The Option Investor Newsletter Sunday 11-14-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment In Section One: Wrap: Seller Boycott Futures Wrap: See Note Index Trader Wrap: ADJUSTMENT Editor's Plays: Its Not Over Yet Market Sentiment: Do I Buy Now? Ask the Analyst: "Junk Bonds" and the second leg of a bull market 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 11-12 WE 11-05 WE 10-29 WE 10-22 DOW 10539.01 +151.47 10387.5 +360.07 10027.5 +269.66 -175.57 Nasdaq 2085.34 + 46.40 2038.94 + 63.95 1974.99 + 59.85 + 3.64 S&P-100 566.22 + 8.32 557.90 + 17.25 540.65 + 15.49 - 6.64 S&P-500 1184.17 + 18.00 1166.17 + 35.97 1130.20 + 34.46 - 12.46 W5000 11609.67 +200.13 11409.6 +340.64 11068.9 +320.91 - 90.63 SOX 423.81 + 5.98 417.83 + 5.58 412.25 + 17.09 + 13.79 RUT 621.98 + 17.69 604.29 + 20.50 583.79 + 16.02 - 0.65 TRAN 3628.20 + 55.70 3572.50 + 75.08 3497.42 +125.48 + 19.26 VXO 14.05 14.36 16.57 16.09 VXN 18.82 19.47 21.90 21.36 ****************************************************************** Seller Boycott by Jim Brown Chalk up another big day for the bulls and new highs all around on the major indexes. Even the Dow almost made it across the major resistance zone at 10450-10550 without stopping. The SOX came back to life and there was not a bear to be found. It was not a rousing rally day but more of a slow creep upward with sellers nowhere to be found. Dow Chart Nasdaq Chart After a government holiday the economic reports came back to haunt us with October retail sales posting a dismal +0.2% gain compared to a +1.6% gain in September. The biggest drag came from Autos at -2.2% for the month and surprisingly the building materials dealers at -1.1%. Apparently hurricane sales slowed slightly in October after a bounce in Sept. Ex-Autos the headline number would have been +0.9% but if you take out the spike in gasoline prices that number drops back to +0.5%. Any way you slice it sales were terrible and it appears consumers were constrained by the impending election and high gas prices. Wal-Mart claims their average ticket is $50 and the gas prices have taken $10 off that average. Apparel was the strongest sector at +3.0% as the first winter storms hit and drove consumers to the stores for coats and winter clothes. The Consumer Sentiment came in much stronger than expected and could be telling us that holiday shopping is going to be strong. Sentiment rose to 95.5 for the first November reading and up from 91.7 in October. We know October was depressed by the election mudslinging and high oil and November has seen both of those problems go away. Both the expectations and current conditions components rose for the first half of the month. This was the first gain since July and the biggest gain since June. The strong jobs report also helped boost sentiment. Business Inventories rose a paltry +0.1% for September and well below the +0.7% jump in August. Inventories are near historical lows in relation to sales and they are not likely to fall any further. Inventories were up +7.3% on a year over year basis. However, these very low levels of inventory will not contribute to the GDP effort. This is a sustenance level not a rebound level. None of this negative news had any impact on stocks. Traders took one look at the Consumer Sentiment and weak oil prices and said we need more stocks. There was nobody around to sell them and the prices started higher. Prices appeared to languish over the lunch hour as they waited for the FOMC minutes from the September meeting but once the news hit the wires it was off to the races again. The minutes expressed some concern about the pace of the expansion although they said it appeared resilient and self sustaining. The Fed saw solid growth ahead but at a pace that was less brisk than previously expected. They saw numerous risks to the downside and questioned the need to continue raising rates but still felt a "gradual" pace of increases would be all that was needed to maintain steady growth without inflation. The problems they were concerned about were primarily job creation and fading demand. Since this meeting we have seen a sharp jump in job growth and continued slow growth in demand but growth that is still rising. It is anticipated that the cautious Fed as evidenced by the minutes was probably not going to make any big moves and the "measured pace" phrase was going to continue into 2005. Estimates are for a rate hike in Dec and Feb and continued low inflation. There is no shortage of consumer demand in the stock market. Schwab noted that there was a +16% rise in trade volume in October and November was even stronger. Ameritrade said November volume was up +20% so far. AMG Data said for the week ended Wednesday there was $4.3B in cash inflows to mutual funds. That was the biggest single week since April and tax month. Investors appear to be going for the gold into year end and worrying about 2005 when we get there. Earnings for Q3 are nearly done at +15.1% and guidance is light for Q4 and beyond. This entire rally is built on the hope that the 2005 outlook will change before we get there. It is also built on relief. Relief that the election process is behind us and relief that the year long down trend appears to have been broken. Relief that oil prices have fallen -15% off their highs is also a factor. Would you have believed back in July that traders would be relieved that oil was ONLY $47.50 a barrel today? Oil was trading at $35.50 on June-30th. Crude Oil Chart Chart of US Dollar Index Gold Chart While the equity markets were setting new highs on nearly all the indexes the dollar was still getting knocked for a loss. This could grow to be a real problem soon and one that could cause the markets more stress than oil ever could. We are nowhere near a critical level but we need to keep it on the radar screen. The best way to prove the importance of the falling dollar is to simply look at gold prices. Gold closed at a sixteen year high on Friday at $438.30 and the dollar closed at an multiyear low. Deficits and trade gaps do matter. The markets popped in their ear plugs and placed their tunnel vision glasses firmly in place. Once the sentiment was announced it was buy, buy, buy but it was not a feeding frenzy. Just a slow creep higher until the SPX stopped its advance at 1177 and waited for the FOMC minutes. Once the minutes were released and deemed bullish that SPX level broke and multiple buy programs tacked on another six points to close at 1183.44 and less than a point from the high of the day. Once that 2002 high at 1177 was broken the race was on and announcers could not say enough positive words about the rally. SPX Chart The Dow struggled to break over 10500 but once broken it nearly made it all the way across the 10450-10550 danger zone without stopping. This is a monster move and it has shown no signs of weakening. If the Dow can clear the 10550 level then the highs for the year at 10750 are the next target. Should we see a pullback initial support would be 10450. The Nasdaq has literally caught fire over the last two days. The Dell bounce helped and even the SOX participated. The Nasdaq Comp closed near the high of the day at 2083 and 2100 is only a stones throw away. This is a huge breakout of +49 points from the Wednesday close. After trading perfectly sideways for four days the sellers failed to appear Thursday morning and the last two days were very strong. Investors finally decided chip stocks were undervalued and the SOX added +17 points over the last two days with a close well over the 420 resistance level. If the downtrend resistance at 425 can be broken like we have seen on the other indexes then the Nasdaq could really explode. The Russell rambled to another all time high and closed at 622 and right on the last shred of resistance dating back to Jan-2004. I see no reason why this breakout should not continue other than the sheer magnitude of the rally. The small caps should continue leading and we should watch the Russell as the leading indicator of any potential pullback. Russell Chart SOX Chart With the exception of the SOX all the indexes are now setting either new multi month, multi year or historic all time highs. Even the transports closed at a new five year high and the Dow utilities at a new three year high. Bullishness is not just breaking out all over but it is rampant and growing. It is reaching extreme levels but traders are scoffing at the idea of taking profits. Nobody wants to sell. Up volume on the S&P was nearly 4:1 over down volume and we are at severe nosebleed levels. Volume across all markets roared back from Thursday's holiday level and hit 4.3B shares. Advancers were better than 2:1 over decliners for the second day in a row. Stronger volume, strong A/D and more than 10% of all stocks were trading at new 52-week highs. Sounds like the Goldilocks market for the bulls and the perfect storm for the bears. Those bears trying to short this rally have been road kill for two weeks now. Those trying to short are dwindling as the bull gains more and more converts. There are two challenges now. The first for the bulls is the amount of extension we have seen. The Dow has risen +831 points, +8.6% in 14 trading days with no material profit taking. We have had a couple of minor losses but most profit taking came on days where there was a large move higher and then an afternoon sell off. There has not been any materially negative day. The S&P has only lost ground on four of the last 15 days and the total points lost was only -4.20 or an avg of -1.05 per day. This may not qualify as any kind of string but in the middle of that period it was positive for nine consecutive days. In short there has been NO profit taking and the risk is beginning to grow that some will appear soon. Very soon. Conversely there is also risk to the upside, very strong risk. There is a general feeling starting to make the rounds that the current rally is the beginning of the second leg on a cyclical bull market that started back in March of 2003. If you remember we had a monster rally off the March lows that added +47% to the SPX and topped in March 2004. Since March we have trended down as the election mudslinging increased along with higher oil and a perceived terror risk for the election. All very normal reasons to consolidate. Now those worries are behind us the general consensus is a 1250 S&P target by year-end. However, that is just the first stop if you believe a growing analyst population that is now targeting 1350-1500 for year end 2005. Dow Chart 1993-1995 Dow Chart 1995-1997 Dow Chart 2002-2004 I do not want to get into the dozens of reasons why those 2005 targets may be right or wrong because it does not matter for the next two weeks. What matters is the risk to the funds that those predictions could come true. If they are not fully invested for the rest of the year then they could miss out on another +10% S&P move to 1300. Why 1300? Because the obvious target of 1250 could be hit next week and there is a lot of year left. If you are a fund manager you can't afford to be wrong and waiting on the sidelines for the next pullback. It may never come or when it comes it may be so weak that you passed up on a +5% gain to get a -1% pullback. The comments beginning to make the rounds since the last Jobs report suggest we could see a strong upward revision in 2005 guidance with the January earnings. Companies like Dell are not seeing any abnormal buying but they are seeing stronger demand than most people expected. The weak guidance for Q4 may result in a lot of better than expected earnings in January if the next two months continue to improve as dramatically as the last 30 days. Funds can't afford to be wrong. Being cautious is not an option at this point. Analysts still claim there is a lot of money on the sidelines. The range bound down trending markets over the last ten months have punished attempts to get long several times and managers were either skeptical or caught under invested on the post election bounce. I have reported several times over the last couple months about the high cash positions in many funds. Some as much as 25% to 35%. We have to assume that most of these very large numbers have been shrunk to smaller levels of maybe 5-10% or less. With $7 trillion on deposit in mutual funds and $1.5 trillion in hedge funds even a minimal 3-5% can be a very large number. If the average mutual fund cash position was only 5% that would be $350 billion uninvested. At 3% that number drops to $210 billion and neither number takes the hedge funds into account. Remember I said average and many funds keep less than 1% in cash but many others could have a substantial cushion. If these under invested funds do not participate in any continued rally then customers will move the money to a different fund next year. It is "buy or die" for any fund not currently fully invested. Add in all the retail money still hesitant to believe in the rally and you have a lot of reasons for the rally to continue. What I am describing is not fundamental. It has nothing to do with earnings or the economy. It is survival of the fittest for funds and the battle has already begun. Logic would suggest there SHOULD be a pullback to consolidate our gains from the last three weeks. Logic rarely works in new bull and bear markets. Panic is the only emotion likely to be seen over the next two weeks. If you are like me you are looking at the set of vertical green candles above and thinking the sky is about to fall. Nothing that vertical can last. In fact the current ramp has not yet reached the proportions of some recent rebounds. Jul-2002 775 to 909 +17%, +134 points, five days Oct-2002 768 to 900 +17%, +132 points, eight days Mar-2003 788 to 896 +14%, +108 points, eight days Oct-2004 1090 - 1184 +8%, + 94 points, fourteen days As you can see our current spike, although appearing vertical to those if us who have been range bound for ten months, has been weaker than prior rebounds. This suggests there is room to run and any pullback could be limited at best. A run to 1250 from here would only be +66 points and another +5% gain. For a true picture of the strength of the market compare the breakout in the Wilshire 5000 with the Dow. The Wilshire has clearly broken out and at three-year highs with plenty of room to run. 5000 stocks vs only 30. Wilshire 5000 Chart I hope I have not alienated anyone with this analysis and reporting of the current market rumblings. As in politics, religion and football there can be many opinions and all different. I only try to sift through the many available, weigh the options and present the likely outcome. Imagine the market is like a football game. The bulls have the ball and have been marching down the field in pretty impressive fashion with the goal line at SPX 1250. The bears have been getting trampled on nearly every play. They know they are being pushed back nearer to their goal on each play and the situation is serious. As the time begins to expire on the November clock each play becomes more critical. They may eventually sack the bulls for a loss but more than likely the next play out of the huddle will be a long bomb for a bullish gain. The bears have no replacements and the walking wounded are getting weaker. The bulls on the other hand have legions of players just coming off the bench with pocketfuls of cash for padding. While the game may not be over the outcome is pretty obvious. We don't know how many plays are left to be run before the bulls score or how many sacks the bears may achieve. That is what keeps it interesting. Next week the economic calendar increases in intensity but baring an absolute disaster it will be ignored. Buy any dip and don't count on them being deep. Watch for an interception and be prepared for high volatility. Keep your eye on the Russell for directional indications. It should be a fun week as option positions are squared ahead of expiration. Odds are very good there are a lot of traders with naked option positions that got away from them and they will have to buy to cover beginning on Monday. This should increase the upward pressure on the market. Max-pain for the SPX is 1125 and hopefully out of reach. Any move higher on Monday could start another serious short squeeze. I realize I have painted a strongly bullish picture and one that may run contrary to logic. The market exists to confound the maximum number of traders at any given time and after crawling out on the limb today I am just begging for it to be cut off behind me. Trade what you see and you can't go wrong. Sell Too Soon! 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 ******************** ADJUSTMENT By Leigh Stevens THE BOTTOM LINE - Market action with the further spurt to the upside this past week, after only a minimal sideways consolidation, is suggesting a new bullish up "leg" and more than just a completed trading rally. For me it causes an adjustment of what might be "overbought" extremes (below) and of higher upside index targets. This situation makes it difficult for traders to take on new call positions as the risk (of a sharp downswing) goes up. Conversely, buying puts when a correction seems due, risks getting caught in a stampede higher when "irrational exuberance" takes over. Longer-term bullish: 1.) The S&P 500's 50-day moving average crossed above it's 200-day average, for the only the second time since a bearish (downside) crossover 4-years ago - the first time was May last year, suggesting the major trend has again turned UP in the blue chips. 2.) At its close of 3628 the Dow Transport average (TRAN), in the face of very high oil prices, is nearing its all-time weekly closing highs (of 3685 in '98 and 3742 in 99), suggesting a pick up in economic activity ahead. 3.) The Russell 2000 (RUT) bellwether index of small cap stocks, has gone to a both a new weekly closing high for the year and an all-time high as RUT exceeded its 2000 peak, breaking out above a major double top. 4.) Bellwether blue chips General Electric (GE) and Microsoft (MSFT) have gone to new yearly highs, as well as the Nasdaq 100 (NDX), which has gone to a new closing peak. Can the rest of the market be far behind? - Well yes actually! To keep things in perspective, the S&P 500 (SPX) has retraced to date just a bit more than half of its 2000 - 2002 decline (but has exceeded a 2-year high). The Nasdaq Composite (COMP) has not yet pierced its 12-month weekly closing high (at 2140) and has only retraced about 23% of its 2000-'02 decline. If you still hold stock, especially tech, from 2000, you probably wish you had switched into bonds; or, real estate. Well, householders are happy! FRIDAY'S CLOSING NUMBERS - The S&P 500 (SPX) got to its highest level in 3 years - since July 2001, closing up 10.7 points (+0.9%), to end at 1,184.17. SPX gained one and a half percent on the week. The Dow 30 Average (INDU) a laggard in recent weeks, closed up 69 points at 10,539 (+0.7%), also up 1.5% on the week. The Nasdaq Composite (COMP) Index rallied to 2085, up 24 points (+1.2%) to 2,085.3 - for the week, COMP gained 2.3%. FRIDAY'S TRADING - Major news was a summary of the Sept 21st Federal Reserve meeting and the discussions relayed from the meeting. Their minutes indicate that some members perceived downside risks to their central forecast, including the possibility that the end of fiscal stimulus and a desire by consumers to increase savings would lead consumers to pull back on their spending. Federal Reserve Board discussions suggested that current economic conditions are likely to warrant a further modest tightening of rates, but also noted that "policy actions would need to be increasingly keyed to incoming data." Members noted that the Sept. 21 rate hike to 1.75% had brought the real federal funds rate slightly into positive territory only. Much of the policy discussion at the September meeting revolved around prospects for hiring and capital spending by businesses. Labor market conditions had improved modestly and business investment "would most likely continue to provide considerable impetus to the overall economic expansion going forward," according to the minutes. However, Fed members also expressed concern over the expiration of a capital spending tax break at the end of the year, as possibly resulting in a "fairly sharp slowing in investment." In addition, businesses seem overly cautious in their investment decisions, perhaps because of concerns about corporate governance or terrorism. Another worry was the "further widening of the U.S. trade and current account balances," which the committee attributed to relatively weaker growth in foreign economies. All in the all the market took the report bullishly for stocks and the economy as growth looks to be on target but is not likely to be so strong as to cause more than modest further rate hikes. DELL, MY BELL - Strong third quarter earnings from Dell Computer (DELL) helped lift tech stocks. Dell rallied to a 4-year high after posting a 25% gain in Q3 profits, in line with Street forecasts. The stock ended at 40.4, up up over 8%. REPORTS - The Commerce Department said retail sales showed surprising strength in October, rising 0.2% despite a large decline in auto sales. Excluding autos, retail sales rose 0.9 percent, the strongest sales since May. The figures were slightly better than expected. The University of Michigan said U.S. consumer sentiment improved slightly in early November. Its consumer sentiment index rose to 95.5 from 91.7 in October, its best reading in 3 months and more than expectations for a rise to 93.8. OTHER MARKETS - The 10-year Treasury note ended 13/32 higher at 100 15/32 to yield 4.19 percent, in light trading. Crude-oil futures ended lower to mark a loss of almost 5% for the week as traders weighed fresh concerns over global oil output against pressure from nearly 2 months worth of growing U.S. crude supplies. December crude futures closed at $47.32, for a loss on the week of $2.29. The dollar was down against both the euro and the Japanese yen slightly - the Euro continues to be unable to surge through 1.30, but it holding quite steady just under - stay tuned, as 1.30 is an important area. MY INDEX OUTLOOKS - S&P 500 Index (SPX) - Daily chart: Time for a new scale of 5 percent in my upper trading band (aka envelope), relative to the 21-day moving average in the S&P 500 (SPX) - 5% on the upper envelope line is a setting useful for a strong move up in a bull market. Since the usual overbought indicators like stochastics and RSI don't work when the market is running like this, a setting well above the historical "norm" of 3 percent gives a good idea of price areas that is an area of high risk for a (downside) correction. 1210 is a measured move type objective based on the flag pattern from recent trading traced out below. More on flag patterns can be found at - http://www.OptionInvestor.com/traderscorner/tc_100704_1.asp My upper trading band suggests that the S&P 500 (SPX) could be headed to around 1200 before it gets to a point where a bunch of folks decide its time to lighten up and sell. If we do realize such a quick 100-point rally, it seems like the glory bull market days. Support is clearer than "resistance" - quotes around it cause it's hard to say where that is. But support is around 1140, the prior high. Last week, I said that I didn't anticipate a dip to below 1140 and I still don't. Speaking of exuberance, my "sentiment" indicator saw its first 1- day reading of call activity so much over puts that it suggests that traders are getting so bullish - that's it's bearish! Another time for that explanation, but its just a fact that tops don't tend to come until a lot of market followers are trading in calls - about double put activity on any given day for equity options. It's also true that these readings in the bearish area can come in clusters and get more extreme than the 1-day reading of last week. S&P 100 Index (OEX) - Hourly chart: 574-575 is an upside objective in the S&P 100 (OEX) based on the same considerations as for SPX above - the area of my upper trading band at 5% which is rarely exceeded (at least for long) and based on the price where the recent rally would carry as far as the prior advance; i.e., a type of measured move based on the spurt up, added to the top of the 3-day short consolidation. Stay tuned on that! Of course an objective anywhere near the 12-month intraday high around 573 is also quite significant technically - a top developing in this area should be watched for its potential of being a double top. It may take a while to get through these old highs - if at all - especially given the overbought extreme seen in indicators like RSI. I note my expected support areas on the chart below, at 555, then at 545. Since OEX is approaching its early-year high, it instructive to see how overbought the RSI got then when it hit 80. Then it took weeks for that top to form. Dow 30 Average (INDU) - Daily chart: I thought significant resistance would come to bear around 10500, but the Dow 30 (INDU) managed to spurt through this area on short-covering and some new buying going into the weekend. The chart presents prior highs as obvious areas both as next targets and possible resistance/selling pressures coming in around 10570, then if exceeded, at 10750-10753. I measure a possible objective for this current advance as being to the 10700 area. Potential for a double top exists or just a pullback to consolidate the strong gains made in such a short time. Nasdaq Composite (COMP) Index - Daily chart: Anticipated resistance in the 2050 area, didn't slow the Nasdaq Composite (COMP) down and 2100 is my next objective, perhaps a bit higher say to 2115-2120 - but there is a point where sellers are going to come in again. Near support is at 2030-2032 and further key support coming in a zone from 1990 down to 1980. Significant support should also be found just under 1950, at the up trendline. The Composite is about as overbought as it gets, but in this kind of strongly trending market this is a less reliable guide to going into puts. But when reversal type price action comes in, prices can give ground quickly in this kind of situation as "bad news" hits hardest when RSI reaches these extremes. Nasdaq 100 (NDX) Index - Daily chart: The Nasdaq 100 (NDX) has closed at a new 2004 high, but I will also watch closely the intraday high from early in the year also. If my expanded (set at a higher percent value above the 21-day average) percent envelope line (at 6%) marks the area of a top like early this year, NDX will get as high as 1575-1580 before coming down. As I said last week, my next focus on the charts is what happens around the yearly high at 1560. I don't think further upside above this area is all that great. I would exit calls and go into some December put options if NDX got to the 1600 area. Support is at 1515-1520, then back down in the 1500-1490 area. There's more room on the upside for the RSI before it's screaming overbought. Nasdaq 100 tracking Stock (QQQ) Daily chart: 39 remains my upside objective on QQQ - if the stock clears this area, especially on a closing basis, I don't think there is necessarily a lot more upside to come after that. It depends on what happens the next day - two consecutive closes above a resistance point like a prior 12-month high is more crucial than a one-day event. It's a matter of what happens after the shorts cover and whether new buyers then step up to the plate. Stay tuned! Near support is expected at 38-37.9, with more significant support and buying interest developing if there was a pullback to the 37 area. Daily volume has not expanded greatly - nothing like the way price has - making me a bit cautious on the further upside potential for the Q's. That and the overbought extreme we see. Regarding volume, the On Balance volume indicator continues higher, so there is no bearish divergence - the direction is up which is key. I like to see more volume coming in to match such a strong rally - otherwise it suggests the rally is driven as much by short- covering as bullish enthusiasm. Probably what's needed is for QQQ to achieve a decisive upside penetration of the yearly high at 30 - or not, to drive the stock down again. 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 ************** Its Not Over Yet He who laughs last laughs loudest. I just hope we are the ones laughing when this is over. The Google play was looking good until Walt Mossberg put down the MSN Search engine at 12:30 on Thursday. Before the piece had even finished on air the stock had jumped +4 and the short covering began all over again pushing it back to $190. Friday saw a -$10 drop from the highs but a solid hold at $180. The game plan was to set a stop at $180 and reenter at $170 and the level where we restarted the play last week. I am going to raise that reentry point to $175 and hope there is a serious downdraft when those shares come to market on Tuesday. There is a disagreement on the web about the actual lockup dates. The majority of sites list Nov-16th but some had the date as early as the 12th or as late as the 19th. I researched it again and the shares are available for trading 90 days after the initial IPO. The first day of trading for the stock was August 19th. 90 days puts it at Nov-16th after counting for 31 days in Aug and Oct. Google's venture capitalists, Sequoia Capital and Kleiner Perkins, are big potential sellers. Both companies initially wanted to sell a combined 4.5 million Google shares but withdrew them at the last minute. They will be available for sale next week. 85+ employees have over $2 million in shares each and could also sell some next week. What would you do as an employee working on the promise of future gain for the last five years? Ca-Ching$ Who the heck knows what will happen but the one thing we know for sure is the next 25 million shares are due out 21 trading days later. 25 million more the next month and 170 million on Feb 15th. That is a lot of risk for current holders. Plan for next week: Reenter at $175.00 Stop at $185.00 repeat if needed Google Chart ************ Open plays: ************ MRK Put $26.45 ** Stop $28.00 ** (lowered) ** Target $20.00 ** Jan-2006 $25 LEAP Put WMR-ME cost $1.70, currently $3.20 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_101004_1.asp MRK Chart *********************** XMSR Call $33.89 ** Stop $33.40 ** (raised) ** Target $35.00 ** Somebody is leaning on XMSR at $34 and we have spent two weeks battling that level. Solid pattern of higher lows so I am not ready to exit yet. We could easily break out at any time and the break could be worth a buck to the options. I raised the stop just in case. JAN-$30 Call QSY-AF cost 2.75 currently $4.60 JAN-$32 Call QSY-AZ cost 1.75 currently $3.00 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_100304_1.asp XMSR Chart ********************* PVN Call Update $16.85 Target $20.00 New 52-week high on Friday! Jan-$15 Call PVN-AC cost 1.05, currently $2.10 Initial recommendation: http://members.OptionInvestor.com/editorplays/edply_061304_1.asp PVN Chart **************** MARKET SENTIMENT **************** Do I Buy Now? - J. Brown Gosh, if you read the market wrap this weekend then you don't need to read today's column on market sentiment. Jim has already done an excellent job of discussing why stocks could just as easily trade higher versus trading lower in spite of the market's overbought, extended status. Most of us who have been watching the markets look at the current rally and think, "Wow! The markets are so extended it has to come down soon." Yet therein lies the problem. Stocks don't have to do anything. If there is one thing we've learned over the past few years is that stocks can always go higher when we think they can't and they can always go lower when we think they can't. Do I think stocks will go higher? If you're talking about between now and year end then the answer is yes. But I do believe in the laws of gravity. Try as they might stocks can't defy gravity forever. Every day stocks put off consolidating some of these gains the steeper and more painful the pull back can be. Jim discussed the issue of investors both big and small pushing stocks higher because they're afraid they've missed the rally. There is nothing stronger than the emotion of greed except fear. Right now there are a lot of investors worried the train has left the station without them. This crowd of traders is going to pounce on the first dip they see. That's going to make the dips a lot more shallow than you and I might expect. The challenge for you and I is two-fold. Do I buy now and/or do I sell? A lot of OptionInvestor.com's bullish candidates have done very well. So when do you sell? Do you sell when your option is up 25%? How about 50%? Do you sell at a 100% gain? Over 100%? That's the question facing many of our readers. Personally, I'd rather put the money in my account than see the option values evaporate on a sharp pull back. Yes, it has happened before when I sell something because I think it can't go any higher and it keeps going. That's okay! I suggest readers re-evaluate their stop losses to make sure they're comfortable with how much risk they're taking. So do I buy now? That's a tough question. I would much rather wait and be one of those in the growing horde waiting for the dip than jump in now at what could be a top. The market will eventually pull back. I'm more encouraged by the positive development in the market's bullish percent data. Plus, the volume numbers and advance/decline numbers and new highs/new lows data is all very bullish. The combination of the post-election rally and the traditional fourth-quarter November-December bullishness should keep stocks climbing higher throughout the end of the year. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9585 Current : 10539 Moving Averages: (Simple) 10-dma: 10310 50-dma: 10139 200-dma: 10244 S&P 500 ($SPX) 52-week High: 1170 52-week Low : 1031 Current : 1184 Moving Averages: (Simple) 10-dma: 1158 50-dma: 1126 200-dma: 1120 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1558 Moving Averages: (Simple) 10-dma: 1520 50-dma: 1448 200-dma: 1438 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 13.33 +0.29 CBOE Mkt Volatility old VIX (VXO) = 14.05 +0.73 Nasdaq Volatility Index (VXN) = 18.82 -0.10 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.76 1,147,119 874,194 Equity Only 0.64 869,039 553,135 OEX 0.99 77,291 76,757 QQQ 1.51 38,472 58,208 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 70.5 + 0.8 Bear Correction NASDAQ-100 69.0 + 3 Bull Confirmed Dow Indust. 63.3 + 0 Bull Confirmed S&P 500 71.2 + 0.4 Bull Confirmed S&P 100 71.0 + 1 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.00 10-dma: 0.89 21-dma: 0.92 55-dma: 1.03 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 2071 1829 Decliners 744 1155 New Highs 400 190 New Lows 12 14 Up Volume 1467M 1329M Down Vol. 473M 635M Total Vol. 1964M 1988M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 11/02/04 *ALERT - CFTC.GOV has not released any new data since 11/02/04. We will update this section when data becomes available. 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 Considering the fact that the latest data was taken as of election day, Nov. 2nd, it's no surprise to see both commercials and small traders hedging their bets. The next round of data should be more informative. Commercials Long Short Net % Of OI 10/12/04 423,472 436,780 (13,308) (1.5%) 10/19/04 432,945 441,041 ( 8,096) (0.9%) 10/26/04 441,263 445,992 ( 4,729) (0.4%) 11/02/04 446,192 441,676 ( 4,516) (0.4%) 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 10/12/04 139,175 113,903 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% 11/02/04 136,290 132,040 4,250 1.5% 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 E-mini traders are not as humble as the larger S&P futures traders. Commercials remain bearish and small traders have pushed their bullish bias to new multi-week levels. Just remember, this data is post-election. Commercials Long Short Net % Of OI 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%) 11/02/04 307,053 580,081 (273,028) (30.7%) 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 10/12/04 309,720 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% 11/02/04 395,029 63,746 331,283 72.2% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Just as small traders pushed their bullish S&P bias to multi- week extremes; they've done the opposite on the NDX with a new multi-week bearish extreme and a new low for the year. Commercials Long Short Net % of OI 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% 11/02/04 53,002 31,231 21,771 25.0% 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 10/12/04 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%) 11/02/04 8,886 36,621 (27,735) (61.3%) Most bearish reading of the year: (27,735) - 11/02/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Neither commercials nor small traders seem willing to place any big bets but both are somewhat bullish on the Industrials. Commercials Long Short Net % of OI 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% 11/02/04 25,319 24,261 1,058 2.0% 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 10/12/04 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% 11/02/04 7,952 6,306 1,261 8.8% 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 *************** "Junk Bonds" and the second leg of a bull market Many "Junk" bonds are nearing all time high resistance. (I have been following your Oil, Interest rates, Russell potential story) Will this bullish look also give strength to "junk" to overcome this resistance? Do companies which rely on "Junk" continue to rely during the early stages of a recovery? Thanks Jim This readers question came to me on Monday, but what a great question to be asking as some of the major indices break out to all-time, or new 52-week highs as the second leg of the bull market finally begins to take hold. Jim has evidently been with us for awhile and has been following my thoughts and analysis regarding "junk bond" and what this asset class can tell investors about the economy. That's why I placed the "junk bond" Pacholder High Yield (AMEX:PHF) $9.81 +0.61% in the U.S. Market Watch, which I show in many of the intra-day updates at OptionInvestor.com and premierinvestor.net, as well as the Beetles Balanced Benchmark fund; a hypothetical fund where we placed equal amounts of capital in various asset classes. It has been my hypothesis dating clear back to early 2003 that the sudden advance in "junk bonds" or the closed-end Pacholder High Yield (AMEX:PHF) as the example, was telling us that a bull market for equities would soon take hold. My hypothesis was that "junk bonds," which are deemed the HIGHEST RISK of bonds, would only be performing well if the MARKET deemed an economic recovery taking hold, where even some very indebted companies that has suffered greatly during the recession, were finally starting to see business pick up, where these "junk- rated" company's debt, which carried higher coupons (rates of interest), would become attractive to investors, as the likelihood of repayment of debt became more "certain," or less RISKY. Sure enough, "junk bonds" did indeed give STOCK investors a heads up to a new, and what I felt was a young bull market, in its FIRST leg, or stage of expansion. With that said, let's look at the Beetles Balanced Benchmark real quick, but I'm showing the portfolio from a benchmark of 12/26/03. The reason I want to show this portfolio from the 12/26/03 benchmark is that this week, the S&P 500 Index (SPX.X) 1,184.17 and the tracking S&P Depository Receipts (AMEX:SPY) $118.79 just broke above their January-February highs, which is a pretty good PRICE benchmark to 12/26/03, when the SPY had closed at $109.70. Beetle's Balanced Benchmark - 11/12/04 Close If we had placed roughly $1,193.00 in EACH asset class shown in the Beetle's Balanced Benchmark, and had never rebalanced (like we do near the end of each quarter) this is how things would look today. Our focus in today's comment is the "junk bond" Pacholder High Yield (AMEX:PHF) in PINK, and the S&P Depository Receipts (AMEX:SPY), which according to most analysts, is supposed to reflect the broader U.S. economy. Since December 26, 2003, up until the past couple of weeks, the stock market had been in a lull, perhaps a reflection of the U.S. economy. Now, the PHF currently shows a 6.28% gain, but remember, the 6.28% gain does NOT reflect the $0.075 per share, per month dividend the PHF kicks off each month. If I wanted to get a true P/L % since 12/26/03 benchmark, I would add an additional 75 cents ($0.075 x 10 months) to today's closing value of $9.81, and come up with $10.56. I could then derive a 14.40% profit from 12/26/03. That's not too bad, considering other asset classes current P/L %. True, their P/L % does not reflect any interest payments from bond asset classes (SHY, IEF, TLT, LQD) or the equity classes (DIA, SPY, QQQ), or a basket of stocks within the HUI.X. Still, the PHF would be a clear out-performer since 12/26/03 benchmark. With this quick review, Jim's question of "will this bullish strength also give strength to junk to overcome this resistance?" is confusing. And must be cleared up immediately. The REASON I added "junk bond" observations to my market analysis is because JUNK BONDS should be a LEADING asset class for strength when compared to equities. We should remember, "junk bonds" are actually a LESS RISKY asset class, than underlying equities. To make this clear, think of what recently happened with KMart before the recent bankruptcy and restructuring. When the "original" KMart went bankrupt, stock holders got nothing. It was the bond holders, when the bonds were then rated "junk" that made the recent killing. When Kmart restructured, the bond holders, which are SENIOR to stockholders, received new stock, which now trades under the NASDAQ symbol KMRT. I'm not trying to be critical of Jim, but the 14.4% gain I calculated for the PHF (dividend included) and would compare to equity returns in the Beetle's Balanced Benchmark, should solidify investor's confidence that "junk bonds" are an important asset class to be monitoring. And here is where the "second leg" of a bull market can come into play with junk bonds Jim. And this is where a basic understanding of economic cycles must be understood as I've discussed in the past. If YOU have ever experienced any financial difficulty, or know someone who has, then "junk bonds" and a second leg of a bull market for equities, or further expansion of an economy is more easily understood. What happened to your, or your friends credit score (think credit rating of a bond) when credit card payments you were supposed to make didn't get paid? Your FICO score probably went down, as your creditor wanted to tell other creditors that you, or your friend, was starting to exhibit habits of an unworthy credit risk. Maybe you missed some payments after you lost your job in the recession. Maybe you became seriously sick, missed several months of work, had other bills to pay (house payment, insurance premiums, doctor bills) that had you delaying payment on your credit cards. When your credit score (FICO score) fell, if you wanted more credit, you were either denied, or you had to pay a HIGHER rate of interest in order to borrow. The REASON the PHF pays $0.075 per month dividend, or a current yield of 9.17%, isn't because this closed-end fund holds a bunch of AAA rated bonds. An extended period of economic slowing, or some "bad luck" a corporation goes through, can create extreme financial hardship. When this happens, then the probability of bond holders being repaid may become uncertain (the stock of the company gets hit the hardest, as stockholders are at the end of the food chain). If credit rating services deem a company becoming a HIGH credit risk, the corporate debt is rated "junk" by either Moody's or Standard & Poors. When corporate debt is rated "junk," then baby, that's what the creditors think of your credit. Junk! Garbage! The next step down from "junk" is bankruptcy!!!! But just as some individuals have had credit problems in the past, some may have had to file bankruptcy, but others were fortunate enough to have dug themselves out of debt. It is often-times the "second leg" of a bull market (even a third, a fourth, etc) that junk bonds can further be of help to an equity investor. An end to a bull market (economic expansion) can also be signaled. What happens to the individual that does get their job back, or recovers from illness and goes back to work? As time passes, they will usually start paying back their past due creditors. What happens to their FICO score (credit rating)? It starts to recover! What happens then? Your mailbox starts getting filled up with credit applications! You know, "you've been approved for a 0.00%..." What is really happening to the individual is that as they START RECOVERING from a personal RECESSION (first leg of recovery) and as they recover, their VALUE as a potential customer for new credit starts to RISE! Once they've repaired their credit, their FICO score begins to recover (second leg of recovery). THIRD and FOURTH and FIFTH legs of expansion also take place. Remember when you were 18 and tried to get credit? You had no credit background, and the bank would only loan you up to X- number of dollars, and you may have had to pay a higher rate of interest than your parents. But as you aged, your credit history started to build, your income probably rose, and the amount of credit you began to build had your credit score rising further! As it relates to "junk bonds" the FIRST LEG of recovery usually comes with some type of INITIAL economic recovery for the company's business. The most difficult of times begin to abate, business picks up. Company's that have laid off workers, cut costs, etc. have trimmed things to the bare bones. As the recovery is found, their debt may still be rated "junk" but the MARKET (investors) will sense the company's likelihood of existing into the futures, becoming more sound. What happened during the economic DOWN cycle is that the company's debt, which may have been trading 90-cents on the dollar, has fallen to 50 cents on the dollar. Any debt issued (corporate bond) during the tough times came with a HIGHER YIELD, or a higher coupon rate, than say a company with much stronger financials that was able to raise funds with a AAA- rated bond offering. What will happen during the SECOND leg of recovery is this Jim. Take one of Pacholder High Yield's holdings; Buckeye Tech Inc. (NYSE:BKI) $11.71 -0.67%, and their Senior Subordinate Notes 8%, with maturity of 10/15/2010. (Page 4 of PHF's 06/30/04 Semi- Annual Report). An 8% coupon seems high in today's low interest rate environment. Doesn't it? There are other holdings with coupons of 12%! Anyhow, what you will see is stated par value(s) (what the bond(s) will be worth at full value upon maturity, should the company still be in existence at maturity, and the current VALUE of the bonds held. Using Buckey Tech's Sen. Sub. Notes 8%, we'll see that PAR VALUE of the total holdings (by PHF) is $465,000, while the current MARKET VALUE is $428,963.00. Market value is what you could have bought the bonds for on June 30, 2004. In essence Jim, this bond currently trades at an addition DISCOUNT of $36,037 to its PAR VALUE. That is an 8.4% DISCOUNT to par. What might happen to the PRICE, or MARKET VALUE of this bond should the economy begin a second leg of recovery, and business pick up for Buckey Tech? What about the other hundreds of "junk" bonds the PHF currently holds? Correct! Should business pick up, then Buckey's ability to pay that hefty 8% coupon should become more certain. As time passes, then the time to maturity of this bond shortens. Now.... here's where "junk bonds" can get a real bullish kick. Let's imagine for a moment that the economy really heats up. Business is booming for Buckey tech, and their bank vault is now overflowing with cash. The stock is also hitting a 52-week high. What would YOU do if you were the CEO of Buckey Tech? I'd certainly hope that you would PAY OFF THAT HIGH COUPON BOND of 8%! Jim, if you pay off that coupon of 8%, what is happening to the MARKET VALUE of that bond? What MUST happen? The MARKET VALUE must immediately rise to PAR VALUE. Boom! There that 8.4% discount (Market to Par) that the bondholder profits from. What happens to the stock? Boom! That 8% per year interest the company was paying, now goes to the bottom line and earnings!!!! You see the pattern? First the bond price increases from a discount, to par. Then the stock should respond (follow the bond) with a higher price! That's the extreme bullish case for a "junk bond" holder. But as a CEO Jim, you also know the power of financial leverage. Even if business improves, and the company's credit rating gets boosted from "junk" to maybe a B rating, you'd probably approach an investment bank and talk to them about refinancing that existing 8% bond, with a 6% bond, as your company's credit rating has improved as the economic cycle begins its second leg. Heck Jim, with the stock at a 52-week high (demand in control of your stock) you might also think about a secondary stock offering to try and appease some of that demand for your stock. Stockholders might not mind as your paying off an 8% note with the proceeds from the secondary stock offering! Still, the bondholders of your 8% are going to get their PAR VALUE and if the Pacholder High Yield Fund (PHF) is still holding some of those 8% coupon bonds, then the PHF fund should see some increase in value. Unfortunately Jim, I threw away my other quarterly reports and it would have been very interesting and informative to have seen if PHF had held some Buckey Tech Sen. Sub. 8% notes back in April of 2003. If you pull up a chart of Buckey Tech's (NYSE:BKI) $11.71 stock, you'll see the stock was trading just under $5 when the stock market found its "recession lows" in early 2003. I'd almost be willing to bet that Buckey's Sen. Sub. 8% notes have outperformed the stock, if you add back in that hefty 8% coupon it has paid per year since then. When do "junk bonds" tend to under-perform stocks? This analysis is SO important to understand. An I will guarantee you that more than one analysts, or investor will have misread this signal and it comes from not understanding an interest rate environment, but MOST IMPORTANTLY, economic cycles. Some analysts only think there is ONE cycle to an economy. Up then Down. Down then Up. It just isn't so Jim. "Junk bonds" can become an under performing asset, and be misread by STOCK MARKET ANALYSTS (that don't understand junk bonds) under a LOW INTEREST RATE ENVIRONMENT, in a SECOND LEG (not a first leg) or THIRD LEG of an economic expansion. Remember, a VERY HEALTHY economy will go from an initial ACCELERATION phase (coming out of recession very accommodative Fed policy, interest rates usually low) to a growth phase (acceleration abates, steady growth resumes, Fed may begin tightening, but at a "measured pace" as economy has been expanding at rapid pace) and then a more mature phase (steady, but slower rate of growth, Fed fine tunes with a rate hike here and there, maybe a cut to extend the economic growth cycle). What tends to happen as an economy moves from the acceleration phase is this. Corporations begin to grow earnings as the second leg of the economic cycle takes hold. From this, those company's that had debt, which was rated "junk," may have that debt upgraded, or they pay that higher coupon debt off entirely. That's great for the "junk bond" holders at the time! What then happens though is that the pool, or number of "junk bonds" begins to diminish as corporate credit quality improves with the economy. As the Fed begins to tighten its monetary policy (raise rates) the Treasury bond market will respond, and we will most likely see Treasury bond YIELDS start to rise. Remember here that Treasuries are deemed MUCH LESS RISKIER than Junk Bonds. What will eventually happen Jim is this. The number of "junk bonds" will begin to diminish, as corporations' credit quality improves with economy. As Treasury YIELD begins to rise, this becomes competition for the "junk bond" investor. Over time, the MARKET will continually ask itself the question "Do I now buy a 10-year YIELD at 4.2% instead of the Buckey Sen. Sub. 8% note that trades at an 8.4% discount to par? "Junk bonds" CAN DECLINE or UNDERPERPERFORM in a very healthy economic environment (stocks rising/economy growing) when corporation's credit quality has improved so much that the number of junk bonds diminish, and as the Fed raises rates to try and stem a more rapid pace of growth, which can lead to inflation, that there is no longer enough "junk bonds" and HIGHER YIELD to compete against alternative asset classes. To understand this phenomena, you MUST believe in the supply/demand relationship and its impact on price. Say you have 10 junk bond investors (demand) and you have 100 junk bonds (supply) that are available in the MARKET, all with 8% coupons and all trading at an 8% discount to PAR VALUE. Now imagine that the economy has improved markedly, and there are still 10 junk bond investors (demand), but the number of junk bonds available in the market has fallen to 50 (half the supply). All 50 still have a coupon of 8%, but more than likely those bonds remaining will have seen their DISCOUNT to PAR VALUE narrowed to perhaps 2%. The MARKET is so smart Jim, that it will EVENTUALLY KNOW if it is worth the RISK to buy Buckey Sen. Sub. notes with a current potential 16.4% return, or the VERY SAFE 10-year Treasury YIELD ($TNX.X) with a current 4.2% coupon. It will weigh this decision on its outlook for the economy, where the economy's strength/weakness is the RISK factor. For the Pacholder High Yield (PHF) $9.81, we KNOW that it is currently spitting off a current yield of 9.17% per year if I bought it at $9.81 (12 monthly dividends of $0.075 divided by $9.81). How can the "junk bond" market decline, despite a still healthy and growing economy? When the MARKET decides it is comfortable with the thought of continued economic growth that it wants to take on FURTHER RISK and GREATER POTENTIAL REWARD that what the "junk bond's" YIELD and its DISCOUNT TO PAR can offer. What's the next-most RISKIEST asset class than "junk bonds?" You got it! It STOCKS!!!!!!! But hopefully, investors have learned something from me about economic cycles. Its not just growth, contraction, growth, contraction, growth and contraction. An economic cycle, especially one that comes out of recession, will see acceleration and then growth phase, and can even be further prolonged with a maturing growth phase before contraction is found. I went cross-eyed as I was reviewing the Pacholder High Yield (PHF) semi-annual report. It looks like there's still a lot of "junk" out there, trading at some discounts to par value. Ooooeee! PHF made some money on that Insight Health Services Sr. Sub. 9.875% note. Par value of $1,500,000 but trading at a PREMIUM to par with a market value of $1,612,500 and still getting a 9.875% coupon? As I see things Jim, it looks like we're just entering the second phase of the bull market that started in early 2003. The fed funds rate is still at historically low levels, currently 2.0%. Treasury yields are still at some very low historical levels. If I'm correct, or have been correct in thinking that a second leg of a bull market would soon unfold (as it looks like it has the past two weeks) then there should still be plenty of "junk bonds" with attractive coupons, trading at DISCOUNTS to par, that offers junk bond investors some handsome future returns. Will they continue to outperform equities as they have (price + YIELD) forever? No. The supply/demand relationship along with economic cycles doesn't allow for it. But! The fact that the NYSE and Russell 2000 are making all-time highs, the SPX trading a fresh 52-week high certainly can't hurt the prospects for many "junk bonds" to be seeing their current market price begin to narrow the gap to their par values. Just because we're seeing equity indices breaking out higher, doesn't mean for CERTAIN that "junk bonds" will, at least not immediately. Perhaps market participants see greater return in equities than they do for "junk bond" over the next couple of months. Still, a portion of your holdings should still generate a decent income stream. If the Pacholder High Yield (PHF) fund manager, or any "junk bond" fund manager is doing his/her job, then they are making some good risk/reward assessments and bond selections, and the bond prices (market value) should be improving as fast, if not faster than the underlying equity. They HAVE TO BE if the MARKET is as efficient and all-knowing that many believe it is. Conclusion: On a scale of risk, the equity markets are RISKIER than the "junk bond" market. This is true as in the case of bankruptcy, the bondholders are senior to stockholders. Therefore, the "junk bond" market should be a leading indicator for stocks. It has been hasn't it? If you believe the above to be true, then all that is left is the understanding of economic cycles. Just because an economy expands from recession, doesn't mean it will go back into recession, especially if "junk bonds" are seeing price gains and outperforming equities! 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 ------------------------------- APPA A.P.Pharma Inc. Mon, Nov 15 Before the bell n/a ATN Action Performance Mon, Nov 15 After the market 0.21 ATA Apogee Technology Mon, Nov 15 Before the bell n/a ARM ArvinMeritor, Inc. Mon, Nov 15 Before the bell 0.53 BGO Bema Gold Mon, Nov 15 After the market -0.01 BOBE Bob Evans Farms Mon, Nov 15 After the market 0.28 CKN Cash Systems Inc Mon, Nov 15 ----- n/a ----- 0.04 ERJ Embraer-Empresa Mon, Nov 15 After the market 0.52 FRO Frontline Ltd. Mon, Nov 15 ----- n/a ----- 2.12 GLBC Global Crossing Mon, Nov 15 Before the bell -4.44 HOLL Hollywood Media Mon, Nov 15 After the market -0.07 IDBE ID Biomedical Mon, Nov 15 After the market -0.10 JAS Jo-Ann Stores Mon, Nov 15 After the market 0.32 LOW Lowe's Companies Mon, Nov 15 Before the bell 0.65 MUSE Micromuse Inc. Mon, Nov 15 Before the bell 0.01 RENT Rentrak Corp Mon, Nov 15 After the market n/a SMD The Singing Machine Mon, Nov 15 Before the bell n/a TSN Tyson Foods Mon, Nov 15 Before the bell 0.17 ------------------------- TUESDAY ------------------------------ ATW Atwood Oceanics Tue, Nov 16 Before the bell 0.10 BJ BJ's Wholesale Club Tue, Nov 16 Before the bell 0.31 BAMM Books-A-Million Tue, Nov 16 After the market -0.07 BGP Borders Group Tue, Nov 16 After the market -0.02 CTMI CTI Molecular Imag. Tue, Nov 16 Before the bell 0.16 ESE ESCO Techonlogies Tue, Nov 16 Before the bell 0.85 GYMB Gymboree Tue, Nov 16 After the market 0.17 HPQ Hewlett-Packard Tue, Nov 16 After the market 0.37 HB Hillenbrand Ind. Tue, Nov 16 Before the bell 0.75 HD Home Depot Tue, Nov 16 Before the bell 0.56 JCP J.C.Penney Tue, Nov 16 Before the bell 0.48 NTAP Network Appliance Tue, Nov 16 After the market 0.14 JWN Nordstrom Tue, Nov 16 After the market 0.47 ROST Ross Stores, Inc. Tue, Nov 16 Before the bell 0.25 SKS Saks Inc. Tue, Nov 16 Before the bell 0.04 SPLS Staples, Inc. Tue, Nov 16 Before the bell 0.40 SCMR Sycamore Networks Tue, Nov 16 After the market -0.03 VOD Vodafone Group Tue, Nov 16 During the market n/a WMT Wal-Mart Stores Tue, Nov 16 Before the bell 0.54 ZLC Zale Corp. Tue, Nov 16 Before the bell -0.21 ------------------------ WEDNESDAY ----------------------------- AGIL Agile Software Wed, Nov 17 After the market 0.01 AMAT Applied Materials Wed, Nov 17 ----- n/a ----- 0.26 BLI Big Lots Inc. Wed, Nov 17 Before the bell -0.20 BKST Brookstone Wed, Nov 17 ----- n/a ----- -0.32 BWS Brown Shoe Co Wed, Nov 17 Before the bell 0.95 GME Gamestop Corp. Wed, Nov 17 Before the bell 0.24 GDYS Goody's Family Wed, Nov 17 Before the bell -0.06 HOTT Hot Topic Wed, Nov 17 After the market 0.27 INTU Intuit Wed, Nov 17 After the market -0.27 JBX Jack in the box Wed, Nov 17 ----- n/a ----- 0.49 LDG Longs Drug Stores Wed, Nov 17 After the market 0.15 MDT Medtronic Inc Wed, Nov 17 After the market 0.45 MW Men's Wearhouse Wed, Nov 17 After the market 0.35 MGAM Multimedia Games Wed, Nov 17 After the market 0.23 PETM PetsMart Wed, Nov 17 After the market 0.24 CRM Salesforce.com Wed, Nov 17 After the market 0.01 TLB Talbots Wed, Nov 17 ----- n/a ----- 0.50 TOO Too, Inc. Wed, Nov 17 Before the bell 0.27 V Vivendi Universal Wed, Nov 17 ----- n/a ----- n/a ------------------------- THURSDAY ----------------------------- ARO Aeropostale, Inc. Thr, Nov 18 After the market 0.54 ADSK Autodesk, Inc. Thr, Nov 18 ----- n/a ----- 0.34 BKS Barnes & Noble Thr, Nov 18 Before the bell 0.12 BCSI Blue Coat Systems Thr, Nov 18 After the market 0.09 CBRL CBRL Group Thr, Nov 18 Before the bell 0.59 CLE Claire's Stores, Inc Thr, Nov 18 ----- n/a ----- 0.29 DKS Dick's Sporting Good Thr, Nov 18 Before the bell 0.04 DBRN Dress Barn Thr, Nov 18 ----- n/a ----- 0.21 ELBO Electronics Boutique Thr, Nov 18 After the market 0.29 FL Foot Locker Inc. Thr, Nov 18 ----- n/a ----- 0.47 GPS Gap Inc. Thr, Nov 18 After the market 0.28 GCO Genesco Thr, Nov 18 Before the bell 0.46 HIBB Hibbett Sporting Thr, Nov 18 After the market 0.24 HUG Hughes Supply Thr, Nov 18 After the market 0.52 KLIC Kulicke & Soffa Thr, Nov 18 Before the bell 0.04 LTD Limited Brands Thr, Nov 18 Before the bell 0.10 MRVL Marvell Semicond. Thr, Nov 18 After the market 0.21 MCDTA McDATA Corp. Thr, Nov 18 After the market 0.01 MSCC Microsemi Thr, Nov 18 ----- n/a ----- 0.12 NOVL Novell, Inc. Thr, Nov 18 After the market 0.05 SHRP Shaper Image Corp. Thr, Nov 18 After the market -0.17 SKO ShopKo Stores Thr, Nov 18 Before the bell 0.04 SMRT Steinmart Inc. Thr, Nov 18 Before the bell -0.05 BBA The Bombay Co. Thr, Nov 18 After the market -0.23 LNUX VA Software Thr, Nov 18 After the market -0.02 VIP Vimpel Comm. Thr, Nov 18 ----- n/a ----- 1.95 DIS Walt Disney Thr, Nov 18 After the market 0.18 WSM Williams-Sonoma Thr, Nov 18 Before the bell 0.23 ------------------------- FRIDAY ------------------------------- CPWM Cost Plus Fri, Nov 19 Before the bell 0.01 SJM J.M.Smucker Co. Fri, Nov 19 Before the bell 0.74 ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable 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 FINL The Finish Line Inc 2:1 Nov 17th Nov 18th SSD Simpson Manufacturing 2:1 Nov 18th Nov 19th STJ St. Jude Medical 2:1 Nov 22nd Nov 23rd TASR TASER Intl. Inc 2:1 Nov 29th Nov 30th MSL MidSouth Bancorp 5:4 Nov 30th Dec 01th SYMC Symantec 2:1 Nov 30th Dec 01th RYL Ryland Group Inc. 2:1 Nov 30th Dec 01th ----------------------------------- Economic Reports & Events This Week ----------------------------------- We have three fed heads making an apperance this week. Both the Fed and Wall Street will be watching the PPI and CPI numbers for a gauge on inflation. Earnings continue to trickle in. ============================================================== -For- ---------------- Monday, 11/15/04 ---------------- NY Empire State Index for November Last: 17.4 Est: 20.4 ----------------- Tuesday, 11/16/04 ----------------- Producer Price Index (PPI) for October Last: 0.1% Est: 0.5% Core PPI for October Last: 0.3% Est: 0.1% NAHB Housing market index for November Federal Reserve Governor Moskow speaks on Economic Outlook ------------------- Wednesday, 11/17/04 ------------------- Consumer Price Index for October Last: 0.2% Est: 0.4% Core CPI for October Last: 0.3% Est: 0.1% Industrial Production for October Capacity Utilization for October Housing Starts for October Last: 1898K Est: 1980K Building Permits for October Last: 1998K Est: 1980K Federal Reserve Governor Pianalto speaks in Ohio ------------------ Thursday, 11/18/04 ------------------ Philly Fed for November Last: 28.5 Est: 23.2 Weekly Initial Jobless Claims Last: 333K Leading Indicators for October SEMI Book-to-Bill report ---------------- Friday, 11/19/04 ---------------- Federal Reserve Governor Stern speaks on Economy Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************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. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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The Option Investor Newsletter Sunday 11-14-2004 Sunday 2 of 5 In Section Two: Watch List: Worthy of the play list. Dropped Calls: ITW, ITT, GS 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 ************************************************************** Worthy of the play list. ********** Watch List ********** Sunoco Inc - SUN - close: 76.36 change: +1.92 WHAT TO WATCH: Entry-point alert. The oil sector is getting closer and closer to a bullish breakout and the beginning of a new leg higher. Shares of SUN have consolidated with a lot more strength than many of its peers and could lead the group higher. Friday's move looks like a bullish entry point but shares still have some resistance at $78.00. The MACD is nearing a new buy signal too. Watch for the breakout! The P&F chart points to $117. We'd probably set a short-term target near $85. --- Commerce Bancorp - CBH - close: 60.15 change: +0.56 WHAT TO WATCH: We came so close to adding CBH to the play list this weekend as a bullish candidate. It's been tough to find stocks that don't look too extended and overbought. We like CBH because shares have been consolidating under resistance in the $60.00-60.50 range. The P&F chart is currently bearish but a move over $61.00 would reverse the chart into a new buy signal. We'd be tempted to jump the gun and open long positions over $60.51. Target would be $65.00. --- Siemens - SI - close: 79.21 change: +0.77 WHAT TO WATCH: We also came very close to adding German electronics conglomerate SI to the play list as a bullish candidate. The recent breakout over resistance near $76.50 and the bounce from its simple 10-dma looks like an entry point. There is potential round-number resistance at $80.00 but we don't expect it to hold SI back. The P&F chart looks very bullish with a $97 target. We would probably target the current highs near $87.00 by year's end. --- PNC Financial Services - PNC - close: 55.70 change: +0.69 WHAT TO WATCH: Do you see it? If you look at PNC's daily chart you can see an inverse (bullish) head and shoulders pattern with the neckline at $56 resistance. A breakout would project a price target of $63. We'd probably set an initial target at round number resistance at $60.00. Watch the P&F chart. A move over $56 would also produce a new buy signal. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- CDWC $66.96 +2.76 - This is a very bullish breakout over multiple levels of resistance. Watch it for a pull back. LMT $58.56 +0.58 - Lockheed Martin looks very strong here. We'd be interested in a pull back toward $56-57. MDC $79.35 +1.38 - MDC looks ready to breakout over resistance at $80.00 to hit new all-time highs. FRE $69.30 +0.65 - FRE is nearing very heavy resistance at $70. A breakout would be very bullish. ************************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 ************************************************************** ************************** 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 ^^^^^ Goldman Sachs - GS - close: 104.66 change: +1.66 stop: 97.50 That's close enough for us. Our target has been the $105 region and shares of GS helped lead the XBD broker-dealer index higher with a move to $104.90. Both the XBD and shares of GS while showing great relative strength also look very overbought, extended and way overdue for some profit taking. We hope that those doing the profit taking are our readers. Check out the rise in option values from when we picked GS to today. The December 90 calls have risen from $7.40 to $15.00; the Dec 95s $3.60 to $10.30, the Dec 100s $1.20 to $5.80, the Jan 95s $4.40 to $10.90, Jan 100s $1.90 to $6.70 and the Jan 105s $0.65 to $3.40. We'll be sure to keep an eye on GS for a dip and consider new bullish positions on any rebound. Picked on October 27 at $96.10 Change since picked: + 8.56 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 3.2 million Chart = --- ITT Industries - ITT - close: 86.20 chg: +0.76 stop: 82.50 Target achieved! Actually ITT has surpassed our official exit point at $85.90. The move over $86 looks pretty bullish but like most of the market ITT is looking pretty overbought here. We'll be sure to keep an eye on it for future trading opportunities. Picked on November 03 at $81.51 Change since picked: + 4.69 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 460 thousand Chart = --- Illinois Tool Works - ITW - cls: 95.98 chg: +0.54 stop: 92.00 That's close enough for us. Shares of ITW closed at $95.98. We've been waiting for ITW to hit our target at $96 ever since it came within 15 cents on Nov. 5th. The two-day bounce from $94 looks pretty strong and ITW could be on the verge of a breakout. However, since our strategy was to only play ITW toward the top of its trading range we're going to follow our plan. Check out the rise in option values from when we picked ITW to today: December 85 calls $7.10 to $11.40, Dec 90s $3.40 to $6.80, Dec 95s $1.20 to $2.90, Jan 85s $7.70 to $11.70, Jan 90s $4.20 - $7.20 and Jan 95s $1.80 - $3.60. Picked on October 27 at $90.89 Change since picked: + 4.55 Earnings Date 10/19/04 (confirmed) Average Daily Volume = 1.2 million Chart = 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 11-14-2004 Sunday 3 of 5 In Section Three: Current Calls: SLB, OSK, LEH, IBM, GDW, FDX, EBAY, DHR, COP New Calls: QCOM, MUR, EOG Current Puts: MXIM 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 ****************** ConocoPhillips - COP - close: 87.89 change: +1.13 stop: 81.99 Company Description: ConocoPhillips is an integrated petroleum company with interests around the world. Headquartered in Houston, the company had approximately 35,800 employees, $89 billion of assets, and $129 billion of annualized revenues as of Sept. 30, 2004. (source: company press release) Why We Like It: Crude oil prices continue to sink slowly under $50 a barrel but that's not stopping oil-related energy stocks from turning higher. Both the OIX and OSX indices are starting to hint at a new leg up. Shares of COP are already in a MACD buy signal and look ready to breakout over resistance at its all-time highs near $90.00. The P&F chart shows a bullish triangle breakout with a $124 price target. The bullish triangle patterns are usually one of the most successful patterns to trade. In the news COP won final approval from the U.S. to begin drilling in Alaska's National Petroleum Reserve. Readers can choose to buy a dip to $86.00 or buy a breakout over $89-90. We are going to leave our stop loss at $81.99 for now. Our year-end target remains the $100 region. Suggested Options: We are going to suggest the December and January calls. Our favorites are the January's. BUY CALL DEC 80 COP-LP OI= 230 current ask $8.40 BUY CALL DEC 85 COP-LQ OI=1153 current ask $4.20 BUY CALL DEC 90 COP-LR OI=1131 current ask $1.20 BUY CALL JAN 85 COP-AQ OI=3215 current ask $5.20 BUY CALL JAN 90 COP-AR OI=3331 current ask $2.25 BUY CALL JAN 95 COP-AS OI= 639 current ask $0.80 Annotated chart: Picked on November 03 at $85.50 Change since picked: + 2.39 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 3.0 million --- Danaher - DHR - close: 57.91 change: +0.40 stop: 53.99 *new* 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 continues to ride the market's new wave higher. Shares bounced from the simple 10-dma as we expected they might and now shares challenge minor resistance at $58.00. The company recently reaffirmed its Q4 guidance and one analyst firm reiterated their "buy" outlook on the stock. Like many stocks these days shares of DHR are looking a bit overbought and due for a pull back. Readers may want to consider taking some money off the table or cashing out all together and then re-entering on a dip. Our exit target remains the $60 level for DHR but the rise in value for our suggested options makes doing a little profit taking a tempting idea. The December 50s have risen from $5.80 to $8.30. The December 55s have climbed from $1.95 to $3.60. The January 55s from $2.50 to $4.20 and the January 60s from $0.65 to $1.20. As a reader it's much easier for you to jump in an out. If you're waiting for a dip we could easily see DHR dip back to the $56.00 level before bouncing again. That would be the next bullish entry point. We are raising our stop loss to $53.99. Suggested Options: Short-term traders can choose the Novembers, Decembers or January calls. We're going to suggest the Decembers and January strikes. See the above commentary for entry suggestions. BUY CALL DEC 50 DHR-LJ OI= 846 current ask $8.30 BUY CALL DEC 55 DHR-LK OI=1703 current ask $3.60 BUY CALL DEC 60 DHR-LL OI= 142 current ask $0.60 BUY CALL JAN 55 DHR-AK OI=2715 current ask $4.20 BUY CALL JAN 60 DHR-AL OI= 434 current ask $1.20 Annotated chart: Picked on October 27 at $54.99 Change since picked: + 2.92 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.3 million --- eBay Inc. - EBAY - close: 109.89 chg: +2.05 stop: 99.99*new* Company Description: eBay is The World's Online Marketplace®. Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Through an array of services, such as its payment solution provider PayPal, eBay is enabling global e- commerce for an ever- growing online community. (source: company press release) Why We Like It: Uh-oh! It's decision time. This has been a very bullish week for EBAY. The stock is up more than six points from when we added it to the play list. Our short-term target was $110 and shares hit $110.25 on Friday afternoon. EBAY is looking short- term overbought and due for a pull back but will it pull back? EBAY watchers know that the stock can defy gravity at times but what to do when it's your money on the table? Look at the rise in option values from when we picked EBAY to today: December 100s $7.00 to $11.70, Dec 105s $4.20 to $7.90, Dec 110s $2.15 to $4.90, Dec 115s $1.05 to $2.75, Jan 100s $8.80 to $13.40, Jan 105s $6.00 to $10.00, Jan 110s $4.00 to $7.20, Jan 115s $2.50 to $5.00 and the Jan 120s $1.50 to $3.30. With the above "gains" in the options we strongly suggest readers consider taking some or all of their money off the table. We will still target a move to $120 by year's end but traders could exit now and then re-enter on a dip. We'll watch for a dip back toward $105. Right now we would only enter new bullish positions on a dip. We are raising our stop to $99.99. Suggested Options: We are going to suggest the December or January calls. Watch for a dip before considering new positions. BUY CALL DEC 100 XBA-LT OI= 6870 current ask $11.70 BUY CALL DEC 105 XBA-LA OI=11542 current ask $ 7.90 BUY CALL DEC 110 XBA-LB OI=15983 current ask $ 4.90 BUY CALL DEC 115 XBA-LC OI= 3635 current ask $ 2.75 BUY CALL JAN 100 XBA-AT OI=22547 current ask $13.40 BUY CALL JAN 105 XBA-AA OI= 8621 current ask $10.00 BUY CALL JAN 110 XBA-AB OI=12328 current ask $ 7.20 BUY CALL JAN 115 XBA-AC OI= 9909 current ask $ 5.00 BUY CALL JAN 120 XBA-AD OI= 4150 current ask $ 3.30 Annotated chart Picked on November 80 at $103.69 Change since picked: + 6.20 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 10.4 million --- Fedex Corp - FDX - close: 95.37 change: +0.57 stop: 89.99*new* 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's decision time with our FDX play as well. The stock has been very strong following/leading an exceptionally strong Dow Jones Transportation index. The TRAN index recently broke out over the 3600 level to hit new five-year highs (maybe six-year highs) and shows no signs of slowing down. Of course the problem here is that the TRAN looks incredibly overbought and extended up 12 out of the last 13 weeks. FDX looks overbought and extended as well but not to the same degree. We're impressed with FDX's relative strength. The company hit new all-time highs Thursday and Friday in spite of news that the company is fighting with the U.S. Dept. of Transportation. The DOT believes it overpaid FDX by $29 million. FDX obviously disagrees and plans to fight it. However, the company (FDX) is going to write off the $29 million anyway saying it will not affect earnings. While FDX is less than $5 away from our year-end target at $100 readers should seriously consider taking some money off the table if not all of it. The December 85 calls have risen from $5.80 to $10.80. The Dec 90s from $2.55 to $6.30 and the Dec 95s from $0.80 to $2.70. It would be a shame to see these gains evaporate on a quick drop down toward short-term support at $92. Readers could take profits here and re-enter on a dip. The opportunity cost here is that FDX could just keep going. It's up to you. We're suggesting you take some money off the table. If you're looking to enter new positions then we suggest waiting for the dip. We are going to keep our stop loss wide since we plan to hold FDX through December. Our new stop is $89.99. Suggested Options: Given our $100 target and mid-December time frame we would suggest the December strikes. Wait for the dip on new entries. BUY CALL DEC 85 FDX-LQ OI= 312 current ask $10.80 BUY CALL DEC 90 FDX-LR OI=1226 current ask $ 6.30 BUY CALL DEC 95 FDX-LS OI=1072 current ask $ 2.70 BUY CALL JAN 90 FDX-AR OI=3258 current ask $6.90 BUY CALL JAN 95 FDX-AS OI=2383 current ask $3.50 Annotated Chart: Picked on October 21 at $89.45 Change since picked: + 5.92 Earnings Date 09/22/04 (confirmed) Average Daily Volume = 1.5 million --- Golden West Fncl - GDW - cls: 121.23 chg: +1.63 stop: 114.99*new* Company Description: Headquartered in Oakland, California, Golden West is one of the nation's largest financial institutions with assets over $100 billion as of September 30, 2004. The Company has one of the most extensive thrift branch systems in the country, with 276 savings branches in 10 states and lending operations in 38 states. (source: company press release) Why We Like It: Financials have been a strong sector in the post-election rally and GDW has helped lead the way. Shares broke through resistance at $118 this week hitting our trigger to go long at $118.15. The rally continued on Friday with GDW breaking through round-number, psychological resistance at $120. Shares are now in blue-sky territory at all-time highs. With the major market indices overbought and due for a pull back we'd watch for a dip in GDW before considering new positions. Our target remains the $128- 130 region. Short-term traders may actually want to do some profit taking with the sharp rise in option values already. We are going to raise our stop loss to $114.99. Suggested Options: We are going to suggest the December calls. BUY CALL DEC 115 GDW-LC OI=298 current ask $7.40 BUY CALL DEC 120 GDW-LD OI=169 current ask $3.70 BUY CALL DEC 125 GDW-LE OI= 87 current ask $1.40 Annotated Chart: Picked on November 10 at $118.15 Change since picked: + 3.08 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 583 thousand --- Intl Business Mach. - IBM - close: 95.32 chg: +0.53 stop: 89.99*new* 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: As both a Dow-component and a major tech stock IBM has been enjoying a very strong post-election rally. The breakout over resistance at $90.00 was followed by a non-stop run toward $95. This was our short-term target and readers now have a decision to make. We plan to hold IBM through the end of the year or until shares hit the $99-100 region. However, the stock is up so sharply in the past two weeks IBM looks overbought and due for a pull back. When you consider the increases in our suggested options from when we picked IBM to now you can see why we are suggesting that readers take profits now and then re-enter on a pull back. Here's a partial breakdown on the rise in option values: Dec 85s $5.80 to $10.70, Dec 90s $2.25 to $5.80, Dec 95s $0.60 to $2.10, the Jan 85s $6.50 to $11.20, Jan 90s $3.10 to $6.70, Jan 95s $1.10 to $3.10. Readers looking for new entries can watch for a dip to the $92.00 region and then watch for the bounce. We are raising our stop loss to $89.99. 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= 5532 current ask $10.70 BUY CALL DEC 90 IBM-LR OI= 7825 current ask $ 5.80 BUY CALL DEC 95 IBM-LS OI= 8625 current ask $ 2.10 BUY CALL DEC100 IBM-LT OI= 3533 current ask $ 0.45-not suggested BUY CALL JAN 85 IBM-AQ OI=13722 current ask $11.20 BUY CALL JAN 90 IBM-AR OI=38882 current ask $ 6.70 BUY CALL JAN 95 IBM-AS OI=28419 current ask $ 3.10 BUY CALL JAN100 IBM-AS OI=36631 current ask $ 1.05 Annotated chart: Picked on October 27 at $90.00 Change since picked: + 5.32 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 4.7 million --- Lehman Brothers - LEH - close: 84.00 chg: +0.08 stop: 79.95 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: Hmmm... LEH appears to be losing its leadership position in the broker-dealer sector. The XBD index is up a very strong four- weeks in a row. Meanwhile LEH is under performing the group the last few days. We're still bullish on LEH and its P&F chart remains positive with a triple-digit profit target. Yet readers looking for new positions may want to wait for a move over $85 again before committing capital. LEH has only got about four weeks to hit our $89-90 profit target. If LEH breaks the $82 level we'll grow concerned but watch for a dip anyway. The XBD index is very extended. Suggested Options: Short-term traders can choose from Novembers, Decembers and January strikes. We're going to suggest the Decembers. BUY CALL DEC 80 LES-LP OI=1116 current ask $ 5.10 BUY CALL DEC 85 LES-LQ OI=2629 current ask $ 1.90 BUY CALL DEC 90 LES-LR OI=1155 current ask $ 0.45 Annotated chart: Picked on October 26 at $80.60 Change since picked: + 3.40 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 2.0 million --- Oshkosh Truck - OSK - close: 63.52 change: +0.31 stop: 57.00 Company Description: Oshkosh Truck Corporation is a leading manufacturer of specialty trucks and truck bodies for the defense, fire and emergency, concrete placement and refuse hauling markets. Oshkosh Truck is a Fortune 1000 company with products marketed under the Oshkosh®, Pierce®, McNeilus®, Medtec®, Geesink, Norba and Jerr-Dan® brand names. The company is headquartered in Oshkosh, Wis., and had annual sales of $2.3 billion in fiscal 2004. (source: company press release) Why We Like It: Slow and steady can be a nice change of pace from the volatile moves we've seen in some stocks lately. OSK certainly seems to be slowly climbing higher and we're not complaining. Short-term traders can still target a quick exit near $65.00. We're planning to hold OSK through the ups and downs and exit near $70 by year's end. No change in our stop but traders looking for new positions can probably wait for a dip. Watch for any bounce above $60.00. Suggested Options: There are both December and January calls available but we are going to suggest the January strikes. BUY CALL JAN 55 OSK-AK OI= 466 current ask $9.50 BUY CALL JAN 60 OSK-AL OI=2514 current ask $5.30 BUY CALL JAN 65 OSK-AM OI= 65 current ask $2.30 Annotated Chart: Picked on November 07 at $ 62.16 Change since picked: + 1.36 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 205 thousand --- Schlumberger - SLB - close: 65.65 change: +1.47 stop: 61.00 Company Description: Schlumberger is the world's leading oilfield services company supplying technology, project management and information solutions that optimize performance for customers working in the oil and gas industry. The company employs more than 50,000 people of over 140 nationalities working in 100 countries, and comprises two business segments. Schlumberger supplies a wide range of products and services from formation evaluation through directional drilling, well cementing and stimulation, well completions and productivity to consulting, software, information management and IT infrastructure services that support core industry operational processes. WesternGeco, jointly owned with Baker Hughes, is the world's largest seismic company and provides advanced acquisition and data processing services. In 2003, Schlumberger operating revenue was $10.12 billion. (source: company press release) Why We Like It: We've been watching the buy signal emerge in shares of SLB all week long. On Tuesday it produced a short-term higher-low. On Thursday its MACD produced a new buy signal. On Friday SLB broke through round-number resistance at $65.00 to hit our trigger at $65.05. SLB's rebound from its long-term rising support appears complete. Now that the stock has broken its five-week trend of lower highs we can look for some bullish follow through. Our target remains the $70.00 level. If there is a market dip we'd watch for a bounce from the $63.50-64.00 region as a new entry point in SLB. Suggested Options: We are going to suggest the December and/or January calls. BUY CALL DEC 60 SLB-LL OI=2640 current ask $6.20 BUY CALL DEC 65 SLB-LM OI=4741 current ask $2.40 BUY CALL DEC 70 SLB-LN OI=1413 current ask $0.55 BUY CALL JAN 60 SLB-AL OI=6855 current ask $6.80 BUY CALL JAN 65 SLB-AM OI=12922 current ask $3.30 BUY CALL JAN 70 SLB-AN OI=11839 current ask $1.15 Annotated Chart: Picked on November 12 at $ 65.05 Change since picked: + 0.60 Earnings Date 10/22/04 (confirmed) Average Daily Volume = 3.9 million ************** NEW CALL PLAYS ************** EOG Resources - EOG - close: 68.37 change: +2.84 stop: 63.99 Company Description: EOG Resources, Inc. is one of the largest independent (non- integrated) oil and natural gas companies in the United States with substantial proved reserves in the United States, Canada, offshore Trinidad and, to a lesser extent, the U.K. North Sea (source: company press release) Why We Like It: EOG is another way for readers to play the next leg up in oil and energy. The oil sector did not panic when crude prices broke technical support at the simple 50-dma. It's also noteworthy that there has not been any sustained heavy selling in the group. It would appear that the sector is coiling for a new move higher and EOG looks ready now that its six-week consolidation is almost over. Shares have bounced twice at the $64 level and Friday's rally pushed EOG over all its significant moving averages. Short-term technicals are already bullish and its MACD is very close to a new buy signal. Meanwhile its P&F chart points to a $105 target. We are a little bit early with this entry point. More conservative traders may want to wait for EOG to breakout over round-number resistance at $70.00 and break its short-term trend of lower highs. Our short-term target will be $75.00 with a potential year-end target of $80. Suggested Options: We are going to suggest the December and January calls. Between the two we'd pick the Januarys. BUY CALL DEC 65 EOG-LM OI= 210 current ask $4.80 BUY CALL DEC 70 EOG-LN OI=1838 current ask $1.95 BUY CALL DEC 75 EOG-LO OI=1636 current ask $0.60 BUY CALL JAN 65 EOG-AM OI=3070 current ask $5.90 BUY CALL JAN 70 EOG-AN OI=3961 current ask $3.20 BUY CALL JAN 75 EOG-AO OI=1312 current ask $1.45 Annotated Chart: Picked on November 14 at $ 68.37 Change since picked: + 0.00 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 1.1 million --- Murphy Oil - MUR - close: 81.60 change: +1.49 stop: 77.49 Company Description: The Company, headquartered in El Dorado, Arkansas, was originally incorporated in Louisiana in 1950 as Murphy Corporation. It was reincorporated in Delaware in 1964, at which time it adopted the name Murphy Oil Corporation. But, the Company's roots go back to a lumber and banking business in South Arkansas and, more directly, to 1907, when the first oil production was established in the Caddo Field in North Louisiana. Thereafter, oil and gas were important phases of the business. (source: company website) Why We Like It: MUR is yet another way for traders to play the next leg up in the oil sector. Both the OIX index and OSX index have been consolidating the last six weeks and indicators on both suggest a new bullish breakout is just around the corner. Like the indices MUR has been consolidating its September gains and its technicals have turned bullish. We like the quick double-bottom near $77.50 and the MACD indicator nearing a new buy signal. The P&F chart already shows a new buy signal with a $91 target. We'll use a TRIGGER at $82.25 to open the play. Until then we'll sit on the sidelines. Once triggered we'll set our short-term target at $87.00 and our year-end target in the $92-95 range. Suggested Options: We are going to suggest the January calls. BUY CALL JAN 75 MUR-AO OI=1473 current ask $8.50 BUY CALL JAN 80 MUR-AP OI= 434 current ask $5.00 BUY CALL JAN 85 MUR-AQ OI= 349 current ask $2.75 BUY CALL JAN 90 MUR-AR OI= 702 current ask $1.35 Annotated Chart: Picked on November xx at $ xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 500 thousand --- Qualcomm - QCOM - close: 40.20 change: +0.11 stop: 37.50 Company Description: QUALCOMM Incorporated (www.qualcomm.com) is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 2003 FORTUNE 500® company. (source: company press release) Why We Like It: QCOM's recent earnings weren't that great but the selling pressure never saw any follow through. Instead shares found support at the bottom of its rising channel and technical support at the simple 100-dma like it has done for months. Now that shares are rebounding from this support the technical oscillators have turned positive and its MACD indicator is nearing a new buy signal. If you're spooked by how high and extended the NASDAQ is you may want to wait for a dip in the index before considering positions in QCOM. Overall we think QCOM has enough relative strength to weather any minor dip in the NASDAQ. We are going against the bearish P&F chart, which should be a caution flag. Currently QCOM is under the simple 40 and 50-dma's. Therefore we'll use a TRIGGER at $40.51 to catch a breakout over the dma's. Once triggered we'll set our short-term target at $44.35, the current highs. Suggested Options: We suggest the December or January calls. BUY CALL DEC 37.50 AAO-LU OI= 4338 current ask $3.40 BUY CALL DEC 40.00 AAO-LH OI=26013 current ask $1.75 BUY CALL DEC 42.50 AAO-LV OI= 5704 current ask $0.75 BUY CALL JAN 37.50 AAO-AU OI=22925 current ask $4.00 BUY CALL JAN 40.00 AAO-AH OI=24306 current ask $2.45 BUY CALL JAN 42.50 AAO-AV OI=15799 current ask $1.35 Annotated Chart: Picked on November xx at $ xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 11/03/04 (confirmed) Average Daily Volume = 13.9 million ************************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 ***************** Maxim Integrated - MXIM - close: 42.51 chg: +0.09 stop: 45.51 Company Description: Maxim Integrated Products is a leading international supplier of quality analog and mixed-signal products for applications that require real world signal processing. (source: company press release) Why We Like It: It's been exceptionally tough to be a bear with the market in breakout mode. Not only are individual stocks breaking but so are the major indices. That's why MXIM's relative weakness makes it such an attractive bearish candidate. However, even MXIM will have a hard time trading lower if the markets don't slow down a bit. You may remember that Wells Fargo just initiated coverage on MXIM this Thursday with a "sell" rating. Plus, MXIM's daily MACD indicator has rolled over into a new sell signal. We initiated coverage on MXIM this Wednesday given its breakdown below rising two-month support. Shares are testing that level again today as overhead resistance. We (the bears) should be safe if MXIM holds under $43. There is additional resistance at $45.00 but we'd start to worry if MXIM rebounded that strongly. We would watch for a move under $41.90 to $41.65 before initiating new positions. Suggested Options: We are going to suggest the December puts. BUY PUT DEC 45 XIQ-XI OI= 521 current ask $3.30 BUY PUT DEC 40 XIQ-XH OI=3134 current ask $0.95 Annotated chart: Picked on November 10 at $42.04 Change since picked: + 0.47 Earnings Date 10/05/04 (confirmed) Average Daily Volume = 6.0 million ************* 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 11-14-2004 Sunday 4 of 5 In Section Four: Leaps: The Bulls Are Running Spreads and Straddles:Know When To Hold 'Em, Know When To Fold 'Em ************************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 ***** The Bulls Are Running After three days of moving sideways the market got bored and charged ahead knocking over multiple resistance levels on numerous indexes. This makes our portfolio very green but sure makes it tough to pick new plays. Oil has found support at 47.50 and holding and COP has started climbing again. Even the XLE has headed back to higher ground despite the weakness in oil. I personally feel that oil will find a support level in the 40s and then begin a new climb once the equity euphoria dims. For that reason I do not want to exit our energy plays and would rather keep the stops just out of range. A couple of our past drops, MMM and Citicorp have gone on to make us proud and anybody that did not take the exit should be closed at an eight month high. Our new pick from last week, Federal Express, shook off news that the government had overpaid them on the post 9/11 airline recovery program by $29 million and continued higher to a new 52-week high. News Corp is finally trading in the U.S. again and we are actually up in that trade and the future is bright! EBAY is setting the world on fire and taking us along for the ride. It is up nearly +$20 from our entry point. The laggard has been the SMH LEAPs due to the SOX reluctance to join the party. If the gains from Thr and Fri are repeated next week the SMH could go to the head of the class. Unfortunately RIMM found a bid before the price returned to our new entry point and we are still waiting. The majority of stocks are so extended I would really like to see a pullback before adding anything else. Unfortunately I don't see that happening any time soon. If we do get a pullback it is likely to be short, sharp and unexpected. It is not an environment for picking long entries. There are quite a few stocks I like but can't justify adding them to the portfolio under the current conditions. I am going to list a few and you can pick the ones you like for your own risk profile. CY - $11.22 Cypress Semi - saucer at 11.25 PD - $97.60 Phelps Dodge - new high imminent PVN - $16.82 Providian Financial DHR - $57.91 Danaher - breakout imminent SNY - $38.73 Sanofi-Aventis - new wonder drug UBS - $80.10 UBS - breakout, strong earnings PKI - $22.13 Perkin Elmer - breakout imminent LMT - $58.50 Lockheed Martin - Daily new highs SCH - $10.43 Schwab - broke resistance at $10 MUR - $81.53 Murphy Oil - Cycling with oil ELX - $12.35 Emulex - recovery underway STM - $20.50 Stmicroelectronics - rebound underway AGN - $79.31 Allergan - dollar a day AAPL - $55.48 Apple Computer - Disney deal? $56 wedge ADSK - $60.50 Autodesk - going vertical ASML - $15.77 ASML Holding - leading chip recovery ATVI - $16.19 Activision - $17 breakout ahead MSTR - $66.57 Microstrategy - Broke $65 resistance QLGC - $34.11 Qlogic - new six month high QCOM - $40.20 Qualcomm - dip recovery SNDK - $21.81 Sandisk - rebounding from disaster I believe it is too early to start tightening up our stops and will begin doing that after Thanksgiving. We want to take advantage of any end of year rally then prepare to go to the put side if a new downtrend develops. If you have any comments or suggestions about the leaps section please email them to: leaps @ OptionInvestor.com ******************* New Plays ******************* None ******************* Dropped Plays ******************* None ****************************** New Watch List Plays Triggered ****************************** ADBE $58.91 Triggered at $57.00 **************************** Current Portfolio: **************************** Position Summary Table ******************* New Plays ******************* None **************************** Play Updates **************************** FDX - Federal Express $95.37 **Stop $89.00** Entry $91.93 (11/5) Federal Express shook off a bill from the government for $29 million in overpayments from the airline recovery act after 9/11. FDX said it would fight the refund vigorously. FDX said it would take a charge to cover the potential payment but it would not impact earnings. Nice to have more business than you can handle. BUY 2006 $ 95 LEAP Call WFX-AS @ $8.00 BUY 2007 $100 LEAP Call VFX-AT @ $10.60 SELL 2005 Jan $95 Put FDX-MS @ $4.60 (selling the put offsets the price of the call) FDX Chart **************************** XLE - S&P Energy SPDR $35.90 ** Stop 33.90 ** Nice rebound on the XLE despite the continued drop in oil. The oil service sector and the big integrated companies are providing the lift. 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 $23.71 **Stop $22.00** Nice spike by Intel on Friday as the SOX found a bid. AMD had all the good news but Intel followed right along. 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. $34.45 **Stop $32.00** Tyco blasted past resistance at $33 and is headed for a test of the 2002 highs at $36. Currently at a two year high and moving fast. Very high beta with the Dow and any continued Dow gains will benefit Tyco. 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 $28.48 **Stop $25.50** Juniper broke out over uptrend resistance at $28 and appears headed for a strong test of the 52-week high at $30. Cisco earnings helped energize Juniper when analysts realized how much market share Juniper was getting. 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 $87.89 **Stop 83.00** COP is rebounding from the oil decline and nearing the all time highs again at $90. Any upward blip in oil prices and we could easily be over $90. COP remains in the top three recommended investments in the energy sector and it is racing to acquire new properties. Go oil! The leap is up +140% over the entry price. Current position: Jan-2006 $75 LEAP Call YRO-AO at $6.70 now $16.70 Entry $73.30 August 30th http://members.OptionInvestor.com/leaps/Lp_082904_1.asp COP Chart ********************** NWS - News Corp $18.08 NewsCorp finally completed the move to the NYSE and is trading under NWS again. The move also produced a 2:1 split and the shares are trading at $18 instead of $33.61 where it ceased trading prior to the move. This is the equivalent of $36.16 in pre split dollars. There is still some confusion on the options. I am checking on how the symbols changed. The WLN-AH symbol is no longer valid. Normally in a stock split you end up with two contracts at 1/2 the original strike price. Instead the current symbols are showing 200 shares instead. I will update this next Sunday with the correct change. Current position: 2006 $40 LEAP Call WLN-AH/WNQ-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 NWS Chart **************************** UPL - Ultra Petroleum $50.87 **Stop $46.00** Strong bounce by UPL after several analysts commented on how strong their outlook was for 2005. Still holding below the October highs but well off the lows. 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 $109.89 ** Stop $97.00 ** EBAY exploded past the $100 barrier last week and is showing no indications of failure. Resistance should be around $112 but a Nasdaq could easily see that broken. We are well into stock split territory. Ebay last announced a 2:1 split in July 2003 at $100.00 and in April 2000 near $100. 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 $56.95 ** Stop $53.50 ** Merrill is benefiting from the post election bloom for financial stocks. Next resistance is $58. 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 ************************ SYMC - Symantec - $60.77 ** Stop $55.00 ** SYMC has slowed its upward progress since the AOL announcement but there is a 2:1 split ahead that should provide lift. Also, once the next virus/worm hits the airwaves the AOL announcement will be forgotten. 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 $33.89 ** Stop $32.00 ** XMSR is still stuck under $34. It has been trading there for over a week and can't break through. I believe it is somebody unloading and once they run out of stock we should move higher on the XMSR good news. 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 ****************************** ADBE $58.91 Adobe Systems ** Stop $56.00 ** Entry $57.00 (11/10) Nice dip by ADBE on Wednesday to just below $57 and just low enough to trigger our entry before racing off to close at a new high on Friday. ADBE predicted +25% growth to continue and said better than expected sales growth in multiple product lines was helping performance. Buy 2007 $65 LEAP Call VAE-AM @ $8.90 Sell APR $60 Put AEQ-PL @ $5.50 to offset the price of the leap. Entry $57.00 (11/10) http://members.OptionInvestor.com/leaps/Lp_110704_1.asp ADBE Chart **************************** DIA $105.62 Dow Diamonds Trust **Stop 102.50** If we can just get over 10550 we should be good to go to 10750. I am very surprised by the strength of this rally and we are already up +60+ to +75%. I thought about closing the positions with a plan to reenter but there is nothing that says the Dow is going to fail. I raised the stop and we will hope for the best. Stop was raised to 102.50 2006 $100 LEAP Call YGF-AV @ $6.30 2006 $104 LEAP Call YGF-AZ @ $4.20 2006 $108 LEAP Call YGF-AD @ $2.90 2006 $112 LEAP Call YGF-AH @ $2.00 Entry 10/14 @ $99.00 DIA Chart **************************** SMH $33.03 Semiconductor Holders ** Stop $30.50 ** Chips are starting to turn green and a move over $34 should produce some breakout short covering. We should be safe in our current position and ready to rumble. 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 $38.63 Nasdaq 100 **Stop $36.50** The Nasdaq QQQ Tracking Stock is on the verge of a breakout at $38.65. We have already moved to a new eight month high and the uptrend is very strong. If the chip stocks would find a bid we could really get this party started. 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 **************************** Get out the Magnifying Glass No new entries. We have a strong portfolio and no need to pile up risk. The market is very overextended and we need to let it run or let it rest before looking for new candidates. I posted a list in the general commentary article containing a lot of possibles but I will not be playing them here unless something changes. *********************** Dropped Entries *********************** none *********************** New Watch List Entries *********************** None ************************ LLL $72.18 L-3 Communications We should have taken the entry at $68.86 last week. On Thursday LLL was added to the S&P and spiked +$4 to $73 before easing at Friday's close. I would avoid it now until the S&P volatility eases. LLL is a maker of bomb detection systems and has a strong backlog of contracts for the airlines. They have several product lines besides these systems but explosives detection has become a worldwide market. Target the 100-day average for an entry at $63.50 Buy 2007 $75 LEAP Call OOY-AO LLL Chart ************************* RIMM - Research in Motion $83.00 **Target $70.00** RIMM came within $2 of out entry at $70 but rebounded on some good news not related to the case. RIMM is highly volatility right now and I would rather wait for our entry at $70 than force a trade. We were stopped out at the open on the Nov-4th at $81 after a massive drop in RIMM on the third. There was a rebound attempt by the momentum players but Friday saw another washout. RIMM is said to be losing a patent case against NTP and the ruling could come at any time. RIMM has been setting aside a reserve of 8.5% of Blackberry sales in case it lost the trial. The actual impact on RIMM of a loss will not be as material as the drop already seen in the stock price. Analysts expect a new drop but a quick rebound. Because of the massive nearly -$20 drop in three days I feel most of the damage has been done. I am going to get back in with a potential entry at $70. Should RIMM win the case it could hit $100 in a single day. BUY 2007 $100 LEAP Call OHR-AE SELL 2007 $90 LEAP Put OHR-ME Selling the put gives you a net credit of $16.60 and a free ride once RIMM gets over $90. Maintain a stop on both the put and call. http://members.OptionInvestor.com/leaps/Lp_092604_1.asp RIMM 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 ************************************************************** ******************* SPREADS & STRADDLES ******************* Know When To Hold 'Em, Know When To Fold 'Em By Mike Parnos It wasn't in the cards. The hand we were dealt this month began with the greatest of expectations. However, after placing our bets, we are rapidly learning that the market was dealt a royal flush. It's become a matter of survival -- a matter of preserving trading capital -- a matter of knowing when to fold our hand and to wait for the next playable hand. When the OEX failed to move lower after the open, it was time to salvage what we could from the position. As the OEX began to move up with the rest of the market, we had to halt the bleeding. We closed out the 555/565 bear call spread at $5.30. We took in $1.30 of premium when the trade was established. The result is a loss of $4,000. The Last Man Standing - For The Moment Our SPX 1185/1200 is the last man standing -- at least as far as Iron Condors are concerned. With the SPX at less than a point below our short strike, we are going to be more proactive in closing out this position. The market is way overdue for a retracement. I would have bet the ranch that the 1185/1200 bear- call spread was safe -- but I didn't. The market has barely even paused on this movement upwards over the past 14 trading sessions. As things stand, it would cost about $4.65 to close the bear call spread. We can't let it get too far out of hand. As it is, it will take more than a few months to make back our November losses. A Passing Thought The SPX has plowed through one resistance level after another. In technical analysis, it is commonly believed that, once a resistance level has been breached, it becomes a potential support level on the way down. But that means we have to believe in resistance levels to begin with. This month's market activity is enough to shake one's faith in technical analysis, Santa Claus and the Easter Bunny. A number of traders find themselves caught between a rock and a hard place. They had SPX positions like the 1160/1180 bear call spread (that we closed last week in the newsletter) and they still haven't closed them. Both strikes are in the money and, if you continue to do nothing, you will take the full 20-point hit. By the way, if you were to close the 1160/1180 bear call spread on Monday, you may only be facing a 17-point loss. Let's try to mitigate the loss -- a little -- and I mean a LITTLE. Say you have the above 20-point bear call spread. You've already closed out the bull put spread of your Iron Condor for a nickel. Let's see how much we can take in by placing another November bull put spread below a support(?) level. Sell 10 SPX Nov. 1160 puts Buy 10 SPX Nov. 1140 puts Credit of about $.80 ($800). Remember, I said a LITTLE! If the SPX continues up, your new Nov. put position will expire worthless and you've salvaged a few bucks. If the SPX reverses (don't hold your breath) and you are still in the bear call spread, you will benefit substantially more in reduced losses. And, you have close to a 25-point cushion on the downside before the 1160 put is threatened. If you're more aggressive, you can put on the bull put spread a little closer to where the SPX is trading. The 1165/1145 bull- put spread would yield about $1.15. The 1170/1150 bull-put spread would yield about $1.90. If you have a different bear call spread configuration, all the strikes are available for potential bull-put spreads. The obvious solution would have been summoning up the self- discipline to fold the bear call spread as it breached the 1160 strike and taking an acceptable (though distasteful) loss. If you've let it go too far, you're in the process of learning an expensive lesson. Lose the money, but retain the lesson -- or you'll be trading baseball cards instead of options before you know it. _____________________________________________________________ What? No Quickies? You're kidding, right? Our quickie plays are based on the indexes being range-bound. Hopefully, they're be range-bound again soon, but they sure as hell aren't now. If you want to do a short-term trade, throw on a bull put spread on the SPX (see above for suggestions). A 560/555 OEX bull-put spread might yield $.80-.90, but it's only 6 points from where the OEX closed. In this market, our typical quickies are not a good idea. If you keep it in your pants (your money, of course), you're not in danger of getting it chopped off. ____________________________________________________________ December Positions A reminder, you don't necessarily want to initiate new December positions at this point. Let's watch for a while and see if/when the market stalls and evaluate at that point. Patience, my friends. Patience. ____________________________________________________________ NOVEMBER CPTI POSITIONS November Position #1 - SPX Iron Condor - 1184.17 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. The maintenance is $18,000. The potential return on risk is about 20%. November Position #2 - SPX Iron Condor - 1184.17 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 10 SPX Nov. 1025 puts and bought 10 SPX Nov. 1005 puts for a credit of about $1.20 ($1,560). Profit potential was about $2,960. Closed for $3,840 loss. November Position #3 - OEX Iron Condor - 566.22 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). On Friday we closed the trade for a $4,000 loss. (see article above). November Position #4 - RUT - Iron Condor - 621.98 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). Closed for $2,800 loss. ONGOING POSITIONS QQQ ITM Strangle - Ongoing Long Term -- $38.66 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 - 566.22 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 - 1184.77 Formerly called the "Credit Spread Boogie." 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). We took 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 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. 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. Once more with feeling. I know this is getting out of hand, but we have to play out the hand. We closed out our 1115/1140 bear call spread and now have 60 contracts of a November 1125/1100 bull put spread. We've taken in a total of $2990 in premium and our maintenance is now $150,000. I hope this is the last of it. 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, Your 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 11-14-2004 Sunday 5 of 5 In Section Five: Spreads and Straddles: Retail Data Spurs Buying Spree! 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 ************************************************************** ******************* SPREADS & STRADDLES ******************* Retail Data Spurs Buying Spree! By Ray Cummins Stocks closed higher for a third consecutive week amid bullish retail sales data and favorable consumer sentiment. The Commerce Department report said retail sales climbed 0.2% in October, while the University of Michigan's consumer sentiment index recorded a 95.5 reading for November, notably higher than October and above consensus expectations. Investors were elated with the news and it showed in their trading activity. The Dow Jones industrial average ended 69 points higher at 10,539, with Proctor & Gamble (NYSE:PG), Alcoa (NYSE:AA) and General Electric (NYSE:GE) among the best performers. The NASDAQ composite index added 24 points to close at 2,085, as Dell Computer (NASDAQ:DELL) set the pace after a favorable profit report. The S&P 500 index finished up 10 points at 1,184, a 2-year high. Advancing issues outnumbered decliners by more than 5 to 2 on the New York Stock Exchange, on volume of 1.54 billion. Breadth on the technology exchange was nearly 3 to 2 in favor of winning issues with 2.03 billion shares changing hands. Bond prices also moved higher. The benchmark 10-year note ended the day up 6/32, yielding 4.22%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 11/12/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 98.55 NOV 80.0 85.0 0.65 84.35 0.65 Open BTU 60.07 68.46 NOV 50.0 55.0 0.60 54.40 0.60 Open MRVL 28.84 30.80 NOV 22.5 25.0 0.35 24.65 0.35 Open COST 44.69 49.12 NOV 40.0 42.5 0.30 42.20 0.30 Open NEM 46.25 49.65 NOV 40.0 42.5 0.30 42.20 0.30 Open INSP 47.25 55.83 NOV 35.0 40.0 0.85 39.15 0.85 Open BG 41.96 48.35 NOV 35.0 40.0 0.50 39.50 0.50 Open ADBE 53.57 58.97 NOV 45.0 50.0 0.50 49.50 0.50 Open VRNT 37.73 39.33 NOV 30.0 35.0 0.55 34.45 0.55 Open OSTK 52.63 60.20 NOV 40.0 45.0 0.60 44.40 0.60 Open MDC 76.00 79.35 NOV 65.0 70.0 0.50 69.50 0.50 Open SPF 53.90 58.41 NOV 45.0 50.0 0.60 49.40 0.60 Open NEM 47.52 49.65 NOV 42.5 45.0 0.35 44.65 0.35 Open PD 87.54 97.69 NOV 75.0 80.0 0.50 79.50 0.50 Open EBAY 100.66 109.89 NOV 90.0 95.0 0.60 94.40 0.60 Open CTX 53.55 55.69 NOV 45.0 50.0 0.50 49.50 0.50 Open PIXR 84.45 86.54 NOV 75.0 80.0 1.00 79.00 1.00 Open S 45.88 46.01 NOV 40.0 42.5 0.35 42.15 0.35 Open VIP 121.49 119.00 DEC 105.0 110.0 0.70 109.30 0.70 Open WLP 113.90 117.64 DEC 100.0 105.0 0.50 104.50 0.50 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Although currently profitable, positions in Pacificare Health Systems (NYSE:PHS), Celgene (NASDAQ:CELG) and Guitar Center (NASDAQ:GTRC) have previously been closed to limit potential losses. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status AMZN 40.47 40.46 NOV 50.0 45.0 0.65 45.65 0.65 Open CHIR 37.98 31.95 NOV 45.0 42.5 0.30 42.80 0.30 Open FLIR 54.52 60.70 NOV 65.0 60.0 0.70 60.70 (0.00) Open? BIIB 59.82 59.04 NOV 70.0 65.0 0.65 65.65 0.65 Open IFIN 36.50 40.70 NOV 42.5 40.0 0.30 40.30 (0.40) Open? TTWO 32.55 34.62 NOV 37.5 35.0 0.30 35.30 0.30 Open QCOM 39.50 40.20 NOV 45.0 42.5 0.30 42.80 0.30 Open SEPR 45.44 46.80 DEC 55.0 50.0 1.00 51.00 1.00 Open TTWO 33.24 34.62 DEC 40.0 37.5 0.30 37.80 0.30 Open INTU 43.14 43.48 NOV 47.5 45.0 0.30 45.30 0.30 Open RIMM 77.75 83.00 NOV 95.0 90.0 0.50 90.50 0.50 Open ERTS 46.97 47.59 DEC 55.0 50.0 0.65 50.65 0.65 Open GM 39.97 40.21 DEC 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 Investors Financial (NASDAQ:IFIN) became an early-exit candidate on Friday and Flir Systems (NASDAQ:FLIR), Sepracor (NASDAQ:SEPR) and Take-Two Interactive (NASDAQ:TTWO) are on the "watch" list. Positions in Aetna (NYSE:AET), Beazer Homes (NYSE:BZH), Hartford Insurance (NYSE:HIG), Cigna (NYSE:CI), Chubb (NYSE:CB), Mercury Interactive (NASDAQ:MERQ), Microchip (NASDAQ:MCHP), J.C. Penney (NYSE:JCP), SPX Corp. (NYSE:SPW), Pediatrix Medical (NYSE:PDX), and Express Scripts (NASDAQ:ESRX) have previously been closed. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status NTES 40.00 51.94 NOV 40.0 40.0 5.00 12.00 Open? NEW 55.15 64.00 NOV 55.0 55.0 4.70 9.10 Open? SBUX 54.51 55.30 NOV 55.0 55.0 2.50 2.25 Open? Straddles in Netease.com (NASDAQ:NTES) and New Century Finance (NYSE:NEW) have provided large profits, thus conservative traders should consider "locking-in" gains. The Starbucks (NASDAQ:SBUX) straddle is a candidate for "capital preservation" as the brief post-earnings retreat did not result in a profitable outcome. Traders who remained in the j2Communications (NASDAQ:JCOM) play were rewarded with a big move in the stock on Friday, resulting in a favorable profit for the neutral-outlook position. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CECO - Career Education $35.00 *** Bottom-Fishing Only! *** Career Education (NASDAQ:CECO) is a provider of private, for-profit, post-secondary education, with 82 campuses throughout the United States, Canada, France, the United Kingdom and the United Arab Emirates. The company also offers online education through its Online Education Group, which includes American InterContinental University Online and Colorado Technical University Online. The company's schools offer degree and diploma programs within its core curricula of business studies, culinary arts, information technology, visual communication and health education. CECO - Career Education $35.00 PLAY (less conservative - bullish/credit spread): BUY PUT DEC-25.00 CUY-XE OI=4573 ASK=$0.50 SELL PUT DEC-30.00 CUY-XF OI=2316 BID=$1.05 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$29.40 __________________________________________________________________ PJC - Piper Jaffray $48.95 *** On The Rebound! *** Piper Jaffray Companies (NYSE:PJC) is a securities company dedicated to delivering financial advice, investment products and transaction execution within targeted sectors of the financial services marketplace. The company is engaged in providing securities brokerage, investment banking and related financial services to individuals, corporations, public sector and non-profit entities in the United States. It operates through three major segments: Capital Markets, Private Client Services and Corporate Support and Other. PJC - Piper Jaffray $48.95 PLAY (less conservative - bullish/credit spread): BUY PUT DEC-40.00 PJC-XH OI=10858 ASK=$0.25 SELL PUT DEC-45.00 PJC-XI OI=1358 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$44.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BSX - Boston Scientific $34.70 *** Next Leg Down? *** Boston Scientific (NYSE:BSX) is a worldwide developer, maker, and marketer of medical devices whose products are used in a wide range of interventional medical specialties, including interventional cardiology, peripheral interventions, vascular surgery, neurovascular intervention, electrophysiology, endoscopy, oncology, urology and gynecology. BSX - Boston Scientific $34.70 PLAY (less conservative - bearish/credit spread): BUY CALL DEC-40.00 BSX-LH OI=2148 ASK=$0.15 SELL CALL DEC-37.50 BSX-LU OI=2394 BID=$0.40 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$37.80 __________________________________________________________________ MXIM - Maxim Integrated Products $42.50 *** Sector Slump! *** Maxim Integrated Products (NASDAQ:MXIM) designs, develops, manufactures and sells a range of linear and mixed-signal integrated circuits, referred to as analog circuits. The firm also offers a range of high-frequency design processes and capabilities that can be used in custom designs. Their acquisition of Dallas Semiconductor added a product line of over nearly 400 proprietary base products sold to over 15,000 customers worldwide. Applications for those products include battery management, broadband telecommunications, wireless handsets, cellular base stations, networking, servers, data storage and a wide variety of industrial equipment. MXIM - Maxim Integrated Products $42.50 PLAY (less conservative - bearish/credit spread): BUY CALL DEC-50.00 XIQ-LJ OI=1099 ASK=$0.15 SELL CALL DEC-45.00 XIQ-LI OI=2328 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.70-$0.75 POTENTIAL PROFIT(max)=16% B/E=$45.70 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. _________________________________________________________________ COCO - Corinthian Colleges $17.75 *** Expiration Week! *** Corinthian Colleges (NASDAQ:COCO) is a for-profit, post-secondary education company. The company operates colleges and corporate training centres in the United States and Canada. It offers a variety of master's, bachelor's and associate's programs through four principal operating divisions in the United States and one principal operating division in Canada. The principal divisions include Corinthian Schools division, The Titan Schools division, The Rhodes Colleges division, The CDI Education Post-Secondary Education division and The CDI Education Corporation Corporate Education division. COCO - Corinthian Colleges $17.75 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-17.50 UCS-KW OI=1193 ASK=$0.50 BUY PUT NOV-17.50 UCS-WW OI=132 ASK=$0.40 INITIAL NET-DEBIT TARGET=$0.80-$0.85 INITIAL TARGET PROFIT=$0.30-$0.45 _________________________________________________________________ BCSI - Blue Coat Systems $19.93 *** A Reader's Play! *** Blue Coat Systems (NASDAQ:BCSI) designs, develops, markets and supports proxy appliances. Based on Blue Coat SGOS, a custom, object-based operating system with integrated caching, these proxy appliances leverage existing authentication systems to enable flexible policy enforcement down to the individual user. The Blue Coat ProxySG appliances combine proxy support of most protocols with integrated uniform resource locator filtering, content security, Web-virus scanning, instant messaging control, peer-to-peer control and streaming control. In addition, the company manufactures an appliance called Director, which is used primarily to manage large numbers of ProxySG appliances in a customer's environment. BCSI - Blue Coat Systems $19.93 PLAY (very speculative - neutral/debit straddle): BUY CALL NOV-20.00 IYU-KD OI=829 ASK=$1.20 BUY PUT NOV-20.00 IYU-WD OI=40 ASK=$1.30 INITIAL NET-DEBIT TARGET=$2.30-$2.40 INITIAL TARGET PROFIT=$0.80-$1.40 ************************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 11/12/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 SIMG NOV 12.50 12.10 15.60 0.40 5.95% 3.31% NCRX NOV 25.00 24.30 27.85 0.70 5.52% 2.88% ANF NOV 32.50 32.10 44.68 0.40 2.78% 1.25% STTX NOV 25.00 24.60 27.40 0.40 3.89% 1.63% SNDA NOV 22.50 21.85 38.69 0.65 7.78% 2.97% IDBE NOV 12.50 12.15 18.58 0.35 6.44% 2.88% BVF NOV 17.50 17.05 17.10 0.05 0.60% 2.64% USG NOV 17.50 16.90 31.59 0.60 6.84% 3.55% SNDA NOV 25.00 24.50 38.69 0.50 5.67% 2.04% WEBX NOV 20.00 19.60 25.06 0.40 5.75% 2.04% ENER NOV 15.00 14.40 17.95 0.60 8.11% 4.17% DRIV NOV 25.00 24.35 38.70 0.65 6.81% 2.67% PLMD NOV 30.00 29.55 34.75 0.45 3.33% 1.52% CNCT NOV 22.50 22.10 29.92 0.40 4.68% 1.81% CCBI NOV 22.50 21.90 23.86 0.60 5.51% 2.74% EYET NOV 35.00 34.45 42.71 0.55 5.17% 1.60% USG NOV 17.50 17.15 31.59 0.35 6.12% 2.04% RIGL NOV 22.50 21.85 28.10 0.65 8.14% 2.97% MCD NOV 27.50 27.15 30.50 0.35 2.99% 1.29% FARO NOV 20.00 19.60 24.26 0.40 5.67% 2.04% NOVN NOV 20.00 19.60 22.80 0.40 4.88% 2.04% VRSN NOV 20.00 19.65 30.26 0.35 4.40% 1.78% SSNC NOV 20.00 19.55 22.99 0.45 5.71% 2.30% CKFR NOV 30.00 29.40 34.55 0.60 4.91% 2.04% OSTK NOV 35.00 34.60 60.20 0.40 4.10% 1.16% GBBK NOV 30.00 29.40 31.24 0.60 5.01% 2.04% KRON NOV 45.00 44.50 49.44 0.50 3.10% 1.12% MRVL NOV 23.75 23.35 30.80 0.40 5.59% 1.71% AGIX NOV 20.00 19.70 35.05 0.30 4.50% 1.52% AFCO NOV 20.00 19.55 23.22 0.45 6.68% 2.30% TSRA NOV 25.00 24.70 33.24 0.30 4.18% 1.21% SRDX NOV 25.00 24.50 29.52 0.50 5.79% 2.04% ELN NOV 22.50 22.05 30.01 0.45 6.53% 2.04% XMSR NOV 30.00 29.45 33.88 0.55 5.48% 1.87% ENDP NOV 20.00 19.55 21.73 0.45 6.72% 2.30% LNG NOV 20.00 19.45 44.35 0.55 8.61% 2.83% USG NOV 20.00 19.50 31.59 0.50 8.45% 2.56% EDS NOV 20.00 19.65 21.87 0.35 5.49% 1.78% MANT NOV 17.50 17.05 23.73 0.45 9.65% 2.64% NTMD NOV 17.50 17.25 19.73 0.25 6.12% 1.45% A NOV 22.50 22.10 22.58 0.40 5.86% 1.81% SCHN NOV 26.60 26.15 34.05 0.45 5.81% 1.72% CYTC NOV 25.00 24.60 26.98 0.40 5.27% 1.63% USG NOV 20.00 19.70 31.59 0.30 6.65% 1.52% TSRA NOV 22.50 22.30 33.24 0.20 5.12% 0.90% FARO NOV 22.50 22.10 24.26 0.40 7.61% 1.81% NTAP NOV 22.50 22.15 25.30 0.35 6.52% 1.58% VAR NOV 37.50 37.15 40.67 0.35 3.87% 0.94% DOX NOV 22.50 22.25 26.81 0.25 5.00% 1.12% ROST NOV 25.00 24.70 27.99 0.30 4.78% 1.21% JNPR NOV 25.00 24.70 28.50 0.30 4.89% 1.21% LNG NOV 22.50 22.15 44.35 0.35 8.04% 1.58% SFNT NOV 30.00 29.60 35.59 0.40 6.06% 1.35% ELN NOV 22.50 22.25 30.01 0.25 5.96% 1.12% YHOO NOV 35.00 34.60 37.80 0.40 5.30% 1.16% XMSR NOV 30.00 29.65 33.88 0.35 5.65% 1.18% SHPGY NOV 27.50 27.15 29.51 0.35 5.67% 1.29% MRVL NOV 25.00 24.65 30.80 0.35 7.34% 1.42% ANF NOV 35.00 34.55 44.68 0.45 6.35% 1.30% USG NOV 25.00 24.70 31.59 0.30 8.75% 1.21% DDS NOV 22.50 22.00 25.00 0.50 14.05% 2.27% RDEN NOV 22.50 22.25 25.00 0.25 7.08% 1.12% USPI NOV 35.00 34.60 37.76 0.40 7.21% 1.16% RIGL NOV 22.50 22.20 28.10 0.30 9.75% 1.35% ELN NOV 22.50 22.15 30.01 0.35 13.38% 1.58% VTIV NOV 17.50 17.00 19.40 0.50 17.33% 2.94% NTMD NOV 20.00 19.60 19.73 0.13 5.49% 2.04% MYGN DEC 17.50 17.05 19.71 0.45 5.52% 2.64% VTIV DEC 17.50 17.05 19.40 0.45 5.46% 2.64% IFLO DEC 15.00 14.55 18.99 0.45 6.89% 3.09% SEAC DEC 17.50 16.95 19.51 0.55 7.02% 3.24% ADLR DEC 12.50 12.10 14.13 0.40 6.88% 3.31% UTHR DEC 25.00 24.05 36.97 0.95 9.03% 3.95% RIGL DEC 20.00 19.70 28.10 0.30 4.02% 1.52% NFLD DEC 15.00 14.45 16.60 0.55 8.24% 3.81% Although currently profitable, positions in Palomar Medical (NASDAQ:PMTI) and Energy Conversion Devices (NASDAQ:ENER); at $17.50, as well as Ditech Communications (NASDAQ:DITC) and Telular (NASDAQ:WRLS) have previously been closed to limit potential losses. Nitromed (NASDAQ:NTMD) is among the most obvious "early-exit" candidate in the portfolio. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield BRCM NOV 35.00 35.35 29.33 0.35 4.44% 0.99% LLTC NOV 40.00 40.60 38.05 0.60 3.74% 1.48% SINA NOV 35.00 35.35 37.50 (2.15) 0.00% 0.99% * IVX NOV 20.00 20.75 14.92 0.75 9.51% 3.61% PLMO NOV 40.00 40.45 36.30 0.45 5.62% 1.11% SLXP NOV 20.00 20.65 17.94 0.65 8.83% 3.15% AOC NOV 25.00 25.25 20.66 0.25 3.93% 0.99% CVH NOV 50.00 50.60 47.48 0.60 4.46% 1.19% DSPG NOV 22.50 22.85 22.70 0.15 2.67% 1.53% RNR NOV 50.00 50.65 49.65 0.65 3.51% 1.28% GIVN NOV 40.00 40.45 29.94 0.45 5.86% 1.11% ARW NOV 25.00 25.40 24.50 0.40 5.82% 1.57% TACT NOV 30.00 30.50 22.00 0.50 10.16% 1.64% NVTL NOV 25.00 25.20 20.16 0.20 6.99% 0.79% ASKJ NOV 30.00 30.35 25.65 0.35 8.26% 1.15% LSS NOV 30.00 30.20 28.77 0.20 6.51% 0.66% DITC NOV 25.00 25.25 17.46 0.25 8.20% 0.99% DISH NOV 32.50 32.90 32.45 0.40 6.30% 1.22% PTP NOV 30.00 30.60 29.68 0.60 13.28% 1.96% LEND NOV 40.00 40.55 39.44 0.55 9.31% 1.36% UVN NOV 30.00 30.25 29.93 0.25 5.54% 0.83% MNST DEC 30.00 30.60 28.51 0.60 4.91% 1.96% FOSL DEC 30.00 30.50 28.21 0.50 4.16% 1.64% SLAB DEC 35.00 35.55 31.38 0.55 4.84% 1.55% Positions in Americredit (NYSE:ACF), Cabot (NYSE:CBT), Ii-Vi (NASDAQ:IIVI), Lam Research (NASDAQ:LRCX), Hyperion Solutions (NASDAQ:HYSL), UCI Inc. (NASDAQ:UICI), U.S. Steel (NYSE:X), and United Surgical (NASDAQ:USPI) have previously been closed to limit potential losses. Sina Corp (NASDAQ:SINA) is an exit candidate after Thursday bullish activity. A number of issues remain on the "watch" list for the last week of the November options expiration. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 RMBS 19.10 DEC 17.50 BNQ-XW 0.75 599 16.75 34 4.0% 9.9% TSRA 33.24 DEC 25.00 TJQ-XE 0.65 163 24.35 34 2.4% 8.0% ATI 21.26 DEC 20.00 ATI-XD 0.65 50 19.35 34 3.0% 7.4% MRVL 30.80 DEC 25.00 UVM-XE 0.40 1495 24.60 34 1.5% 5.2% ELN 30.01 DEC 22.50 ELN-XX 0.35 6299 22.15 34 1.4% 4.9% AGIX 35.05 DEC 20.00 AUB-XD 0.40 946 19.60 34 1.8% 4.8% VTS 23.14 DEC 20.00 VTS-XD 0.35 0 19.65 34 1.6% 4.8% ERICY 33.35 DEC 30.00 RQC-XF 0.40 13K+ 29.60 34 1.2% 3.4% 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. _________________________________________________________________ RMBS - Rambus $19.10 *** Bottom Fishing! *** Rambus (NASDAQ:RMBS) creates a range of chip-to-chip interface technologies that enhance the performance and cost-effectiveness of its customers' semiconductor and system products. The firm's interface solutions can be grouped into two major categories, memory interfaces and logic interfaces. Memory interfaces provide an interface between memory chips and logic chips. Logic interface solutions provide an interface between two logic chips. These advanced chip-to-chip interface solutions increase the data transfer rate between semiconductor chips, improving performance and reducing systems costs. RMBS - Rambus $19.10 DEC 17.50 BNQ-XW LB=0.75 OI=599 CB=16.75 DE=34 TY=4.0% MY=9.9% _________________________________________________________________ TSRA - Tessera Technologies $33.24 *** New All-Time High! *** 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 $33.24 DEC 25.00 TJQ-XE LB=0.65 OI=163 CB=24.35 DE=34 TY=2.4% MY=8.0% _________________________________________________________________ ATI - Allegheny Technologies $21.26 *** Steel Sector *** Allegheny Technologies (NYSE:ATI) is a diversified producer of specialty materials in three major business segments: flat-rolled products, high-performance metals and industrial products. The company produces, converts and distributes stainless steel, and specialized alloys, tungsten powder, tungsten carbide materials and carbide cutting tools. The company produces large grey and ductile iron castings and carbon alloy steel forgings. ATI - Allegheny Technologies $21.26 DEC 20.00 ATI-XD LB=0.65 OI=50 CB=19.35 DE=34 TY=3.0% MY=7.4% _________________________________________________________________ MRVL - Marvell Technology $30.80 *** 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 $30.80 DEC 25.00 UVM-XE LB=0.40 OI=1495 CB=24.60 DE=34 TY=1.5% MY=5.2% _________________________________________________________________ ELN - Elan Corporation $30.01 *** Drug Speculation! *** 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 $30.01 DEC 22.50 ELN-XX LB=0.35 OI=6299 CB=22.15 DE=34 TY=1.4% MY=4.9% _________________________________________________________________ AGIX - AtheroGenics $35.05 *** Pure Premium-Selling! *** AtheroGenics (NASDAQ:AGIX) is a research-based pharmaceutical firm focused on the discovery, development and commercialization of novel drugs used to treat chronic inflammatory diseases, including heart disease (atherosclerosis), rheumatoid arthritis, organ transplant rejection and asthma. The company has developed a vascular protectant technology platform to discover drugs to treat these types of diseases. Based on this platform, it has four drug development programs in the clinic and is pursuing a number of other preclinical programs. AGIX - AtheroGenics $35.05 DEC 20.00 AUB-XD LB=0.40 OI=946 CB=19.60 DE=34 TY=1.8% MY=4.8% _________________________________________________________________ VTS - Veritas DGC $23.14 *** Upgrade = Rally! *** Veritas DGC (NYSE:VTS) provides integrated geophysical services to the petroleum industry worldwide. Its many customers include national and independent oil and gas firms that use geophysical technologies to identify new areas where subsurface conditions are favorable for the production of hydrocarbons, determine the size and structure of previously identified oil and gas fields and optimize development and production of hydrocarbon reserves. VTS - Veritas DGC $23.14 DEC 20.00 VTS-XD LB=0.35 OI=0 CB=19.65 DE=34 TY=1.6% MY=4.8% _________________________________________________________________ ERICY - LM Ericsson $33.35 *** Target An Entry Point! *** LM Ericsson (NASDAQ:ERICY) develops and supplies end-to-end solutions to network operators for mobile and fixed-line communications. The firm offers mobile platform technology for handset manufacturers and a wide variety of technology, equipment and services for private-enterprise networks, as well as for special applications, such as radar, cables and mobile devices. ERICY - LM Ericsson $33.35 DEC 30.00 RQC-XF LB=0.40 OI=13008 CB=29.60 DE=34 TY=1.2% MY=3.4% 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ APPX - American Pharma Partners $29.53 *** Range-Bound? *** American Pharmaceutical Partners (NASDAQ:APPX) is a specialty drug company that develops, manufactures and markets injectable pharmaceutical products, focusing on the oncology, anti-infective and critical care markets. The company is one of the largest producers of injectables, with more than 130 generic products in more than 350 dosages and formulations. APPX - American Pharma Partners $29.53 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 35 AQO-LG 415 0.60 35.60 7.7% 1.7% _________________________________________________________________ DIGE - Digene $20.69 *** Downtrend Intact! *** Digene (NASDAQ:DIGE) develops, manufactures and sells proprietary gene-based testing systems for screening, monitoring and diagnosis of human diseases. Its primary focus is in women's cancers and infectious diseases. The firm has applied its proprietary Hybrid Capture technology to develop a unique diagnostic test for human papillomavirus, which is the primary cause of cervical cancer and is found in greater than 99% of all cervical cancer cases. In addition to its HPV Test, the company's product portfolio includes gene-based tests for detecting chlamydia, gonorrhea, hepatitis B virus and cytomegalovirus. DIGE - Digene $20.69 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 25 QDG-LE 397 0.30 25.30 6.0% 1.2% _________________________________________________________________ MDCO - The Medicines Company $25.64 *** Mediocre Outlook *** The Medicines Company (NASDAQ:MDCO) operates as a pharmaceutical company selling and developing products for the treatment of hospital patients. MDCO acquires, develops and commercializes biopharmaceutical products that are in late stages of development or have been approved for marketing. The company began selling Angiomax, its lead product, in U.S. hospitals in January 2001 as an anticoagulant replacement for heparin. MDCO is developing Angiomax for additional potential hospital applications as a procedural anticoagulant and for use in the treatment of ischemic heart disease. MDCO - The Medicines Company $25.64 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. 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