and sub-prime lending, and the marketing of insurance coverage. Construction Products involves cement production and distribution, and the production, distribution and sale of gypsum wallboard, concrete, aggregates and recycled paperboard. Contracting and Construction Services involves the construction of buildings. Centex HomeTeam Services is involved in pest and termite control, lawn and landscape care, electronic security, alarm monitoring and home-wiring services. CTX - Centex $53.55 PLAY (conservative - bullish/credit spread): BUY PUT NOV-45.00 CTX-WI OI=3338 ASK=$0.25 SELL PUT NOV-50.00 CTX-WJ OI=8595 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$49.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEPR - Sepracor $45.44 *** In A Trading Range? *** Sepracor (NASDAQ:SEPR) is a research-based pharmaceutical firm dedicated to treating and preventing human disease through the discovery, development and commercialization of pharmaceutical products that are directed toward serving unmet medical needs. The company's drug development program has yielded an extensive portfolio of pharmaceutical compounds including candidates for the treatment of respiratory and nervous system disorders. Sepracor selects for development compounds with the potential to offer improvements over existing therapies with respect to efficacy, side-effect profile, dosage forms, or, in some cases, the opportunity for additional indications. SEPR - Sepracor $45.44 PLAY (speculative - bearish/credit spread): BUY CALL DEC-55.00 ERU-LK OI=613 ASK=$0.50 SELL CALL DEC-50.00 ERU-LJ OI=1114 BID=$1.40 INITIAL NET-CREDIT TARGET=$1.00-$1.10 POTENTIAL PROFIT(max)=25% B/E=$51.00 __________________________________________________________________ TTWO - Take-Two Int. Software $33.24 *** Premium-Selling! *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Int. Software $33.24 PLAY (conservative - bearish/credit spread): BUY CALL DEC-40.00 TUO-LH OI=679 ASK=$0.45 SELL CALL DEC-37.50 TUO-LU OI=5039 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$37.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. _________________________________________________________________ No straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events, as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 10/31/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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% Special Tuesday Note: Palomar Medical Technologies (NASDAQ:PMTI) became an early-exit victim after a post-earnings slump. The CEO said he was proud of the company's "strong quarter with a substantial increase in revenues and profitability," however the news was not positive enough to prevent a sell-off in PMTI shares. 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 LNG 25.83 NOV 22.50 LNG-WX 0.35 226 22.15 18 2.7% 8.0% MRVL 28.82 NOV 25.00 UVM-ME 0.35 8600 24.65 18 2.4% 7.3% ANF 39.11 NOV 35.00 ANF-WG 0.45 1142 34.55 18 2.2% 6.3% SFNT 32.09 NOV 30.00 UUI-WF 0.40 253 29.60 18 2.3% 6.1% ELN 26.11 NOV 22.50 ELN-WX 0.25 6256 22.25 18 1.9% 6.0% SHPGY 29.03 NOV 27.50 UGH-WY 0.35 415 27.15 18 2.2% 5.7% XMSR 33.13 NOV 30.00 QSY-WF 0.35 8378 29.65 18 2.0% 5.6% YHOO 37.74 NOV 35.00 YHQ-WG 0.40 16K+ 34.60 18 2.0% 5.3% Abbreviations: LB-Last Bid price, OI-Open Interest, CB-Cost Basis (or break-even point), DE-Days to Expiry, SY-Simple Yield (monthly basis without margin), MY-Maximum Yield (monthly basis with margin), TS-Target Shoot. _________________________________________________________________ LNG - Cheniere Energy $25.83 *** Natural Gas Demand Soars! *** 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 $25.83 NOV 22.50 LNG-WX LB=0.35 OI=226 CB=22.15 DE=18 TY=2.7% MY=8.0% _________________________________________________________________ MRVL - Marvell Technology $28.82 *** Earnings Speculation! *** Marvell (NASDAQ:MRVL) designs, develops and markets integrated circuits utilizing proprietary communications mixed-signal and digital signal processing technology for communications-related markets. Marvell offers its customers a wide range of integrated circuit solutions using proprietary communications mixed-signal processing and digital signal processing technologies. Marvell's product groups include: storage products, consisting of a variety of read channel, system-on-chip and preamplifier products; and broadband communications products, consisting of a variety of transceiver products, switching products, internetworking products and wireless LAN products. Earnings are due 11/18/04. MRVL - Marvell Technology $28.82 NOV 25.00 UVM-ME LB=0.35 OI=8600 CB=24.65 DE=18 TY=2.4% MY=7.3% _________________________________________________________________ ANF - Abercrombie & Fitch $39.11 *** Testing 2004 Highs! *** Abercrombie & Fitch Company (NYSE:ANF), through its subsidiaries as specialty retailers, operates stores selling casual apparel, personal care and other accessories for men, women and kids under the Abercrombie & Fitch, Abercrombie and Hollister Co. brands. A&F's stores and point-of-sale marketing are designed to convey the principal elements and personality of each brand. The store design, furniture, fixtures and music are carefully planned and coordinated to create a shopping experience that is consistent with the A&F lifestyle. ANF - Abercrombie & Fitch $39.11 NOV 35.00 ANF-WG LB=0.45 OI=1142 CB=34.55 DE=18 TY=2.2% MY=6.3% _________________________________________________________________ SFNT - SafeNet $32.09 *** Recovery Underway! *** SafeNet (NASDAQ:SFNT) designs, manufactures and markets network security technology and systems. The firm operates through two security business units, the Embedded Security division and the Enterprise Security division. The Embedded Security division is comprised of hardware, chips, software and intellectual property designed and manufactured in the United States and Europe for sale to companies that will embed SafeNet's products into their products for ultimate sale to end users. The Enterprise Security division includes hardware, software and network security systems designed and manufactured in the United States for direct sales to end users. SFNT - SafeNet $32.09 NOV 30.00 UUI-WF LB=0.40 OI=253 CB=29.60 DE=18 TY=2.3% MY=6.1% _________________________________________________________________ ELN - Elan Corporation $26.11 *** Premium-Selling Only! *** Elan Corporation (NYSE:ELN) is an integrated biopharmaceutical firm engaged in research and development in Alzheimer's disease, Parkinson's disease, multiple sclerosis, pain management and autoimmune diseases. The company's objective is to discover and develop products that will fulfill the unmet medical needs of patients. Elan conducts its global business, including research, development, manufacturing and marketing, through subsidiaries incorporated in Ireland, the United States, the United Kingdom and other countries. ELN - Elan Corporation $26.11 NOV 22.50 ELN-WX LB=0.25 OI=6256 CB=22.25 DE=18 TY=1.9% MY=6.0% _________________________________________________________________ SHPGY - Shire Pharmaceuticals $29.03 *** Entry Point? *** Shire Pharmaceuticals (NASDAQ:SHPGY) is a global pharmaceutical company with a strategic focus on meeting the needs of the specialist physician. The company has a particular interest in therapies that are prescribed by specialist doctors as opposed to primary care physicians. Shire is currently focusing on the development of late stage projects and marketing products in the areas of central nervous system, gastrointestinal and renal. SHPGY - Shire Pharmaceuticals $29.03 NOV 27.50 UGH-WY LB=0.35 OI=415 CB=27.15 DE=18 TY=2.2% MY=5.7% _________________________________________________________________ XMSR - XM Satellite Radio $33.13 *** New 2004 High! *** XM Satellite Radio (NASDAQ:XMSR) is America's #1 satellite radio service with over 1 million subscribers. Broadcasting live daily from Washington, DC, New York City and Nashville, Tennessee at the Country Music Hall of Fame, XM provides its loyal listeners with over 100 digital channels of choice: 70 music channels, more than 35 of them commercial-free, from hip hop to opera, classical to country, bluegrass to blues; and 31 channels of premiere sports, talk, comedy, kid's and entertainment programming. Compact and stylish XM satellite radio receivers for the home, the car, the computer and even a "boom-box" for on the go are available from retailers nationwide. XMSR - XM Satellite Radio $33.13 NOV 30.00 QSY-WF LB=0.35 OI=8378 CB=29.65 DE=18 TY=2.0% MY=5.6% _________________________________________________________________ YHOO - Yahoo! $37.74 *** Internet Shares Surge! *** Yahoo! (NASDAQ:YHOO) is a worldwide Internet business and consumer services company that offers a comprehensive branded network of properties and services to more than 200 million individuals worldwide. The company offers an online navigational guide to the Internet via its www.yahoo.com Website, which is a guide in terms of traffic, advertising and household and business user reach. Through Yahoo! Enterprise Solutions, the firm also provides many business services designed to enhance the productivity and Web presence of its clients. Yahoo! has offices in the United States, Europe, Asia, Latin America, Australia and Canada. YHOO - Yahoo! $37.74 NOV 35.00 YHQ-WG LB=0.40 OI=16880 CB=34.60 DE=18 TY=2.0% MY=5.3% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ DISH - EchoStar $30.59 *** The Downtrend Resumes! *** EchoStar Communications (NASDAQ:DISH) operates through two major business units, the DISH Network and EchoStar Technologies. The DISH Network offers a direct broadcast satellite subscription TV service across the United States with millions of DISH Network subscribers. EchoStar Technologies Corporation is engaged in the design, development, distribution and sale of DBS set-top boxes, antennae and other digital equipment for the DISH Network and the design, development and distribution of similar equipment for a range of international satellite service providers. DISH - EchoStar $30.59 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL NOV 32.5 UAB-KZ 2571 0.40 32.90 6.3% 1.2% _________________________________________________________________ DITC - Ditech Communications $21.26 *** Sell-Off Underway! *** Ditech Communications (NASDAQ:DITC) is a global telecom equipment supplier for voice networks. The firm's voice-processing products focus on echo cancellers, used to eliminate echo, a common problem in existing and emerging voice networks. The company's newest voice-processing products not only provide customers with the traditional echo cancellation features, but also can be used to provide voice quality assurance features that address issues, such as background noise and other voice quality issues in wireline and wireless communications. DITC - Ditech Communications $21.26 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 QZD-KE 968 0.25 25.25 8.2% 1.0% _________________________________________________________________ LSS - Lone Star Technologies $24.95 *** Sector Slump! *** Lone Star Technologies (NYSE:LSS) is a management and holding company with six principal operating subsidiaries: Lone Star Steel Company, Fintube Technologies, Bellville Tube Company, Wheeling Machine Products, Delta Tubular Processing, and Delta Tubular International. All of these subsidiaries contribute to the company's products and services in the oil and gas equipment and well-drilling industry. LSS - Lone Star Technologies $24.95 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 LSS-KF 598 0.20 30.20 6.5% 0.7% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! 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